If your share platform did a Madoff

Glen_Clark

I have no reason to think there is, but what if there was a Madoff type of Ponzi fraud and the shares in your nominee account didn't exist?
Looking at x-o investor protection there appears to be a limit of £85k on cash deposits same as a bank, but a limit of £50k on UK Securities :eek:

or am I missing something here - link: http://www.x-o.co.uk/investor-protection.htm

Totton

As far as I know it is 50k on investments. When I queried this a few years back with Hargreaves Lansdown, their response was along the lines of my risk being spread around the various fund companies etc.

Looking today I found the following quite comprehensive explanation from them - http://www.hl.co.uk/investment-services/vantage-service/how-safe-is-your-investment

I guess they get asked many times about this :-)

talexuser

I believe the £50k is (registered) industry wide, and the equivalent scheme of the 85K license cash compensation?

lvader

I was always under the impression that you would still own all the individual shares in stocks and funds even if the platform provider went bust. Any cash in the account would be at risk.

Glen_Clark

lvader wrote: »

I was always under the impression that you would still own all the individual shares in stocks and funds even if the platform provider went bust. Any cash in the account would be at risk.

Sure, but what if the platform did a Madoff - instead of buying the shares they simply trousered your money and set up a bogus webpage saying you have x number of shares - which you can't check because there is no certificate - just like Madoff did.

lvader

I'm guessing Madoff didn't have an online platform for buying and selling shares, I think that would be hard to fake.

Glen_Clark

lvader wrote: »

I'm guessing Madoff didn't have an online platform for buying and selling shares, I think that would be hard to fake.

How would an online 'platform' prevent them trousering your money and giving you a fictitious document listing non existent shares like Madoff did?

bowlhead99

lvader wrote: »

I'm guessing Madoff didn't have an online platform for buying and selling shares, I think that would be hard to fake.

Expensive, but feasible to hook up a computer system to a live streaming market data source. Not really hard, given that virtual account portfolio or "trial" services exist. You would just need to produce contract notes every time someone 'bought' or 'sold' something. People would sell and redeem out every so often and you could pay them, if you had enough coming in from other investors which was destined for your nominee account compared to people wanting physical certificates or wanting to transfer out in specie.

Clearly it wouldn't work if you had a reputable auditor but if your brother in law ran a corrupt or incompetent audit firm to give you the sign off...

lvader

Glen_Clark wrote: »

How would an online 'platform' prevent them trousering your money and giving you a fictitious document listing non existent shares like Madoff did?

Because it would require a lot of people to be in on the fraud, not impossible but much less likely.

Biggles

lvader wrote: »

Because it would require a lot of people to be in on the fraud, not impossible but much less likely.

Or, maybe, one very good website and software engineer?

badger09

bowlhead99 wrote: »

Expensive, but feasible to hook up a computer system to a live streaming market data source. Not really hard, given that virtual account portfolio or "trial" services exist. You would just need to produce contract notes every time someone 'bought' or 'sold' something. People would sell and redeem out every so often and you could pay them, if you had enough coming in from other investors which was destined for your nominee account compared to people wanting physical certificates or wanting to transfer out in specie.

Clearly it wouldn't work if you had a reputable auditor but if your brother in law ran a corrupt or incompetent audit firm to give you the sign off...

:eek: My day just got so much brighter :eek:

Oh well, at least I have my holiday in Gloucestershire and Somerset to cheer me up :cool: