A commercial property developer from Lancashire has been convicted at Preston Crown Court of defrauding seven investors in deals exceeding £1.3 million. Through deception he auctioned a string of unprofitable small retail shops claiming them to be viable and profitable businesses opportunities.
Shaun Kiely, (D.O.B 10/04/68) director and shareholder of Sky Properties (Northern) Limited and of S-Mart Stores Plc, was yesterday found guilty at Preston Crown Court of obtaining money transfers by deception and of false accounting. The offences took place between June and October 2005.
Another defendant, Christopher Page (D.O.B. 10/09/66), a former manager at those companies, was acquitted. He had been charged with obtaining money transfers by deception.
Background
Sky Properties (Northern) Limited (SPN) was a development and real estate business. S-Mart Stores plc (S-Mart) was a chain of small retail outlets in locations across the UK (See note 1).
Shaun Kiely was the principal director for both businesses and Christopher Page attended to the day to day running of the businesses.
Before and during 2005, SPN purchased over 50 low value commercial retail properties across the country. SPN created 20-year commercial leases to S-Mart (also controlled by Kiely) for the properties, before selling on the freeholds at auction. The properties were promoted as a chance to invest in a 'going concern', the S-Mart lease promising rental income to investors for the next 20 years.
However, S-Mart, was not in fact a profitable business. Those employed by S-Mart to run the shops stated that stock consisted of poor quality goods including damaged items and that on most days they would see no customers. On numerous occasions, the assistants running the stores warned S-Mart management of the dire state of business, but the concerns were neglected.
This was because Shaun Kiely's intention was not to run S-Mart as a retail company long term, but to make quick short-term profits by selling the freeholds on to buyers who would be unaware that the properties they were buying were leased by a company whose turnover was too low to cover its rental obligations.
SPN sold properties through several firms of auctioneers between June and October 2005. In the details provided by SPN to auctioneers, it was suggested that the company had 65 branches trading and that the company was in a state of healthy profit.
However, the reality of the year-end accounts for S-Mart for 2003/2004 would have shown that there were considerably fewer outlets and the company was making significant losses, but for the fact that Shaun Kiely arranged for two invoices to be included in the S-Mart accounts which resulted in a total distortion of the true picture.
SFO investigators found that these two invoices had been created many months after their stated dates in order to overstate the turnover of S-Mart by millions of pounds, and to present the company as being a safe investment when it was in fact anything but.
The 2004 accounts were prepared by a firm of certified accountants which the SFO has since reported to their professional body, CIMA, for further investigation into potential professional misconduct. The accounts prepared by the firm clearly reflected the documents presented to them by Shaun Kiely.
Shaun Kiely specifically used the misleading 2004 accounts to promote sales of the stores in auctions held in July to October 2005. Seven investors purchased freehold properties from SPN at these auctions relying upon the inflated accounts and believing that the commercial tenant, S-Mart Stores PLC, was in strong financial health.
Within a matter of weeks, and in some cases only days, after the sales had gone through, S-Mart defaulted on all its leases and stopped paying rent. Shaun Kiely sent a letter to the purchasers who were now also the freeholders of the former SPN properties stating, "For the past 6 months S-Mart has suffered the worst trade in its history.
Takings in our stores are down in some cases 90% and we often have sales of less than the wage of a single member of staff. Our losses over this period have been massive…The fact is that we cannot make the rent payments - we cannot operate the stores…No matter what action you take - we cannot continue to rent your property and we felt it best to send you the keys so you can re-rent the property as soon as possible".
Investigation and proceedings
The case was referred to the SFO in 2007 and the investigation was run jointly with Lancashire Constabulary. The defendants were charged in April 2009 and the trial at Preston Crown Court opened on 11 April 2011 with HHJ Gibson presiding.
On 23 May the jury found Shaun Kiely guilty on eleven counts on the indictment, i.e. eight of obtaining money transfers by deception and three of false accounting. He has been bailed to return to Preston Crown Court on 4 July for sentencing.
