The FCA will continue to be frustrated by delays and an inability to get cases heard in court because of cuts to legal aid, a senior lawyer warns.
This week, the regulator secured eight convictions for fraud relating to a Ucis scheme, a year after Southwark Crown Court threw out the case on the basis that defendants would not be given a fair trial because they could not find a barrister to represent them following Government cuts to legal aid.
The defendants have now been convicted for their part in the operation of a Ucis that led to 110 investors losing £4.3m.
The conviction is a result of Operation Cotton, one of the largest investigations ever run by the regulator.
But a senior regulatory lawyer warns Government spending cuts are not set to be reversed and the FCA will continue to find it difficult to bring cases to court.
Pinsent Masons senior lawyer and former FCA lawyer Michael Ruck says: “The issue remains. They did eventually manage to find someone for this case but as the legal aid budget and criteria is increasingly restricted and the fees being paid out are reduced, it’s going to become harder and harder to find representation, let alone appropriate representation.
“The FCA will struggle because a large number of the people they attempt to criminally prosecute, in particular for things like insider dealing or unauthorised business, probably don’t have the finances available for legal representation.
“Defendants often have money tied up elsewhere, are no longer receiving a salary, the prosecution takes at least 12 to 18 months and as a result a large number will fall back on legal aid. These cases are going to be complex and costly – the fees payable under legal aid probably won’t meet the general requirement of both the bar and general solicitors.”
In December 2013, the Government introduced a 30 per cent cut to fees paid to solicitors and barristers for “very high-cost cases”, 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.
The FCA contacted 70 sets of chambers to represent the defendants in the case but none accepted the instructions.
At the time lawyers warned the regulator risked becoming a “lame duck” as its ability to bring high-profile prosecutions, including those relating to insider dealing, boiler room fraud and Libor manipulation, would be hampered.
Five of the individuals convicted this week – Scott Crawley, Dale Walker, Daniel Forsyth, Aaron Petrou and Ross Peters – have been sentenced to a total of 26 years’ immediate imprisonment.
Brendan Daley and Ricky Mitchie were given suspended sentences while Adam Hawkins is awaiting sentencing.
Between July 2008 and November 2011 investors were convinced to purchase agricultural land at “vastly inflated” prices and promised substantial profits.
But none of the investors have seen a return.
The defendants were convicted of conspiracy to defraud, breaching the general prohibition by conducting investment business without FCA authorisation, aiding and abetting a breach of the general prohibition, possessing criminal property, and providing false and misleading information to the regulator in a compelled interview.
The solicitor to the scheme – Dale Walker – received nearly £900,000 from the scam.
Forsyth had his sentence extended by 15 months because he lied to the FCA in a “compelled” interview, while Peters also breached a restraint order obtained by the FCA.
Part of his breach involved moving over £237,000 from bank accounts and selling Rolex watches and two racehorses.
In sentencing, Judge Leonard QC said the operation was “a subtle and cruel fraud because it involves the concept of owning land, a commodity that the public are bound to think has value and on which they cannot lose and on which they can easily be persuaded that they can make very substantial profits.”
FCA acting director of enforcement and market oversight Georgina Philippou says: “The FCA will take strong action, through both the civil and criminal courts, against those who operate illegal investment schemes and those who assist them like solicitors.
“People put their homes and retirements at risk on the back of promises of high returns that were never going to be realised. The severity of the sentences shows how seriously the courts view this kind of offending.”