Thirteen people including a former UK energy minister are being sued for £178m in connection with an alleged fraud at London Capital & Finance, where investors’ cash is said to have been used to buy horses, a helicopter and lifetime memberships to Annabel’s, the Mayfair private members’ club.
The administrators of LCF, which went bankrupt in February 2019, have this week told individuals linked to the collapsed investment firm that they are the defendants in a lawsuit that will claim LCF’s purpose was to defraud bondholders.
Administrators at Smith & Williamson are trying to recover money for the 11,600 investors who invested £237m in LCF before it failed in one of the UK’s largest alleged frauds against retail investors. The administrators have claimed that LCF’s directors induced thousands of retail investors to buy bonds in the group by purporting to invest in a series of companies and property deals.
Instead, the administrators have claimed, nearly 60 per cent of all of the investors’ cash — about £136m — was channelled to its executives either directly or via loans to companies they controlled or were connected to. The directors have previously denied wrongdoing.
LCF was set up in 2012 by Simon Hume-Kendall, a former chairman of the Tunbridge Wells Conservative party. It grew rapidly between 2016 and 2018 after it hired Surge Group, a Brighton-based marketing company set up by former police officer Paul Careless, to attract new investors, selling 16,706 bonds.
The investment company went bust in early 2019 after the Financial Conduct Authority froze its bank accounts and said its marketing of unregulated mini-bonds promising returns of up to 8 per cent was misleading. Administrators at Smith & Williamson said that bondholders would get back just a quarter of the money they invested.
The scandal sparked an investigation by the Serious Fraud Office, which is ongoing. It has since also led to a ban on the marketing of mini bonds to retail investors, prompted a government-backed review into potential failings by the FCA, and sparked a regulatory investigation into three accounting firms that signed off LCF’s books: EY, PwC and Oliver Clive & Co. The new lawsuit brought by the administrators alleges that 10 of the 13 individual defendants “misappropriated” bondholders’ money. They include Mr Hume-Kendall and his wife, Helen, who received at least £24m of investors’ cash, according to the claim. A person close to the case said about £250,000 was spent by the couple on memberships for Annabel’s. A lawyer for Mr and Mrs Hume-Kendall said they “strongly deny any wrongdoing and will be vigorously defending the proceedings”.
Andy Thomson, chief executive of LCF, allegedly received £5.3m of bondholders’ cash, the claim said. A lawyer for Mr Thomson did not respond to a request for comment.
Spencer Golding, a significant shareholder in LCF-linked companies, allegedly received the largest chunk of bondholders’ cash, the claim said, at £42.8m. Elten Barker, a director of London Oil & Gas, which was LCF’s biggest borrower, allegedly received at least £5m.
A lawyer for Mr Barker said he denied the allegations and “believes the administrators and their lawyers have run out of money and they’re looking to pursue this claim in order to enable them to run up further fees”.
The administrators declined to comment on the claim. According to the lawsuit, the cash was either paid directly to the individuals by the agent in charge of collecting bondholders’ investments while “other sums were paid to them indirectly, through a complex web of interconnected companies”. Among the substantial sums paid to Mr Golding “purportedly by way of consultancy fees” were £1.2m to enable him to buy a Eurocopter EC135 T2, and £384,000 to buy a lorry.
A representative for Mr Golding did not respond to a request for comment.
The lawsuit claims that the allegedly fraudulent nature of LCF’s business was “concealed” by a series of loans that purported to be “bona fide arms length transactions”. Instead, the lawsuit claims, the bulk of the loans were made to companies either connected to or controlled by the individuals.
LCF only made two “genuine commercial transactions at arm’s length”, the claim said, including a loan to Aim-listed Independent Oil & Gas. Mr Careless, whose company Surge was in charge of marketing LCF’s bonds, is also a defendant. The lawsuit has alleged that Surge received £60.8m of bondholders’ money while he “personally received” at least £8.5m. Surge said: “At no time did [Surge] touch client funds.
Surge and Paul Careless strongly deny the allegations and this action will be defended vigorously.” Five of the 13 individual defendants are accused of failing to take sufficient steps to discover the alleged fraud in their role as directors of LCF-linked companies.
They include Charles Hendry, a Conservative politician and the UK’s former minister for energy. Mr Hendry was a director of London Oil & Gas, which borrowed £129m from LCF. Mr Hendry said: “This legal action against me is totally without merit. I will contest it in court as I always fulfilled all my responsibilities as an independent non-executive director.”