London Capital and Finance

masonic

Malthusian wrote: »

HMRC will only be a preferential creditor for withholding tax if LCF goes into administration after April 2020.

Blimey, I hadn't realised there was such a delay in that new measure becoming effective.

masonic

Jelli wrote: »

I know the products are unregulated but does FSCS cover if a regulated company folds and then the money is lost? My limited understanding is they do, and the bonds themselves are irrelevant. I think the danger comes from the borrowers which, if they go out of business and LC&F can't make payments of principal, FSCS doesn't cover.

No. Only qualifying investments have FSCS cover. For example, regulated P2P loans made through FCA authorised firms do not have FSCS cover. Neither do unregulated bonds (which were claimed to be a form of P2P with no FSCS cover in this case).

However, LCF has Client Money permissions, so any cash held in its clients account would be covered by the FSCS if the bank in question failed, but not if someone within LCF misused it - because LCF is the borrower of your investment and the FSCS never covers investment risk.

You are correct that the risk comes from the borrowers to whom the money was re-lent by LCF, if they don't repay. The other area of risk is money borrowed from you by LCF and spent, rather than being re-lent.

verybigchris

How does HMRC define interest?

In a hypothetical ponzi scheme, could investors argue that what they've received as "interest" wasn't actually interest at all, as it was really taken out of their original capital?

masonic

verybigchris wrote: »

How does HMRC define interest?

In a hypothetical ponzi scheme, could investors argue that what they've received as "interest" wasn't actually interest at all, as it was really taken out of their original capital?

It's an interesting question that may be determined by a court if the validity of the loan agreements between LCF and the investors is challenged. There's currently no reason to believe these contracts are invalid, because they are unregulated agreements, but such a finding could cause interest payments to be treated as part-repayments of the debt. This would of course limit investor claims to the difference between what they lent and what was repaid in "interest", which if they have invested over a number of years might not be the best outcome for them. They would however be able to claim a repayment of overpaid tax from HMRC if they invested outside of an ISA.

Thinking about the relending business, this was regulated, so it is more likely that these contracts could be considered invalid if their terms did not meet regulatory requirements.

This could lead to a scenario in which the agreements between bondholders and LCF are considered valid and interest paid to them valid and taxable, whereas contracts for re-lent money from LCF to other borrowers could be deemed invalid and those debts part-satisfied by the repayments already received (which includes money thought to be interest, and fees). The net result being less money is required to be repaid by those borrowers. Which will be of no consequence of course if they cannot repay, but would reduce the amount recovered if they can.

badger09

Jelli wrote: »

Thanks sully. Hopefully nothing has been lost.

I admire your optimism, but sadly, fear it is misplaced:o

AnotherJoe

verybigchris wrote: »

How does HMRC define interest?

In a hypothetical ponzi scheme, could investors argue that what they've received as "interest" wasn't actually interest at all, as it was really taken out of their original capital?

... or more likely, someone else's? Thats how a Ponzi scheme works isnt it? Your money pays the previous investors (using that word loosely) and later investors pay you. So even for a definite ponzi, its not your specific money being returned, if you could attach a tag to each Pound or Dollar and see it entering the scheme and leave it, it would almost certainly not be seeing yours coming back to you?

I wonder if Madhoffs clients claiming back interest on the money they received from the US tax authorities on these grounds?

masonic

AnotherJoe wrote: »

... or more likely, someone else's? Thats how a Ponzi scheme works isnt it? Your money pays the previous investors (using that word loosely) and later investors pay you. So even for a definite ponzi, its not your specific money being returned, if you could attach a tag to each Pound or Dollar and see it entering the scheme and leave it, it would almost certainly not be seeing yours coming back to you?

I wonder if Madhoffs clients claiming back interest on the money they received from the US tax authorities on these grounds?

The difference here is that we are talking about a (purported) lending business and borrowers have protection from unlawful loans being made to them. If loans are successfully challenged they would become null and void. At that point, all repayments would be deemed repayments of capital.

To illustrate this point, the APRs of these loans could be over 18% - 1.5% per month is typical, so compounded and including arrangement fees it could take less than 4 years before the borrowers would have repaid more than they borrowed and there would be nothing remaining to recover.

However, none of this would apply to bondholders, whose interest would still be treated as interest from LCF under their unregulated bond contract between them and LCF.

jimjames

A lot of focus seems to have been on the FCA notice that the ISA was non compliant rather than the rest of the points the FCA raised.

In addition the risks were highlighted as being not made clear to investors so it's surprising that there still seems to be a level of trust in the company from some bondholders.

https://damn-lies-and-statistics.blogspot.com/2019/01/lcf-is-my-money-safe-clear-case-of-mis.html

FCA have also not raised the issue (yet) about how investors were qualified as high net worth before investing which I suspect will also be part of their investigation.

masonic

jimjames wrote: »

FCA have also not raised the issue (yet) about how investors were qualified as high net worth before investing which I suspect will also be part of their investigation.

The issue here is that many of them were deemed 'certified restricted investor'. As such, they may invest in and receive financial promotions relating to such high risk investments. The firm still has a responsibility to assess the appropriateness of the product. If you read through the obligations, they are not particularly onerous and the firm is entitled to rely on information provided to it, for example in a suitability questionnaire as was posted earlier in the thread, so I have my doubts LCF breached the letter of these rules.

I believe there was a recent consultation as to whether firms should be allowed to continue marketing such products to the restricted investor class, but such a decision will come too late for LCF bondholders.

billyolly

Is there any point or need to join either LCF of the Facebook groups ?