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‘Land-Banking’ Scheme Breached Investment Rules

Published: 10 February 2013, in categories: Legal Updates | Commercial Property Updates | News and Updates

‘Land-Banking’ Scheme Breached Investment Rules

A ‘land-banking’ scheme through which members of the public were invited to invest in plots of land in the hope of profiting from their development potential was a ‘collective investment scheme’ within the meaning of section 235 the Financial Services and Markets Act 2000Financial Services and Markets Act 2000 and thus subject to regulation by the Financial Services Authority (FSA), the High Court has ruled.

Two companies, one of them English the other Panamanian, had, through their broking and sales staff and with the knowledge of members of their senior management, invited or induced private investors to participate in the scheme – which operated between 2007 and 2012 – without the required authority and in contravention of sections 19 and 21 of the act.

Members of the public had been persuaded to invest substantial sums in the purchase of sub-divided plots on receiving representations from sales personnel that the companies would endeavour to obtain planning consent in respect of them or otherwise seek to have them ‘re-zoned’ for residential building purposes with a view to selling them on to developers at a profit. The scheme was brought to an end when a worldwide asset freezing order was issued against the companies and members of their management in June 2012.

After hearing evidence from several private investors who lost money through their involvement in the scheme, the court granted to the FSA declarations that both companies had contravened the ban on unauthorised persons operating collective investment schemes and that two members of their senior management had been knowingly concerned in such contraventions. The court granted appropriate injunctive relief and ordered inquiries to be made and accounts to be takn of profits generated by the scheme.

 

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