Two senior partners at former Southport firm Barnetts are to be prosecuted before the Solicitors Disciplinary Tribunal in connection with the alleged misappropriation of funds.
Richard Barnett and Anthony Swift were referred to the SDT by the Solicitors Regulation Authority, accused of causing or permitting the firm ‘to accept and use monies from an investment fund in circumstances where it was improper to do so’.
Barnetts was broken up and sold in a pre-pack administration in January this year. Some 130 jobs were saved with the sales of the conveyancing business to DC Law, the personal injury and litigation sector to SGI legal, the care home division to Simpson Millar and the interest rate swap section to Seneca Banking Consultants.
The SRA has set out 12 allegations against Barnett, who is a Law Society Council member, and nine against Swift. Both are accused of being aware that the firm had not complied with the terms of a litigation funding agreement intended to protect the fund and its investors. Both allegedly ‘knew the agreement did not reflect the purpose for which the firm intended to, and did, use the money; had no intention the firm would repay within the time required by the agreement; and/or knew or was reckless to the fact that repayment was very unlikely’.
Both had allegedly been warned of the ‘serious risk’ that the fund manager, ‘in arranging for the fund to lend money to the firm, was acting fraudulently’. The regulator added: ‘In all the circumstances the transactions were dubious, and the money should not have been accepted or used.’
They are both further accused of misappropriating funds, or causing or permitting their misappropriation.
Neither could be reached immediately for comment. However, Barnett told local media that the claims are ‘deeply flawed’ and that he will contest them. He is reported to have said that the money came from the now-collapsed Cayman Islands-based fund Axiom Legal Financing Fund, and was not used for litigation but in care home fee recovery cases where the NHS should have been paying the bills. He said: ‘It certainly was not a scam. We received all the money under the terms of a funding agreement. There was no scam and the allegations made by the SRA are deeply flawed, in many cases on their own facts.’’
UPDATED: Richard Barnett told the Gazette this afternoon that he is defending himself ’vehemently’. ’The SRA is mistaken as to the facts and the law in the most serious of the allegations made,’ he said.
According to Barnett, up to ten law firms may have legitimately borrowed from the litigation fund in question, raising the unlikely possibility that they were all engaged in a ‘massive conspiracy’, when in fact they were acting in good faith.
On the allegation of misappropriation, Barnett said the firm accounts for the period in question were given a clean bill of health on separate occasions in March and September 2013. ‘in that case, how can they say we were misappropriating funds?’ he added.
During the course of a recorded interview on May 22 2013, Barnett said, investigators confirmed that it was accepted that monies borrowed from the fund belonged to the firm, and should be paid into Office account.
He added: ’It must be right that the SRA have to produce a fair and proper case before the SDT, disclosing weaknesses in their position as well as matters upon which they rely. I have written to David Middleton [the SRA’s executive director, legal and enforcement] complaining that there have been matters which, in my view, required an independent analysis of the SRA’s position. The response I received came from the solicitors who are acting for the SRA and who are included in my complaint and rejected the matters which I raised, stating that I was trying to deflect attention away from me.’