Summary

A scheme that involved collecting money from the public and placing bets on horse races on their behalf was a collective investment scheme. The scheme was operated without authorisation in breach of the Financial Services and Markets Act 2000 s.19.

Facts

The claimant (FSA) applied for summary judgment in a claim that the first defendant (F) and the second defendant (W) had contravened the Financial Services and Markets Act 2000 s.19 and s.21 by running a collective investment scheme without authorisation or exemption and communicating an invitation or inducement to engage in investment activity. F and W were connected with a betting scheme operated by a company (R). The scheme involved collecting money from the public and placing bets on horse races on their behalf. The FSA submitted that: (1) the scheme was a collective investment scheme under s.235 of the Act as money contributions by members of the public was "property" for the purposes of s.235(1) of the Act; (2) F promoted the scheme in contravention of s.21 of the Act; (3) W was knowingly concerned in the contravention of the Act.

Held

(1) Money contributions by members of the public was property for the purposes of s.235(1) of the Act. There was no reason why betting winnings could not be regarded as profits and the placing of bets out of money contributions could not be regarded as management of those contributions. The fact that members of the scheme could opt to place bets themselves rather than use the scheme's recommended betting service did not bring the scheme outside the meaning of s.235. The scheme did not fall within any of the common accounts excepted categories under the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001 Sch.001 para.6(b). The scheme was a collective investment scheme. (2) Whilst F's publicity material amounted to an invitation to acquire units in a collective investment scheme, it was not an invitation to exercise a right conferred by a unit in a collective investment scheme. The absence of the ability to exercise a right meant that promotion of the scheme did not involve contravention of s.21 of the Act. (3) W was concerned in the operation of the scheme and had knowledge of its elements, both in his capacity as a director and secretary of R, and long after he resigned as a director and secretary. F had carried on an investment business in the United Kingdom without authorisation in contravention of s.19 of the Act and W was knowingly concerned in the carrying on by F and R of such a business. An injunction and restitution orders against F and W were granted in principle. The precise form of relief would be determined at a later date.

Application granted.