Preston solicitors struck off over Â£30m Cayman Islands loan
Four Preston solicitors have been struck off after a tribunal ruled they took out 'excessive and reckless' loans from a now-defunct overseas investment fund.
The Solicitors Disciplinary Tribunal imposed the ultimate sanctions against solicitors Richard Emmett, Louise Emmett, Matthew Stokes and Mary Hunter.
The lawyers must share the payment of Solicitors Regulation Authority costs, which were initially set at £252,000.
Two other men, David Rae and Dale Stephenson, were banned from working in the profession and ordered to pay fines of £200,000 and £50,000 respectively.
The pair are not solicitors but were key figures in the firm.
The prosecution – one of the biggest ever brought in relation to improper use of the Cayman Island-based Axiom Fund – related to the running of Preston firm Emmetts Solicitors.
In 2014, the Serious Fraud Office opened a criminal investigation into the collapse of the Axiom Legal Financing Fund. The probe is still ongoing.
Emmetts - which at one time employed 80 staff - took 71 payments from Axiom between May 2010 and October 2010 totalling £30m.
Cash from the fund was improperly used to pay salaries, general running expenses and a property company in Dubai when the money should have been used to fund ‘no-win, no-fee’ litigation.
The tribunal found the firm had become “dependent” on Axiom funding and the financial dealings coincided with a major period of expansion for the legal business.
The hearing was also told the firm “engaged in borrowing that was excessive and reckless in that the sums incurred were so large as to there being no prospect of it being repaid”.
Emmetts also had offices in Berry Lane, Longridge, and Millennium City Business Park.
The firm later changed its name to Ashton Fox before going into administration in 2013.
The tribunal was told that all six respondents, who were partners in the firm, received money from the Cayman Islands fund that had been intended to pay for case disbursements - money a solicitor has to pay to third parties to help prepare cases.
Richard and Louise Emmett were allegedly paid almost £2m either directly or through companies in which they had an interest.
Emmetts solicitors was a partnership. In 2009, Richard and Louise Emmett incorporated Emmetts Solicitors Ltd.
In 2010 the company bought the net assets of the partnership for £650,000, including a cash payment to Richard and Louise Emmett of £526,349.
In 2011 Emmetts Solicitors Ltd changed its name to Ashton Fox Solicitors Ltd.
That same year it bought ATM Solicitors for £3m.
Ashton Fox went into administration in 2013.
The hearing was told the Emmetts received a total of £1.9million derived from the Axiom Fund.
Stokes and Hunter each received £300,000, while companies owned by Rae, who effectively acted as the firm’s chief executive, received almost £600,000.
Stephenson was paid almost £55,000 by way of salary.
The tribunal said in its report Richard Emmett may have initially borrowed the money to increase clients’ access to justice, but he was “beguiled” by the opportunity presented.
Richard Emmett was struck off and ordered to make an interim costs payment of £58, 916. Louise Emmett was struck off and ordered to pay the same interim amount.
Matthew Stokes was struck off and ordered to make an interim payment of £25,250.
Mary Hunter was struck off and ordered to make an interim payment of £8.416.
David Rae was fined £200,000 with costs and Dale Stephenson was fined £50,000.
Both were banned from working for or with solicitors.
Axiom Fund was set up to finance no win, no fee cases
The respondents faced a variety of allegations including failing to maintain proper and effective control of the firm; causing or permitting the firm to become engaged in excessive borrowing; receiving monies which the firm had received from the Axiom Fund; causing or permitting the firm to purchase ATM Solicitors Ltd for £3m without carrying out due diligence and/or by utilising monies from the Axiom Fund; and causing or permitting the firm to be owned by a non-regulated individual or company.
The Axiom Fund was an investment fund established in the Cayman Islands for the purpose of providing funding to ‘no-win, no-fee’ cases.
It was managed by Synergy and Synergy Isle of Man.
The Solicitors Disciplinary Tribunal was told that Emmetts/Ashton Fox had received 71 payments from the fund totalling £29.4m.
In October 2012 The Axiom Fund collapsed and Grant Thornton was appointed receivers.
Two years later the Serious Fraud Officer began an investigation into the fund.
A number of solicitors have since been struck off over their involvement in the fund.
It was created in September 2009 with a fund of £120m to provide short-term fixed interest loans to UK law firms who work on ‘no-win, no-fee’ with a high degree of security.
However, its subsequent collapse suggests it was poorly managed and should not have been considered a low-risk investment.