Saturday, 6 August 2016

Smoke and Mirrors at Funding Circle should ring alarm bells for deal on Crowdcube

The Towan Heigths development in Newquay, which was at least part owned by Verto Homes until May 2016, has received a lot of flack from investors on Funding Circle.

The various loans were due for repayment several months ago and Funding Circle have been working very hard to bat away questions from increasingly irritated.investors. These investors were told all 14 units had been sold, but a post just yesterday states that only 9 have completed the 'legal stage'. A promise of a repayment of almost £1m yesterday seems to have come and gone without any money changing hands. 

Meanwhile over on Crowdcube, Verto Homes, who were partners in Towan Heights, have raised £1.5m via equity sales - the amount almost to the letter that Towan Heights owes FC investors. None of this information is mentioned in the Crowdcube pitch.

A description of Verto Homes and its borrowing from Funding Circle (their words not ours) is here on the FC site. This also refers to a new development at Hilgrove Mews - another Verto Homes development. According to Hilgrove Mews Ltd, they have two outstanding charges with FC. Hilgrove Mew's only two directors are the same two founders raising money on Crowdcube for Verto Homes. 

Investors on FC are now referring to the guys behind the Towan Heights development in less than glowing terms. These are the same guys behind Crowdcube's Verto Homes. The forum on this topic is now on page 8 and shows no sign of slowing down - its well worth a read here. In what seems a confusing trail of paperwork Verto Homes ceased being a member of Towan Heights LLP two months ago but the two main directors of Verto Homes signed up as members on the same date. The main picture used to promote Verto Homes Ltd on the Crowdcube pitch is of the Towan Heights development.

Meanwhile in an equally confusing move, Verto Homes have applied for EIS tax relief on the basis that they are not developers. Kevin McCloud's HAB Housing managed to obtain EIS way back in 2014 when they raised money on Crowdcube, again by claiming the developments were not theirs directly. Verto's opening line in their pitch adds to the confusion -

''Verto Homes designs, builds and sells intelligent, sustainable homes,.............''

The problem being that if these companies transgress any of the EIS rules before they give investors a ROI, HMRC will pounce and the tax relief and all interest will be due back in full.  At the date of writing EIS had not been granted to Verto Homes. It maybe that HMRC are beginning to wake up to the holes the policy suffers from. 

The new new deadline for the loan repayments by Towan Heights is the 12 August, which is 2 days after the Crowdcube pitch has closed. Towan have said that an undisclosed third party will fund the shortfall if the properties are not paid for by the 12th. The Crowdcube money would not be available until sometime later so there is no suggestion this is being used directly.

The same crew that are late with Towan Heights were also late with repaying another property related loan via FC. Investors on the forum are now talking about boycotting this company in the future. FC have as yet declined to comment when asked if they would take more business from them. According to the Crowdcube pitch, this company, in whichever guise they appear, is FC's largest client - so you can see why FC are being so cautious about the way this is all handled. Caution, in this case, is not working. 

Just imagine if FC decided not to continue doing business with these guys or when they tried to launch new loans, FC investors refused to fund them. This could have a material impact on the way the company Verto Homes develops and therefore on the shareholders currently oblivious to the Towan Heights saga.

Well now they know. Happy to be doing Crowdcube's job for them.

1 comment:

  1. Wow did you see the latest response by one of the directors when an investor pushed for clarity regarding the outstanding FC loans. Something along the lines of if we don't appear transparent enough for you then go somewhere else. Really shows commitment towards investors. This is while the pitch is still live. Imagine how they'll treat investors once the cash is locked in and binding.

    Shame not many investors read this forum.