LC&F -- Help! 😢

Aretnap

Silly_Shirl wrote: »

Why aren't trading standards involved with outright lies?
There's obviously NO 'security', hence they've finally been exposed as unfair and misleading.

As above, there is "security". It's just that the existence of "security" does not mean that the investment is "safe".

As a simple example, imagine that you lend money to a company, say "London and Black Renewables", which in turn lends it to a widget manufacturer. But what if the widget manufacturer can't repay the loan? Don't worry L&BR tells you, all our loans are fully asset-backed. So you sleep soundly in the knowledge that even if the Widgets Ltd goes bust, your money is secured against its assets. Great.

Now, what sort of assets is a widget manufacturer likely to own? The most obvious one would be a widget factory. So the loan of say £1million is secured against its factory, which is conveniently valued at £1million - the price another widget manufacturer might pay for it in an unpressurised sale.

Now fast forward a couple of years. The market for widgets has taken a downturn, widget sales are falling, our manufacturer is going bust and cannot repay the loan. So L&BR take possession of the factory and will sell it to get your money back.

But wait a moment - who is going to buy a widget factory at a time when widget sales are in freefall and widget manufacturers are going bust left right and centre? Probably nobody. I suppose they might find someone who wants to buy it to turn it into a dongle factory, or office space. But converting it will cost money, and that reduces the likely selling price. And if widget sales have fallen because of a general economic downturn, there might not be much demand for dongle factories or office space either. Add in the fact that a company which is struggling financially has probably had to cut corners with maintenance, so by the time it finally goes bust the factory is in less than perfect condition. Then add in the fact that in a bankruptcy scenario the factory will inevitably be priced for a quick sale, and realistically it's not going to raise anything like that nice reassuring figure of £1million, especially after you deduct the costs of the sale itself. All of that means that you're looking at losing a significant chunk of your money, even with the factory as security.

In other words a loan can be 100% asset backed, and still come with considerable risk. And that's in the best case scenario where the loan is secured against a genuine bricks and mortar asset, with a realistic valuation, and 20% of your money hasn't been hived off in commission to some dubious middleman before it even gets loaned out. An asset is anything of value - it does not have to be bricks and mortar, or even physical property. You could find that your "asset backed" loan is secured against shares in a company (whose value may go up or down), or against other loans (which may or may not be repaid), etc. etc.

So a company like LC&F can truthfully say that their loans are secured - but that security might offer nowhere near as much safety as an unsophisticated retail investor would assume. Which is why investments like this should never be marketed to unsophisticated retail investors, or worse still, in a way which implies that they're somehow similar to a savings account. The real scandal is that they were marketed like that - and that similar investments are still being marketed like that. If there was outright fraud involved, that's another scandal. But at the moment we don't know that there was outright fraud (whatever suspicions we might have) - the investment itself could have been 100% legitimate and still have lost most or all of your money.

Silly_Shirl

Very insightful. Thank you for your explanation.
Yeah I get that... c'est la vie!

Aretnap

Actually, as an addendum to that last post, let's go a step further.

How does this sound as a proposition? You lend me £1000. I agree to pay you back £1100. Then I go to the casino and put it all on red. If red comes up, great - I now have £2000, so I pay you back your £1100 and trouser the £900 that I've just made out of thin air. If black comes up I say "sorry old chap, that was careless of me, I'm afraid I've lost the money and can't pay you back".

From what we can tell of LC&C's business model, at least some of it looks to have been.similar to this. They weren't literally going to the casino, but they were taking speculative punts (via intermediary companies) on near bankrupt oil companies and Cornish holiday villages Things that no sane person would invest too much of their own money in, but why not take a chance with someone else's money?

That aspect of the business at least is not necessarily fraudulent. They were doing roughly what they told borrowers they would do. It's just that, as with the casino example, the nature of the scheme means that virtually all of the risk can be loaded onto the poor investor, while most of any reward accrues to the directors and shareholders of the investment company and its intermediaries.

Again this is all fine in theory if it's marketed at sophisticated investors who understand the nature of the product and for some unfathomable reason want to invest in it anyway. In practice however very few sophisticated investors would choose to invest in such a a one-sided, opaque scheme... so actually they are sold to pensioners who think that because they're "asset backed" they're as safe as or nearly as safe as bank accounts.

londoninvestor

Aretnap wrote: »

Actually, as an addendum to that last post, let's go a step further.

How does this sound as a proposition? You lend me £1000. I agree to pay you back £1100. Then I go to the casino and put it all on red. If red comes up, great - I now have £2000, so I pay you back your £1100 and trouser the £900 that I've just made out of thin air. If black comes up I say "sorry old chap, that was careless of me, I'm afraid I've lost the money and can't pay you back".

And, win or lose, the casino owner pays £400 to your mate's company.

David_Evans

If a legitimate listed company (eg IOG) was found to be borrowing money from a dodgy source (eg LCF) - could that make IOG a target for short sellers?

David_Evans

Aretnap wrote: »

Actually, as an addendum to that last post, let's go a step further.

How does this sound as a proposition? You lend me £1000. I agree to pay you back £1100. Then I go to the casino and put it all on red. If red comes up, great - I now have £2000, so I pay you back your £1100 and trouser the £900 that I've just made out of thin air. If black comes up I say "sorry old chap, that was careless of me, I'm afraid I've lost the money and can't pay you back".
.

That trick could work fine 99 times.
Until you get to investor number 100, who just happens to be a criminal.
He doesn't care about your casino story. That's your problem. He wants his money back from you.

Most people aren't criminals. They're law abiding and will reluctantly accept that they gambled and lost.
But eventually you'll probably upset the wrong person - because the victims in this are being chosen remotely - via the internet.

jimjames

David_Evans wrote: »

If a legitimate listed company (eg IOG) was found to be borrowing money from a dodgy source (eg LCF) - could that make IOG a target for short sellers?

It's already a penny share company with debts above its market cap so probably tricky to short any more

AnotherJoe

Silly_Shirl wrote: »

…"there was a questionnaire you had to go through which pledged you were not putting more than 10% of your wealth into these bonds?"

I didn't get that questionnaire when I invested?
.

If you look at the original / main LC&F thread at post 15 it's clear there was something you had to certify, probabiy a tick box saying you qualify that you just ticked without reading the linked details, where you agreed you wouldn't be putt8ng more than 10% your investments into this scheme.

Silly_Shirl wrote: »

Although, the bit I don't get, is they paid up my interest payments perfectly before the administrators moved in, so it's not as if they defaulted anyone, and as soon as they froze their assets, a financial company would be bound to go into liquidation!
By the time the administrators cream off their bit now... won't be much left to go around, and my friend's FA said there would be nothing left for us little people.

Only if the company was a disguised ponzi scheme using new investors money to pay off old investors. Otherwise the income from all their investments would continue to flow in and they would be able to carry on.

Had the authorities taken action sooner maybe you wouldn't have been suckered in and by taking action now, even if late, they've prevented further people falling for it.

Silly_Shirl

Yes, I've been told this was a Ponzi scheme.
The letter of explanation promised by LCF two weeks ago 'within days' has yet to arrive. Like all their other lies!
No fool like an old fool, huh.

Silly_Shirl

...and my signature on another forum used to be "never test the depth of the water with both feet" :rotfl: