After incurring the profession's biggest ever fine, it has emerged that Locke Lord paid out millions of dollars to settle claims arising from the "dubious" investment schemes run by one of its London partners, who attracted the attention of the FBI and was arrested at Birmingham airport.
The extent of the firm's failure to stop Jonathan Denton, which resulted in a record £500,000 fine from the Solicitors Disciplinary Tribunal, was revealed by the SDT's judgment. It describes how, in 2012, Jonathan Denton incorporated a pair of companies called 'Sionne' and 'Ikaya' which purported to be investment schemes offering "very high yields". Denton appointed himself the sole director of Ikaya and his wife company secretary, and then instructed himself in his capacity as a Locke Lord partner to act for Ikaya. At a rate of £450/hour, he billed over £1.2 million between September 2012 and June 2015.
Meanwhile, Denton used his status as a solicitor to "promote" and "lend credibility" to his "dubious" investment schemes, which extended to meeting a potential investor at the firm's offices. Despite Denton's promises of monthly returns of 6%, the SDT found that there "did not appear to be any verifiable returns to investors".
Locke Lord failed to properly comprehend or clamp down on Denton's activities despite numerous red flags. In 2013 the firm was contacted by both the Metropolitan Police and the FBI in relation to concerns about the safety of investors' money, but it referred the enquiries to Denton who convinced his colleagues that it wasn't a problem. In 2014 a partner in the firm's California office warned that Denton has approached him about establishing an unrelated scheme that resembled a "'prime bank securities' fraud", but nothing was done. When a worried investor asked about his money in 2014, Locke Lord’s Compliance Officer for Legal Practice raised concerns with the general counsel that "there had been a certain mixing” of Denton’s roles as a director of Ikaya and a Locke Lord lawyer.
It wasn't until July 2015, when the North Yorkshire Police called in relation to another investor's fears, that Denton was fired. Even then, the firm continued to refer queries about the schemes to him while he was on gardening leave, and allowed him to use his Locke Lord email account. In October 2015 Denton was arrested at Birmingham airport. He subsequently declined to participate in a meeting between investors and Locke Lord management to address where their money was located.
Locke Lord's lax governance allowed Denton to pass £21 million through its client account, and the judgment also revealed that the firm has paid its insurer the $2.5 million excess to settle investors' claims, with more claims outstanding. A spokesman for the firm declined to state how much had been paid so far, or the value of the pending claims.
A source commented on RollOnFriday that Locke Lord's London office is "not a happy shop" in the wake of the revelations. Associates were "completely in the dark on this until the fine was announced", and "to say they are gobsmacked is an understatement". Staff are also bemused that the COLP and Compliance Officer for Finance and Administration remain in their posts, and by rumours that London's head of corporate for the duration of the disaster is about to be promoted to London managing partner.
Tip Off ROF
The extent of the firm's failure to stop Jonathan Denton, which resulted in a record £500,000 fine from the Solicitors Disciplinary Tribunal, was revealed by the SDT's judgment. It describes how, in 2012, Jonathan Denton incorporated a pair of companies called 'Sionne' and 'Ikaya' which purported to be investment schemes offering "very high yields". Denton appointed himself the sole director of Ikaya and his wife company secretary, and then instructed himself in his capacity as a Locke Lord partner to act for Ikaya. At a rate of £450/hour, he billed over £1.2 million between September 2012 and June 2015.
Meanwhile, Denton used his status as a solicitor to "promote" and "lend credibility" to his "dubious" investment schemes, which extended to meeting a potential investor at the firm's offices. Despite Denton's promises of monthly returns of 6%, the SDT found that there "did not appear to be any verifiable returns to investors".
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If only he hadn't stopped to pick a bowtie. |
Locke Lord failed to properly comprehend or clamp down on Denton's activities despite numerous red flags. In 2013 the firm was contacted by both the Metropolitan Police and the FBI in relation to concerns about the safety of investors' money, but it referred the enquiries to Denton who convinced his colleagues that it wasn't a problem. In 2014 a partner in the firm's California office warned that Denton has approached him about establishing an unrelated scheme that resembled a "'prime bank securities' fraud", but nothing was done. When a worried investor asked about his money in 2014, Locke Lord’s Compliance Officer for Legal Practice raised concerns with the general counsel that "there had been a certain mixing” of Denton’s roles as a director of Ikaya and a Locke Lord lawyer.
It wasn't until July 2015, when the North Yorkshire Police called in relation to another investor's fears, that Denton was fired. Even then, the firm continued to refer queries about the schemes to him while he was on gardening leave, and allowed him to use his Locke Lord email account. In October 2015 Denton was arrested at Birmingham airport. He subsequently declined to participate in a meeting between investors and Locke Lord management to address where their money was located.
Locke Lord's lax governance allowed Denton to pass £21 million through its client account, and the judgment also revealed that the firm has paid its insurer the $2.5 million excess to settle investors' claims, with more claims outstanding. A spokesman for the firm declined to state how much had been paid so far, or the value of the pending claims.
A source commented on RollOnFriday that Locke Lord's London office is "not a happy shop" in the wake of the revelations. Associates were "completely in the dark on this until the fine was announced", and "to say they are gobsmacked is an understatement". Staff are also bemused that the COLP and Compliance Officer for Finance and Administration remain in their posts, and by rumours that London's head of corporate for the duration of the disaster is about to be promoted to London managing partner.
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(One reason I have always refused every single directorship and shareholding clients have offered me over 30 years is it just feels too wrong or potentially complicated even if legally allowed; best avoided).
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