Beaufort, which specialised in helping to raise money for the junior mining sector, was declared insolvent in March after the U.S. Department of Justice alleged it had a role in a more than $50 million stock fraud and a laundering scheme involving a work by Pablo Picasso.
The insolvency has frozen up to 40 percent of the assets of some of Beaufort’s 16,000 clients, comprising retail investors and small companies, which included dozens of junior miners.
The Financial Conduct Authority (FCA) declared Beaufort Securities Limited (BSL) and sister company Beaufort Asset Clearing Services Limited (BACSL) insolvent on the 2nd March 2018.
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On 15th March, in a letter to clients, PwC mentioned that they had safeguarded the Firms’ IT and data systems as well as securing approximately £50million in segregated client money accounts and approximately £850million in client securities. PwC also confirmed that the monies and securities that were secured were held appropriately in accordance with FCA requirements.
On the 12th April, in a further letter to clients, PwC noted that client money and client assets were, as at the date of administration, substantially complete save for a very small number of isolated deficiencies. Furthermore, an initial independent valuation marked down the initial value of £850 client assets down to £500m as a result of illiquid / nil value positions.
The administrators also want to charge an exorbitant £100 million for the administration over a period of 4 years. Because Beaufort did follow the FCA rules on ring-fencing of assets and client money, how can costs of £100 million be justified just to transfer an electronic registry of client assets/money to another broker?
Reduced costs of broker Beaufort’s insolvency may provide relief for small mining firms
“It’s a complex, evolving situation,” PwC partner and joint administrator Russell Downs told Reuters by phone. “We feel it’s the right time to publish a refined cost estimate.”
PwC cut its estimate for the administration costs to 55 million pounds ($73 million) over two years from 100 million pounds over four years.
That followed a meeting between PwC and a creditors’ committee for the broker.
Institutional investors have eschewed risk and favoured more liquid major miners, which analysts and CEOs say will eventually lead to commodity price spikes because not enough companies have the funding to hunt out new projects.
The assets will remain frozen until PwC has a new broker in place to take them on, which it said should be in September.
Meanwhile, their removal from the market adds to a lack of liquidity in the junior sector.
“If you are on the executive team and your own assets in the company are tied up in Beaufort, that compounds things,” Downs said.
PwC says they have frozen around 500 million pounds ($667 million) in client assets and a further 50 million pounds in cash.
Downs said there was only a small shortfall in cash and assets, but administration costs would be passed to the creditors, something the clients are contesting.
One Beaufort client Bluejay (JAY.L), which is mining in Greenland for ilmenite, which is used in paint and toothpaste, said it was strong enough to weather the upheaval, but smaller firms might struggle.
CEO Roderick McIllree estimated 30-40 percent of his total assets were tied up until PwC appoints another broker and releases the assets.
“(Beaufort’s collapse) is a severe blow to the small end of the market,” he said.
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