SDT: Obvious conflict
A partner who acted on what turned out to be a fraudulent Ponzi scheme has been fined £30,000 for accepting a role as director of a company designed to protect the interest of the scheme’s bondholders, despite the “obvious” conflict of interest.
The Solicitor Disciplinary Tribunal (SDT) said Alexander William Bruce Lee gained “no financial benefit” from the role, which he undertook “almost as a favour” to his client Andy Thomson, chief executive of London Capital & Finance (LCF), which collapsed in 2019.
The SDT noted that the then Mr Justice Miles concluded in 2024 that “LCF’s business amounted to fraudulent trading and was in effect a Ponzi scheme”.
LCF raised £237m from over 11,600 investors by issuing mini-bonds from 2013. It was raided by the Financial Conduct Authority in December 2018 and went into administration soon after.
LCF advanced the money raised to a small number of connected companies associated with four individuals, one of whom was Mr Thomson, but bondholders were not told this.
The tribunal said there was no allegation that Mr Lee, a partner at Kent law firm Buss Murton, acted dishonestly and it was accepted that he was not aware of the fraud.
Mr Lee qualified in New Zealand in 1984, and in England and Wales in 1991. He worked in-house until 2012, when he joined Buss Murton, and the following year was made a partner responsible for corporate and commercial matters.
When acting for LCF, Mr Thomson was his main point of contact and the solicitor knew that Mr Thomson had some form of “residual interest” in the borrowers.
In April 2018, Mr Lee was appointed the sole director of Global Security Trustees (GST), which held the trust property – namely all rights and proceeds in relation to the security covered by debentures – on trust for the beneficiaries (the bondholders).
GST was obliged to enforce the security in the case of an ‘enforcement event’, such as a breach by LCF of its obligations to mini-bondholders. He held the post until March 2019.
The SDT was satisfied that his obligations as LCF’s solicitor and as the security trustee were “structurally and diametrically opposed”.
It said: “The position was not merely one of potential disagreement between two interests. Rather, Mr Lee’s acceptance of the GST role vested him personally with trustee obligations that, if properly discharged, would foreseeably require him to act in ways inconsistent with LCF’s interests and instructions.”
Between April and December 2018, LCF raised around £100m of bondholder money which fell into the Ponzi scheme.
Mr Lee’s decision to take the role was “materially influenced by his existing relationship with LCF and its CEO, rather than by a detached and principled assessment of whether it was appropriate for him” to take on the role of security trustee.
Mr Lee “knew, or should have known, that the role of security trustee carried fiduciary duties owed exclusively to bondholders, and that those duties were liable to place him in opposition to the interests of his client, LCF”.
The tribunal said “the continuation of his dual roles in the face of emerging risks underscored the unsustainable and unethical nature of the position into which he had placed himself”.
In a High Court ruling in 2019, Chief Master Marsh commented that “the role of security trustee was clearly created in order to persuade bondholders that an investment in bonds offered by LCF offered limited risk”.
The SDT said Mr Lee “did not disagree” with Chief Master Marsh’s finding that “it should have been obvious to Mr Lee that he should not have acted as a director of GST in light of his professional involvement with LCF and its borrowers”.
Nevertheless, counsel for Mr Lee argued that the allegation against him should be dismissed in its entirety because he was caught up in the fraud like everyone else.
Mr Lee regarded the role at GST as “a passive one until an enforcement event occurred”.
However, the tribunal said the “regulatory assessment was objective and turned on the nature of the duties, not on how actively the office-holder chose to perform them”.
The SDT said the risk of a conflict of interest “crystallised as concerns arose regarding security assets and particularly following the FCA intervention and the appointment of administrators.
“At each of those stages, the prospect of conflict was obvious, foreseeable, and significant.”
The tribunal ruled that Mr Lee had acted with a lack of integrity and caused harm to the reputation of the profession. In mitigation, he had shown “some insight” into his misconduct and co-operated fully with the SRA.
The misconduct was assessed as “very serious”, for which a fine of £30,000 was appropriate.
The SRA applied for costs of over £78,600, which the tribunal reduced to £50,000, partly on account of means.
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