The FCA accused the firms of “promoting and/or operating collective investment schemes (CISs) in the UK illegally and without our authorisation”.
Judge Nicolas Strauss QC ruled that the schemes were collective investment schemes:
“I declare that all the schemes under consideration are, and have been since their inception, collective investment schemes within the meaning of Financial Services and Markets Act.”
The fact that the investment schemes were not authorised by the FCA means that they were operating illegally.
The FCA took out the case against the companies and individuals in July 2013. The case focussed on two investment schemes:
- African Land (also known as Agri Capital) which offers investments in rice farm harvests in Sierra Leone, and is operated by African Land Limited.
- Reforestation Projects (also known as Capital Carbon Credits) which offers investments in carbon credits generated from land in Sierra Leone, Brazil and Australia. It is operated by Reforestation Projects Limited.
The full list of defendants is as follows:
- Capital Alternatives Limited
- Capital Secretarial Limited
- Capital Organisation Limited
- Capital Administration Services Limited
- MH Trustees Limited
- Marcia Hargous
- Renwick Haddow
- Richard Henstock
- African Land Limited
- Robert McKendrick
- Alan Meadowcroft
- Regency Capital Limited
- Reforestation Projects Limited
- Mark Ayres/Eyres
- Mark Gibbs and
- The estate of David Waygood.
REDD-Monitor wrote about the hair-raising background of some of these companies and individuals in August 2013.
In a statement on FCA’s website, Tracey McDermott, FCA’s director of enforcement and financial crime, said:
“The FCA has an objective to protect consumers and enhance the integrity of the financial system. The Court’s ruling contributes to us achieving both. Collective investment schemes are complicated and investors put their money into the operator’s hands with no real control over what happens to their money. This ruling shows that even if operators have deliberately tried to structure their scheme to avoid regulation, the court will still look at whether those operating the scheme should in fact be regulated for consumer protection.”
Judge Strauss granted permission for African Land and Reforestation Projects’ Australian carbon credit scheme to appeal the decision. However, he rejected appeal pleas from Reforestation Projects’ Sierra Leone and Amazon carbon credit schemes.
In a statement on its website, African Land confirms that it will appeal:
African Land are pursuing an appeal to the Court of Appeal and have today obtained permission to do so. African Land is confident that its appeal will succeed. In the meantime Yoni Farm remains operational. Pending the appeal, African Land have agreed, at the request of the FCA, not to make any returns to investors either from rice harvests or land redemptions.
As journalist Andrew Penman at The Mirror points out, African Land made the bizarre claim that the High Court ruling was a victory:
“The FCA’s case against African Land was, in effect, presented as a fraud case. The underlying implication and tone of the FCA’s case was that the scheme was a sham. The African Land scheme has now been found to be a legitimate business.”
The reality, Penman writes, is that the court heard that the company sold more farmland to investors than it actually owns. “This is not a comfortable situation,” Judge Strauss commented. “Purchasers of some 4,300 acres have so far received no return and most of them still have no land allocated to them.”
Capital Alternatives, which marketed the scheme for African Land, took a 50% cut of the money invested. The money invested would therefore have had to double for investors just to break even. To sell the land, Capital Alternatives was advertising “Projected returns up to 175% in over five years.”
On its website, the FCA explains that the High Court ruling that the defendants were operating the collective investment schemes unlawfully means that the Court could order the defendants to pay compensation that can be passed on to the investors.
First though, investors have to wait for the appeal hearing and any remaining aspects of the case that still need to be ruled on by the Court. The FCA states that,
The FCA has explained to investors in each of the schemes that they do not need to take any action at this stage regarding the FCA’s case. At present, the previous undertakings and injunctions obtained by the FCA in July 2013 remain in place. Further information will be provided to affected investors when it is available.
Judge Strauss will rule on who will pay the FCA’s legal bill of £423,000 at a future hearing.
PHOTO Credit: Capital Alternatives’ stall at the UK Investor Show 2013.
UPDATE – 6 March 2014: Andrew Penman works at The Mirror. Capital Alternatives’ PR firm, City Road Communications, seems to think this is an important piece of information. Here’s more from City Road Communications.