This investigation was carried out by an experienced investigative financial journalist following discussion on the MSE forum regarding currency companies Tor FX and the now-bust Crown Currency Exchange.
Report on TorFX and its links with Crown Currency Exchange (CCE) for MoneySavingExpert.com.
By Tony Levene
What is the CCE link to TorFX?
Unsurprisingly, when people lose money through no fault of their own and become unsecured creditors of a company, they look for redress opportunities on the "where there's a claim, there's a blame" principle.
In particular, they look for connections to the bust company either personally, via the directors or shareholders, or with trading links, or through connected companies.
None of this is surprising. These are the acts of people who are angry at losing substantial sums of money. For some (especially those who had lost relatively little), the forums on various websites offered a form of catharsis - a way of getting their losses off their chests and providing closure on an uncomfortable experience.
And with a large number of websites on which to post material - some fully moderated, some light touch moderated and some where anyone can post anything - a large number took the opportunity to vent their annoyance, to suggest where the missing £16.8m might be, and to look for links to other companies in the "Hayle forex" orbit. Both firms were based in Hayle, Cornwall. Most of these posts came from creditors; some, however, were from those without a financial interest in CCE.
CCE was a limited company. The whole purpose of limited company status is to insulate the personal wealth of directors and shareholders from a company collapse. Their loss is limited to their financial involvement in the company. This is the opposite of the personal unlimited liability that sole traders or partners (say in a law firm or architecture practice) might have.
However, insolvency practitioners can - and routinely do - investigate connected companies and people in their search for missing monies. Otherwise it would be all too easy to set up a company, pay all the incoming customer money to another company or to a shareholder or director, and then put the company into liquidation.
Insolvency probes routinely - and correctly - involve looking at interests surrounding the bust company including connections and other links. They are also able to freeze bank accounts and other assets belonging to directors, shareholders and senior managers (sometimes also directors or shareholders or those with a financial interest vested into trusts and other vehicles) involved in the running of bust companies.
One company that was almost immediately associated with CCE was Tor Currency Exchange which trades as TorFX. There were clear ownership links with CCE and the Benstead family which controlled CCE. Until 2008, the two shared premises and there were trading links. Many posts pointed to these connections.
Others went further with allegations against TorFX with some suggesting it was part of a plot by CCE to siphon money away from CCE creditors, and others making more extreme statements of criminality. There was also a "boycott TorFX for your own good" line.
A few posts were in the realm of conspiracy theory. There is a shareholding in TorFX known as the Baltic Trust. While there will be more of that later, in my investigation I was told by one party that it was very suspicious that there was another Baltic Trust in Riga, Latvia.
Although I pointed out Latvia, whose capital is Riga, was on the Baltic (along with several other countries) and it was therefore unsurprising that a firm there should be named after the sea, this correspondent did not shake in his belief.
TorFX made a number of legal objections to posts on MSE and other websites which it said were libellous while not objecting to matters of public record such as the Benstead family shareholding. It pointed out that both the writer and the website could be liable for an action in defamation where the writer and website would have to prove the correctness of the allegation. A failure to do so could invite potentially large damages.
It is widely understood in the media industry that defending a libel action is long and expensive, while damages and costs can be ruinous. Defence is even more difficult when, in some cases, the writer is not just unknown but cannot be traced so there is no way of checking the reliability of what is written.
So MSE and some other websites removed many posts relating to TorFX. A few sites left the posts untouched - in general these are sites which have little or no money associated with them. It is a fact of libel life that there is no point in pursuing a publication or website which, unlike MSE, has no resources to pay damages.
MSE communicated this reasoning to its readers. Some accepted this while others did not, accusing MSE of cowardice (and worse). Out of concern for its readers, MSE decided to commission a journalist to look at the links between CCE and TorFX.
I am an investigative journalist. During my 11 years at the Guardian, I ran the Capital Letters column as well as exposing a large number of rip-offs. I am also the author of How to Avoid Scams.
I accepted this commission on the following provisos:
- That the report would be limited to the relationship between CCE and TorFX - this will not tell anyone where the missing CCE millions are to be found or where they were spent.
- That I would be free to talk to whoever I wanted.
