Providence investors ‘highly unlikely’ to receive any money back: Deloitte

It is now “highly unlikely” that investors in the failed Guernsey-based Providence Investment Funds will receive any money back, according to the latest update from administrators Deloitte.

Although investor action groups are refusing to give up and, according to reports are now targeting the Financial Conduct Authority regulated company behind the bonds’ promotions, the update is is a further blow to Providence investors.

As reported, in August, Guernsey-based Brazilian debt fund Providence Investment Funds and its manager Providence Investment Management International Ltd were placed in administration, after the directors of both companies resigned.

The investments were closed-ended absolute return fund linked to investments in Brazilian debt, lent to small and medium-sized businesses. The fund claimed to provide investors with annual returns of between 7% and 14.25% from returns from interest on money lent to companies for between 30 and 180 days, via the Providence factoring company, Providence Global Factoring, based in São Paolo.

Deliotte update

The latest update from Deloitte, published at the end of December, has revealed further details about what happened to investors’ money. According to a report in today’s Telegraph, the administrator suggested it was “highly unlikely” any investments would be recoverable with about 20pc of the value of the bonds issued was spent on launch and marketing costs alone.

The funds were then lent to Providence Global Factoring to purchase unpaid invoices, but the money was instead lent again to Providence Group Finance and Providence Global, where it was mixed with other money.

The umbrella company, Providence Group, was controlled by director Antonio Buzaneli. As reported, in September, the American regulator alleged in relation to his US based company Providence Financial, that Buzaneli “engaged in a scheme that defrauded investors”, and obtained an order to prevent him leaving the US.

UK-based investors were hoping that there were still recoverable assets in two Brazilian factoring businesses owned by Providence Group.

However, Deloitte’s update found that the assets of these companies were almost entirely comprised of bad debts and irrecoverable account balances and any money that could be recovered would be likely to have to flow through multiple other companies in the Providence Group, being diluted at each stage, meaning it is doubtful that any funds will ever reach investors in the two UK bonds.

Action groups
According to the Telegraph report, action groups representing investors have not given up hope in recovering money from other companies with connections to Providence, and are now targetting Independent Portfolio Managers (IPM), a company regulated by UK financial regulator the Financial Conduct Authority, that was involved in the approval of the bond documents.
Without regulated status, the bonds, known as mini-bonds, could not have been marketed in the UK.
The Providence Bonds Investors’ Action Group represents around 230 investors and there is also a Secured Energy Bonds Investors’ Action Group. Both groups are waiting for the outcome of a provisional decision from the Financial Ombudsman, about whether investors are eligible to complain to the Ombudsman about IPM’s role in the bonds, the Telegraph said.

As reported, Jersey’s financial services regulator has already wound up Jersey-based IFA firm Lumiere Wealth, which was majority-owned by Providence Global, after an investigation into the sale of Providence funds.

Also, as reported, Lumiere Wealth’s founder and managing director, Christopher Byrne was arrested in October, charged with a £1m (US$1.2m, €1.1m) fraud linked to the funds. He appeared in court on 19 December on charges ranging from fraud to misleading regulators.

To see a more recent article about Providence, concerning the arrest of four individuals in Guernsey in May 2017, click here. 

ABOUT THE AUTHOR
Gary Robinson
Deputy Editor, International Investment and Head of Video at Open Door Media Publishing. A fully qualified journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as an IFA.

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