The integrity of the markets is at stake as well as the integrity of the UK in the eyes of the financial world.
Segregated client accounts of Worldspreads are missing upwards of 15 million pounds. This money just does not disappear or then according to news reports show up at Ernst and Young and then to disappear once again. RBS was a custodial bank for Worldspreads.
Were funds sequestered from Worldspreads Clients by Royal Bank of Scotland to make up in short falls? Does the UK Financial system allow stealing of segregated funds at one institution by another?
These segregated accounts are no different than personal or corporate bank accounts or even stock market accounts. These accounts were (possibly) violated and a large amount of assets are missing.
What is worse is the violation of the FSA Regulation which states that in the event of a bankruptcy client funds are to be handled separately from the firm assets and given priority. It is questionable what transpired, however 15000 customer accounts have been frozen and fifteen million pounds are unaccounted for. The analogy is very simple. It is as if a bank makes bad loans and then pillages their customer’s accounts to remedy the situation or if a Stock brokerage company makes bad investments and then withdraws monies from their client’s accounts. If this is allowed to continue there will be NO Trust in the markets. Nothing will be safe!
Funds held by any business in a bank account are held in a segregated fashion. It is only when you leverage against them in some capacity and offer such capital as your assets that you passover those funds in default.
ReplyDeletemoney held in rbs cannot have been assigned as no defaults were reported... something that a regulated and listed company must do.
The funds are held as the westdeutche trust case some years back proved in a capacity of trust if nothing else even if no controls were in place.
what this means is that our money is missing and can only have been stolen in some form by misappropriation. in other words some sort of fraud must have happened
There is another explaination of the shortfall which does not involve any money stolen.
DeleteIt is in my view most likely that in order not to show a loss,starting many years ago, the amount of money that Worldspreads owed to its clients was under reported. When a client won, Worldspreads credited the client account but didnt report the amount as an amount owed to the client, i.e it under reported the "current liabilities". If you look at the last Report and accounts the amount disclosed as Client balances was about £20m, which obviously equated to the amount owed to clients or current liabilities.But when the firm went bust it reported client cash of £16m and client liabilities of about £30m.i.e, it looks like the shortfall came not so much from an under reporting of cash but rather an under reporting of current liabilities(amounts owed to clients).It was a fraud, but the fraud involved the under reporting of amounts owed to clients rather than an under reporting of cash.The cash wasnt stolen as such, but rather there was never enough cash to payout all the claims because the total claims were always much more that they said they were.
This is why the Auditors should swing for this because they did not check that what the client balances added up to actually equalled what the company said they did.
This would explain why they had to keep growing. They had to keep getting new cash balances in in order to payout existing clients.It explains the International expansion and the Zero spread offering.
DeleteIf true it also makes a mockery of Foleys claims he knew nothing of it.
As someone mentioned yesterday, it's a classic Ponzi scheme where the supply of new clients (and hence new money via means of deposits) is vital to keep the business going.
DeleteIt looks like most of the company's accounts over the last few years could be dubious. I agree with the poster, the company appear to have been slowly losing money but covering it up by dubious accounting practices. Of course, in order to do this, they have had to completely disregard 'client money rules' as set out by the FSA. If they'd have followed client money rules then the company would have run out of money a long long time ago. E&Y should have picked up on this. It's very simple, they should have checked how much money the company actually had in the client funds accounts.
Yes, by under reporting the true amount of money they owed clients it made them look solvent when they probaly lost so much over the last few years that they were probably insolvent several years ago.Instead of winding the company up several years ago as they should have (and no client would have lost),they falsified the total amount they owed clients to make it look like some of the cash held was theirs when it was in fact the clients. They knowingly broke FSA client money rules because they did not have enough cash balances which equalled the total amount owed so they couldn`t have held it in segregated accounts.There simply wasnt enough cash available to equal the amount owed to clients so they couldnt hold it in segregated accounts or otherwise.
DeleteIt wasnt so much Ernst and Young didnt check the cash balances held at RBS, they probably did.But they didnt check whether those amounts actually equalled what Worldspreads owed to clients.
And all the while, the Directors were not only taking out big salaries but giving themselves pay rises!.
DeleteWhich were effectively coming out of client funds.
This what Madoff did.
ReplyDeleteI know it will take at least two years for anyone to see the fscs pay out. You can phone kmpg or fscs and ask what was the average timescale for previous payouts which they don't like to tell you but if you pressure them they will tell you a good few years
ReplyDeleteFscs paying out now for MF Global,i.e 5 months.
ReplyDeleteIf you are owed over £50,000 then it will take many years from KPMG.
I also think MF Global have had a distribution from their administrators as well as the FSCS so I don't think it will take years. There are new rules (special administation) for fast tracking.
ReplyDeleteAlso, it is a small company with simple principles to adhere to about client funds. It shouldn't be rocket science to get on top of what has happened, report back and take appropriate action.
If it becomes clear that E & Y did not check adequately that those most basic regulatory principles were adhered to then clients with £50k plus to recover need to make sure that KPMG initiates prompt action against E & Y.
The other principle I struggle with is this. Clients are now impoverished due to possible criminal actions having taken place. Why should it be the same clients who have to fund the actions to identify if criminal action has taken place and the cost of fund recovery? This should be the police and the Govt's (FSA) responsibility. It was their regulations that were disregarded. Does someone physically mugged have to pay to establish the facts, chase the villains and make sure justice is done?
They don't. We have been financially mugged and have to continue to have our remaining funds used for the investigation. Not happy with that principle.
After MF Global the FSA should have immediately checked all similar set-ups. We might have had a larger return then.
Absolutely spot on.
ReplyDeleteThe FSA should be chasing the Directors and Auditors on our behalf because we were led to believe that we were protected by the FSA segregation rules while in reality nobody was making sure that they were followed. I for one held more in my client account at Worldspreads than I would have done if the FSA rules had not existed because I was led to believe that my money was ringfenced in the event of default.I ended up losing more than if the FSA never had any rules in the first place.
has the loss estimate changed from £13M to £15M ?
ReplyDeleteMaybe KPMG have put their first invoice in.
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