Clients advised to remove money from Scots law firms over Guarantee Fund failures

Clients of Scottish legal firms have been advised by consumer groups and law reform campaigners to remove their funds immediately from Scots legal firms, after revelations emerged the Law Society’s Guarantee Fund (which is supposed to compensate clients for financial losses) has no money left in it.

Law reform campaigner Peter Cherbi placed an advisory to clients on his law blog A Diary of Injustice in Scotland, which in the current financial crisis affecting many legal firms, clients may well be advised to proceed on the advisory, and take the steps advised to protect their money and bank it somwhere else, before it disappears along with ailing law firms (or a lawyer runs off with it !– Ed)

“A Diary of Injustice in Scotland” reports :

Advisory : Clients must protect their money from unsafe legal firms as Law Society's Guarantee Fund fails.

Your money is no longer safe with your lawyer. £50 million plus of money belonging to clients of Scottish legal firms is at considerable risk of loss, after revelations the Law Society's Guarantee Fund has less than £2 million left in its coffers to cover the millions held by Scottish solicitors on behalf of their clients in everything from house purchases & sales to the administration of wills, investments & settlement payments.

My advice : Clients should immediately withdraw their funds from any legal firm or solicitor who may be holding monies on their behalf. If you have funds being held by your solicitor, make it your priority this week or as soon as possible to ensure the safety of your wealth, or you may end up losing it.

There is simply no way the legal profession can guarantee the safety of your money in the wake of the financial downturn. You will have to be the best judge yourselves as to how to safeguard your own wealth, but trusting it to your solicitor who lacks any protection for its loss, is no longer an option.

While the news is filled with reports about banks & building societies having to be bailed out by the Government, little attention has been paid to the rate of legal firms heading for disaster, and not forgetting the huge rise in fraud cases involving solicitors falsifying banking records and financial transactions, usually for their own benefit. It is the Guarantee Fund which would cover such frauds on client’s funds, but the compensation scheme run by the Law Society which is supposed to repay defrauded clients, has been unmasked as little more than a theatre spectacle, offering nothing to victims of ‘crooked lawyers’.

I reported earlier on the Guarantee Fund’s problems and client’s attempts to claim from it here : Law Society's 'Guarantee Fund' for clients of crooked lawyers revealed as multi million pound masterpiece of claims dodging corruption

A legal insider at the Law Society said when asked about the Guarantee Fund problems said : “We are going to end up in a situation where there wont be enough money coming in from Solicitors to the Guarantee Fund to keep adequate levels of money available to cover failed legal business or lawyers taking their clients money for themselves.”

This claim is backed up by revelations that reserves in the Guarantee Fund only amount to a paltry £1.7 million at this time, and with significant outstanding claims standing at £4.3 million, together with incoming claims expected to reach double figures in the millions this year over buy-to-let & mortgage fraud schemes, there seems little prospect of clients recovering anything from solicitors who decide to take the money for themselves.

As an example to emphasise the lack of safety of clients funds, a client who contacted me who entered into a house purchase transaction with a legal firm now faces a total loss of £185,000, which was handed over to his solicitor who was holding it in the legal firm’s client account on a short term basis while the client’s property transaction went through.

Eleven weeks later, the deal had still not been completed and it emerged the solicitor had taken £47,000 of the clients cash to prop up his legal firm’s huge debt. The solicitor then told the client the seller had made off with his money, and had refused to hand over the titles.

The client uncovered what had actually happened through his bank and an ex member of staff from the legal firm in question, but the Law Society did nothing. The client is still seeking legal representation to sue the Law Society and the solicitor concerned, who continues to represent unsuspecting clients in property transactions.

It is reported that discussions have taken place at the Law Society of Scotland on the idea of seeking external funding to the Guarantee Fund, or even asking for Government assistance of some kind, if the situation arises, as looks the case that the Law Society will not be able to meet its ‘official’ commitment to ‘safeguard’ clients funds – a commitment in reality it has never managed to achieve in the Society’s entire history.

However, fears were expressed by some lawyers that the public might not be too receptive to millions of pounds of taxpayers money being used to keep legal firms and lawyers afloat, given a general antipathy towards the legal profession for their poor regulatory conduct and overcharging of fees over the years for very poor legal services.

During discussions on how best to proceed with the flagging Guarantee Fund, officials warned that any external bailout of the compensation scheme would open up the actual workings of the Guarantee Fund & Master Policy to unwelcome public scrutiny, where questions would arise over the suspicious nature of how client claims for compensation are ‘managed’ and transferred back & forth between the two schemes to delay, deceive and generally thwart payouts to genuine victims of ‘crooked lawyers’.

