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Desperate developers fall prey to funding fraud

Developers in Cyprus may have fallen for an alleged £12 million fraudulent loan scheme in the UK according to a report from the Overseas Property Professional (OPP), highlighting their vulnerability at a time when commercial funding is much harder to source.

The UK body which investigates and prosecutes serious and complex fraud

The UK body which investigates and prosecutes serious and complex fraud

A WARNING came to cash-strapped property developers this week after three people in the UK were charged with conspiracy to defraud, deception and money laundering offences relating to a suspected £12 million of commercial loans to overseas property developers after the Serious Fraud Office (SFO) raided 19 properties in London and other parts of England.

Gresham Ltd and Gresham Finance (London) Ltd allegedly offered commercial loans of up to £250 million that were never paid out, mostly to commercial companies such as resort and hotel developers in Austria, Turkey, Cyprus, Bulgaria, Italy, Romania, Dubai and other countries. The SFO said the case was involved at least £12 million and probably more.

Dangerous climate

No developers that OPP spoke to said they were surprised to hear of the case but, while newspapers have focused on the “playboy” lifestyle of one of the accused, for the property world it has served as a timely reminder of the dangers developers face in the current economic climate. Last week, the UK’s commercial property lending boom officially ended with debt to the sector showing a decline for the first time since records began in 1999.

There is money out there but it’s in fewer hands and there is a tsunami of people wanting funding,” said Mark Jeffery, co-chair of the OPP Executive Panel and commercial director of development Flamingo Lakes. “This could make desperate people even more desperate and lead them away from tried and tested sources.

Gresham’s applicants were allegedly charged between £5,000 and £50,000 pounds for a due diligence check and then asked for a security deposit of between 1% and 5% of the loan amount.

Developers should be prepared to pay up front fees to funding sources but payments should be protected, said Brad Lincoln, chief financial officer for developer funding firm Blackcroft. “As soon as a fund starts checking out a developer it does cost a lot of money. But developers should expect this to go into an escrow and be used when there’s a genuine need,” he said.

Developers need to be absolutely honest about their project, but they should also expect the funding company to provide evidence of where the money is coming from.

Suspected businesses

Six people were arrested in the operation. Three were released without charge while millionaire property developer Edward Ormus Sharington Davenport, 43, and company director Martin Peter Riley, 62, were remanded in custody. Solicitor David Martin Layard Horsfall, 54, was also charged but released on bail.

The same suspects were allegedly also involved in a retail property renting business operating as Gresham Ltd, Park Regent Ltd and Castlereagh London Ltd and used a number of other company names in their business dealings, including: 45 Oxford St Ltd, Alliance Trust, Renaissance Trust, Cutting and Company (Investments) Limited and Paul Street Media Limited.

The SFO points out that Gresham Finance (London) Ltd is not to be confused with Gresham Finance Ltd, which is an unconnected company and not under investigation. Similarly, Castlereagh London Ltd is not to be confused with Castlereagh Ltd of Dublin, which is an unconnected company and not under investigation.

The SFO is asking to hear from anyone who believes that they might have information useful to the investigation. The number to call is +44 (0) 207 239 737.

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