The Financial Conduct Authority (FCA) has censured London Capital & Finance (LCF) for its ‘unfair and misleading’ financial promotion of mini-bonds.
Overall, 11,000 investors lost in excess of £237m between 2014 and 2019.
The regulator found that LCF had used promotions which painted a “misleading picture” of mini-bonds which it marketed to retail investors, making them appear a “far more attractive” investment than they were.
See also: FSCS to shut down mini-bond compensation scheme
“Investors weren’t told about the true nature of the minibonds, including the presence of hidden charges and the high-risk and unsustainable nature of the lending being carried out by LCF”, the regulator said.
LCF also used bondholders’ money to fund seemingly independent comparison websites which showcased its minibonds next to safer investments with lower returns, which the FCA said enticed retail investors into buying the bonds.
The minibonds were also advertised as ISA compatible despite not being eligible.
Insolvency
The FCA previously came under fire for its handling of the LCF scandal – but the UK regulator refused to accept two of the main issues highlighted in the Complaints Commissioner’s report.
However, the regulator said today (11 October) a financial penalty was not appropriate due to the company being insolvent and in administration.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: “LCF’s use of financial promotion led to bondholders, many of whom were vulnerable, investing in unsuitable, high-risk products.
“We recognise our censure will not provide solace to those investors who lost out. But it is important we set out what went wrong at LCF and how their promotions misled people into parting with their money.”
Meanwhile, the case is being considered by the Serious Fraud Office, as LCF may have been involved in knowingly defrauding bondholders.
In May, former LCF chief executive Michael Thomson was handed a suspended 10-month sentence for breaching a restraint order imposed on his bank account.
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