KF Concept: Kevin Foster
6 July 2005
This is the seventeenth statement we (the FSA) have made regarding our actions in the matter of KF Concept. Earlier today we issued a press statement, which we have repeated below for ease of reference. Both statements deal with the outcome of a hearing at the High Court in London on Monday 4 July 2005.
Press statement
‘The High Court has made a bankruptcy order against Mr Kevin Foster on a petition presented by the Financial Services Authority (FSA). Mr Foster ran the KF Concept (KFC), a 'get rich quick' money circulation scheme, into which approximately 8,500 members of the public placed £36 million.
At the High Court in London, Mr Justice Lewison granted the order on Monday 4 July 2005 after Mr Foster admitted in court that he was both in breach of the Financial Services and Markets Act (FSMA) for running an unauthorised collective investment scheme and was insolvent. Following the dismissal of his application for an order to stop the hearing of the FSA’s petition, Mr Foster confirmed to the Court that he would not oppose the bankruptcy order being made.
David Mayhew, acting Director of Enforcement at the FSA said:
"Mr Foster misled and continues to mislead his scheme's members on how their money has been spent. He took their savings with the promise of extravagantly high returns. He has not explained what happened to substantial sums but it is clear considerable amounts went to fund his lavish lifestyle and to make gifts to close associates.
"Because the members have invested in an unauthorised scheme, they do not have the protection of the Financial Services Compensation Scheme or the Financial Ombudsman. They have little hope of seeing the return of most of their money.”
Members of the scheme are creditors of Mr Foster and can contact the Public Interest Unit at the Official Receivers Office, 21 Bloomsbury Street, London WC1B 3SS, by email on piu.or@insolvency.gsi.gov.uk or by telephone on 0207 637 6425 for further information. Creditors are requested to send their details to the Official Receivers Office as follows: full name and address together with amount of their individual claim in the bankruptcy.
The FSA first warned consumers of Mr Foster, of Doddington in Kent, and his activities in February 2004 when it obtained an interim injunction to restrain alleged unauthorised activities and freeze the assets of Mr Foster, Mrs Elaine Foster and Mr Kevin McNab.
The FSA's proceedings against Mrs Foster and Mr McNab continue.'
Further detail of the hearing is given below to assist understanding of what has taken place.
Mr Foster's application for an Interim Order – FSA stance
In previous statements, we have set out our concerns about Mr Foster’s conduct in operating the KF Concept. In particular, we were concerned that Mr Foster had breached the Financial Services and Markets Act 2000 and had operated an illegal collective investment scheme.
We were also concerned that large sums of money from the KF Concept scheme, purportedly placed by Mr Foster into another scheme called Planline, were unaccounted for. We believe that Planline is a pyramid scheme, and this was accepted by Mr Justice Lewison. Mr Foster has also served conflicting evidence about Planline and the money he has placed into it.
Mr Foster applied for an Interim Order in Court on Monday 4 July to allow time for his Individual Voluntary Arrangement (IVA) to be considered by his creditors. We were given Mr Foster's proposal to his creditors and we assessed whether there were any areas of concern. The Insolvency Practitioner approached by Mr Foster to act as his nominee in the proposed IVA was advised of our concerns, and informed the Court that he was not able to satisfy himself about all of them.
We objected to Mr Foster's application and Mr Nicholas Peacock, our Counsel, argued that there were five conditions that the Court must be satisfied on before any IVA proposed by Mr Foster ought to be permitted:
- The proposals put forward by the Debtor (Mr Foster) must be put forward on a bona fide (good faith) basis. We contested that Mr Foster's proposals were not made in good faith.
- The contents of the Debtor's proposals must be honest. We asserted that the contents of Mr Foster's proposals were not true in some key areas.
- The terms of the proposal must be reliable in themselves. We contended that the terms Mr Foster proposed were not reliable.
- A reasonable ‘man of business’ appraised of all relevant facts would be likely to vote in favour of the proposal. We said that this was not the case with regard to Mr Foster's proposal.
- The proposer of an IVA must be, and be seen to be, honest and reliable. Our view, based on his evidence, was that Mr Foster appeared not to meet the requisite standards of honesty and reliability.
Mr Justice Lewison's judgment on Mr Foster's application for an Interim Order
Mr Justice Lewison heard both Mr Foster's arguments in support of an IVA and our objections. Mr Justice Lewison also heard from the nominee, Mr Nedim Ailyan of Messrs Begbies Traynor, who set out some arguments in favour of this matter going to a creditors’ meeting.
Mr Justice Lewison dismissed Mr Foster's application for an Interim Order for an IVA, which would effectively stop our bankruptcy proceedings. Mr Justice Lewison gave an oral judgment when dismissing Mr Foster's application for the interim order and made the following observations:
- When considering an application for an IVA where we have presented a bankruptcy petition, he had to decide whether the creditors’ views on whether an interim order is to be granted are paramount. He concluded that the wishes of creditors ‘are not the be all and end all’ of the matter, although they are a significant factor to be taken into account.
- On the evidence filed in support of the petition it would appear that Mr Foster was soliciting monies from his family and friends who were to be regarded as ‘the public’. Further, monies solicited by Mr Foster had been placed in Planline, which appears to operate as a pyramid scheme.
- Mr Justice Lewison noted that Mr Foster's proposals had to be made with honesty, candour and good faith for an interim order to be granted. On the basis of all the evidence filed in the proceedings and on listening to the submissions of Mr Foster and Mr Ailyan at the hearing, Mr Justice Lewison was not satisfied that Mr Foster's proposals had been made with the necessary candour. In the circumstances, he did not consider an IVA to be appropriate.
After the application for an Interim Order for an IVA was dismissed and the FSA was awarded its costs for opposing that application, Mr Foster did not oppose the making of a bankruptcy order. We do not intend seeking recovery of our costs on our present understanding of Mr Foster's financial position.
