Lawyers have warned that the FCA could become a “lame duck” regulator after a land banking fraud case brought by the FCA was thrown out because the defendants failed to get legal representation.
Last week, Southwark Crown Court threw out the case against five defendants on the basis that they would not be given a fair trial because they could not find a barrister to represent them following Government cuts to legal aid. It is the first time a case has been thrown out as a result of the cuts. The FCA is seeking leave to appeal.
In April 2013 the FCA charged eight men with land banking fraud and carrying out a regulated activity without authorisation. The case was due to be heard against Scott Crawley, Dale Walker, Daniel Forsyth, Aaron Petrou and Brendon Daley, with a later trial against the three remaining men. It was classified as a “very high-cost case”, meaning the trial was expected to last over 60 days.
In December, the Government introduced a 30 per cent cut to fees paid to solicitors and barristers for VHCCs as part of plans to cut £220m from the £2bn annual legal aid budget. The changes affect any case heard from the end of April.
Seventy sets of chambers were contacted to represent the defendants in the land banking fraud case but none accepted the instructions.
Alex Cameron QC – the prime minister’s brother, who was working free of charge on the bid to halt the case – said the defendants would not get a fair trial.
In the ruling, Judge Anthony Leonard said: “In a case of this complexity, the defendants could not receive a fair trial without advocates to represent them.”
The offences relate to Plott UK, European Property Investments and Stirling Alexander, which are alleged to have taken over £5m from investors between 2008 and 2011.
Lawyers say the ruling will affect the FCA’s ability to bring high-profile prosecutions, including those relating to insider dealing, boiler room fraud and Libor manipulation.
DWF Fishburns partner Harriet Quiney says: “This is a total failure of Government policy and will be disastrous for the FCA.
“If the FCA cannot prosecute high-profile fraud cases to send out a message to the market, it will become a lame duck regulator. This will put its whole method of operating into question.”
Pinsent Masons senior lawyer and former FCA lawyer Michael Ruck says: “The FCA has based a large part of its ethos on credible deterrence and has gained a reputation as a criminal prosecutor.
“If it loses the ability to prosecute high-profile cases, that deterrent effect will diminish. There is a danger of going back to the time before the financial crisis when some believed they were immune from regulatory intervention.”
It is understood that the regulator has spent at least £1m pursuing the land banking case.
The ruling states the first junior counsel for the prosecution has spent 1,000 hours preparing for the case, which lawyers say would be charged at a minimum of £100 per hour, costing £100,000.
Ruck says: “Added to that will be the cost of a second junior counsel, senior counsel and an investigation team at the FCA, which has been working on this for several years, which would take the total cost to the FCA to around £1m.”
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“This decision is disgraceful. It should be down to the defendant, not the system, to provide a defence and if they cannot provide a defence then they should lose the case.”
“Hopefully, this is a one-off and the judge’s decision was more about sending a message to the Government about legal aid cuts than about the viability of fraud cases in future.”
Why the case collapsed
The charges against the defendants followed Operation Cotton, an FCA investigation into land banking firms. They involve three companies: Plott UK, European Property Investments and Stirling Alexander. Plott UK and EPI faced compulsory winding-up orders in June 2011 and December 2012 respectively after the former FSA pursued civil action.
Land banking companies divide land into smaller plots to sell to investors. The land is often in areas of natural beauty or historical interest, with little chance of being built on.
Lawyers say the case is particularly complex given the nature of the fraud and the number of defendants. The ruling states the evidence is “complex and substantial”, amounting to 46,030 pages and 194 spreadsheets. The trial was expected to last about three months.
The judge said the defendants would not be given a fair trial if they did not have representation.
The prosecution argued that if representation could not be found now, the case should be adjourned to a future date rather than be thrown out. But the judge ruled there was no reasonable chance of finding representation in future and to adjourn the case would delay other trials and waste court resources.
Tessa Norman is regulation reporter at Money Marketing