Compliance

UK Regulator Triumphant In Land Bank Case

Tom Burroughes, Group Editor, London, 22 April 2016

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The regulator has secured a victory in the Supreme Court that it says sends a warning about "land banks" - a form of investment that has drawn its wrath in recent years.

The UK financial regulator has won a court case that it says sends a clear warning against people operating “land banks”.

The Supreme Court has confirmed that Asset Land was operating an unauthorised collective investment scheme in the course of operating a land bank, which involved the selling of small plots of land to investors at hugely inflated prices, the Financial Conduct Authority said yesterday.

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, the FCA said in a statement.

“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,” said Mark Steward, director of enforcement and market oversight at the FCA.

“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,” he added. 

Describing the case, the FCA said 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 regulator 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 and Asset LI ran an illegal land bank by operating a CIS without authorisation. Asset Land and 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 CIS. 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 CIS,” the FCA said.

The High Court made an order in March 2013 against Banner–Eve, Cohen, Asset Land Investments and Asset LI to make a payment of £21 million as part repayment for investors. That order had been stayed pending the Supreme Court’s decision. Yesterday’s decision opens the way for the interim payment order to be enforced. The FCA said it considered it unlikely that Asset Land and others will have the funds to pay the £21 million ordered by the High Court.

 

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