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Victims of a £58mn “Ponzi-like” scheme which invested in a troubled care homes business fear they will lose the bulk of their money, after a judge ruled they had been misled with promises of unsustainable returns.
The High Court found last month that businessman Robin Forster had knowingly used “misleading statements” in selling some 600 investors long-term leases on rooms in care homes operated by his company Qualia Care.
The court heard that Forster, who denied wrongdoing, pledged “unrealistic returns” of between 8 and 10 per cent to investors who sublet the rooms to Qualia.
The Financial Conduct Authority, which brought the case in 2020, condemned the business as a “Ponzi-like” investment scheme, in which early investors were paid returns from money collected from those joining later.
However, the legal victory still leaves investors out of pocket as the Qualia businesses entered administration in September 2020. Administrator Stephen Hunt, a partner at insolvency practitioners Griffins, told the FT he aimed to recover in excess of £10mn — a fraction of the £58mn invested in 16 homes — through the sale of homes to local authorities and other potential buyers.
The FCA commenced proceedings against Forster and his affiliates in 2020 after judging the investment he had offered from 2016 to 2020 was an unregulated collective investment scheme.
Such schemes are illegal and the funds are not insured by the Financial Services Compensation Scheme, leaving investors open to loss.
Forster denied the allegation, but the High Court in July ruled the offer was a pooled investment. He was also judged to have used new investors’ cash to pay returns to early investors.
“I’m very disappointed . . . it’s been a massive shock to all of us,” said Paul Cronin, a former IT professional and one of the aggrieved investors. “My expectation is that it’s going to be a fire sale [of the care homes], our only hope of getting any more back is through third party action.”
The threat of losses placed some investors at risk of hardship, while vulnerable care home residents could be uprooted if the creditors sell homes.
Collective investment schemes are regulated by the FCA and include any arrangement that involves investors pooling assets within a fund managed by an independent manager. This can include minibonds and student accommodation.
Forster argued in court that the returns promised to investors were viable and that legal guidance confirmed it wasn’t a pooled investment. However, deputy judge Simon Gleeson said the lawyers Forster had consulted made conclusions on the basis of “inaccurate assumptions” set out by Forster at the time.
“There are repeat investors who have bought chunks of rooms, the largest single one has invested £2mn,” said Hunt, the administrator, who was appointed by creditors to recover funds.
In his remarks, the judge said Forster had presented himself as if he had an “Olympian detachment” from the business’s financial operations and that he was not involved in the finer details. Court documents stated Forster took at least £1.8mn out of the business, including an annual salary of £150,000.
“Originally we hoped to take over the freehold and the operation of these rooms and use capital to get them up and running, but that was based on bad projections,” said Cronin, one of a number of organising creditors responsible for coordinating investors.
While there were institutional and overseas investors, many UK retail investors were new to investing and had been drawn in by guaranteed returns.
Among them was retired NHS nurse Robyn Harris and husband Paul who purchased four leases between 2016 and 2019. “They were approaching me frequently with new investments, but because of how they did the after sales, these beautiful brochures and putting out returns in an orderly and well organised way, I felt gosh, it seemed so good,” she said.
She said the affair had left her anxious, unable to sleep and eager for the matter to be put to bed. “I would rather get what I can from them and forget it,” she said.
Nine care homes owned by Qualia Care currently operate with about 700 residents, while a further six proposed sites were either blocked from opening by the Care Quality Commission, a regulator, or had not yet been developed. One home in Wigan closed this month, after Hunt’s team could not identify a profitable business model.
There are fears the residents’ interests are being neglected. One former care home employee said: “[Residents] were completely innocent in all this. What does it mean if they’re [administrators] going to sell all these homes to give investors their money back?”
Hunt said: “There are around four or five lossmaking homes. We’re working very hard to turn them around, we can’t rule out further closures.” He added that the July ruling meant he could move forward to recover funds, including taking action against third parties who had worked with Qualia.
Steve Smart, joint executive director of enforcement at the FCA, said in a statement: “The Qualia scheme offered unrealistic returns based on its unsustainable business model and operated like a Ponzi scheme.” The regulator intends to seek a restitution order against Forster and his associates in a bid to recover money for the victims.
The regulator said it was also taking restitution action against MBI, a company it claimed Forster used to sell similar investments prior to their relationship breaking down. The business entered administration in 2018 and liquidation in 2020.
The FCA said it would also pursue the sales agency for the scheme, Fortem Global Limited, which was partly owned by Forster. Fortem entered liquidation last year.
Forster did not reply to requests for comment.