It could be a merry Christmas for some scam victims

The FSA is now stepping up its pursuit of landbankers, a decade after I first started writing about this type of scam.

What’s more likely? Father Christmas actually coming down your chimney (assuming you have one) or landbankers making money for investors rather than themselves?

There’s absolutely no contest. While the jury is still out on whether Santa Claus exists, well-behaved children (and grown-ups) do get presents and other pleasant surprises on 25 December. All those gifts have to come from somewhere. Believing in Father Christmas never did anyone any harm.

Landbankers buy a field from a farmer at around £8,000 to £10,000 an acre. They slice each acre into 10, convince investors that the field will get planning permission for housing and then sell each one-tenth acre for £10,000 to £15,000.  They assure the investors that they can multiply their investment ten times.

How do they tell people to part with that sort of money, always over the phone and generally without ever seeing the land they have bought?  That’s easy. Landbankers tell targeted investors that they are ‘experts’. Ho, ho, hum – as Santa might say.

If they really were experts, they’d know the land was worthless. Splitting it into little parcels with separate owners actually diminishes the value as the field can no longer be used for agriculture or grazing horses from the local riding school.

A £200m industry

Soon, I shall have been writing and warning about landbanking for a decade. That’s an awful long time during which the scam merchants have made an awful lot of dosh – one recent estimate was a conservative £200 million. It’s probably much more.

A slice of that went on fees to a number of super-priced lawyers. Landbankers move heaven and earth to silence critics – threats of libel actions and injunctions are the fate of anyone with the temerity to challenge these ‘experts’ and their super-confident sales patter.

And during that decade, not one – repeat not one – site has ever seen planning permission and no investor has ever done anything other than lose.

But after 10 years of deception that hit so many for so much, are Britain’s jails full of landbankers?  Sadly not, any more than they are full of the investment bankers who ruined the economy.

FSA's small victories

Still, it is Christmas and time to be charitable. This week, I have a seasonal feeling of goodwill towards the Financial Services Authority (FSA), the much-maligned watchdog. That it is virtually toothless is not the fault of the folk who work there, as the organisation was set up without any bite.

This week, it secured High Court interim injunctions and freezing orders against St Clair Estates Limited, OFG Investments Limited, Option Land UK Limited and GIG Properties Limited. All of these companies are connected. With the exception of the first, all were set up within the last 18 months and none has ever filed accounts or annual returns. 

The FSA orders prevent these companies selling plots on a particular site of land pending further investigation by the FSA and the conclusion of ongoing civil proceedings. This actually shuts these firms down as they concentrated sales on one site at Winkleigh Airfield in Devon. The FSA has frozen approximately £850,000 of customer money.

The FSA says these landbankers were running an unauthorised collective investment scheme. This happens when landbankers say they will organise an application from the whole site and all the owners for planning permission - no builder wants to deal with dozens of separate owners.

Instead of saying it would obtain planning permission, Option Land Group claimed  Chinese company Zhe Jiang Zheng Dong would buy the whole site in early 2012, making investors a huge profit. But if the Chinese company was willing to pay a massive premium, why bother to sell the land to investors?

The Chinese company named actually exists. But it has nothing to do with property or Devon or anything else in this country. Instead, it is a well-known manufacturer of road vehicle and railway locomotive parts.

A chance of some money back

While many landbankers have been shut down, this usually happens after they have gone bust and distributed all the gains to the salespeople and the firm’s backers. Here, investors, who have typically put in £10,000 to £40,000, can hope for some sort of late Christmas present from the frozen £850,000.

The FSA says it first took High Court action against a landbanking firm – UK Land Investments Limited – in 2008. Since then the FSA has obtained injunctions against nine firms involved in landbanking.

A fortnight ago, the FSA secured a summary judgment in the High Court against Cityshore Commodities Limited (Cityshore) and its director Aaron Walker. The judgment confirmed that Cityshore sold land illegally to UK consumers. Here some £200,000 was recovered.

In November this year, in a separate land banking case, the FSA executed search warrants on nine premises in Kent and Greater London and five individuals were arrested.

The good news is that landbanking has become less prevalent. I have not had a single landbanker contact me as a potential investor since July.

The bad news is that many landbanking firms have seamlessly moved into carbon trading. I expect to write a lot more about that in 2012.

More: The farce of free 'get rich' seminars | Avoid this 'alternative investment' swindle