FSA wins new battle against land bank companies

The battle against unsavoury land-banking services has continued with two victories in the High Court for the Financial Services Authority.

Land-banking companies, which sell tiny plots of land at vastly inflated prices to investors who have been duped into believing they are buying sites with planning potential, have been in the FSA’s sights for a while.

In one of the latest cases, the High Court made a winding-up order against Plott (UK) and approved the appointment of a liquidator who will now identify, realise and distribute the company’s assets to its creditors.

In the second case, in a separate hearing, the High Court continued a world-wide freezing and restraint order against European Property Investments (UK) Ltd.

The FSA believes that EPI is a ‘phoenix’ of Plott: that is, it took over Plott’s business once the FSA’s action against Plott began.

Between May 2009 and April 2011, Plott collected approximately £3.9m from UK consumers.

Plott had been marketing plots of land as an investment opportunity and operating an unauthorised collective investment scheme (CIS). While the FSA does not regulate land as an investment, it does regulate the operation of CISs.

Plott promised its investors a return of investment of, on average, between 200 and 300%, yet at least one of the sites it was promoting was in a designated area of outstanding natural beauty and therefore highly unlikely ever to receive planning permission.

Many of its customers invested a minimum of £10,000 with the company, but the FSA is aware that many Plott customers invested many tens, and in some cases hundreds, of thousands of pounds with the company. Until the liquidator has completed its investigation into the company’s activities the FSA is unable to confirm whether any funds will be available to give back to Plott’s victims.

EPI owned two sites that Plott was promoting, but appears to have only become active after the FSA had taken action against Plott.

In the short time it was operating, between April 1 and May 25 this year, EPI accumulated around £639,000. Currently the FSA has managed to freeze and secure £180,000. The rest of the money was transferred out of EPI’s account before the freezing order was obtained.

The FSA is pursuing a civil case against EPI for operating an unauthorised CIS, but yesterday’s injunction means that the firm will be breaking the law if it sells land or engages in any activity involving a CIS.

Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said: “This is an important outcome and sends a warning to other unauthorised land banks that the FSA can and will act decisively to shut them down.

“Consumers are much better off not putting their money into these schemes since, by the time we can catch up with the operators, most of the money has disappeared and investors are left with land whose value simply doesn’t reflect the money paid for it.

“In our experience, operators of unauthorised land-banking schemes do not work in isolation, but often work together and their schemes are evolving. We are working hard to stop them.

“Once the dust has settled we hope to be able to repatriate remaining funds to customers of both companies, but it is likely that some people will not get any of their money back.”

In the last 18 months the FSA has secured 11 injunctions against unauthorised businesses: seven for unauthorised land banks and four for unauthorised deposit taking.