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‘It sits squarely in the SFO’s wheelhouse’: criminal investigation launched into Axiom Ince as regulators and ex-employees grapple with aftermath

A criminal investigation has been launched into Axiom Ince, the Serious Fraud Office (SFO) announced last month. Seven individuals have been arrested in connection with the investigation and searches have been carried out across nine sites.

More than 80 SFO investigators, alongside Metropolitan Police officers, went to locations across the South-East of England on the morning of 14 November to search for potential evidence and bring in individuals for questioning.

‘There are a number of significant questions that need to be answered: clients from this law firm are missing many millions of pounds and more than 1,400 of its staff have lost their jobs. The impact on those affected is extremely serious,’ said Nick Ephgrave, director of the SFO.

Investigators are also set to examine how funds passed from Axiom Ince client accounts with Barclays to the State Bank of India to fund these purchases.

The Metropolitan Police referred the case to the SFO due to the complexity of the alleged fraud. Both organisations will continue to work on the investigation.

Barry Vitou, head of the global investigations and white-collar practice at HFW, noted that the timeline for the investigation will likely be protracted. ‘It’s normally fair to say UK investigations are measured in years rather than months. I would be surprised if there was a Sam Bankman-Fried trajectory, where arrest and conviction happen in under 12 months.’

While the SFO is sector-agnostic in its investigation of serious fraud, the fact the fraud has allegedly occurred at a law firm does cause additional issues. ‘It will be complicated if there are legally privileged documents in the mix, which is always a complication with a law firm. The SFO may claim what it is looking at is an illegality issue, which breaks the privilege, but it adds an extra layer to the review process, as all of this will take time,’ Vitou explained.

The Solicitors Regulation Authority (SRA) intervened into Axiom Ince on 3 October, closing it with immediate effect to protect the interests of clients and former clients of the firm.

At the time of the SRA’s intervention, Axiom Ince employed over 1,400 staff and operated in 14 branches across England and Wales.

The SFO’s speedy investigation, following the SRA’s intervention, marks a step change for the institution which appointed Ephgrave, a former metropolitan police officer, as its new director in September.

‘In recent years, the big problem the SFO has had is that it talks a game – I wouldn’t even say a good game – but it hasn’t really done much despite its rhetoric. It has had poor outcomes; last year it accepted only one case and closed three. The compliance picture has a few components, and one is a realistic deterrent. If you don’t have a realistic deterrent, many people will downgrade the risk of the deterrent. It’s therefore a good thing for the SFO to now reinforce that it will investigate allegations without fear or favour,’ Vitou added.

However, the new investigation looks like a return to form for the SFO. ‘The allegations are very serious. There’s a degree of international influence, it’s to do with professional services, the UK PLC markets, so all the SFO criteria are met for an investigation. It’s entirely the sort of investigation that you would expect it to conduct, and it sits squarely in the SFO’s wheelhouse,’ he added.

SRA’s participation

After widespread criticism regarding its involvement, or lack thereof, the SRA released a statement to clarify its intervention into Axiom Ince and its dealings with the firm in the run up to its closure.

The SRA discovered the missing client money and suspected dishonesty by Pragnesh Modhwadia and directors Idnan Liaqat and Shyam Mistry in late July. It was uncovered during a visit to the firm by the SRA’s forensic investigation team. The regulator stated: ‘The nature of the suspected dishonesty was sophisticated and included falsified bank statements and letters.’

‘There are a number of significant questions that need to be answered: clients from this law firm are missing many millions of pounds and more than 1,400 of its staff have lost their jobs.’ Nick Ephgrave, Serious Fraud Office

‘At this point in time – apart from any individuals who may have been complicit – no-one was aware of or identified issues with the client account. This includes partners in the firm, accountants, banks or auditors. It was not raised in any of the accountant’s reports – these must be produced annually by an independent accountant who must highlight if a firm has not met our rules, and if client money is at risk,’ it added.

The SRA first acted on 10 August when it intervened in the practices of Modhwadia, Liaqat and Mistry on grounds of suspected dishonesty and breaches of the SRA Solicitors Accounts Rules. At this stage, the SRA also ‘referred the issue to the relevant law enforcement agencies’.

