Four mini-bond providers have been shut down after they were found to be misleading investors and accepting money after they became insolvent.
The mini-bond providers, and three associated companies, were wound up by the High Court after an Insolvency Service investigation that found their marketing material “presented a false picture of the group’s strong financial health”.
The mini-bonds were being used to fund property development projects and raised over £20m from everyday investors.
The Insolvency Service investigation discovered that the companies’ marketing of mini-bonds was misleading, with material overstating both the levels of security being offered and the true protections offered to them from the appointment of a ‘security trustee’.
The Magna Group companies were all run from an office in Mayfair, London by principal directors Christopher John Madelin and Oliver James Mason.
It is believed that Madelin and Mason, having secured deposits from investors, took £2.5m through director loan accounts.
It was also found that two of the mini-bond providers took over £2m from loan note creditors between 1 December 2019 and 25 February 2020, when the directors ought to have known that all of the companies were insolvent.
During this period, the directors paid themselves £425,021 with a further £370,471 lent to a non-UK company of which they were shareholders.
The companies were all wound up on 10 August and the Official Receiver – an officer of the Insolvency Service – was appointed liquidator.
Read more: FCA outlines progress of LCF recommendations
“Investors in the [mini-bond providers] were systematically given false comfort that their investments were to be “asset-backed” by tangible “bricks and mortar” security when in reality this was not the case and highly misleading,” said Edna Okhiria, chief investigator at The Insolvency Service.
“Marketing and publicity material circulated to investors presented a false picture of the group’s strong financial health and the companies induced investors to invest over £2m after December 2019 at substantial risk, with the knowledge it had stopped repaying existing investors and therefore there was no reasonable prospects of repaying these sums.
“Investments in speculative mini-bonds are inherently high risk and the Financial Conduct Authority has banned their mass-marketing to retail investors.
“The Insolvency Service has acted, applying to court for the group of companies to wound up in the public interest to protect others from becoming victims and to send a strong message to like-minded perpetrators that behaviour of this nature will not be tolerated.”
Read more: Mini-bond ban: a timeline
The City regulator introduced a permanent ban on the mass marketing of mini-bonds at the start of 2021, saying the products were “high risk and are often designed to be hard to understand.”