A leading south-coast law firm that allowed its client account to be used as a banking facility, with £21m passing through it, has been rebuked.
A key failure of Lester Aldridge was not ensuring that a newly recruited partner, Stephanie Adams, was compliant with the accounts rules, according to the Solicitors Regulation Authority (SRA).
Ms Adams has been fined £2,000, having facilitated more than £44m passing through the accounts of two firms.
According to separate regulatory settlement agreements with the pair published this week, Ms Adams initially worked at Bournemouth firm Matthew & Matthew from 2012 to 2018, becoming a director in 2014.
In April 2017, she accepted instructions from ‘Mr M’, who owned and ran a group of property development companies, ‘C Group’.
C Group was made up of a holding company, CLS Ltd and a series of special purpose vehicle (SPV) companies controlled by CLS Ltd. Companies House records show that CLS Ltd was a director and held significant control of each SPV. Mr M was the sole director and held significant control of CLS Ltd.
Each SPV company was formed to buy a disused property for the purpose of renovating it into a care home.
With Ms Adams as the lead fee-earner, Matthew & Matthew represented the SPVs in respect of eight property purchases and in the sale of individual studios within them, which took place before the renovation work was completed.
In all, Matthew & Matthew represented 10 SPVs in the sale of 239 care home studios across their 10 developments and received nearly £23m in completion monies into its client account from the various buyers.
In April 2018, Ms Adams moved to become a partner in the Bournemouth office of Lester Aldridge and brought the C Group clients with her at Mr M’s request.
The firm represented four of the SPVs in respect of property purchases and 10 in all in the sale of a further 243 care home studios. Lester Aldridge received £21.6m into its client account.
Rather than paying the completion monies to the relevant SPV, on Mr M’s instructions all of the funds were sent to either C Group or transferred to the ledger of another SPV to be used for the purchase of that SPV’s development site.
“Neither the holding company nor the other SPV was a party to the underlying legal transaction (ie the studio sale) for which the firm had received the client money,” the agreements explained.
“The purchase of the other SPV’s development site created a new legal transaction that was unrelated to the earlier development’s studio sales.”
Both Ms Adams and Lester Aldridge admitted that these actions were in breach of rule 14.5 of the SRA Accounts Rules 2011, which prohibited firms from providing banking facilities through client account.
Lester Aldridge stopped acting for C Group in April 2019. Several of the developments were not completed and only some were ever operated as care homes. All of the companies in C Group have now gone into either administration or liquidation.
In mitigation, both Lester Aldridge and Ms Adams pointed out that they were acting on the instructions of the ultimate beneficial owner of the client SPV companies and that the funds were released to, or transferred to the ledgers of, other companies within the same group.
Further, Lester Aldridge retained “an accurate and proper record of the transfers” and so was able to assist the the administrators and liquidators trace the funds.
Ms Adams said she did not, at the time, appreciate that her actions would constitute a breach of rule 14.5 “and as such the breach was inadvertent”. She expressed “insight and remorse” as well.
The SRA said a written rebuke for the law firm was appropriate given the amount of money that passed through the client account, which “had the potential to cause lasting harm to the buyers” – as it did for Ms Adams, with over £44m going through the two firms’ accounts.
However, the impact was reduced by the firm’s cooperation with the C Group’s administrators, it continued.
The SRA added: “The firm relied on Miss Adams’ experience and as such did not take sufficient steps to ensure that her work was compliant with rule 14.5 of the accounts rules.
“The SRA is satisfied that the firm has a clear understanding of its obligations with respect to rule 14.5 as a result of this investigation and that the risk of repetition is therefore low.
“Given the amount of money involved in these transactions, some public sanction is necessary to uphold public confidence in the delivery of legal services.”
The regulator noted that, as the lead fee-earner for these matters at both firms, as well as being in a position of seniority, Ms Adams had “full knowledge, control and responsibility for her conduct”.
In deciding on a fine of £2,000 – having judged the conduct in the penalty bracket of £1,001-£5,000 – the SRA said that, while Ms Adams “did not properly consider her duties under the accounts rules, her actions did not result in any actual harm or losses”.
Lester Aldridge and Ms Adams will jointly pay the costs of the investigation of £1,350.
The SRA has not yet said what action, if any, it is taking against Matthew & Matthew.