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The Financial Ombudsman has upheld complaints about the role of an authorised company in selling failed mini-bonds that cost investors millions, offering hope that they may get their money back.
Secured Energy Bonds collapsed in early 2015 after taking more than £7m of investors’ cash, intended to fund solar panel installations with an advertised return of 6.5pc annually. The investment itself, as with all mini-bonds, was not regulated nor protected under the Financial Services Compensation Scheme.
Administrators said the money had been used to meet cash flow shortfalls of the bond issuer, Australian firm CBD Energy, "in contravention of the purpose for which these funds were raised".
The bond’s promotional materials were approved by Independent Portfolio Managers (IPM), a company that was authorised by the Financial Conduct Authority (FCA) to provide regulated services. IPM also acted as a security trustee and corporate director, and without its involvement the bonds could not have been advertised to private investors.
Investors felt misled by the involvement of an FCA-regulated company, due to the legitimacy and security it appeared to afford the bond.
Initially the Financial Ombudsman Service (FOS) said that the mini-bond’s failure was not within its purview, as the investors were not considered customers of the FCA-regulated firm they wanted to complain about.
However, investors mounted a challenge, through the SEB Investors’ Action Group.
Last year, the FOS decided that it could look at the complaints against IPM.
Now two complaints have been upheld, with a final decision from the FOS. These have been described as “sample cases”, and other complainants in similar circumstances are now expecting their complaints to be upheld.
In one of its decisions, the Ombudsman said that IPM had an “ongoing role in the investment scheme” and was “central to the security and quality assurance arrangements”.
It also said that the “expertise of IPM” was used “to help sell the investment” and that the security in place for the bonds was flawed, meaning investors’ cash was secured “in effect, on nothing”.
The Ombudsman added: “This was a fundamental flaw and one which IPM should reasonably have spotted.
“The security of the bond was a fundamental part of the overall investment scheme – a central selling point, not some mere technicality.”
In these initial cases, the FOS has ordered IPM to repay the amount invested, an investment return on that sum, plus compensation. IPM had its FCA authorisation withdrawn last month.
Andrew Slaughter, MP for Hammersmith, said: “The action group has exposed basic flaws in the regulation and accountability of financial services, which allows unscrupulous companies and individuals to misuse investors’ funds with virtual impunity.
“I urge any investors who have not already lodged a complaint with the FOS to do so as a matter of urgency”
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The news also gives hope to investors in Providence Bonds, another mini-bond scheme, which collapsed in 2016. IPM was involved in the approval of the bond documents.
In the case of Providence, it was revealed by administrators that investor cash ended up in the hands of Brazilian companies linked to an alleged fraud.
Fiona Pitkeathly, a co-ordinator of the SEB Action Group, said: “With no specific sanctions to deter FCA firms from approving misleading financial promotions, they can publish whatever they like, it seems.
"This leaves the public completely unprotected and there is little doubt that without urgent regulatory change further scandals of this nature are inevitable."
There are action groups for investors in both bonds. Investors can reach them on providencebonds.iag@gmail.com and secured.energy.bonds.iag@gmail.com.
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