FAO Michael Andrew Thomson, CEO, LC&F PLC
Dear Andy Thomson,
Regarding the LC&F commercial lending business, this request to you is written from the investors' perspective. I and associates including introducers are requesting from you greater disclosure re commercial due diligence in relation to the fundamentals of the commercial lending business of LC&F to small and medium sized enterprises. This request is in accordance with FCA Handbook Principles, Principle 7 "Communications with clients: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading." The term 'clients' includes customers, both existing and potential.
LC&F operations and Surge Financial Ltd staff state, re the commercial lending business, that LC&F borrower corporate information cannot be disclosed because of Data Protection (DPR). The Data Protection Act 1998 does not apply company to company (B2B), confirmed by the Information Commissioner's Office (ICO), as personal data is not involved. Data protection rules apply re companies holding data on living individuals, not between B2B trading companies where personal data is not involved in the information request, as is the case in my request.
There may be civil commercial law contractual confidentiality terms in your B2B loan contracts preventing company information disclosure. However, "data confidentiality" has not been stated by LC&F operations and Surge staff as the reason for the commercial lending information nondisclosure. Rather it is stated as "data protection" and this is a specific term usually referring to regulations re data storage applying to living individuals by the DPA 1998 and overseen by the ICO.
If you have any doubt please let me know which section of the DPA 1998 your compliance officer is relying on for your non-disclosure of SME borrower corporate information to introducers and potential and existing investors. That is, B2B information including company names, contact details, etc. to enable potential and existing investors to attain satisfaction re LC&F commercial due diligence.
As a director you could follow the example of fellow LC&F company director, Katherine Ruth Simpson. She showcases her company clients names on her business website to promote her business. This is a very popular business promoting advertising method used in online business websites and neither commercial contractual terms nor data protection have been a problem here in this practice. At one point you did put one review from a borrower on your lcaf.co.uk website in the borrowers section and removed it a while later. It was however, a very limited attempt at disclosure and reviewing.
Of course, you may not disclose this information simply because you do not want to and you do not have to. However, from a private investor point of view, whatever info you have which will satisfy commercial due diligence with reference to the subject matter of this letter should be published on your websites as it is not in your limited prospectus or information memorandum for the mini-bond. At least you could do as other commercial lenders do, post anonytised data on your websites including specific areas of businesses you lend to re the information needs of ethical investors.
How can LC&F expect astute potential investors to take seriously the non-data backed company statements and updates on LC&F websites as to commercial lending performance when there is little evidence re business track record nor evidence or proof provided for the existence of the SME commercial lending business?
To a potential investor, without commercial due diligence LC&F is a stranger. What reasonable person would invest money with a stranger when the stranger is unwilling to provide evidence of how he can pay back the interest? Some investors think and act more carefully than others, especially when their entire invested capital is at risk. It may be some of the investors in the recent failed Providence Bonds and Secured Energy Bonds are now wondering in hindsight where things went wrong, when audited accounts did not point to the misuse of capital and imminent failure resulting in total losses to the bondholders.
I am aware that even some of the biggest commercial lenders may have small numbers of employees, in low double figures, but they probably contract the work out as well. Re LC&F, however, Companies House Return 2015-16 states that there are only two employees in LC&F. They work in operations, not the lending side. So who besides you as CEO is doing all the complicated time consuming work of finding perfect loan clients willing to pay uncompetitively high 12-20% interest rates, as well as underwriting, risk evaluation, registering charges, etc? LC&F claims it is a direct lender not a broker and that it is not contracting the commercial lending out to a third party. Ultimately, this kind of business is only as good as the lender's collection service.
I am not saying the commercial lending business does not exist, rather it is not shown to exist and commercial due diligence attempts by clients, bondholders and potential investors, to seek further information verification by phone or email to LC&F or Surge do not bear fruit. LC&F have published info re the bond and bond customers but very little on the SME loans and borrowers. Unlike John Lewis, the Jockey Club, and Hotel Chocolat, etc. mini-bonds, your business cannot be seen to exist. Therefore greater transparency and disclosure is needed to increase investor confidence, although the rules for unregulated bonds are less onerous than traded bonds.
