London Capital & Finance was a Ponzi scheme, judge finds

A High Court judge has ruled for the first time that London Capital & Finance, the collapsed mini-bond investment firm that raised £237 million from 11,600 members of the public, was a fraud and a Ponzi scheme.
Mr Justice Miles described on Thursday how Spencer Golding, a businessman banned from serving as a director over previous wrongdoing, was the prime mover, obtaining £43.4 million for himself from bondholders’ money.
He, alongside LCF’s chief executive Michael “Andy” Thomson, the businessmen Paul Careless and John Russell-Murphy, and Robert Sedgwick, a lawyer, “all knowingly participated in the fraudulent conduct”, the court concluded.
Simon Hume-Kendall, a City businessman and former Conservative Party donor, settled earlier in the trial and denied wrongdoing.
The case was brought on behalf of bondholders by the administrators, Evelyn Partners. Hume-Kendall was repeatedly named alongside Golding as playing a major role in the events described in the 350-page judgment.
“LCF’s business was conducted fraudulently,” the judge ruled. “In summary, LCF raised money from bondholders by misrepresenting the nature of its business and wrongly distributed a large part of them to the four individual defendants.”
The misrepresentation to the public was deliberate, “widespread, fundamental and systematic”, he ruled.
The judge described how funds raised from bondholders, including the estate of a critically disabled girl investing her £1.25 million care funds, were invested in a small number of companies associated with Golding, Hume-Kendall and Thomson.
Tens of millions of pounds were then cycled out of those companies to the group of men personally through a series of “artificial” transactions “used to justify and conceal payments from funds deriving from LCF”, the judge found.
Money from new investors was repeatedly used to pay the interest and redemption payments owed to older ones, making it a Ponzi scheme, the court ruled.
Golding’s “right-hand man” Elten Barker settled before the case came to trial.
Bondholders had been told in sales calls that their money was being lent to “hundreds” of small and medium-sized enterprises.
The bonds had been marketed to the public through websites and social media by a Brighton company called Surge, run by Careless, a former policeman. Careless’s company was paid 25 per cent commission on all the funds it raised, resulting in him personally receiving at least £8.4 million traceable to LCF payments, the ruling said.
The judge ruled that while Careless and Surge were not aware of the details of the fraudulent activities within LCF, they “knowingly participated” in the fraudulent conduct. They had grave concerns about how sustainable LCF was but continued selling the bonds anyway, the judge found.
Another salesman of the bonds, Russell-Murphy, was also a knowing participant in the fraud. Described as someone who had done business with Golding before LCF, he did not appear in the trial to defend himself.
There will be a further hearing for the court to decide compensation payable by the defendants.
Andrea Hall, a spokeswoman for the LCF Bondholders Action Group, said: “The judgment has gone much further than we had ever imagined it would with Thomson, Golding, Surge, Careless, Russell-Murphy and Sedgwick all knowingly having participated in fraudulent conduct.
“Our long campaign to demonstrate misrepresentation through a Ponzi scheme has achieved its aim.
“We look forward to the next hearing at the High Court to decide the amount of the compensation payable and the process for identifying which assets the defendants hold on trust. Justice has most definitely been served.”