The law firm representing London Capital & Finance (LCF) investors in the court case for more compensation under the Financial Services Compensation Scheme (FSCS) welcomed the Treasury redress scheme but said their legal fight is still ongoing.
More than 11,000 LCF investors were left with £237m in losses when the mini-bond provider entered into administration in January 2019.
Shearman & Sterling welcomed the Treasury’s announcement that it will establish a scheme that provides 80 per cent of LCF bondholders’ initial investment up to a maximum of £68,000.
The government expects to pay out approximately £120m in compensation to around 8,800 people in total and will aim to pay all bondholders within six months of securing the necessary primary legislation.
“We welcome the statement by John Glen MP confirming the details of the previously announced government compensation scheme,” said Thomas Donegan, a regulatory partner of Shearman & Sterling.
“The proposals initially seem realistic, taking into account the fact that LCF targeted mostly retail investors with grossly misleading but professional-looking advertising materials.
“Many investors found LCF via price comparison websites and leading search engines, and relied upon its Financial Conduct Authority regulation and the ISA status of the products.
“LCF investors are victims of wrongdoing and regulatory failures.
“They were sold what appeared to be regulated products, but were instead victims of a misappropriation of assets on a very large scale for a regulated business in the UK.”
Simon Letherman, a tax partner at Shearman & Sterling, also welcomed the fact that LCF investors can use their compensation as part of their current ISA balances.
“We are delighted that HMRC has now reversed its earlier position, and agreed LCF ISA investors are entitled to roll FSCS compensation into their current ISA balances,” he said.
Shearman & Sterling has been seeking to quash the compensation decision provided by the FSCS.
In September, the investors were given the go-ahead for a judicial review under the FSCS after a judge refused the FSCS’s request for the case to be dismissed.
However, in March the High Court ruled that LCF bondholders will not be eligible for compensation and agreed with the FSCS that the bonds sold by LCF don’t meet the conditions required for compensation.
At the time, Shearman & Sterling said they planned to appeal the decision and now have reiterated the latest Treasury announcement will not affect their legal battle.
“This announcement should not affect the status of our clients’ proposed appeal, which could still result in a material difference for many investors,” said Jonathan Swil, partner of Shearman & Sterling.