The High Court has shut down a property investment company operating a Ponzi scheme which misused close to £20 million of investors’ money.
Essex and London Properties Limited (ELP), based in Sidcup, Kent, was incorporated on April 15 2005 and claimed to buy properties with the intention of selling them on at a profit or generating rental income for investors.
Potential investors were approached directly or through intermediary platforms, who received 35% of the invested amounts and offered partnerships in a Limited Partnership scheme. Enticement to invest came in the form of offers of an 8% annual return paid quarterly if the money was held for three years or 12% if the money was held for one year.
Across an 18-month period, over 800 people invested in the company – with sums of between £5,000 and more than £100,000.
Essex Police, which is undertaking an ongoing investigation into the wrongdoing, calculates that £18.9 million has been obtained from creditors and investors to date.
In reality, though, ELP only acquired a single property – a house in Harwich, Essex for £147,000 – which is less than 1% of the overall amount of money secured from investors.
Despite this, the firm gave information to investors claiming it had bought numerous properties that had rapidly gone up in value. To ward off suspicion, it falsified Land Registry documents to make it seem like the company owned more property than it really did.
Payments were made by investors through a number of escrow agencies. Investigators from the Insolvency Service analysed the income and expenditure of statements made by one of these agencies and found that existing investors received their interest payments from payments made by new investors rather than from any meaningful return on their investment. In essence, the company was operating a Ponzi scheme, the Insolvency Service said.
As a result of the investigation, the Secretary of State for Business Energy and Industrial Strategy – Greg Clark MP - issued the petition to wind up the company.
In late September, the High Court heard the petition against the company (which was unopposed) and ordered the company into liquidation.
Shockingly, during the course of the investigation, investors were approached by various recovery room businesses offering to recover the amounts, possibly in excess of the initial sums invested, in exchange of an advance fee. What’s more, one business even falsely claimed to be authorised by the chief executive of the Insolvency Service.
The government agency insisted that investors should ignore any approach made in this way, with only communications from the Official Receiver being responded to.
“The Official Receiver has not authorised any third party to act on his behalf, especially in regards to recovering investor’s losses,” the Insolvency Service said in a statement.
In January this year, ELP placed itself in voluntary liquidation, claiming to have debts of more than £11 million. The creditors, made up mainly of the investors in the company, originally approved of the liquidation but later supported the Secretary of State’s petition.
“The company persuaded members of the public to part with substantial sums of money to invest in property,” David Hill, Chief Investigator for the Insolvency Service said. “Only one property was purchased and the money raised from the public in reality was used to benefit those running the company.”
He added: “As so often is the case, if an investment scheme appears to be too good to be true, it probably is. There is an ongoing investigation into those individuals controlling Essex and London Properties Limited by Essex Police, who are liaising with the Crown Prosecution Service with a view to prosecuting a number of suspects.”