The law firm representing the clients of now defunct London Capital & Finance (LCF) has written to HM Treasury criticising the actions of HM Revenue and Customs (HMRC).
Shearman & Sterling argued that LCF’s mini-bonds, although non-transferrable, were sold as Isa products and the firm was approved as an Isa manager by HMRC.
The law firm said that, as a result, the matter should fall under the Investment Savings Account Regulation 1998, and that the UK taxman should reverse its decision to void all Isa products offered by LCF.
Legally ‘incorrect’
Thomas Donegan, partner at Shearman & Sterling, said: “LCF bonds would have appeared to retail investors to be a standard Isa product and were marketed in a way similar to those issued by major banks and building societies.
“Investors have been disappointed about the unsympathetic actions of financial regulators to date.
“In purporting to void LCF investments as Isa products retrospectively, and promulgate regulatory interpretations that would deny compensation for investors, HMRC, the Financial Conduct Authority (FCA) and the Financial Services Compensation Scheme (FSCS) have taken a stance whereby the purported non-transferability of LCF instruments is given precedence over the fundamental features of the Isa products being sold to retail investors.
“This is incorrect as a legal matter.”
Simon Letherman, tax partner at the law firm, added: “HMRC’s purported decisions penalise the victims of a financial scandal as if they were the bad actors. They do not provide appropriate remedies as envisaged by the Isa regulations for the situation they find themselves in through no fault of their own.”
Amend the law
The law firm subsequently wrote to the treasury and asked for policy reform to protect LCF bondholders, in the same way legislation was changed for investors in the Lehman Brothers and Keydata cases.
In the letter sent to the treasury, seen by International Adviser, the law firm said: “We would ask that HM Treasury passes secondary legislation amending Isa regulations:
“a) to put it beyond doubt that amounts LCF investors receive in administration proceeds or compensation from the FSCS or otherwise can be reinvested in Isas without depleting their annual Isa allowances, and;
“b) to create a special enhanced exemption for LCF investors equivalent to the special treatment afforded to investors who had their savings decimated in the Lehman Brothers and Keydata Investments Financial scandals.”
‘Guilty’ victims
In addition, Shearman & Sterling wrote to the FCA arguing that the regulator used language that blamed LCF’s investors.
The law firm criticised the FCA for “using language which implies that investors were at fault or that the products were high risk, despite LCF products being sold alongside similarly-priced bank and building society Isa products on price comparison websites”.
This development follows LCF’s adminsitrator stating that the recovery of investor money is likely to take years, as it prepares to undertake a “significant number of legal actions”.
