FCA wins court case against unregulated investment schemes
The FCA has won a High Court case against two alternative investment schemes being promoted by a number of firms without authorisation.
The FCA had launched legal action last July against the schemes, promoted by Capital Alternatives and several other companies (the full list is available here). The two schemes in question are African Land, which offered investments in rice farm harvests in Sierra Leone and Reforestation Projects (also known as Capital Carbon Credits), which offered investments in carbon credits intended to be generated from land in Sierra Leone, Brazil and Australia.
These investments had been structured in such as way as to try to avoid the need to be regulated by the FCA.
The Court ruled that the two schemes were collective investments being promoted without FCA authorisation, making them illegal under current legislation.
The FCA, which became one of the successors of the Financial Services Authority on 1st April 2013, is cracking down on dodgy investments – and has been pressing for harsh punishments. Earlier this month fraudster Benjamin Wilson was sentenced to seven years imprisonment after defrauding investors of over £21million.
FCA director of enforcement and financial crime Tracey McDermott said: “The FCA has an objective to protect consumers and enhance the integrity of the financial system. The court’s ruling contributes to us achieving both.”
“Collective investment schemes are complicated and investors put their money into the operator’s hands with no real control over what happens to their money.”
“This ruling shows that even if operators have deliberately tried to structure their scheme to avoid regulation, the court will still look at whether those operating the scheme should in fact be regulated for consumer protection.”
Intelligent Partnership director Daniel Kiernan said that ”many providers of property and alternative investments will have been watching this closely. Today’s decision signals that attempts at regulatory arbitrage will not be tolerated and will not be successful.”
“Providers using a collective structure either need to structure as an unregulated collective investment scheme and accept the restrictions, or pay a great deal more to structure as a regulated fund – but regulated structures are only really viable for fund raises of £20m or more.”
The Judge has granted leave to appeal on certain aspects of the judgement so the FCA will have to wait until after the appeal hearing to take any further steps. The court is likely to order the defendants to pay compensation that can be passed onto investors.
The FCA says further information will be provided to affected investors as soon as it becomes available.