Two solicitors have been handed 13-year director disqualifications after they misled people to invest £1.4m in a legal insurance product they never actually developed.
Instead they spent the cash on keeping their law firm afloat.
Richard Mallett, 49, signed a disqualification undertaking in which he did not dispute that he had allowed Malletts Solicitors, based in King’s Lynn, Norfolk, to use misleading marketing and financial material to attract investment to develop a business product that was never made.
His business partner, Sharon Mallett, 50, signed a similar disqualification undertaking last November.
According to the Insolvency Service, between December 2013 and August 2015, the duo secured nearly £1.4m from people who thought they were being offered an opportunity to invest in a new 24/7 business hub that would offer legal insurance to members.
However, the pair developed nothing and instead used the money to pay historic tax debts to stop HM Revenue & Customs from winding up the company, reduce Malletts Solicitors’ overdraft, while also paying the staff’s wages on several occasions – against professional advice.
Malletts Solicitors entered into a creditors’ voluntary liquidation in November 2016, which led to the Insolvency Service investigation.
This also discovered that the pair had misled investors when they issued loan notes that promised unrealistic returns on investments – initially 8% and, when investment slowed down, they increased it to 20%, which generated additional investments.
The solicitors were unable to provide any evidence to support their assertions that a national bank had signed up to partner in the scheme or that additional solicitors had been appointed to it.
The losses suffered by investors totaled £1.85m when interest/returns on investments are included.
Mark Bruce, chief investigator for the Insolvency Service, said the disqualifications “should serve as a stark warning to other directors that they shouldn’t attempt to hoodwink their investors”.
A spokesman for the Solicitors Regulation Authority said: “We’re aware of this issue and are collating all necessary information before deciding on any next steps.”
Both solicitors’ practising certificates are currently subject to conditions that prevent them from being managers or owners of any law firm or from having any authority over client account money.