LCF investors drop court appeal as they can’t afford legal costs

abdelaziz Fathi

London Capital & Finance (LCF) bondholders have dropped their judicial review appeal against the Financial Services Compensation Scheme (FSCS), citing the rising cost of funding the legal challenge.

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Victims of the collapsed mini-bond provider said they cannot afford to pay the FSCS’ £600,000 legal fees if they lose their bid for full compensation.

“On 29 March 2021 we shared the news that the court had reached a decision on the judicial review that was brought against FSCS by some LCF bondholders,” the FSCS said in an update on its website.

The claimants are fighting for eligibility of compensation and asked the court to scrap the decision that considered LC&F bonds issued after January 3, 2018 was not a regulated activity.

The affected bondholders say they bought ‘mini-bonds’ from London Capital & Finance only after receiving assurance from the FSCS that their money was covered by the UK’s compensation scheme. As such, the FSCS is accused of giving misleading information over the protection they should expect.

However, the British High Court ruled in March that these investors cannot recover their losses because bonds sold by LCF did not meet the scheme’s conditions for compensation.

Four of the LCF bondholders filed their appeal to the judicial review. If they were successful, they would have received full pay-outs for all their LCF investments. But if they lost, they would have had to pay £600,000 in legal costs of FSCS.

At the time, the claimants said the FSCS knew it was stifling the possibility of the appeal going ahead as it refused not to pursue costs against them if their appeal was unsuccessful.

“The appeal is being withdrawn only due to the unmitigated, unreasonable and substantial personal costs risk that it would involve. We remain of the view that the appeal is meritorious, as can be seen from our skeleton arguments for permission to appeal,” said the bondholders, who are representing the rest of the collapsed mini-bond provider’s investors.

Part of FSCS’s ongoing probes involve Surge Financial Ltd, an online marketing firm that was reportedly paid nearly $60 million to promote LCF’s unregulated mini-bonds. While LCF was authorised by the FCA, its mini-bonds are not regulated and therefore customers were not covered by FSCS’s plan. This means that their investments could be wiped out unless they can show they bought the bonds following bad advice.

Around 12,000 investors suffered major losses following the £236 million collapse of the mini-bond issuer in 2019. However, a small number of LCF received compensations so far while the vast majority of the bondholders are still waiting to hear if they have any chance of getting their money back.

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