The bankrupt and worthless offshore investment fund, favoured by Scottish Borders Council to provide the money for a £23 million waste treatment facility for the region, features in a series of recent successful compensation claims lodged with the Financial Ombudsman Service against firms of financial advisers..
And the controversial unregulated New Earth Recycling & Renewables [NERR] is now regularly listed by websites advertising no-win-no-fee recovery services as having been potentially mis-sold to hundreds of unsuspecting investors.
A total of 3,249 investors lost £292 million when NERR collapsed in 2016, a year after the Borders local authority abandoned its multi-million pound waste management contract with New Earth Solutions, NERR's business partner.
It later transpired that investors' cash had been used to prop up the failing NES Group before the entire operation went belly up. The financial disaster also cost local council taxpayers at least £2.4 million, the sum spent by SBC in unsuccessfully attempting to deliver the treatment plant planned for Easter Langlee on the outskirts of Galashiels.
Liquidators continue to investigate NERR which was part of the Isle of Man-based Premier Group with the possibility of having uncooperative directors or managers brought before the Manx courts to be cross-examined on oath.
This year alone there have been a number of compensation claims against so-called independent financial advisers (IFA) settled by the ombudsman. The amounts lost in NERR following the transfer of pension pots and savings runs into hundreds of thousands of pounds.
Among the firms ordered to make good NERR investors' losses are Active Financial Partners, True Bearing, Leech & Burgess, Parker Kelly Financial Services, Helm Godfrey Partners and The Citimark Partnership. Sums invested in the dud fund ranged from £10,000 to £100,000, and in virtually every case the unregulated entity should not have been offered to members of the general public.
The complaint against advisers Parker Kelly in which £25,000 had been lost resulted in the following passage being included in the Ombudsman Gideon Moore's report: "There was no recourse for the investor if the joint venture (between NESG and NERR) defaulted [and it did]. The loans did not have to be repaid for a period of 15 years, which meant from the start liquidity could be a problem for any investor seeking to access their funds. The adjudicator accepted there may have been shortcomings in how these funds were managed by the providers (which may include potential allegations of fraud)".
There were different allegations - this time involving a possible conflict of interest - in a complaint upheld against Citimark.
Again, the investor who placed £100,000 in NERR did not get ownership rights so ‘unsecured’ meant the investor had no recourse if the joint venture defaulted. The adjudicator thought it too much of a coincidence, given the overlap between the fund and the adviser, for the investor identified only as Mr C to have randomly chosen the investment himself.
Ombudsman Kim Parsons wrote: "The business [Citimark] has now acknowledged there was a conflict of interest. The conflict of interest between the adviser’s role with Citimark and his role in Premier New Earth and Eclipse is important. The Citimark partners were also directors of Eclipse Investor Services LLP. Eclipse had a financial interest in Premier New Earth – the UCIS recommended to Mr C.
It also emerged during the investigation into a different complaint against Citimark that IFAs were being paid commission of 4.36% of any investment and 0.5% of the value each year. Investors faced the prospect of an exit charge of 8% in year one reducing by 1.6% a year. There was an annual management charge of 1.5%.
But Citimark told the FOS why they believed the New Earth fund was a good investment. They said that in 2008 equity markets had crashed, banks had failed and major property markets were in a slump. This meant that many investors, including Citimark clients, were seeking alternative options to traditional markets.
Citimark said the New Earth fund offered a number of features that differentiated this investment from other mainstream/non mainstream investments: *It was uncorrelated to the major traditional equity, property or bond markets; *It was regarded as a socially responsible, green investment, based on waste recycling management processing; *It was an asset-backed investment, generating utility or property-style revenue; *The customers of the underlying business were local authorities, regarded as blue chip customers; *The offering reflected the general thrust of EU regulations and aims to reduce carbon-footprint, a theme many investors considered in line with their own attitudes towards the planet.
Unfortunately apart from providing handsome annual fees for its Isle of Man managers and promoters the NERR fund proved to be totally worthless. And Scottish Borders Council, one of the "blue chip clients" mentioned above was, in truth, just another of NERR's victims.
Now the fund has become a target for claims management firms such as SIPP Claims, Neglect Assist, and Aspire Business Management. A typical commission charged by such companies is 25% of any compensation won plus VAT. Perhaps the hapless local authority which suffered at the hands of NESG and NERR should give one of the reclaimers a call!
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