Cayman Islands: £100m fund collapse
Another solicitor has been struck off for his involvement in the Axiom Legal Financing Fund, while his junior partner has been suspended indefinitely after a tribunal found that he had bullied her.
The firm borrowed just shy of £6m, but its total liability to the fund was more than £10m, none of which has apparently been repaid.
The money was supposedly to fund ‘right to buy’ negligence cases against other solicitors, but the Solicitors Disciplinary Tribunal (SDT) found that it was spent on a range of other things, including a Porsche Cayenne and helping the managing director’s PA buy a house.
Andrew Lindsay, who qualified as a solicitor in 1989, was the 95% owner and a director of Manchester and Preston firm Tandem Law, and was employed by Tandem as its managing director and finance partner. He has appealed the ruling.
Marina Frankel, who qualified in 2008, owned the other 5% and was a director and principal of Tandem.
Tandem Law went into administration in 2013, when its assets were bought in a pre-pack deal [1] by fellow Manchester firm Anthony Hodari.
Though other cases involving Axiom have all involved personal injury firms, this was similar to them in that Tandem was given a facility to borrow up to £12m, ostensibly to fund disbursements and the premiums for financial guarantee insurance for 6,000 cases over 12 months, but instead used the money for other purposes.
As in the other cases, Mr Lindsay said he was told orally that he could do this, even though it did not comply with the funding agreement and there was no written record.
The Cayman Islands-based Axiom fund – which lent money to several law firms – closed in October 2012 in the wake of allegations of fraud, and went into receivership in February 2013.
The receiver, Grant Thornton, subsequently issued legal proceedings to recover over £100m from various people connected with the fund, citing grounds such as fraud, conspiracy, breach of fiduciary duty and breach of contract. The Serious Fraud Office is investigating Axiom’s collapse.
Tandem was launched in August 2011 and, in all, it drew down £5.92m between December 2011 and October 2012. But with the Axiom ‘facilitation fee’ of 50% plus interest at 15%, the firm’s liability to the fund was more than £10.6m. The Solicitors Regulation Authority (SRA) told the tribunal it was not aware that any of it had been repaid.
Mr Lindsay told the SRA during its investigation that Axiom was the only funder that would lend to his firm. He said the firm’s purchase of the car was a legitimate use of Axiom’s loan monies “because it got me around the country and able to do my firm’s business”. Tandem also paid him an additional £107,000 on top of his regular pay.
Tandem paid £1.5m in referral fees to a company called Crosslaw, from which Mr Lindsay benefited to the tune of at least £50,000. The solicitor also set up a costings company.
A further £80,000 was used substantially to fund the purchase of a new house for his PA – twice her salary – which Mr Lindsay said was a bonus because “that’s what I believed she was worth”.
He admitted that very little was spent on disbursements because the right to buy litigation had changed into a group action from a series of fast-track cases. The group action eventually failed.
The SDT found 12 allegations against Mr Lindsay proved. These included using the money for purposes other than those stated in the funding agreement, having no intention to repay the money as required by the agreement, ignoring suspicions about the possible fraud on Axiom’s investors, and trying to put £1.7m of the money beyond Axiom’s receivers.
In relation to 10 of the allegations, dishonesty was alleged and proved, according to the tribunal.
In mitigation, Mr Lindsay said that he became a solicitor at the age of 32 largely to assist brain injury victims and was proud of what he had done for them.
Deciding on sanction, the SDT said Mr Lindsay had described his motivation for setting up Tandem as pursuing professional negligence cases; without the Axiom funding, the firm would not have got off the ground.
“This may have been his motivation at the outset for setting up the firm and accepting the monies but things quickly spiralled into [Mr Lindsay] misdirecting himself as to the purposes of the funds and what they could be used for.
“He wanted to grow a successful, profitable law firm and ultimately this would have been financially beneficially to him. His actions were planned and sustained…
“He had acted in breach of a position of trust, in respect of his clients and the funders… He took advantage of his more junior partner. He deliberately mislead the regulator. His culpability was at the highest level.”
The allegations against Ms Frankel were more limited, including that she abrogated her responsibilities as director and principal of the firm.
The SDT said: “She allowed her independence to be compromised in breach of principle 3. She did what [Mr Lindsay] told her to do, whether or not she believed that to be right.”
It recognised that at the time Ms Frankel – who was Russian by birth and moved to the UK in 1995 – was only three years’ qualified and “had been bullied” by Mr Lindsay.
But it continued: “[Her] actions were not calculated. Her misconduct arose due to her inactivity. She should have looked into what was going on with a great deal more vigour. She should have insisted on having more information. She should have wanted to know more…
“The tribunal accepted that [Mr Lindsay] would have gone ahead with the loan and use of the monies even if challenged but that was not the point. [Ms Frankel] had failed to do what she should have done.
She should, the SDT said, either have stood up to Mr Lindsay or “walked away”.
It said Ms Frankel’s “continued failure to understand her own responsibility for the misconduct found proved and to blame everyone else raised significant concerns about whether or not she should be able to practise as a solicitor. She had to recognise her own failings…
“The tribunal considered that [Ms Frankel] may respond to training and personal development in a business context such that she no longer represented a material risk of harm to the public or the reputation of the profession. For those reasons the appropriate sanction was one of indefinite suspension.”
Mr Lindsay was also ordered to pay £108,000 in costs, and Ms Frankel £42,000.
According to the SDT, Mr Lindsay has appealed the ruling. He did not appear, and was not represented, at the SDT hearing after it rejected his application for a stay for health reasons.
In his mitigation, Mr Lindsay said he anticipated a strike-off. The SDT recorded: “That did not mean to say he accepted it and he considered that the tribunal was wrong to ignore the clear medical evidence and the need for a stay, which he said led to an unfair trial.”
Tandem Law remains active solely as lead solicitor in the Kenyan Emergency Group Litigation, acting on behalf of 20,000 people making claims against the UK government over atrocities committed against Kenyan nationals during the state of emergency in 1950s Kenya.