Investors who lost millions of pounds when mini-bond firm Basset & Gold failed last April are fighting for compensation for what they feel were mis-sold investments.
Some 170 bondholders who invested money between February 2017 and 2018 have complained to the Financial Ombudsman after claiming they were fobbed off by the company supposed to check-up on the failed firm’s adverts.
However, they have accused the Ombudsman of continuing to ‘dilly dally and make excuses’, with some investors saying they have waited for months to hear from it.
Basset & Gold sponsored West Ham United football club before it went bust in April 2020 costing investors £35m
Basset & Gold, which sponsored the shirt sleeves of West Ham United, fell into administration last spring, leaving 1,800 investors £35million out of pocket.
Concerns had been raised about its advertising, with the 4.24 per cent high-risk bonds likened to cash savings products previously offered to pensioners by National Savings & Investments.
They were also told money would be used to back small businesses, but almost all of it ended up in a payday loan firm called Uncle Buck, with another £100,000 put into a peer-to-peer property financing platform.
Administrators of Uncle Buck, which went bust just a few days before Basset & Gold did, have already said they don’t expect any money to be recovered from the lender.
In its latest update, posted on Companies House at the start of this month, administrators said the ‘only real prospect of recouping substantial funds is through compensation claims for the mis-selling of the mini-bonds.’
The Financial Conduct Authority said last April it ‘had concerns around the accuracy and fairness of B&G’s financial promotions of the mini-bonds’ and the Financial Services Compensation Scheme has already handed compensation payouts worth £17million to 950 investors for mis-selling found to have taken place after March 2018.
The web of mini-bond issuers, approved representatives and FCA authorised firms can be tricky to understand.
While mini-bonds are unregulated investment, marketing of bonds to casual investors is regulated.
In the case of Basset & Gold’s mini-bonds, it worked like this:
Basset & Gold Plc: The issuer of the mini-bonds, it went into administration on 1 April
Basset Gold Ltd: A trading name of B&G Plc, which ‘dealt’, ‘arranged’ or sold, B&G Plc’s mini-bonds. It was authorised by the FCA as an appointed representative between 17 February 2017 and 28 February 2018.
Its name appears on the paperwork sent to investors in this period.
Gallium Fund Solutions: A regulated investment company which for 12 months authorised Basset & Gold Plc and Basset Gold Ltd as ‘appointed representatives’.
This meant it was responsible for overseeing the marketing of the mini-bonds and ensuring they were not misleading.
Basset & Gold Finance Ltd: Authorised by the FCA from 2 January 2018 until B&G went into administration.
This replaced Gallium as the authorised company responsible for overseeing the marketing of the mini-bonds.
However, for other investors, the picture is murky.
This is because of a complex web of checks and balances and authorised and unauthorised companies involved in the selling, marketing and arranging of the mini-bonds, some of which have refused to take any responsibility.
The mini-bonds themselves were unregulated but the marketing of them was not.
From January 2018 onwards, B&G set up its own subsidiary, Basset & Gold Finance Ltd, which was authorised by the FCA.
This oversaw the marketing of the mini-bonds from March, which was altered in December 2018, with investors finally told money was largely poured into Uncle Buck the following January.
Thanks to the mis-selling which went on, some who bought the bonds from March have been compensated by the FSCS.
Before then, however, Basset & Gold’s ability to market the bonds came from acting as an appointed representative of an FCA-registered investment firm called Gallium, based in Kent.
For 12 months between February 2017 and 2018 this company was supposed to check up on B&G’s marketing and ensure it was fair and accurate, and would ultimately be responsible for the mini-bonds.
However, Gallium has consistently washed its hands of the issue. This is despite This is Money reporting during its stewardship of how these bonds were wrongly advertised as being protected by the FSCS and compared to NS&I’s Pensioner Bonds.
It wrote to investors just six days after B&G went bust to say it accepted no responsibility for their losses.
And in its latest accounts, published last November which reported a £4,125 pre-tax loss in the 12 months to the end of June 2020, it said: ‘The company is dealing with ongoing claims in relation to the activities of the company’s former appointed representatives.
‘It is the director’s opinion that there will be no liability due payable by the company.’
This is even though the FSCS has found bondholders were mis-sold under the B&G Finance Ltd regime, which for some time overlapped with Gallium’s stewardship of B&G.
A roughly 200-strong Facebook group of short-changed bondholders have taken their claims to the Ombudsman. However, they have received little joy so far.
The appointed representative system is a farce and not fit for purpose. (It’s) basically a regulatory catflap which enables fraudsters to act with a FCA authorisation badge.
One investor told This is Money: ‘The FOS continue to delay, dilly dally and make excuses as to why they are not paying the bondholders their compensation
‘At the moment the FOS have said very little other than to keep postponing the date of dealing with the issue of compensation.
‘We understand there is a pandemic and yes, we realise that there will a delay in compensation payments. The real problem, however, is the uncertainty and stress that awaiting a decision brings upon our mostly elderly bondholders.’
Complainants have said enquiries made to the FOS in November had only received an acknowledgment of their complaint, while others have been told there could be a four-to-six month wait to look into their case.
Our sister title Money Mail has previously reported how 158,000 cases have piled up at the ombudsman, one in six of which were more than a year old.
The FOS told This is Money the roughly 170 complainants were contacted in February with a letter explaining the delays. The letter said: ‘There are unusual aspects to these complaints which means we have been working more widely to understand those issues and then decide how our service will approach them.’
City watchdog bans promotion of speculative mini-bonds
The FCA slapped a permanent ban on firms pushing risky mini-bonds to ordinary investors after thousands lost money.
But there are exemptions to its marketing ban for retail bonds that are heavily traded, companies raising funds for their own commercial or industrial activities, and products which fund a single UK income-generating property investment. Read more here.
Both administrators and the Ombudsman are seeking to unpick the web of financial firms involved with the bonds, which were sold between 2016 and mid-2019.
The relationship between principal firms and appointed representatives has increasingly come in for criticism, particularly since the £236million collapse of London Capital & Finance in January 2019.
The FCA itself this week said it had found ‘significant shortcomings in principal firms’ understanding of their regulatory responsibilities for their ARs’ and was ‘increasingly seeing more examples of failings through our supervisory and enforcement work.
‘The range of harms varies considerably – from mis-selling to fraud – but they often stem from principals’ failure to oversee their ARs appropriately.’
Mark Taber, a consumer campaigner, described the system as ‘a farce and not fit for purpose’ and ‘a regulatory catflap which enables fraudsters to act with a FCA authorisation badge.’
One bondholder added: ‘I made my complaint to the FOS, as an executor of my mum’s estate, at the beginning of February. I had terrible trouble with Gallium and actually getting a proper final response from them.’
Gallium has been contacted for comment. It refused to respond to multiple requests for comment from This is Money last year.
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