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London Capital & Finance ran a “Ponzi scheme” where money raised from UK retail investors was spent on diamond earrings, horses, shotguns and membership of Annabel’s nightclub, a court has been told.
The now-insolvent investment firm funnelled funds raised from 11,600 investors to individuals connected with the “minibond” company before its failure, the High Court heard.
Proceedings began on Monday in a case brought by LCF administrators against the firm’s former chief executive Michael Thomson, known as Andy, and others linked to one of the UK’s biggest retail savings scandals of recent years.
LCF raised about £237mn, promising returns of as much as 8 per cent through so-called minibonds. But it went into administration in 2019, triggering criminal and regulatory probes, as well as an inquiry into the Financial Conduct Authority’s supervision of the company.
Stephen Robins KC, representing the claimants, argued in written submissions that LCF had been “a Ponzi scheme from the outset” as it used “new investors’ monies to pay returns to existing investors”.
While LCF purported to use the funds to provide much-needed finance to small and medium-sized enterprises, “in reality most of the borrowers couldn’t really be said to be carrying on any business at all”, he said.
The entities lent to were not independent but were connected with people behind LCF, he claimed. Proceeds were allegedly spent on items including gold bullion, land in Jamaica, bronze statues, quad bikes and Porsches, as well as used to cover private school fees and donations to the Conservative party.
Victims included “retired people who had invested their life’s savings” as well as “disabled people and incapacitated people who had no prospect of earning ever again”, the court was told.
Lawyers acting for Thomson said he denied “each and every claim against him”. In written submissions they said that LCF “did not engage in any illegitimate business activities . . . It carried on a legitimate business which involved raising money through the issuance of bonds and the lending of those monies in bona fide transactions on commercial terms.
“Save for LCF’s parent company, London Financial Group Limited, none of LCF’s borrowers were connected with or controlled by LCF.”
Thomson was handed a 10-month prison sentence in May last year, suspended for two years, for breaching a restraining order on his assets obtained as part of a probe by the Serious Fraud Office.
According to the claimants, about £58mn has been paid to bondholders by the Financial Services Compensation Scheme. An additional £114mn was also paid as part of a scheme funded by HM Treasury.
