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Auditors at collapsed mini-bond firm questioned as compensation looms

Accountants and lawyers are among at least 30 people asked to hand over information about collapsed mini-bond provider London Capital & Finance, according to The Times.

Before its collapse at the end of January, £237m had been invested in LCF by some 11,500 private investors.

The firm had previously raised flags with the FCA for marketing material the regulator ruled as misleading.

The Times understands that administrators at Smith and Williamson have demanded information from a number of companies linked to the firm, including auditors at EY and PWC, which signed off LCF’s accounts.

Kent-based law firm Buss Murton has also been subject to requests, the paper reports.

Court action could follow under enforcement powers granted to administrators and their lawyers through the Insolvency Act if individuals do not turn over information.

Nic Cicutti: Latest collapsed investment firm a misselling scandal of FCA’s making

Law firm Mishcon de Reya partner Mike Stubbs says his firm expects “some recipients will not co-operate and will be dragged into court”.

Stubbs adds some 20 further letters will be sent in the coming weeks.

The Times reports bondholders are due to meet this Wednesday in London.

EY and PWC declined to comment to The Times.

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There are 12 comments at the moment, we would love to hear your opinion too.

  1. Neil Liversidge 23rd April 2019 at 10:00 am

    On 14 April the Telegraph reported that ‘London Capital & Finance (LCF) ­administrators are investigating recordings of thousands of phone calls in a last-ditch attempt to help furious ­investors recover their money.

    The Sunday Telegraph understands Smith & Williamson (S&W) are checking conversations between LCF staff and clients to see if any were given personal advice, which is regulated and therefore eligible for compensation, before they agreed to buy its bonds.

    The move is a final hope for thousands who put their savings into LCF, which collapsed in January after taking £236m from more than 11,500 savers.’

    This sounds suspiciously like they’ve been given orders to find a way in which the liabiity can be dumped on the FSCS, which means on us.

    • Or it could just be the administrators being as diligent as they can be in order to establish the facts of the situation.

      I don’t think anyone would argue that anyone who has a bona fide claim should be disenfranchised.

      • Neil Liversidge 23rd April 2019 at 2:43 pm

        Per the FCA register, LCF had permissions to advise Eligible Counterparties and Professional clients, not retail clients, so what’s the point of the administrators spending a load of money having their agents listen to thousands of hours of telephone conversations to see if personal advice was given? You can’t be disenfranchised if you weren’t enfranchised in the first place. I.e. if you didn’t take regulated advice – which LCG investors didn’t, because by definition LCF couldn’t give it, then you can’t expect a payout from a scheme financed by advisers.

    • Hmmm. If those found to have dispensed advice weren’t specifically authorised to do so, can the untoward consequences of their advice be dumped on the regulated adviser community?

  2. One common denominator in all these collapses, scams, frauds and “mis-appropriations” appears to be accountants and auditors. None of them seem to be ever held fully to account and indeed are usually rewarded with over-priced government and regulatory contracts. Funny that!

  3. What is the basis for the “as compensation looms” part of the headline?

    The investors naturally want compensation but that doesn’t mean it’s looming. The avenue being touted in the newspapers, compensation on the basis that LCF provided advice, is a complete dead end as LCF was not authorised to give advice to individual investors — *unless* the FSCS tears up the rulebook, which is perfectly possible.

    • Neil Liversidge 23rd April 2019 at 1:51 pm

      My concern precisely. Barlow Clowes investors should never have been paid out, but they screamed long and loud enough and the government bought them off with taxpayers’ money. Think how much easier and more tempting it must be for the government if instead of dumping the cost of LCF on all taxpayers, they could just dump it on those of us who have to pay the arbitrary ‘Failed Regulation Tax’ aka the FSCS Levy.

  4. This is a search to find a way of either using the FSCS or more likely making the auditors pay.

    It’s a bit misguided. A lot of punters always moan about the auditor when stuff goes wrong. What didn’t the auditor spot something going wrong when I didn’t? Very often the auditor does force certain disclosures in the accounts, but no-one ever reads them. I have seen some of the finest disclosures in dodgy fund accounts and yet the punters just keep pouring in the cash.

    To reiterate, the auditor is not the police. The auditor is not a regulator. The auditor has no statutory powers and few tools to hold any firm to account. Resignation is about as big as it gets. The are not there to do your due diligence for you.

    All they do is check money is paid in appropriately, money is paid out appropriately (in line with any governing documentation), fees are charged in line with agreements and nothing is missing. They may question the value of investments or the worthiness of creditors, but very often the governing documents afford the valuation of those to the directors. If a company takes your money and advances it to third parties as long term loans, no-one is going to write down the loan values until they finally go bad.

    It is not the auditor’s job to verify the veracity of the company’s creditors, especially, as here, the company is established to do lending. If the auditor was expected to do this, then really the auditor should be running the company and the directors should leave…except who then does the audit…?

    Sorry folks, but there is a far greater expectation of what auditors do, than what they actually have to do. And that public expectation always seems to crop up when the fan gets clogged up.

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