Financial Conduct
Beaufort Securities and Beaufort Asset Clearing
RNS Number : 4726G
Financial Conduct Authority
02 March 2018

Beaufort Securities Limited (BSL) and Beaufort Asset Clearing Services Limited (BACSL) are placed into insolvency

Following an urgent application by the Financial Conduct Authority (FCA), the High Court has appointed Messrs Russell Downs, Douglas Nigel Rackham and Dan Yoram Schwarzmann of PricewaterhouseCoopers (PwC) as joint administrators of BSL and joint special administrators of BACSL.

The FCA took this action following an assessment of the financial positions of BSL and BACSL (the Firms) which led the FCA to believe that both Firms are insolvent. The FCA also considers it necessary for insolvency practitioners to take over the running of the Firms in order to protect assets from dissipation and protect the customers of both Firms.

The FCA has also imposed requirements on the Firms, with immediate effect, using its own-initiative powers under the Financial Services and Markets Act 2000 (the Act), requiring the Firms to cease all regulatory activity and not to dispose of any firm or client assets without the FCA's consent.

The joint administrators / joint special administrators will contact all affected customers of the firms in due course. If customers of the Firms require more information about how they will be affected, they should contact PwC (contact details will be made available by PwC through the day).

We should learn more on Wednesday when they publish their draft proposals, including their suggested 'sliding scale' whereby larger portfolios are raided at a lower % rate than small ones, but still suffer a higher absolute ££ withholding.

Unless their proposals are totally unreasonable, or affect me very adversely, I will likely vote in favour as I suspect a 'no' vote could delay things for many more months.

The "proposals" to be published on Wednesday may well be further developed - for better or worse - by the time of the meeting. No less important will be what is formally stated at that meeting and the responses to any matters raised.

Without belittling the work necessarily to be done - it does look at this stage as though the slowest ship is going to be dictating the pace of the whole convoy....

Active execution-only clients may especially feel this way and be very keen to point to past precedents whereby such accounts were simply transferred quite swiftly to another broker. What is the point of the supposed "ring fencing" of client holdings/funds otherwise?

I am expecting PWC/FCA to be called upon for a lot of explanations in public on the day - if not informally taking place already.

It would be quicker and cheaper for the FSCS to cover the costs of transferring execution only client accounts that are valued below 50k to other brokers without delay, than assisting PwC to drag the the process out. All they have to do is agree a figure with PwC and allow clients to get on with the accounts that they have said were ring fenced., and as you say what is the purpose of ring fencing if the FCA rules allow this sort of abuse of clients assets.

Hopefully, those clients will turn up to the meeting when held and make there presence felt, and contact the FCA/FSCS before hand to make their position clear.

Far too sensible, clock.

We know they do not do sensible commervan, as they all seem part and parcel of the same parasitic group that are hell bent on ensuring that they and the so called "professionals" (including lawyers and accountants) are richly rewarded through the criminal actions and abuse of others, leaving those who have, so called protected assets high and dry, and then they stop you getting your hands these securities, so they can milk the situation for an extended period of time, keeping themselves all in highly paid jobs for a longer period of time.

How long before the legals turn up touting for a class action? On the info so far I reckon they'd hook a fair few....

Proposals on the website this morning as promosed. A rather long read, but actually not much in the way of new info.

As you say commervan, a long read but they seem to be on top of the situation now.

Although it is going to take time, there are positives for those with securities under £50k and it seems these should at least be sorted by September, without the need to formally claim through the FSCS for the bulk of clients, as it appears these will be dealt with through PwC , having just had a brief quick read of the document.

https://www.pwc.co.uk/business-recovery/administrations/assets/beaufort_proposals_20180424.pdf

Hopefully clients will be able to see their portfolios some time in May, and be able to check if they have been secured correctly.

May. I have not had time to read updated proposal. Hope its true about sorting this mess out.

Thursday meeting will help get a better idea of how this is going to pan out.

https://www.sharesoc.org/sharesoc-news/sharesoc-demands-fair-treatment-for-beaufort-clients/

Part of the article.

On 15th March, PwC confirmed that the ringfenced property of the Group’s clients was held appropriately in accordance with FCA requirements, being approximately £50million in segregated client money accounts and around £850million in client-owned securities. On the 12th April, PwC noted that client money and client assets were, as at the date of administration, substantially complete save for a very small number of isolated deficiencies. However, the initial estimate of £850 million client assets was reduced to £500m as a result of illiquid / nil value positions. The special administrator stated that the majority of client asset returns will commence September 2018 at the earliest and that around 700 clients with assets valued over £150,000 may experience a loss up-to a maximum of 40% on their ring-fenced assets!

PwC is proposing to charge an incredible £100 million for the wind-down over a period of 4 years. They have provided no justification of either the amount or timeframe for the simple task of transferring an electronic registry of client assets/money to one or more replacement brokers.

ShareSoc has launched a campaign with the primary purposes of mounting a legal challenge to the current administration proposals, specifically:

Refuting the Special Administrator’s right to seize ringfenced client property
Ensuring proper separation of the liabilities of BSL from those of BACSL
Questioning the Special Administrator’s cost and time estimates in relation to the wind-down of BACSL
Seeking a transfer of the business of BACSL to an alternative custodian
Reviewing the actions and motivations of the FCA in this matter
Lobbying for legislative change to ensure that assets in custody are properly protected

Good Luck to Sharesoc, and hopefully they will receive a huge amount of support from all those that have funds tied up in Beaufort, be it in cash of any other securities. The FCA have acted in a a deplorable manner and have not ensured that so called protected assets are transferred expediently to their rightful owners, when falling below their £50k warranted figure, and just reimbursing PwC for sanctioning the transactions. Further more to allow PwC to rip off ringed fence stocks regardless of value is disgraceful, when as Sharesoc states could easily be transferred to another custodian with ease.

