What you need to know about mini-bonds

The Daily Telegraph - Your Money - - YOUR MONEY -

They prom­ise huge re­turns but reg­u­la­tion is patchy and un­wary in­vestors can eas­ily be mis­led. James Con­ning­ton re­ports

The col­lapse of Providence Bonds ear­lier this month is not the first time a mini-bond has gone south and is un­likely be the last. The of­ten-con­tro­ver­sial in­vest­ments can prom­ise big re­turns, some­times ap­proach­ing 10pc. While in­vestors are told to steer clear when something looks “too good to be true”, such of­fers can prove tempt­ing when in­ter­est rates are near zero. Here we put mini­bonds un­der the mi­cro­scope and ex­am­ine the po­ten­tial prob­lems in­vestors need to look out for. only to the in­for­ma­tion me­moran­dum, not the web­site, and that it had no on­go­ing role.

The role of se­cu­rity trustee is also ob­scure. Es­sen­tially, as se­cu­rity over as­sets can­not be in­di­vid­u­ally held by ev­ery bond­holder, a mid­dle­man is re­quired. So the se­cu­rity trustee is the party that ben­e­fits from the se­cu­rity on in­vestors’ be­half in the event of de­fault. But, ac­cord­ing to one se­nior ex­pert in the field, the du­ties of se­cu­rity trus­tees vary, with the trustee’s obli­ga­tions en­tirely de­pen­dent on the word­ing of the mini­bond doc­u­ments con­cerned.

An FCA spokesman said firms were re­quired to be au­tho­rised if they un­der­took reg­u­lated ac­tiv­i­ties but that there were “spe­cific ex­clu­sions for trus­tees”. He added: “Se­cu­rity trus­tees are not gen­er­ally re­quired to be au­tho­rised for the pur­poses of act­ing in this ca­pac­ity.”

The doc­u­ment ap­prover and se­cu­rity trustee for both Providence Bonds and Se­cured En­ergy Bonds, which failed last year (see box), is In­de­pen­dent Port­fo­lio Man­agers. The firm has ig­nored re­peated re­quests for com­ment from Telegraph Money. de­liver the promised re­turns, but, as with any in­vest­ment that pays above the odds, cau­tion is ad­vised.

For in­stance, mini-bond provider Basset & Gold claims that its in­vest­ment ap­proach “af­fords a level of pro­tec­tion which ri­vals any bank or build­ing so­ci­ety”. How­ever, bank ac­counts are cov­ered by the Fi­nan­cial Ser­vices Com­pen­sa­tion Scheme, which guar­an­tees up to £75,000. No mini­bonds have FSCS cover.

A Basset & Gold spokesman said: “It is a state­ment of our be­lief. We make ab­so­lutely sure that we put in place high lev­els of se­cu­rity and guar­an­tees that are in our opin­ion as good as, if not bet­ter than, the se­cu­rity put place when banks in­vest.”

For the av­er­age in­vestor, work­ing out how the pro­tec­tion of­fered by a mini-bond com­pares with other in­vest­ment op­tions, or whether it is ad­e­quate, is a tall or­der.

An ad­ver­tise­ment for the Em­pire Prop­erty Hold­ings mini-bond, whose in­vestors have been told that their first three in­ter­est pay­ments will be de­layed, in­cludes a graphic pro­claim­ing that the bond of­fers “guar­an­teed re­turns” that head into dou­ble dig­its. The ad­vert ap­peared on the web­site of Mar­bellabased Tem­plar Set­tle­ment Ser­vices and an Em­pire spokesman said that although it had no con­trol over third­party ad­ver­tise­ments it would con­tact Tem­plar re­gard­ing the word­ing used in its ad­vert.

In­di­vid­u­als in se­nior po­si­tions who are as­so­ci­ated with past frauds, scan­dals or fail­ures should be an­other warn­ing sign to in­vestors that a bond is­suer may be sus­pect. The Com­pa­nies House database is now free to ac­cess. It can be used to look up com­pany fil­ings and find out which other firms di­rec­tors have been as­so­ci­ated with. A Google News search is also a good idea.

For in­stance, at Providence Group, the par­ent com­pany of Providence Bonds, Stephen Dews­nip, the global head of dis­tri­bu­tion, ap­pears in news re­ports and Span­ish court doc­u­ments re­lated to a prop­erty

Could Se­cured En­ergy Bonds in­vestors re­ceive some of their money back after all? In­vestors in some po­ten­tial Grant Thorn­ton failed mini-bonds as­sets, in­clud­ing is as­sess­ing is­sued by Se­cured 14mil­lion shares whether to En­ergy Bonds in BlueNRGY sell Se­cure have been of­fered Group, the En­ergy Bonds’ some hope of suc­ces­sor to SEB’s share­hold­ings in re­cov­er­ing at par­ent, which these sub­sidiaries least a por­tion of is attempting to or to place them their money in list its shares on in liq­ui­da­tion to the lat­est progress the Nas­daq stock ef­fect a sale of the report from the ex­change in New as­sets. ad­min­is­tra­tor, York. One fac­tor Grant Thorn­ton. The report said: cer­tain to limit

Ac­cord­ing to “Any po­ten­tial the amount the report, the value of the re­turned to “green” en­ergy shares is likely in­vestors is the firm, which to be de­pen­dent ex­ten­sive fees col­lapsed last upon the ap­proval in­volved in the year, still has of BlueNRGY’s ad­min­is­tra­tion of relist­ing ap­pli­ca­tion.”

Two sub­sidiaries, SEB Mer­cury and SEB Venus, also own so­lar pan­els in­stalled at six school and farm sites. Mi­nor re­pairs on the in­stal­la­tions are tak­ing place to “se­cure the best pos­si­ble sale price for the units”. a failed com­pany.

Grant Thorn­ton’s fee is dis­closed to be a fixed £55,000 for statu­tory mat­ters, in ad­di­tion to 15pc of all gross as­sets re­cov­ered. It had also in­curred time costs to July 16 of £386,000, along with nearly £100,000 in le­gal fees.

The amount out­stand­ing to bond­hold­ers is £7.5m. in­vest­ment scheme that turned sour. No wrong­do­ing on Mr Dews­nip’s part has been proved.

Telegraph Money spoke to a for­mer em­ployee of Providence In­vest­ment Man­age­ment, an­other failed part of the Providence Group. The group’s for­mer chief ex­ec­u­tive, An­to­nio Buzaneli, has had his global as­sets frozen by the US reg­u­la­tor, and the Mi­ami-based Providence Fi­nan­cial, part of the same group, has been ac­cused of se­cu­ri­ties fraud. An ini­tial report from Deloitte, the UK ad­min­is­tra­tor, claimed that the money in­vested in Providence Bonds was largely not spent on its in­tended pur­pose, and was in­stead lent to other Providence Group com­pa­nies, and other com­pa­nies in Brazil con­trolled by Mr Buzaneli.

The for­mer em­ployee painted a pic­ture of closed-door meet­ings, strong egos and a dis­re­gard for keep­ing costs down. Providence spent money spon­sor­ing events, bring­ing in big-name speak­ers such as for­mer Eng­land foot­baller Gareth South­gate. Staff, many of whom had in­vested in the firm, were ap­par­ently kept in the dark about how it was run.

The in­di­vid­ual said the com­pli­ance team at Providence In­vest­ment Man­age­ment had walked out in May. The firm’s au­di­tor, PwC, re­signed after its first au­dit.

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