You’re gonna need a bigger boat
By Richard Smith
One of the roles of the UK Insolvency Service is to function as a sort of quick’n dirty enforcer of last resort against scam companies:
One of the main drivers of The Service’s enforcement regime is to clamp down on corporate abuse, whether by directors involved in companies which have become insolvent or by companies which are still trading.
In relation to companies which are still trading, we use powers under the Companies Act to conduct confidential, fact-finding investigations into the activities of live limited companies in England, Scotland and Wales. Since October 2009 we have also been responsible for the investigation of companies in Northern Ireland.
If the investigation turns up dirt, the Service has the power to shut the company down:
Where the investigation shows that the company’s business is being operated contrary to the public interest (e.g. in a manner likely to cause harm, detriment or loss to third party consumers, investors and traders or otherwise a significant adverse impact on the commercial market) then we can ask the court to make a winding up order. This will put the company into compulsory liquidation and thereby prevent it from further trading. This is the follow up action that we are most likely to take. The purpose is to stop the immediate mischief or undesirable trading activities as soon as possible, but this cannot stop the individuals involved with the company from trading through another company, or on their own.
A criminal investigation may follow:
The information we obtain may be passed to prosecution lawyers, police or other investigation agencies, with a view to them carrying out a criminal investigation, where it appears that criminal offences have been committed by the company or its officers.
And finally, from the FAQs, we have this:
9 If you investigate will you tell me what you find out? No. Investigations are confidential and we are not allowed to tell you what we have found out. This includes feedback on our original decision whether to investigate a particular company, or not.
10 Will I ever know what has happened as a result of an investigation? You might if the action taken becomes public knowledge (e.g. a winding up, prosecution or disqualification) but only when the matter is dealt with in open court. Successful outcomes are usually reported in the press.
And here’s a case in point, published this Wednesday, for no particular reason that I can discern, but, as it happens, right in the middle of my long series of blog posts about the UK’s epidemic of carbon credit scams:
Nineteen carbon credit companies that ripped off nearly £24m from over 1,500 investors, including a 94-year-old man, have been wound up in the last 15 months by the Insolvency Service, Consumer Minister Jo Swinson announced today.
The companies, including Eco Global Markets Limited (‘Eco Global’), which alone took at least £8.5m from over 230 investors – targeted mainly older people and sold them Certified Emission Reduction Units (CERs) – or carbon credits – using high pressure sales techniques. Most of the victims ranged in age between 50 and 85 years.
The Insolvency Service has more shots in its locker, apparently:
Action taken by the Insolvency Service against the perpetrators of such scams does not stop at winding up the companies. Two directors have already been disqualified and appropriate enforcement action can be taken against any other director for misconduct.
Although, I have to say, 2 directors, out of whatever number it takes to direct 19 companies, after 15 months, doesn’t sound like a particularly massive hit rate. Let’s say 90% of the scam company directors get the chance to scam again, with no visible blemish on their record. It’s more of a tickle than a thumping, isn’t it?
No mention of a recovery for the investors, either, most likely because there is none.
The Consumer Minister gets to the nub of it (OK, the Minister doesn’t know the difference between a share and a carbon credit, but we will let her off):
Commenting on the emerging carbon credits scam, Consumer Minister Jo Swinson, said:
“This is a particularly contemptible scam as it not only preyed on older people trying to maximise their savings, but also targeted their sincere desire to make ethical investments. Instead, investors have been left out of pocket with shares that are either worthless or do not exist.
“In the last 15 months we have wound up 19 companies for trading in these non-viable credits and we will continue to take robust action against any more companies attempting this scam.”
Well, there’s robust, and robust. Let’s take a closer look at one of the case studies appended to the press release:
Case study 3
Anglo-Capital Partners Ltd, a London company that cold-called the public offering carbon credits for investment went into liquidation on 23 October 2013 on public interest grounds following an investigation by the Insolvency Service.
The winding up order followed a petition presented by the Insolvency Service.
The investigation found that the company charged investors between £4.45 and £9.22 a credit and raised over £1 million by promising investors that the credits were a phenomenal investment opportunity and to expect returns of between 20-25 per cent within two years.
The real and influential difference in reality was that elderly and financially inexperienced investors were deprived of their savings after answering calls from the company’s representatives, some of whom, when contacting investors referred to themselves as bankers and/or implied they were calling from a bank; thereby giving the false impression to investors that they were dealing with a reputable financial institution.