This is of concern for existing and potential investors, as well as FCA approved introducers, as the existence of the LC&F commercial lending business is declared to be the only means of company income, profits and bondholder interest payment. Investors in debt finance cannot assume that because bond term interest is being paid so far that the commercial lending or other named business is the source of that income, especially if the debt investment issuer is presenting obstacles to commercial due diligence.
The LC&F financial marketing team, Surge, point to LC&F audited accounts as evidence of the commercial lending business, but recent mini-bond investments and much larger businesses with audited accounts where term interest has been paid have collapsed. In turn resulting in loss of further bond interest and 100% loss of bondholder capital because the capital was later found to be misused and not used by the bond issuer for stated purpose. Companies have collapsed within months of lodging audited accounts, the auditors supposedly following a paper and electronic trail re financial due diligence.
However, auditing accountants generally only address financial due diligence not legal or commercial due diligence. Audited accounts do not necessarily prove that a company is doing what it is saying it is doing with reference to commercial due diligence. A registered company can do any legal business it wants to without having to notify Companies House. It could change its entire business the day after or before lodging accounts at Companies House.
Further, it is an unaddressed problem that bondholders in general cannot in practice see what the investor capital is being used for, nor can the security trustee. Neither have hands on management access. Financial history has shown bondholders cannot rely on issuer and trustee periodic reports nor audited accounts as in the case of recent highly publicised mini-bond failures where all of the capital investment has been lost. The capital was not used for the purpose it was intended, unknown to investors and the corporate trustee, siphoned off to various untraceable or bankrupt companies according to liquidators.
In addition, LC&F claim bondholders are protected in case of company failure by valued secured assets of loan borrowers, yet there is no evidence nor track record available to show bond investors the existence of such secured assets. Bondholders cannot check at Companies House the existence of LC&F charges re borrower secured assets as the company names of borrowers are unavailable to them.
I am also concerned re the claim the bond is protected by property and cash assets owned by LC&F, being aware that a company credit check reveals that existing liabilities, taking priority over bondholders, very nearly match the value of those assets.
Thank you for your time in reading this my letter to you, airing these concerns.
Yours sincerely,
Anonymous.
(Author, writer, teacher, politician, businessman, lawyer, private investor, and rights campaigner.)
"First do no harm" - The Big Short
Dear Andy Thomson,
Regarding the LC&F commercial lending business, this request to you is written from the investors' perspective. I and associates including introducers are requesting from you greater disclosure re commercial due diligence in relation to the fundamentals of the commercial lending business of LC&F to small and medium sized enterprises. This request is in accordance with FCA Handbook Principles, Principle 7 "Communications with clients: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading." The term 'clients' includes customers, both existing and potential.
LC&F operations and Surge Financial Ltd staff state, re the commercial lending business, that LC&F borrower corporate information cannot be disclosed because of Data Protection (DPR). The Data Protection Act 1998 does not apply company to company (B2B), confirmed by the Information Commissioner's Office (ICO), as personal data is not involved. Data protection rules apply re companies holding data on living individuals, not between B2B trading companies where personal data is not involved in the information request, as is the case in my request.
There may be civil commercial law contractual confidentiality terms in your B2B loan contracts preventing company information disclosure. However, "data confidentiality" has not been stated by LC&F operations and Surge staff as the reason for the commercial lending information nondisclosure. Rather it is stated as "data protection" and this is a specific term usually referring to regulations re data storage applying to living individuals by the DPA 1998 and overseen by the ICO.
If you have any doubt please let me know which section of the DPA 1998 your compliance officer is relying on for your non-disclosure of SME borrower corporate information to introducers and potential and existing investors. That is, B2B information including company names, contact details, etc. to enable potential and existing investors to attain satisfaction re LC&F commercial due diligence.
As a director you could follow the example of fellow LC&F company director, Katherine Ruth Simpson. She showcases her company clients names on her business website to promote her business. This is a very popular business promoting advertising method used in online business websites and neither commercial contractual terms nor data protection have been a problem here in this practice. At one point you did put one review from a borrower on your lcaf.co.uk website in the borrowers section and removed it a while later. It was however, a very limited attempt at disclosure and reviewing.
Of course, you may not disclose this information simply because you do not want to and you do not have to. However, from a private investor point of view, whatever info you have which will satisfy commercial due diligence with reference to the subject matter of this letter should be published on your websites as it is not in your limited prospectus or information memorandum for the mini-bond. At least you could do as other commercial lenders do, post anonytised data on your websites including specific areas of businesses you lend to re the information needs of ethical investors.
