FCA wins landbanking case, but investors still likely to lose out
Asset Land’s appeal rejected by supreme court but City regulator says investors likely only to get fraction of money back. ITRA Europe and ITRA Singapore are looking into this closly to see if they can help.
The City regulator has won its case against those behind a land investment scam first highlighted by the Guardian in 2009. It is, however, a bittersweet victory for the investors who sunk money into the scheme because they might only get back a tiny fraction of the cash they handed over.
The case in the supreme court involved a company called Asset Land, which persuaded investors to buy plots of land at “hugely inflated” prices, according to the Financial Conduct Authority.
So-called landbanking companies typically buy agricultural or other land without residential planning permission, divide it into small parcels and sell them to investors. Buyers are led to expect that their slice of farmland will get the go-ahead for housing development, which would see it soar in value.
Landbanking: the plots thicken
The firms often employ hard-sell tactics and many of those targeted are older people with a lump sum or an inheritance to invest.
Asset Land sold plots for between £7,500 and £24,000 “with the promise that [they] would increase in value if the land got planning permission or was re-zoned,” the FCA said.
The FCA’s predecessor, the Financial Services Authority, won its case against Asset Land in the high court February 2013 when it found that David Banner-Eve, Stuart Cohen, Asset Land Investments plc and Asset L.I. Inc ran an illegal landbank by operating a collective investment scheme (CIS) without authorisation. Asset Land and Banner-Eve appealed.
In a judgment issued on 20 April, the supreme court confirmed Asset Land had been running an unauthorised CIS and had been operating a landbank which involved the sale of small plots of land at hugely inflated prices.
The Guardian first highlighted Asset Land in an article published in November 2009 which “urged caution” and warned that “no landbanker has ever delivered the expected profit bonanza that comes with planning permission”.
In 2013 the high court ordered David Banner–Eve, Stuart Cohen, Asset Land Investments plc and Asset L.I. Inc to hand over £21m as part-repayment for investors. The latest verdict opens the way for this payment order to be enforced, but the FCA said: “We consider it unlikely that Asset Land and others will have the funds to pay the £21m.”
Mark Steward, the FCA’s director of enforcement and market oversight, said: “While this is an important victory from a legal point of view, we are acutely aware from experience that the risk to investors who deal with unauthorised firms is that most, if not all, investors are likely only to get a fraction of their money back.
“Consumers should therefore recognise that there are huge risks involved when investing with unauthorised businesses.”