McLaren F1 & Jenson Button One Minute, Boiler Room Scams the Next: the Remarkable Double Life of Carbon Neutral Investments, Limited, (CNI)

There’s no place to hide,
when two worlds collide.

– Iron Maiden

By Richard Smith

 Let us start with Mr Hyde: here’s a warning from the Financial Conduct Authority, the UK’s financial regulator, italics by me:

Find out how carbon credit trading works, why we think you should avoid investing in carbon credits and related markets, and how to protect yourself from what is most likely a scam.

A carbon credit is a certificate or permit which represents the right to emit one tonne of carbon dioxide (CO2) and they can be traded for money.

However, many investors have told us they are not able to sell or trade the carbon credits they have bought. None of these investors reported making a profit.

This supports our view that there is not a viable secondary market for ordinary investors to sell or trade carbon credits, despite claims and promises made by many firms, advisers and brokers promoting and selling them as an investment.

We have also received reports that an increasing number of firms are using dubious, high-pressure sales tactics to sell carbon credits to investors.
…
We are aware that some firms authorised by us are involved in the sale of carbon credits. They may act as a ‘custodian’ or ‘nominee’, opening an account with a carbon credit registry to hold the credits on behalf of investors. The salesperson may also claim the credits are provided by a ‘supplier’ authorised by us.

However, even if a firm involved in the sale or trading of carbon credits is authorised by us, as we do not regulate carbon credits you will not have access to the Ombudsman or FSCS. This includes where you cannot sell or trade carbon credits.
…

You can find out more about what to do if you think you have been scammed.

Yuck.

On the other hand, here’s Dr Jekyll.

Carbon Neutral Investments announces its new partnership with well-known children’s charity, Make A Wish Foundation®UK.

Make-A-Wish Foundation® UK grants magical wishes to children and young people fighting life-threatening conditions. Since being established in the UK in 1986, it has granted over 7,500 wishes. Make-A-Wish is affiliated to Make-A-Wish Foundation® international. It is now the largest wish-granting organisation in the world and helps to serve children in 47 countries on five continents through its 36-affiliate offices.

The partnership involves CNI installing a carbon calculator on the Make A Wish Foundation ® UK’s website. Visitors to the website will have the option to purchase a carbon credit. For every credit sold, CNI has agreed to make a donation to the charity, a huge incentive for supporters of the charity.

The Make A Wish Foundation currently has 14 Patrons, including Jenson Button MBE. Having offset Vodafone McLaren Mercedes Formula 1 team in 2010, Carbon Neutral Investments has already has strong ties in the world of Formula 1.

When asked about the Make A Wish Foundation® UK Jenson said: ‘I am extremely proud to be a Patron of such an outstanding charity. I have attended some of the Make A Wish Foundation charity events and I have witnessed first hand how they make a difference to the lives of terminally ill children. I will continue to personally help to develop this charity, to create awareness and to make a difference by granting wishes.’

Edward Carlton, CNI Head of UK Operations, said: ‘CNI is always looking to make a difference so we are enormously pleased to have established a partnership with such a well renowned UK charity. We are looking forward to selling carbon credits on the Make A Wish Foundation® UK website. The donations CNI will make in return for the carbon credits sold will help to improve the lives of 3-17 year olds suffering from life threatening illnesses.’

Or is that another sighting of Mr Hyde? Has Jenson Button, MBE, Formula 1 World Champion, 2009, screwed up horribly, by lending his name to Carbon Neutral Investments? Who are they? Perhaps he can take comfort from the fact that his employer, the McLaren Mercedes Formula 1 team, has also hooked up with Carbon Neutral Investments:

…At Vodafone McLaren Mercedes, we’ve implemented a number of state-of-the-art solutions and improved our carbon efficiency by 8.6 per cent as a result. Nevertheless, in order to officially become fully carbon-neutral, we needed to purchase carbon credits in order to wholly offset our carbon footprint.

Therefore, in consultation with Carbon Neutral Investments, an independent carbon offsetting specialist, we set about investigating a number of potential carbon-offsetting schemes – looking to select projects that would prove to be both ideologically relevant to our core business and ethically viable too.

