Partner Maria Theodoulou discusses the Serious Fraud Office’s (SFO) charging of Andrew Skeene and the positive impact authorities working together has on ensuring investigations take place.

 

Maria’s article was published in Law360, 16 August 2019, and Fraud Intelligence, 2 October 2019, and can be found here and here respectively.

The founder and former director of Global Forestry Investments, Andrew Skeene, was arrested at Heathrow Airport on June 29, 2019. On July 9, 2019, the Serious Fraud Office announced that he had been charged with three offences of conspiracy to defraud, four offences of forgery and one offence of misconduct in the course of winding up. Having first appeared at Westminster Magistrates Court, Skeene will next appear for a plea and trial preparation hearing at Southwark Crown Court.

Skeene’s charge comes as the result of a five-year investigation into the Global Forestry Investments scheme. In a short statement, the SFO said that “The charges relate to alleged frauds concerning Global Forestry Investments between August 2010 and December 2015.” As the investigation is still ongoing, the prosecuting authority declined to make further comment.

GFI was promoted as a safe, ethical investment in Brazilian teak plantations where investors were offered the opportunity to purchase plots of land and harvest steady profits. However, this proved not to be the case. Skeene’s own Twitter account described GFI as a company with a “Solid sense of corporate responsibility and green values.” The account has not been active since investigations into the company made it clear that the scheme was far from consistent with any such values.

GFI was initially investigated by the Insolvency Service following the compulsory liquidation of the company. During the course of that investigation, the Insolvency Service found that the directors Andrew Skeene and Junie Bowers had caused or allowed the company to operate with a lack of commercial probity.

The U.K. Department for Business, Energy and Industrial Strategy’s Criminal Enforcement Team transferred into the Insolvency Service in January 2017 and is the lead criminal enforcement agency for insolvency-related fraud and associated corporate misconduct. The enforcement team’s function is defined as:
Working to deter fraud in companies and by bankrupts by prosecuting breaches of Insolvency and Company law referred to them by other teams within the Insolvency Service, by Companies House or other agencies…

Where a matter involves serious or complex fraud, the appropriate prosecuting authority will usually be the Serious Fraud Office. The prosecuting authority may investigate any suspected offence which appears on reasonable grounds to involve serious or complex fraud and may also conduct, or take over the conduct of, the prosecution of any such offence.

In January 2018, both Skeene and Bowers gave undertakings to the secretary of state for business, energy and industrial strategy that prevented them from controlling or managing a limited company without leave of the court. Disqualification undertakings are the administrative equivalent of a disqualification order, but do not involve court proceedings. At that stage Anthony Hannon, official receiver for the Insolvency Service, commented:
Directors who receive investment monies and misapply them for purposes not to the benefit of the company can expect to face the consequences of a lengthy period of disqualification.

GFI was one of two schemes run by the former directors promoting two teak investment schemes in Brazil. The Insolvency Service found GFI received £20,146,631 from the sale of plots in the Belem Sky Project and £3,863,185 from plots sold in the Para Sky Project. In respect of Belem Sky, investors were offered the chance to invest a minimum of £5,000 in the teak plantation for promised returns of “10-20%” per annum. While investors who contributed to the £24 million plus pot in fact saw little or no returns, over £13 million arising from the sale of the plots went into the bank accounts of Bowers and Skeene.

Skeene and Bowers claimed that the deposits were paid into those accounts to “ensure that running and operational costs of GFI could be paid while the company had no bank account.” However, investigators found that £8,820,311 of the money was used to pay creditors of a Dubai-based company controlled by Bowers and Skeene, which was wound up by the High Court in October 2014.

Many of those caught up in the allegedly fraudulent scheme were pensioners who were persuaded to invert in “ethical” tree plantations. The GFI brochure that is still accessible online states:

“Given the recent volatility in global stock markets, investors are looking towards commodities for security. Tropical forestry offers the ideal diversification from real estate and equity portfolios, providing a non-volatile market with high long-term returns on investment and a low risk-to return ratio.”

