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6 prohibitions for those involved in Unregulated Collective Investment Scheme.
Enforcement Watch

Enforcement WatchIssue 21 | January 2017

Date
01 November 2016

The FCA has published Final Notices banning six individuals involved in an unregulated collective scheme.


6 prohibitions for those involved in Unregulated Collective Investment Scheme.

The FCA has published Final Notices banning six individuals involved in an unregulated collective scheme.  The Scheme was the subject of the FCA's 'Operation Cotton' that resulted in criminal convictions and custodial sentences in 2015.  The Scheme operated through three companies: Plott Investments Ltd (also called Plott UK Ltd), European Property Investments (UK) Ltd and Stirling Alexander.  The 6 Final Notices relate to: Scott Crawley, David Forsyth, Adam Hawkins, Ross Tony Peters, Aaron Lee Petrou and Dale Robert Walker. 

As a reminder, in 2015, the FCA reported substantial success in relation to an unregulated collective investment scheme that had over a three year period (July 2008 to November 2011) taken in around £4.3m from around 100 investors.  The FCA noted that its 'Operation Cotton' had involved the FCA using its civil powers and then (when the business started operating through a separate entity) its criminal powers.  In 2015, the FCA reported that eight individuals were convicted at Southwark Crown Court for various offences relating to the Scheme and its discovery.  These included breaches of the general prohibition (ss. 19 and 23(1) of FSMA), conspiracy to defraud, possession of criminal property, breach of a restraint order and providing false and misleading information to the regulator.  Five of the individuals received individual sentences of up to 5 and a half years in duration.  

The Scheme involved high pressure cold-calling sales techniques to induce investments in agricultural land that was either massively over-valued or which was not even owned (so-called "Land Banking").  None of the investors received any return on their investments.  In sentencing in 2015, Judge Leonard QC described the Scheme as "as a substantial and deliberate fraud on the public" noting that it was a "subtle and criminal fraud because it involved the concept of owning land, a commodity that the public are bound to think has value and on which they cannot lose and on which they can easily be persuaded that they can make substantial profits".

The content of the Final Notices rests upon the findings of the criminal trials in 2015.  The FCA notes that in determining fitness and propriety, a conviction for a criminal offence will not automatically mean that an individual is not "fit and proper" (FIT 2.1.1.G).  However, the FCA also notes that particular consideration is to be given to offences involving dishonesty, fraud, financial crime or offences under legislation relating to financial services (FIT2.1.3(1)G).  On that basis the Final Notices arrive at their conclusions with little difficulty. 

Comment

Whilst these Final Notices are clearly the right outcome in the circumstances, 'Operation Cotton' has not been plain sailing for the FCA.  Following legal aid cuts in 2013, Judge Leonard QC had halted the trial because some of the accused could not afford representation and he took the view that the state (in the guise of the regulator) should not benefit from its own failure to provide representation.  In an appeal that was thought to have major implications not just for 'Operation Cotton' but other on-going criminal proceedings (such as the insider dealing case 'Operation Tabernula' and certain cases relating to LIBOR), the FCA succeeded in having the Judge's decision overturned by the Court of Appeal allowing the trials to continue.  Press reports in 2015 noted that the FCA had at that point already spent around £2.5m on 'Operation Cotton'.