THE FCA INVESTIGATION ON: axis mundi (scam) & lbx (fraud)

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The document is a comprehensive investigation report by the Financial Conduct Authority (FCA) into the activities of Axis Mundi Global Custody Ltd (formerly LBX Custody Ltd) part of the LBX Group. 

The investigation covers the firm's regulatory compliance, client asset management, and promotional activities. 

The document highlights numerous concerns and violations related to the firm's operations, revealing systemic issues that persisted even as complaints were being made to the Financial Ombudsman Service (FOS).

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• Serious Regulatory Breaches:
  • Axis Mundi and LBX were found to be in violation of multiple regulatory standards.
  • Mismanagement of client funds was a significant issue, with client money being handled through undesignated accounts.
  • The firm failed to segregate client money as required by the Client Assets Sourcebook (CASS) rules.

• Lack of Compliance Officers:
  • The firm did not appoint the necessary compliance officers to ensure adherence to regulatory obligations.
  • This failure compromised the firm's ability to manage risks and ensure regulatory compliance.

• Provision of Misleading Information:
  • Axis Mundi and LBX provided false and misleading information to the FCA.
  • Despite denying the handling of client money, evidence showed that the firms were indeed managing client funds improperly.

• Imposed Restrictions by the FCA:
  • The FCA imposed immediate restrictions on the operations of Axis Mundi.
  • The firm was prohibited from accepting deposits and dealing with client funds without FCA consent.

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• This FCA investigation was taking place at the same time as multiple complaints were being submitted to the Financial Ombudsman Service (FOS) regarding Axis Mundi and LBX.

• Despite the ongoing investigation and the substantial evidence of misconduct, the FOS failed to take appropriate action on these complaints, further demonstrating systemic issues within the financial regulatory framework.

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• Misrepresentation and False Information
  • False ISINs and Bond Documentation: Axis Mundi was found to have issued documents for the 3 Oxville mini-bonds that falsely claimed unique ISINs (International Securities Identification Numbers) which did not exist. This misleading information suggested that the bonds were tradeable on exchanges when they were not.
  • Non-existent Authorizations: The firm referenced non-existent Financial Services Register Numbers (FRNs) and unauthorized entities in its promotional materials.

• Client Money and Asset Management
  • Unreported Client Investments: The FCA identified significant amounts of customer investments that were not reported to the Authority, posing a substantial risk to investors. The NatWest account statements indicated sums totaling £301,500 that were unaccounted for in regulatory returns.

• Unauthorized Custodial Activities: Despite the firm's claims of not holding client assets, the FCA found evidence of custodial activities, including numerous payments to investors from a Starling GBP account. These payments were documented as coupon or interest payments, indicating the firm was acting as a custodian without proper authorisation.

• Regulatory Non-compliance
  • Breach of CASS Rules: Axis Mundi was found to have likely breached the Client Assets Sourcebook (CASS) rules, particularly concerning the handling of client money and custody assets. The firm failed to maintain proper client money accounts and provide necessary documentation to the FCA's CASS Supervision team .
  • Misleading Regulatory Status: Throughout the investigation, the firm consistently denied conducting regulated activities despite evidence to the contrary. This misrepresentation extended to the firm's regulatory returns, which falsely reported zero revenues and client assets.

• Failure to Address Regulatory Concerns
  • Unfulfilled SMF Roles: The firm repeatedly failed to appoint and maintain Senior Management Function (SMF) roles as required by the FCA. Applications for these positions were either withdrawn or left unaddressed, contributing to a lack of proper oversight and governance within the firm .
  • Refusal to Voluntarily Restrict Activities: When invited to voluntarily restrict its activities due to regulatory concerns, the firm declined to comply. This refusal further exacerbated the potential risks to investors and highlighted the firm's non-cooperative stance with regulatory authorities.

