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Property ponzi: how to avoid real estate investment fraud

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  • Government committee estimates £10bn lost to pension scams
  • Experts say property investment fraud is particularly hard to uncover

David Ames’ business looked like the real deal. The Essex-born man promised massive returns for investors in his Caribbean resort development company Harlequin Group. He had the backing of former footballers including Andy Townsend and John Barnes, financial advisers and institutions, and even property TV celebrity and Location, Location, Location host Phil Spencer.

Then it all came tumbling down. Two months ago, Ames was sentenced to 12 years in prison for defrauding more than 8,000 people of their investments between 2010 and 2015 in what the judge described as a “gigantic ponzi scheme” amounting to £226mn. The court heard how thousands of victims lost their pension funds and life savings investing in Ames’ fraudulent business while the man himself pocketed £6.2mn.

The story is an extreme example of an all-too-common kind of property investment scam whereby criminals posing as legitimate entrepreneurs dupe swathes of small-time investors by promising them a healthy return on their investment. The scam works by asking individuals to stump up thousands of pounds at a time usually from their pension pot to invest in schemes which are not yet built.

After the people behind the scam have pocketed all they can, they disappear – either by collapsing the company or group of companies in some way or by ghosting their investors or both. Little if any of the promised development is ever completed and the unfortunate investors almost always lose all of their investment. Although scams, ponzi schemes and misleading investment opportunities involving property companies are in abundance (see boxout), they are not always easy to spot.

Using misdirection to take investors’ money is nothing new, but some worry that investment scams are on the rise as the cost of living crisis and a looming recession makes both investors and scammers more desperate. Yet, even before the current economic malaise, the number of scams had been rising for nearly a decade, in part, as a result of the introduction of pension freedoms in 2015 which increased the appeal of self-invested personal pensions (Sipps).

The House of Commons Work and Pensions Committee said in a report in March last year that while Sipps give people more choice, they also put them “at risk of a wider range of scams and financial fraud”. It also raised concerns about underreporting of the problem. Action Fraud has said that £30mn was lost to pension scammers between 2017 and August 2020 but the committee said there was “no doubt that [this was] a substantial underestimate” – judging instead that more than £10bn has been lost to pension scamming since 2015.

 

Risk and reward

The clear blue water between Action Fraud and the committee’s estimate suggests many scammers get away scot free. The committee criticises both Action Fraud and the Financial Conduct Authority (FCA) in its report for not doing enough to tackle the problem and quoted one scam victim who described scams as a “low risk, high reward business for the perpetrators”. It says part of the reason for the lack of convictions is the disparate nature of enforcement, noting that Action Fraud and the FCA are two of many bodies – including the Serious Fraud Office (SFO) and the Insolvency Service – which are responsible for investigating different scams depending on their type, scope and scale. 

Take property development investment scams, for example. The FCA says “land for development investments are not generally regulated by the FCA”. Meanwhile, the Insolvency Service will only look into it if the company in question became insolvent and the SFO will only investigate if the scam is big and complex enough that it – for example – crosses borders and involves hundreds of millions of pounds such as in Ames’ case. This leaves Action Fraud picking up most of the slack.

Not everyone blames the running and resourcing of government authorities for the lack of investment scam convictions. Wayne Stevens, national fraud lead at crime and trauma charity Victim Support, argues that it is banks who should be using their financial heft – as the institutions which ultimately move scammers’ ill-gotten money – to crack down on the issue. “How many letters do you get from your bank about borrowing money versus how to protect yourself from fraud?” he asks.

Enforcement is only one half of the issue. Stevens says the other reason for the “dispiritingly low level of law enforcement activity” against scammers is that victims often do not come forward out of embarrassment over being tricked. He tells the story of one woman who phoned Victim Support for help who had not even told her husband. Some of the victims who spoke to Investors’ Chronicle for this story were also reluctant to speak on the record for similar reasons.

