In another twist in the London Capital & Finance (LCF) mis-selling saga, a judicial review to quash the Financial Services Compensation Scheme’s (FSCS) decision not to compensate all victims has been unsuccessful.
The judge agreed with the investors’ argument that the ‘non-transfer’ clauses in the bonds issued by LCF were unfair and unenforceable.
But ultimately ruled that, since the bonds were unregulated, the FSCS’ decision should stand.
Judge Bourne said: “It goes without saying that the claimants and their fellow investors deserve the greatest sympathy for the plight in which LCF left them.
“Nevertheless, despite the force, lucidity and skill with which their case was advanced before me, the claim must be dismissed.”
The bondholders are planning to appeal the decision.
Disappointment
Thomas Donegan, partner at law firm Shearman & Sterling, who is representing some of the LCF bondholders on a pro bono basis, said: “We are pleased that the judge found in our favour that the non-transfer provisions of the LCF bonds were unfair and unenforceable.
“However, and with respect, we were disappointed that the bonds were then found not to be a ‘transferable security’ for regulatory purposes meaning their issuance was not subject to FSCS compensation.
“Our clients intend to seek permission to appeal the decision.”
Bondholders Emmet Donegan, Joanne Ellis-Clarke, Alan Considine and Nathan Brown, added: “LCF was authorised and regulated by the Financial Conduct Authority as an investment firm and was registered with HMRC as an Isa account manager.
“Many investors found LCF through price comparison websites, search engines and advertising in the mainstream press. LCF preyed on ordinary savers by offering products held out as secured, asset-backed investment bonds and Isas, with professional-looking documentation, UK account managers and slick marketing.
“However, in reality, there was no security backing the investments, investors’ savings were dissipated, and they appear to have been appropriated by those operating the scheme. It is now evident that LCF’s business was founded upon a questionable and novel regulatory arbitrage: it claimed not to be regulated for taking deposits, because the investments were in the form of bonds.
“However, it also claimed not to be regulated for issuing bonds, because the bonds it issued were stated to be ‘non-transferable’.
‘Good prospect of success’
The four bondholders added that they disagree with the judge’s ruling and will seek to appeal the decision.
“Whilst we are pleased with the court’s conclusions on unfairness and unenforceability, we respectfully disagree with the judge’s further conclusion – that even if the non-transfer clauses were invalid and unenforceable, the LCF bonds are not also ‘transferable securities’ for regulatory purposes.
“We, therefore, intend to apply for permission to appeal the decision – provided we have adequate arrangements in place to ensure we would not have to pay the FSCS’s costs.
“This decision to seek permission to appeal the judgment is made with mixed feelings – LCF investors have suffered for too long in their quest for redress – and we and our pro bono legal team have had to expend more effort and cost than we might have wished or expected on this case.
“However, whilst an appeal – if permission to appeal is granted – may prolong uncertainties, we believe that it is necessary and would have good prospects of success.”
