Thousands of investors who lost more than £200 million in the London Capital & Finance (LCF) savings scandal have been given new hope after the launch of a ground-breaking lawsuit.
LCF collapsed in January 2019, leaving 11,600 investors, many of whom were elderly or new to investment, facing ruin.
The firm’s advertisements had looked very enticing, suggesting returns of up to eight per cent, tax-free under HMRC rules. However, LCF’s administrators are claiming that investors’ funds were “misappropriated” and that they could get as little as 20 per cent of their money back.
That would have been bad enough but, to rub salt into the wound, only around 3,000 of these victims were covered by the Financial Services Compensation Scheme (FSCS) because LCF was not conducting “regulated activities” when it took their money.
According to the FSCS, because LCF had offered mini bonds, which are a form of unregulated loan investment on a non-advised basis, while LCF itself was regulated by the Financial Conduct Authority (FCA), its mini bonds were not.
However, four of these investors got together and were given leave to launch a judicial review. On the first day of the hearing, the group’s barrister described it as “a very human case” and said that the FSCS had been “fundamentally wrong” to say that LCF was not conducting regulated activity, as it tried to clarify several complex points of regulation.
The case is ongoing but if the court finds for the claimants, then the FSCS will have to compensate more than 10,000 people who invested £142 million in its mini bonds.
As Milsted Langdon’s Forensic Partner Roger Isaacs explained, the scandal has rocked the FCA to the extent that the Treasury Select Committee has been asked to investigate its failings.
Roger, who was asked to look into LCF’s collapse for Radio 4’s Money Box in March 2019, added: “The entire LCF scandal has dragged on for several years now and left many investors with little hope of receiving any significant compensation.
“This new case, however, may offer a glimmer of hope to many who have previously been unable to obtain financial support.
“As with any lawsuit, it will rely on the evidence presented to the court and this is where expert witnesses, such as forensic accountants, can often play a vital role. I am sure many of those affected by the LCF fiasco will be watching the outcome of this case with great interest.”