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City Watchdog Secures £2.2m for Victims of Land Fraud

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08th June 2017

City Watchdog Secures £2.2m for Victims of Land Fraud

Land fraud compensation

The Financial Conduct Authority (FCA) has secured confiscation orders against eight men convicted of fraud who took over £5m from more than 100 investors through an unauthorised investment scheme focused on agricultural land that had been described by a high court judge as a “very substantial and deliberate fraud on the public.” The victims of the scam will receive almost £2.2m in compensation - about 40% of the money they lost.

A final two confiscation orders were made by the Central Criminal Court in May and followed similar orders against the other six individuals earlier in 2017.

His Honour Judge Leonard QC directed that all sums confiscated from the defendants be paid in compensation to their victims.

Victims of the scam were cold-called and sold agricultural land that had either been bought “for minimal amounts” or was not owned by the sellers on the false promise of a substantial profit in a fraud that ran between July 2008 and November 2011. The FCA’s Operation Cotton to defeat the fraud was one of the largest investigations ever undertaken by the regulator.

The eight defendants were convicted of a number of offences including the breach of a general prohibition by conducting investment business without the authorisation of the regulator, aiding and abetting a breach of the general prohibition, conspiracy to defraud, possession of criminal property, and providing false and misleading information.

“More than £5m was extracted from investors to buy land at a vastly inflated price on the false promise of a substantial profit, which never materialised,” the watchdog said.

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Watchdog pledges action to strip illegal gains from fraudsters

Mark Steward, the FCA’s executive director of enforcement and market oversight, said: “The FCA will continue to pursue those engaged in financial crime, including advisers and other professionals who facilitate misconduct or who launder its proceeds . . . We will also take action, wherever possible, to address the harm caused by misconduct, including taking action to strip illegal gains from defendants for the benefit of those who have suffered loss as a result.”

There have been other instances of millions being lost by investors in unregulated schemes. In 2012, investors lost more than £100m after the collapse of several Connaught Income Funds - part of an unregulated collective investment scheme offering returns in excess of 10% by using savers' cash to provide short-term bridging loans to property developers.

The scheme initially worked as planned but in January 2011 a regulated lender called Tiuta which managed the investment scheme became financially unstable amid allegations that it could not afford to repay investors' money back to Connaught.

Such unregulated investment strategies are outside the aegis of Financial Services Compensation Scheme (FSCS). This means that if an investor is scammed, the only possibility of recourse is through the courts - which may be a time-consuming and expensive process.

Investigation into the collapse of the Connaught Income Funds is ongoing.  Although the fund was unregulated in the Connaught case, the FCA has said investors can seek compensation of up to £50,000 through the FSCS as the companies that operated the fund were authorised by the city watchdog.

Investor education is necessary to ensure safety

Operation Cotton is significant in that it has demonstrated that the FCA can successfully pursue fraudulent unlicensed business through the criminal courts, secure compensation for victims and provide a clear deterrent. But the case also underscores a need for more investor education to hopefully ensure the identification and avoidance of such scams.

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Sandeep Bal

(Photo attribution Stephen Craven.)

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