A solicitor has been struck off for infringements connected with the borrowing of more than £3m from a Cayman Islands fund which he knew would not be repaid. Paul Stott, senior partner at Hull firm Ingrams Solicitors, was alleged to have misused funds and entered into a funding agreement which had links to fraud.
Stott, a solicitor for 32 years, was charged with causing or permitting his firm to accept £3.15m in total from the Axiom Legal Financing Fund, spread over four payments from May 2012 to August 2012.
It was alleged Stott knew his firm had not complied with the terms of the litigation funding agreement and that the funds were to be used to keep the business afloat.
The SRA alleged he had no intention the firm would repay the monies and that he misused funds by failing to apply them to ‘eligible legal expenses’. Despite being on notice of the risk that the fund’s investment manager was acting fraudulently, Stott failed to make sufficient checks and risked his firm being a party to fraudulent transactions.
It was also alleged he had misused client money by transferring £32,000 from the client account to the office account in October 2011, and by transferring £40,000 in the same way the following month.
The tribunal heard Ingrams Solicitors, a personal injury specialist, was suffering financial difficulty by 2012 caused by a retrospective repayment of £1.2m to the Miners Compensation Scheme and a £400,000 reduction in bank facilities.
Stott subsequently signed the funding arrangement and agreed the firm’s total liability to the Axiom Fund of £4.8m. The monies were used to pay Stott’s personal tax liabilities, the liabilities of a former partner, national insurance, VAT, HMRC, and debts owed to a claims farming company. Around £2.33m was used to keep the firm afloat by payment of bills, overheads and other costs.
The SRA said the agreement to advance sums was not documented by Stott and it questioned why he was no suspicious of the circumstances in which he was being provided with funding. In total the SRA advanced seven reasons why the receipt and use of the Axiom funds was improper, including that Stott and his firm had not paid monies into a client account.
Stott, it was said, knew or should have known the funding was ‘dubious’ and he should not have accepted or used it.
Stott, representing himself, explained he had hoped that the fund would become a long-term partnership in terms of the work the firm undertook, and he was expecting a significant income from the settlement of one major case.
He said it had ‘never occurred to him’ there would be a significant problem with the fund, and asserted he had been completely honest and open with those representing Axiom as to his intentions, with every intention his firm would be in a position to repay the monies.
The tribunal found all allegations proven beyond reasonable doubt, including that of dishonesty relating to the first three payments.
In mitigation, Stott argued that all his actions were not motivated by personal gain, but by the desire to protect the practice, clients and staff. He applied for sanctions to be stayed until he had seen the reasons for the tribunal’s decision. This application was rejected.
The judgment stated that the fund had lost in excess of £4.5m. 'As at the date of the hearing, only a small proportion of the monies owed had been repaid to Axiom. Substantial harm had been caused to the fund and its investors, as well as to the reputation of the profession.'
It added that Stott 'had signed a contract which he knew from the outset contained terms for the protection of the investors and their investments, with which he did not intend to comply.’
As well as being struck off, Stott was also ordered to pay interim SRA costs of £100,000. The SRA had applied for costs of almost £274,000. A detailed assessment was ordered to determine the final costs bill.