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An investment company that collapsed owing millions of pounds to its backers was a Ponzi scheme that “deliberately created a false impression about the company”, a court has ruled.
London Capital & Finance (LCF) raised £237 million from around 11,600 individual investors before going bankrupt in 2019, promising them healthy returns from selling risky ‘mini-bond’ products.
But in a ruling yesterday, a High Court judge said the company had engaged in “fraudulent business conduct” and had “pervasively, fundamentally and systematically” misrepresented itself.
Scam: A judge said London Capital & Finance had engaged in “fraudulent business conduct” and misrepresented itself in a “pervasive, fundamental and systematic” manner.
The judge also ruled that former LCF boss Michael ‘Andy’ Thomson and Spencer Golding, a shareholder in companies linked to LCF, were liable for breach of their duties as directors.
Three other associates, Paul Careless, John Russell-Murphy and Robert Sedgwick, were also found to have “knowingly participated in the fraudulent conduct.”
The men face a large bill for damages. Three former co-defendants have reached out-of-court settlements.
The court said LCF had operated as a Ponzi scheme, a scam in which money from new investors is used to pay existing investors to create the illusion of profits.
Judge Miles, the judge in the case, held that a “substantial portion” of the funds invested in the company were not used to make loans to small and medium-sized businesses, as promised, but were instead “misappropriated.” and It is used to make payments to people related to the company.
Some of the money had been spent on items such as horses and Porsches.
Thomson “wanted to get as much money out as possible”, was “recklessly indifferent” to bondholders, lied, forged signatures and knowingly misled auditor PwC, the judge said.
A hearing will be held to determine how much damages will be paid. Administrators are seeking more than £177.5 million. A £120 million compensation scheme, paid for by taxpayers, has already been set up.
The sentencing came after Thomson was sentenced last year to ten months in prison, suspended for two years, after breaching a restraining order on his assets imposed by the Serious Fraud Office.
In May, the Financial Reporting Council (FRC), the accounting watchdog, fined “Big Four” firms PwC and EY £4.9m and £4.4m respectively for failing to uncover the scam during their audits. of LCF.
The city’s watchdog, the Financial Conduct Authority, was also criticized in a 2020 review which found it had been “wholly deficient” in its handling of an investigation into the LCF collapse.
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