A leading accountancy firm gave comment last week, claiming there may be up to £100 million of private & corporate clients money held by Scots legal firms which may well now be in unsafe hands.

An accountant with the firm who declined to be named said : “You would be correct in assuming there is a significant risk to funds held by your solicitor or legal firm in current market conditions. The advice we could only offer just now is to bank it and look after it yourself. After all, it’s your money, why let anyone else hold it or manage it in this financial climate.”

So, there you have it. If you currently have money with a lawyer, for any reason at all, take it out of their hands and ensure you put it in a safe place where you control it, not someone else who will only use it to further their own financial gain at your expense.

Scotland's financial services market ‘toxic’ as building society crashes

There’s never been a worse time to invest in Scotland by the looks of it, as the country’s financial sector faces meltdown and collapse, primarily due to poor regulation which allowed banks, building societies and other financial institutions to do as they pleased with clients money and huge levels of unsustainable debt.

Today, its the turn of the now collapsed Dunfermline Building Society, which had to be rescued by Westminster & the Bank of England, after long winded deals talked about by the Scottish Government came to nothing … (SG deal would never have worked anyway ! – Ed)

Scotland on Sunday reports :

Scots building society collapses

Published Date: 29 March 2009
By Eddie Barnes Political Editor

SCOTLAND'S beleaguered financial sector suffered another body blow last night after it emerged the nation's biggest building society has effectively collapsed and will be put up for sale this week.

The Dunfermline Building Society seems certain to be merged with another institution after attempts to prop it up with a taxpayer bailout were judged to be doomed.

Taxpayers will take on millions of pounds' worth of the Dunfermline's 'toxic assets', while profitable parts of the society will be offered to a new buyer.

The deal is a further dent in Scotland's reputation as a centre of financial probity, coming so soon after HBOS was merged with Lloyds and Royal Bank of Scotland was part- nationalised.

Last night, SNP ministers said they were "disappointed" with the Treasury decision to back a merger, while the local Liberal Democrat MP warned that the plan puts "hundreds of jobs" at risk.

The Dunfermline deal will mirror that which saw Bradford & Bingley split up last year and sold to the Spanish Santander group. Government officials claimed the move would not lead to job cuts and insisted that the building society's 250,000 savers and 35,000 borrowers would not be affected.

Chancellor Alistair Darling yesterday morning informed First Minister Alex Salmond about the plan. Prime Minister Gordon Brown, speaking in Chile yesterday, pledged that savers in the building society would be protected.

Scottish Secretary Jim Murphy blamed "reckless" decisions by the Dunfermline's previous management for its position. Last night, Murphy said: "The Treasury wanted a long-term, rather than a short-term, solution for the Dunfermline. The Government's priority is to protect savers, jobs and social housing and keep the society's branches in place while putting an end to uncertainty."

He added: "The solution should provide a stable and secure future for Dunfermline Building Society members and is one which acts in the best interests of the taxpayer."

The Dunfermline has been on life support after it emerged two weeks ago that it was about to make a significant loss as a result of writedowns on property investments made before the credit crunch. A disastrous IT project also cost millions. Well-placed sources suggested last night that those losses – predicted to be around £26m – were actually going to be far higher.

It was hoped that the building society could continue with funding from the Government of between £60m and £100m. But UK Government sources said yesterday that as the true scale of its losses became clear, regulators decided that the only "permanent solution" would be a merger.

No partner has been formally announced, but the Co-operative, Britannia, Nationwide and Yorkshire building societies have been linked to the Dunfermline in recent weeks. As with the HBOS takeover by Lloyds, there was mounting concern last night that the head office functions of the society would be lost by Scotland.

Salmond had proposed a package in which the Scottish Government would boost the Dunfermline's capital and guarantee its valuable social housing book. That deal remained on the table last night, but the Treasury insisted it would be pressing ahead with a merger.

A Scottish Government spokesman said last night: "We are deeply disappointed that the Treasury now believes it is not possible to sustain the society as an independent institution, given the importance to Scotland of HQ jobs and functions."

He added: "We hope that the Treasury has not closed its mind to the idea that, both in terms of employment and in terms of value for money for the public purse, maintaining Dunfermline Building Society as an independent and ongoing concern could well be the strongest option, and in the interests of its members and depositors."

Lib Dem Dunfermline MP Willie Rennie said: "Forcing the break-up of the Dunfermline Building Society would be a betrayal of its thousands of savers and borrowers over 130 years."

