Financial Conduct Authority and Blackmore Bond plc

Jim Shannon Excerpts

Wednesday 30th June 2021 Commons Chamber

[Peter Grant]

For the second time in a few days, the hon. Gentleman has managed to read my notes a couple of paragraphs ahead of me. I am going to come on to that.

My concerns cover not just the Financial Conduct Authority but other regulators, such as Companies House, the Insolvency Service, the Financial Reporting Council and the professional bodies that regulate the audit of limited companies. Of those, only the FCA falls directly under the remit of the Treasury, so that is what I will focus on tonight, but I will continue to apply for debates so that the part played by other regulators can be examined.

[Jim Shannon (Strangford) (DUP)]

Will the hon. Gentleman give way?

[Peter Grant]

I think the sky would fall down if I did not give way to the hon. Gentleman.

[Jim Shannon]

I am sure the sky will not fall down, but I appreciate the hon. Gentleman’s giving way.

Does the hon. Gentleman agree that financial devastations such as the Blackmore Bond scandal have the potential to be avoided if there is proper scrutiny by regulatory authorities, which the hon. Member for Thirsk and Malton (Kevin Hollinrake) referred to? Does he also acknowledge that, often, that work starts with us in this House making legislative change?

[Peter Grant]

The hon. Gentleman is absolutely correct. Ultimately, the regulator is us. If we highlight deficiencies in the system, we must try to get them put right. That is partly why I was so keen to secure this debate.

As the hon. Member for Thirsk and Malton (Kevin Hollinrake) mentioned, in March 2017, the Financial Conduct Authority received information from a very reliable, experienced financial services professional that a company called Amyma Ltd was using high-pressure sales techniques to target individuals to persuade them to invest in Blackmore Bond. The source, a Mr Paul Carlier, described in detail what he had seen and heard, and explained exactly why he was convinced that it was illegal. He made a point of sending his concerns directly to the then chief executive of the Financial Conduct Authority, among others. As a mark of gratitude, the FCA wrote back and said that it was aware of the situation and it was being passed on to the appropriate department.

It was the end of 2019 before there was any obvious sign that the FCA had done anything. To be fair to it, when it acted, it did not hold back. It banned outright the sale of mini-bonds to the kinds of investors whom Blackmore Bond had been deliberately targeting. If the FCA had done that earlier, it could have prevented up to £26 million of the losses eventually suffered by Blackmore’s victims.

The FCA has said that the sale of these kinds of investments was an unregulated activity, that Blackmore Bond plc was not registered or approved by the FCA for any regulated activity, and therefore that the whole thing was beyond its scope. That is just not good enough. What the FCA is effectively saying is that it had the legal power to ban the sale of these mini-bonds absolutely but could do nothing to stop one rogue company selling them to one particularly targeted group of vulnerable investors. I simply do not buy that.

While the sale of these high-risk bonds to investors who wanted low-risk investments was allowed to carry on in an unregulated free-for-all, the promotion of those same bonds is a regulated activity. The FCA’s website says that all adverts and promotions for financial services or products

“must be fair, clear and not misleading”.

Blackmore Bond’s promotional materials failed all those tests—something I will return to soon. Again, it took the FCA far too long to do anything, and when it did something, it did not do enough.

The FCA will claim that at some point during 2019, it was able to get Amyma’s website taken down. It seemed less keen to be reminded that in August 2019 Paul Carlier had to tell the FCA that the website was back up again. It may be just coincidental that a few weeks after Blackmore Bond went into administration, the director and sole shareholder of Amyma placed that company into voluntary liquidation, having first reduced the company’s assets from £316,000 to nil in the space of 18 months, meaning that the creditors of Amyma, including Her Majesty’s Revenue and Customs, would not see a penny of the £188,000 they were owed. It appears that Blackmore Bond really can pick its professional and business advisers very carefully.

Coming back to the promotional materials, though, under section 21 of the Financial Services and Markets Act 2000, any financial promotion must either be issued by an FCA-authorised company or have its contents approved by such a company. There are exemptions, but I have no indication whatever that any of those exemptions comes close to applying to Blackmore Bond. So if Blackmore Bond issued financial promotions that had not been approved by an FCA-registered firm, that was an offence under the Financial Services and Markets Act and the FCA should have been dealing with it.

The company issued its mini-bonds in six ways. For each one it issued an “information memorandum”, which appears, as far as I can tell, to have been approved by an FCA-registered firm. But that was not the only marketing it did. My constituent, who has probably lost £40,000, provided me with a copy of a separate document that he received. It is dated 3 October 2016—the same date as the information memorandum for the first series of mini-bonds. The FCA has confirmed to me that it meets its definition of a financial promotion. It was therefore an offence that it was circulated without being approved by an authorised firm, and there is nothing in this document to suggest that it was ever approved by an authorised firm. The FCA is not convinced about that. Its view is that it “cannot categorically say” whether the document was or was not lawful when it was circulated. But if that is the case, surely, knowing what it knows now about the operation of Blackmore Bond, if it “cannot categorically say” that it was not a criminal offence to send it out to potential investors, it should be investigating it.

Then we come on to the requirement for this and any other financial promotion to be fair, clear and not misleading. I am aware of the time, so I can only give a few examples of statements in the document that are either blatantly false or extremely misleading. On page 5 it tells bondholders that their money will be backed by “100% asset-backed security”. Not true; it was never the intention that the bondholders would even be guaranteed first call on all the assets, never mind that there was never a time, after the first series of bonds was issued, when Blackmore Bond plc ever held enough assets to repay the value of the bonds it had sold.