…

Vodafone McLaren Mercedes team principal Martin Whitmarsh said:

“I’m both delighted and proud that Vodafone McLaren Mercedes has become the world’s first carbon-neutral Formula 1 team. It’s a considerable achievement: the result of a lot of hard work by a number of extremely dedicated individuals within our organisation, and a testament to our philosophy of continuous improvement within the workplace…”

But oh dear, there’s more Mr Hyde, from the FCA:

We are concerned about investments involving Carbon Neutral Investments and Gemmax Solutions. Find out more and how to protect yourself from unauthorised firms.

Several unauthorised firms promoting and selling carbon credits are telling investors that Carbon Neutral Investments Limited (CNI) or Gemmax Solutions, firms authorised by us, will handle the money in their investment.

We believe this is done to suggest investors will be protected as though they are dealing with an authorised firm. But this is not correct.

Too, too much yuck. So let us bask in the afterglow of a deal struck in 2011 by “leading global events company” The Main Event International, which, by the miracle of affinity marketing, also has a Formula 1 connection:

Leading global events company The Main Event International has chosen to offset all emissions from its London headquarters by partnering with one of the world’s leading and fastest growing providers in the voluntary carbon offset market, Carbon Neutral Investments (CNI).
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The Main Event International’s Andrea Hall said: “In our business the travel involved is very intensive across our events teams, so we are always trying to minimise our carbon footprint as a company. In supporting this very worthy project in Maharashtra, India we have gone a step further and neutralised all our emissions for the London headquarters.”

She added: “Our thanks to CNI and the marvellous projects they support around the world – they make it very straight-forward and cost effective to become carbon neutral. I hope that our deal with them will encourage others in the events business to follow suit.”

CNI co-Chairman, Thomas Knifton, said: “We are very proud to be working with The Main Event International on this project, and look forward to welcoming more companies from the travel intensive events business to the ranks of carbon neutral leadership in the industry. Becoming carbon neutral is a vital piece of the jigsaw for companies wanting to do business internationally, where a good environmental record is becoming as important as a good product offering.”

He added: “The Main Event International’s partnership with CNI demonstrates a very efficient and effective way to achieve this.”

But, but, surely that’s not this Thomas Knifton:

Montague Pitman has been founded by Richard Beese, David White and Thomas
Knifton (who is the adult son of Alltrue’s Chairman, Leo Knifton) to provide
real time professional private client stockbroking advice covering all major UK
indices, including the FTSE 100, All Share, AIM and PLUS Markets as well as on
PEP’s, ISA’s ,CFD’s and Spread Betting.

I’m afraid so, yes, according to the FCA register it’s that Thomas Knifton, ‘adult son’ (as opposed to babe in arms?). As reported in FT Alphaville, the FSA, as it was then, think Montague Pitman worked out rather badly:

The little bucket shop of horrors …

Selected lowlights from the report

Liquidity:

The small cap shares sold by MPS generally had a low normal market size. This could mean that clients could experience difficulty in quickly selling their shares at the quoted price if they bought shares in excess of this size. Out of the 38 transactions reviewed by the FSA, 35 clients purchased more than the normal market size in a share, with ten instances noted where the clients purchased over ten times the normal market size. Following advice received by external compliance consultants, clients were not warned about this in their telephone calls. There was no process in the Relevant Period to warn clients that the recommended shares were in excess of the normal market size, and the potential implications of this.

Sales techniques:

In 18 of the 38 transactions reviewed by the FSA, the adviser gave the client the impression that there was a need to move quickly to purchase shares, including suggesting that the firm had a limited allocation of shares which were already selling fast and could be sold out by the end of the day. Although it is possible that that they could have been sold out, analysis actually showed MPS continued to recommend the shares to other clients for several days after the recommendation.

Furthermore, in 12 out of 38 cases the adviser suggested to the client that the transaction in question would be their “last trade”. However, 11 of these clients were later sold further shares by MPS demonstrating that the advisers did not intend to keep to this statement. This inappropriate suggestion that a recommendation would be the last transaction for the client may have been stated to encourage the client to buy the stock.

