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Individuals involved in the London Capital & Finance scandal are liable to pay damages after the High Court found that the collapsed “minibond” provider operated as a Ponzi scheme that misrepresented itself in a “widespread, fundamental and systematic” way.
Administrators to the investment firm brought the civil case in an attempt to recover money from former directors and others connected with LCF, which had raised about £237mn from about 11,600 individual investors before it collapsed in 2019.
Former chief executive Michael “Andy” Thomson and Spencer Golding, a shareholder in LCF-linked companies, were found liable on Thursday for breaches of duties as directors. Three other individuals — Paul Careless, John Russell-Murphy and Robert Sedgwick — “dishonestly assisted” them, the court found.
The amount of compensation to be payable will be determined by the court at a later date.
The judge, Mr Justice Miles, said LCF presented itself as a commercial lender to small and medium sized UK companies when in fact a “substantial part of the money” was “misappropriated” and used to make payments to people connected with the firm. Claimants had told the court that some of the proceeds were spent on items including diamond earrings, horses and shotguns.
The court ruled that LCF was a Ponzi scheme in that it “depended almost entirely” on funds raised from new investors to pay existing ones, given that “there was no independent source of income”.
Payments made under purported “sale and purchase agreements” were not genuine commercial arm’s length transactions, the judge said, but “artificial devices” used to “conceal payments” so that the individuals could “use these sums as they wished”.
Richard Slade and Partners, which represents Thomson, said he was “surprised and disappointed by the terms of the judgment” and would not be making further comment.
A lawyer acting for Careless did not immediately respond to a request for comment. Golding, Russell-Murphy and Sedgwick were unrepresented by counsel.
Administrator Finbarr O’Connell of Evelyn Partners said he was “delighted” by the judgment. “The administrators will now be in a position where they can realise very substantial sums,” he said.