A carbon credit is generally defined as a permit that allows the holder to emit one tonne of carbon dioxide into the atmosphere. Here the business was about releasing as much hot air as it took to achieve a sale.
Mr Registrar Baister, who made the liquidation order, said:
“The usual factors are present in this case as with the earlier matter of Cavendish Jacobs Ltd dealt with this morning, namely making misleading and unfounded representations in order to sell carbon credits to the public for investment. In a nutshell the company sold by cold calling to a market of mainly retired people felt to be more vulnerable to such sales techniques and made extravagant claims for which there is no real justification. In particular it was said that such investments were a ‘safer diversification’ and that investors could expect to receive a 20-25% return on investment, which was highly unlikely given the mark ups of, for example, 318% in one instance and 658% in another.
“There was no real exit strategy for investors to dispose of the carbon credits they purchased never mind at the profit levels represented to them. Examples of the calls are summarised at paragraph 136 of the evidence whereby representatives referred to themselves as bankers, or represented that they were calling from a bank. This might not of itself inspire confidence but as Counsel Mark Mullen for the Secretary of State rightly points out it gives the impression that the company is a properly capitalised financial institution and not a fly by night company and therefore gave a completely false apprehension regarding the nature of the company’s business and skills of the people involved.
“Whilst the company materials contained a risk warning, this was in small print and at odds with the general tenor of the way sales were conducted. The law requires me to identify the aspects of public interest which would be promoted by making a winding up order including the maintenance of minimum standards of commercial behaviour and honesty, the prevention of misleading selling to consumers and the protection of the public from inevitable loss. All these points are manifestly relevant to this case which goes undefended which itself supports that it is plainly right that the company be wound up in the public interest and I do so order.”
That’s what we at Naked Capitalism would call a ridiculously obvious scam. Still, it’s encouraging to see that if it were going at full speed, the Insolvency Service could knock off at least two carbon credit companies per day. This piece caught my eye, though:
The recorded directors of the company have been Brett Jolly (from incorporation to 1 December 2012) and John Oakes (from incorporation to present date). The secretary of the company throughout has been Mr Oakes.
John Oakes is a director not only of Anglo-Capital Partners but of Oswald Bradshaw Ltd, a still-live, apparently un-investigated company, that was formerly a client (as followers of this series will guess) of Carbon Neutral Investments Limited. Here’s a bloke complaining about Oswald Bradshaw:
i puchased 450vcs for a total of £2223.00 through a company called Oswald Bradshaw the cheque was made payable to Carbon Neutral Investments and cleared on the 15/8/2012.I was given a password by oswald bradshaw and the 450vcs in id766 teesta-vhydro in sikkim india did show up on their clients account-firsly no more oswald bradshaw so i tried the CNI client section on more than one occasion to trace the certificates but to no avail,i rang the office to be told the person i needed to speak to would ring me back but it never happened.I have put the details on FSA website.Other information the salesmam a mr dean oneill rang me from a company called Anthony Stewart 01438 870870 but is now off the radar,Anglo capital investments connected to oswald bradshaw still trading with CNI.I am not expecting miracles but any feedback would be appreciated.
Interesting, isn’t it, that the money collected in that scam flows through the accounts not of Oswald Bradshaw, but of Carbon Neutral Investments Limited? That’ll be an instance of the payment services that Paul Seakens, Carbon Neutral Investments’ director, used to bang on about.
Our bloke followed up with a complaint about Oswald Bradshaw to the National Fraud Centre sometime between 18th January and 21st January 2013. I wonder where that complaint is now. Evidently it takes longer than 9 months for a complaint to get from the National Fraud Centre to a liquidation by the Insolvency Service, assuming it is ever going to make it that far. Evidently, also, the Insolvency Service doesn’t pay any attention to other companies directed by the very same dodgy characters that they are trying to inconvenience in their investigation-liquidation process.
That seems like an oversight.
The really depressing thing about all this, apart from the victims’ stories, is the pathetic scale of the official response to these scams. My own list of carbon credits scam companies runs to 90 or so, of which around 75 are onshore British companies, all connected with either Carbon Neutral Investments Limited or with its successor company, Gemmax Solutions Limited. And I know it’s incomplete. For instance I missed Anglo-Capital Partners, which, just as our complainer above affirms, really is connected to Carbon Neutral Investments, as this old archive of Carbon Neutral Investments’ web site attests.
