London Capital and Finance

fiisch

boo_star wrote: »

I really can't feel sorry for people in this instance.

An ISA offers 8% and everyone else is offering 1.5-1.7% tops and that isn't a massive red flag?

If something seems too good to be true, thank your lucky stars and dive in head first....?

masonic

boo_star wrote: »

I really can't feel sorry for people in this instance.

An ISA offers 8% and everyone else is offering 1.5-1.7% tops and that isn't a massive red flag?

There have been times in the past when inflation was running high and such rates were achievable. I don't think a very large number of people invested thinking it was a risk free product, although there were clearly some. Several posters in this thread stated that they understood the risks as outlined. However, the risks were much higher than disclosed because of the massive commission paid by borrowers... and the type of borrower lent to... and the small number of borrowers.

The lending model as described would have capable of generating such returns. Various P2P platforms have delivered such returns over the best part of a decade, with capital at risk of course. What is different here is that investors were lending to LCF with no idea who LCF was lending to in order to generate the promised returns, or at what interest rate. The reality of this only became known after LCF became insolvent, and once known, it was clear the model could never have worked.

As far as the product being an investment with capital at risk is concerned - the information was there for anyone willing to look beyond the advertising and "comparison sites". But investors were misled about the amount of risk they were taking on.

jimjames

masonic wrote: »

As far as the product being an investment with capital at risk is concerned - the information was there for anyone willing to look beyond the advertising and "comparison sites". But investors were misled about the amount of risk they were taking on.

I think there was a belief, due to the FCA regulation and possibly also due naming of the company, that the words they used could be trusted. So if LCF said they had assets to back loans, they had never had a default, they followed a process to select borrowers, then the belief was that these were true statements.

It's now coming to light that they were not which some of us could probably anticipate. If a company is prepared to lie and mislead to attract investors the assumption is that they are also doing the same on their other statements.

masonic

jimjames wrote: »

I think there was a belief, due to the FCA regulation and possibly also due naming of the company, that the words they used could be trusted. So if LCF said they had assets to back loans, they had never had a default, they followed a process to select borrowers, then the belief was that these were true statements.

It's now coming to light that they were not which some of us could probably anticipate. If a company is prepared to lie and mislead to attract investors the assumption is that they are also doing the same on their other statements.

Yes, investors would have likely believed the product was FCA regulated and that the clear, fair and not misleading rules applied. Technically, the purpose of requiring all financial promotions to be approved by an authorised firm is to ensure they are clear, fair and not misleading, even for unregulated investments, so this might be of little importance.

Based on what we currently know, statements made in the product literature have not been shown to be false, but the literature omits crucial details that would have revealed the risk to be much higher than assumed.

There were assets backing the loans (although these assets might not have been what an investor might naturally assume), the LTV is likely to have been as indicated (but there are huge caveats to valuations as discussed earlier in the thread), there had never been a default (but there hadn't been time to reach a point where a loan could default), there was a process to select borrowers (but what this process entailed was never disclosed), and the number of borrowers was not disclosed to bondholders (the natural assumption would be that there were substantially more than 12).

GDB2222

The 12 borrowers were mostly companies owned by the directors. They loaned the money on and charged large fees to their borrowers, I presume. Those fees ended up with the directors, most likely. There was also the 25% paid to Mr Careless to bring in the punters. I suppose that's where the 44% figure comes from.

If there was really no reasonable chance of this scheme paying the advertised returns, would that be fraudulent? Even if it is, will that help the punters? Most of the money seems to have been lost, anyway, and the directors won't have nearly enough to compensate everyone.

masonic

GDB2222 wrote: »

The 12 borrowers were mostly companies owned by the directors. They loaned the money on and charged large fees to their borrowers, I presume. Those fees ended up with the directors, most likely. There was also the 25% paid to Mr Careless to bring in the punters. I suppose that's where the 44% figure comes from.

The borrowers were mostly companies who had at least one director who was previously a director of LCF. It was Surge Financial that took the exorbitant fee and there was no connection between Surge and the LCF directors or the borrowers. Yes, the 44% figure includes repayment of the 25% the borrowing companies did not receive, but was added to their loan. But 44% is the APR for a 1 year loan. For a 5 year loan. the APR was 19% and for a 3 year loan the APR was 24.5%. There is no evidence any company took out a 1 year loan, the largest borrower took out a 3 year loan, which was due to repay this month, but may have been renewed.

