The High Court has wound up seven companies after finding their marketing of high-risk mini-bonds was misleading and their directors continued to take £2m of investor money after the companies were insolvent.
An investigation by the Insolvency Service found the Magna Group mini-bond companies, run from an office in Mayfair, London, were "misleading" in their marketing of high-risk mini-bonds and their directors continued to take investors’ money "even after the companies were insolvent".
The government agency said the companies were responsible for "misselling" £20m of loan notes used to fund property development projects.
It said their marketing material overstated both the levels of security being offered and the true protections offered to investors from the appointment of a 'security trustee'.
The principal directors of all the companies were Christopher John Madelin and Oliver James Mason, who the Insolvency Service believes were the beneficiaries of £2.5m through director loan accounts.
The statement added that during the period between December 1, 2019 and February 25, 2020 the directors paid themselves £425,021 with a further £370,471 lent to a non-UK company of which they were shareholders.
Edna Okhiria, chief investigator at the Insolvency Service, said: “Investors in the MIX companies were systematically given false comfort that their investments were to be “asset-backed” by tangible “bricks and mortar” security when in reality this was not the case and highly misleading.
“Marketing and publicity material circulated to investors presented a false picture of the group’s strong financial health and the companies induced investors to invest over £2m after December 2019 at substantial risk, with the knowledge it had stopped repaying existing investors and therefore there was no reasonable prospects of repaying these sums.
“Investments in speculative mini-bonds are inherently high risk and the FCA has banned their mass-marketing to retail investors."
Mini-bond ban
The Financial Conduct Authority recently banned the marketing of mini-bonds to retail investors. The ban was introduced temporarily in January 2020 and made permanent last year.
The FCA found the risks linked to the mass-marketing of mini-bonds to retail investors was sufficiently "serious and immediate" to justify intervention without consultation.
The regulator consulted on making the ban permanent in June last year and proposed extending its scope to include some listed bonds which are not regularly traded and have similar features to speculative illiquid securities.
The new rules mean products which fall under the ban can only be marketed to investors who are "sophisticated or high net worth".
Promotions by an authorised firm will also include a specific risk warning and disclose any costs or payments to third parties which are deducted from the money raised from investors.
Magna firms
The companies wound up by the High Court are four unregulated mini-bond investment vehicles (Magna Investments X Ltd, MIX2 Ltd, MIX3 Ltd and MIXG Ltd), an associated group and brand holding company (Magna Asset Management), an operational company (Magna Project Management Ltd, and a consultancy and administration firm (MIX Ops Ltd).
All the firms were incorporated between December 2014 and March 2019, and were registered at the same address in Berkeley Square in Mayfair.
The Insolvency Service said £2m in deposits from loan note creditors was taken during a period, “when the directors ought to have known that all of the companies were insolvent”.
At that point, MIX2 had failed to pay its loan note holders when due, leading to a default event in all four MIX to MIXG loan note instruments.
The companies were all wound up on August 10 and the Official Receiver was appointed liquidator.
sally.hickey@ft.com
