LCF Investigation by Serious Fraud Office Continues

The Serious Fraud Office today said it continues its probe into individuals associated with the collapsed mini-bond provider, London Capital & Finance. The SFO kicked off its investigations in March 2019 after the firm’s administrators reported a “highly suspicious” activity in the handling of the broker investors’ funding.

Around 12,000 investors suffered major losses following the £236 million collapse of mini-bond issuer London Capital & Finance (LCF) in 2019. However, a small number of LCF have received compensations so far while the vast majority of the bondholders are still waiting to hear if they have any chance of getting their money back.

Five people were arrested in 2019 in Kent and Sussex after LCF’s administrators tipped off the police about suspicious transactions between some executives and third party providers. The agency accuses thirteen people of fraud and misappropriating investors’ funds to buy horses, a helicopter and other personal expenses.

LCG CEO and a former UK energy minister are among those sued for allegedly benefiting from investor money that was put into their personal possession.

Today’s update was the first since March from the SFO in its closely watched investigation.

Part of its ongoing probes involve Surge Financial Ltd, an online marketing firm that was reportedly paid nearly $60 million to promote LCF’s unregulated mini-bonds. While LCF was authorised by the FCA, its mini-bonds are not regulated and therefore customers were not covered by FSCS’s plan. This means that their investments could be wiped out unless they can show they bought the bonds following bad advice.

So far, Britain’s Financial Services Compensation Scheme (FSCS) has paid over £57.6 million in compensation to 2,871 investors in LCG, which went bankrupt in February 2019.

To kickstart this process, the FSCS reviewed almost a million pieces of evidence in order to determine customers who had been given misleading advice by LCF. Moreover, it has gained access to an additional 100,000 emails held within LCF’s email server.

Some claimants are fighting for eligibility of compensation and asked the court to scrap the decision that considered LC&F bonds issued after January 3, 2018 unregulated investments.

The affected bondholders say they bought ‘mini-bonds’ from London Capital & Finance only after receiving assurance from the FSCS that their money was covered by the UK’s compensation scheme. As such, the FSCS is accused of giving misleading information over the protection they should expect.

However, they dropped their judicial review appeal against the lifeboat system in August, citing the rising cost of funding the legal challenge. Victims of the collapsed mini-bond provider said they cannot afford to pay the FSCS’ £600,000 legal fees if they lose their bid for full compensation.