- That I would make clear that this is my personal work, a result of my best endeavours, and not the equivalent of a police or administrator investigation.
- That I would not engage in any further dialogue beyond what is published, except directly with MSE on any queries it may have.
- That while MSE is paying me a reasonable fee for my time we have agreed it shouldn't make any unreasonable edits to this report, in order to maintain its distance, while trying to regulate between arguments from the various interested parties.
How TorFX came into being.
TorFX is the trading name of Tor Currency Exchange (company no 5193147). It was set up on July 27, 2004, four weeks after Crown Currency Exchange (CCE) (company 5167427). Both were effectively established by Peter Benstead, an entrepreneur with a large number of companies, many based in Cornwall.
There are legal constraints on what can now be said of Benstead, aged 68, following his arrest - and clearly he is innocent until proven guilty. Over the years he has been involved with a large number of diverse enterprises including an unsuccessful move into parking systems and a successful conservatory company - Baltic Pine - which he sold. The Baltic name was retained for a family trust or settlement that remains the second largest shareholder in TorFX- after Vicki O'Brien - although these are 'redeemable preference shares' and do not hold voting rights
With growing interest in foreign property purchases as well as foreign holidays, Benstead seized the opportunity (along with many others) to provide forex to individuals at rates better than those charged on the high street. And it would, at the same time, provide work for the call centre he had set up in Hayle.
Benstead established many limited companies - at one time he had 14 for his conservatory business alone - so while some suggest it was strange to have two companies with unrelated names in the forex business, this would have fitted in with the Benstead business model. The initial concept was that CCE would deal with the needs of holidaymakers with car hire and hotels on offer as well as currency, leaving TorFX to focus on larger sums of money, typically for business and property purposes. From its side, CCE would blur this distinction over time.
The facts show that:
- TorFX was set up with Benstead money;
- that it shared premises with CCE until early 2008;
- that Peter Benstead and his wife Susan were both directors as was Edward James;
- that there were transactions between the two companies;
- and that the current managing director of TorFX, Jon Beddell, was at one time a CCE director.
For the purpose of this report, I shall examine each of the above points in turn, looking at both history and current practice.
1. TorFX was set up with Benstead money.
The original £250,000 capital for the firm came largely from Susan Benstead, and the Baltic Trust (which represents Benstead family money with Susan and four Benstead children as beneficiaries) and, as a minority shareholder, Edward James, a long time business associate of the Bensteads. Besides the ordinary (voting) share capital of £250,000, the Baltic Trust made a £250,000 loan to TorFX in the form of 250,000 preference shares.
CCE and TorFX were set up at almost the same time so there is no evidence that money was siphoned from CCE or its customers into TorFX's capital structure. In any case, CCE had little, if any, business at that period.
Additionally, no extra investment from the Benstead orbit (Benstead himself, James and the Benstead family) was made. In particular, the share structure remained unchanged during the time when suspicions over the CCE trading model started to appear.
The current position
Vicki O'Brien (Peter Benstead's daughter) owns 66.5 percent of the ordinary voting shares while another member of the Benstead family has a 8.5 percent holding. This totals 75%, the line at which shareholders have certain additional powers such as passing special resolutions (these tend to be used to change a company structure dramatically). The balance of the shares are held by non-family interests including directors and employees.
The Baltic Trust only owns the preference shares.
It is important to differentiate ownership from control. Yes, the family (although not Peter Benstead as he is not a beneficiary of the Baltic Trust) owns the vast majority of the capital. But the preference shares are non-voting and, during the last financial year (to September 30, 2010) TorFX repaid £100,000 of these shares at a cost of £125,000 (although the extra £25,000 had been paid to Baltic in the previous financial year). It plans to repay the balance of the preference shares over the next two or so years.
Vicki O'Brien controls the voting but it is an FSA condition that that any change in ownership would have to be approved by the other directors. Plus, the FSA would have to approve any new owner who controls more than 10% of the capital or voting rights, in the same way it approved Vicki O'Brien.
Due to TorFX's size, it is unlikely that any third party would be interested in buying these privately held shares (TorFX is not a quoted company) unless that party could effectively control the company. There would be little point and probably no takers for anything less than total control. So the family holding only has value if the whole company is sold. The Tor accounts show that no dividends have been paid either this year or last year.
