London Capital & Finance investors relieved after court ruling opens route to compensation claims

Hope for thousands of savers who put millions into mini-bond firm that’s now the subject of a fraud investigation

The FCA has claimed that LCF's products were not regulated but investors disagree (Reuters)

Investors who put their savings into collapsed mini-bond firm London Capital & Finance (LCF) expressed relief on Tuesday after a court ruling meant they may be entitled to compensation that regulators had denied them.

A judge ruled that a judicial review could go ahead into the Financial Services Compensation Scheme's (FSCS) decision not to cover the losses of thousands of LCF investors. The judge rejected the FSCS’s request for the case to be dismissed.

Investors said they now saw "light at the end of the tunnel" after a two-year battle to get their money back in what has become one of the biggest financial scandals of recent years.

Some 11,600 ordinary savers put £237m into LCF's bonds and ISAs after being promised high returns from the FCA-regulated firm.

Now the company's directors are being investigated over fraud allegations. The directors have denied wrongdoing.

According to the company's administrators, some of the investors' money paid for thoroughbred racehorses and a helicopter while some went into companies which had links to LCF's directors.

Ian Wilson, who invested thousands of pounds in LCF said news that the judicial review could go ahead was "very welcome".

"The 11,600 of us have been through a very torrid time," he said.

"When you lose a substantial amount of money that is meant for the good of your family, it's a huge blow. It has literally dominated all of our lives for the last two years."

“Many people have been hugely affected by this in terms of their mental health and their relationships with their families. For a long time, we thought we going to get absolutely screwed and would get nothing.”

Mr Wilson, who recently retired after working in social care for 45 years, said he had hoped to use the savings he lost to LCF for deposits on homes for his two daughters.

"Social care is not a profession known for making you very wealthy. All of us are just ordinary Joes.

"It then felt like the FCA and the FSCS were sticking the boot in by telling us that what we'd bought wasn't regulated which meant we could not get compensation.

“Now there's light at the end of the tunnel. It's given us hope at last.”

Mr Wilson paid tribute to solicitors at Shearman & Sterling who have agreed to work pro bono bringing the judicial review case.

The law firm argues that the claimants should be allowed compensation because LCF's bonds should have been regulated. The judicial review only applies to investors who put money into LCF after the start of 2018.

Amanda Cunningham, who put £16,000 into LCF bonds to pay for care for her autistic son, said  getting her money back would have a “huge” impact on her life.

“The FSCS is trying to get out of paying compensation. We were told it was our own fault we lost our money because we shouldn't have invested in high-risk bonds.”

However, like many LCF investors, Ms Cunningham believed she was investing in an ISA and that her money was safe.  "I didn't have a clue I was investing in a mini-bond. I didn't even know what a mini-bond was."

The ordeal has been tough and getting her money back will make a "massive difference", she said. "The money was for my son Jack, for his future. It is so, so important to me. He's autistic, I don't know what's round the corner.  

"At the moment I still feel quite bereft, I feel upset, foolish. You feel angry that you've been let down, you're embarrassed by it, there are all these emotions.  

"I can't get closure on that until that money comes back. It's a huge amount of money to me."

Investors have also been encouraged by the comments of Dame Elizabeth Gloster who is leading a review into LCF and the regulators' handling of it. Earlier this year, Dame Elizabeth criticised the FCA for being slow to hand over documents.  

Her review will interview staff at the FCA to establish what they knew about LCF  and when.

"The FCA have acted appallingly in all this," said Mr Wilson. "They regulated LCF and then they tried to wriggle out of responsibility."

The FCA has maintained that while it was supposed to oversee the company and had approved its business model and directors, it had no responsibility for the investments it sold to savers.

Mr Wilson described the regulator's stance as "outrageous". He added:"The financial industry in this country is held up as the jewel in the crown but a lot of it is a fetid cesspit."

Thomas Donegan, partner at Shearman & Sterling, said: “We are very pleased that the court has given permission for this important case to be heard and that the LC&F investors' quest for justice and recompense will continue.  

"We feel confident in our arguments and look forward to presenting them to the court.”