Partner Maria Theodoulou discusses the risk of investing in ethical or alternative investment schemes: SFO charges Andrew Skeene, in Thomson Reuters Regulatory Intelligence.
Maria’s article was published in Thomson Reuters Regulatory Intelligence, 30 July 2019, and can be found here.
On 9th July 2019, the Serious Fraud Office (SFO) announced that it had charged Andrew Skeene with three offences of conspiracy to defraud, four offences of forgery and one offence of misconduct in the course of winding up.
Mr Skeene’s charge is a significant point for the SFO following the five year investigation into the Global Forestry Investments (GFI) 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 comment further at this time. The contempt of court act 1981 applies.
The Twitter account of Mr Skeene 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 shed light on practices that cannot be described as responsible or as having any such values. 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.
GFI was initially investigated by the Insolvency Service following the compulsory liquidation of GFI. During the course of that investigation the Insolvency Service found that the directors had caused or allowed the company to operate with a lack of commercial probity. Over £13 million arising from the sale of plots marketed as ‘ethical’ tree plantations in the Brazilian rainforests, was paid into their bank accounts.
The Department for Business, Energy and Industrial Strategy 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 SFO. 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. The SFO announced its criminal investigation into the alleged fraud concerning GFI and Global Forex Investments on 25th February 2015.
In January 2018, both Skeene and Junie 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. Schemes that are said to have lost investors over £20 million. 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 £5000 in the teak plantation for promised returns of “10-20%” per annum. Whilst 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 Junie Bowers and Andrew Skeene.
The directors tried to explain away those deposits by claiming that monies were paid into those accounts to ‘ensure that running and operational costs of GFI could be paid whilst 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.
GFI was not regulated by the Financial Conduct Authority who has since 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 UK 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 (SIPP). The SIPP facilitates subsequent investment with a view to generating more lucrative returns for the investor. Whilst 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 (UCIS) that, importantly, are not regulated by the FCA. Whilst 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 miss-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 UK in relation to UCIS for example, will be subject to regulation. 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. GIF investments were promoted mainly to pension savers via a SIPP as a safe and secure investment. If those investors sought the advice of an Independent Financial Advisor (IFA) then not only might they be entitled to compensation for a miss-sold pension but the IFA might also be liable for a hefty fine. Whilst 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 way in which the GFI case has progressed, from the involvement of the Insolvency Service through to the recent charges by the SFO, is a positive indication of the way in which the various 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 investigations and, in some instances prosecutions, will take place in appropriate cases.