The ownership of funds in client accounts is the issue at the centre of an important trust case arising out of the misconduct of a solicitor
The court will consider who has ownership of about £1m deposited into former solicitor Richard Prentis' client account. Prentis ran a mortgage investment scheme in which clients provided funds that acted as loans for properties. Prentis received, as his fees, a cut of the loans plus interest. The loans totalled about £5.6m, most of which was invested in massively overvalued properties. Sources say £2.179m has been recovered from the borrowers. The biggest loan, worth £1.347, was paid to Bury Football Club. Prentis told clients that the loans would be fully secured and guaranteed them annual profit returns of 15 per cent. The Law Society stopped the scheme because of unacceptable financial risks involved and the fact that Prentis & Co received commissions which it was not professionally entitled to. The Financial Services Authority also had a role because Prentis' scheme - a collective investment scheme - could not legally be operated by a solicitor. Prentis' Sheffield firm was closed down in June 2000 and he was struck off the solicitors' roll in November 2001. Besides considering the client account point, the High Court will also consider next month (October) whether the amount recovered should be divided equally among the lenders or re-paid according to how much of their loan has been recovered. The decision will settle an important issue of ownership of funds in client accounts. However, according to a report by the Office for the Supervision of Solicitors, this is beset with difficulties as Prentis' records "were not always clear" and it is hard to trace which funds relate to which loans. Hodge Malek QC of 4-5 Gray's Inn Square is acting for Russell-Cooke Trust, which has been set up to recover the loans.