Government compensation for victims of the LCF scandal
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The Problem: Trusted Government institutions failed to provide a duty of care to protect the 11,605 bondholders of London Capital & Finance (LCF) which collapsed into administration in January 2019. The failure of this firm now appears to be a huge financial scandal that has been widely covered in the media. If government institutions had taken appropriate enforcement action when concerns had been raised about LCF, the £237million losses would have been prevented. The LCF collapse has had a significant impact on the emotional well-being of bondholders, who are largely elderly investors and face an uncertain future. Bonds were bought as investments for people’s life savings, pensions, future care home fees, university funds and house deposits.
LCF offered interest rates (from 3.9% to 8.95%) on secured bonds and targeted ordinary savers through various marketing techniques including comparison websites, facebook adverts and google searches. LCF’s status as being FCA regulated and an approved ISA Manager assured savers that they were dealing with a reputable firm endorsed by the FCA and HMRC. LCF told savers that funds raised from the bonds were being lent to 100’s of SME’s on a fully secured basis at no more than 75% loan to value ratio. In fact, nothing could have been further from the truth. In reality, 25% of all investor funds were paid as commission to a marketing company and the rest of the funds were distributed to companies run by 4 controlling parties, which had inter-linking directors, and minimal security collateral.
The LCF administrators confirmed that recoveries could be as low as 20%, reported many of LCF’s transactions as “highly suspicious” and referred the case to the Serious Fraud Office. The FCA have now agreed to investigate the regulatory failures relating to the LCF scandal. In March 2019, HMRC informed bondholders the LCF ISA was 'void' as the securities were not transferable (despite HMRC granting LCF as an approved ISA Manager two years earlier) and that any interest received will now be subject to tax. Although LCF misled and deceived investors with their promotional material and breached the FCA rules resulting in the loss of £237m funds, the bondholders have not yet been given any assurances that they will be able to recover funds under the FSCS Compensation Scheme. Consequently, the bondholder victims are now left to deal with a severe shortage in finances and in some cases, government benefit support will be required.
The solution: The bondholders request the Government provide full compensation to the LCF bondholders, who are the victims of systemic regulatory failure, without delay. The bondholders request that HMRC apply tax on LCF ISA interest from the date HMRC declared the LCF ISA void rather than apply tax on interest retrospectively. The Government can recoup the compensation from the ongoing administration of LCF and any compensation orders that arise as the result of the SFO investigation.
Who am I: I moderate one of the LCF bondholder campaign and support groups, which now has over 1,500 members. I am also a bondholder. Following personal illness I sold my home and moved in with my mother to recuperate. To keep the capital from my previous home safe, I placed the funds into an LCF fixed rate ISA. I now face significant financial loss.
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