A law firm has warned that due diligence on crowdfunding investment is crucial for both investors and advisers in the wake of the collapse of claims management company Rebus, which could see clients suffer a £1bn loss.
The Rebus Group, which targeted individuals who were mis-sold financial products, filed for administration earlier this month.
Rebus had raised more than £816,000 through crowdfunding platform Crowdcube last year, with around 100 individuals investing between £5,000 and £135,000.
Law firm Moore Blatch warned that due diligence on crowdfunding should not just be limited to investors and advised those clients who use a claims handling firm to undertake similar checks, especially where high value goods or services are involved.
Mark Osgood, partner at Moore Blatch, said Rebus clients - made up mostly of private businesses and high net worth investors - stand to lose approximately £1bn if they do not act swiftly.
A notice on Rebus’ website, which has since been taken down, said 1,700 clients could lose a total of £930m.
Mr Osgood said, on average, Rebus customers typically stand to lose £100,000 if their cases miss the six-year limitation cut off, meaning the implications of the company entering administration could be “just as grave” for its clients.
The legal firm has set up a triage service for former Rebus clients whose claims risk missing the six-year limitation period for qualification.
“Crowdfunding is a great way for companies to raise money and for investors to reap the rewards of being in at the beginning,” Mr Osgood said. “However, crowdfunding can also carry greater risk, and often that risk is not just borne by the investors.
“Our advice, whether you are an investor, supplier or using the services of a crowdfunding backed company, is to do your due diligence and properly assess the risks of failure.”
Earlier this month, the Financial Ombudsman Service revealed that nearly a fifth of all the complaints it received about advisers were done so through a claims management company.
Alan Lakey, director of CIExpert, said: “I assume the loss relates to either fees paid up front (if that is how they did business) or compensation filtered through Rebus that never made it to the clients.
“It highlights yet again the futility of using a claims management company when escalating a complaint direct to the Financial Ombudsman Service.
“If Rebus has retained client funds of some description then it is quite appropriate for this to be promulgated to a wider audience to ensure that consumers think twice before responding to the sweet voices of the claims mongers.”
Last month, several peer-to-peer lenders agreed that both new regulation and wider education are needed in the crowdfunding space, to avoid further problems in the space.
katherine.denham@ft.com
