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LCF Financial investigation likely to be frustrated by legal action

Service Area: Criminal and Regulatory

Member: Roger Isaacs

Administrators for mini-bond firm London Capital & Finance (LCF) have warned that investors will have to wait longer than previously thought to receive their first dividend and that it could take several years to complete their investigations into the firm’s collapse due to the “level of complexity” in the case. Also, they estimate that investors may only get 20 per cent of their investment back.

The administrators also said they were having to deal with a “concerted and very likely coordinated exercise on the part of a number of individuals aimed at frustrating the joint administrators’ enquiries, for their own reasons”. Indeed, according to the administrators’ report, the principal Director of LCF has already claimed through his solicitors to be too unwell to assist them.

Around 11,600 bondholders had invested around £237 million into LCF mini-bonds by January this year. While the mini-bonds were purportedly restricted to only high-net-worth and sophisticated investors, LCF aimed its marketing at retail clients through the use of an unregulated introducer company and online adverts promising high returns.

This advertising was so targeted, “misleading, unfair and unclear” that in December 2018, the Financial Conduct Authority (FCA) ordered LCF to immediately withdraw its promotional material.

In a bid to help with the investigation, the FCA has urged bondholders to keep safe any paperwork associated with LCF, including letters, emails and financial records.

This documentation will be invaluable to the forensic investigators, as, along with other records and interviews with employees of the collapsed firm and others involved, it will help to build up a picture as to whether the firm’s actions were legal.

Roger Isaacs, Forensic Partner at Milsted Langdon, who has been interviewed about LCF on the BBC Money Box programme, said: “The saga that is LCF continues to roll on. The hope that investors may get a tiny fraction of what they invested returned to them at some point in the future will be little comfort to those allegedly conned out of their life savings.

“Meanwhile, investigations into how the company was run continue and it is the work of forensic experts that will play a key role in reaching conclusions about the actions of the business and its directors. It is immensely frustrating that those have perpetrated what the victims believe to have been a fraud on a massive scale, are not cooperating with the investigators and cannot be compelled to do so.”

Author: Roger Isaacs 30 August 2019