The founder of failed investment company Keydata is suing a solicitor who he claimed convinced him to give a £4.1m loan to SLS Capital owner David Elias.
Keydata boss Stewart Ford has launched legal action against law firm McGuire Woods London and lawyer Robert Rakison, who advised the late British businessman David Elias on a number of corporate and commercial transactions between 2005 and 2009.
SLS Capital issued US life settlement bonds, of which $150m (£113m) were distributed by Keydata through authorised independent financial advisers.
In 2008, Mr Elias told Mr Ford his company was in a temporary illiquid state because of choppy financial markets and asked him to provide some “short-term liquidity” so he could meet the interest payments owed to SLS bondholders.
According to a legal claim seen by FTAdviser, lodged with the High Court in June 2015, Mr Ford had agreed to discuss loans with the SLS owner, because he was assured by Mr Rakison there was a portfolio of assets behind the bonds.
Mr Ford claimed the McGuire Woods lawyer also made him believe Mr Elias was an “honest” and “risk-free” businessman, who was of good financial standing.
In 2008, the Keydata owner handed over loans totalling $6.4m (£4.8m), but claims he later found out Mr Elias’ companies - including SLS - were insolvent, which he said Mr Rakison had been aware of at the time.
The document stated Mr Rakison and Mr Elias “conspired and combined together to defraud the [Mr Ford] by unlawful means, namely by deceiving Mr Ford as to the existence of the SLS bonds’ assets”.
A spokesman from McGuire Woods London said the allegations against the firm and one of its partners are “without merit”, adding the company will “defend them rigorously”.
Mr Ford, who was hit with a £75m fine from the Financial Conduct Authority in May last year, has been embroiled in a legal battle with the regulator for several years, and in 2009 claimed Keydata had been a victim of fraud.
The debacle between Keydata and SLS dates back as far as 2006, when Mr Elias agreed the SLS bonds would be listed on the Luxembourg Stock Exchange, so UK investors could purchase bonds which qualified for Isa purposes.
However, these bonds were never listed because they had no assets underpinning them, which meant they could not qualify for Isa status.
According to the document, Mr Elias - who died in May 2009 - had “misappropriated” £103m of Keydata investments, which have still not been found.
In November 2012, the Serious Fraud Office wrote: “Substantial efforts have been made to trace the assets of SLS Capital SA and David Elias in overseas jurisdictions since September 2010.
“These efforts have not met with any success and it is considered unlikely that the situation will change.”
The loans Mr Ford provided were never repaid and he lost his money.
Speaking to FTAdviser, Mr Ford said he was confident he will win the case. “I think [Mr Rakison] is going to get caught out, and if I was him I would be a very worried man because he will have to pay a heavy price for his behaviour,” he said.
Mr Ford also said, when taking into account the accumulation of interest on the loan, the amount in losses now exceeds $10m (£7.6m).
McGuire Woods London have until the end of September to build their defence.
While AAI Consulting - the legal firm established by Mr Ford’s wife - owns the rights to the claim, Mr Ford is being represented by law firm Duthie & Co.
Keydata, which also distributed life settlement investments amounting to £373.2m issued by Lifemark, entered administration in 2009.
katherine.denham@ft.com
