By Claire West
The Financial Conduct Authority (FCA) has agreed a settlement of proceedings in the High Court which will enable it to return approximately £380,000 to investors in a land bank.
St Clair Estates Ltd owns a disused airfield in Winkleigh, Devon, which in 2006 was divided into separate plots. The plots were sold to consumers initially by St Clair Estates Ltd and Elizabeth Fischer (a former director of St Clair) and then latterly by OFG Investments Ltd, Option Land UK Ltd, GIG Properties Ltd, Mehmet Husnu and Ali Seytanpir.
The plots were sold with the promise that investors would make a significant profit when the land obtained planning permission and was sold to a developer. The FCA believes that over 70 investors were sold plots of land paying between £6,000 and £12,000 for each individual plot of land. Total sales were £2,209,296.
In agreeing to the settlement, St Clair Estates and Elizabeth Fischer accepted they had run an illegal land bank by operating a collective investment scheme without FCA authorisation. OFG Investments Ltd, Option Land UK Ltd, GIG Properties Ltd, Mehmet Husnu and Ali Seytanpir agreed to pay the full amount of the FCA's claim and to permanent restraining orders which prevent them from, amongst other things, operating any other collective investment scheme or being involved in a similar business selling land.
The FCA commenced civil proceedings against these companies and individuals in December 2011. The FCA obtained a court order freezing the bank accounts of the companies and individuals involved and injunctions preventing them from selling more land to investors.
The settlement will result in payment of approximately £380,000 from frozen bank accounts to the FCA. The FCA will then seek an order from the High Court to pay this sum to investors. The defendants' assets will remain frozen until the terms of the settlement have been complied with.
Had a settlement not been achieved it is likely that the defendants' frozen assets would have been used to meet legal costs, significantly reducing the amount to be returned to investors.
The FCA does not regulate the sale of land, but land banking can amount to collective investment - something that does require FCA authorisation. The companies and individuals named above have never been authorised by the FCA to sell land in this way so their activity was unlawful. Furthermore, as their business activities were unauthorised, victims of the scheme were not covered by the Financial Services Compensation Scheme. Involvement in these types of schemes often represents a major source of loss to investors.
Tracey McDermott, director of enforcement and financial crime at the FCA, said:
"The FCA took action swiftly in this case to stop a harmful scheme which St Clair and Fischer had continued to operate despite repeated warnings. While investors will only get a fraction of their money back, the settlement represents a better outcome than would have been achieved for consumers if the FCA had fought the case all the way to a final hearing. It underlines the FCA's commitment to achieving the best outcome for consumers, but is something of a bittersweet outcome.
"Unauthorised collective investment schemes continue to represent a major source of loss for consumers. Consumers should therefore continue to be acutely aware of the huge risks involved when investing money with unauthorised businesses given that the prospects of getting any money back are always slim."
Anybody investing in land should always have it independently valued to check its worth. Furthermore, if you are sold land as an investment with the promise of significant returns, and on the basis that someone else will manage it for you as part of a wider site, you should check the firm is authorised by the FCA.