By Tom Winnifrith | Wednesday 24 April 2019
Let us be clear: Johnny Mercer, the Tory MP is not involved in the London & Capital Finance scandal which we have done so much to expose. But he is personally profiting from what will prove to be the financial scandal of the year, the mini-bond mis-selling affair, and his reaction to criticism of his behaviour is lamentable.
Mr Mercer adds to his basic salary as an MP – which puts him in the top 2% of earners – by picking up another £85,000 a year working 20 hours a month as a non executive director of Crucial Academy Ltd. That is what the register of members interests states although Companies House fails to list him as a director. The website of this operation suggests that the company behind it is actually The Crucial Group Ltd, but Mercer is not listed as a director there either.
Whoever is paying, Mr Mercer his salary is mouth watering. Pro rata it up for a full working week and this 37 year old former soldier is hauling in the equivalent of £731,000 a year. That is almost five times what the Prime Minister earns. Perhaps Mercer thinks that is fair. If so he has a bloated sense of his own self importance, something that is not unusual for an MP.
Crucial Academy/Group seems to do good work, training up ex solders in cyber security. No -one can fault that. However it is a relative start up with no accounts filed yet, in part due to it changing its year end so delaying that unpleasant task. And critically its major shareholder is Paul Careless of Surge Group and it has been bankrolled by Surge with an interest free loan of £325,095. Now why is that conmtroversial?
Surge & Careless have made tens of millions of pounds introducing, generally naïve, investors to mini bonds. These products were marketed as low risk/safe but yielding anything from 9%, in the case of the LCF ponzi, to 14% in the scheme linked to Lib Dem peer Lord Razzall ( not that Surge promoted that particular duffer). Surge charged a marketing fee of 25% of funds invested in mind bonds it plugged.
In the case of LCF (where Amber Rudd MP and the Conservative Party nationally still refuse to answer £65,000 worth of questions), the funds received went on a range of items like a helicopter for the CEO, race horses and it was clearly an outright fraud which the SFO is now investigating as investors face an 80% capital loss and no yield.
But Mercer should consider the maths of all mini bonds where Surge is involved. Let me demonstrate with a worked example.
Granny invests £100 in a five year bond offering a 9% “guaranteed” yield.
Surge takes £25 up front and the mini-bond arranger takes a further £3 management fee.
So £72 is loaned by the mini-bond provider to a borrower.
To repay Granny’s capital and her interest the mini-bond provider thus needs to turn a loan of £72 into £145 in five years.
And that implies an annual return of 20.3% per annum.
Good companies currently borrow monies at, perhaps 5%. Weaker ones might pay 8%. Folks borrowing on their credit cards pay 17% so what sort of companies would be paying interest at 20%? Yes, really rotten companies that are likely, in many cases, to go bust. In financial markets what is termed a junk bond yields 12%. So this is mega junk and as such the risk of capital loss ( and default on interest payments) is exceptionally high.
That is the maths Mercer needs tpo consider as he weighs his salary from Crucial Group. It has been funded by the profits made from a marketing company that is pushing investment products on naïve investors which they think are safe but , are in fact, incredibly high risk.
We have covered about half a dozen such mini bond schemes on ShareProphets. So far only a couple have gone bust but this is just the tip of an iceberg which will, in the end, see several hundred thousand vulnerable folks losing money they cannot afford to lose – perhaps Mercer should listen to some LCF victims HERE and think again.
If I was running such a shocking marketing scheme I’d try to get some good PR by throwing some loose change, in terms of the wider business, at a “good cause”. And I’d try to get a dupe of a Tory MP who really thinks he is worth five times what the Prime Minister take home on an hourly basis, on board to make it all even more respectable. And here we go, Mercer insists that the press has got it all wrong, telling the Daily Mail:
Surge is not part of the SFO investigation into LCF and has done nothing wrong, adding: 'They are however suffering trial by media.
'This effort to smear me by some loose connection to a company that I have never met, done business with or even heard of before its collapse is besmirching the good name of an exciting project at Crucial Academy run by good people doing good things.'
Well Johnny up to a point. If you do the basic maths you will see that Surge may not have broken the law but what it has been doing is morally reprehensible and yet you defend it and attack its media critics. Crucial Academy may be doing good work. But your bloated salary is only possible because of the vast fees Surge has made stuffing naive and vulnerable investors into product that- because of the commission structure – were almost certain not to delivered the returns promised and pretty much certain to result in capital losses.
Do the maths Johnny…are you really worth five times as much as the PM? Is the source of your salary really one that you feel comfortable with?
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