Veteran solicitor 'drifted' into offering banking facility on dubious scheme

A solicitor of more than 46 years has been fined after missing ‘red flags’ that an investment scheme going through his firm was potentially dubious.

The Solicitors Disciplinary Tribunal found Michael Vaughan, whilst in practice with Gosport firm Kingswell Berney Limited, had ‘drifted’ into this new area of work without knowledge and expertise of what was involved.

Vaughan had been instructed in 2012 by an existing client, a financial adviser, to be paid deposits from investors into a purported properly development business. The client had said they felt ‘more comfortable’ dealing with Vaughan and that the ‘custodial role’ for holding funds was ‘hardly taxing’.

The SRA submitted that the scheme was ‘dubious’, promising an ‘unrealistically high’ 10% return to investors for investments forming part of a larger deal involving more than £1bn. These investments included references to what was described as ‘vague instruments’ and there was an obvious warning sign in that there was said to be a ‘need for secrecy to protect the scheme’.

Vaughan’s high street firm had no background in transactions of this highly complex nature and was said to be instructed on the basis it was ‘half the price of London or Bristol solicitors’.

Between June 2012 and July 2013, the firm received £711,000 and sent £578,000 of these funds to be invested as part of the scheme, but the client actually used the monies to invest in a trading programme. In the event, the trading programme was not successful and funds were not immediately returned to borrowers.

The programme was run by former solicitor Jonathan Denton, then of international firm Locke Lord, and it subsequently transpired it may have been fraudulent. Denton was struck off by the SDT in 2018 for his dishonest participation in it, although there was no suggestion Vaughan knew of or participated in that potential fraud.

The matter only came to the SRA’s attention in 2018 following a referral by the Legal Ombudsman. Following an investigation, Vaughan admitted providing banking facilities through a client account but denied acting recklessly, arguing that the scheme was described by his client as legitimate and he carried out appropriate anti-money laundering and identity checks.

The tribunal found proved allegations of acting without integrity and recklessly, saying he was an experienced solicitor who should have been aware of potential risks in acting on a scheme completely outside his professional experience.

Vaughan, 70, had his fine reduced from £15,000 to £3,000 based on his limited means. Costs were also reduced from the £43,000 claimed by the SRA to £6,160, partly based on Vaughan’s ability to pay and partly based on the tribunal finding that 200 hours of investigation were ‘excessive’.