Philip Mikal arrived at TrustBuddy from Klarna as CEO on September 1st, swiftly moving to implement a new management team (comprised of senior ex-colleagues from Klarna). The appointment was part of a much broader repositioning of the business, centred upon shifts in product, geographical focus and structure. Mikal’s management team wasted no time in launching an investigation into the business activities that had been undertaken by the company's former management team. The investigation has not yet been concluded, but has already turned up some ugly results.
TrustBuddy has reportedly been using lenders’ capital “in violation of their instructions”, or “without their permission”. In other words, it seems as though client money has not been held in accounts that are kept wholly separate to the TrustBuddy company account. TrustBuddy has indicated that there is a 44m SEK (£3.5m) discrepancy between the amount that the platform currently owes to lenders, and the available balance of the client bank accounts.
TrustBuddy’s new management team has also discovered that of the 300m SEK (c. £24m) that has currently been lent out by the platform, 37m SEK (c. £3m) is not assigned to lenders. TrustBuddy had also been re-assigning existing loans (a significant portion of which were non-performing) to new capital deployed by lenders. It’s not exactly clear how either of the above forms of misconduct played out, but both are in clear violation of internal and/or external regulation. The new management team's investigation has indicated that all of the above practices have likely been in place since TrustBuddy began operation.
The above examples of misconduct reportedly relate to the company’s short-term lending business –which TrustBuddy has been attempting to pivot away from. The platform’s Board of Directors has informed Nasdaq OMX (upon which TrustBuddy is listed) and the Swedish FSA about the findings. The FSA demanded that TrustBuddy cease offering its services with “immediate effect”. All TrustBuddy services have thus been suspended, meaning investors may not currently make any withdrawals or deposits. Trading in the company’s shares was halted on 7thOctober. A planned rights issue – which was scheduled to run from 14thOctober until 30thOctober – has been suspended.
Furthermore, the Board of Directors has filed a report on the matter with the Swedish Police Authority. We’re told that Dutch subsidiary Geldvoorelkaar, a SME lending platform which was acquired by TrustBuddy in November 2014, has been operating on a stand-alone basis – and is thus unaffected by the findings. Members of the previous TrustBuddy management team that remain at the company have been suspended while further investigation takes place. Current and former employees that have also lent money through the platform have had their accounts placed on hold. The Board of Directors will prepare “a control balance sheet” and is currently evaluating all available options in order to find “a viable solution for all parties”.
These are deeply troubling findings. The future of TrustBuddy now hangs in the balance. Whilst minnow-sized peer-to-peer platforms (such as GraduRates) have quietly folded in the past, this is the first time that we've seen an established UK or European platform suspend services. The industry will be watching anxiously as TrustBuddy’s revamped management team attempts to salvage the situation.
Simon Nathanson, Chairman of the Board of TrustBuddy AB, commented:
“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.”