TrustBuddy Loses Trust. Peer to Peer Platform Closes Following “Suspected Misconduct”, Swedish Police Contacted

Unhappy TrustBuddyIn an unsettling about face TrustBuddy, a peer to peer lending platform based in Stockholm, has shut down.  The home page has transitioned from lending platform into a public statement (republished below) in both Swedish and English explaining a series of alleged misconduct;

“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.”

It was only in August that TrustBuddy revealed the appointment of new CEO Philip Mikal. The hiring was described as a move to “steady the ship” but apparently the damage was too profound.  TrustBuddy is  publicly traded (TBDY.ST) and announced just last month it expected to have sufficient funds to reach break-even in 2016, if a proposed capital raise was successful.  That is now in question too as the rights offer has been suspended.

Philip MikalAccording to the board, a 44 Million SEK ($5.4M) discrepancy was uncovered. The “Company has used lenders’ capital in violation of their instructions, or, without their permission.”  Due to the extreme nature of the uncovered misdeeds, Swedish police have been contacted.  Members of the previous management team have been placed on suspension during the investigation.  The misconduct was said to be “likely in place since the TrustBuddy platform began operation”.

Simon Nathanson, Chairman of the Board, commented on the unfortunate events;

“We are of course very disappointed in the situation that has arisen. With the new management team in place, TrustBuddy had both the platform and the capacity to create a company built for growth and industry leadership. In light of the recent events, we now have to redirect our focus to find a solution that is in the best interest for all stakeholders.”

During a conference call earlier today, little new was available beyond the fact the Board is very disappointed and is looking for the best solution.  No timeline was given for a possible relaunch. Asked about a “worse case scenario”, management simply did not know.

TrustBuddy, one of the few peer to peer lending platforms that is publicly traded, was in the process of transitioning away from short term, payday loans type service to an online lender that focused more on longer term consumer credit.  The entire viability of the firm is now in question.


 

Ongoing rights issue in TrustBuddy AB (publ) suspended – peer-to-peer platform closed after suspected misconduct within the company

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.

Simon Nathanson, Chairman of the Board of TrustBuddy AB, comments:

We are of course very disappointed in the situation that has arisen. With the new management team in place, TrustBuddy had both the platform and the capacity to create a company built for growth and industry leadership. In light of the recent events, we now have to redirect our focus to find a solution that is in the best interest for all stakeholders.

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 44 MSEK 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.

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