A very good article in This is Money yesterday highlighted something we come across at IYE Global a lot. Most investors are aware that if they stay below the Financial Services Compensation Scheme threshold – currently £85,000 per bank – their savings are protected.
But what about other investments, indeed, what about your pension which can be a far greater figure and significantly more important for retirement?
The FSCS limit for investments is £50,000 per firm you invest with. An important note here, this doesn’t cover you if the value of your shares or funds falls, but for such things as bad advice, mis-selling and maladministration.
The Financial Conduct Authority’s recent report into investment platforms revealed that out of their average investable assets of £260,000, the average customer held £91,000 on a platform.
TailorMade Independent (TMI) was an unregulated company based in Cheshire and run by Alistair Burns who was fined and banned by the Financial Conduct Authority back in December 2016 for failure to provide suitable advice to clients and for failing to ensure effective management of conflicts of interest.
As of 25 April 2018, the Financial Services Compensation Scheme received and accepted 1,371 claims against TMI, with compensation totalling over £55.6 million. However, because of the £50,000 compensation limit, the FSCS was unable to cover all the losses, which totalled over £106.5 million.
At IYE Global we investigate a number of potential investments that would fall into the realm of a Ponzi scheme. In all cases, we report our findings to the relevant lawful authorities for criminal investigation and prosecution but what exactly is a Ponzi scheme and how do these schemes work?
Another day, another PONZI scheme
Freddy David the Managing Director of the now-defunct HBFS Wealth Management swindled his clients out of £14.5 million to fund his gambling addiction, as well as paying for his children’s school fees and exotic family holidays.
Freddy a financial adviser took the money from 55 people, many of whom were friends, in the Jewish community, some of who are now left destitute. Sums between £20,000 and £750,000 were individually invested.
The recent Ronaldo tax case is a very interesting study. There is no question Ronaldo was acting on the advice of his professional advisors, yet he, not his advisors is the one left with a criminal conviction, a two-year suspended jail sentence and a payment for €18.9 million (£16.8 million) to settle his tax fraud case with Spanish authorities.
Ronaldo was accused last year of not paying €14.8 million in taxes between 2011 and 2014 using a shell company in the British Virgin Islands to disguise income earned on his image rights.
Ronaldo was shown to have benefited from a British Virgin Islands (BVI) company.
This was used to receive image royalties, prior to his becoming resident in Spain, allowing him to avoid income tax on foreign income.
IYE Global’s legal team is based in Monaco. They have considerable experience of English and EU commercial law. A recent IYE Global case involved a UK transport company being contacted by a company from the USA. They claimed they were looking to expand their operation from the USA into the UK and EU and were looking for a ‘partner’ company to help them.
When it’s a clone
One of our clients recently asked us to investigate an investment they were considering. Within moments we knew something was wrong as the website our client had first looked at for the ‘offer’ looked wrong. A little digging later and we realised there were literally thousands of similarly cloned websites.
The Wall Street Journal published an article in May about a financial adviser in Beverly Hills, California named Ray Kay who had promoted via Radio advertising a supposedly high-yield, low-risk investment. Unfortunately, the company behind the investment is now in bankruptcy and is being investigated as a Ponzi Scheme. Mr Kay himself, it turns out, was “barred from the securities industry for allegedly running a fraud, and later fined $5,000 for breaking that ban.” The challenge for investors, however, was that when he was prosecuted for those offences he was known as Raymond. L Kotrozo. Changing names is a common tactic employed by fraudsters.
Background on Ponzi Schemes
Ponzi schemes can be complex, even when they operate on a relatively small scale. They can be run by a single person or group & to keep the scam going, those behind the plan convince numerous victims that they’re investing in a legitimate fund that promises great returns. Then the scam artists take money from new “investors” and use it to pay off existing investors. But for the scam to truly work for everyone’s benefit, the orchestrators would need access to an infinite supply of new victims.
Despite success by the Financial Conduct Authority and Police in prosecuting Boiler room operations, the fact that such easy money can be made from these criminal acts means this type of scam is on the increase.
The scams work by presenting clients with shares or bonds, which are in fact worthless. The initial approach can be a cold-call, or it could be via advertising in newspapers, magazines or on social media, direct letters, or even seminars where an offer is made to buy or sell shares or bonds for a significant return.
These scams work well with even seasoned investors being caught out. The police recently recorded one individual who lost £6 million from such a scam. As ever, the devastation left behind for those caught out can be dreadful.