London Capital and Finance

rr755507

masonic wrote: »

And the people on the phone were probably working for Surge Financial, not LCF.

Indeed. It seems Surge Financial were very {text removed by MSE Forum Team} with the information given to punters. A common tale was that the investment had FSCS protection upto 50K.

AKRev01

They can’t get away with syphoning off 25% of investors money to a third party surely?

“It is very important for the Administrators to confirm that, in the event the Bondholders do not receive a full return on their investments (plus interest) the Administrators will take the appropriate legal actions against any and all parties which are found to have caused loss to the Bondholders through any improper actions.”

Isn’t this an improper action?

Catrina777

Some potential investors who called into the Brighton office were told they lent money to 200 companies, as was someone else on the phone

bail-in

Regarding online website statements by LCF directors as to SME commercial loans borrowers re loan numbers. Going back in time It was difficult to find evidence for the marketing team claim that LC&F had lent £15 million to some 120 SMEs secured on £33 million asset value since launch of the mini-bond. These figures from 2016 were out of date then by a few months. As of June 2017, the LC&F website stated in excess of £66 million loans with over £215 million value of asset security. Up to that latter date LC&F stated no borrowers had defaulted on the loans.

The main LCAF website was updated regularly, in the form of one sentence, as to the number of commercial borrowers and amounts lent. I remember announcements which later went up to 400 SME borrowers as far as I can recall. I doubt such uploading and removing loan number updates would be found in the current archived web pages of LCF. Bondholders here in this thread mention these growing numbers of SME borrowers as they would have also seen the LCF updates on the website. On the lcaf.co.uk site the minimum SME loan application was £500,000. At that figure 260 million lent to SMEs would be 520 loans and more if relent. In 2018 the directors stated that they changed to lending to large businesses.

masonic

AKRev01 wrote: »

They can’t get away with syphoning off 25% of investors money to a third party surely?

“It is very important for the Administrators to confirm that, in the event the Bondholders do not receive a full return on their investments (plus interest) the Administrators will take the appropriate legal actions against any and all parties which are found to have caused loss to the Bondholders through any improper actions.”

Isn’t this an improper action?

The administrators have stated that Surge Financial acted as an underwriter for the loans. In other words, Surge Financial funded the loan to the borrower using its own capital, giving 75% of the capital to the companies and charging 25% in fees. So the company takes out a loan for say £1m, Surge gives it £750k after fees, but it owes Surge £1m plus interest.

Then LCF sells bonds to investors worth £1m. It uses the money to buy the £1m debt from Surge piece by piece until all of the debt is owned by LCF, and LCF owes an equal amount to bondholders.

So Surge has not siphoned off investors' money. If a bondholder lends LCF £5,000, then LCF has used that money to buy £5,000 of debt from Surge and that £5,000 of debt corresponds to £5,000 of debt of an underlying borrower. These would not constitute the necessary improper actions alluded to in the quoted passage above.

It's worth remembering that bondholders have no regulatory protection, but borrowers do have regulatory protection. If the loans are found to be improper then this could be bad for bondholders. In the worst case, it could be determined that the loans are invalid and borrowers would only have to repay the 75% capital they actually received (including any repayments they have already made), with the other 25% plus interest being waived. I'm not saying this is likely, but it is possible. It's good that borrowers are currently cooperating with the administrators and appear not to be challenging their loan contracts.

masonic

bail-in wrote: »

Regarding online statements as to SME commercial loans borrower numbers, from the London Capital and Finance Mini-bond Review Part 1:

"Turning to loan numbers. It is difficult to find evidence for the marketing team claim that LC&F have lent approximately £15 million to approximately 120 small and medium sized business enterprises (smes) secured on £33 million asset value since launch of the mini bond. These figures from 2016 are out of date by a few months. As of June 2017, the LC&F website states in excess of £66 million invested with over £215 million worth of asset security. Up to that latter date LC&F state no borrowers have defaulted on the loans."

