Blackmore Global, the sister investment scheme to the UK minibond that collapsed with £46 million of potential losses, is being investigated for potentially running an illegal collective investment scheme.
Blackmore Global was established a few years before Blackmore Bonds. It is, on the surface, an unregulated investment scheme consisting of a closed-ended company registered in the Isle of Man.
The BBC revealed in 2018 that a number of UK pension investors had been missold in transferring their pension funds into Blackmore Global, an inherently high risk unregulated investment. The linked article has been suppressed by Google – along with its BBC source – due to legal action by Blackmore.
The articles remain suppressed despite the fact that Blackmore has never proved or even attempted to prove in a court of law that any part of my article is untrue, and the same applies (so far as I am aware) to the BBC’s.
Investors in Blackmore Global were locked in to the fund for 10 years. Blackmore Global was incorporated in September 2013 and the earliest any Blackmore Global investors will be able to cash out of the fund is therefore September 2023.
The current status of investments in Blackmore Global is unknown as it does not publish regular independently audited accounts.
After seven and a half years of operation, the Isle of Man Financial Services Authority has now accused Blackmore Global of running an unregulated investment scheme.
The IOMFSA went public with its accusations because it “considers it is desirable in the public interest to publish the information”.
The IOMFSA’s accusation is based on the following:
8.1 When Blackmore was established it availed of an exemption provided in the Collective Investment Schemes (Definition) Order 2008 (the “Order”). The relevant exemption in the Order was at paragraph 4: “…and no other body corporate other than an open-ended investment company, shall be regarded as constituting a collective investment scheme.
8.4 The Offering Document (and Article 12 of the Articles of Association) provides that Blackmore may only repurchase shares in exceptional circumstances subject to strict criteria:
“12.2 Unless shares are expressed to be redeemable, the Company may only purchase, redeem or otherwise acquire them pursuant to –
(a) an offer to all shareholders which if accepted would leave the relative rights of the Shareholders unaffected and which affords each shareholder a period of not less than 14 days within which to accept the offer; or
(b) an offer to one or more shareholders to which all shareholders have consented in writing; or
(c) an offer to one or more shareholders in respect of which the Directors have passed
a resolution stating that in their opinion the transaction benefits the remaining shareholders and the terms of the offer are fair and reasonable to the company and the remaining shareholders”.
Or to translate from Manks Gaelic:
Blackmore Global was only able to operate as an unregulated, unlisted investment scheme on the basis it was a closed-ended scheme, meaning that to join an existing investor had to sell you their shares, and to exit you had to find a new investor to sell you their shares. Isle of Man securities law recognises that this is inherently less likely to be flogged to the public than an open-ended company which can generate new shares for any investor who wants to join and extinguish them for any investor who wants to cash out.
It is technically possible for a closed-ended investment company to buy its own shares off the shareholders using cash in the company. Do this often enough, however, and you start to behave like an open-ended fund.
The IOMFSA alleges this is what Blackmore Global was doing.
8.5 The Authority became aware that between March 2015 and May 2019 there had been regular and substantial redemptions made out of Blackmore.
8.6 The Authority does not consider that the number and nature of the redemptions processed and made were exceptional in nature, or that Blackmore was able to evidence that the transactions benefited the remaining shareholders and that the terms of offers were fair and reasonable to the remaining shareholders.
The extent to which these regular and substantial redemptions made out of Blackmore has to do with investors like those featured in the BBC investigation being allowed to cash out prior to the ten-year lock-in period ending is unknown. In part due to its own lack of disclosure.
Also unknown as yet is whether any of these redemptions were made by Blackmore directors or controlling persons.
The IOMFSA is now considering “appropriate next steps”.