Axiom Legal Financing Fund managers asleep at the wheel

KPMG, the firm appointed initially to carry out a review of goings-on at embattled Axiom Legal Financing Fund, are reported to have said that whilst the fund does not appear to be a Ponzi scheme the managers of the suspended £117m fund carried out "little or no due diligence" on the cases in which they invested shareholders' money, and did not follow investment criteria.

Following a period of suspension, the funds directors have now appealed to have the fund wound up because it is unable to meet its financial obligations.  According to IFA online, the court documents disclose that KPMG's investigations "reveal grounds for suspecting there has been mismanagement" of the fund's assets, and that the net asset value of the fund has been overstated.  The size of the shortfall is not clear at this stage.

The loans made by the fund appear to have been made to law firms conducting genuine cases, but are unlikely to be repaid within the time frames required by the fund’s investment criteria.  Loans should only have been made to cases which could be completed within a year, whereas most, if not all, of the cases being funded will take much longer than this to resolve – in some cases up to 3 years – and in at least one case a loan appears to have been made to a firm which was close to insolvency at the time. 

There is also controversy regarding the payment of a “facilitation fee” of 50% of the loan value.

The findings disclosed in the court paper seem to show a situation where there has been a real breakdown in good governance at the fund.  However, it is not yet clear whether some of the stronger allegations of fraud made by OffshoreAlert are well founded – the court papers suggest that further investigation  is required before a conclusion can be drawn on that issue.

Axiom Legal Financing Fund to be wound up

Axiom Legal Financing Fund, which has faced a slew of fraud allegations in recent weeks, is reported to have been put into receivership by its directors following a vote at an Extraordinary General Meeting held in London yesterday.

Until a few months ago, the award-winning Fund had been considered a great success but OffshoreAlert, a Miami based company, began to publish a series of articles raising red flags regarding the Fund’s activities, ultimately suggesting that it appeared to be a Ponzi scheme and questioning the bona fides of the CEO of Tangerine Investment Management, the Fund’s investment manager .

The £117m Cayman Islands based Fund was suspended in October following a flood of redemption requests in response to the allegations, and KPMG were appointed to review what had gone on.  It is understood that KPMG will be now be appointed as receivers, following yesterday’s shareholder vote.

It is not clear where this will leave the investors in the Fund, but some are already believed to be taking legal advice about their options.

Carillion blend legal in-sourcing and out-sourcing services in innovative new market offering

The issue of how to avoid having to pay top-dollar fees for commoditised legal work has been an issue of concern for clients for some years now.  Although lawyers can and do often stress the benefits of having highly qualified experts dealing with a case, the reality is that in many areas of law and commerce a lot of the more straight-forward work which has traditionally been done by lawyers can be done more cheaply and more efficiently elsewhere.  Why pay £300 per hour for a junior lawyer in a private firm to draft something that can be provided much more cheaply through competent technicians in low cost locations? CPA was one of the first companies to recognise that large clients might want to insist on some of their legal work being outsourced by their lawyers to cheaper providers, and made a significant fortune out of that market.  Carillion, the FTSE 250 construction group, was one of the early adopters of CPA’s services and encouraged Carillion’s legal panel members to use CPA in order to achieve cost savings.

However, Carillion, has now gone much further than this, and has taken its own interesting hybrid approach to the issue.  Firstly, it has in-sourced a lot of its routine legal work setting up its own Carillion Advisory Services with 60 paralegals doing much of the relatively standardised work on Carillion’s own business needs.  That in itself is nothing unusual – plenty of large businesses have their own in house legal department -  but CAS is also offering legal aid advice to third party clients, and Carillion is now requiring the 12 law firms on its panel of advisors to use CAS for the commoditised elements of the work they are undertaking for the group, in order to minimise costs.

And in a step further still, it is being reported that at least one of the panel firms, Clarkslegal, is now offering CAS services to some of its other clients as a lower cost resource.   So essentially, Carillion has spawned its own legal services outsourcing business, which will now have a wide range of third party clients, as well as handling the company’s own basic legal needs.

At present, the business is not offering legal services which are regulated, but this is not ruled out for the future.  This would see CAS converted into an alternative business structure (ABS).

