Police raid scheme accused of £50m 'scam'

Firms alleged to have offered bogus investments. Arrests latest stage in crackdown on City frauds

City of London Police appealed for hundreds of victims of a suspected investment scam to come forward yesterday after arresting two men it believes helped to orchestrate the alleged £50m fraud.

The appeal follows a series of dawn raids yesterday on three addresses in London and Surrey in which a 40 year-old man was arrested on suspicion of conspiracy to defraud, money laundering and fraud by misrepresentation.

A 43 year-old man was arrested later after attending a City of London police station, and a third man is still being sought. All the properties raided were searched by the police team.

The investigation is linked to three consultancy firms whose assets and operations were frozen by the Financial Services Authority, the chief City regulator, in November last year.

The FSA subsequently issued proceedings against three individuals linked to the consultancies, which traded as Business Consulting International, John Anderson Consulting and Kenneth Peacock Consulting.

The FSA said the proceedings were for "allegedly taking unlawful deposits and running an unauthorised collective investment scheme".

The scheme at the centre of the investigation is believed to have offered investors annual returns of 6.5 per cent, with the consultancies claiming to be investing cash in short-term bridging loans to companies.

However, police allege that the loans did not exist and that the fund was in reality little more than a "Ponzi" scheme, in which new investors' cash was used to pay out returns to previous subscribers. They believe the suspected fraud may have taken in individuals in the UK and worldwide, and are now seeking to identify as many victims as possible.

Detective Inspector David Manley said: "We are working in partnership with the FSA to tackle this complex investment fraud that involves hundreds of victims and losses suspected to run into tens of millions of pounds."

Jonathan Phelan, head of enforcement at the FSA, added: "Anyone who has been in contact with these companies should contact the police."

The 43 year-old man remains in police custody, while the 40 year-old man was released on bail yesterday. Police declined to name the two individuals arrested.

The case is the latest stage of a crackdown by fraud investigations on investment scams which police believe have multiplied following the credit crunch.

Earlier this year, The Independent revealed that the Serious Fraud Office (SFO) and City of London Police were investigating a spate of scams described by one senior officer as "mini-Madoffs", in reference to Bernard Madoff, the US financier who has pleaded guilty to running a multi-billion dollar Ponzi scheme.

Richard Alderman, the director of the SFO, has said that his investigators are looking into a number of alleged frauds, involving scams they have identified for themselves and cases where whistleblowers have come forward.

The FSA said that none of the companies linked to yesterday's arrests have been authorised by regulators to do investment business or to take deposits. Following its initial investigation into the companies, it passed the case to City of London Police at the end of last year amid suspicion that they had mishandled millions of pounds of investor funds.

The police believe that at least 600 investors may have suffered losses connected to the case, but have yet to identify all the victims.

Detective Inspector Manley added: "It is vitally important for people who have been involved with, or suspect they could be a victim of Business Consulting International, John Anderson Consulting and Kenneth Peacock Consulting to contact the City of London Police as soon as possible."