Five investors who suffered heavy losses from a film tax avoidance scheme have won a claim for £2.6m against their advisers, paving the way for similar actions by wealthy individuals.
The Financial Ombudsman Service ruled that the advice given by 20Twenty Independent Ltd to invest in Crossover Film Partnerships – which made the film Provoked, among others – was “unsuitable” and that the claimants were not made aware of the “true nature of the losses” they could be exposed to.
The case is the latest by an investor against their adviser for allegedly mis-selling investments in complex investment schemes over the past decade.
Rebus Investment Solutions, a claims management firm that acts for the victims of mis-sold tax avoidance schemes, described the successful claims as the “tip of the iceberg”.
Martin Taylor, head of client relations at Rebus, said the firm was handling claims from more than 600 clients against 100 advisers over about £40m of assets. It expects to have recovered up to £10m worth of investor capital by the end of 2013.
“We are currently dealing with hundreds of wealthy investors who are facing financial ruin as a result of complex investment schemes which they were mis-sold,” he said.
“ Premiership footballers, investment bankers and hedge fund managers are all among a new wave of investors considering making complaints against their advisers for allegedly mis-selling them investments.”
He said the most common schemes to have been potentially mis-sold range from film partnership schemes to medical research, property, carbon trading, software and shipwrecks.
“The sort of investments include fine wine, carbon trading and feature films and even shipwrecks and salvage where they’re looking for buried treasure. Many people invested in these schemes for tax reasons but they’re not getting tax relief. It’s a ticking time bomb,” he said.
Investors have been left potentially facing multimillion pound bills after HM Revenue & Customs challenged their tax arrangements, leading the Financial Services Authority – recently taken over by the Financial Conduct Authority – to last year propose a ban on selling such complex investment vehicles to retail investors.
Many celebrities have invested in such schemes in recent years, including Sir Alex Ferguson, Manchester United manager, and Sven-Göran Eriksson, former England coach, who faced losses after investing in Eclipse 35, a film production scheme. Rebus says at least 200 footballers have invested in excess of £1bn in complex investment vehicles over the past decade, with many unaware of the potential risks.
Although the claimants in the Crossover Film Partnerships case did qualify for tax relief, the ombudsman concluded they should have been made fully aware that investing in the scheme could lead to losses of more than their initial investment because the scheme involved loans. As a result, the claimants face demands for the repayment of loan capital and interest.
Philip Roberts, adjudicator for the ombudsman, said the investment was “so risky” that investors should have been made aware it could lead to a “total loss of possibly more than three times their initial contribution”.
However, one of the clients advised to invest in the Crossover Film Partnership schemes was told that doing so was safer than putting money into his mortgage. Another was advised the investment would be an ideal vehicle for school fees planning.
20Twenty Independent Ltd was unavailable for comment on Tuesday.
Mr Taylor said: “It is often wrongly assumed that the primary risk of [such] investment is whether it will be successful in being awarded tax relief, and what is often overlooked is the fact that the majority of [these] products are highly-leveraged, with many of these risky investments structured using full recourse loans. The structure of these products is so complex that many people simply do not know what they are buying into.”
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