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).

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.

Once I get weighed out. Will take the money and put it in my sock draw.

Or use Stratton Oakmont.

CD - Because my portfolio with Beaufort was very small - I decided to duplicate it in another account to see how I would be doing if I had access to the of stock and the very small amount of cash - over the past two months I am only down a fraction, due to costs. So it will be interesting to see where we are in September, with a mirrored portfolio.

https://www.allanswered.com/post/wrexn/join-the-beaufort-securities-campaign-campaign-updates/

The Ring Fence falsity:

"Answer:
Lord Bates:

The legal basis for the payment of administrators’ expenses from client assets is contained within rule 135 of the Investment Bank Special Administration Rules (England and Wales) 2011 (Statutory Instrument 2011/1301).

The Investment Bank Special Administration Rules apply to a broad range of businesses which hold client assets and are authorised to carry on a regulated activity which relates to the dealing, safeguarding or administration of investments as agent or principal, including stockbrokers.

Rule 135 sets out that client assets may be used only to pay the expenses which administrators have properly incurred as a result of the work undertaken to ensure that client assets are returned as quickly as possible. The rule also sets out the order of priority for payment of those expenses.

Date and time of answer: 08 May 2018 at 12:57"

Tomorrow is the deadline (“bar date”) for confirming holdings and cash via the portal. Hopefully we have all done so.

Completed form.

Some better news it seems but I guess that is thanks to Sharesco

https://www.ft.com/content/eb265556-6b01-11e8-8cf3-0c230fa67aec

"Most Beaufort Securities customers to be spared insolvency costs"

I'm not subscribed to FT, but I guess it's their interpretation of the following, which is indeed good news, and undoubtedly due in large part to ShareSoc as you say.


General update - Beaufort Asset Clearing Services Limited (BACSL) - in special administration – 8 June
Russell Downs, BACSL joint special administrator and PwC partner, said:

“The special administrators held a constructive and wide-ranging discussion with the creditors’ committee on Wednesday 6 June.

“The administration team, the creditors’ committee and the Financial Services Compensation Scheme (FSCS) have agreed a cost allocation that will see 94% of the costs for returning assets to approximately 17,500 retail and corporate clients* being covered by the FSCS.

“Fewer than ten retail clients will face any costs exposure at all.

“The remaining 6% of costs will be borne by corporate clients, although this percentage may reduce as the distribution plan evolves.

"This is based on a cost allocation that is a flat fee for securities, where maximum costs will be capped at £10,000 per client. The FSCS will cover this amount for all clients bar those who are not eligible (i.e. some of the corporate clients).

“The creditors’ committee support the development of the distribution plan, with the aim of receiving all necessary approvals in July before the intended block transfer of the majority of clients to a nominated broker in September.”



ENDS

News update is better than I expected.

Distrubution details - trust everyone has received the e-mail.

https://www.pwc.co.uk/services/business-recovery/administrations/beaufort/distributions.html