FSA to seek order over land bank schemes

The Financial Services Authority has said it will seek a court order to force the owners of two land investment companies to return at least £15m to savers who paid money into their unauthorised schemes.

On Monday, the regulator announced that it would try to recoup the money for investors, after the High Court declared that David Banner-Eve, Stuart Cohen, Asset Land Investments Plc and Asset L.I. Inc. had run an illegal “land bank”, by operating a collective investment scheme without FSA authorisation.

However, the FSA described its legal victory as “bittersweet”, conceding that “most, if not all, investors will only get a fraction of their money back.”

It said it was aware of around 1,200 investors who had paid between £5,000 and £25,000 for a plot of land – having been told by the companies that they would make a profit within two to three years, when the land obtained planning permission and was sold.

Investors were also told by sales staff that the land could be “rezoned” to assist with obtaining planning permission, and that property developers had been lined up to purchase the sites.

According to the judgment, the defendants sold plots of land across the UK through their companies, giving investors “extravagant expectations about the profit that they were likely to make from a short-term investment”.

The Honourable Mr Justice Andrew Smith found that, in giving evidence at the trial, Mr Banner-Eve had been “a dishonest witness“ and that he knew about the claims his sales brokers were making to investors. “He was evasive in his answers and often claimed to know nothing, or to remember nothing, about documents and other matters of which he must, in my judgment, have been aware and recalled,” the judge said.

Mr Cohen did not attend the proceedings.

One of 15 witnesses that the FSA called on was Eric Broadwith, who arranged to buy seven plots of land in Harrogate for £111,189, having first been contacted in February 2009 by a representative of “Asset Land”. Another was Jonathan Atherton, who was first contacted in July 2009, and agreed to invest £35,288, “after six or seven conversations”.

The FSA does not regulate the sale of land, but land banking can amount to collective investment – which does require FSA authorisation. The judge ruled that the Asset Land companies were operating collective schemes without authorisation, allowing the FSA to act.

The regulator said it would seek an order to bar Mr Banner-Eve and Mr Cohen for life from selling interests in land banking schemes for business purposes in the UK, and that Trading Standards was conducting a criminal investigation into the matter.

Last June, the FSA obtained injunctions against Mr Banner-Eve and Mr Cohen and each of the Asset Land companies, froze their assets, and prevented them from selling more land to investors. The assets will remain frozen until the High Court decides the final amount to be paid to the regulator. But the regulator said it had “not yet identified any assets that would enable more than a small proportion” of repayments to be made to the firm’s investors.