TTF Blog: 07 December 2020

by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting

Blistering victim testimony on the impact of investment fraud and regulatory failure in the UK, was last week given to MPs on Parliament’s Pension Scams Inquiry, a probe TTF campaigned for. You can watch the session here.

Ark Scheme victim Susan Flood, who together with her partner was scammed of approximately £250,000, told MPs that ‘systemic failures’ in the UK are “top-down from the majority of the regulatory bodies.” She said this applies to “HMRC, Companies House, FCA, PRA, TPR and SFO – that includes Action Fraud. … What happened to my partner and I pretty much ruined our family life and resulted in financial harm to us all. We’re still fighting for the return of our savings ten years on.”

MPs heard that despite being advised by regulated experts, and employing lawyers in response to red flags just weeks after the transfer, Flood and her partner were completely stripped of their pension savings and have yet to find any redress: instead, they have a monstrous tax bill on the ‘proceeds of crime’.

Flood told MPs: “We were lied to throughout the process. … We found ourselves in an Ark scheme, which meant that our life savings were actually put into a fraudulent land valuation and other unregulated investments. We [had] believed we were getting a low risk pension scheme.”

HMRC under pressure

Flood and her partner are facing 55% unauthorised charges from HMRC on the approximate £250,000 scammed from them – with the interest going up on that amount over the years.

Being hounded for tax on their losses is a common, harrowing experience for scam victims. The second witness at last week’s session was Dennis Waite, who lost, in a different HMRC-registered scheme, a £108,000 Royal Mail pension he had spent 21 years accruing. He told MPs that he is also facing a tax bill – of 40%-  on the proceeds of that crime.

Waite described how when he went to the office of the company that scammed him, he found dozens of other companies registered in the same building. The scam that Waite fell victim to is being investigated by the Serious Fraud Office. However, Rick Muir of the Police Foundation told MPs that punitive tax bills of the type faced by Flood and Waite can deter a lot of victims of financial crime from coming forward.

What is the true cost of inaction?

Flood told MPs that in her opinion, HMRC failed to engage with the issues cast up by the Ark scheme, since deemed by the High Court to be a type of ‘fraud on the power of investment’. She said: “I’ve asked to meet with HMRC numerous times over the years … swift action at the outset from HMRC in my opinion could have helped prevent the disasters of the past ten years.”

An adviser who ‘put £millions at risk’

The Pensions Regulator (TPR) described one of the key promoters of the Ark Scheme, Stephen Ward, in 2018 as “reckless and lacking in integrity” and banned him from acting as a pension trustee. It is important to note, at the same time, that TPR ‘did not find a lack of honesty or integrity’ (my emphasis) from Ward on the Ark Schemes, which he had introduced to 176 victims.

Instead, the TPR found that Ward had failed to learn from the Ark scam. Three years later he had promoted another massive scam.

The TPR’s 2018 report on Stephen Ward  where it covers the Ark Schemes, comprehensively sets this out: “The Position Statement prepared on behalf of Mr Ward for the hearing of this case stressed that at the time of making the introductions the schemes in question were registered with HMRC and the Regulator, and that Mr Ward was not a trustee or administrator of those schemes.

“The Panel was told in oral submissions on behalf of Mr Ward that no such trustee or administrator has been prohibited from acting as a trustee on the basis of dealings with the Ark Schemes.”

“[T]he Panel did not consider there was sufficient evidence of Mr Ward having actual knowledge of, or turning a blind eye to, the illegal nature of the activity of the Ark Schemes when carrying out his role as introducer before December 2011. We therefore did not find a lack of honesty or integrity on this issue.”

However: “The Panel took the view that a person of competence would … have learned from his experience with the Ark schemes. Mr Ward ought to have gained knowledge and experience from a close involvement with a pension scheme that was found to be a vehicle for pension liberation and had such grave consequences for members.”

The watchdog then shifted its focus to the later scheme that Ward promoted, in 2014, called London Quantum. In this scheme victims were ‘approached by introducers being paid commission to try to persuade pension holders to transfer their funds’. International Adviser reported on the London Quantum case  that more than 90 people had transferred their pensions “worth in excess of £6m ($7.7m, €6.75m)”.

Four years later Ward and another adviser were regulated for incompetence. Nicola Parish, TPR’s executive director of frontline regulation, concluded of the London Quantum scheme: “Stephen Ward and Anthony Salih put millions of pounds of other people’s money at risk and have neither the knowledge nor the skills needed to run a pension scheme.”

Parish added in her statement at the time, that: “Trustees play a vital role as the first line of defence for pension schemes, but these two men allowed huge sums to be invested into high-risk, exotic investments that bear all the hallmarks of being scams.”

Mounting financial scandals

At Transparency Task Force, it is impossible not to be aware of how victims of financial scandal have been piling up in the UK, with allegations that followed the last financial crash barely yet being looked at by the Business Banking Resolution Service before a wave of new complaints have come in linked to coronavirus.

Further, with Covid 19 having destabilised the economy, people are likely to be less financially secure and more vulnerable to fraudsters.

Meanwhile, the consequences of legacy cases might be coming home to roost. City watchdog the FCA is preparing reports on three prior scandals – the Connaught Income Fund Series 1, Interest Rates Hedging Products that were missold to SMEs, and thirdly, London Capital & Finance.

And the Pension Scams inquiry is now putting a lot of pressure on tax enforcers to reform their approach to victims of pensions and investment fraud. That pressure includes other voices in law enforcement. Rick Muir, Director of the Police Foundation, told MPs at last week’s session that landing large tax bills on victims is a form of ‘revictimisation’ – that for the victims this experience is akin to being scammed all over again. Concern was also expressed by MPs at last week’s session that HMRC is not on Project Bloom – an inititiative against scams that includes regulators and other law enforcers.

Project Bloom in focus

This is not the first time that TTF has heard that Project Bloom, a regulatory inititative to tackle scams in tandem, is insufficient. In October, TTF proposed that MPs could spearhead a ‘Joint Task Force’ against scams. What our members envisaged would be a “permanently staffed, co-located, working group, comprising representatives from each [regulatory] agency, with clear reporting and communication lines and accountability.” Seconded regulatory staff would then work together to ‘triage’ reports of scams. TTF members felt that this idea could mitigate the risk of competition, conflict or a lack of communication that might otherwise slow enforcement down. You can read that White Paper dated 14 October, on the Work and Pensions Committee’s website, here.

Alleged conflicts of interest for IFAs

There was one other idea that jumped out at last week’s evidence session: that an independent governmental body might be able to advise the public and steer them away from risky investments.

Asked about this idea, Susan Flood concurred that this might have helped her to dodge a bullet, and so could prevent future victims from being conned. However, she pointed out that she had taken supposedly ‘independent’ advice before she was scammed- and look where that got her. 

Flood suggested that financial advice must not be ‘based on commission’. This speaks to a controversial aspect of the UK’s financial ecosystem that I covered last week: Independent Financial Advisers are permitted to take undeclared or ‘secret’ commissions of ‘between 20% to 50%’ for promoting schemes to savers.

That quote comes from TTF member Peter O’Donnell, who lost his home to a scam in the 00’s. Now aged in his seventies, he directs a law firm seeking redress for similar cases to his own. O’Donnell believes MPs should enquire into the paying of high rates of commission to financial advisers. He has seen high rates of commission crop up repeatedly in cases on his desk.