High Court made Restitution Orders in an FCA action against unregulated collective investment schemes
- Posted by Michael McKee
- On 11 April 18
- CIS, FCA, Financial Regulation, FSMA, High Court, Restitution Order
On 25 March 2018, the High Court ordered Capital Alternatives Ltd and 13 other connected defendants to pay a total of £16.9 million in restitution for their respective roles in unlawfully establishing, arranging, operating and promoting to the public by false, misleading and deceptive statements four unregulated collective investment schemes (CISs), in breach of various sections of the Financial Services and Markets Act 2000 (FSMA).
The CISs in question related to investments in rice farm harvests in Sierra Leone and carbon credits generated from land in Sierra Leone, Brazil and Australia. A total of £16.9 million was invested in these schemes by approximately 2,021 investors. All the investors had lost capital.
In this hearing, the issues before the court included the following:
- Whether the defendants knowingly or recklessly made false, misleading or deceptive statements, promises or forecasts or had been knowingly concerned in the making of such statements, contrary to section 397 of FSMA;
- To what extent each of the defendants promoted the schemes (contrary to section 21 of FSMA) and/or established, arranged or operated the schemes within the meaning of within articles 25 and 51ZE of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544);
- To what extent the defendants were knowingly concerned in contraventions of FSMA by others, contrary to section 382 of FSMA; and
- What is the appropriate relief, if any, in this case.
The High Court held that CISs in question were unlawfully promoted to the public and that the defendants who were not directly involved in primary breaches of FSMA, were knowingly concerned in the primary contraventions of FSMA by others. As a result, the defendants were ordered by the court to pay a combined total of £16.9 million in restitution. The FCA, on 29 March 2018, noted on its website that it “obtained new undertakings from, or injunctions against some of the Defendants to ensure that they do not dissipate or diminish assets”. The FCA also reminded consumers that CISs can be a risky investment and should be operated and promoted only by authorised firms and individuals.