Other mutual societies could still step in to keep the Dunfermline afloat, Rennie insisted. "I ask the Government at this late stage to defend Scotland's largest mutual. If ministers refuse, this could put hundreds of jobs at risk."

There was no comment from the society last night. Senior staff were understood to have been taken by surprise by the sudden announcement.

The news of the Dumfermline's effective collapse comes six months after its troubles were first unveiled. In September, it announced it was to cut a fifth of its workforce in the wake of falling mortgage sales. In December it said it expected this year to be "difficult".

The Dunfermline was one of the last lenders to pull out of the 100%-plus loans market, while it also had a considerable exposure to buy-to-let loans and lending to commercial property borrowers. While on a far smaller scale to HBOS and RBS, the 130-year-old mutual is still one of the country's main financial brands.

Bankers in fear : Ruined global finances will bring no public forgiveness

Now that bankers have joined lawyers as some of the most vilified, hated and disrespected professions around the world, some are starting to wonder if they should ever be forgiven for ruining the global financial markets, not to mention the lives of many ordinary people who are now paying for the way that bankers and their kind ‘ruled the world & lives’ with money which was not theirs … (no, bankers wont be able to get forgiveness from a deservedly angry public – Ed)

Scotland on Sunday reports :

Abused in the streets, their homes under attack, will Edinburgh's bankers ever be forgiven?

Published Date: 29 March 2009

By William Lyons, Rosemary Gallagher and Terry Murden

AS THE world's media gathered outside the vandalised stone villa of Sir Fred Goodwin, sympathy for the former chief executive of the Royal Bank of Scotland was in short supply. With pictures of his home in Edinburgh's salubrious Grange district being beamed across the globe, one passing man in a waxed jacket suggested the best course of action would be to "burn it to the ground".

Such comments were unthinkable only a year ago when he was announcing record profits at the world's fifth-biggest bank, but the attack on Goodwin's home and the threat of more violence against bankers has been met with a surprising level of tolerance.

Outright condemnation has been matched by a sense of indignation over the way in which bankers – in particular Edinburgh bankers – have been identified as the guilty men who have plunged the country into recession. Some have spoken of "Edinburgh's shame" that the city's big two banks have helped bring Britain to its knees.

It has clearly affected the standing of one of the country's most important professions as public respect has given way to general disgust. Last Friday, as two Scottish bankers walked through Haymarket station, a Big Issue salesman who they brushed past shouted after them: "I may be homeless, but at least I'm not a banker."

The mood is now turning ugly, with serious implications. A group calling itself Bank Bosses Are Criminals claimed responsibility for the attack on Goodwin's home and in a statement to the Edinburgh Evening News said: "This is just the beginning … We are angry that rich people, like him, are paying themselves a huge amount of money and living in luxury, while ordinary people are made unemployed, destitute and homeless."

The attack came as protesters plan to hang effigies of Sir Fred and other bankers from lampposts ahead of this week's G20 summit in London. Protest organiser and University of East London anthropology professor Chris Knight warned that "things could get nasty" as public anger with banks boils over.

"We are going to be hanging a lot of people like Fred the Shred from lampposts on April Fool's Day and I can only say let's hope they are just effigies," he said. "They should realise the amount of fury and hatred there is for them and act."

Max Clifford, one of Britain's most influential PR gurus, said: "If I was in his shoes, I would be a very worried man. He is in danger. That man should be genuinely frightened."

At the sprawling £350m Royal Bank of Scotland headquarters on the outskirts of Edinburgh, death threats aimed at the former boss arrive regularly through the post. On the internet T-shirts have gone on sale depicting Goodwin in a gun's crosshairs with the words: "public enemy number one." A picture of Goodwin enjoying himself has shot to number one on many freelance photographers' wish lists. It would fetch around £100,000.

Goodwin is understood to have fled the country. His exact whereabouts are unknown with reported sightings in the south of France, mainland Spain or Mallorca. He was last seen boarding a budget airline from Edinburgh to Nice with his wife and two children more than 10 days ago. According to one onlooker he checked in wearing dark glasses and sat in the departure lounge away from most people. Meanwhile his children have been taken out of their private school for their own protection after being bullied over their father's disgrace. His wife Joyce is understood to have been shouted at in the street.

The crisis is causing rising tensions across Europe. In France last week, workers burned tyres, marched on the presidential palace and held the manager of a US manufacturer hostage in the latest protests against job losses and executive payouts. In the US there have been protests outside the homes of executives of bailed-out insurance giant AIG.

While security is stepped up and all bankers feel a collective sense of guilt about leading the world into recession, those who believe Edinburgh has suffered a public beating are attempting to rebuild confidence. There are moves to restore the city's pride and battered reputation with a multi-million-pound initiative and a drive to deliver the message that a city famed throughout the world for its careful management of money can be restored to health.

