British savers are continuing to pour millions of pounds into risky, unregulated finance schemes despite a chilling warning from the financial regulator, lawyers representing potential victims have told The Mail on Sunday.
The Financial Conduct Authority warned savers this month to beware of loan notes, often known as mini-bonds, which are sold by unregulated advisers with weak or unconventional guarantees that expose investors to severe losses.
Evidence is mounting that losses from failing mini-bond schemes run into billions of pounds, with tens of thousands of British investors, many of them pensioners, already falling victim.
Loan notes are financial instruments issued by companies to raise money directly from the public. Unlike standard bank deposits, mini-bonds are speculative, illiquid, and carry no protection under the Financial Services Compensation Scheme if an issuer collapses.
Martin Richardson, senior partner at Richardson Hartley Law, which specialises in loan note recovery, accused the regulator of being "asleep at the wheel" and said new investors are falling victim every day.
"We welcome the warning, but the question is why it has taken until now," Richardson said, noting that the marketing of speculative mini-bonds and loan notes to ordinary investors has been banned since January 2021.
"Five years on, we are still taking calls daily from people who were sold precisely these products, usually through unregulated introducers taking a substantial commission out of the money before it ever reached the project," he said.
"We are aware of new loan note schemes launching all the time, using the same structures, the same 'asset-backed' language and the same trustee arrangements that have already failed investors elsewhere," Richardson added. "A warning is welcome, but what victims need is enforcement at the perimeter, and they need it before the money has gone."
Rising collapses and Ponzi scheme allegations
A key feature of these high-risk schemes is the substantial rate of commission paid to middlemen. Warning of the risks, the Financial Conduct Authority highlighted the recent 390 million pound collapse of Woodville Consultants, which raised cash through loan notes.
Insolvency practitioners are investigating allegations that Pontypridd-based Woodville was operating a Ponzi scheme, using funds from new investors to pay back older ones. Pontypridd is a town in South Wales.
A Ponzi scheme is a fraudulent investment operation where returns for existing investors are generated using money from new participants rather than genuine underlying profits.
The City was previously rocked by the 2019 failure of mini-bond provider London & Capital Finance, which the High Court ruled was a Ponzi scheme.
Last year saw the collapse of Godwin Capital, which raised over 160 million pounds in loan notes, alongside a third scheme, The 79th Group, which lost investors an estimated 250 million pounds. Both are judged potential Ponzi schemes by insolvency practitioners.
Threat to banking sector and regulator advice
Concerns are growing regarding the wider impact of loan note losses on the financial sector. Leading banks and financial institutions face questions over their role in processing transactions under scrutiny, with potential compensation bills that could reach billions of pounds if negligence is proven.
The Financial Conduct Authority warned that promotional material for loan notes and mini-bonds remains visible across everyday channels, including social media platforms, online adverts, and websites promoting high fixed returns.
"Consumers may still come across adverts for loan notes and mini-bonds in everyday places, including social media, online adverts or websites promoting high fixed returns," the regulator stated.
"Warning signs include pressure to act quickly, unclear explanations of how money could be lost, or claims that an investment is 'asset-backed' without clear evidence of what stands behind it," the FCA added.
