Mini-Bond Investors Continue to Take Claims Against ‘Introducer Firms’ to FOS

In August 2019, Mrs L invested £17,500 in MIX Ltd loan notes issued by an investment company within the Magna Group. Mrs L first heard about the investment through an advertisement from a company called Hunter Jones, an introducer firm.

• Hunter Jones was an appointed representative of Equity for Growth (Securities) Limited.
• Equity for Growth (Securities) Ltd acted as the ‘principal’ firm, regulated by the FCA.
• Since 2008, Equity for Growth (Securities) Ltd has been authorised only to conduct corporate finance business.
• Magna Group included Mix Ops Ltd, one of seven companies that the High Court shut down in August 2021.
• MIX2 Ltd, MIX3 Ltd and MIXG Ltd were unregulated ‘mini-bond vehicles’, also wound up by the High Court.
• Magna Group was the security trustee for MIX Ltd’s loan notes.

Mrs L’s MIX investment was to fund various property projects, and she was told she would receive accrued interest and her capital at the end of the specified term.

By January 2021, Mrs L learned that the Magna Group was in financial difficulty and did not have sufficient assets to repay investors.

Mrs L complained to Equity for Growth (Securities) Ltd about the advice she received from Hunter Jones and the level of risk associated with her investment. Her claim was rejected because Equity for Growth (Securities) Ltd said it was not responsible for any financial advice Hunter Jones might have given, only for the transactional basis Hunter Jones was working under. It also claimed that Mrs L had signed a document agreeing she was a ‘sophisticated investor’ and therefore aware of the risks involved in mini-bond investments.

Mrs L was unhappy with this response and took her complaint to the Financial Ombudsman Service for review.

The Financial Ombudsman Service (FOS) was established over twenty years ago to settle disputes between financial services firms and consumers. If a customer has a dispute with their financial adviser or bank, FOS can consider both parties’ views, along with the rules and regulations in place at the time. Both parties are invited to respond, after which a final decision is reached. FOS has the power to order the payment of compensation for financial losses.

In Mrs L’s case, a FOS investigator reviewed the case and concluded that Hunter Jones was more than just an introducer firm. Hunter Jones had discussed the mini-bond investment with Mrs L on several occasions, actively persuaded her to invest, and was present when she completed the application forms.

This made Equity for Growth (Securities) Ltd liable for Hunter Jones’ actions, as they were classed as ‘regulated activities’ as specified in Part II of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO):

• Advising on the merits of buying or selling a particular investment which is a security or a relevant investment (article 53 RAO) and
• Making arrangements for another person to buy or sell or subscribe for a security or relevant investment (article 25 RAO)

Further, the Ombudsman said that Hunter Jones had not treated Mrs L fairly or communicated clearly with her. The initial advertisement for the mini-bond investment and Hunter Jones’ subsequent communications were misleading, and Mrs L did not understand the significance of the term ‘sophisticated investor’.

Equities for Growth (Securities) Ltd was ordered to refund Mrs L the full value of the investment she made (£17.500) plus interest at 8%

Green Life Buildings Ltd was registered in Northamptonshire and was involved in the ‘manufacture of wire products, chain and springs’. The company went into administration at the end of 2022. Information from Companies House states that, in May 2019, the company was privately held and had 2 employees. Other online data suggests the firm had raised over $2 million through seed funding by 2020. Seed funding is a way of raising money early in a company’s life. It is designed to support the business and stimulate growth.

In June 2019, Mrs S invested £5000 in shares in Green Life Buildings, after receiving emails about investment opportunities. The emails came from a company called Amyma Ltd, an appointed representative of Equity for Growth (Securities) Ltd.

Mrs S claimed that she received unsuitable financial advice from Amyma Ltd and complained to Equity for Growth (Securities) Ltd. Equity for Growth (Securities) Ltd disagreed, saying that Amyma Ltd was only an introducing agent and had not provided advice. They also said Mrs S had signed a declaration that she was a high-net-worth investor and had made her own investment decisions.

Mrs S was unhappy with the outcome and complained to the Financial Ombudsman Service.

A FOS investigator said that Mrs S’s complaint should be upheld, as Amyma Ltd had persuaded Mrs S to invest, helped her ‘make arrangements’ to complete forms and handled her payment.

‘Making arrangements’ is an activity regulated by the Financial Conduct Authority and therefore Equity for Growth (Securities) Ltd was deemed responsible for Amyma Ltd’s actions.

Amyma Ltd should not have made a ‘direct offer financial promotion’ to Mrs S, i.e. sent emails promoting the investment in Green Life Buildings, as it appears they did not take ‘reasonable steps’ to determine that she was a high-net-worth investor. Mrs S had, in fact, little investment experience or knowledge.

There was insufficient evidence of whether Amyma Ltd had provided financial advice to Mrs S.

The Ombudsman concluded that to compensate Mrs S fairly, Equity for Growth (Securities) Ltd should compare the performance of her investment against an industry benchmark (suited to her risk profile and needs) and pay the difference if her investment had a lower value. If that were the case, interest at 8% would be added. Further, Mrs S was compensated £150 for ‘the trouble and upset caused to her by the arrangement of the inappropriate investment’.

Sarah Spruce, Legal Director at TLW Solicitors, says of these FOS decisions:

“We continue to work with clients like Mrs L and Mrs S who invested in mini-bonds. Mini-bonds are risky investments and not suitable for ordinary people. These cases are complex, and who might be at fault isn’t always clear. Were the correct rules followed for a financial promotion, such as an advert or email, or was an appointed representative firm involved?

“In the cases we deal with, we find that clients may remember the initial person they dealt with, but often do not realise that they were working on behalf of another company.

“If you thought you were getting sound financial advice in relation to mini-bonds but ended up with an unsuitable investment and lost money, you may be able to make a compensation claim. My experienced team will be able to discuss your options, so please get in touch and we can explore whether you may be eligible to make a ‘no-win, no-fee’ refund claim.”