A £1.2m legal action has been brought against a London-based solicitor’s firm, which is alleged to be liable for losses relating to a Ponzi fraud operated by a mortgage broker to which it provided conveyancing services.
Rienzie ‘Joe’ Silva was found guilty of defrauding elderly investors in a Ponzi scheme from which he earned at least £4.3m between 1991 and 2010 through his Croydon-based firm Abbey Brokers.
The trial at Southwark Crown Court found Mr Silva tricked elderly investors out of their life savings by convincing them to take out new home loans for investments. Mr Silva diverted the funds into a friend’s bank account and spent the money on a lavish lifestyle, the court heard.
Law firm Penningtons Manches has 10 clients that it says have incurred losses at the hands of Mr Silva. The firm told FTAdviser it was pursuing £1.2m allegedly lost through now defunct Abbey Brokers, which it is now seeking from the solicitors that provided conveyancing services to the brokerage.
The particulars of claim state that Abbey Brokers is insolvent, but allege that Barrington Charles Edwards and Company is liable for the losses as it breached its fiduciary duty and client trust by making payments into third party accounts used in Mr Silva’s fraud.
The claim states Barrington partner Gerald Scott made payments to the private accounts of third parties “who had no connection to... the transactions and not to a business account of Abbey”.
Mr Scott is further alleged to have proceeded in doing so without specific client authorisation or instructions to pay into these accounts in some cases, and that he failed to make “proper enquiries” or give “relevant or proper advice”.
The claim alleges that Mr Scott “knew that Abbey Brokers and/or Joe Silva were involved in the fraudulent misuse of their clients’ funds”, or that he suspected such but “deliberately refrained” from investigating as he “did not wish to know the truth for sure”.
According to claim documents, seen by FTAdviser, the 10 clients have losses amounting to more than £1m, with additional daily interest payments and damages making up the remainder of the amount claimed. One client alone is said to have lost more than £600,000.
In its defence, Barrington - which is being sued for Mr Scott’s alleged misconduct - denies all allegations that it was aware of any fraud taking place, which it admits would have amounted to a breach of its duty.
It states it was not aware that personal accounts were being used and that it believed the accounts belonged to Abbey Brokers. It adds the payments were made following instructions from the claimants.
The firm acknowledges that it did not “detect” that payments in one instance had not been authorised and that forms were altered by Mr Silva. It denies that it should have detected such actions and rejects any suggestion of dishonesty.
Speaking to FTAdviser, David Niven, solicitor at Penningtons, said: “I am aware that there are many other victims out there who are only now beginning to surface and I would urge them to contact us to see if, even at this late stage, we can recover some compensation for them.
“A lot of these victims are elderly, vulnerable and they have had their retirement plans completely ruined.”
Barrington Charles Edward and Mr Scott did not respond to requests for comment.
The trial is set to take place in the Royal Courts of Justice in October 2014.
