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Seven firms shut down due to mis-selling mini-bonds

Written by: Emma Lunn
The Magna Group mini-bond companies were found to be responsible for mis-selling of more than £20m of loan notes.

The High Court wound up the seven companies after an Insolvency Service investigation found that their marketing of high risk mini-bonds, used to fund property development projects, was misleading and the directors continued to take investors’ money even after the companies were insolvent.

The principal directors of all the companies were Christopher John Madelin and Oliver James Mason. The companies involved were Magna Investments X Ltd, MIX2 Ltd, MIX3 Ltd, MIXG Ltd, Magna Asset Management Ltd, Magna Project Management Ltd and MIX Ops Ltd.

All were incorporated between December 2014 and March 2019, and were registered at the same address in Mayfair, London.

The Financial Conduct Authority (FCA) recently banned the mass-marketing of mini-bonds to retail investors, following concerns that they were being promoted to investors who neither understood the risks involved, nor could afford the potential financial losses.

The Insolvency Service investigation into the Magna group of companies discovered that marketing of the mini bonds was misleading. The group’s marketing material overstated both the levels of security being offered and the true protections offered to them from the appointment of a ‘Security Trustee’.

Madelin and Mason, having secured deposits from investors, are believed to have been the beneficiaries of £2.5m through director loan accounts.

MIX3 and MIXG took more than £2m in deposits from loan note creditors between 1 December 2019 and 25 February 2020, a period when the directors ought to have known that all of the companies were insolvent.

MIX2 had, by then, failed to pay its loan note holders when due, leading to a ‘default event’ in all four MIX to MIXG loan note instruments.

During this period, however, the directors paid themselves £425,021 with a further £370,471 lent to a non-UK company of which they were shareholders.

The companies were all wound up on 10 August and the Official Receiver was appointed liquidator.

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. The Insolvency Service has acted, applying to court for the group of companies to wound up in the public interest to protect others from becoming victims and to send a strong message to like-minded perpetrators that behaviour of this nature will not be tolerated.”

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