A solicitor who misled the Solicitors Regulation Authority (SRA) about a “dubious” funder he was using to finance his new law firm has been fined £25,000.
The Solicitors Disciplinary Tribunal (SDT) heard that Mark Andrew Fallon received over £1m in funding for his firm from Sable International Finance, which later collapsed.
Approving an agreed outcome between Mr Fallon and the SRA, the SDT heard that Mr Fallon used the money to finance Mr Finch, an employment law firm which provides fixed fee and subscription services to SMEs, launched in 2016.
Prior to that, he was a defendant personal injury lawyer at Irwin Mitchell before becoming chief operating officer at Lancashire firm Lance Mason.
In applying for authorisation of the firm in May 2016, Mr Fallon answered a question about its financing by saying he had obtained £30,000 in “friends/personal funding” at zero interest.
But this was not true. Initial funding was provided by a private investor, with a loan of £51,500 made in April and May 2016, and paid back with interest by September 2016.
Mr Fallon also obtained funding from Sable, which he first met and pitched to in March 2016.
In an investor prospectus provided to the solicitor that June, Sable set out the terms on which it offered investors the opportunity to participate in bond issues, including returns of 7% per annum to investors over five years.
Sable provided Mr Fallon’s firm with funding of over £1m in 10 separate payments between June and August 2016.
The funding was on terms that the firm would make payments of commission and interest. Commission of 30% would be paid, of which 10% was to be ‘retained at source’ and 20% was to be paid by the firm shortly after receipt.
Between July and August 2016, Mr Fallon made four commission payments of over £211,000 to Amore Consulting Group, which he believed to be owned by a representative of Sable.
The bank statements and reconciliations of Mr Finch also recorded three small payments made directly by the firm to investors in the Sable scheme in September 2016.
Each payment was described as an “interest payment made on behalf of Sable direct to investor”, despite there being “no indication” that the payments would “satisfy any liability on the part of the firm to Sable”.
Mr Fallon told the SRA he believed the payments were made either to an individual associated with Sable or to Sable itself because bank accounts had been frozen.
The solicitor admitted submitting an application for firm authorisation to the SRA in May 2016 which contained “misleading information as to the source and the amount of the firm’s external funding”.
Mr Fallon admitted acting both recklessly and with a lack in integrity in this, and acting recklessly in failing to adequately monitor Mr Finch’s funding arrangements.
The solicitor also admitted allowing his firm to become involved in a funding arrangement “which the bore the hallmarks of a dubious investment scheme”.
The SRA said the Sable scheme had a number of features which should have been identified as indicating a dubious scheme, such as absence of commercial rationale, payments to related third parties, poorly drafted documents and frozen bank accounts.
Mr Fallon admitted that he had acted recklessly and with a lack of integrity in transferring funds from the firm’s office account to third parties in “purported satisfaction” of debts owed by the firm to a lender.
The solicitor argued in mitigation that he had “co-operated in returning funds lent to the administrators of the lender company in liquidation”, and no client money was involved.
He was fined £25,000, and ordered to pay £15,000 costs. A condition was imposed on Mr Fallon’s practising certificate preventing him from being sole signatory on any client or office account for three years.