Financial Conduct Authority commences private criminal prosecution for fraud in connection with Unauthorised Investment Scheme

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The powers and duties of private prosecutors have, understandably, been dominating the headlines in recent weeks.

In fact, many organisations conduct prosecutions in the criminal courts as a way of enforcing standards for their industry or sector. Ports and Harbour Authorities are a good example. We have acted for many such clients over many years, as they enforce international and domestic legislation, Byelaws and General Directions as a way of ensuring safe use of 'their' river or harbour.

Financial Conduct Authority

Another prominent private prosecutor is the Financial Conduct Authority ("the FCA").

The FCA has demonstrated over several years that they are willing and able to commence prosecutions as part of a robust enforcement strategy, which is particularly important in unauthorised business cases where the FCA needs to send a strong message of deterrence.

Indeed, on 22 January 2024, the FCA published a press release announcing that it has commenced criminal proceedings against an individual for committing fraud by false representation and for carrying out regulated activity of accepting deposits without authorisation under the Financial Services & Markets Act 2000.

The FCA alleges that, between January 2016 and November 2021, the individual defrauded around 240 investors by making false representations to persuade them to invest approximately £19M in an investment scheme operated by him. The individual in question made allegedly fraudulent claims to investors, including about how the scheme was operated and the profits they could and were making via the scheme. The FCA alleges he falsified documents to support some of his claims. The FCA alleges this activity is contrary to the Fraud Act 2006.

Fraud Act 2006

The Fraud Act 2006 ("the Act") remains one of the central pieces of legislation addressing actual and potential economic crime such as fraud. So, what conduct does the Act criminalise?

The Act includes several offences all relating to dishonest claims or representations. In our experience the most frequently charged offence is 'Fraud by false representation.'

A person commits an offence here if they:

  • Have dishonestly made a false representation.
  • Intends by making the representation:
    1. To make a gain for himself or another.
    2. To cause loss to another or to expose another to a risk of loss.

This is important because sentences imposed for fraud by false representation and related offences are significant, including potentially custodial sentences and unlimited fines. A conviction could also lead to the prosecutor commencing applications for confiscation of assets under the Proceeds of Crime Act 2002. Lawyers in the specialist Fraud Team at Foot Anstey LLP have experience engaging successfully in response to applications for confiscation, but we do recognise how difficult it is for clients having to cope with the pressure of (facing) such proceedings.

Regulated Activity

The FCA also alleges that in accepting funds from investors, the individual was undertaking the regulated activity of accepting deposits which the FCA contends he was not authorised to do. The FCA, therefore, further alleges that he committed the offence of carrying on a "regulated activity" without being authorised or exempt (under s.23 of the Financial Services and Markets Act 2000 – often referred to as a breach of the "General Prohibition").

Our comments

The powers of a regulator such as the FCA are significant and their experience and expertise when it comes to deploying the (considerable) resources available to them in criminal courts is extensive.

The FCA and other private prosecutors are here to stay. We knew that much already. However, readers should be aware that such regulators will continue to pursue prosecutions in the criminal courts as a means of seeking to enforce rules and regulations for which they consider they are responsible.

Readers should be aware of the heavy sentences handed down by the Courts in fraud cases and the hidden cost of having to engage in ancillary proceedings, such as under the Proceeds of Crime Act 2002, because such proceedings are time consuming and wearing, in terms of one's financial and emotional resources.

The next hearing in the case described in this article will be at the Crown Court at Southwark, where a plea and trial preparation hearing, known as a 'PTPH', will take place on 19 February 2024. This is the first hearing in the Crown Court and is at the beginning of what will doubtless be a long and complex legal process.

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