Unregulated Loan Notes: Warning Signs Behind “Asset-Backed” Investments
Promoters connected with two failed loan-note investment groups may have received more than £100 million in commissions while thousands of investors face substantial losses, according to an investigation published by The Times on 6 August 2026.
The reporting examined third-party promotion of investments associated with the 79th Group and Godwin Capital. Insolvency practitioners have alleged that both operated as Ponzi schemes, although the operators of the 79th Group have denied wrongdoing and relevant investigations and insolvency processes remain ongoing.
The City of London Police is investigating suspected widespread fraud connected with the 79th Group. The Financial Conduct Authority has confirmed that it referred concerns to the police and continues to support the investigation.
The cases highlight wider risks surrounding unregulated loan notes and mini-bonds, particularly where investments are promoted as secured, protected or backed by tangible assets.
A real property development or business activity does not automatically make an investment safe. Investors must examine the issuer’s financial position, the legal security, promoter commissions and how their money will be used.
What Is an Unregulated Loan Note?
A loan note is a form of debt investment.
The investor lends money to a company, which promises to:
- Repay the capital after a specified period
- Pay a fixed or variable rate of interest
- Use the funds for an identified business purpose
Loan notes may be used legitimately by companies seeking finance for property, development or other commercial activities.
However, some loan notes and mini-bonds are issued by companies that are not authorised by the FCA. When an unregulated firm offers the investment, investors will generally have fewer protections if the issuer fails.
The FCA warns that unregulated unlisted loan notes and mini-bonds are high-risk and may be suitable only for experienced investors capable of assessing the issuer’s business and ability to repay. Investors are unlikely to have access to the Financial Ombudsman Service or Financial Services Compensation Scheme simply because the investment performs badly or the issuer collapses.
Why High Promoter Commissions Matter
A promoter or introducer may receive a commission for directing investors to a loan-note issuer.
The existence of commission does not by itself prove that an investment is fraudulent or unsuitable. It can, however, create a significant conflict of interest.
The Times reports that commissions connected with the schemes it examined sometimes reached approximately 15% of the amount invested. It estimates that third-party promoters received around £70 million from the 79th Group and approximately £35 million in connection with Godwin Capital.
An investor transferring £100,000 into a scheme paying a 15% introduction commission could have £15,000 deducted or allocated before any money is used for the stated business activity.
Relevant questions include:
- Who is paying the promoter?
- How much commission will they receive?
- Is the commission deducted from investor capital?
- Has the conflict been disclosed clearly?
- Is the promoter independent of the issuer?
- Does the promoter receive more for recommending one product over another?
- What proportion of the investment remains available for the underlying project?
High commissions can increase the returns an issuer must generate merely to repay investors.
They may also encourage aggressive sales practices where the promoter’s income depends on completing the investment.
What Does “Asset-Backed” Actually Mean?
Loan-note promotions may describe an investment as:
- Asset-backed
- Secured
- Protected by property
- Covered by a debenture
- Overseen by a security trustee
- Supported by tangible assets
These expressions can sound reassuring, but they do not all have the same legal meaning.
Investors need to establish:
- Which assets provide the alleged security
- Who legally owns those assets
- Whether the assets have been valued independently
- Whether a valid fixed or floating charge exists
- Where that charge ranks against other creditors
- Whether the assets are already mortgaged or subject to prior claims
- Who holds the security for investors
- What the trustee can do after a default
- Whether the value would be sufficient to cover all investors
In reporting concerning Godwin Capital, investors were allegedly told that their capital was fully protected and secured through a debenture held by a security trustee. The Times reports that insolvency practitioners subsequently found that no fixed charges had been granted in favour of the trustee and that investor claims were unsecured.
These are reported findings arising from an insolvency process. They illustrate why investors should obtain and independently review the actual security documents rather than relying on promotional descriptions.
A Real Asset Does Not Guarantee Repayment
Some loan-note issuers are connected with genuine property, mining, litigation-funding or other commercial projects.
That does not establish that:
- The issuer owns the claimed assets
- Investor funds are being applied to those assets
- The assets are worth the amount claimed
- The business generates sufficient cash to pay interest
- The investor has an enforceable interest
- The assets will remain available after insolvency
- Capital will be repaid
A company may own land or another asset but also have substantial secured debt, development costs, tax liabilities or claims from other creditors.