Mind you, this quotation in the International Business Times, covering the carbon credits scam, suggest that even with 90 companies, I am still underestimating, badly:
In September, the FCA revealed that out of 125 carbon investors, none have made any money from investing in the credits.
In addition, the FCA said that 183 carbon firms have been put under investigation since 2011 to crack down on credit scams.
In my understanding, the FCA currently have no powers to regulate or intervene against these “alternative investment” firms. So, goodness knows what the FCA are investigating, and why. I suppose they liaise, or something, with somebody or other. The FCA spokesperson would have directed us to the visible results of their investigation, if there were any.
At least the Insolvency Service investigation does have visible results: in the last 15 months, 19 scam companies, that ripped off 1,500 investors for £24M, shut down (at least until the former directors have got a new PC, web site and domain registration), 2 directors disqualified. In addition, the police have raided and closed another half dozen companies in the same time frame, if my info is up to date. So, 25 companies busted.
Let’s extrapolate. Assume the FCA’s exhausted the possibilities, with its 183 suspicious firms, less the 25 caught in 15 months. That still leaves 158 firms to be clobbered, lightly or firmly, at a rate of 25 firms every 15 months. At the current rate of progress, that means it’ll be another 95 months, call it 8 years, before all the scammers have either been tickled by the UK Insolvency Service (in which case, they’ll merely move on to the next scam), or bust by the police (which might actually discourage some).
To put a money value on the scamming, we’ll ignore upscale horrors (tens of millions each, or more) such as AGT or MH Carbon, which actually sought liquidation (oh dear, could it be that Insolvency proceedings actually suit carbon scam companies?). Based on the Insolvency Service sample of 19 firms, each carbon credit scam outfit pinches ~£1Mn a year. We’ll assume, perhaps gloomily, that the 158 remaining firms are just as successful, as scams, as the ones already busted. Even if they’ve stopped scamming, that’s another £158Mn of investor losses in the pipeline, and 158 companies to investigate and liquidate.
But if they haven’t stopped scamming, then, at the current rate of forced liquidations and police busts, we have 158 firms lasting (on average) another 4 years. On that basis, there is somewhere north of £600Mn worth of scamming to come, just in carbon credits. So we’re getting close to a billion dollars, ignoring any big single scams, such as MH Carbon or AGT.
Whichever estimate you accept, this is a big scam. The enforcers had better pick up the pace, and jack up the director disqualifications and criminal proceedings, and staffing, a lot, or they’ll never get on top of the carbon scam, never mind all the other alternative/green investment scams that are queued up out there: rare earth metals, diamonds, forestry, biofuel, land, property…
Meanwhile, six months ago, the Serious Fraud Office had this to say, to a British financial advisor who saw some of the picture and tried to raise the alarm:
After consideration of the information you have provided we have concluded that this is not a matter that falls within the remit of the Serious Fraud Office and no further action will be taken by us.
It might be time for the SFO to reconsider.
Much more of this and the scammers won’t just be partnering with the likes of Haymarket Media, or Formula 1 teams: they’ll be able to own big chunks of them. If that strains your credulity, just see how far the scammers have come already; simply consult the full series of recent posts on this subject, where the scammers variously co-opt Mayor Bloomberg, three Formula 1 racing teams, English libel law, and Google, inter alia:
The Glam and The Scam: Sauber Formula 1 Team and its Partner, Carbon Neutral Investments, Limited
FBI Raids, Lord Heseltine’s Haymarket Media Group, Financial Regulator “Crackdowns”, “What Car” Magazine…and Carbon Neutral Investments Limited
The Careless Organizers of Gumball 3000 are Hooked Up with Boiler Room Scam “Servicers” Carbon Neutral Investments
Carbon Neutral Investments’ Trail of Disaster: How Carbon Credit Con Artists use Google Adwords to Work the Recovery Scam
McLaren F1 & Jenson Button One Minute, Boiler Room Scams the Next: the Remarkable Double Life of Carbon Neutral Investments, Limited
Why is Google Censoring Search Results to Nix Warnings Just Like Ones Issued by a UK Regulator?
The Lotus Formula 1 Team, Its Embarrassing Partner, Advanced Global Trading of Dubai, and Carbon Neutral Investments
Newcastle United FC, Bloodhound SSC, Glitz, Glam and Police Raids: a Last Look at the Remarkable Double Life of Carbon Neutral Investments Limited (CNI)