TrustBuddy Falters with Alleged Misconduct


Since the dawn of p2p lending, most companies have prided themselves on the transparent way they conduct business. This week we learned of one p2p lender in Europe that has received a lot of press, but this isn’t the kind of news we are used to seeing in the industry. TrustBuddy, a short term p2p lender based in Stockholm is being investigated for misconduct.

From the TrustBuddy website:

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.

At the center of the investigation is a $5.4 million discrepancy. According to the TrustBuddy website:

The Company has used lenders’ capital in violation of their instructions, or, without their permission.

The new management team, that began in September of this year discovered the discrepancy and notified the proper authorities. They have since suspended their operations as the investigation continues. Company officials stated that that the misconduct likely began in the early days of TrustBuddy. The company was founded in 2009. As a publicly traded company, it is unfortunate that both lenders and investors in the company itself will suffer as a consequence. Trading of TrustBuddy stock has also been suspended.

This is bad news for our industry and it is a reminder that misconduct can happen anywhere. As investors, it is important to take a step back and realize the risks that are associated with investing. Earning the returns investors have become accustomed to in the p2p lending industry is not without risk. Although we haven’t had anything like this happen in the US this news serves as a reminder to us all. Fraud or mismanagement is always a possibility and investors should always pay close attention to what a company says and does.

This news will likely bring up more questions surrounding regulation to ensure that something like this doesn’t happen again. We’ve seen the FCA in the UK create a framework of regulation specific to the p2p lenders, but in Sweden where TrustBuddy is based, platforms are still regulated under existing lending laws and regulations.

Although this is the first major company to have faltered due to misconduct, the downfall of any one company could be much more far reaching if we aren’t careful. The reputation of the entire p2p lending industry could be in jeopardy if this happens again. In an industry that is relatively young and is allowing new investors access to an asset class in a different way, it is so critical that platform operators do everything they can to build and maintain trust.

If you’re interested in learning more, you can listen to the webcast where Chairman of the Board, Simon Nathanson and CEO Philip Mikal answered questions about the misconduct.