£8m misappropriated in Guernsey property fund
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Directors of the Guernsey-based Stirling Mortimer global property fund have announced that £8m could not be paid to the fund following a “misappropriation” of monies.
In a Channel Islands stock exchange announcement on February 15, directors of the £53m Stirling Mortimer No 4 Cape Verde Cell say a 15 per cent penalty payment of sums invested in property contracts, held in escrow and due to the fund relating to unsold properties was not paid on the due date of January 31. It alleges this is due to misappropriation of the funds by a former partner of international law firm, ELS International Lawyers. The misappropriated money represents nearly 15 per cent of the net assets of the fund as at June 30, 2009.
The board and its advisers are considering further actions and a worldwide freezing order has been obtained by ELS in the UK High Court of Justice against the former ELS partner’s assets, according to the statement.
Based on information it has received, the board believes that the money will be reclaimed, says the statement.
After close of business on January 29, the fund’s board of directors were notified by a partner of ELS International Lawyers (formerly European Legal Solutions) that the £8m could not be paid.
The monies were being held in escrow by ELS pursuant to individual investment contracts for each property. The board says it had received regular confirmations from ELS up to and including December 3 that this cash amount was held in escrow by the firm.
Under the terms of the contracts, if individual properties were sold within 24 months with a return that exceeded 15 per cent of the initial purchase price, monies for each property sold would be released to property manager, Stately Investments International. If they were not sold by January 31 2010 then the monies would be paid to the fund by ELS.
According to the announcement, a further sum of £23m relating to two potential sales pending may also be payable if the sales do not proceed.
The board has deemed a market suspension of the shares listed on the Channel Islands Stock Exchange not to be advantageous to the fund or shareholders as there has not been a market in the shares and no shares have traded to date. However, this decision will be kept under review.
On February 1, the board engaged legal advisers in Guernsey and the UK and advised ELS of the fund’s claim in respect of the cash amount owed.
Stirling Mortimer is a marketing company offering financial products and overseas property investments. It has launched seven funds via two protected cell companies and two directly registered funds. These include the Majestic Village no.1,2 and 3 funds, the Cape Verde no 4 fund, Spain no. 5 fund, Morocco no. 6 fund, Cape Verde II no. 7 fund, Coratina fund and the UK land funds no.8 and 9.
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Readers' comments (10)
Evan Owen | 26 Feb 2010 12:16 pm
Why waste your money on Euromillions?
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Anonymous | 26 Feb 2010 12:18 pm
So much for regulation and oversight in Guernsey. Bad but not as bad as Arch Cru. The PPCC structure cannot be trusted.
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Anonymous | 26 Feb 2010 12:34 pm
Does Guernsey have the financial resources to compensate if necessary?
And if not, doesn't this must cast doubts on the wisdom of placing any business in Guernsey?
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Julian Stevens | 26 Feb 2010 12:39 pm
Three or four years ago, I attended one of Stirling Mortimer's slick presentations here in Bristol. The basic premise was make tons of commission by promoting and selling a completely unregulated packaged product that was backed by a number of very wealthy European entrepreneurs and which couldn't fail, no matter what happened to property markets. The directors of the company were Messrs Clink & Clink.
It all sounded too good to be true, not least because even then it was quite apparent that a major property bubble was growing in Spain, and it obviously was.
We certainly do need regulation in the UK, just like anywhere else.
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Anonymous | 26 Feb 2010 2:25 pm
One should be very wary of financial products in offshore centers such as Guernsey. The regulator has no statutory powers and is reluctant to investigate wrong doing by local firms.
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Anonymous | 26 Feb 2010 10:56 pm
Whilst I do not question Mr Stevens motives he should be more careful with his comments. To start with, the directors are Clink & Bowman NOT Clink & Clink. I am an IFA that charges fees and am not "commission hungry" or related to Mr Clink!!! It is also easy with hindsight to say now that the Spanish property market was in a bubble. By Cell 5 it may have been a fair comment but not for cell 1-3 that myself and my clients are in. I viewed the plans and sites in Spain personally and researched sales of similar properties in the area through many local agents. I stress "Sales" not values. One example was a a similar town house sold for £1.2M just up the road from properties the fund was buying for £600K. It must also be remembered that this issue relates to Cape Verde in the main and that market was not in a bubble. Also the misappropriation has been by ELS NOT Stirling Mortimer.
Any IFA who took the time to look beyond the "slick" presentation saw a well positioned and strong opportunity but it carried high risks. Any IFA who just took the 10% and sold the funds as low risk/guaranteed deserve all the grief they are going to get.
The next 6/12 months will be very interesting!!!
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Anonymous | 27 Feb 2010 9:30 pm
if you can't trust a lawyer, who can you trust?
Presumably the appropriate authorities will quickly take the necessary action with a firm hand to recoup funds and restore confidence.
Questions will remain but fair play to the fund for offering global alternative investments for clients rather than depressed UK dross - sounds like Mr Stevens missed the point!
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michael brayne | 1 Mar 2010 12:48 pm
Anonymous | 26 Feb 2010 10:56 pm. The fact he/she is fee based and not a commission hungry sales person must be of little comfort to those clients who have lost money on your advice. I am a commission hungry sales man and although I have a property in Spain as a second home and have had for many years, anyone could tell it was investors that were buying into parts of Spain and it was that and that alone that was causing the boom. We all know that anything that increases year on year by 25% or more always drops back part of the way eventually, it's natures way of telling you it's a volatile sector. Fee based or commission bad advice is bad advice.
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Anonymous | 2 Mar 2010 4:22 pm
In reply to Mr Byrne. I choose the fee route but I am not one of those "commission haters" and was not getting into the fees v commission debate. I was replying to Mr Stevens "tons of commission" point NOT having a dig at other IFAs, far from it.
You make a very fair point about Spain and volatility etc but I have to pick you up on the bad advice bit. To say it is bad advice I assume you know all there is to know about the Stirling Mortimer (SM) proposition?? If not read on.
NO clients have lost money as the underlying structures are not just about the property values they give various contractual support on the downside. Only time will tell if this support does what it is supposed to but UK investers are currently well in profit due to the Euro movement which was part of the original diversification considerations.
In escence this was a 4 year high risk property fund with a difference and it should have been sold as such. All my invested clients are HNWs with small amounts in and know what they were doing. This was not for your granny!
SM are negotiating large scale sales at the minute and currently expect to return at least 100% of the capital invested. To put this in context, how many mainstream 3 year old property funds have NOT lost money over the last 3 years? Answer NONE (source:Trustnet) Average sector fall of over 35%. If Stirling Mortimer return half the money back to my clients it will still be in line with the sector average after a 26% uplift on the currency movement.
Please be careful posting comments regarding other advisers giving bad advice when you do not know the facts.
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Anne Dawson | 12 May 2010 1:17 pm
I am very concerned about the situation. How and when will we get our money back. Is there anything that we can do as a group of investers. I find it difficult to have to communicate only through my FA. Comments would be appreciated.
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