The Serious Fraud Office on Monday said it had made four arrests over the collapse of high-risk lender London Capital & Finance.
LCF, which took investments totalling £236 million from 11,600 largely elderly savers, went bust after City regulator, the Financial Conduct Authority, stopped it accepting new money in January. Investors stand to lose 80% of their investment.
The Evening Standard has previously revealed that the business was investing in companies connected by a small number of businessmen to LCF or its sales agent, Surge.
Controversially, Surge was being paid 25% commission on the funds raised, making it extremely unlikely that LCF would be able to make a profit on its loans. LCF bondholders had been tempted into investing with the promise of annual interest payments of up to 9%.
A Surge spokesman said nobody from the company had received “any contact whatsoever” with the police.
While investors allege it gave them the impression it was lending to large numbers of businesses, it has emerged that the money went to just 12.
The SFO today said it had opened an investigation into individuals associated with LCF and that four individuals were arrested in the Kent and Sussex areas.
All four have been released pending further investigation.
The SFO said the operation was coordinated with the assistance of the National Crime Agency, City of London Police, Kent Police, Sussex Police and the South East Regional Organised Crime Unit.
The SFO statement added that that investigation into LCF was opened after the FCA referred the case to the National Economic Crime Centre at the NCA’s London headquarters.
The NECC includes officers from the NCA, HM Revenue and Customs, the City of London Police, the Serious Fraud Office, the Financial Conduct Authority, the Crown Prosecution Service and the Home Office.
News of the arrests may further concern investors about the prospects of them recovering their money.
Administrators at Smith & Williamson have repeatedly warned that most of the businesses LCF invested in had so far been unable to provide any proof that they would be able to repay their loans.
S&W’s Finbarr O’Connell said last week that only one – the stock market-listed Independent Oil & Gas – looked likely to be able to repay its loan in full. IoG’s £40 million debt represents the 20% S&W says it hopes to recover.
Investors in LCF bought so-called mini-bonds, which they were told qualified to go into an ISA. This proved not to be the case.
O’Connell was meeting some of the investors today to ascertain if they might qualify for money back from the finance industry’s compensation fund.
Bondholders are hoping to claim on the Financial Services Compensation Scheme, from which the public can claim if regulated investments collapse.
The LCF mini-bonds were not regulated, but LCF was, and investors hope to build a case that they are covered by the FSCS because they allege LCF mis-sold them the products.
Finbarr O’Connell of administrator Smith & Williamson is meeting 40 bondholder representatives at his Moorgate HQ today to assess if they have a case.
At issue is whether LCF or its sales agent, Surge, actively advised customers the bonds were suitable investments in their individual circumstances or merely took orders from the clients.
The administrator has said Surge was paid 25% commission on the funds it raised for LCF, totalling some £60 million.
The FSCS has said it is not accepting claims in general but is determining whether some may be valid.