Investors mis-sold inflation-busting mini-bonds from an unregulated firm which went bust at the start of April could be in line for payouts of up to £85,000, the Financial Services Compensation Scheme said.
Basset & Gold Plc, which sponsored West Ham United football club, raised as much as £36million from 1,800 investors between its founding in 2015 and its administration.
It was regulated by the Financial Conduct Authority between October 2016 and March 2018, although the mini bonds it was issuing throughout its five-year lifespan were not.
Mini-bond issuer Basset & Gold previously sponsored West Ham United Football Club (logo on the sleeve) before it went bust. It has no connection with West Ham chairman David Gold
However, it relied on a linked company, Basset & Gold Finance Ltd, to ‘help clients find safe homes for their savings’, according to its latest accounts published last April.
B&G Finance, which also went bust last week, was regulated by the FCA from 2 January 2018 onwards.
It is the latest mini-bond issuer to go bust, following the £236million collapse of London Capital & Finance in January 2019 and the restructuring of the restaurant chain Chilango, which raised millions of pounds in so-called ‘burrito bonds’.
The FSCS said: ‘From 2 January 2018, B&G Finance Ltd arranged and promoted mini-bonds on behalf of Basset & Gold Plc, which issued the mini-bonds.
‘FSCS has determined that due to mis-selling of these mini-bonds, many Basset & Gold bondholders who bought their mini-bonds through B&G Finance Ltd may be able to claim compensation up to the £85,000 limit.’
It added: ‘For FSCS to be able to pay compensation, the customer must have been mis-sold their bonds, for example, because they relied on a misleading statement about how Basset & Gold Plc was investing their money.
‘FSCS will also check which firm was responsible for the sale of the bonds.’
The official deposit protection scheme said it was investigating possible mis-selling of the mini-bonds by ‘other related firms’ which took place before the start of 2018.
According to its latest accounts, which cover the 12 months to end September 2018, the company had not suffered any delays or defaults from the companies it invested mini-bond cash in.
It made a pre-tax profit of £137,958 in 2018, with all of its £2.47million turnover coming from interest payments on loans it made.
It owed close to £1.85million to bondholders between 2018 and 2019, and another £27.2million over the next five years.
Last year it offered five-year ‘cash bonds’ paying 3.14 per cent, and 4.32 per cent paying ‘pensioner bonds’ – which were also the name of a popular savings product offered by National Savings & Investments in the mid-2010s.
But unlike savings products, mini-bonds are not usually protected by the FSCS up to £85,000 if the company issuing them goes bust.
They are unlisted, unregulated and non-transferable investment products, and have come under scrutiny from regulators since the collapse of London Capital & Finance.
This is Money warned in October 2017 that these heavily advertised ‘pensioner bonds’ were a risky investment.
The FCA has brought in a 12-month ban on ‘speculative’ mini-bonds, but firms can still issue them to raise money for themselves, as Chilango did.
The sleeve sponsor of West Ham United reportedly issued the mini-bonds to finance investments in UK lending platforms and direct loans, with a lot of the money being poured into short-term high-cost lender Uncle Buck Finance, which also recently went bust.
If previous cases are any indication, it may take a while for investors in B&G to get their money back.
Investors in a failed £7.5million mini-bond scheme called Secured Energy Bonds finally won a £5million payout from the FSCS after a four-year fight for compensation.
This is Money investigated these bonds heavily and helped investors contact each other to make a stronger case.
Meanwhile just 159 of the nearly 12,000 LCF bondholders had claims accepted by the FSCS, a verdict which has since been subject to judicial review.
Investors who bought bonds through B&G Finance Ltd, rather than B&G Plc, can submit a claim directly to the FSCS.
What you need to know before buying into bonds
* Any investor buying individual shares or bonds would be wise to learn the basics of reading a balance sheet. Read a guide here.
* When looking at bonds, research all recent reports and accounts from the issuer thoroughly. You can find official stock market announcements including company results on This is Money here.
* Check the cash flow is healthy and consistent. Also look at the interest cover – the ratio which shows how easily a firm will be able to meet interest repayments on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends on paying interest. A guide to doing investment sums like this is here.
* It is very important to find out what the bond debt is secured against, and where you would stand in the queue of creditors if the issuer went bust. This should be included in the details of the bond offer but contact the issuer direct if it is unclear.
* Consider whether to spread your risk by buying a bond fund, rather than tying up your money with just one company or organisation.
* Inexperienced investors who are unsure about how retail or mini-bonds bonds work or their potential tax liabilities should seek independent financial advice. Find an adviser here.
* If the interest rate is what attracts you to the bond, weigh up whether it is truly worth the risk involved. Generally speaking, the higher the rate on offer, the higher the risk.
* If the issuer is a listed company, before you decide whether to buy it is worth checking the dividend yield on the shares to see how it compares with the return on the bond. Share prices, charts and dividend yields can be found on This Is Money here.
* Investors should bear in mind that it can be harder to judge the risk involved in investing in some bonds than in others – it is easier to assess the likelihood of a long established company such as Tesco going bust than smaller and more specialist businesses.
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