From my perspective, I think that in having its own in-house team of legal executives, Carillion will probably be able to drive efficiency savings for itself and for third parties to which it offers similar services.  A lot of construction and property related work is relatively commoditised and lends itself well to this approach.  Furthermore, as Carillion’s 12 firm panel of Carillion legal advisers includes some big hitters, including Slaughter and May, Linklaters, Ashurst, Addleshaw Goddard, DLA Piper and Pinsent Masons, CAS should get its venture off to a flying start by effectively requiring them to unbundle their work and refer some of it to CAS.  Who knows where this could lead if CAS proves itself adept at working the model. 

For me, the only slightly discordant note in the offering is the legal aid services, which seem to be to be a very different kettle of fish from commercial advice and document preparation.  I suspect that this offering is more a hangover from the development roots of the CAS team (which became part of the Carillion Group through acquisition) rather than a cue to its future direction.

Investors in Axiom Legal Financing Fund urged to boycott EGM and sack directors

Taylor Moor, the main distributor of embattled Axiom Legal Financing fund is reported by IFA online to have urged investors to sack the fund's directors and boycott the EGM to be held on 11^th December.

Axiom, a Cayman fund which provides financing for no-win, no-fee legal cases in the UK, was suspended in October following serious allegations of fraud made by OffshoreAlert.  The allegations have been strenuously denied by those involved, and KPMG has been engaged to investigate the situation.

However, having apparently grown impatient with the lack of sufficient explanation from the directors on how this situation has arisen, the fund’s main distributor, Taylor Moor, has written to investors saying "it is time for investors to take control of the situation" and to replace the current directors with new, impartial individuals.

According to IFA Online, Taylor Moor has urged investors to boycott the emergency EGM to discuss the future of the fund on 11^th December, because KPMG have not been given enough time to investigate.  Concerns are being expressed that because the investors have so little information available, they will be in no position to vote on the important matters to be discussed at the EGM.

The battle for the online legal document market hots up

Rocket Lawyer, the Google-backed online legal documents business, formally launches in the UK today.  It will sell consumers and businesses annual packages of legal forms and documents starting at £40 for individual users and £100 for businesses, and is aimed principally at small businesses and start-ups which wish to keep costs of legal compliance to a minimum. 

Legal document businesses tread a fine line in the need to avoid holding themselves out as the providers of legal advice without the necessary licences, and to avoid this problem Rocket Lawyer has signed up 20 law firms in the UK to its ‘On Call’ panel for those customers who need legal advice rather than simply documents.  The panel firms include Butterworth Solicitors, Freeman Harris Solicitors, and Glaisyers.

So will the venture succeed?  It certainly seems to be making waves in the US, where the business was launched.  In an interview with Forbes last year, founder Charley Moore claimed that in the US the company has 70,000 users a day and had doubled revenue for four years in a row to more than $10 million in 2011. That is impressive growth by any standards, and as a consequence the business has attracted investment from Google Ventures and Investor Growth Capital.

Rocket Lawyer is not the only business to have identified the opportunity to provide legal documents at a low cost.  LegalZoom began offering legal documents to the public in the US back in 2001, and in September 2012 it was announced that they had formed a partnership with the United Kingdom-based legal services provider QualitySolicitors (backed by Palamon Capital Partners) as part of which the companies will jointly offer online legal services in the United Kingdom including company formations and divorce documents.  LegalZoom claims to have over a million customers and, like Rocket Lawyer, has the backing of very significant businesses and individuals.  So ferocious has the fight for market share between these two companies become that LegalZoom have recently launched a legal action against Rocket Lawyer for false and misleading advertising.

It seems therefore that the principle of what LegalZoom and Rocket Lawyer are doing has been proven to work in the US.  Is there any reason to think it will be different in the UK?

One area of disappointment for me is that in relation to its UK launch, Rocket Lawyer is making a woefully small number of documents initially available.  Although the range of documents will undoubtedly increase over time I can’t help but think it is a mistake to launch with such a small number, as it will give those who are attracted early to look at the service a very poor impression.  It remains to be seen how many documents LegalZoom will cover at launch.

In fact, this type of service is nothing new in the UK.  Businesses such as Simply Docs (with which I have no connection, other than as a satisfied user) have been offering the online document service for many years, and have over 2,200 documents in their database, which makes the Rocket Lawyer initial offering look even more paltry, although the latter would differentiate its service through the ability to get legal advice if required through its lawyer panel.  The reality is that even though the databank of Simply Docs may be far more extensive than its newer rivals, the cash backing that Rocket Lawyer and LegalZoom enjoy, together with their high profile and well connected Board members, means that they can expect to make an impact on the UK market.