As to why the SRA did not intervene into the entire firm at this point it said: ‘Our focus is on the public interest. We took prompt action to protect the public by intervening in the practices of three of the firm’s directors. This intervention removed the immediate possibility of ongoing harm to the public and the firm’s clients.’

It acknowledged that the missing client money ‘meant that it was not going to be possible for the whole firm to carry on operating in the long term’. The SRA argued, however, that it was not in the best interest of the firm’s clients to close Axiom Ince immediately as it allowed the firm the opportunity ‘to achieve as orderly a closure as possible in the circumstances’.

Axiom Ince announced its intention to call in administrators on 1 October, leaving the SRA with no choice but to intervene in the rest of the firm on 2 October.

The intervention is the largest ever conducted by the SRA in England and Wales. However, it is not an isolated event, as it follows two large interventions into the practices of Metamorph Group and Kingly Solicitors in recent years. Additionally, the number of interventions has more than doubled in the last year, to 65.

Given this increase in interventions, the role of the compensation fund is becoming a pressing issue. The SRA has taken the decision to not impose an overall cap on claims against the compensation fund arising from Axiom Ince. It can impose a discretionary £5m overall cap on claims from an intervention to protect the fund. However, due to the scale of consumer loss it has decided that applying the cap would lead to: ‘An unacceptable loss in public confidence

in solicitors.’ It is instead proposing prioritising the most pressing claims first, for example domestic conveyancing, to maintain the fund’s financial solvency.

It said: ‘By taking this prioritisation approach and managing the cashflow demands on the fund, the SRA will not be calling on solicitors to make an in-year contribution at this point, but will keep this under review in the light of any further interventions or other unforeseen events.’

‘To date, the SRA has received claims totalling approximately £33m. A claim against Axiom Ince’s professional indemnity insurance is under way and the level of funds which may be recovered from the existing freezing order on assets obtained by the firm is still to be determined. If funds are recovered from the insurance claim or from the sale of frozen assets, then these will be used to replenish the compensation fund,’ the SRA added.

Barry Vitou

‘It’s normally fair to say UK investigations are measured in years rather than months. I would be surprised if there was a Sam Bankman-Fried trajectory, where arrest and conviction happen in under 12 months.’
Barry Vitou, HFW

The SRA board is also set to review the risks presented by accumulator firms, like Axiom Ince, in December. ‘We need to understand whether there is now a new systemic risk that would mean we need to adapt our regulatory approach and how we can best proactively identify early warning indicators. In the meantime, we have increased our scrutiny of firms we have classified as accumulators and will commence inspections of a number of such firms,’ it said.

Protective award claim

Meanwhile, 140 former Axiom Ince employees are preparing to make a protective award claim against their former firm.

Alan Lewis, an employment partner at Pearson Solicitors and Financial Advisers, is representing the ex-employees. Pearson Solicitors is also acting on a similar claim against the Metamorph Group. Axiom Ince allegedly did not comply with its statutory obligation to consult with elected employee representatives before it made redundancies.

Said Lewis: ‘If an employer proposes to dismiss 20 or more employees, then it is supposed to consult with elected representatives of the workforce at least 30 days before the redundancies take effect (and 45 days if 100 or more redundancies are proposed). Clearly in this case that did not happen even though it would appear the board of directors knew they would have to make substantial redundancies. I have been told that in August the company suggested to some staff they should try and find another job. It did start to speak to some of the senior fee-earners but completely excluded support staff – as I understand it – from these discussions. No attempts were made to elect employee representatives.’

Describing the general sentiment among former employees he added: ‘They feel very aggrieved that they weren’t provided with any real support, or notice. There is a general dissatisfaction about the way in which the company was run and the way it managed the redundancy process.’

Time is now of the essence for former employees. ‘Employees only have three months from the date of the dismissals to commence a claim for a protective award. If they miss this time limit, it would be extremely difficult to pursue a claim at a later date. Regrettably, many people miss out because they are not aware of the claim, or they worry, wrongly, that it might affect other claims,’ Lewis explained.