Jim Armitage at the Evening Standard reports that administrators are investigating the role played in the collapse of London Capital & Finance by John Russell-Murphy, who pitched LCF bonds in person to wealthier investors.
The Evening Standard has spoken to 10 clients of LCF who invested between £100,000 and £580,000 and allege Russell-Murphy gave them financial advice that experts have suggested he was not allowed to give under Financial Conduct Authority rules because he is not a regulated adviser.
One, a severely disabled woman in her late seventies, claimed he had visited her at her home, looked at the paperwork for her existing savings and recommended she put £100,000 of her entire £150,000 into LCF. The former charity worker said: “I told him I had to keep back £20,000 for my grandchild’s university bills but he said if I invested £100,000 with LCF the interest would pay for them and I wouldn’t lose the capital. Now it looks like it’s all gone."
The law firm Shearman & Sterling has written a letter this week to the Financial Services Compensation Scheme, outlining a new legal justification for compensating London Capital & Finance en masse. Shearman & Sterling are reportedly acting pro bono for some LCF investors.
At the heart of their argument is a recent clarification by the FSCS that investors with a claim relating to FCA-regulated activities carried out by LCF are still covered by the FSCS even if LCF was not authorised to carry out that activity.
The specific activity in question was regulated advice.
Over the last month or so, LCF investors have been encouraged to pore over emails and rack their brains in case they can argue that they received investment advice from LCF call centre workers to invest in LCF minibonds. This would constitute misselling, which would open the doors to the FSCS.
Unfortunately, this is a low-percentage strategy which will not help the vast majority of LCF investors. The fact that some call centre workers may have gone off-message in order to close a deal does not change the fact that LCF was not a financial advice firm, did not advertise financial advice, was not authorised to give advice, and employed no advisers with recognised financial advice qualifications.
However, the fact that the FSCS will potentially pay out for claims in relation to regulated activities, regardless of whether LCF was authorised to carry out those activities, has inevitably raised the question: what if LCF was carrying out other regulated activities which would cover all LCF investors?
Johnny Mercer MP's appearance on Have I Got News For You didn't reach the heights of car-crash TV and may not even make the end-of-season highlights episode. It may however make it into the textbooks of law students - to my knowledge, no-one who is suing a corporation for libel has ever appeared on a comedy panel show hosted by that corporation immediately after beginning proceedings.
Mercer appears to be so confident in his hand that he's showed it to the BBC before betting has even started.
Normally it would be slightly unfair to overanalyse what people on comedy panel shows say, as they're there to be funny, not 100% accurate. However, it's still worth examining Mercer's stated position on his Crucial Academy job, as this was essentially a preview of a libel action. Held on the defendant's home turf, as opposed to the neutral ground of a court.
It is also worth examining what the BBC said (via David Tennant's autocue) as well. The BBC didn't lose any time before doubling down on their allegation - which Mercer regards as libel - that Mercer's salary can be linked to LCF.
A lengthy queue formed outside Holborn's City Temple Conference Centre on Wednesday as hundreds of London Capital & Finance victims attended a meeting called by the administrators.
Mike Stubbs, a lawyer for Mishcon de Reya who is working with the administrators, described LCF's record-keeping as "virtually hallucinogenic . . . The whole show was a complete shambles."
The administrators revised the best-case recovery estimation from 20% of the amount invested to 20-25%. This is apparently based on the "strong performance" of Independent Oil and Gas, described by administrators as the "jewel in the crown".
"Turd that wouldn't flush" would seem to be a more fitting description of IOG as far as LCF's interests go. It seems unlikely that leaving IOG as the only asset in LCF that currently has any measurable realisable value (aside from cash in the bank and a whirlybird) was part of any coherent strategy on the part of LCF's former directors.
Several weeks after his £350-an-hour non-executive position in Crucial Academy was exposed, which was formerly part of the Surge group of companies which promoted London Capital & Finance, high-flying Johnny Mercer MP has finally broken his silence.
Today the BBC has explicitly connected Mercer's salary to LCF. Previously, while it was a matter of public record that Crucial Academy was part of the Surge group of companies, no one had been brave enough to trace a direct financial link between Mercer and LCF.
Crucial Academy Limited, previously owned by Paul Careless, the director of London Capital & Finance's marketing agent Surge Financial, is to be sold to its chief executive, former Royal Marine Neil Williams.
The deal is expected to conclude this weekend. The consideration was not disclosed.
Articles dug up from the archives of local papers have revealed that before London Capital and Finance invested £21 million in the Waterside Villages resort in Cornwall, the same resort was the subject of a planned £30 million investment which was to form part of a £250 million investment in UK tourism by China.
Chinese company Sinofortone and London Group plc, which was owned by Elten Barker and Simon Hume-Kendall, signed a Memorandum of Understanding in 2015. From a Cornwall Live story from October 2017:
The plan was to purchase of the Lakeview Country Club and rename it Waterside Luxury Village as a “first step with other locations to be announced”.
The development was set to include 36 luxurious villas, a state-of-the-art visitor centre, spa, dining facilities and sports venues. There would have also been a five star 105-bedroom hotel, a wide variety of outdoor pursuits, Mandarin-speaking receptionists and tour guides.
Sinofortone was headed by Peter Zhang. From 2015 and 2016 Sinofortone announced a dizzying array of expensive investments into the UK, which included:
- an investment of £2 billion into Welsh biomass and food stations
- the aforementioned £250m investment into holiday villages
- £100m into a Paramount theme park in Kent
- £10bn into housing and transport in Scotland
- London’s Crossrail 2 rail line
- A proposed science park in Cambridge
- Regeneration scheme in Huddersfield and Stoke-on-Trent
- A reported £700m takeover bid for Liverpool football club
None of these plans came to anything. Sir Richard Heygate, who was a co-director of Sinofortone’s UK company, later said that Sinofortone’s proposed investments were “all bollocks” and “Peter [Zhang] is a nice guy but he believed he could create a private vehicle for raising money without having any capital himself, and I just thought was impossible – a crazy idea”. Sinofortone’s website disappeared some time ago.
Independent Oil & Gas is hoping to raise £16.6 million from the AIM stockmarket in order to develop its North Sea gas wells while deferring repayment of the £38.6 million it owes to London Capital & Finance.
As part of a debt restructure, £7.1m of debt due to one of LCF's underlying borrowers, London Oil & Gas, will be rescheduled. A further £1.64m of debt will be converted into ordinary shares, and the maturity of existing warrants will also be extended by 12 months.
The FCA announced yesterday that an independent inquiry will be held into its supervision of the FCA-authorised Ponzi scheme London Capital and Finance.
The inquiry will cover two areas:
- whether the existing regulatory system adequately protects retail purchasers of mini-bonds from unacceptable levels of harm
- the FCA’s supervision of LC&F
The first area of investigation will essentially cover whether the FCA can pass the buck.
On Monday it was reported that a £40 million offer from RockRose Energy to buy the debt Independent Oil and Gas owes to London Capital & Finance (via London Oil and Gas) had been ignored by LCF's administrators, Smith & Williamson, frustrating RockRose to the point they threatened legal action.
S&W briefly commented on the offer when they released their initial proposals for their administration of the FCA-authorised Ponzi scheme on Wednesday. They said only that the offer had been rejected while they try to determine the true value of the debt, and the conversion rights and warrants attached to it.
Independent Oil and Gas has now spoken out to describe RockRose's £40 million offer as "derisory" and claim the loan should be valued at £57 million, despite the amount owed to LCF by IOG being only £38.6 million (including interest).