NOTABLE PROPERTY INVESTMENT SCHEME INVESTIGATIONS

Main players and companies

Result

Summary

David Ames, Harlequin Group

12-year prison sentence, September 2022

Ames arrested for a £226mn fraud involving over 8,000 investors who lost almost all of their investment.

Anthony Jon Domingo Armstrong-Emery, Ecohouse Developments

14-year director disqualification, May 2019

Ecohouse Developments went into liquidation owing more than 350 investors circa £21mn.

Christopher Bateman and Nicola Fairweather, GCC Management and Amek Solutions

25-year director disqualification, November 2022

When GCC Management entered into liquidation, investors were owed £13.2mn.

Mitchell Mallin, Essex and London Properties

14-year director disqualification, June 2021

“Ponzi” scheme in which creditors were owed £11mn when the company was wound up.

Absolute Living Developments

Six directors banned for total of 54 years, December 2018

Misled more than 300 people to invest £12mn into residential property developments.

It can be tempting to read about these sorts of scams and imagine ‘it could never happen to me’, but Ames’ case shows there is a fine line between fraud and legitimate venture. Ames had indeed developed some properties in the Caribbean with his investors’ money – 172 villas and hotel rooms were built at Buccament Bay in St Vincent – but he had promised to build 8,200 across seven locations in the Caribbean and Brazil and had no external funding despite telling his investors he did. As a result, 99 per cent of his investors made no return.

Stevens says that what makes property investment fraud in particular difficult to uncover is that it can take a long time for it to become apparent that a fraud has taken place. Because legitimate property development is a long-term investment, victims might not notice they have been duped by an illegitimate scheme until the promised maturity date of their investment rolls along five or 10 years down the line. Indeed, at first, there might not be much duping at all. A source close to the SFO believes this was the case with Ames, adding there must have been a “tipping point” for him – a moment when he went from on some level actually intending to develop these villas to deciding instead to fleece his investors for as much money as possible.

One scam victim named Peter who spoke to Investors’ Chronicle but cannot be identified for legal reasons said he too felt there was a moment when his scammer was attempting to run a legitimate property development business. Peter put £225,000 into a company which, when it collapsed, was £23mn in debt to hundreds of investors and creditors. As one of the early investors, he managed to make around £200,000 back. At the time, this gave him the impression that the company was doing quite well, although he now worries that most if not all of the earnings he was paid were off the back of new investors.

“I think, in the beginning, there was an attempt to run this as a legitimate business,” he recalls. “But almost as a default it turned into a ponzi scheme as they were using investments to pay off their investors’ interest payments.”

Like Stevens, Peter is critical of the banks for not doing enough to police investment scamming. He alleges that his scammer was in cahoots with a personal banker at his local branch. As well as bringing a case against the scammer, Peter says many victims are also mounting a case against the bank. With both of these cases, he says police progress has been “painfully slow” – another reminder of the difficulty of enforcing fraud law and convicting the perpetrators.

Peter’s case might not even result in a conviction. Not every instance where multiple small-time investors believe they have lost money on property ventures which fall through counts as fraud – even if a government body like the SFO initially opened a probe looking into whether a fraud took place. In October 2021, it dropped a three-year probe into an alleged fraud in Liverpool where investors believed they lost money on developments called New Chinatown, North Point Pall Mall and Pinnacle Angelgate which were never built.

As such, it is even more important for investors to be vigilant about the real risks of losing money even where there is no scam. 

The lack of internet regulation can add to the perception of legitimacy. The Work and Pensions Committee report singled out Google – part of Alphabet (US:GOOGL) – in particular for continuing to run adverts for scammers while simultaneously running adverts on how to avoid being scammed. There is also little regulation of the many websites which clone the look of a legitimate company’s website. In both instances, cross-referencing the URL with multiple sources is vital.

 

Fool me twice

One final thing for investors to be wary of is scammers who prey on those who have lost money in a previous scam by promising to get the investment back. Ultimately, victims of fraud should stick to the advice of the SFO and FCA as well as charitable organisations such as Victim Support and Samaritans who can offer impartial advice on how money can be reclaimed.

