Facts & Things Unsaid

“When the facts change, I change my mind. What do you do, sir?” 
John Maynard Keynes


When reading ‘the news’ you have to be careful about what you take away. Just because something is reported does not mean it is correct. I am not saying anything is necessarily incorrect. Just that you have to be skilled at weighing up what is written and what is not said. Reading between the lines can be more important. Facts clearly stated might be not so factual when you peel back the details. The person writing the article brings their own bias or perspective so that has to be accounted for.

  • Warning: In the UK, where the libel laws force the publisher to defend everything reported, a lot of information is not reported until it is too late. Better to withhold what you know than to be sued for sharing it. Not so good for an investor who is looking for a range of views before making an investment. The lack of negative news might be a sign that someone is aggressively paying lawyers to clean up bad news reports.


I will use the following excerpts as an example for this discussion. You can find the full text on a blog at the following URL: http://i-witness-news.com/2013/04/24/harlequin-applies-for-sales-arm-to-go-into-administration/


On Monday [22 Apr 2013], the company informed the High Court in London of its intention to appoint administrators for Harlequin Management Services (South East) Ltd.

“The company is or is likely to become unable to pay its debts,” director Carole Ames said in a statement.


What messages can we extract from the passage above. First Harlequin Management Services (South East) Ltd plans to appoint an administrator using the UK bankruptcy laws.  A quick search of other sites would show this has been widely reported. Potentially true so let’s run with it for now. The text between the quote marks is being attributed to a company director. No idea if the title as reported is correct. If you were to check out Harlequin, you would find Carole Ames is cited as a company executive. Other sources show she is the wife of to David Ames, the company founder.


So, should we assume she knows what she is talking about when she says the company is unable or likely to be unable pay its debts? Form an opinion and move on until you have better information that might change your mind.


“Due to unfounded negative publicity in the public domain that has been instigated since 2011, the day-to-day UK sales business of Harlequin Property has become increasingly challenging, to the point that it is now almost impossible,” Ms Ames further said in the statement.


What does the above mean? Negative publicity since 2011? Claims that the publicity is “unfounded”. Two plus years of negative publicity? Is this a case of smoke indicating there may be a fire? Or was the negative publicity not accurate? Assuming the publicity was without merit, why was the company not able to get it under control in 2011 or 2012? More so if the publicity was actually “unfounded”. Are we talking about incompetence in terms of corporate communication?


Negative publicity could happen to any company. What does this say about the company’s business model and the fragility of the company? How much negative publicity should a normal company be able to handle before it has a material impact to the company? Bad news does happen so a company should be able to survive some bad news.


Let’s look at this from the other perspective. If the negative reports were serious, the problem is likely to be something much deeper. How the company deals with major problems is the mark of a great company.


Johnson & Johnson, maker of Tylenol, faced a tragic event. Their response was to take swift action until the facts and the root cause could be determined. Business schools now use J&J as a shining example of how to get in front of the story and do the right thing. Is Harlequin doing the right thing for its investors and other concerned parties? Are they moving decisively to get in front of the new cycle?


“The underlying business model of the Harlequin group is strong and the directors are confident that, with the external finance and property completions anticipated, our investors will see significant development at our resorts in the near future.


Directors have a vested interest. They are not exactly a neutral party. At the same time they need to find a solution. Some of the time the decision is tied to the goodwill or lack thereof which the company has with its customers, investors, and employees. Does Harlequin have support from the investors, employees and suppliers? Is the confidence anything more than just words? Even if the directors are confident, should an individual investor continue to risk their investment or seek an exit? What might be good for one could be very different for another. Does the venture need all the investors to maintain the faith? Or is this like herding cats?


“Investors can be assured that the company sees no reason why these circumstances would threaten their investment with Harlequin. In fact, the measures set out above are a means of further securing their investments from external and contrary interests,” she said.


A bold and clear statement. No reason to worry we are being told. What evidence is there that the investors’ funds are safe and secure? Are they held in a separate account that is ring-fenced? Do the investors have a priority claim over company assets? Are the funds in this company or some other related company? Would a company executive say anything other than this in an administration filing? With an administrator appointed, there will be an independent party in place so maybe we will find out just how safe the investor funds.


In St. Vincent and the Grenadines, a number of persons have complained about not being paid by Buccament Bay Resort for goods and services provided.


Can this be verified? Assume something is hard to verify so no real way to know the true state.  When the facts are not clear, figure out what it might mean if the statement is true. Then assume the statement is false and decide what the impact is. You want to understand the risk in either case and decide if you can survive in both situation. You also want to look for solutions for each situation. You have to take a view as to how likely the solutions will work.


Harlequin Property, has taken more than 300 million pounds in deposits from at least 6,000 investors for off plan luxury holiday accommodation across the Caribbean since 2006.

But the company has built around 300 properties and is being investigated by police, the Serious Fraud Office, and the Financial Services Authority in the United Kingdom.


What standard are the units being built to? Simple math implies £1,000,000 per unit. This seems a bit expensive for what is essentially a hotel room or hotel villa. Have funds been collected for multiple projects? As this is a work in progress there should be assets beyond the completed units.


Based on other reports there appears to be eight projects on the go with only one significantly far along. If units were sold in various developments, were the funds for each project segregated? Were the funds handled in a way that matches what the investors expected? If not, where does the confusion lie in terms of what took place vs. what was expected? There are reports that the Harlequin terms and conditions indicates the funds for all the projects can be co-mingled or otherwise directed to any project the company feels should receive the funds. Assuming for a minute that the funds can be shuffled around, was that the deal investors expected when they signed up and transferred their funds?


Managing expectations, verifying details from independent parties, having multiple level of checks using professionals who are authorized to give advice represents some aspects of best practice. Did the investors do their homework? Did they seek independent advice? If there were mistakes, how much of the fault lies with the investors?


A simple way to think about any investment is to follow the money. Be clear just who is going to handle the money at each stage and what triggers the movement of the funds from one stage to another. Step through the process and make sure you receive clear confirmation as to the money trail. Best if that information is confirmed in writing and is spelled out in the investment contract. Hire a professional who can explain the details and otherwise offer advice concerning the contract if contract law is not your speciality. Part of the reason for using professionals is your want to know their reputation and their professional indemnity insurance backs up their advice. You are not buying time. You are buying piece of mind and a fallback if things go wrong.


  1. Interesting article. I think with all the corruption a few years back in the large scandals people are realizing that investing money needs to come with some due diligence. You can’t just hand over your money to someone and assume they are doing what is right. If it is your money you need to find professionals that you trust as well as checking up on them to make sure everything is working the way it should be. Great post, sharing.

    1. Well said Ross. To extend your point a bit, finding an advisor or professional who is competent for the task is a bit tricky when dealing with something that is out of the mainstream. In the case of Harlequin, a number of investors worked with an IFA. The FSA had to remind the IFAs that their duty was to the customer investing the funds and that the IFA needed to check the suitability of the investment. How well the average IFA can asses an offshore development company comes into question.

      They say, a fool and their money are soon parted. Live foolishly and you will cease to need investment advice as there will be nothing left to invest.

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