Welcome to Fraud files. This podcast brings you real life case files and forensic insights into a number of white collar frauds, financial crimes and misdemeanours that your host Edward has personally encountered, and in some cases brought to light, during his financial, corporate and business career. He shines the spotlight on both the frauds and the perpetrators. I had a number of business meetings with an accountant. Let's call him Peter, for the purpose of the podcast. We discussed property and investment opportunities locally and abroad. He told me about his projects, about his fundraising from investors. He was businesslike and professional, but little did I know that the man I was talking to and exchanging views with. Face to face over a cup of coffee was at that time in the process of an investment scheme that would cost those who trusted him and invested with him dearly. I never went on to have any business dealings with this man whatsoever. Call it a sixth sense or a gut feeling, but there was just something about him that made me suspicious and wary. I felt he was hiding Something was dishonest and not trustworthy. Unfortunately, as you will hear in the podcast, others were not so fortunate and did trust him at a great cost. The scheme, A property. Investment company was established by Peter as part of a group of companies that sought to invest in property developments. Peter raised approximately 18 million from around 80 investors, many of whom were his own accounting clients. Individual investments range from about a hundred thousand to a million. The company was promoted as a property investment vehicle that would Pool. Funds from private investors to buy and develop commercial and residential properties. The stated purpose was to buy land or part build properties, add value through developing or planning improvements, and sell at a profit within a few years. Here's a detailed sourced explanation of what happened to the investors' funds and whether anyone recovered anything. Much of the money was raised from professionals such as doctors and solicitors. Who were often using their pension savings or remortgage funds, about 30 or 40 were Peter's clients from his accountancy firm who trusted him to manage their investments. When the investors showed interest to put money into the investment company, they were given an investor pack and they were asked to invest cash into shares or loans to the company and. Sign a Power of attorney, A POA, allowing the company or Peter personally to execute documents on their behalf. Under that POA, the investment company executed personal guarantees in favor of banks to secure loans for property developments. The investors may not have fully known the significance of this. Although the investors may not have knowingly signed any guarantee, the POA allowed Peter and the investment company to do so. their names. why did the scheme collapse? The macro cause was that there was a property market crash. The business model was based on continually rising property values. The local property market peaked and then bust. The value of development lands fell by 50 to 80%, and banks withdrew financing. Projects relying on refinancing, or pre-sales became instantly unviable. The company had borrowed heavily against assets that had minimal equity backing. The group's. Total debt exceeded the value of its property portfolio because of the POAs. Investors themselves became personally liable for the loans. With falling values and bank calls, the company couldn't refinance or sell projects. When the loans were called in, investors faced demands they couldn't meet. Development stopped planning permissions expired, and debts mounted Two years after it was formed, liquidation was inevitable. The company was technically insolvent, unable to pay its debts as they fell due and was placed into liquidation the findings of the liquidator. The liquidators investigation revealed severe financial irregularities. The liquidator and the high court found investors' funds were pooled across multiple companies. Approximately 3 million of shareholders' funds could not be properly accounted for, and the monies never appeared in the investment company's accounts. Money had been transferred into accounts controlled by Peter and his wife. Or were used for unrelated purposes, even though there was no formal agreement with the investors. A related party company owned by Peter issued invoices for fees for around 400,000. Some of the funds were used to pay personal or family expenses rather than the property investments described in the investor prospectus. In one instance, a 1 million client investment was paid into the company, and 300,000 went straight into Peter's account. Within two weeks, the liquidator attempted to recover funds from Peter's and related party accounts, but the assets were largely gone or encumbered. Investors were unsecured creditors, meaning they ranked behind banks and tax authorities in the liquidation. No material distributions to investors have been made since the liquidation began. A handful of investors tried to sue Peter personally, but there are no public judgments showing recovery. The bank that financed the property projects. Also collapsed and was wound down leaving no avenues for redress. The bottom line. Investors have received no return of capital and have lost their entire investment. As previously mentioned, the investors had been asked to sign powers of attorney authorizing the investment company or its directors to act on their behalf in the management of the investment. These POAs were later used by Peter and the company to execute guarantees in favor of the banks in order to secure company borrowings. Most investors were unaware that their signatures could be used in this way, and the guarantees ultimately expose them to potential personal liability when the property market collapsed. Reports cite that investors were left with significant liabilities and owed approximately 18 million to the banks arising from their guarantee exposures. However, there's no evidence that the banks successfully enforced the guarantees against most of the investors. Several investors did receive demand letters from the banks, but the banks appeared to have pursued only a limited number. Some investors reportedly negotiated settlements or relied on legal advice that the guarantees might not be enforceable due to lack of proper authority or misrepresentation. Others continue to face potential exposure. The collapse of the scheme left all of the investors with the loss of their invested capital and potential additional liabilities because of the guarantees they had given via the powers of attorney. So the impact on investors in various proceedings that have taken place against Peter. The reactions from some of the investors have been voiced and recorded. One investor said he had entrusted Peter when he had invested in the property fund that he didn't realize what he had got himself in for. Nobody realized the extent of what we were signing over. We were all adults, but the risks were never explained to us. He said, another of the investors said, Peter asked the investors to give him power of attorney, which allowed him to sign them in for personal guarantees for the company's debts. I don't think people understood. It's worse than a normal scenario for these people. The nightmare lives, even though the company is gone. Another investor said that he had lost a hundred thousand in his initial investment before finding that he was a guarantor on a defaulting loan to the bank for another a hundred thousand. There are people whose marriages have split up as they have found themselves under serious pressure due to this. There is a human cost toll to it as well. He said, coincidentally, a relative of mine. Who had worked hard all his life to provide for his family and was nearing retirement, lost a substantial proportion of his life savings because he invested in Peter's property schemes. So what were the red flags? Peter marketed the scheme as a way for ordinary investors to access institutional grade property opportunities. Many investors were his accounting clients who trusted him personally. He acted as both the advisor and the promoter, an immediate conflict of interest that later became central to the findings against him. There was a lack of independent oversight. Peter controlled everything, the promotion, accounting, investor communication, and company management. There were no independent directors or external custodians of investor money. The structure meant no segregation of client funds violating basic fiduciary principles. The lack of controls also meant that the door was wide open for fictitious accounting in the books of the company. The finale, as of today, Peter remains bankrupt, disqualified from company directorships. And he has faced serious professional sanctions, but he has not faced any criminal proceedings relating to the collapse of the investment company or the investor's losses, the liquidation remains technically open, but has not produced any distributions to investors. There is no evidence that any investor has recovered any portion of their original investment. In practical terms, the investors lost all of their capital. The high court and liquidator both concluded that the funds were substantially dissipated and misapplied. The assets were worthless after the property collapsed, and there was no viable avenues for recovery for some of the investors, they lost their life savings. With no access to statutory compensation schemes and no criminal restitution order, The investors have received No money. Back.