The Times - UK (2020-09-05)

52 2GM Saturday September 5 2020 | the times

Business

5

Only four boiler room scams were pros-

ecuted by the City regulator over the

past five years, despite its warning that

people were losing their homes and

savings to “sophisticated” frauds.

The Financial Conduct Authority

(FCA) also admitted that no boiler

rooms had been shut down as a result of

its activities over the past 12 months

and could not say how many staff it had

dedicated to the problem. Consumer

campaigners said the findings showed

that the regulator was “not performing

its statutory functions”.

In boiler room scams, fraudsters call

people out of the blue to offer worth-

less, overpriced or even non-existent

assets such as shares or bonds, using

high-pressure sales tactics.

The authority says that victims can

lose “all of their savings or even their

family home”. In 2013, Tracey McDer-

mott, then the regulator’s director of

Administrators at a loss in search for £7.9m missing from Asset Life

lapsed in July last year and David Rubin

& Partners has been trying to recover

savers’ funds ever since.

Asset Life’s biggest investments were

in two unlisted companies, the Kyrgyz-

stan-focused gold explorer Aprelskoe

and Lori Iron and Steel, which has iron

ore interests in Armenia.

The administrators warned in their

latest report on Asset Life that neither

company has responded to any com-

munication sent by David Rubin. “We

are conducting further inquiries as to

the status and activities of Aprelskoe

and Lori to determine whether the

company’s investments are capable of

realisation for the benefit of debenture

holders,” they said.

The task of recovering bondholders’

funds from Asset Life has been compli-

cated by the fact the company did not

have its own bank account.

The collapse of a string of minibond

firms has created a growing scandal.

Minibonds are risky investment prod-

ucts that attract savers by offering to

pay high rates of interest.

They are not regulated by the Finan-

cial Conduct Authority which means

that investors are not protected by the

Financial Services Compensation

Scheme if the seller of the bonds fails.

Despite the risks, minibonds have

proved popular in recent years because

rock-bottom interest rates have hit the

returns from savings accounts and

other mainstream forms of investment.

London Capital & Finance was the

most high-profile of the minibond

firms to have failed. It collapsed in Jan-

uary 2019.

Asset Life had links with London

Capital & Finance. They both held

shares in a company with property in-

terests in the Caribbean and Cornwall.

Martin Binks, Asset Life’s chairman,

was also a director of London Capital &

Finance between 2015 and 2016.

Ben Martin Senior City Correspondent

PETER NICHOLLS/REUTERS

City watchdog accused of failing to

crack down on boiler room scams

James Hurley Enterprise Editor enforcement and financial crime, said
that the FCA had “very experienced
teams of people able to combat these
boiler room frauds”.
Yet when asked last month how
many people were employed in these
teams, the authority said in response to
a freedom of information (FOI) request
that it did not hold a record of the
“number of staff who work only on
share fraud or boiler room fraud”.
It said this was because while “there is
a specialist team... primarily dealing
with clones and scams (including boiler
room fraud), there are a number of
other areas across the FCA that also
deal with work related to this subject”.
In its FOI response, the FCA said
there had only been one prosecution
between 2014 and 2019, but last night it
said this was an error and that there had
been four.
Mark Bishop, who campaigns for
reform of the authority and made the
FOI request, said: “The FCA is simply

not performing its statutory functions,

and consumers are paying the price. It’s

worrying that the FCA doesn’t even

seem certain how many prosecutions

they have had.”

Most recently, six people were prose-

cuted for conning 170 investors out of

£2.8 million in 2018. A call centre con-

trolled by Michael Nascimento had told

victims they were buying shares in

businesses such as a property develop-

ment in Madeira. Many elderly and

vulnerable investors lost “life-chang-

ing” sums of money, much of which

funded Nascimento’s lifestyle.

Nascimento was sentenced to 11

years in prison. The case cost the regu-

lator £1.2 million and it said at the time

that it was the second-biggest criminal

prosecution it had undertaken, under-

lining the difficulty the FCA faces in

pursuing boiler room fraudsters.

Mark Taber, a consumer campaigner,

said the mis-selling of investment bonds

through boiler rooms had “exploded to

epidemic proportions in the UK” and

the failure “to set a deterrent is a key

reason why this has happened”.

Gina Miller, co-founder of the True

and Fair Campaign for better treatment

of investors, said boiler rooms were “yet

another area [in which] the FCA have

shown themselves to be totally inept”.

