United Kingdom

Basset & Gold investors question oversight of misleading adverts

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'.

Who's who? 

The web of mini-bond issuers, approved representatives and FCA authorised firms can be tricky to understand. 

While mini-bonds are unregulated investment, marketing of bonds to casual investors is regulated.

In the case of Basset & Gold's mini-bonds, it worked like this:

Basset & Gold Plc: The issuer of the mini-bonds, it went into administration on 1 April

Basset Gold Ltd: A trading name of B&G Plc, which 'dealt', 'arranged' or sold, B&G Plc's mini-bonds. It was authorised by the FCA as an appointed representative between 17 February 2017 and 28 February 2018. 

Its name appears on the paperwork sent to investors in this period.

Gallium Fund Solutions: A regulated investment company which for 12 months authorised Basset & Gold Plc and Basset Gold Ltd as 'appointed representatives'. 

This meant it was responsible for overseeing the marketing of the mini-bonds and ensuring they were not misleading.

Basset & Gold Finance Ltd: Authorised by the FCA from 2 January 2018 until B&G went into administration. 

This replaced Gallium as the authorised company responsible for overseeing the marketing of the mini-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.'

We had concerns around the accuracy and fairness of Basset & Gold's financial promotions of the mini bonds

The Financial Conduct Authority, 1 April 2020 

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. 

What you need to know before buying into bonds

* Any investor buying individual shares or bonds would be wise to learn the basics of reading a balance sheet. Read a guide here.

* When looking at bonds, research all recent reports and accounts from the issuer thoroughly. You can find official stock market announcements including company results on This is Money here.

* Check the cash flow is healthy and consistent. Also look at the interest cover - the ratio which shows how easily a firm will be able to meet interest repayments on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends on paying interest. A guide to doing investment sums like this is here.

* It is very important to find out what the bond debt is secured against, and where you would stand in the queue of creditors if the issuer went bust. This should be included in the details of the bond offer but contact the issuer direct if it is unclear.

* Consider whether to spread your risk by buying a bond fund, rather than tying up your money with just one company or organisation.

* Inexperienced investors who are unsure about how retail or mini-bonds bonds work or their potential tax liabilities should seek independent financial advice. Find an adviser here.

* If the interest rate is what attracts you to the bond, weigh up whether it is truly worth the risk involved. Generally speaking, the higher the rate on offer, the higher the risk.

* If the issuer is a listed company, before you decide whether to buy it is worth checking the dividend yield on the shares to see how it compares with the return on the bond. Share prices, charts and dividend yields can be found on This Is Money here.

* Investors should bear in mind that it can be harder to judge the risk involved in investing in some bonds than in others - it is easier to assess the likelihood of a long established company such as Tesco going bust than smaller and more specialist businesses.

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