For his part, Peter has made a lot of connections with fellow victims through a series of WhatsApp groups which he says have helped him to learn more about how the scam unfolded, how much money has been lost and the status of the legal cases against the scammer. “Acting jointly has been an absolute godsend,” he says. However, the SFO urges caution when sharing details with people claiming to be fellow victims as this too could be another scam.

None of this means people need to avoid property investment altogether. There are plenty of legitimate ways of investing in property development, starting with real estate investment trusts (Reits), and risks can be managed by, for example, selecting publicly accountable and heavily regulated vehicles with good track records.

The warning signs for investors should always be a stress on time sensitivity or ‘one-time offers’, unrealistic returns and a chance to invest in unfinished projects. Sadly, though, no amount of endorsement from celebrities or financial institutions can guarantee that investors will avoid a scam or generate returns. If in doubt, just back out.

Peter knows this all too well, and hopes his story can act as a warning. “I don’t think we’ll get our money back, but if we can through the media forewarn other people of what can go wrong that’s a service to humanity as far as I’m concerned.”


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Florida police cameras show August arrests for alleged voter fraud

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CNN
 — 

Newly obtained police body camera video shows Tampa Police officers arresting confused and stunned convicted felons for allegedly voting illegally in the 2020 election.

“I voted, but I ain’t commit no fraud,” Romona Oliver can be heard saying on police body cam video obtained from the Tampa Police Department. “I got out. The guy told me that I was free and clear to go vote or whatever because I had done my time,” she said. Oliver’s attorney says she received a voter registration card and thought she was eligible to vote.

The videos, first reported by The Tampa Bay Times, provide a fresh glimpse into a far-reaching state operation earlier this summer to crack down on supposed voter fraud.

Romona Oliver Bodycam footage from 10/18/22

On August 18, Florida Gov. Ron DeSantis announced the Florida Department of Law Enforcement arrested 20 individuals accused of illegally voting in the 2020 election. He unveiled the charges at a celebratory news conference at the Broward County Courthouse, where he was flanked by police officers and state Attorney General Ashley Moody.

“As convicted murderers and felony sex offenders, none of the individuals were eligible to vote,” DeSantis said.

“They did not get their rights restored, and yet they went ahead and voted anyway,” DeSantis said at the time. “That is against the law, and now they’re going to pay the price for it.”

Mark Rankin, a Tampa-based attorney, who is representing Oliver pro-bono, told CNN that Oliver served almost 20 years in state prison for a conviction for second degree murder.

“She served her time and got out. And she got out around the time that Amendment 4 was passed, which affected the rights of felons to vote. Her understanding was that felons had their rights restored.”

Rankin says Oliver was approached at the bus stop one day on the way to work by someone registering voters, and she told them she was a felon. The person then told Oliver that she could fill out the form and if she was eligible, she would get a voter registration card and if she wasn’t eligible, she wouldn’t get the card.

Oliver received a voter registration card in the mail. She went to the Department of Motor Vehicles office later to get a new driver’s license and was sent an updated voter registration card with her new address, according to Rankin.

“She was twice told by the State of Florida and the local Supervisor of Elections, ‘Here’s your voter registration card. You are, as far as we’re concerned, legally eligible to vote.’ And so she voted and she was shocked when she was arrested.”

“She was shocked and upset because she thought her rights had been restored by the amendment. She didn’t know any different. And the State of Florida, she believed, was telling her that she was eligible to vote. And now she’s had the rug pulled out from under her. She never would have voted if she knew that she was ineligible,” Rankin said.

Oliver pleaded not guilty to the illegal voting charge and has a trial set for December in Hillsborough County. County records show she was released on her own recognizance the same day she was arrested.

The Tampa Police Department conducted arrests on behalf of the Florida Department of Law Enforcement, the originating agency for the investigation, a police department spokesperson told CNN.

CNN also reached out to the Hillsborough County Sheriff’s Office, which was involved in some of the arrests.

