LCF investors unable to obtain evidence for their compensation claims, administrator reveals

A brief interim update sent by the administrators of London Capital and Finance reveals that a number of investors have contacted Smith & Williamson in an attempt to secure recordings of phone conversations between the investors and LCF.

The purpose of requesting these conversations is virtually certain to be to support claims against the Financial Services Compensation Scheme, which has confirmed that it will compensate investors who received recommendations to invest from employees of LCF’s marketing agent, Surge Financial, if they amounted to regulated advice.

We have received a number of communications from Bondholders recently, requesting recordings of their calls with LCF or Surge employees, in relation to their investments. It should be noted that:

• The joint administrators do not yet have access to the call recordings database
• The joint administrators are however taking steps for delivery up to them of call recordings
• We understand that in parallel the FSCS are taking steps to secure call recordings.
• Our understanding is that the telephone recordings are not comprehensive.For example, the joint administrators are aware that a number of calls were made from mobile phones and accordingly there will not be records of these calls held by the third party provider which maintains the call recordings database
• We understand that the current third party provider only holds call recordings made/received during the last year prior to the FCA intervention in December 2018.

The inability of investors to obtain the evidence they need to make successful claims against the FSCS will likely exacerbate the potential injustice of the decision of the FSCS to compensate investors who received illegal but nonetheless FSCS-protected advice. Unless, of course, a more comprehensive and less arbitrary compensation scheme is set up.

In the world of actual regulated advice, this kind of issue almost never arises as it is a legal requirement to issue advice in writing. If that written advice is inadequate to support the recommendation, the investor has been mis-sold, and whether they were or were not told something else over the phone is virtually irrelevant. Any compliance consultant will tell you “if it’s not written down it didn’t happen.”

The decision to compensate investors largely on the basis of whether they were told over the phone that LCF was the best thing since sliced bread flips this equation on its head. Unfortunately for investors, if the FSCS takes the view that “if it’s not written down it didn’t happen”, then most LCF investors aren’t going to get compensation on the basis of being missold by LCF.

The FSCS has a big decision on its hands as to whether to take investors’ word for it as to whether they were given advice over the phone, given the lack of records that could prove or disprove their claim.

At present there will be numerous investors who spoke to LCF on the phone and were given the “I’d tell my own mother to invest in it” spiel. But cannot prove it due to the current lack of records.

There will also be numerous investors who only interacted with LCF via its website, never spoke to LCF over the phone, and never received anything that could be considered advice even by the FSCS’ relaxed standard. They are, as it stands, screwed.

Unless they invent a phone conversation if the FSCS decides that, given the lack of records, they will take the investor’s word for it in the absence of evidence to the contrary. We do not advocate committing fraud to secure FSCS compensation.

And on the other side the FSCS has to deal with the anger of the regulated advice sector, whose levies pay for the compensation scheme, who were not formerly aware that their levies allowed any FCA-regulated company to make a Ponzi scheme risk-free (up to £50,000 per person) by telling people, via an unregulated third party, that it was a good idea to invest in it.

The regulated advice sector knew this was the case for regulated financial advisers, who are required to pass exams and obtain a Statement of Professional Standing, but not for anyone who gets FCA authorisation for something like insurance intermediation. While the rules are old, the interpretation is new.

As it stands, no public action has been taken by the authorities against Surge Financial over the FSCS’ allegation it broke the law by giving regulated advice to retail investors without FCA authorisation. (LCF’s FCA permissions were for corporate finance business only.)

Intelligent Technology Investments

Smith & Williamson continues to spread its control through the further reaches of the London Capital & Finance web of companies.

Earlier this year S&W were appointed administrators of London Oil & Gas, which borrowed £122m from LCF, and in June S&W were appointed liquidators of Intelligent Technology Investments, which borrowed £5m from LOG.

ITI loaned £3m of this on to a company called Asset Mapping Limited.

Back in March, at the time of the initial administrators’ report, S&W said “Whilst AM has had some success in penetrating its market it is still seriously underperforming and short of the capital needed to develop its product further and for marketing costs”.

In April Asset Mapping went into administration, and was subsequently sold to its Chief Operating Officer Michael Grant, with funding from ex Nomura bankers Adrian Purvis and Gary Cottle, according to PlaceTech. It has now been renamed Metrikus.

According to S&W, “the consideration for the sale of this business is mostly contingent on the future performance of the business and so the return to LOG, and hence the LCF bondholders, is dependent on how that plays out.” The exact consideration and terms of future profit-related payments were not disclosed.

Another business which received funds from ITI was London Artifical Intelligence Limited, which according to the March report had developed software that could predict commodity prices with 85% accuracy (of one unspecified commodity). LAI has been overdue with its Companies House accounts since March 2019.

Elusive equine news

In other news for fans of metaphor, the Evening Standard’s Jim Armitage has revealed that S&W are almost literally trying to shut a stable door after the horses have bolted. Or more specifically, warning the wider equestrian world that if they should come across the bolted horses, they need to be put back in the stable right now.

Administrators to collapsed bond company London Capital & Finance are warning people in the equestrian world against buying horses from a stud farm that borrowed millions of pounds from the firm, the Evening Standard has learned. […]

Smith & Williamson said in a statement: “LCF has loaned very substantial funds to FS Equestrian and the administrators are getting no cooperation whatsoever in understanding where that value has gone.

“We would now put the equestrian world on notice that we will seek out all of the FS Equestrian horses which we have security over, irrespective of whose property they are on or whose possession they are in.”

FS Equestrian was owned by Spencer Golding, one of the Four Horsemen of LCF who were described in the initial administrators’ report as benefiting from millions of pounds which went into their personal possession or control, along with Andy Thomson, Simon Hume-Kendall and Elten Barker.

Spencer Golding declined to comment to the Evening Standard, as did Sean Cubitt, who took over FS Equestrian in January.

As prospects for recoveries go, it remains to be seen which has higher potential for recovery: FS Equestrian’s horses, or wondertech that predicts commodity prices with 85% accuracy.

Smith & Williamson’s next full update to bondholders is due to be delivered by 29 August.