Collective Investment Schemes | Land Banking Fraud | Kangs Financial Fraud Team
A collective investment scheme (CIS), sometimes known as a ‘pooled investment’, involves the collection of money from various investors which is then accumulated into one fund for a particular investment with the intent that the participants share the profits, or income, deriving from the investment.
Invariably, complete control of those funds passes to the company which receives the funds, thereby enabling it to invest as it wishes.
There are many types of CIS and this article focuses upon land transactions.
Role of the Financial Conduct Agency (FCA) | Kangs National Fraud Advisory Team
The FCA does not regulate land investments, or the sale of land, as land is not a specified asset and does not fall within its remit.
However, the FCA does regulate any investment in land in the form of a CIS and any company or business dealing with land as a CIS, must be authorised by the FCA to operate or promote that scheme in the UK.
Failure to obtain authorization to operate a CIS amounts to a criminal offence.
Statutory Definition | Kangs Serious Fraud Solicitors
A CIS is defined by section 235 of the Financial Services and Markets Act 2000 as containing the following characteristics:
- The operation requires a collection of persons involved in the arrangements, the purpose or effect of which is that they jointly participate in or receive profit
- Those individual investors do not have day to day control over the management, whether or not they have the right to be consulted or to give directions
- The operator of the CIS is responsible for managing the scheme as a whole
Asset Land Investment Plc v The FCA | Kangs Land Fraud Advisory team
The FCA became aware that Asset Land (‘AL’) was involved in the sale of land as an investment and was representing itself as ‘responsible for seeking re-zoning for residential development and for arranging a sale to a developer’.
Following an investigation by the FCA, which objected to the basis of the operation, AL amended the scheme so that instead of dividing the site in to small plots in a grid like fashion, the land was divided into individual parcels, each of which was large enough to contain a single dwelling, with provision for appropriate road access.
AL maintained that by giving each investors their own plot of land potentially capable of being granted planning permission, the operation could not be classified as a CIS, as each investor had control over their individual plot.
The FCA obtained a Freezing Order against AL and also, subsequently, a court Judgment to the effect that a CIS was being operated unlawfully.
AL successfully appealed this decision in the Court of Appeal by maintaining that the investor had the final decision how, as the legal owner, to dispose of their plot.
In due course the Supreme Court overturned the decision of the Court of Appeal finding that individual plot sales were not really intended, were not likely to happen and that the ‘property’ constituted the entire site operated by AL.
How Can We Help? | Kangs Regulatory and Financial Fraud Team
The FCA has the power to compel the attendance of individuals for formal interviews in relation to all manner of financial fraud and can initiate co-ordinated action with other law enforcement agencies such as the City of London Police, Serious Fraud Office, Trading Standards or the Department for Business, Energy & Industrial Strategy.
Kangs provides an expert team of solicitors experienced in FCA and financial investigations of every nature from the outset through to trial.
If you need help in relation to any FCA investigation or prosecution, please do not hesitate to contact our team through any of the following: