The Financial Conduct Authority v Robin Scott Forster & Ors

A scheme may be a collective investment scheme under section 235 of the Financial Services and Markets Act 2000 despite fixed contractual returns or property-based documentation. The court must assess the purpose or effect of the arrangements in substance, including promotional material, shared understandings and the economic reality of pooling and common management.

Knowing concern requires actual involvement and knowledge of the facts constituting the contravention; knowledge that the conduct is unlawful is unnecessary. Independent legal advice may assist a person who genuinely acts on it, but cannot do so where the advice rests on factual assumptions known to be inaccurate. A director’s ordinary awareness of company activities is insufficient by itself, but personal liability may arise where the director is the driving force behind the unlawful business.

The FCA brought proceedings concerning investments marketed by Qualia entities and Fortem Global Ltd. Investors paid substantial sums for long leases of rooms in care homes, received promised fixed returns and were offered buy-back rights. The FCA alleged that the arrangements were unauthorised collective investment schemes, that investors were misled about sustainability and ownership of certain homes, and that Mr Forster was knowingly concerned in the contraventions and personally enriched.

The trial concerned four preliminary issues: whether the arrangements were collective investment schemes; whether sections 89 and 90 of the Financial Services Act 2012 were contravened; whether Mr Forster was knowingly concerned; and whether he had been personally enriched.

1. Collective investment schemes. The Qualia arrangements constituted collective investment schemes within section 235 of the Financial Services and Markets Act 2000. The relevant arrangements included contractual documents, brochures and other promotional material. The purpose or effect was to enable investors to participate in income generated by the care-home portfolio. Fixed returns did not prevent participation in a scheme where the economic reality was that returns were funded from pooled property and portfolio revenues.
2. The court applied the substance-over-form approach in FCA v Asset Land. The arrangements were assessed objectively when made. Their legal form could not displace the commercial reality that investors’ contributions, liabilities and returns were pooled and that the properties were managed as a whole. The compulsory future operation of the Management Provisions also supported CIS characterisation.
3. Misleading statements and impressions. The Investment Companies made false or misleading Sustainability Impressions from the outset. They represented that the homes could meet investor obligations from their own operations, although later investors’ contributions were required. By at least April 2019 Mr Forster knew the model was unsustainable; throughout the period the companies were reckless as to the truth of those impressions. The statutory requirements of sections 89 and 90 of the Financial Services Act 2012 were satisfied.
4. In relation to the Unowned Care Homes, QCP created the false impression that it owned the homes and could grant investors the promised property rights. The fact that investors might have discovered the position through their solicitors was no defence. Mr Forster had done nothing to correct the misleading impressions and was aware of the factual position.
5. Knowing concern. Mr Forster was the guiding mind of the Investment Companies and FGL. He established and directed the scheme, approved marketing and commissions, engaged with investors and supervised the use of new investment monies. He was therefore knowingly concerned in the companies’ contraventions of sections 19 and 21 of the Financial Services and Markets Act 2000 and sections 89 and 90 of the Financial Services Act 2012.
6. Legal advice did not provide a defence. A person may rely on professional advice as to legal analysis, but must interrogate the factual assumptions on which it rests. Mr Forster knew that the opinions and the FCA’s earlier view concerning MBI were based on assumptions inconsistent with the actual pooling and operation of the Qualia business.
7. Enrichment. Mr Forster had been personally enriched by at least £1,866,054 as a result of the investment sales and related activities. Each preliminary issue was answered yes.