Expat investors are trying to recoup £225 million that evaporated in an offshore investment scandal.
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Investors from around the world pumped cash into the LM Managed Performance Fund and looked forward to reap the benefits.
But their money went missing and fund founder Peter Drake has been fighting off allegations of fraud and mismanagement for more than a year.
He says the fund was managed properly, but asset write-downs and ineffective currency hedging were to blame for the downfall.
In an effort to get some of their money back, now shares in the fund have slumped to around 3p, wealthy investors have started mounting legal challenges against their financial and investment advisers who greenlighted LM as a buy.
Legal challenge
They have given up waiting on a slow and painstaking inquiry by Australian financial regulators and decided to take the middlemen who recommended the scheme to court.
Investors in Australia have already won a series of court cases against financial advisers.
The courts agreed they gave poor advice and failed to carry out extensive due diligence.
The move to take the battle to court comes as lawyers change tack.
Many expat investors invested in LM through an intermediary, but many of these firms have been found to have no professional indemnity cover.
So, lawyers have stepped up their fight to include trusts and insurance companies involved in the deals as they have the resources to settle claims from investors.
Other investors based in Hong Kong are lobbying regulators in the city and police to launch investigations as well.
Some of the firms that could face a tough time in the courts include UK financial firms Friends Provident, Royal Skandia and Hansard Global and Royal London.
Undisclosed commission
Each allowed investors to trade LM on their platforms – as did European Union firms AXA and Generali.
“Friends Provident International is not responsible for any losses or performance issues as a result of advice provided by independent advisers and the investments recommended by them to their clients,” said a spokesman.
However, the investors are staking a claim that insurers and trust companies had duty of care and fiduciary responsibilities to their clients.
The fund was sold as low-risk and suitable for retirement savers. However, investors trying to take their cash back faced delays and excuses. Eventually the redemptions dried up.
During the following official investigations, investors realised that their cash was also funding big commissions to their financial advisers that were not disclosed.
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