The arrests marked the first public demonstration of the Florida Office of Election Crimes and Security, a controversial new investigative agency created this year and championed by DeSantis to probe voting irregularities. Created under a sweeping bill passed this year to overhaul voting in Florida, the office was given a staff of 15 to initiate probes and allowed DeSantis to assign 10 state law enforcement officers to help investigate election crimes.

But almost immediately after the state announced the charges, questions began to surface about the arrests and whether the individuals knew they were violating the law when they cast a ballot.

According to state law, it is the job of the Florida Department of State to “identify those registered voters who have been convicted of a felony” and “notify the supervisor and provide a copy of the supporting documentation indicating the potential ineligibility of the voter to be registered.”

In the five counties where there were arrests, the local supervisor of elections office told CNN that the state did not inform their offices that the arrested individuals were ineligible to vote.

DeSantis continued to defend the arrests and in a later news conference blamed some local election offices who, he said, “just don’t care about the election laws.”

But the Office of Election Crimes and Security wrote a letter to an elections supervisor that the individuals voted illegally “through no fault of your own.” The letter, obtained by CNN, was sent on August 18 by Pete Antonacci, who served as the first director of the Office of Election Crimes and Security until he died September 23 after a medical episode at the Florida state Capitol.

The arrests captured in police body cam footage also are illustrative of the confusion that still surrounds a successful 2018 constitutional amendment in Florida to restore the voting rights of some felons that had completed their sentences.

The constitutional amendment, approved overwhelmingly by voters in a statewide referendum, said people convicted of murder and certain sex crimes were not eligible to have their rights restored.

But the law that implemented the constitutional amendment specified that an ineligible felon who erroneously votes is in violation of the law if they “willfully submit any false voter registration information.” State Sen. Jeff Brandes, a St. Petersburg Republican and the sponsor of that legislation, has said on social media that most convicted felons have no intent to break the law.

After the Tampa Bay Times published the body cam video, Brandes tweeted from his verified account, “Looks like the opposite of ‘willingly,’” and he suggested that state will struggle to prove its case in court.

“I hope they have the courage to drop charges or go to trial and produce evidence of willful intent,” Brandes wrote.

CLARIFICATION: This story has been updated to clarify that local election offices were not informed by the state about arrested individuals’ ineligibility to vote.




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Bot’s job? Quants question AI’s model validation powers

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Can bots police bots? It’s a conundrum at the centre of many a sci-fi thriller. But now the real-world question is whether bank bots can validate their own models – or perform the crucial job of ensuring risk management models are fit for purpose. Some quants don’t think they can.

While banks already deploy artificial intelligence (AI) for many tasks – such as recognising patterns in financial data, calculating risk sensitivities or finding the optimal execution for a trade – when it comes to

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Former Iowa police officer charged with theft and fraud

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DES MOINES, Iowa (KCRG) – The Iowa Division of Criminal Investigation is reaching out to anyone who has had financial dealings with an Indianola man in an attempt to identify additional victims.

42-year-old Chad Koch was previously a certified police officer who worked in multiple jurisdictions around the Central Iowa area.

Beginning around April 12th, 2019, investigators say multiple cash loans were made between Koch and a lender in Polk County, Iowa. The loans were made in varying amounts and totaled in excess of $200,000.

Koch conveyed specific information as to his intentions with the loan proceeds, including bill payments, paying overdue child support, and other obligations. During the course of the investigation, it was discovered that certain misrepresentations were made by Koch to the lender in the original loan terms and in the supporting documentation that he provided.

During the investigation account balances, account activity, and other documents showed inconsistencies when compared to the documents Koch provided the lender. Multiple documented attempts to secure repayment from Koch were reportedly met with delay, avoidance, additional explanation, and false representation of repayment intent.

He was arrested and charged with two counts of Theft in the First Degree and two counts of Fraudulent Practices in Polk County after an investigation.

Anyone with information is asked to contact DCI Special Agent Chris Forsyth at (319) 883-6108 or forsyth@dps.state.ia.us


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