Typical bridging finance loans would charge interest of about 1.5% per month plus perhaps a 5% fee, so an APR of 19% for a 5 year loan and 20% for a 3 year loan. So the overall rates were not excessively high, even though the loans were structured such that most of the cost of borrowing was the up-front fee.

There are numerous examples of companies taking out P2P loans at these rates and repaying. Some will default of course (especially if they aren't concerned about losing the assets the loan is secured on), and loans put in recovery can deliver anything from 0-100% return of capital.

If there was really no reasonable chance of this scheme paying the advertised returns, would that be fraudulent? Even if it is, will that help the punters? Most of the money seems to have been lost, anyway, and the directors won't have nearly enough to compensate everyone.

The LCF bonds and the lending business were separate, other than the fact that LCF arranged for GST to hold assets in trust for the benefit of bondholders valued in excess of their bondholdings.

It's clear that investors have been misled by the advertising, and that the financial promotions omitted important information that would have indicated the risk was higher than believed. Whether this crosses the line into fraud is debatable. What's important to realise is that bondholders have recourse only to LCF, LCF has recourse to the borrowers, and meanwhile Surge Financial is able to walk away with most of the proceeds and no clear link to any of the wrongdoing.

It's good to hear that the administrators believe they may have recourse against Surge, because that's where the money went, but it is going to be a difficult case to build.

simonineaston

chockydavid1983 wrote: »

It's hard not to feel sorry for those who've lost money here but at the same time, it's hard to understand how someone would invest significant money in something without investing an equivalent amount of time researching it.

That was exactly my thought when I heard the segment on y'days MoneyBox. Although I was sad to hear about the mother who stands to lose over £20,000, given to LCF, I had to wonder what steps she'd taken to make sure it was a wise move. She implied that the sum represented life-long savings and were destined to benefit her disabled son, all of which makes for dramatic radio, but simply serves to blur the focus when viewing her apparent lack of checks or caution. While I'm sorry for her & her son - who wouldn't be? - I'm also wondering how ordinary people get the skills necessary to navigate this sort of financial decision making... Most of us are woefully unprepared. God alone knows how much money has disappeared into inappropriate private pockets as a consequence of pension deregulation... we'll probably never know.

simonineaston

I've read as much of this thread as I can cope with and at nigh on 70 pages, its a wopper! I get the sense that a lot of wisdom re financial affairs can be with the benefit of hindsite! So, turning round and looking to the murky mists of the future, what would you experienced money folk say were the Top Half Dozen Ways to Apply Common Sense when selecting where to put my savings? I've already started to collect selected Golden Rules, but thinking about LC&F, where an attractive internet presence was (apparently) backed up by "independant" comparison sites and everything was more or less legal, how does one tell the wheat from the chaff? What's worried me about this one is amply illustrated by this very thread - if you look back at the date of the original post, you can see that years separate the first, "Will it be OK to invest in this lot?" Q. and the Money Box episode when it became pretty clear that the answer was "No!". In short, what lesson must I learn?

verybigchris

simonineaston wrote: »

I've read as much of this thread as I can cope with and at nigh on 70 pages, its a wopper! I get the sense that a lot of wisdom re financial affairs can be with the benefit of hindsite!

If you go back to the start of the thread you'll see virtually all the responses to the OP were warning him against investing in LC&F, and that was three-and-a-half years ago. There may be a little hindsight in the manner of the demise, but none of the regulars here is the least bit surprised that we are where we are.

masonic

simonineaston wrote: »

So, turning round and looking to the murky mists of the future, what would you experienced money folk say were the Top Half Dozen Ways to Apply Common Sense when selecting where to put my savings?

- If you don't understand the investment, don't invest.
- If it looks too good to be true it probably is.
- Don't get ideas for financial products from social media or search engines.
- Stick to comparison sites you know to be trustworthy.
- Learn what you can reasonably expect from different types of savings and investments.
- Use resources like this forum as a sounding board if you really want to move into unfamiliar territory.