A company which convinced investors to pour £7 million into a controversial "land banking" scheme has been forced to suspend trading.

Land Heritage (UK) Ltd told investors they could make huge profits by backing plans to develop a 71-acre greenfield site at Horstedpond Farm in Uckfield.

The firm has ceased operations and dismissed 19 workers following moves by the Financial Services Authority (FSA) and the Department of Trade and Industry (DTI).

London-based Land Heritage was one of about 50 companies which have drawn criticism for operating "land banking" schemes, unprotected by current financial regulations.

The firms bought large areas of land then sold them in small pieces to individual investors, telling them they stood to make a huge profit from house builders if planning permission was gained for developments.

Investors bought individual plots as small as 0.1 of an acre for up to £15,000 each, with the expectation of recouping as much as ten times the amount.

In many cases, including Horstedpond Farm, the planning authority had already made it clear that permission for the land to be developed was unlikely to be granted for many years, if at all.

In May, Land Heritage said its planning department was confident it would be able to secure permission to develop Horstedpond Farm but it suspended operations after the FSA and DTI began to consider how to regulate the firms.

It is unclear what will happen to the £7 million paid by about 700 investors, primarily for plots of land at Horstedpond Farm and a 41-acre site in Lincolnshire.

Guy Hemphill, who resigned as director of Land Heritage in July but remains a major shareholder, told a national newspaper the company had suspended trading while it sought advice about its situation. He was unavailable for further comment.

Graeme White, Land Heritage's head of planning, currently serving a notice period, said representatives from the firm were due to meet with the FSA shortly and would make a decision based on the outcome of the meeting. He said it was still possible the company would resume trading.

Residents near the site in Uckfield were delighted the project had stalled.

Ian Smith, of Castle Rise, Uckfield, said: "People from outside the area were paying for, and standing to profit from, a development locals did not want. It was also nowhere near the planning agenda."

Mr Smith, a member of Uckfield Town Council, said: "As in most cases, if it looks too good to be true it probably is. I hope the whole thing will quietly go away."

Charles Edison, owner of Horstedpond Farm who had been working with Land Heritage, refused to comment on the situation.