A critical investigation reveals significant deficiencies in the SRA’s oversight of Axiom Ince, highlighting missed opportunities to uncover fraud.
- The SRA did not identify fraudulent activities and inappropriate financial practices at Axiom Ince despite early warnings.
- A delayed and inadequate response from the SRA allowed fraudulent activities at Axiom Ince to continue unabated.
- Financial mismanagement and falsified documents were discovered, leading to significant client fund losses.
- Calls for procedural reforms in the SRA to prevent similar oversights in the future have been made.
The Solicitors Regulation Authority (SRA) faced scrutiny following a report that highlighted its missed opportunity to detect fraudulent activities at Axiom Ince. A crucial chance to uncover these activities was overlooked when their investigation did not adequately verify client account balances. This oversight was exacerbated by the submission of forged documents by Axiom Ince, prolonging the undetected fraud.
The report by Carson McDowell, a Northern Ireland law firm, outlined how Axiom Ince was close to acquiring a large medical negligence firm when fraud was discovered. However, due to a lack of effective SRA communication, £36m was released from client accounts before the firm’s closure, impacting the compensation fund considerably. It was later found that fraud had been occurring since 2019, with falsified State Bank of India documents complicating matters.
Recommendations included reinstating the annual accountant report requirement for all law firms. The Legal Services Board had pre-emptively announced enforcement actions against the SRA ahead of this report, which detailed failures such as inadequate client account inspections and flawed internal communication. Despite being warned internally since 2014 about the risks associated with accumulator firms like Axiom, effective measures were not implemented timely.
Carson McDowell’s analysis revealed how Axiom’s structure was disregarded in risk assessments. With all compliance roles held by group chief executive Pragnesh Modhwadia, yet lacking broader management understanding, the firm’s unusual structure was ignored. This, coupled with poorly managed acquisitions of Ince Gordon Dadds and Plexus Legal, highlighted systemic flaws within the SRA’s risk management processes.
In November 2022, while the SRA received concerning information regarding IGD and client money management, it still failed to conduct a comprehensive risk assessment. When Axiom acquired IGD, SRA did not duly consider operational differences or financial health, neglecting due diligence which might have revealed discrepancies earlier. Such procedural lapses continued with Plexus Legal, ignoring similar risk factors, despite ongoing financial instability.
In May 2023, a cautious investigation followed which led to a visit to Axiom, revealing the fraudulent activities. Despite being reassured by Mr Modhwadia’s apparent control over operations, persistent investigative efforts ultimately uncovered that SBI had no client accounts for Axiom, exposing £57m in missing client funds. Investigations indicated that Axiom’s financial mismanagement dated back to 2019, contrary to Modhwadia’s claims about funding acquisitions and borrowing.
The decision to intervene only partially was fraught with risk, as it did not secure full control over implicated funds leaving clients vulnerable. Miscommunication within SRA led the directors to believe operations could continue, resulting in further depletion of the client funds. By October, funds had drastically reduced from £44m to £8m, raising concerns over the adequacy of SRA’s intervention strategies and their communication protocols when dealing with such high-risk scenarios.
Carson McDowell’s review stated that, despite the diligence of some SRA employees, the organisation’s approach failed to adequately protect public interests and underestimated the broader market risks presented by firms like Axiom. This assessment calls for significant procedural reforms to ensure more proactive and efficient oversight, aiming to prevent recurrence of similar issues.
The investigation into Axiom Ince and the SRA underscores an urgent need for reform in regulatory oversight processes to safeguard future legal market integrity.