Liquidators will not generally resign even when asked to do so, and the courts support them even when asked to remove them, and allow them to get paid for fighting them.

It is well worth reading a few judgement where cases have been brought to the Courts, as the Courts consider them to be their own:

“Moreover, the court does not lightly remove its own officer and will, amongst other considerations, pay a due regard to the impact of a removal on his professional standing and reputation.”

In AMP Ordinary Type Music Box Enterprises Limited v Hoffman (2003) 1 BCLC 319

"On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications under section 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.”


https://www.jerseylaw.je/judgments/unreported/Pages/[2012]JRC021.aspx

See emails from PwC.

Haven’t had anything from them yet this week, but on Friday i got access details to the portal, and was able to go in and confirm my cash balance and share holdings are present and correct. Apparently they will be in touch with me again in due course. How nice.

I also logged on. All got a bit messy last Thursday. So much for ringfencing.

I have not tried getting into the Portal yet CD, as I am traveling and have intermittent connections but can you explain why it is messy before I try logging in please?

.....or was CD talking about the meeting on Thursday?

I wasn't able to attend, and haven't seen/heard anything about how it went, although the write-up on the website suggests resolutions were passed, thereby approving their proposed plans. It also seems they were on the defensive regarding their costs, suggesting there was a strong challenge during the session.

Amongst all the other unfairnesses about this whole fiasco, it stuns me that the government are rubbing salt into our wounds by charging VAT on the already outrageous costs of sorting out the mess which THEY (through the FCA) should have prevented. A chunk of the money paid out by individuals who lost money, and by the FSCS, will be going back into government coffers.

Beaufort Securities’ clients in angry clashes with PwC
Administrator of collapsed broker rejects proposal to cap its fees

Kate Beioley

May 10,

Customers of collapsed UK stockbroker Beaufort Securities clashed with administrators PwC on Thursday over its plans to use client funds to pay the insolvency bill, which could top £100m.

At a fiery meeting in London, PwC rejected a proposal from customers and creditors to cap administration and legal fees at £35m.

PwC held to its contentious worst-case estimate of £100m in costs to return the £550m in assets and cash to Beaufort clients, although it forecast the likely eventual cost to be in the tens of millions. Client assets will be used to cover the cost of insolvency proceedings and irate investors have criticised the scale of the bill.

The rejection angered many of the 200-300 people at the meeting, convened to vote on PwC’s proposals to wind down the former broker closed down by the UK regulator in March.

Hours after it was put into insolvency, the US Department of Justice brought criminal charges against Beaufort and several employees for allegedly manipulating US penny stocks via so-called “pump-and-dump” schemes and orchestrating money laundering.

PwC said no former Beaufort directors were at the meeting, and revealed £6m had been spent so far on the administration. It estimated costs were likely to be £20m by September, when PwC may distribute some funds, according to two people present.

“People were furious,” said Beaufort customer Anthony Breton. “It was very hard to find anyone in the room who was voting for the proposals but people are confused too. They were very frightened by PwC telling them it could take longer and cost more if we rejected them.”

The results of the vote are expected on Friday. It could result in a return to the courts to appoint a new administrator if PwC’s proposals are rejected. Customers have until June 8 to confirm their claims to assets, via an online portal.

PwC has written down the value of the assets recoverable from £800m to £500m, after discovering a “number of highly illiquid and potentially nil value positions”.

Some 700 clients with larger portfolios of more than £150,000 in cash and assets could lose up to 40 per cent of their ringfenced assets. Customers can claim from the UK’s Financial Services Compensation Scheme but only to a maximum value of £50,000.

The case has concerned customers of UK brokers who believed their money could not be used in the event their broker collapsed. Campaigners and high-profile critics, including Lord Lee of Trafford, have railed against PwC’s plans. Lord Lee has tabled questions in parliament over the legal precedent of using customer funds in an insolvency.

“Customers are angry. They want to know how PwC was chosen and how the amount of £100m [for the administration cost] was reached,” he told the Financial Times earlier this week. “I think that’s an extraordinary figure. This isn’t Carillion, which had multimillion-pound contracts, it is a small stockbroking firm.”

Responding to Lord Lee’s question, Lord Bates pointed to powers granted to administrators after the collapse of Lehman Brothers.

I watch this with interest. It seems to me that these large accountancy companies have no connection with the feelings of the general public. You would think given the pressure that is starting to mount they would ease back on their fees for 6 months and let it blow over. Yet instead they appear increasingly stubborn and are trying to push their fees higher and higher.

I hope the parliamentary select committee gets their teeth into them, takes them off a few tender list and starts routing business towards "Championship Teams" rather than "Premiership Teams".

I think the mood is changing here. A few FTSE250 companies booting the top 4 out as well would help.


I'd like to understand the £300m of illiquid nil value positions too. Are they illiquid on a forced sale or if the shares were transferred to a new broker where the clients were happy to hold them do they then hold a value. I wonder because liquidating them is hardly good value for clients.

Sorry to all that have holdings with this broker. I hope the action group makes a difference here.

"Are they illiquid on a forced sale or if the shares were transferred to a new broker where the clients were happy to hold them........."
It's my understanding that option (transfer them to another broker) is not possible in the event of insolvency. It's the job of the liquidators to value the assets (amongst many other duties) and to liquidate them.
It's a complicated situation for all and I feel sorry for all those caught up. As you say, PWC seem to be milking the system to the utmost.