Even where valid security exists, enforcement may take time and the amount realised may be substantially below an earlier valuation.
The term “asset-backed” should therefore be treated as a claim requiring legal and financial verification, not as a guarantee.
Warning Signs in Loan-Note Investments
No single warning sign proves that an investment is fraudulent.
Several concerns appearing together may justify enhanced checks or independent advice:
- Fixed returns substantially above mainstream savings products
- Claims that capital is fully protected
- Pressure to invest before a deadline
- Unsolicited contact from an introducer
- Encouragement to invest retirement savings
- High or undisclosed commissions
- Reliance on self-certification as a sophisticated investor
- An issuer that is not FCA-authorised
- Complex relationships between the issuer, promoter and security trustee
- No independently verified valuation
- Vague explanations of how interest will be funded
- Security documents that are not provided before payment
- Payments to an entity different from the issuer
- Previous failed schemes promoted by the same introducer
The FCA says it has seen firms overstate how safe investors’ capital is while understating the possibility of losing some or all of the money invested.
What to Check Before Investing
Before purchasing a loan note or mini-bond, investors should consider verifying:
The issuer
Establish the exact legal company receiving the money and review its directors, ownership, accounts, charges, trading history and connected entities.
A registered company is not necessarily financially sound.
Regulatory status
Check whether the issuer, adviser and promoter are authorised and whether their permissions cover the activity being offered.
The involvement of an FCA-authorised company elsewhere in the structure does not automatically make the investment regulated or protected.
The source of returns
The issuer should explain how the underlying business will generate enough cash to pay interest and repay the capital.
Returns should not depend primarily on money from new investors.
Promoter remuneration
Request written disclosure of all commissions, referral payments and deductions.
Understand how much of the investment will reach the stated project.
The security
Obtain the debenture, charge or other security documents and consider independent legal review.
Confirm whether the security has been registered and where it ranks against existing lenders and creditors.
Asset value and ownership
Verify ownership, existing finance, charges and independent valuation evidence.
A promotional valuation should not be accepted without examining its date, assumptions and purpose.
Exit and default arrangements
Understand what happens if:
- Interest is missed
- The issuer becomes insolvent
- The project is delayed
- The assets fall in value
- The trustee declines or is unable to enforce
Due Diligence Services may help examine the companies, individuals, assets and representations behind a proposed investment. Due diligence cannot guarantee performance or prevent later misconduct.
What Should Existing Investors Do?
Investors concerned about a loan-note scheme should avoid making further payments merely because they are told that additional capital will protect or release the original investment.
They should preserve:
- Application and subscription documents
- Loan-note certificates
- Promotional materials
- Emails and recorded sales communications
- Commission disclosures
- Security and trustee documents
- Bank and payment records
- Account statements
- Later refinancing or recovery offers
Investors in the 79th Group have been asked to report through the City of London Police Major Incident Public Portal for Operation Mold. The FCA also advises affected investors to contact their bank or payment provider to understand what options may be available.
Legal advice may be appropriate where the investment is substantial, security is disputed or insolvency proceedings are under way.
For wider guidance on fraudulent financial promotions and post-loss action, read our principal guide to Investment Fraud.
Fraud and Financial Investigation Services
Conflict International provides Fraud and Financial Investigation Services to investors, businesses, law firms and professional advisers dealing with suspected misrepresentation, failed investment schemes and disputed financial activity.
Depending on the available evidence, our work may include:
- Issuer, director and connected-party research
- Examination of promoter and introducer relationships
- Review of investment and promotional documents
- Research into claimed assets and corporate interests
- Payment-recipient enquiries
- Chronology and evidence preparation
- Cross-border company research
- Clearly sourced reporting for legal and professional review
An investigation may identify inconsistencies, relationships and institutions that could hold further information. It does not determine legal liability or guarantee that capital will be recovered.
Discuss a Loan-Note Investment Concern
If you are concerned about an unregulated loan note, mini-bond or supposedly asset-backed investment, contact Conflict International with the available agreements, promotional material, security documents, communications and payment records.
We can assess what corporate, individual, asset and financial enquiries may be proportionate.
Complete the enquiry form below to request an initial assessment.