Any substantial change in control or direction would need the approval of the FSA as Tor is an authorised company (see below). Directors have to undergo an FSA "fit and proper" test.
2. Tor shared premises with CCE.
Tor operated from the same office block - John Harvey House - in Hayle as CCE until early 2008. It is now housed in Penzance. Tor maintains that it paid a fair market rent at Hayle and was neither subsidising nor subsidised by CCE. It also says its offices were separate, with a stand-alone staff. As the two operations were set up to be distinct, I would concur with this.
3. Peter Benstead and his wife Susan were both directors, as was Edward James.
Peter Benstead was a director for three months in early 2005 before he resigned although he continued with some involvement for two more years. Edward James and Susan Benstead were both directors until last year but in a non-executive capacity (really due to their role as shareholders) and without influence over the company. Again, I would concur as neither has any expertise in forex work while TorFX itself has grown substantially.
4. There were transactions between the two companies.
TorFX conducted wholesale currency transactions for CCE between 2006 - 2009 - these are revealed in the accounts and, the auditors state, were conducted on normal commercial terms which in no way favoured TorFX or CCE.
It ceased dealing for CCE and other Money Service Businesses in 2009 because the model used involved additional compliance costs and responsibilities.At the same time, it had become aware that CCE was increasingly moving into its "big ticket" activities and forward currency purchasing and away from the original focus on small tourist amounts. It had therefore become a competitor.
Over the past year, TorFX paid CCE £45,000 in commissions, mostly for introducing customers. These customers have had their exchange deals fulfilled and are not involved as CCE creditors.
The administrators will, as matter of course, look into these related party company transactions but there would appear to be no sign of money transferred out of CCE into TorFX.
5. The current managing director of TorFX, Jon Beddell, was a CCE director.
Beddell was a CCE director for some months after it started but resigned this - and other non-TorFX Benstead directorships - because he was concerned that many of these companies were filing figures with Companies House late. He also wished to concentrate on building up TorFX. Insiders suggest Beddell had a number of rows with Benstead whose interest lay in marketing rather than the daily and longer term operational requirements needed to run a currency company.
To summarise, there is no evidence from audited accounts and other sources that CCE was either involved with TorFX in transactions other than at a normal market rate or that it was giving money rightfully belonging to customers to TorFX in some form of money laundering.
The administrators will consider whether present or past CCE directors have any personal liability and, if so, any value of TorFX shares owned would have to be taken into consideration in the same way as other assets they own such as property or shares in other companies including public companies.
The essential allegation - TorFX is another CCE.
This leaves the crucial point alleged in some posts - that, because of its ultimate parentage and other links, TorFX is another CCE in the making. While there can be no guarantee of anything in the world of finance, these are the differences which separate what TorFX does with the CCE model.
- CCE offered "futures" deals where it would give a rate for delivery in three or six months time in return for payment upfront - a useful facility when purchasing a property and needing to fix an exchange rate today. This may have involved speculation on future rates which can go wrong, as Crown would guarantee the customer the rate at the time of booking. But Crown would only exchange the cash itself at time of delivery, so it was gambling that rates would go in its favour.
TorFX supplies currency for immediate needs and hedges any exposure to forex movements. The 'forward payments' offered by TorFX only require customers to pay a small upfront deposit, and it hedges any exposure to forex movements.
- CCE did not operate segregated client accounts so when it went bust, there was no barrier between company and client money. This was similar to the Farepak Christmas Club savings scheme which collapsed three years ago. At the same time, the lack of separation may have enabled it to use client money for uses other than foreign exchange. Tor does segregate client money.
Published accounts show a strong balance sheet. It has a growing customer base including some 2,000 corporate customers. It has a healthy profit of £581,000 before tax (it was £24,000 in 2009) on currency sales up from £362m to £525m.
The published balance sheet - obviously only a snapshot of one day in the year but generally taken an a good indicator - shows that it has assets of £11.0m and liabilities (the amounts it owes customers and others) of £10.3m leaving it with a surplus of assets over liabilities of some £700,000 giving it (and potential creditors in the event of a winding up) a £700k cushion. The size of its turnover (the extent of its business) and the balance sheet are crucial factors in its regulation by the FSA
Different regulatory regimes
There are two different regulatory regimes for firms involved in foreign exchange transactions. A firm's status can be checked on the FSA website.