• Promotion of High-Risk Products
  • Unregulated Mini-bonds: The promotion of mini-bonds by Axis Mundi through unregulated entities like Oxville Analytics raised significant red flags. The high returns promised by these bonds (ranging from 7% to 13.5%) were indicative of potentially fraudulent schemes .
  • Involvement in High-risk Cryptocurrency Products: The firm's association with high-risk cryptocurrency products and unregulated promotional activities was a major concern for the FCA, leading to further scrutiny of its operations.

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Despite the significant and ongoing investigation by the FCA into Axis Mundi, the FOS failed to act on multiple complaints regarding the same firm. The FCA's findings, which included clear evidence of misrepresentation, regulatory breaches, and unauthorised custodial activities, were contemporaneous with numerous complaints submitted to the FOS. This indicates a serious lapse in the FOS's duty to protect consumers and uphold regulatory standards.

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• Ignoring Substantial Evidence: The FOS dismissed complaints and evidence provided by victims, including detailed documentation of fraud and misconduct by Axis Mundi. This inaction allowed the firm to continue its fraudulent activities unchallenged.

• Lack of Proper Verification: The FOS relied heavily on information provided by the financial firms involved, often without proper verification. This blind trust in the firms' statements led to unjust dismissals of legitimate complaints.

• Failure to Report Suspicious Activities: The FOS did not report suspicions of money laundering and fraud to the appropriate authorities, as required by law. This omission further compromised the integrity of the financial system.

• Inadequate Complaint Handling: The FOS's handling of complaints was marked by superficial responses and a failure to address the core issues. Victims were left without recourse and faced significant financial and emotional distress.

• Systemic Inaction: The FOS's systemic failure to act on clear evidence of fraud, coupled with the FCA's ongoing investigation, highlights a broken regulatory framework that fails to protect consumers effectively.

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The evidence collectively paints a picture of a sophisticated and coordinated fraud involving multiple entities and key individuals like Phil Milo and Benjamin Dives. The following points summarise the overarching scam and its implications:

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• The evidence reveals that Phil Milo and Benjamin Dives actively manipulated documents, financial records, and regulatory submissions to mislead regulators, auditors, and clients. This manipulation was aimed at covering up the true nature of their operations and the misuse of client funds.

• The fraudulent activities included the backdating of documents, falsifying ISINs and bond documentation, and providing false information to regulatory bodies such as the FCA.

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• Despite claims to the contrary, Axis Mundi and associated entities were found to be handling client money improperly. This included passing client funds through undesignated accounts and using these funds for personal and business expenses.

• The failure to segregate client money and maintain proper records violated CASS rules and posed significant risks to investors.

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• The evidence indicates a systematic approach to fraud, involving the creation and sale of fake bonds, mismanagement of client assets, and deliberate evasion of regulatory scrutiny.

• Financial transactions between related entities like Moon Systems and Oxfield Management Ltd further highlight the interconnected nature of the fraud and the collaborative effort to deceive investors and regulators.

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• The close relationship between Milo and Dives, as evidenced by their communications and joint activities, underscores the concerted effort to manage and manipulate company policies and procedures.

• This relationship extended to influencing auditors and regulatory inquiries, with Dives and Milo working together to present false narratives and evade accountability.

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• The fraudulent activities had a severe impact on victims, who were misled, defrauded, and left without recourse. The casual dismissal of their exploitation, as seen in the conversations between Dives and Milo, highlights the need for stronger consumer protection measures.

• The systemic failures within regulatory bodies, including the FCA and FOS, allowed these fraudulent activities to persist. There is a clear need for comprehensive reforms to ensure that regulatory frameworks effectively protect consumers and hold perpetrators accountable.

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• By presenting this detailed report, it becomes clear that the systemic failures and deliberate fraudulent activities orchestrated by Phil Milo and Benjamin Dives have far-reaching implications. Their roles in manipulating financial records, misleading regulatory authorities, and exploiting vulnerable individuals highlight the urgent need for comprehensive investigations and regulatory reforms to protect consumers and ensure the integrity of the financial system.

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