Thousands of ordinary savers are set to lose over £40m ($49.6m) from bust mini-bond project Blackmore.
Administrators Duff & Phelps said in its initial report, filed with Companies House this week, only £5m is likely to be recovered from Blackmore.
Blackmore fell into administration in April after failing to pay interest on its bonds for six months. The company owed 2,868 retail investors £46m at the time of its collapse.
Duff & Phelps said initial estimates suggest only £5m can be recovered from Blackmore’s property projects. Blackmore had just £906 in the bank when it was placed in administration.
“Detailed investigations” are ongoing to see if any more cash can be recovered, but administrators told bondholders to expect a “substantial shortfall.”
The sorry tale is the latest high-profile mini-bond scandal in the UK. Mini-bonds are unregulated debt instruments sold to everyday investors and savers. Typically marketed online, they are high-risk and investors lost over £1bn last year. Most are ordinary savers unaware of the risks.
Blackmore issued six mini-bonds between October 2016 and November 2018, promising interest of between 6.5% and 9.9%.
Controversially, two were marketed as an alternative to Innovative Finance ISA and two bond issues were managed by ISA managers. Mini-bonds are not ISAs and much of the confusion about their safety has stemmed from the fact many were wrongly marketed as ISAs or ISA-like. ISAs typically involve investor protection, while mini-bonds do not.
Blackmore also used controversial marketing firm Surge Financial to help it raise cash. Surge ran online marketing and investor relations for Blackmore and was paid 20% of all the money Blackmore raised for its services.
Surge also ran marketing for London Capital & Finance, the most high-profile mini-bond scandal so far in the UK. London Capital & Finance collapsed at the start of last year owing investors £267m. The Serious Fraud Office is investigating and Surge’s founder Paul Careless was arrested and questioned as part of the investigation, according to the Evening Standard.
Administrators are required to inform creditors of any potential wrongdoing by directors. Duff & Phelps said there were “a significant number of matters relating to the company and the wider group that require investigation” in relation to conduct of directors. The company said further details couldn’t be given as investigations were ongoing.
Earlier this week the Financial Conduct Authority made a temporary ban on mini-bond ads permanent, saying the products do too much harm to consumers.