These are European Union-wide hence the figures are in euros.
Small Payment Institution (SPI)
This is the lower of the two sets of rules. It was really designed for organisations which carry out irregular transactions or for those of insignificant value. This might cover a property firm which occasionally arranges a forex deal for a customer buying overseas or a football supporters' club which arranges travel money for its members when they follow their team into Europe.
To qualify as "small", the rules state a maximum monthly 3m (£2.4m) transaction turnover but this can be averaged over a year - this would allow the football club, for instance, to exceed the monthly limit by a small amount during the season while doing nothing in the summer.
CCE was listed as an SPI. Its turnover was far in excess of this 3m a month limit. The limit is poorly policed and it is unclear what type of transactions fall under the SPI remit.
As well as the turnover limit, registering as an SPI involves stating via a signature that "none of the individuals responsible for managing the business has been convicted of offences relating to money laundering or terrorist financing or other financial crimes". This is also poorly policed with few, if any, checks.
Joining the SPI regime costs £500 (which does not give much scope for policing) - as well as a £110 fee for registering with HMRC for money laundering purposes. Again, this is a simple form and, while HMRC does not comment, it seems unlikely that there is any serious policing or follow-up work.
Instead, both the FSA and HMRC would appear to rely on the declarations on these forms and only use them when something has already gone wrong to add to whatever other legal points used in a prosecution.
Registered firms are under no obligation to separate client money from their own in designated segregated bank accounts.
There is no compensation scheme and no appeal to the Financial Ombudsman. Nevertheless, despite this very "light touch" regime, there is nothing to stop firms using the FSA logo (or that of HMRC) to say they are registered. It is up to consumers to work out what that means but, while most SPI firms are honest, the SPI status appears to offer no real consumer protection.
All forex firms that fall under the regulations and top the average 3m a month must be authorised (smaller ones can chose to be). Authorisation involves "fit and proper person" tests to check if directors and others in positions of responsibility have financial skeletons in their cupboards. This is not perfect but it is similar to the regulation used in other financial companies such as insurers or independent financial advisers.
Authorisation is still a new concept. It was brought in under the Payment Services Regulations 2009 and some firms are still in the process of applying - the deadline is next year. There is no compensation scheme for any authorised firm either.
TorFX was granted authorisation by the FSA in April 2010 so it did not take advantage of the delays allowed for existing firms. As an authorised firm, TorFX has to operate segregated accounts (which it has done since the business started) which will ring-fence client funds in the case of a collapse.
Authorisation also involves a defined level of "capital adequacy" so firms must have a minimum degree of balance sheet strength. And directors, senior staff and anyone who owns more than 10% of the share capital or voting rights ("controllers") must undergo a fit and proper person test. In TorFX's case, this would have involved directors close to the Benstead family and a further check on the shareholdings.
Neither TorFX nor the FSA is willing to discuss any aspect of regulation appertaining to this case. Both claim that this is normal practice where the FSA always refuses to talk about individual firms until or unless that firm is the subject of a fine or some other regulatory admonition, and where individual firms are forbidden to talk about their regulatory experience. So the following is not based on documentary evidence.
With the FSA about to be broken up by government, it is sensitive to criticism and there has been plenty of knocking copy over CCE. After all its failures over Northern Rock, Halifax/Bank of Scotland, and Royal Bank of Scotland, individuals within the FSA need to show they are active and effective in order to keep their jobs after the split.
Additionally, because of the Benstead family connection and the criticism of CCE in various media before it collapsed, TorFX will have had to notify the FSA of what was going on as part of its authorisation status agreement.
The result is that TorFX, its trading activities, its directors, and its shareholding structure will have been put under intense scrutiny. This would have involved supervisory visits to Penzance and elsewhere to see whether TorFX posed any threat of customer harm or if the present shareholding structure presented any risk of consumer detriment.
No doubt, the FSA will continue to keep a close eye on TorFX as the CCE story unfolds over the next year or so. As said earlier, supervision by the FSA (or any other regulator) is not perfect but in TorFX's case, it has every incentive to get it right.