There is a ‘taint of illegality’ across the vast majority of the business carried out by the Louis Group in the Isle of Man.
That’s the damning conclusion of a liquidators’ investigation into the collapsed group which was wound up by the High Court last year, its island-based fund, promoted as ‘low risk’ having earlier been suspended, unable to pay its multi-million pounds debts.
There was a web of 120 separate Louis Group companies in the Isle of Man, and the liquidators’ inquiries involved sifting through 5,000 paper files, tens of thousands of banking transactions going back over a decade and well over a million emails regarding the group’s commercial affairs.
The liquidators estimated there were over 700 different investors who invested a total of about £25m in the Louis Group Structured Fund and around £35m across various property syndicates.
Around a quarter of these investors are from the Isle of Man, the remainder mainly being from South Africa and the UK. The largest investor put in around £5m, but the vast majority invested much smaller sums - between £10,000 and £30,000 - who are described in the report as being in the main ‘man in the street’ type people.
Investors were attracted by the Louis family’s self-projected religious values and representations of low risk investment.
The liquidators’ inquiries concluded that the Louis Group systematically mixed investor-sourced client money which they believe amounted to deposit taking activity. They said: ‘If we are right about that, then because none of these entities was ever licensed as a deposit taker, there is a taint of illegality across the vast majority of the business carried out by this group in the Isle of Man.’
As long as new money kept flowing in, Louis Group was able to continue with this activity. But when in 2009 and 2010, covenants under the bank facilities were breached and increasing numbers of investors started to demand repayment, the finances became stretched.
Significantly, the liquidators do not believe there was any Louis Family money invested in any structure.
The investigations uncovered evidence of widespread conflicts of interest, breaches of procedures and other serious failings in corporate governance, hidden fees and commissions and new investor capital being used to service interest and to pay old investors their capital back, often in completely different companies.
They also found evidence of substantial payments to family head Alan Louis, running into the millions of pounds, accounted for as debts due by him but neither documented or repaid, a culture of absolute control, fear and intimidation and highly questionable retrospective documentation, missing documentation, unreliable accounting records and evidence of false accounting.
Some £42m has been realised in the liquidation so far, but the vast majority of this money has been paid to the banks as they had first charge security over the properties sold.
The liquidators say that for a minority of investors/creditors there is no hope of any return. For others, the best they can probably hope for is around 13p to 16p in the pound.
They say that inevitably there will be calls for those responsible to be held accountable - and it is now for the Financial Supervision Commission to take action where they consider it necessary.
In a statement, FSC chief executive John Aspden said: ‘Even though the majority of the group’s activities conducted from the island were unregulated, there will be important lessons for the future to be carefully considered and implemented.’
In a statement, Alan Louis said: ‘The first report by the investigators was found to be wholly incorrect by the internationally renowned auditing firm, Mazars, and the many allegations in the first report shown to be wrong by this their subsequent report. This further report is again wrong.
‘All that is now required is a response with evidence, a proper audit trail of legal documents and alleged loans so that the other side can be heard. I have and will always co‐operate in all these proceedings.’