Investors in Basset & Gold's mini-bonds who lost thousands of pounds question how potentially misleading adverts slipped the net
- Gallium Fund Solutions oversaw the mini-bond adverts for 12 months
- This was at a time when they were compared to NS&I's 'Pensioner Bonds'
- It said in a letter sent days after B&G went bust in April it accepted no liability
- It also said it had not found any mis-selling, despite regulators finding the bonds were mis-sold less than a month after Gallium stopped overseeing them
Investors have demanded to know how failed mini-bond firm Basset & Gold's potentially misleading adverts slipped the net, despite rules meaning they should have been checked.
After the West Ham shirt sleeve sponsor became the latest mini-bond firm to go bust and lose 1,800 ordinary investors £36million, there is pressure on financial authorities to unpick how the bonds were sold and why checks and balances failed.
The risky mini-bonds were at one point promoted in a way that targeted pensioners looking for safe income from their cash savings, but much of investors' cash ended up in a payday loan firm called Uncle Buck.
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
One investor who put in £20,000 in September 2017 told This is Money they were assured the loans funded by the mini-bonds were asset-backed and the company had a 100 per cent record in paying out investors.
Another reader told This is Money their parents believed they were putting money into Treasury-backed savings when their NS&I Pensioner Bonds matured, rather than risky investments.
The Basset & Gold collapse again highlights how ordinary savers can be attracted to risky investments believing they offer a safe interest rate return similar to cash.
One firm in the firing line is investment company Gallium, which was supposed to check up on Basset & Gold's marketing but wrote to investors just six days after it went bust saying it accepted no responsibility for their losses.
This is despite the fact the Financial Services Compensation Scheme has found mini-bonds sold to investors at the same time were mis-sold.
Adverts compared the high-risk 4.24 per cent unprotected investments to National Savings & Investment's 'Pensioner Bonds'.
Under rules set by the Financial Conduct Authority, regulated companies like Gallium are responsible for ensuring adverts and advice from their 'appointed representatives' like B&G are fair and accurate, and they are ultimately responsible for the products like mini-bonds that they sell.
Gallium looked after Basset & Gold between February 2017 and February 2018.
During this period adverts written about by This is Money appeared using the strapline: 'Pensioner Bonds are back'.
In a recent Q&A on the FCA's website, under the subheading 'Were there historic issues at B&G?', the regulator said: 'We had concerns around the accuracy and fairness of B&G's financial promotions of the mini-bonds.'
B&G told This is Money at the time it had seen no evidence of anyone investing thinking they were putting money into NS&I products, which are savings accounts guaranteed by the Treasury.
But investors told us Basset & Gold did not make it clear their money was mainly being used to fund a payday lender.
Neither was it clear that novice investors or those with less money to invest should be barred from the risky mini-bonds.
This change took place 'more recently', in November 2019, an investor said, with the FCA saying adverts were changed in December 2018 and investors told most of the money had gone to Uncle Buck in January last year.
This raises questions about how the bonds had previously been marketed and sold to everyday investors. This is likely why the FSCS has found investors sold mini-bonds from January 2018 onwards were mis-sold.
Gallium told investors it was keen to hear from any who had complaints and had made no judgment as to whether they would be upheld, but said it had not identified any mis-selling.
This is despite the FSCS finding many people were mis-sold under a regulatory regime which overlapped with Gallium's stewardship of Basset & Gold and succeeded it by just a month.
In a letter to one investor dated 7 April seen by This is Money, Gallium wrote: 'As your bonds were issued prior to 2 January 2018, we believe that Basset Gold Ltd arranged your investment for you.
'Basset Gold was an appointed representative of Gallium at that time. Please do not interpret this as an admission of liability by us. Basset Gold did sell bonds under its appointment with us, but please note that we have not identified any mis-selling of the bonds.'
Terms and conditions provided to one man who invested £10,000 in April 2017, seen by This is Money, state: 'Gallium participates in the FSCS. If B&G or Gallium owe you money in connection with the Basset Gold Service and are unable to pay it, then you may be entitled to compensation from the FSCS.'
The FSCS said investors who bought mini-bonds through Basset & Gold Finance Ltd, a connected company set up to replace Gallium and promote B&G's mini-bonds from January 2018 onwards, could be due up to £85,000 compensation because of mis-selling.
It said: '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.'
It turned out the vast majority of bondholders' money had been used to finance a payday lender called Uncle Buck, which went into administration four days before Basset & Gold did.
The deposit protection scheme said it was investigating possible mis-selling of the bonds prior to January 2018 but declined to state whether it was looking at Gallium.
This is Money asked Gallium why it was so sure no mis-selling of bonds had taken place on its watch, and how it was sure the marketing and selling of the bonds was different to that less than a month later, which the FCA and FSCS had found to be misleading.
We did not receive a response by the time of publication.
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