An FCA spokeswoman said: “We

have taken action against several boiler

room operations, and do all we can to

disrupt operations. Many boiler rooms

operate overseas, which means we have

no jurisdiction. In addition to issuing

warnings, we work closely with other

law enforcement agencies, including

overseas, to help take action.”

Merger set to

create Spain’s

biggest bank

Katherine Griffiths Banking Editor

Two Spanish banks are set to merge to

become the country’s largest lender, in

a deal that could trigger renewed con-

solidation among Europe’s struggling

banks.

Caixabank and Bankia will have

€650 billion in combined assets if they

agree an all-share deal in negotiations

that may be finalised within days.

Shares in both groups jumped yester-

day after the announcement. The num-

ber of lenders in Spain has fallen to 12

from 55 since the financial crisis, but

more are expected to merge or fold

under the weight of bad debts caused by

the Covid-19 pandemic.

Caixabank is Spain’s third biggest

lender after Santander and BBVA.

If the deal with Bankia goes ahead

there are likely to be branch closures

and job cuts, analysts said. Analysts at

Jefferies, the investment bank, said: “A

deal between two of the top five banks

in Spain would see a leading entity with

30 per cent market share created.”

£2.8m

Sum lost by investors in a boiler room

fraud run by Michael Nascimento

A

dministrators of

the collapsed

investment firm

London Capital

and Finance have begun

legal action against 13

executives as they seek

to recover losses on

behalf of thousands of

ordinary investors

(James Hurley writes).

Insolvency

practitioners from Smith

& Williamson are suing

the alleged perpetrators

of the LCF scandal,

which collapsed last year

having taken

£237 million from 11,600

investors.

The High Court action

alleges that investors’

money was spent on

horses, a helicopter and

memberships at

Annabel’s, an exclusive

private club. Simon

Hume-Kendall, the

Conservative Party

donor and City

businessman who

founded LCF; Spencer

Golding, a timeshare

tycoon; and Charles

Hendry, a former energy

minister, are among

those named in the legal

claim.

Administrat

ors are

seeking to

recover

£178 million

from those

named,

according

to the

Financial

Times,

which first

reported

the legal

action.

LCF was

started

in 2012.

It failed

in

January

2019

after the

Financial

Conduct

Authority

said it was

misleadingly promoting

high-risk bonds.

The funds were

purportedly for backing

business and property

deals. Administrators

allege that 60 per cent of

the money was instead

funnelled to related

parties.

The directors have

previously denied

wrongdoing.

LCF was “authorised”

by the FCA, allowing it

to promote investments,

yet the bonds it sold

were unregulated.

Administrators estimate

that bondholders stand

to lose three quarters of

their money. Mr Golding

is alleged to have

received the largest

share, at £42.8 million.

He is alleged to have

been given £1.2 million

in consultancy fees to

acquire a Eurocopter

EC135 T2, and £384,000

to buy a lorry. He could

not be reached for

comment. Mr Hume-

Kendall and his wife,

Helen, are alleged to

have received at least

£24 million.

Mr Hendry is among

defendants accused of

failing to take measures

to spot the alleged fraud,

as directors of related

companies.

Mr Hendry, a director

of London Oil & Gas,

which borrowed

£129 million from LCF,

has said the action is

“totally without merit”

and that he “always

fulfilled all my

responsibilities as an

independent non-

executive director”.

A lawyer for Mr

Hume-Kendall and his

wife, Helen, said they

“strongly deny any

wrongdoing”, the FT

reported.

Smith & Williamson

was approached for

comment.

The scandal is the

subject of an

investigation by the

Serious Fraud Office

and there is a separate

regulatory examination

of EY, PWC and Oliver

Clive & Co, LCF’s

accounting firms.

The City regulator’s

handling of the affair is

the subject of an

independent

investigation and has

prompted a crackdown

on the promotion of so-

called “mini-bonds”.

... as investors sue 13

directors in LCF failure

Doormen at Annabel’s; left, Helen and Simon Hume-Kendall; top left, LCF sponsored many events

13

The administrators trying to trace

£7.9 million that disappeared in the col-

lapse of a minibond firm last year have

hit an obstacle after their attempts to

contact the company’s two main

investments met with silence.

Asset Life sold about 700 unregu-

lated minibonds to 500 small investors

and said it would use the money it

raised to make investments. It col-