How can LC&F expect astute potential investors to take seriously the non-data backed company statements and updates on LC&F websites as to commercial lending performance when there is little evidence re business track record nor evidence or proof provided for the existence of the SME commercial lending business?
To a potential investor, without commercial due diligence LC&F is a stranger. What reasonable person would invest money with a stranger when the stranger is unwilling to provide evidence of how he can pay back the interest? Some investors think and act more carefully than others, especially when their entire invested capital is at risk. It may be some of the investors in the recent failed Providence Bonds and Secured Energy Bonds are now wondering in hindsight where things went wrong, when audited accounts did not point to the misuse of capital and imminent failure resulting in total losses to the bondholders.
I am aware that even some of the biggest commercial lenders may have small numbers of employees, in low double figures, but they probably contract the work out as well. Re LC&F, however, Companies House Return 2015-16 states that there are only two employees in LC&F. They work in operations, not the lending side. So who besides you as CEO is doing all the complicated time consuming work of finding perfect loan clients willing to pay uncompetitively high 12-20% interest rates, as well as underwriting, risk evaluation, registering charges, etc? LC&F claims it is a direct lender not a broker and that it is not contracting the commercial lending out to a third party. Ultimately, this kind of business is only as good as the lender's collection service.
I am not saying the commercial lending business does not exist, rather it is not shown to exist and commercial due diligence attempts by clients, bondholders and potential investors, to seek further information verification by phone or email to LC&F or Surge do not bear fruit. LC&F have published info re the bond and bond customers but very little on the SME loans and borrowers. Unlike John Lewis, the Jockey Club, and Hotel Chocolat, etc. mini-bonds, your business cannot be seen to exist. Therefore greater transparency and disclosure is needed to increase investor confidence, although the rules for unregulated bonds are less onerous than traded bonds.
This is of concern for existing and potential investors, as well as FCA approved introducers, as the existence of the LC&F commercial lending business is declared to be the only means of company income, profits and bondholder interest payment. Investors in debt finance cannot assume that because bond term interest is being paid so far that the commercial lending or other named business is the source of that income, especially if the debt investment issuer is presenting obstacles to commercial due diligence.
The LC&F financial marketing team, Surge, point to LC&F audited accounts as evidence of the commercial lending business, but recent mini-bond investments and much larger businesses with audited accounts where term interest has been paid have collapsed. In turn resulting in loss of further bond interest and 100% loss of bondholder capital because the capital was later found to be misused and not used by the bond issuer for stated purpose. Companies have collapsed within months of lodging audited accounts, the auditors supposedly following a paper and electronic trail re financial due diligence.
However, auditing accountants generally only address financial due diligence not legal or commercial due diligence. Audited accounts do not necessarily prove that a company is doing what it is saying it is doing with reference to commercial due diligence. A registered company can do any legal business it wants to without having to notify Companies House. It could change its entire business the day after or before lodging accounts at Companies House.
Further, it is an unaddressed problem that bondholders in general cannot in practice see what the investor capital is being used for, nor can the security trustee. Neither have hands on management access. Financial history has shown bondholders cannot rely on issuer and trustee periodic reports nor audited accounts as in the case of recent highly publicised mini-bond failures where all of the capital investment has been lost. The capital was not used for the purpose it was intended, unknown to investors and the corporate trustee, siphoned off to various untraceable or bankrupt companies according to liquidators.
In addition, LC&F claim bondholders are protected in case of company failure by valued secured assets of loan borrowers, yet there is no evidence nor track record available to show bond investors the existence of such secured assets. Bondholders cannot check at Companies House the existence of LC&F charges re borrower secured assets as the company names of borrowers are unavailable to them.
I am also concerned re the claim the bond is protected by property and cash assets owned by LC&F, being aware that a company credit check reveals that existing liabilities, taking priority over bondholders, very nearly match the value of those assets.
Thank you for your time in reading this my letter to you, airing these concerns.
Yours sincerely,
Anonymous.
(Author, writer, teacher, politician, businessman, lawyer, private investor, and rights campaigner.)
"First do no harm" - The Big Short