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London Capital & Finance operated a “Ponzi scheme” in which money raised from UK retail investors was spent on diamond earrings, horses, shotguns and memberships to Annabel’s nightclub, a court has heard.
The now insolvent investment firm funneled funds raised from 11,600 investors to individuals linked to the “minibond” company before its collapse, the High Court has heard.
Proceedings began on Monday in a lawsuit brought by LCF administrators against the company’s former chief executive Michael Thomson, known as Andy, and others linked to one of the UK’s biggest retail savings scandals in recent years.
LCF has raised around £237 million, promising returns of up to 8% through so-called minibonds. But it went into administration in 2019, triggering criminal and regulatory investigations, as well as a probe into the Financial Conduct Authority’s oversight of the company.
Stephen Robins KC, representing the claimants, argued in written submissions that LCF had been “a Ponzi scheme from the beginning” as it used “new investors’ money to pay returns to existing investors”.
While the LCF purported to use the funds to provide much-needed financing to small and medium-sized businesses, “in reality most of the borrowers cannot be said to be carrying out any business,” he said.
The entities to which they were lent were not independent but were linked to the people behind the LCF, he said. The proceeds were allegedly spent on items including gold bars, land in Jamaica, bronze statues, quad bikes and Porsches, as well as used to cover private school fees and donations to the Conservative Party.
The victims included “pensioners who had invested their life savings” as well as “disabled and incapacitated people who had no prospect of ever earning again”, he told the court.
Lawyers acting for Thomson said he denied “every single claim against him”. In written statements they said LCF “has not engaged in any illegitimate commercial activity. . . It was carrying on a legitimate business involving the raising of funds through the issuance of bonds and the lending of such funds in bona fide transactions on commercial terms.
“With the exception of LCF’s parent company, London Financial Group Limited, none of LCF’s borrowers were connected to or controlled by LCF.”
At the start of Monday’s hearing, the lawyer appointed to represent Thomson, led by Ian Mayes KC, left the courtroom. Mayes said they would withdraw as a financial freezing order on Thomson meant he was unable to cover legal costs.
Thomson was sentenced to 10 months’ imprisonment in May last year, suspended for two years, for breaching a restraining order over his assets obtained as part of an investigation by the Serious Fraud Office.
According to the claimants, around £58 million was paid to bondholders by the Financial Services Compensation Scheme. A further £114 million was also paid as part of a Treasury-funded scheme.