Investors who lost more than £200million in the London Capital & Finance (LCF) savings scandal were given fresh hope yesterday as a landmark legal case kicked off.
A handful of victims have taken the Financial Services Compensation Scheme (FSCS) to court, after it refused to give the majority of them any cover when LCF collapsed.
LCF fell into administration in January 2019, after collecting £237million from 11,600 investors. It sold them ‘mini-bonds’, promising to lend their cash to hundreds of businesses which needed it to grow.
A handful of LCF victims have taken the Financial Services Compensation Scheme to court, after it refused to give the majority of them any cover when LCF collapsed
It promised high returns and claimed the products were low-risk. But investors, many of them elderly, were left high and dry when it collapsed, and it turned out money had been funnelled to a small number of borrowers.
Several directors are being investigated for fraud. But the FSCS, designed to compensate victims of failed firms, said it was only able to return money to around a fifth of LCF customers because the firm was not carrying out ‘regulated activities’ when it took their money.
Now four savers are challenging that through a judicial review. As the case began yesterday over video-link, their barrister James McClelland told the Administrative Court how some elderly customers had been forced out of retirement. Others had to sell their home and one was on the verge of being made homeless.
He said: ‘For some this has been life-changing, and for others it has been little short of catastrophic.’
McClelland said the FSCS was fundamentally wrong to say that LCF was not carrying out a regulated activity, as he tried to clarify several complex points of regulation. He said: ‘These are precisely the sorts of investors who one might expect to be protected.’
So far the scheme, funded by the financial services industry, has paid around £51million to just under 3,000 LCF bondholders.
It believes it is only able to cover customers who were given financial advice by LCF, or who took their money out of a stocks and shares ISA to invest in the mini-bonds.
LCF administrators and the Serious Fraud Office are still trying to track down investors’ money so it can be returned.
Thirteen people including a former energy minister, Charles Hendry, are being sued by administrators at Smith & Williamson for £178million in connection with the scandal.
It is claimed that savers’ money was used to buy horses, a helicopter and lifetime memberships at a Mayfair club.
In court documents, the claimants’ lawyers said: ‘It appears that LCF may have practised one of the largest frauds on the investing public in recent memory.’