FCA wins landmark land banking case

FCA wins landmark land banking case

In a judgement issued today the Supreme Court confirmed that Asset Land had been operating an unauthorised collective investment scheme in the course of operating a land bank.

The scheme involved the selling of small plots of land to investors at hugely inflated prices.

The Supreme Court found that, 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 and Asset Land was the central operator of the scheme.

Mark Steward, director of enforcement and market oversight at the Financial Conduct Authority, said: “This 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.

“Consumers should therefore recognise that there are huge risks involved when investing with unauthorised businesses.”

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

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

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 UCIS.

Operators of such schemes will not be able to benefit by providing purely illusory rights to investors.

Operators need to ensure that investors have genuine control over their investments to avoid being found to have operated a UCIS.

The High Court made an order in March 2013 against David Banner–Eve, Stuart 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.

Today’s decision opens the way for the interim payment order to be enforced, although the regulator said it considered it unlikely that Asset Land and others will have the funds to pay the £21m ordered by the High Court.