Two companies ordered to pay £10.7m to investors sold risky #pension investmentshttps://t.co/pfDPr1UiO0 via @financialtimes
— Josephine Cumbo (@JosephineCumbo) August 10, 2020
The FCA’s judgement against Avacade and Alexandra Associates is justice but only just.
The FCA is requiring the two companies and three of their directors to pay £10.7m in restitution to retirees who were “induced” to transfer their pensions into self investment personal pension (Sipps) plans between 2010 and 2013.
For many investors, justice will arrive 10 years after the crime was committed. I quote from the FT reporting.
In a judgment dated June 30 2020, the court found that Avacade’s and AA’s activities were unlawful as they had engaged in the regulated activities of arranging and advising on investments, made unapproved financial promotions and issued false or misleading statements.
The court found Craig Lummis and his son Lee Lummis, directors of both companies, and Raymond Fox, a director of Avacade Limited, which is now in liquidation, were “knowingly concerned in” the breaches. It ordered Avacade to pay up to £10m, AA £715,000, Craig and Lee Lummis £2.5m each and Raymond Fox £1.7m.
However, it added that the FCA could not recover any sum greater than £10.7m.
Avacade’s activities led to 1,943 investors transferring about £87m of pension funds into Sipps, according to the court judgment. Of that, £68m was placed into investment products from which Avacade received commissions and fees totalling £10.6m.
AA’s activities led to at least 59 investors transferring roughly £4.8m of pension cash into Sipps, of which about £950,000 was placed into a single product known as the Paraiba Bond. AA promoted the bond, receiving commission of 25 per cent, according to the judgment.
About £42m of the cash was invested in ethical tree plantations in Costa Rica, which suffered significant damage during Hurricane Otto in late 2016.
This judgement comes as Stephen Timms and the Work and Pensions Select Committee investigate the impact of the pension freedoms. There will be many who lump pension scams together but let’s be clear, this money did not get shipped off because of pension freedoms, it was shipped off because the owners of the money would rather have had their money in Paraiba Bonds and ethical tree plantations than stuck in conventional UK pension schemes.
If this case informs the WPSC’s work it is in the light it sheds on people’s confidence in the regulated pension system between 2010 and 2013. It has become a commonplace for us to blame the pension freedoms for scamming, but these offences pre-dated the announcement of the freedoms in April 2014.
The investment schemes project investments in infrastructure and socially responsible investments that gave investors a sense that their money was invested with purpose.
Meanwhile , investors felt no such sense of purpose in their UK regulated funds. The WPSC must also ask what led to the dissatisfaction with existing pensions.
What’s the story?
If you want to read the backstory to the marketing of these investments, it has been chronicled for some years by Beat the Banks
Operated by the father and son team of Lee and Craig Lummis along with Raymond Fox, Avacade Limited, trading as Avacade Investment Options, was wound up in November 2015. Although Lee and Craig Lummis continued to trade through Alexandra Associates (UK) Limited, under the name of Avacade Future Solutions.
Both companies operated as unregulated introducers, passing pension transfer business to a number of independent financial advisers (IFAs) including Cherish Wealth Management, appointed reps of Shah Wealth Management and Black Star Wealth Management. They offered potential customers a free, non-advised pension report, the results of which were skewed to entice them to transfer their funds into Self-Invested Personal Pensions (SIPPs) and invest in a host of alternative investments.
It’s believed that Avacade (in both its guises) made arrangements with a number of SIPP providers, such as Liberty SIPP, to introduce and process a raft of Unregulated Collective Investment Schemes (UCIS). Variously these are said to include:
Ethical Forestry
InvestUS
Brisa Investments
Paraiba Projects Mini Bond
Investors will have known for some years that their money had been lost to commissions ,management fees and dissipated by unscrupulous asset managers who never quite got the assets built.
Justice – just
The wheels of justice grind slow. Whether the money will ever be recovered is in doubt. Those who have lost money will be pleased that the perpetrators will not be authorised in future, but as they were not authorised in the past, this appears to make little difference.
Alexandra Associates still trades today and the Lummis and Fox families are still at large. If this is justice, it is partial justice and shows that the punishment for financial crime involving pensions is a lot softer than other forms of theft.
It has taken 10 years to judge the scammers class of 2010. Can today’s scammers consider their end-date 2030? Is the worst they can contemplate, an FCA order to return money to those whose pensions they’ve spent for a decade?
We need swifter and more complete justice as a deterrent. That means more timely investigations as well as the sexy TV ads.
