Jim Armitage: Watchdog must let LC&F victims claim compensation

Of all the shocking allegations levied by the administrators to collapsed bond company London Capital & Finance scandal this week, one has been overlooked in today’s coverage.

According to Smith & Williamson’s report, LCF continued taking in the public’s money three months after the businesses had stopped paying any interest.

Why is that significant? Because the public were being told that it was that interest which would fund repayments on their bonds. So, how was LCF expecting to honour its commitments to pay up to 9% a year to the thousands of savers who were investing?

That’s a question the administrator and others are obviously looking into.

But clearly it raises another point: bondholders who bought in after September must now have a case to appeal to the regulators that they were mis-sold and can claim for compensation.

The Financial Conduct Authority, whose actions on LCF have left much to be desired, has been at pains to point out that it did not regulate LCF’s bonds. However, it did regulate the company itself — a factor that persuaded many investors to hand over their money.

Surely there is a case to be made that a regulated entity was mis-selling on an industrial scale, opening up potential claims with the Financial Services Compensation Scheme.

That might give some comfort to Gavin Kostalas, a self-employed kitchen fitter who put thousands of pounds of his retirement savings into LCF. As he puts it: “They phoned me in September, the transaction went through at the end of October, and a few weeks later it was all gone.”

Or the 55-year-old I’ll call “Joe” because he hasn’t told his family that in November, he handed LCF the £30,000 inheritance he got from his mother. “My parents were so careful with that money. They entrusted it to me and now I’ve lost it,” he says.

Like thousands of others, they were pulled in by online advertising whose devastating effectiveness is a relatively new phenomenon for regulators to wrestle with. At the cost of a few thousand pounds a month to Google and Facebook, any firm can reach an audience of millions.

The FCA says it is weighing up a review of bonds like LCF’s.

It should also look far more widely at how social media and search engines can be used by financial hucksters to target an unwitting public.

Debenhams must call Ashley's bluff

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