A five-year court battle between the Financial Conduct Authority ("FCA") and Capital Alternatives Limited concluded on 26 March 2018 when the High Court used its restitution powers under the Financial Services and Markets Act 2000 to award compensation to investors who lost money invested with Capital Alternatives.
From 2009 to 2013 Capital Alternatives offered investments to the public in rice farm harvests in Sierra Leone and carbon credits to be generated from land in Sierra Leone, Brazil and Australia. Consumers invested a total of £16.9m in these projects and lost all of their capital. The investment schemes were not authorised by the FCA and, as a result, the FCA brought legal action against Capital Alternatives and the individuals running the schemes in 2013 to seek compensation for the investors.
Customarily when investors lose money on such a wide scale, the FCA would require the firm responsible to establish a consumer redress scheme to compensate their clients. However, in this case, none of the defendants were authorised by the FCA, so it did not have the power to do so and was instead required to seek the court's assistance.
In 2014 the High Court found that Capital Alternatives and connected individuals had been operating unlawful collective investment schemes and that, as well as lacking the FCA's authorisation, the defendants had also made misleading statements for the purpose of inducing consumers to invest and/or remain in the schemes.
On the basis of these findings, the FCA claimed compensation for the investors in the schemes. On 26 March 2018 the court made a restitution order for £16.9m to be paid to the investors as compensation. The order was made in relation to Capital Alternatives and the individuals involved in running the schemes – all of whom are being required to contribute to the £16.9m compensation pot.
This case shows the FCA's unwavering tenacity in pursing those who seek to offer unlawful investments to unsuspecting members of the public. Mark Steward, the Executive Director of the Enforcement division of the FCA noted in the FCA's announcement on the matter that "this judgment should send a clear message to all of those who use corporate facades to sell dubious investments. We will do what it takes to hold them to account for their misconduct." We anticipate the FCA will be keen to build on this success by taking more action of this nature in the future.