The business Lloyds Banking Group is close to buying for £400 million could end up paying millions of pounds of compensation over its involvement in a notorious alleged pension mis-selling scandal over hotels in Cape Verde.
At the weekend, it emerged that Lloyds was in detailed talks to buy Embark in what would be its first acquisition since the government sold the last of the taxpayer’s stake in the banking giant.
However, the Evening Standard can disclose that Embark’s Rowanmoor division is facing hundreds of claims for compensation over failed investments in The Resort Group.
Rowanmoor provided many of the alleged victims’ self-invested personal pensions (SIPPs) which were disastrously invested into the hotels on the exotic holiday island off the coast of Africa.
The Financial Ombudsman Service told the Standard it was dealing with 485 compensation claims relating to Rowanmoor out of 510 claims over advice linked to The Resort Group.
The Financial Services Compensation Service, which pays out for bad advice from firms which have gone bust, has received more than 450 claims against advisers who recommended clients invest in The Resort Group and has paid out more than £5.9 million.
While the FSCS claims did not involve Rowanmoor, they highlight the extent of The Resort Group issue.
Analysts said Lloyds was likely to insist on being indemnified against potential claims, but it does risk reputational damage which would be unwelcome after the HBOS Reading scandal.
Similarities could be drawn between this and investment group Quilter’s takeover of Lighthouse, an advisory firm accused of mis-selling British Steel workers out of their generous workplace pensions. Quilter has ended up having to set aside millions of pounds to fund potential claims.
In The Resort Group affair, investors who say they were promised more than 8% annual interest for buying a part-share in hotel rooms have instead found themselves losing money as the promised rental income fell short and were eaten up by fees, including to Rowanmoor.
Some claim the investment they made has proved worthless because nobody will buy it from them.
A recent Court of Appeal ruling in the case of Carey Pensions, which provided the SIPP for a duff storage pod investment scheme called Store First, has given fresh heart to those claiming against Rowanmoor.
Carey Pensions has since changed its name to Options Pensions and its parent company has set aside £3.6 million to meet claims.
Key to the case’s relevance is that, as with many Rowanmoor customers, people were advised to invest by a firm that went bust. In the Carey case, the Court of Appeal has said the investor can unwind his investment and obtain damages.
Some lawyers say the case means SIPP providers may no longer be able to wash their hands of responsibility when they accept clients’ business from third parties.
In the case of The Resort Group, many investors were advised by a company called CIB (Life & Pensions), which went into administration.
Andy Walton, who claims to have lost thousands of pounds after being persuaded to invest £21,000 of his pension into TRG’s Dunas Beach Resort, said: “I’d tell Lloyds not to touch this with a bargepole. There are thousands of us invested in TRG that are owed massive amounts of money.
“I am not a high risk or sophisticated investor but I was told this was a good investment for me to consolidate my three pensions into one place. I was clear I needed this to make enough money to help me in my retirement but actually it has ended up costing me money.”
He and others say that, not only did they not receive the rental income they had been promised, but they have also had to continue paying fees to Rowanmoor for the SIPP.
Out of his original investment, Walton says he has paid more than £3840 to Rowanmoor in SIPP charges.
Embark said in a statement: “Rowanmoor is a SIPP provider and operator, it does not give either financial or investment advice to any party.
“We strongly believe that we undertook all necessary requirements of us as a SIPP provider.”
Of the claims against the company, it said: “Processes are ongoing and we cannot comment further at this stage.”
Lloyds declined to comment.
Gibraltar-based The Resort Group did not respond to a request for comment before publication but has previously stressed that claims have been made against advisers, not TRG itself.
It has said: “The majority of investors have been paid all contractual returns. With the Covid-19 pandemic all resorts were closed on 18th March 2020 and have yet to reopen so no returns have or can be made for the intervening period.
“It is fully accepted that there are some outstanding payments due that relate to the period before 18th March and these will be brought fully up to date once the hotel resorts in Cape Verde are operational again.”
Andy Walton had just been told he was being made redundant when a PPI claims handler he was using recommended he invest in The Resort Group.
Andy says he wanted to amalgamate three pensions into one to reduce his fees and wrongly thought the The Resort Group scheme was regulated by the UK authorities.
He says he was promised 5% annual returns and signed up in 2011.
He claims CIB, trading as Real SIPP LLC, sold him a one-eighth fractional share of what he was told was a hotel room at the Dunas Bay Beach resort in Cape Verde.
In fact, he was sold an investment in a company, Dunas Beach Apartment 107 Limited, which Companies House filings list as dormant with no assets or reserves.
He says the fact that he does not actually own the property has made it impossible to sell his stake.
“The returns on the room revenue have continually gone down for me and that was well before Covid,” he claimed.
“The result is I ended up paying out more than I was getting in.”
He also claims he was forced to pay extra fees to Rowanmoor after Real Sipp/CIB went bust.