Online trading company London Capital Group (LCG) faces compensation claims of up to £5.5m if over a hundred investor complaints to the FOS succeed, according to a solicitor working on the case.
LCG, which is not to be confused with independent wealth management group London & Capital, confirmed it is dealing with a FOS query relating to commission rebating of a managed spot FX fund in the first half of 2009.
In a pre-results trading statement this month, LCG says: "LCG believes that should any liability arise from this, it will be immaterial in the context of the group as a whole."
But Alasdair Sampson, a financial services lawyer who has lodged 113 separate investor claims against LCG at the FOS with the help of five IFAs who advised clients to invest in the Forex investment, says the company could face a bill for up to £5.5m.
He calculates this as the difference between his clients’ total capital investments and what they have been able to recover after alleged errors at LCG which they claim led to abnormal losses.
LCG says it stands by the sentiments in its trading statement.
The investors, who held accounts on LCG's platform, claim the financial services and spread betting company repeatedly over-rebated commission to clients.
It went unnoticed for several months because LCG failed to regularly reconcile its monies.
Sampson says the problem began when LCG had to reverse certain trades.
"It rebated commission on the trades without realising none had actually been paid. This happened six times but wasn't picked up because the accounts were not being reconciled."
The result was that clients' accounts collectively were overstated by about £1.8m higher than the true balances, he says.
"This effectively geared the trading so all the accounts were over trading so any losses were exaggerated."
Had the clients known at the outset that LCG was not going to perform frequent account checks to ensure each held the correct amounts, none of them would have invested, Sampson claims.
“If the complaints are upheld then I will be submitting to the FOS that the measure of compensation should be a full refund of the difference between the funds invested and the funds recovered," says Sampson.
Commenting on the £1.8m overstatement in its accounts, LCG says there has been "no further recovery of the professional client debt disclosed at the half year" and no provision has been made as the directors have been advised the amount is recoverable.
Elsewhere in the statement, LCG said its full year profit before tax for 2010 is in line with current market expectations with full results due later this month.
The increase in minimum AE contributions has had little impact on opt-out rates - with cessations after April increasing by less than two percentage points, data from The Pensions Regulator (TPR) shows.
Follows string of appointments
Follows acquisition of BlackRock's DC platform
‘In the know’
£116.8m of benefits received by customers