Mini-bond scam victims get judicial review on LCF compensation

Thousands of investors who lost millions in the London Capital & Finance (LCF) mini-bond scam could get a second shot at claiming compensation from a government-backed protection scheme.

Bondholders have been granted a judicial review against the Financial Services Compensation Scheme (FSCS), challenging its decision to grant compensation to only a handful of victims of the LCF scam.

The FSCS ruled in January that only 159 of the roughly 11,500 bondholders in LCF would be eligible for compensation.

READ MORE: Hundreds of investors in bust £237m bond scheme miss compensation

LCF sold high-risk mini-bonds to investors but wrongly advertised them as ISAs, which qualify for cover under the FSCS. The FSCS ruled that because these bonds were not in fact ISAs, they did not qualify for compensation coverage.

The courts have now granted several LCF bondholders permission to challenge this decision, potentially opening the door for compensation for thousands of victims.

“We are very pleased that the Court has given permission for this important case to be heard and that the London Capital & Finance (LC&F) investors' quest for justice and recompense will continue,” said Thomas Donegan, a partner at law firm Shearman & Sterling, which is handling the case pro bono.

“We feel confident in our arguments and look forward to presenting them to the Court.”

READ MORE: Government 'unsympathetic' to major bust bond scheme investors

LCF raised £237m ($309.7m) selling high-risk bonds to savers before collapsing in January 2019. Administrators have warned investors they could get as little as 25% of their money back and are now suing 13 people connected with the company for alleged fraud. The UK’s Serious Fraud Office (SFO) is investigating.

A court date for the judicial review has not yet been set.

“A positive outcome in the case will have a real impact not just on their lives, but on the lives of many of the other investors who have lost significant investments following the collapse of London Capital & Finance,” said Jonathan Swil, counsel at Shearman & Sterling.