Small victory for mini-bond victims

The UK administrative court has allowed a judicial review against the Financial Services Compensation Scheme (FSCS) brought by the victims of defunct law firm London Capital & Finance (LCF) to go ahead. 

The lifeboat scheme had asked that the case be dismissed and the court refuse permission to proceed with the legal action.

The claimants comprise four members of the LCF creditor’s committee, who are being advised on a pro bono basis by law firm Shearman & Sterling. 

The judicial review application was filed in February 2020, and aims to quash the FSCS’ decision to not award compensation to all LCF investors, because the company’s issuance of bonds was not a regulated activity, despite the firm being regulated by the Financial Conduct Authority (FCA). 


Originally, the lifeboat scheme said it was only going to compensate 159 investors, out of the over 11,600 people involved in the mis-selling scandal. 

They were the ones that switched from stocks and shares Isas to LCF bonds. The FSCS said they were eligible for compensation because Isas are a regulated product. 

But since then, the lifeboat scheme has received additional evidence against the investment firm, including over 100,000 emails, which led to giving out £20m in compensation to 1,295 victims so far. 

The scheme believes the process is likely to last until the end of the year. 

The bondholders’ case is looking to quash the FSCS’s decision which, if successful, would impact investments made on or after 3 January 2018, or all investments in bonds labelled as eligible for Isa status on or after the same date. 

This is because Mifid II was implemented on 3 January 2018 and, the law firm argues, that LCF carried out the regulated activities of ‘dealing in investments as a principal’, or ‘agreeing’ to carry out the activity of ‘dealing in investments as principal’, as defined by the regulation. 

The lifeboat scheme has already accepted that the investment firm carried out the regulated activities of ‘advising’ and arranging’. 

Challenging legality of decisions 

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 LCF investors’ quest for justice and recompense will continue.  

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

Jonathan Swil, counsel at the law firm, added: “The claimants will now have the opportunity to let the court decide on the legality of the FSCS’s decision that has left them without compensation.  

“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.” 

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