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.
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