Breaking News: Trustbuddy Suspends Operations – Investigations on Misconduct

UPDATE Oct., 19th: Trustbuddy has filed for bankruptcy

An investigation initiated by the new management of TrustBuddy AB has indicated serious misconduct within the company. The Board of Directors has informed Nasdaq OMX and the Swedish FSA about the situation, and the FSA has demanded that TrustBuddy is to stop offering its services with immediate effect. As a consequence, the company’s planned rights issue is suspended. The Board of Directors will prepare a control balance sheet and are currently evaluating all available options in order to find a viable solution for all parties.

Background

The new management team has been in place since early September, 2015. In connection with the repositioning of the business, an investigation of the business activities undertaken by the former management was initiated. The investigation is ongoing, but has so far pointed at several breaches of internal or external regulation:

  • The Company has used lenders’ capital in violation of their instructions, or, without their permission. As a result, there is currently a 44M SEK (approx 4.7M EUR) discrepancy between the amount owed to lenders and the available balance of the client bank accounts.
  • The total amount currently lent out on the platform is approximately 300 MSEK, of which, 37 MSEK is not assigned to lenders.
  • The Company has re-assigned existing loans, a significant portion of which were likely non-performing, to new capital deployed by lenders.

The investigation indicates that these practices were likely in place since the TrustBuddy platform began operation.
Actions taken by the new management and the Board of Directors

The questionable practices mentioned above, limited to the Company’s short-term lending business, have been stopped with immediate effect.

Further, the Board of Directors informed Nasdaq OMX and the Swedish FSA about the findings. Based on the findings, the FSA demanded that TrustBuddy is to stop offering its services with immediate effect. As a consequence, the planned rights issue, scheduled to run from 14 October 2015 to 30 October 2015, is suspended.

Due to the severe breaches of the internal and/or external regulation, the Board of Directors has also decided to file a report to the Swedish Police Authority.

The Dutch subsidiary Geldvoorelkaar, which focuses on lending to small and medium-sized enterprises, has been operating on a stand-alone basis and has not been subject to misconduct.

Members of the previous management team that are current employees of the Company have been put on suspension while additional investigation takes place. Current and former employees that have participated as lenders on the TrustBuddy platform have had their accounts put on hold.

The Board of Directors will as soon as possible prepare a control balance sheet, and will also investigate the potential impact of the events on other significant agreements.

Information for lenders and investors

All services and products of the parent company TrustBuddy AB are being suspended. Therefore, it is not possible to make any withdrawals or deposits.

The trading in the company’s shares has been halted since 7 October, and will continue to be halted until the company has presented new information.

(Source: company statement)

Trustbuddy’s stock has been in decline for quite a while. The payday loan like business model never convinced me. An ealier reported acquisition of Italian Prestiamoci was not finalized. See earlier articles on Trustbuddy.

EDIT: According to press articles the Swedish FSA is expected to conduct a review of the 5 other p2p lending companies in Sweden Lendify, Sparlån, Savelend, P2P Sweden and Lendlink to make sure they operate in accordance to the law.

ING Partners with Equity Crowdfunding Site Seedrs to Tackle Belgium and Luxembourgh Markets
Whatthefintech

One thought on “Breaking News: Trustbuddy Suspends Operations – Investigations on Misconduct

  1. The Trustbuddy Liquidators Letter to Lenders and my response.

    To TrustBuddy AB’s (publ.) lenders Stockholm, 11 November 2015
    LOANS MANAGED BY TRUSTBUDDY AB (PUBL.) IN BANKRUPTCY

    TrustBuddy AB was declared bankrupt 19 October 2015 and the District Court appointed me as official receiver in the bankruptcy.
    As has been reported in media there are a number of complex legal issues to consider in the bankruptcy.

