It's been a while since I did an overall update on the London Capital & Finance situation and there's been quite a lot happening in different areas. I'll try to summarise the main points under the different strands of action that have taken place
1) FSCS Compensation
Some investors have started receiving their cheques from FSCS but due to the volume of claims this work is taking longer than anticipated. FSCS have stated that they are increasing the size of the team by 80% but it will not be completed by the original target date of 30 September 2020 and now not be complete before the end of December 2020.
An additional 100,000 emails have been discovered and these are being examined to assist with the decision making process on cases. As of 27 August 2020 FSCS say they have paid out £20m in compensation to 1295 investors.
Legal action to challenge the decision of the FSCS that LCF bonds were not regulated has been granted and is another route that may generate compensation. You can find the formal notice to bondholders about this case on the FSCS website.
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| LCF Update Summary Sept 2020 |
2) Administration Process
There has been a lot of disappointment and frustration at the poor communication from Smith and Williamson about the initial payment for bondholders. This was promised as 5% of the bond value but at the last moment was reduced to 2.5% which hardly seems worth the effort for many bond values when you consider the cost of making the distribution. There was also much annoyance that the payment was only made by cheque during the lockdown period which made it hard to cash in. BACS transfer would have been much easier for bondholders and far less costly to manage for multiple payments.
Smith and Williamson have been working through the complex web of transactions to determine the destination of the £237 million of investors funds. Contrary to their initial assertion that all the money was accounted for they have now admitted that a large proportion of the £237m was transferred to the personal accounts and control of the directors and associates. Legal action is ongoing to recover these funds.
The one possible bright spot is the shares in Independent Oil and Gas held by one company (London Oil and Gas) that borrowed most of the money from LCF. These shares need to increase substantially to pay back the loans but are one of the only assets that the administrators believe are of value.
There's a lot of concern from many bondholders about the costs of the administration by Smith and Williamson which are mounting and could reach tens of millions before completion. By running the administration of multiple LCF entities they are racking up millions in costs from the borrowers and LCF which may outweigh the recoveries of the funds.
3) Court Action
Legal action is being taken against various individuals to recover over £170 million of bondholders money. This would equate to all the bondholder funds apart from the £60 million paid to Surge financial for their marketing and administration services.
Other court orders have been made to freeze the assets of 5 individuals associated with LCF which may protect money for bondholders if fraud is proven by the courts.
4) FCA Review
This now seems to have been delayed until November 2020 due to Covid19 causing evidence to be more difficult to gather and impacting the team producing the report with Dame Elizabeth.
5) Serious Fraud Office Investigation
The SFO seem to be contacting bondholders to get confirmation if they're able to appear as witnesses to support any prosecution. It's not clear if any charges are imminent against anyone involved in LCF saga but key players have been arrested previously and released under investigation.
The SFO have frozen assets of various individuals as part of their investigation in addition to the freezing orders mentioned above by administrators.
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