FCA warning in win against illegal UCIS

FCA warning in win against illegal UCIS

Those trying to dupe investors into buying dubious investments should hear a “clear warning” in today’s Supreme Court victory for the FCA against a land banking case, the regulattor’s head of enforcement said.

In a judgment issued today, (20 April) it was confirmed Asset Land had been operating an unauthorised collective investment scheme (CIS) in the course of operating a land bank which involved the selling of small plots of land to investors at hugely inflated prices.

The court found although investors were the legal owners of their individual plots of land, in reality the arrangements of the scheme were that investors did not have control over their investment.

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Mark Steward, director of enforcement and market oversight at the Financial Conduct Authority, said the decision should sound a clear warning to those selling dubious investments. “We will do what it takes to shut down firms trying to exploit loopholes and take advantage of consumers.

“However, while this is an important victory from a legal point of view, we are acutely aware from experience, that the risk to investors who deal with unauthorised firms is that most, if not all, investors are likely only to get a fraction of their money back.”

Investors were persuaded by Asset Land to buy individual plots of land for between £7,500 and £24,000 with the promise that the land would increase in value if the land got planning permission or was re-zoned.

The Financial Services Authority previously won a case against Asset Land in the High Court in February 2013, when it found that David Banner-Eve, Start Cohen, Asset Land Investments and Asset L.I. Inc ran an illegal land bank by operating a CIS without authorisation.

Asset Land and Mr Banner-Eve appealed to the Court of Appeal which confirmed in April 2014 that Asset Land was operating a CIS.

The High Court made an order in March 2013 against Mr Banner–Eve, Mr Cohen, Asset Land Investments plc and Asset L.I. Inc to make a payment of £21m as part repayment for investors.

That order has been stayed pending the Supreme Court’s decision, but it opens the way for the interim payment order to be enforced, “although we consider it unlikely that Asset Land and others will have the funds to pay the £21m ordered by the High Court,” the FCA added.

Today’s judgment provides further protection to consumers by confirming that it is necessary to consider the substance of the arrangements put in place by the operator when assessing if they are operating a CIS.

Operators of such schemes will not be able to benefit by providing purely illusory rights to investors, stated the regulator, adding that operators need to ensure that investors have genuine control over their investments to avoid being found to have operated a CIS.

Steven Farrall, partner at Ipswich-based Williams Farrall Woodward Financial Planning, said that speculating on the capital gain in land holdings on the receipt of planning permission is an indictment of the expansion of money and credit permitting the easy financing of land purchase.