    The ?seþup? of “peer-to-peer lending” is based on the assumption that TrustBuddy has only acted as an arranger of the loans between lenders and borrowers.
    Due to how TrustBuddy has managed the loans and funds there are some uncertainties whether certain loans between lenders and borrowers are traceable and also what the legal consequences of the language used in the terms and conditions of the loans are in relation to the lenders’ rights in bankruptcy.
    Another question is whether the lenders with funds deposited in TrustBuddy are entitled to segregate its funds standing on the company’s client accounts as per the date of the bankruptcy, and if these lenders have a collective proportional right in relation to each lender’s individual claims against TrustBuddy with regard to received loan payments from borrowers.
    The same question arises in relation to outstanding debts, which are being paid during the bankruptcy proceedings.
    There are a number of immediate issues which must be addressed regardless of the answers to the questions above.
    As the bankruptcy trustee, I am responsible to ensure that the property does not lose its value during my bankruptcy administration.
    ln view of the proportion of bad debt (the company has assessed that at least 5/6 of the outstanding loan amounts are considered to be “bad debts”) and also that these loans rapidly deteriorate in value drastically I have decided to take the following measures to maintain the value of the outstanding loans:
    1. The bankruptcy estate does not intend to enter into any existing agreement with lenders.
    Please consider the following points as the conditions of services delivered by us, as the bankruptcy estate.
    2. The bankruptcy estate will, when necessary, resume collection actions on behalf of the lenders by signing short-term contracts with existing debt collection agencies.
    The cost of these measures will be charged in the same way as they have been prior to the bankruptcy.
    3. My assessment is that the loan portfolio will lose value unless a new party promptly takes over the administration of it.
    As each loan is fragmented between a large number of lenders in small portions and individual recovery of these parts may give rise to legal difficulties, including but not limited to how paid instalments in a fragmented loan should be allocated.
    Also, the cost of recovering the loans in such way would be substantial.
    The bankruptcy estate therefore intends, with the lender’s best interest in mind, to sell the loan portfolios to the highest bidder and we believe that the bankruptcy estate is entitled to do this also if considered to be made on behalf of lenders.
    The distribution of the revenue from such sales will, in the event the loans are shown to constitute segregated property and this in practice is possible, be distributed to the lenders on the basis of two purchase prizes, one for fresh loans and another for bad loans.
    The above constitutes emergency measures taken to prevent that the value of outstanding loans deteriorate further.
    With respect to the rising and urgent situation, we ask you, if you have any objections, to contact us no later than next Tuesday, November 17,2015 at trustbuddy@lindahl.
    se.
    Kind regards

    MY RESPONSE

    >>>>With respect to the rising and urgent situation, we ask you, if you have any objections, to contact us no later than next Tuesday, November 17,2015 at trustbuddy@lindahl.se.
    <<<<<>>>Please consider the following points as the [conditions of services] delivered by us, as the bankruptcy estate<<<<

    The bankruptcy estate will, when necessary, resume collection actions on behalf of the lenders by signing short-term contracts with existing debt collection agencies.
    The cost of these measures will be charged in the same way as they have been prior to the bankruptcy.
    <<<
    >>>>The bankruptcy estate therefore intends, with the lender’s best interest in mind, to [sell the loan portfolios to the highest bidder] and we believe that the bankruptcy estate is entitled to do this also if considered to be made on behalf of lenders.
    The distribution of the revenue from such sales will, in the event the loans are shown to constitute segregated property and this in practice is possible, be distributed to the lenders on the basis of two purchase prizes, [one for fresh loans] and another for bad loans.
    <<<<<>>in the event the loans are shown to constitute segregated property<<<<

    The loans are segregated property.
    The loans are written between lender and borrower with an interest rate of 12% per month, 144% per year. Compounded monthly that is 400 % per year.

    There is a legally enforceable contract in place for every loan and the outstanding value doubles every six months that payment is delayed by a borrower! Maybe it would have been bad publicity for Trustbuddy previously to pursue repayment of these escalating loans but I have no such concerns.

    I do not agree that you can just [sell the loan portfolios to the highest bidder].
    Prior to your entering into any agreement with a [bidder] debt collection agency it must be agreed that: The loans remain the segregated property of (me) the lender.
    That only the right to collect the loan and interest and principle at a reasonable commission rate is contained in the agreement with the debt collector.
    That the principle and compound interest on any unpaid proportion of the loan continues to be the property of, and to accumulate to, the benefit of the original lender (me) and cannot be released by any other party except on payment in full of the outstanding amounts due.
    Under no circumstances shall the title to the principle pass to the debt collection agency for some paltry sum.
    Worst still that that this money should be stolen and used to repay the personal debts of Trustbuddy management.

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