The background to the sudden closure of the law firm network PM Law is being treated as a potential fraud, the Solicitors Regulation Authority has revealed. The regulator said today it is looking at whether client funds have been misappropriated and investigating both the firm and more than one individual.
Information gathered is also being shared with the police and other law enforcement agencies.
The SRA intervened into PM Law and its network of affiliated firms on 4 February, two days after reports that the business had closed overnight and made all staff redundant.
At the time, the reason given for the intervention was to protect client interests, but the position appears to have changed after agents took control of thousands of files held by the firm.
Jonathan Peddie, executive director of legal and enforcement, said: ‘We are investigating a potential fraud, including the misappropriation of client money. We recognise that there is a strong public interest in this case, given the significant impact on clients. Alongside doing everything we can to protect and support clients, we are moving as quickly as we can with our investigation. It is a complex picture, and we are still establishing the core facts.
‘We are focused on establishing what occurred, how it happened, and who was responsible. We will take appropriate action to protect the public, including enforcement action against anyone who has been involved in misconduct.’
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Last week the SRA said it had started to make emergency payments from the compensation fund to clients of PM Law group firms – mostly those whose property transaction depended on monies that had deposited.
The number of applications to the compensation fund has now risen to 80, and the possibility that funds have been misappropriated opens the way for many more clients to apply to recover their lost money.
The scale of the potential cost to the compensation fund has not yet been calculated, but PM Law had tens of thousands of live cases run from 24 offices across Yorkshire, Cumbria, Berkshire and Derbyshire.
The biggest ever single drain on the compensation fund was from the collapse of Axiom Ince, which resulted in around £41m being paid to clients. As a result, individual solicitor contributions to the fund had to rise from £30 to £90 and firm contributions increased from £660 to £2,220.
The SRA is also being sued by Travelers, Axiom Ince’s insurers, alleging a breach of care by the regulator to the firm and/or its clients, causing losses of up to £3m. Separately, the SRA has brought proceedings against Travelers in a subrogated claim on behalf of clients of Axiom Ince who made claims on the compensation fund.
Commenting on today's developments, Law Society chief executive Ian Jeffery said: 'The SRA’s latest update shows the seriousness of the situation facing clients. The SRA must move quickly with its investigation to give consumers and the profession confidence that swift action is being taken. We are encouraged that the SRA in this case is at least acting with greater openness and transparency
'It is important that the SRA applies the lessons it learned from the Axiom Ince and SSB Group cases, in understanding and managing key risks effectively, as well as ensuring that clients are not left in legal limbo and out of pocket. We are continuing to monitor developments and are in regular contact with the SRA. Support is available from us and others to staff members affected by these events.'