In particular the brochure offers private investors “the opportunity to get involved in one of the best performing commodities of the last decade” setting out the specific option to “invest via your pension.” In respect of compliance, it is said that:

“GFI complies with the laws relating to UK personal pensions, so the investment may be placed in a SIPP (Self Invested Personal Pension) or a SSAS (Small Self-Administered Scheme). GFI also complies with the laws relating to Irish Self-Managed Pensions. The arrangements for ownership overcome the legal and practical problems relating to the holding of overseas property in a pension.”

The Financial Conduct Authority has warned investors about overseas schemes billed as “ethical” or “alternative.” According to the regulatory body, they have received many reports about tree and crop plots abroad, and other ethical and alternative investment opportunities being offered to investors without the protection of U.K. complaints procedures or compensation schemes if things go wrong.

In order to secure a higher income on retirement, it is common for pension funds to be transferred into a self-invested personal pension. The SIPP facilitates subsequent investment with a view to generating more lucrative returns for the investor. While the FCA regulates the sale of mainstream investments such as stocks, shares and funds, there are a large number of unregulated investments being marketed with promises of tempting returns.

Many of those investments turn out to be unregulated collective investment schemes that, importantly, are not regulated by the FCA. While investors may be under the impression that their pension funds are safely stored in an FCA-regulated SIPP, their retirement funds are actually invested into these high-risk, unregulated schemes.

In some instances, the risks are made clear to the investor but in others, the investment is simply mis-sold. In such instances, investors have been wrongly advised and sold a financial product that was not suitable for them. This was largely the case for GFI customers who believed that their investments were SIPP compatible, when in fact they were not.

Although schemes such as GFI are typically not authorised or recognised by the FCA, persons carrying on regulated activities in the U.K. in relation to UCIS for example, will be subject to regulation.

The GFI brochure referred to above included the following footnote:

*Please seek professional advice from your Financial Adviser about investing in Global Forestry Investments opportunities via a SIPP. Global Forestry Investments is not an IFA and therefore is not authorised to give out financial advice.

It goes on to state that an independent financial adviser is generally needed to help complete the very complex SIPP application forms, as well as advice on transfers. If individuals wish to invest in GFI through a SIPP but do not have a suitable IFA, they are advised to contact GFI’s in house IFA. It acknowledges that many SIPP providers are not willing to hold property investments but confirms that the in house IFA have arrangements with major SIPP providers who are willing to hold GFI and can put investors and their IFAs in touch.

In the case of GFI, investors were advised by investment firms such as Emerald Knight, a company who promoted “ethical investments.” Understandably, when investing in specialist areas, people rely on the advice of professionals to ensure their money is invested sensibly. GFI investments were promoted mainly to pension savers via a SIPP as a safe and secure investment. If those investors sought the advice of an IFA, then not only might they be entitled to compensation for a mis-sold pension, but the IFA might also be liable for a hefty fine.

While schemes like GFI are often not FCA-regulated, IFA and SIPP pension companies are. In instances such as GFI, where regulated services have been provided, those giving the advice may be found to have breached regulations by not complying with their duty of care to warn potential customers of the high risk involved with this type of investment.

The FCA has historically issued guidance for SIPP operators with examples of good practice and it is this guidance that should sensibly be adhered to. Considerable care must be taken when recommending products as it is being made increasingly clear that when things go wrong, that advice will be carefully scrutinised. The FCA will impose regulatory penalties where necessary, but regard should also be had to the fact that the authority also has powers to prosecute a range of criminal offences, with the general policy being to pursue through the criminal justice system all cases where criminal prosecution is appropriate. Where a matter involves serious or complex fraud the appropriate prosecuting authority will usually be the SFO.

The closing line in the glossy brochure states: “GFI hope that we can make a difference with one human being at a time.” For the investors who lost their pensions in the allegedly fraudulent scheme, the difference to their lives is a profoundly negative one.

There can be no doubt that promoting and selling a financial product that result in someone losing their entire pension fund is at the very least unethical. The way in which the GFI case has progressed from the involvement of the Insolvency Service through to the recent charges by the SFO, perhaps offers some minor solace by demonstrating the way in which the authorities will work together to ensure that thorough investigations take place where serious losses have been incurred. Aside from regulatory penalties that may be incurred by those responsible, it is clear that criminal prosecutions will also take place in appropriate cases.

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