Lex Greensill denies his business was a Ponzi scheme as he blames insurers for collapse Business News

The founder of Greensill Capital has denied allegations by MPs that his bankrupt finance company was a “fraud” or a “Ponzi scheme”.

Lex Greensill told Members of the Commons Treasury Committee that he accepted “full responsibility” for Greensill’s disappearance, but said the ultimate reason his business failed was because Tokio Marine and other insurers had withdrawn their coverage.

On Tuesday, MPs grilled Greensill over the company’s collapse. which put David Cameron’s lobbying work for the company in the spotlight. The company has provided supply chain financing, which ensures that suppliers are paid faster by their customers than usual.

Greensill paid the vendors and then collected the client’s money later.

Conservative MP Felicity Buchan told Greensill his business model was “just unsecured loans … disguised as receivables.”

But Mr Greensill responded that the company only provided financing backed by real assets. “At no time was there a position where the assets did not exist,” he said.

Mr Greensill has confirmed his company has made loans totaling £ 418.5million under the government’s coronavirus loan programs, 85% of which – £ 334.8million – are guaranteed by the British Business Bank.

But he declined to say how much of that money was loaned to companies operated by Sanjeev Gupta, the owner of Liberty Steel. He rejected the suggestion of former Treasury Minister Lord Myners that the case had cost the taxpayer £ 3-5 billion, insisting: “There has been no loss for the taxpayer.”

Committee member Siobhain McDonagh accused Mr Greensill of “fraud” and suggested that his aim was to shift exposure to Gupta companies “to the books of the government, and ultimately the UK taxpayer, using a former prime minister to help your case ”. Mr Greensill replied: “I disagree with your assessment.”

Committee member Rushanara Ali asked Greensill, “Lord Myners is right, isn’t he? he. It’s a Ponzi scheme.

“Frankly, it smacks of fraudulent behavior, like the sorry stuff done by people like Madoff during the financial crisis. That’s what it smells like, it doesn’t mean a proper process where people can get supply chain finance that is reliable and credible.

Committee member Dame Angela Eagle said Greensill appeared to have sold securitized investments based on projected future assets that were perhaps only “the figment of someone’s imagination.”

“What type of due diligence was carried out during the securitization of these potential receivables of the GFG group?” she asked. “Because it looks more and more like the case where you securitize invoices that didn’t really exist over money flows that weren’t due. “

“This means that Credit Suisse investors have lost large sums of money, that a lot of people have lost large sums of money, because they have invested in bonds and in so-called assets that you created and securitized, which were actually unsecured and high risk, not low risk because they were marketed by you. “

Responding to questions about the cause of Greensill’s collapse, the company founder said, “Our main insurance provider decided not to renew his insurance while he was in discussions about renewing his insurance until. ‘a few hours before, Credit Suisse finally decided to stop financing. our business.

“It was this withdrawal of insurance capacity that caused our failure.”

Mr Greensill also criticized insurance regulation which he said operated in a “countercyclical” fashion.

He explained, “That is, when the market goes down and the probability of business failure increases, in order for the insurer’s solvency requirements to be met, they have to provide more capital due to the probability of default in the businesses they have insured. rises in a crisis.

“And that’s what happened during Covid. So what happened was that many insurers either needed more capital to provide the same amount of coverage or they had to cut back. coverage, in order to fit within the limited amount of capital available to them. “

The hearing took place as the city watchdog launched an investigation into the failure of Greensill, which cost 1,000 jobs. There are fears that thousands more jobs could be attributed to companies funded by Greensill, including Liberty Steel.

The Financial Conduct Authority (FCA) is formally investigating the bankruptcy of two Greensill companies. It also examines whether one of these companies relied on the license of another company to allow it to operate in the UK.

Greensill used a rule that allows financial firms to bypass regulator verification processes by becoming “appointed representatives” of other firms that have already been approved. The approved company is supposed to guarantee and supervise the conduct of its appointed representatives.

FCA boss Nikhil Rathi has admitted that there have been several allegations about the circumstances in which Greensill …