Thousands of victims of one of the biggest British investment scandals in decades have begun a legal battle for compensation from the government.
A judicial review case on behalf of London Capital and Finance (LCF) bondholders began virtually at the High Court on Tuesday. The case is challenging a decision last year by the UK’s Financial Services Compensation Scheme (FSCS) to award compensation to just a fraction of bondholders who lost money investing with LCF.
More than 11,600 bondholders lost £237m ($322.9m) when LCF collapsed at the start of 2019. The collapse of the investment firm is subject to ongoing investigations by administrators, the Financial Conduct Authority (FCA), and the Serious Fraud Office.
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Most LCF investors believed they were buying fixed rate ISAs that were protected by the FSCS, a government scheme meant to safeguard money held at banks and through some regulated investment products. However, LCF was actually selling high-risk bonds, which were not covered by the scheme.
A review by the FSCS into the matter last year concluded only around 500 LCF investors were eligible for compensation. Lawyers acting for bondholders challenged the decision and a judicial review was granted last September.
Law firm Shearman & Sterling are advising four claimants on a pro bono basis, led by Thomas Donegan and Jonathan Swil, with support from barristers at Brick Court chambers – Jamie McClelland, Tim Johnston and Charlotte Thomas – who are also acting on a pro bono basis.
Donegan declined to comment, citing the ongoing nature of the case. In September, Reuters reported that the claimants alleged the FSCS decision contained errors and was "irrational.” The FSCS said it has followed the rules.
If successful, the judicial review could overturn the FSCS’s decision and potentially open the way for millions of pounds in compensation for bondholders.
“We hope that this court case will finally quash the decision to refuse compensation,” Andrea Hall, an LCF bondholder who coordinates a group of investors, told Yahoo Finance UK.
Hall said the FCA and the FSCS had tried to “blame investors” and “generally sought to wash their hands of the LCF affair.”
An independent review of the FCA’s handling of LCF affair found the regulator had offered inadequate protection to investors. FCA chief Nikhil Rathi said the report was “sobering reading” and vowed reform. Junior Treasury minister John Glen at the time said the government would look at whether to set up a compensation scheme for victims fo the scandal.
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