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).

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.

The question of "liquidity" depends upon the scale.

Most stocks are pretty liquid, most of the time, at the levels of deals that an individual typically does. However, if a broker's vast nominee pool were to be liquidated over a short time (think fire-sale), then a lot more stocks would clearly become "illiquid". The variation between the initial and latest asset value estimates is probably simply due to a more "prudent" valuation.

PWC state that they are considering "worst case" scenarios. Their aim is to transfer most client portfolios to a new broker in due course. They have also stated that a liquidation of any holdings would be as a last resort.

The broker of course had several different lines of business - individual facing and corporate facing. They may have been "small" but their clientele wasn't solely individual investors and traders. I believe that this is where a lot of the claimed "complexity" of the siuation lies.

There is also some doubt that they were actually insolvent on the 1st March at the time of suspension, though it is said that problems ahead were foreseen.

It is still not clear exactly how the fees of the administration are actually going to be collected from clients. Said fees even at an individual level could be far from insignificant. It is to be hoped that the FSCS will do the necessary to minimise the messiness this potentially has....

I take your point guys but PwC are saying that out of £800m, £300m are illiquid and worthless. That's nearly half of every client's portfolio. That just doesn't seem likely, because some clients will have highly liquid stuff (FTSE250, funds, bonds etc.)

Also, the objective of the liquiditor is to maximise returns to creditors. It takes half a nano-second to work out that a transfer to another provider for all accounts under £50k is the best thing for clients. Even if PwC charged £10 per line of stock to transfer as an admin charge.

Clients over £50k, it takes about 5 seconds to come up with a proposal.

Or are we saying that the £50k FCA limit won't apply. I think it does even if PwC plunder those accounts.

I am applying for a job at PWC.

Legalised Mafia.

If they offer you share options as part of your remuneration package, think twice.

I have some ETFs in my portfolio at BS. I understand that some other brokers don’t deal in certain types of these, hence i wonder if they might be considered difficult to transfer and therefore illiquid?

"Lord Lee has tabled questions in parliament over the legal precedent of using customer funds in an insolvency."

This is all noise - window dressing - liquidators are given a license by the Courts to do as they please - the Courts then protect them as they become "Officers of the Court" and act with impunity against one and all with the blessings of the Court. The Lords are made up of these judges that in turn are protected by the Privy Counsel - and the Queens advisors.

Check out all the cases you can find when it comes to applications to remove liquidators and you will see how hard it is to get anything other than a very large legal bill for trying - they will never recuse themselves as it is another way they are allowed to increase costs.

The lesson, is not to keep anything above £50k in any account that is "REGULATED" by the FCA etc. Spread your funds around, and keep a stash of gold if you want security.

Still moving onto the Portal - it is easy to access and confirm your portfolio`s and they appear to have done a deal with the FSCS for clients with assets under £50k - by confirming your acceptance the claim with be automatically processed but how the assets are to be valued is the question that will be in dispute - for instance you have penny stocks that may be well underwater but in a month or two, or even a few hours could leave you with substantial profits if you were to have them transferred to another broker - on what basis will you get compensation ? It should be at cost if they are underwater and you have under £50k`s value in total but Hey Ho you have no chance I guess, as I notice the portfolio`s on the portal did not provide the cost of the stock or attribute any value to any of them, regardless of liquidity.

CD - was there any discussion at the meeting about how and when (date) the stocks would be valued by PwC?

September. Try plotting on the chart where your stocks might be then!!!!!!!

CD - Many would be well pissed off if it resulted in them being well in excess of £50k but in my case I had very little with Beaufort, as I had liquidated last year and only used them for penny stock punts as they were cheap and the site worked well before they upgraded it last year. It would be a miracle if the couple of lines I hold with them would reach anywhere near £50k by September.

Hopefully my main broker is more robust but it has since made me open up further accounts and distribute my holdings. Although it does increase costs and work but in view that ring-fencing does not mean what the FCA said it did on the can, it prevents total wipe-out.

Let us hope the likes of IG never suffer this type of fate.