Failed London Capital & Finance was Ponzi scheme, High Court rules
By Kirstin Ridley
LONDON (Reuters) -British investment firm London Capital & Finance (LCF), whose failure in 2019 triggered one of Britain’s biggest retail investment scandals, operated as a Ponzi scheme and five men are liable for hefty damages, a London judge ruled on Thursday.
The High Court said former chief executive Michael Thomson and four others had knowingly participated in the fraud, misled investors and misappropriated assets in a ruling welcomed by LCF’s joint administrators, which brought the case.
“In my judgment, the fact that … there were some genuine underlying assets is not in any way inconsistent with the existence of a Ponzi scheme in the present case,” judge Robert Miles said in a 335-page judgment.
A lawyer for Thomson said his client was “surprised and disappointed” but would not be commenting further.
The collapse of LCF, which promised high interest rates on “mini-bonds” between 2013 and 2018, cost around 11,600 investors more than 237 million pounds ($301 million), leaving taxpayers to pay a 120 million pound compensation bill and prompting bruising criticism of the regulator by lawmakers.
Administrators are seeking more than 177.5 million pounds in damages over a scandal that sparked criminal and regulatory investigations and a damning independent inquiry into the Financial Conduct Authority’s supervision of the business. Former auditors and directors have also been fined.
“The administrators will now be in a position where they can realise very substantial sums from the defendants for the benefit of the creditors,” said Finbarr O’Connell of Evelyn Partners, on behalf of the joint administrators of LCF.
Thomson had “wanted to take out as much money as possible”, was “recklessly indifferent” to bondholders, had lied, forged signatures and knowingly misled auditor PwC, the judge said.
The defendants have denied claims that ranged from fraudulent trading to breach of fiduciary duties and dishonest assistance. Three former co-defendants struck out-of-court settlements.
Lawyers for the administrators laid out in court filings how the defendants funded lavish lifestyles that cost retail customers, such as pensioners and first-time investors, their life savings, health and prompted one suicide attempt.
Defendants, meanwhile, bought property, a luxury watch collection, jewellery, private education for their children, membership of London private member’s club Annabel’s and donated thousands of pounds to the Conservative Party.
Thomson was handed a 10-month prison sentence in May 2023, suspended for two years, for breaching a restraining order on his bank account as part of a separate criminal investigation by the UK Serious Fraud Office.
The judge will determine the amount of compensation at a later stage.
($1 = 0.7868 pounds)
(Reporting by Kirstin Ridley; Editing by Toby Chopra and David Evans)