On page 4 it says:

“Blackmore Bond is part of The Blackmore Group”—

that bit is correct—

“a multi-channel investment group with a proven track record.”

The Blackmore Group was only incorporated in February 2016; it cannot possibly have had a proven track record by October 2016. It certainly could not have realised the £22 million in profits and property development that is claimed in the same document.

On page 4 we are told that

“The Blackmore Group”

has

“assets under management of £25 million”.

So how come The Blackmore Group’s accounts for 2016, signed by the directors, tell us that the total value of their assets was £390,000, and that after allowing for creditors and other liabilities, the total value of the Blackmore Group at 2016 was £2,281? How can that have created assets under management of £25 million?

Finally, on page 18, the directors promised:

“There are no fees or charges”—

completely untrue. Page 24 of the information memorandum devotes over half a page to explaining why the company will have to pay fees. They say that they will pay fees essentially for the marketing of bonds and for investor relations, and that those fees will not exceed 20% of total bond value. They then entered into an agreement with Surge Financial Services Ltd—a company well known to those who have an interest in financial misdealings—that they would pay it exactly 20% of the total bond value.

What the directors forgot to mention in any promotional literature was that they were also going to pay themselves a management fee. During 2017, the directors of Blackmore Bond plc chose to pay £1.4 million of management fees to the Blackmore Group Ltd, of which they again were the sole shareholders, the sole directors and the sole beneficiaries. Why did they choose to conceal that information from this document, and from the information memorandum that was sent out to persuade people to buy their bonds? Effectively, the directors were making sure that their cut was cleaned out of Blackmore Bond plc’s accounts as soon as—sometimes before—it hit the bank account, so that whatever happened to that company, their money would be saved and the poor investors would be left with nothing.

Blackmore Group does not of course have to publish a profit and loss account, and even the very sketchy financial statements it does publish are not audited, so it is anyone’s guess what Mr McCreesh and Mr Nunn did with that £1.4 million, and that, as I say, was only up to December 2017.

During my investigations into this affair, I received a copy of a chain of emails between one bondholder and Patrick McCreesh, who, as I say, with Phillip Nunn, owns and runs the entire operation. The bondholder is not a constituent of mine. He was happy for me to quote at length from his emails. He is happy for me to give his full name, but I have chosen not to identify him entirely, but his name is John—and it genuinely is John.

John’s investment was with another Blackmore company, Blackmore Estates Ltd. The bond was due to be repaid in January 2020, but by March 2019 John had got worried, because he had not heard anything from Blackmore Estates for a while, and he wanted to know what had happened to his money. Patrick McCreesh advised him that Blackmore Estates was now part of Blackmore Bond plc, and set out to persuade him not to claim back the investment he was legally entitled to in January 2020, but to reinvest it in Blackmore Bond plc.

There were numerous email exchanges, but by 16 August John was really getting worried because his online account with Blackmore did not seem to show anything. There was no indication whether he had any money left at all. He then wrote:

“Patrick, I have entrusted you with my military retirement fund, my only savings. Unlike others I cannot afford to live without this money. You have had my investment since 2015 and I am yet to receive a single penny back. If things are going downhill why would you call me personally and persuade me to re-invest only a few months ago?”

That referred to a telephone conversation they had in about April 2019.

Three times further to that between August 2019 and January 2020 John reminded Patrick McCreesh in the most poignant terms that this was all he had. It was a pension he had got by serving with distinction in Her Majesty’s forces. Patrick McCreesh knew that John could not afford to lose the money, yet he deliberately set out to entice him to leave the money with McCreesh, and not to take back the money he was entitled to, but to put it into a company that by the summer of 2019 Patrick McCreesh and Phillip Nunn knew had no future. They had not published audited accounts for some time, but they had prepared draft accounts that showed that, in the first two years of its existence, one third of the bondholders’ entire money had disappeared. By July 2019, Nunn and McCreesh knew the business was dying. McCreesh still went out and deliberately targeted this poor gentleman to fleece him of what McCreesh knew was all he had.

As I say, I have pages and pages from the email exchanges between John and Patrick McCreesh in relation to, as I said earlier, whether the conduct was criminal, civilly unlawful or simply despicable. I am happy to share the remnants of my speech with anyone who wants to look at it. It makes it perfectly clear of the behaviour certainly of one of those two directors that to describe it as despicable would be excessively charitable to Mr McCreesh, and I have no indication that Mr Nunn would have been any better.

John will not ever get his military pension back, and there are 3,000 other Johns out there. They were all taken in by two individuals with a track record of dodgy financial dealing, but who are still free to go and set themselves up as directors of a different company and start all over again. That will not be by selling or mis-selling mini-bonds to people like John, because that is now illegal, but they will find another way. Until the Financial Conduct Authority and other regulators scare them out of the way, there will be another generation of Johns, and in 50 years from now or 100 years from now, our successors will be in the successor to this Parliament bemoaning the fact that billions of pounds have been taken out of the pockets of hard-working people and used to fund a luxury lifestyle for charlatans, crooks and conmen.

The Financial Conduct Authority was not the most culpable party in this. Nunn and McCreesh were, and they have to be called to account somehow. The Financial Conduct Authority was not the only regulator that failed because it did not have the powers, failed because it did not use the powers or possibly failed because it did not have the resources to deal with the amount of financial misdealing that is going on just now. But one way or another, for the sake of the next generation of Johns, the Financial Conduct Authority and the other regulators have to get their act together, and they have to do it quickly.