Advisers who recommended clients to invest their pension pots and life savings in the offshore Premier New Earth Recycling & Renewables [NERR] fund have been ordered to make good hundreds of thousands of pounds following complaints to the Financial Services Ombudsman.
It is yet another controversy linked to NERR, the Isle of Man based environmental fund which was supposed to finance a £21 million 'revolutionary' waste treatment facility for the Scottish Borders.
But in fact dealings in NERR Infrastructure PLC have been suspended since November 2013, preventing hundreds of investors from taking their money out while the fund failed dismally to deliver the cash needed for the waste management incinerator planned for Easter Langlee, near Galashiels.
Files published on the Ombudsman's website reveal a string of complaints from individuals who claim to have received bad advice from finance 'experts' who told them to sink large sums of cash in NERR. In each of the cases reported the financial services watchdog has upheld the complaints, ruling that the New Earth funds were not suitable for cautious investors.
In one particularly distressing case, an 82-year old woman - she has since died - was persuaded to place £99,000 in NERR out of a total investment of £125,000 after selling her house in 2013. The executors of her estate were unable to access the capital within the bond because of the suspension of NERR.
The report upholding this complaint by ombudsman Doug Mansell states: "This fund has been referred to as an unregulated collective investment scheme [UCIS]. But I think it is more accurately defined as a 'qualifying investor' fund incorporated on the Isle of Man. It was intended for use only by specialist investors, and on balance I don't think Miss C was made truly aware of the risks involved in the fund".
He ordered MFS Partnership (SW) LLP, who advised Miss C, to make good the losses. And he warned: "I agree with the adjudicator's proposal that the [NERR] fund should be given a nil valuation when calculating compensation".
Not Just Sheep & Rugby was told months ago by an agent trying to recover money for clients from NERR that the fund's long-term suspension and its connections with the tax haven of British Virgin Islands meant the chances of him succeeding were "virtually nil".
But it looks as though a number of investors will be compensated by financial advisors who claimed NERR was a low risk sure bet offering a return of up to 12% per annum.
Another individual who suffered at the hands of NERR and the same form of advisers was cajoled into investing more than £210,000 in the fund via his self-invested personal pension [SIPP]. The suspension of the fund meant Mr. S has been unable to take his pension benefits, and his complaint was also upheld.
The ombudsman in this case Adrian Hudson explained that an adjudicator had decided the fact that 80% of the investment went to unsecured loan stock made the fund high risk and increased the potential for liquidity issues. The fund was also subject to restrictive redemption procedures and penalties, and was not suited to an investor nearing retirement age.
In a negative critique of NERR, Mr. Hudson stated: "Unregulated investments carry higher risks in themselves. They don't benefit from regulatory protections and the funds are generally regarded to be highly specialized. In many cases UCIS funds have a limited market for re-sale and have significant investment and illiquidity risks."
Several other complaints involving NERR have been taken to the ombudsman service, and each one has been upheld. At the same time the Premier Group, controllers and managers of the fund, have failed to submit financial statements since the year ended March 31 2014, and are thereby in breach of Isle of Man company law. It means no-one knows the true value - if there is one - of the fund.
And yet councillors at Scottish Borders Council remained convinced for almost four years - from April 2011 to February 2015 - that NERR could build them a shiny new waste disposal mechanical and thermal facility for council contractors New Earth Solutions [NES], whose technology also proved to be worthless.
The sad truth is that elected members of every political shade appear to have failed to insist on rigorous 'due diligence' of NES and NERR, a failure which resulted in the loss of at least £2.4 million for local taxpayers. It is a saga which seems set to run and run.