A series of cases involving investment fraud and transnational criminal organizations shared some common threads and players, UK law enforcement discovered
The United Kingdom’s Financial Conduct Authority (FCA) confiscation announcement relating to investment adviser Richard Faithfull, and the Serious Fraud Office (SFO) announcement concerning David Ames, highlight examples of successful convictions in cases concerning overseas transnational investment fraud.
A close examination of the cases, however, has revealed some unexpected connections between the protagonists involved in the various fraudulent investment schemes, which ranged across many jurisdictions and modi operandi — from classic boiler room securities fraud to investment property and litigation funding investment fraud.
Faithfull was found guilty, as part of a transnational crime group, of having laundered the proceeds of at least seven professionally run overseas investment frauds. He had been charged and prosecuted by the FCA and was sentenced to five years and 10 months imprisonment.
The FCA said Faithfull had been able to use knowledge gained when working in the regulated sector as an investment adviser to help the fraudsters continue to defraud victims by paying fictional “dividends” from bank accounts controlled by him to make it look as though the underlying investments were generating returns. It also said that to avoid detection he had relocated to Ukraine, where he had lived a life of luxury while he continued his criminal activities, enlisting the assistance of local criminal groups abroad.
A close examination of the cases, however, has revealed some unexpected connections between the protagonists involved in the various fraudulent investment schemes.
The FCA’s power to prosecute criminal offenses is not limited to the offenses contained within prosecutorial powers outlined in subsections 401(1) and 402 of the Financial Services and Markets Act 2000 (FSMA). This was confirmed by the UK Supreme Court in R v Rollins [2010] UKSC 39. The Court found that the prescribed offenses set out in FSMA were not intended to be exhaustive.
It found that, subject to any statutory restrictions, the Financial Services Authority, the FCA’s predecessor regulator, was able to bring any prosecution that was permitted by virtue of its memorandum and articles of association. This included the subsections 327 and 328 money laundering offenses under the Proceeds of Crime Act 2002.
Prosecuting fraud and the FCA
The FCA’s prosecutorial powers were addressed by Mark Steward, director of enforcement at the FCA, in his evidence to the UK Treasury Committee inquiry on economic crime. He acknowledged that the FCA did not have explicit powers to prosecute cases based on Fraud Act 2006 offenses, but, citing Rollins, he said that those provisions were non-exhaustive, as recognized in EG 12.1.1 of the FCA Enforcement Guide.
During its investigations, Steward said, the FCA sometimes did find evidence which justified a prosecution, not only for the offenses listed in FSMA but also for those under, for example, the Fraud Act 2006. Charges of such offenses would, however, be prosecuted by the FCA as a private prosecutor, and not as an authorized prosecutorial authority.
Long-running overseas investment fraud was the subject of a recent SFO press release announcing the successful conviction of David Ames, the individual behind a £226 million fraud involving celebrity-endorsed luxury resorts in the Caribbean, on two counts of fraud by abuse of position.
Ames had deceived more than 8,000 UK investors in the Harlequin Group, a hotel and resorts development venture, the release stated. The business model relied on investors paying a 30% deposit to purchase an unbuilt villa or hotel room, half of which went toward fees for Harlequin and relevant salespeople, while Harlequin put the remaining half toward construction.
Investors were fraudulently told that the building of the properties would be further funded by external financial backing. The SFO said that, with no additional source of funding, three properties needed to be purchased to finance just one of the luxury accommodation units, which had led to a shortfall of more than £1.2 billion by 2012.
The SFO said, further, that by the time it went into administration in 2013, Harlequin had sold around 9,000 property units to investors, with less than 200 ever actually being constructed. Throughout the entire eight-year project, only 28 of more than 8,000 investors had ever completed on a purchase, leaving at least 99% with no return on their investment.
The Harlequin Group had ultimately lost a total of £398 million of investor funds. Several thousand victims had lost pensions and life savings, while Ames had enriched himself and his family by £6.2 million.
Harlequin Property also features in the judgment in the Upper Tribunal case of Alistair Burns v The FCA, which concerned the activities of the TailorMade Group of companies, which included TailorMade Alternative Investments Ltd., which was an unregulated company that promoted alternative unregulated investments, including in Harlequin properties.
