Justice for the Victims of Britain's Largest Ponzi Scheme?

In a judgment handed down in November 2024, the High Court concluded that the investment firm London Capital & Finance (LCF) had operated as a Ponzi scheme between 2013 and May 2018, defrauding circa 11,600 individuals who had invested over £237 million in LCF believing it to be a legitimate investment scheme. 

LCF presented itself to investors as a commercial lender to the SME sector, stating that it would generate returns on investments with onwards lending when in fact it advanced the funds collected to a small number of connected companies which were associated with five individuals, including LCF’s CEO Mr Thomson. 

LCF’s collapse in 2019 triggered one of Britain’s biggest retail investment scandals to date. It prompted the Economic Secretary to the Treasury to order an independent investigation into supervision by the FCA, as well as intervention by HM Treasury and the Financial Services Compensation Scheme. This judgment had been keenly anticipated and the case was listed as one of The Lawyer's Top 20 Cases of 2024.

Mr Justice Miles, in his judgment running to 341 pages, held that LCF operated an investment fraud by systematically marketing itself to members of the public on false pretences, misappropriating a substantial proportion of the funds paid by investors for “mini-bonds”, and operating as a Ponzi scheme. The key feature of LCF’s operation was that payments of interest and principal sums made to existing bondholders were funded by the proceeds of the new bondholders’ investment in LCF. 

This meant that LCF depended almost entirely on new customers’ investments to pay existing bondholders as they did not have an independent and legitimate source of income from which to make the payments.  Worse still for the investors, however, was that in addition to paying off longer standing bondholders with the funds received from new investors, LCF misappropriated a significant amount of the receipts in order to fund their lavish lifestyles. The joint administrators of LCF who brought the claim alleged that this included the Defendants making payments to the Conservative party, buying membership at private members clubs and purchasing luxury jewellery and shotguns, all on the investor’s account.

The Court concluded that Mr Thomson and Mr Golding were liable for breaches of fiduciary duties owed to LCF as directors by knowingly taking part in LCF’s fraudulent conduct of business. Three further directors were also found liable for dishonestly assisting Mr Thomson and Mr Golding.  

The Claimants were also wholly successful in establishing that the Defendants entered into a series of artificial transactions whose purpose was to conceal the misappropriation of funds from LCF to the Defendants, and in that vein the Court made findings against the Defendants of fraudulent trading, dishonest assistance, knowing receipt, and in respect of proprietary tracing claims.

There was then a further hearing in December 2024 at which the two primary defendants were found liable to pay £180 million in damages to the victims, and the three who provided dishonest assistance liable for £211 million. Whilst Mr Justice Miles said that it was “very unlikely” that the defendants would be able to meet the damages awards, the Joint Administrators should now be in a position where they can begin to recover at least substantial portions of the damages award from the Defendants for the benefit of the creditors of LCF.  

That is not the only outcome of the discovery of the LCF Ponzi scheme, however.  A Serious Fraud Office criminal investigation into the circumstances surrounding the sale of the mini-bonds and ISA bonds by LCF remains ongoing. And the collapse of LCF also prompted an investigation, chaired by Dame Elizabeth Gloster, into the supervision of LCF by the FCA, and the passing of the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021, intended to partially compensate victims of the fraud.

It is hoped that this Judgment and the damages award, alongside the associated investigative and regulatory activity, will serve as a deterrent against operating Ponzi schemes of this nature.