Remuneration at MPS:

MPS offered a basic salary plus commission. The basic salary ranged from £15,000 for trainee advisers to £27,000 for senior advisers. The commissions ranged from 3% to 5% of deal value, with the commissions being received by the advisers once they had achieved a certain level of sales. This reward for sales volume, if uncontrolled, risked advisers pursuing sales at the expense of client suitability. This was made worse by MPS offering commission for selling small cap stocks which was considerably higher than the advisers received for selling Main Market stocks. There was therefore a significant financial incentive for MPS advisers to sell small cap shares in favour of Main Market stocks. It was not until after the Relevant Period that the advisers received the same level of commission on all the stocks sold.

Recommendations:

When new clients were taken on by MPS, they were required to complete an application form following an account opening call with a MPS employee. This form included details of the client’s financial circumstances and their investment objectives. It was then approved by MPS’s compliance department, using a number of pre-set criteria. MPS advisers would then use this account opening information to make recommendations to the clients.

However, a review by the FSA of a sample of these forms suggests that these checks by the compliance department were not adequate. In 45% of cases, there was missing information on the KYC forms, but no recorded explanation of why it was appropriate to continue without the missing information.

In 22 out of 38 transactions, the client expressed a clear reluctance or uncertainty about making a purchase. The client stated they were not in a position to invest due to a number of reasons, such as their financial circumstances or lack of interest in the market at the time, but the adviser continued with the recommendation. The adviser should have realised his recommendation may not be suitable for the client.

Best bit in the report: where the FSA mention the £240,000 fine they didn’t levy because Falcon Securities promised to be good. Proactively, Falcon had gone into administration anyway; neatly, if redundantly, dodging the fine that the FSA weren’t going to levy anyway. The mere promise of good behaviour, extracted from an outfit whose main profit source was misleading utterances, would have been enough for our financial regulator.

The same FSA light touch was observed by a Citywire commentator, in connection with a previous boiler shop implosion, and another Knifton gig, Wills & Co:

Exclusive: How the FSA walked by rogue broker three years before its collapse
The City watchdog, the Financial Services Authority (FSA), considered Wills & Co, the stockbroker that failed this year, as a ‘low impact’ firm not requiring monitoring three years before its collapse.
…
At the time, FSA director of enforcements Margaret Cole said: ‘It is shocking that despite previous action, Wills & Co has failed to put its customers first… What makes this case particularly serious is that the firm was fined by the FSA and promised the FSA that its treatment of customers had improved when that was plainly not the case.’

When Citywire requested sight of any risk assessments carried out on the firm, the FSA responded: ‘As Wills & Co is defined as a low impact firm we would not carry out an Arrow risk assessment on them and therefore do not hold the information you have requested.

‘If a firm is assessed as a low impact firm, it does not have a specific risk assessment or risk mitigation programme. These firms are monitored by a combination of baseline monitoring, action in response to risks identified by this information, thematic exercises to monitor compliance standards in a sector and work as part of sector-wide reviews.’
FSA failure

The FSA’s handling of Wills & Co underlines the flaws in the FSA’s approach in recent years. Having taking action against the broker for taking on lines of stocks and flogging them to investors in a fast and furious fashion it apparently took the company’s word that this would stop.

While it is true that Wills & Co’s collapse is ‘low impact’ in terms of the wider financial crisis that has gripped the UK over the past three years, its impact on the reputation of stockbroking and the damage it does to investors’ confidence is significant.

Thank goodness the FSA, like Carbon Neutral Investments, has now changed its name. That’ll make all the difference.

Let us see how much longer the CNI/McLaren deal lasts.

Incidentally it’s not just Sauber and McLaren who might find themselves in damage limitation mode if this lot blows up. The Lotus Formula One Team must already be regretting their decision to partner with Advanced Global Trading of Dubai, another carbon credits boiler room connected with Carbon Neutral Investments. More on that, in our next.