The regulator continues to be successful in clamping down against the operation and promotion of unauthorised collective investment schemes (CIS).  The High Court has laid down judgment in the FCA’s legal action against Capital Alternatives: the High Court agreed with the FCA and found that the investment schemes at the centre of the legal action constituted collective investment schemes.  When structuring investment schemes, it is important to consider the definition of CIS within the Financial Services and Markets Act 2000 (FSMA) and to ensure that CIS operators are authorised by the FCA.  Those who have structured schemes which push at the boundaries of FSMA should take note of a statement made by Tracey McDermott, the FCA’s director of enforcement and financial crime, in a press release published by the FCA yesterday: “This ruling shows that even if operators have deliberately tried to structure their scheme to avoid regulation, the court will still look at whether those operating the scheme should in fact be regulated for consumer protection”.


In July last year, the FCA took legal action against Capital Alternatives and several other firms and individuals as the FCA believed they were promoting and operating several CIS without authorisation.  Operating a CIS is a regulated activity under FSMA;  a CIS operator is required to be authorised and a failure to do so is a criminal offence under s.19 FSMA.

The legal action against Capital Alternatives focused on two investment schemes:

  • African Land (also known as Agri Capital), which relates to investment in rice farm harvests in Sierra Leone, operated by African Land Limited; and
  • Reforestation Projects (also known as Capital Carbon Credits) which relates to the investment in carbon credits generated from Land in Sierra Leone, Australia and Brazil.

The FCA believed that the schemes, which were operated and promoted by the defendants and which had been deliberately structured to avoid the need for regulation, were collective investment schemes for the purpose of s.235 FSMA.


The High Court agreed with the FCA and has ruled that the schemes constitute collective investment schemes for the purpose of s.235 FSMA.  As the defendants were not authorised to carry on regulated activities under FSMA, they had operated the schemes unlawfully. 

The judge has granted leave to appeal certain aspects of the judgment.  The FCA will await the outcome before taking any further action and will provide investors with further information when it is able to do so.  The undertakings and orders freezing the major assets of the defendants which were put in place in July 2013 remain in place and the Court may order the defendants to pay compensation that can be passed on to investors.

 The FCA has pursued other unauthorised CIS operators and promoters over the past few years.  In June 2013, the FCA reached a settlement with St Clair Estates and other operators in relation to an illegally run land bank which was operating as a CIS. In that case, the FCA initially obtained injunctions and freezing orders of the operators’ assets and subsequently secured a £380,000 pay-out from the operators to be returned to investors.  Unfortunately for the investors, this figure represented less than 20% of the total £2.2 million in sales under the scheme.