Money invested into collapsed London Capital & Finance (LCF) ended up in the hands of a small group of people connected to the business, including its chief executive, according to administrators to the stricken group.
LCF went into administration at the end of January after netting £236 million by advertising tax-free individual savings accounts (Isas).
However, it was in fact a high-risk bond scheme with an interest rate of 8% and left more than 11,000 mainly elderly investors facing hefty losses.
Smith & Williamson, which is carrying out a corporate post-mortem examination on the defunct group, said on Tuesday: “There are a number of highly suspicious transactions involving a small group of connected people which have led to large sums of the bondholders’ money ending up in their personal possession or control.
“We are pressing these people to return those funds to us for the benefit of the bondholders and, failing this, we will pursue those individuals, as appropriate, for recovery of those sums.”
The people named in the administrator’s report include LCF chief executive Andy Thomson, as well as Simon Hume-Kendall, Elten Barker and trusts relating to Spencer Golding.
The administrators have approached all four, asking them to pay what they received into escrow, to be distributed to LCF bondholders.
The money will be returned in the event that bondholders receive full repayment from the assets of LCF.
Mr Hume-Kendall and Mr Thomson have agreed to this, but Smith & Williamson is still waiting to hear from the other two.
The City watchdog is also considering launching an investigation into regulatory failures over the collapse.
In a letter to the influential Commons Treasury Select Committee, the head of the Financial Conduct Authority (FCA) admitted that there are “significant questions” about the adequacy of regulation relating to the sale and marketing of retail mini-bonds.
FCA chairman Charles Randell wrote: “It is important that we address any inadequacies in the existing regulatory system without delay.
“As a result, we will need to carefully consider the scope and phasing of any investigation we may undertake very carefully.”
LCF went into administration after having its operations frozen by the FCA amid accusations of mis-selling.
Nicky Morgan, chairwoman of the committee, then wrote to the Treasury and the FCA demanding the regulator look at conducting a probe.
She said the FCA needs also to look at whether it acted fast enough against LCF and whether other firms may also be using similar tactics that might be misleading to consumers.
The watchdog will convene this week to decide on whether to investigate.
For its part, the FCA ordered LCF in December to withdraw its promotional material for its mini-bonds after finding that marketing was “misleading, not fair and unclear”.
But while the promotional material is regulated by the FCA, mini-bonds themselves are unregulated.
Ms Morgan said the FCA must look at whether mini-bonds should be brought under its supervision.
The company’s customer base fear they may not be able to recoup the money they invested with LCF.
Bondholders may get just 20% of their money back, according to administrators.
The Financial Services Compensation Scheme (FSCS) said the mini-bonds issued by LCF were not regulated and therefore not protected by the scheme and it is not accepting claims against the firm.
The Serious Fraud Office (SFO) has already opened an investigation into LCF.