But first it has to cope with almost daily reminders of its failings, not least its unwanted booby prize as home to the company that recorded the biggest loss in British corporate history.

When Goodwin was helping RBS post record profits, turning a provincial bank into a global powerhouse, the world lined up to shake his hand. Forbes, which once named him Global Businessman of the Year, has subsequently retitled him the world's worst banker.

With HBOS also being forced into a merger to save it from going bust, 2008 turned into an annus horribilis for Edinburgh banking. The city that was once home to Adam Smith – author of The Wealth Of Nations, the first modern treatise on economics – built an economy and a global reputation on financial services. But with its two major banks lying in ruins, many are now asking whether the financial crisis leaves Edinburgh's status in tatters. "The world has fallen off a cliff," said Ian Jones, executive chairman of the independent Edinburgh-based merchant bank Quayle Munro. "We are still picking up the pieces."

Publicly, the City's financial community is pulling together to argue that the Scots are resilient and will learn from mistakes and turn it around. But privately it is a different matter. Many claim the reputation of the city has been permanently damaged. They talk about the embarrassment of being associated with two failed banks and point to the chaos surrounding the ongoing tramworks as symbolic of the difficulties facing it. Aware of the deep public disgust towards Goodwin and Andy Hornby, his counterpart at HBOS, many in the banking sector feel decidedly uncomfortable.

"It is a bit difficult to maintain a reputation as a traditional high-probity country when your biggest bank, which is the fifth-largest bank in the world, goes spectacularly bust, is bought by the Government for a song and then hands its failed chief executive a £20m payoff," said one Scottish economist. "I feel a little embarrassed to be Scottish."

Another director of an Edinburgh brokerage said: "We do a lot of business in Bahrain, and Scotland – Edinburgh in particular – had always been a big selling point as we were highly regarded and respected. The city's reputation abroad has been tarnished by the likes of RBS."

Graham Bell, of Edinburgh Chamber of Commerce, agrees: "The traditional reliance on Scots as good financiers has been dented because two of the major banks that have collapsed have Scotland in their title, and although they are big international companies they are regarded as Scottish products."

On Friday, Chancellor Alistair Darling urged the banks to clear their balance sheets in a bid to regain public trust against an anti-banking backlash, echoing comments earlier this month by Ian Luder, the new Lord Mayor of London, who told a meeting of Scottish Financial Enterprise that there was a need to end "banker bashing".

But their comments arguably add to the growing sense that the banking sector has been irreparably damaged and may even incite further reaction.

Now Edinburgh is preparing to fight back. In the next few weeks the city council will launch an Economic Resilience Action Plan designed to revive the city's flagging fortunes. It will be backed by a 25% increase in the economic development budget, with contributions from Europe bringing the total to £8m, the highest it has been.

In sectors barely touched by the crisis, such as fund management, an industry that manages £580bn of funds directly from Scotland, the mood is refreshingly upbeat. "I simply don't agree with the suggestion that Edinburgh is in some way 'damaged goods' following the banking crisis," said one London-based commercial lawyer. James Will, of Shepherd & Wedderburn, said: "The financial services industry in Scotland is not just about banks.

Scots are resilient, will learn lessons and will refocus on traditional values of prudence and innovation. With such traditional values – and ability to adapt – engrained in our heritage, Edinburgh should find it easier than perhaps many other financial centres worldwide to make the changes necessary to compete effectively in the new environment."

Others, such as Tom Miers, an independent public policy consultant, argue that more important to Edinburgh's economic success is not a reputation for financial prudence but the quality of life in the city. "It is more important for the council to build beautiful buildings than to meddle with the financial sector, which will take care of itself on the basis of the quality of its product."

Colin McLean, the fund manager who sounded the alarm over HBOS and RBS a year before their demise, remains sanguine. In his office overlooking Princes Street, the managing director of SVM Asset Management argues that most of his clients recognise the banking problem is distinct.

"It's not a helpful thing for Edinburgh," he says, "but given there have been banking problems in Switzerland and in other financial centres I don't think anyone comes out of it very well."

It is a view echoed by Bryan Johnston, director with private client investment manager Brewin Dolphin. "Specifically Edinburgh is no more caught up than anywhere else," he says. "Obviously what has happened to the banks is a tragedy and is disappointing, but it is not unique to Edinburgh, nor unfortunately to the UK. Things go wrong – the trick is how you deal with it." Sir Fred Goodwin would be advised to take note.