The main LCAF website was updated regularly, in the form of one sentence, as to the number of commercial borrowers and amounts lent. I remember announcements which later went up to 400 SME borrowers as far as I can recall. I doubt such uploading and removing loan number updates would be found in the current archived web pages of LCF. Bondholders mention the numbers of SME borrowers as they would have also seen the LCF updates on the website. On the lcaf.co.uk site the minimum SME loan application was £500,000. At that figure 260 million lent to SMEs would be 520 loans and more if relent. In 2018 the directors stated that they changed to lending to large businesses.

Bondholders will have been given documents outlining the financial promotion. These will have been approved by an FCA regulated firm and bondholders will be entitled to rely on the information they contain when making their decision to invest. If any of these documents contained a false statement about the number of borrowers or other essential details of the investment, then that would be a clear case of improper actions by LCF.

If in 2018 the lending model was changed, then we might be seeing the results of this now. If the financial promotions issued to bondholders does not make false claims, but information published prior to 2018 alludes to a different lending model, then it is unlikely this could be taken as evidence of improper actions.

It's worth also noting the re-lending businesses. These might have a large number of SME borrowers for all we know and might be from the legacy lending model. More details might be revealed in the administrators proposals.

Supercalafragalistic

So, if the seller didnt take monies upfront, will there be a case still for misselling , or are they innocent in all this? (And the advertisers?j

masonic

Supercalafragalistic wrote: »

So, if the seller didnt take monies upfront, will there be a case still for misselling , or are they innocent in all this? (And the advertisers?j

Mis-selling claims rely on regulatory protections. These bonds were unregulated products. Furthermore, Surge Financial and other advertisers are not FCA authorised and didn't need to be, so no regulatory action could be taken against them.

I'd say the situation is equivalent to someone who bought a used car from a bloke down the pub who said it was in perfect condition and hardly used, but it turned out to have no engine. Legal action could be brought against the individual for misrepresenting the goods, but evidence would be needed to support the claim.

AKRev01

masonic wrote: »

The administrators have stated that Surge Financial acted as an underwriter for the loans. In other words, Surge Financial funded the loan to the borrower using its own capital, giving 75% of the capital to the companies and charging 25% in fees. So the company takes out a loan for say £1m, Surge gives it £750k after fees, but it owes Surge £1m plus interest.

Then LCF sells bonds to investors worth £1m. It uses the money to buy the £1m debt from Surge piece by piece until all of the debt is owned by LCF, and LCF owes an equal amount to bondholders.

So Surge has not siphoned off investors' money. If a bondholder lends LCF £5,000, then LCF has used that money to buy £5,000 of debt from Surge and that £5,000 of debt corresponds to £5,000 of debt of an underlying borrower. These would not constitute the necessary improper actions alluded to in the quoted passage above.

It's worth remembering that bondholders have no regulatory protection, but borrowers do have regulatory protection. If the loans are found to be improper then this could be bad for bondholders. In the worst case, it could be determined that the loans are invalid and borrowers would only have to repay the 75% capital they actually received (including any repayments they have already made), with the other 25% plus interest being waived. I'm not saying this is likely, but it is possible. It's good that borrowers are currently cooperating with the administrators and appear not to be challenging their loan contracts.

Thank you for this - sounds like you have a good understanding of the process. What would constitute loans being determined improper?

Reaper

Wow that latest communication from the administrators suggests they are finally beginning to wake up to the problem and makes their initial rosy assessment on Moneybox look increasingly naive.

It is good the message has reached them on a couple of important topics, even if they only list them as bondholder concerns rather than expressing an opinion of their own:

We are aware of the following major concerns expressed to us:
* There are concerning connections between people currently or previously involved with LCF and people currently or previously involved with the Borrowers and subBorrowers.
...
* that there are corporate transactions involving the Borrowers and subBorrowers which involve companies with similar names, frequent name and accounting date changes, Companies House strike off notices and the same individuals.