Land-banking is the process of taking a large piece of land and dividing it into smaller plots to sell off to investors. Promises are made that planning permission on the land will change and cause the price of the land to vastly increase. This process is known for scams and seedy selling tactics by providers. Asset Land L.I is the newest offender to be caught by the Financial Conduct Authority (FCA). The FCA felt that Asset Land L.I was operating illegally as a CIS.

Background

In February 2013, the High Court ruled that Asset Land L.I were running a Collective Investment Scheme (CIS) without the authorisation of the FCA. Investment schemes will be classified as a CIS if participants in the scheme do not exercise day-to-day control over the management of the investment property and one or both of the following criteria is satisfied: i. the contributions to and profits or income from the investment scheme are pooled together by the scheme operator; or ii. the investment property ‘as a whole’ is managed by the scheme operator. Asset Land L.I was accused of using loopholes to avoid falling under a CIS structure and dishonest in how they sold the land to investors.

The Court found that it was operating as a CIS without the authorisation of the FCA. David Banner and Stuart Cohen of Asset Land L.I were ordered to refund investors. There were about 1,200 investors with investments ranging from £5,000 to £25,000, totalling about £20.9 million. At the time, no land sold to investors had planning permission granted. David Banner of Asset Land L.I appealed, saying that the interpretation of a CIS by the judge was wrong.

Ruling

In the Court of Appeal this month, the original judgement has been upheld. The requirement to refund its investors is sustained as well, although full repayment to investors is unlikely. This ruling sets an important precedent for future companies selling land-banking and other investment schemes under a CIS structure without authorisation.

Tracey McDermott, the FCA director of enforcement and financial crime said “This is a clear warning to any firm selling dubious investments and I reiterate it today; we will come after you, we will shut you down, and we will do whatever we can to ensure money you have taken, no matter how much – or little – is left, is used to reimburse your victims.”

The FCA is making itself clear that strategies by product providers to get around CIS authorisation will not be tolerated. The FCA looks at what the scheme involves, not how it is sold to investors. It is encouraging investors to be weary of offers that seem too good to be true.