According to an email seen by International Adviser, following preliminary investigations conducted by the SFO’s intelligence unit, it has now “formally commenced an investigation into Axiom [and] Timothy Schools”.
The email is from a member of the team investigating the fraud and is addressed to one of the investors in the fund, which had assets under management of around £120m at the time it was suspended in September 2012. The email requests a witness statement from the investor concerning their investment in Axiom.
In June last year, a report from the receivers of the Axiom Legal Financing Fund revealed for the first time the full extent of its concerns over the fund’s underlying investments.
Receiver Grant Thornton produced a 65 page document for presentation in court. The document, seen by International Adviser, provided a detailed account of where the £120m of investors’ money was lent during the fund’s four years of existence, from October 2008 until its suspension in September 2012.
The document revealed around 75% of the fund’s assets were lent to just three so-called “panel law firms” (PLFs) – two of which, Ashton Fox and Tandem, are now insolvent – these two alone account for 62% of the total book, or £74m.
The fund was put into receivership in December last year, originally with KPMG appointed as receivers. KPMG also raised initial concerns about how the fund’s money had been lent.
The receiver’s report went on to highlight concerns that audited 2010 accounts revealed “an individual who is also a director of the investment manager [redacted] is also a director of the only two law firms to have received loans in the period [redacted]”.
Both the name of the investment manager and the period were redacted but it is more than likely the investment manager being referred to is Schools – former director of Tangerine Investment Management – the former investment manager of the fund.
The “only two law firms” mentioned above are ATM and Emmetts which later became Ashton Fox.
Furthermore, Grant Thornton pointed to substantial evidence that the money lent to the law firms was misused when, under the terms of strict litigation fund agreements, it should have been lent specifically to fund cases.
According to the report, “in some cases monies advanced were substantially used for entirely inappropriate purposes (as apparently, Ashton Fox) including the settlement of company debts being pursued by way of a winding up petition and settlement of pre-existing bank debt”.
At the end of June, Schools was struck off the Roll of Solicitors and ordered to make an interim payment of £60,000 in relation to his “disregard for the interests of his clients” while working as the owner and director at ATM Solicitors.
The Solicitors Disciplinary Tribunal found against him on 10 allegations, including “acting recklessly” and “failing to act in the best interests of clients”.
The decision means Schools will no longer be able to practice law, although he is planning to appeal.
The tribunal document, as seen by International Adviser, alleges that, when once asked why his company was called ATM, Schools said it stood for automated teller machine, because it was a “cash generating business”.
“His disregard for the interests of his clients, preferring his own financial interests, was damaging to the reputation of the profession,” it read. “He gained financially from fees paid to companies of which he was a director.”
It added that Schools had “allowed himself to be controlled and influenced by others”, which had compromised his independence.
“His clients were deprived of material information and pushed through as inputs in a process without regard to their individual interests. “
While the tribunal was not directly related to his conduct in relation to Axiom, ATM forms one of the main companies from which money flowed out of the fund.
Axiom was one of four funds we featured last year in a gallery of funds “you hope your clients don’t own”. Click here to see the rest
(This story was amended on 1.09.14 as one mention of “ATM” incorrectly said “STM”. STM has nothing to do with Axiom, nor Timothy Schools)