Axiom Legal Financing Fund - Time for a Regulatory Investigation

The situation regarding the Axiom Legal Financing Fund has become increasingly farcical.

As previously reported in this blog, US-based OffshoreAlert has made a series of very serious allegations, claiming publicly that the Fund appears to be a Ponzi scheme and warning investors that they have been victims of a massive fraud.  The Fund directors have denied any wrong-doing and brought KPMG in to investigate, although the publication of their findings has been delayed. In the meantime, redemptions and subscriptions from the Fund have been suspended, Tim Schools, the founder of the Fund and former boss of its investment manager, Tangerine, has been replaced as its head as a consequence of the allegations, and Tangerine itself has been sacked as investment manager of the Fund.  And to ramp up the pressure a notch further, Tim Schools has now commenced legal proceedings in the UK to sue OffshoreAlert for defamation.  The whole sorry scenario is being played out in public, through blog posts, social media and published correspondence between the protagonists.  

Spare a thought in all this for the investors who have invested in good faith in the award-winning Fund and who have no idea who to believe as the pressure increases.  I have been contacted by one such individual, who has asked whether there is any likelihood of him getting his money back.  The truth is that I have no idea.  The specifics of the allegations being made by OffshoreAlert are fairly detailed and on the face of them certainly merit a thorough and independent review, but they are being robustly denied by all involved and it would be dangerous simply to accept them at face value.  If they are true, then the investors and those involved in advising the Fund could potentially lose very significant sums of money.  If they are false, then doubtless huge damage will have been done to a Fund which may struggle ever fully to recover.  

Whilst the whole sorry saga is being played out, there has been a striking lack of comment from the Cayman Islands authorities.  Surely now it is time for them to launch their own investigation?  Given the size of the Fund (over £100 million), the very public and serious nature of the allegations, I do not think it is sufficient comfort for the investors to have the directors organising an investigation (albeit by a third party) into what, if anything, has happened.  Whilst the directors were absolutely right to launch their own investigation, they cannot be seen as entirely impartial as there may be implications for them if the allegations are substantiated. Investors may, therefore, not be entirely satisfied with the outcome of a review where the terms of reference are set by the Fund's directors, and they are the recipients of the report.  

In my view, it is time for CIMA or the Cayman Islands police to be seen to take control of an investigation into whether there is any truth in the allegations, as a matter of urgency. This is not because I believe that a fraud has been committed - as I have said earlier, I simply do not have sufficient facts available to know - but because the current very unsatisfactory situation should not be permitted to persist.  The reputation of the Fund, its advisers, and the Cayman Islands regulator are all at stake.  

Early movers in Legal Services Act reforms reap big rewards

It seems that the early movers in the post-Legal Services Act shake-up of the UK legal system are having much greater success than many would have expected.

At the Legal Futures conference on Monday representatives of Stobart Group and MyHomeMove were amongst the speakers sharing their experiences of the post-LSA landscape.

I have long been a believer that the LSA would have a far greater impact on the legal services market than many lawyers wanted to believe, but I will be the first to admit that I was very sceptical that Stobart Group, a company known for its trucks rather than legal services, would succeed in attracting business to Stobart Barristers brand, launched in May of this year.   It seems I may have to eat humble pie, certainly if the benchmark of success is the number of barristers signed up to the scheme.  According to Trevor Howarth, group legal director of Stobart Group, more than 4,000 barristers have applied to be part of its direct access scheme, which enables potential clients to get some free initial advice direct from a QC.  That amounts to almost a staggering one third of all of the country’s 12,500 self-employed barristers.

MyHomeMove – whose conveyancing arm Premier Property Lawyers was the first ABS to be approved, also appear to be enjoying very healthy growth, with plans to treble the size of the business by 2016 and a recruitment process under way to recruit a further 400 case handlers.   The business, which has grown strongly to capture around a 3% share of the English conveyancing market, aims to have a 10% market share by 2016, whether directly or on a ‘white label’ basis for other firms.

These are early days for such businesses and the proof of the pudding will come when they demonstrate that they are able to deliver the quality and service that clients demand, time and time again.  However, the early signs of success should have many law firms sitting up and taking notice.  Whilst no-one is advocating that firms should be spooked into knee-jerk reactions, ignoring the competition can be a very dangerous mistake.