Savers who were persuaded to put £47m into a property development company promising “guaranteed” returns will lose all of their investment after only a handful of homes were built and sales of the undeveloped land barely covered the firm’s debts.
Blackmore Bond, which was sold by the same company that marketed the London Capital and Finance minibonds at the centre of a £237m fraud investigation, claimed that investors’ capital was “protected” by insurance and that they would receive stable returns of 9.9 per cent from housing developments.
The case again raises questions about the failure of regulators to clamp down on high-risk investments targeted at ordinary savers.
The Financial Conduct Authority (FCA) was warned as far back as March 2017 that salespeople were targeting pensioners with high-pressure sales tactics and false claims about Blackmore. The regulator took no action.
Blackmore stopped paying dividends in October last year before finally calling in administrators Duff & Phelps in April. When they picked over Blackmore’s remains, they found just £906 in its bank account.
Several of Blackmore's 11 sites remained undeveloped. Eight have been sold, but there is unlikely to be any money left to pay back investors, Duff & Phelps said. Investors had previously been told that £5m might be recoverable.
Marketing brochures and telephone salespeople claimed that savers’ money was covered by a “capital guarantee scheme” and secured against Blackmore’s properties, meaning they would not lose out if the company got into trouble.
However, Blackmore had also taken out high-interest mortgages against the properties, leaving investors at the back of the queue behind the lenders. The insurance policies were with two little-known companies registered in Costa Rica, neither of which have paid out.
Blackmore said that this was a conventional way of increasing profits because it allowed it to take on more projects. It said it had told bondholders about the loans.
Some of the loans were taken out early this year, months after Blackmore had fallen into difficulty and stopped paying investors. During this time, Patrick McCreesh, co-founder and co-director of Blackmore, sent dozens of emails and text messages reassuring investors about the company’s finances.
The directors estimated that they would recoup £9.9m from property sales, but administrators have collected just £271,000. That money is likely to go towards Duff & Phelps’ fees, which have already hit £1.2m.
Where Blackmore did develop its sites, work was “generally of poor quality” and will have to be redone, further reducing the chances of recovering any money, Duff & Phelps said.
Despite Blackmore’s failure, co-director Phillip Nunn continues to market himself on social media as a business and cryptocurrency expert, charging £1,000 a month for an advice subscription service.
Banking whistleblower Paul Carlier told the FCA in early 2017 about what he believed to be mis-selling of Blackmore Bonds. He later escalated his concerns directly to former FCA chief executive Andrew Bailey, now governor of the Bank of England, yet no action was taken.
On Monday, Mr Carlier offered to help with any investigation into Blackmore. He said he believed that if the FCA had acted on his reports, pensioners would not have lost their savings.
The news comes as former Court of Appeal judge Dame Elizabeth Gloster delivered to the Treasury what is expected to be a damning report into the City watchdog’s oversight of the investment market, which has been plagued by an epidemic of scams costing consumers billions of pounds and ruining thousands of lives.
Dame Gloster has been leading an inquiry into how the FCA regulated London Capital & Finance (LC&F), the investment firm at the centre of a Serious Fraud Office probe after collapsing early last year with £237m of savers’ money.
LC&F was marketed by Surge, which also did sales for Blackmore. For every pound that Surge’s salespeople convinced investors to part with, the company took 20p, meaning that Blackmore and LC&F would have had to generate huge returns to pay investors the amounts promised.
LC&F investors were told their money would go into a range of companies. In fact, it was paid to a handful of firms with links to LC&F’s directors. Money was also spent on racehorses and a helicopter.
Unlike Blackmore, LC&F was authorised by the FCA. However, the regulator claims that the investments both companies sold were not regulated, meaning most savers will not be able to get their money back under the Financial Services Compensation Scheme.
Adding to the confusion, the FCA is also responsible for regulating promotions of financial products to consumers – even if it does not regulate the product itself.
Mark Taber, a campaigner who has been urging regulators to stop the flow of thousands of adverts for scam investments on Google, said the FCA must start using its enforcement powers.
“This is a reminder that the current epidemic of scam savings and bond ads on Google is not sudden, but rather because the FCA turned a blind eye for years. Blackmore bonds were heavily promoted by unauthorised fake comparison sites advertising on Google Ads.”
Mr Taber has provided the FCA with details of more than 500 adverts for potential scams this year.
He is calling for new laws requiring all investments to be registered with and checked by regulators before they can be sold, as has been the case in the US since the 1930s.