Five directors of a defunct property investment business have admitted their involvement in a multi-million pound property investment fraud. They have pleaded guilty at proceedings at Newcastle Crown Court relating to the activities of their companies they ran; PPP Ltd, Practical Property Portfolios Ltd and Napeer Holdings Ltd.
Outline
John Potts, Peter Gosling, Natalie Laverick, Peter Graham and Eric Armstrong have all pleaded guilty to fraud offences in relation to their activities as directors of the PPP property investment companies operated from Gateshead They are to be sentenced in mid to late March 2009.The offences took place between 2001 and 2003 and involved an estimated £80m of investor monies. Investor claims totalled £16m when the company was wound up in 2003. However, it is thought that this figure is unrepresentative of the real total lost. It is estimated that at the time the liquidator intervened there was almost £65m worth of investors' funds providing no genuine return.
The investigation was carried out by the Serious Fraud Office in conjunction with Northumbria Police Economic Crime Unit.
The five defendants
Between 1998 and the liquidation of the companies in 2003, the five defendants operated one or more of three property investment companies: `Practical Property Portfolios Ltd', `PPP Ltd' and `Napeer (Holdings) Ltd' (together referred to as `PPP').
John Potts (d.o.b. 16 July 1948) of Sunderland was one of the founders of PPP and has been described as its Chairman.
Peter Gosling (d.o.b. 14 July 1951) of Gateshead was a founder and Managing Director of PPP.
Natalie Laverick (d.o.b. 4 September 1980) of North Yorkshire was PPP's Administration Director and later Operations Director.
Peter Graham (d.o.b. 18 June 1946) of Sunderland joined PPP in mid 2001 to head its sales team as International Sales and Marketing Director.
Eric Armstrong (d.o.b. 5 May 1953) of Newcastle upon Tyne joined PPP in spring 2002 as Finance Director and later became its Chief Executive Officer.
Background
PPP sold about ,4000 residential properties to at least 1,750 investors in exchange for an estimated £80 million. Most of the investors were individuals who chose to entrust their savings to PPP although a number of larger organisations were also taken in by PPP's promises.
Investors were asked to pay a package price of around £25,000. In return investors were promised a house in (usually) the North East of England. PPP made the following promises to investors. The house would be in an "up and coming" area. The property would be refurbished to a tenantable standard. The property would be let to vetted tenants. The property would be maintained and managed on behalf of the landlord. Building and contents insurances would be obtained. Finally, (but crucially for many investors) rent would be guaranteed by means of an insurance policy which would cover any periods when the property was not tenanted.
The prosecution alleged that the defendants misled investors in almost every material respect. PPP was wound up by the DTI in spring 2003 as a company not being run in the public interest. When the DTI intervened, it found the overall position of PPP to be little short of catastrophic if viewed from an investor's perspective.
Properties were very often of a much lower value and quality than represented and many were located in undesirable areas. When the limited accounting records were examined, it was discovered that 49% of all investment properties were still awaiting commencement of renovation works. The refurbishment programme was irretrievably behind any sort of schedule and the necessary provision for refurbishment (about £7m) was not there - rather there was a deficiency of about £4.5m. In addition, 63% of properties were un-let. PPP's claims about insurance were also found to be untrue. From early 2002 until liquidation, PPP sold new and renewal policies for buildings and contents insurance when they had no such products available to sell. The `rental guarantee scheme' said to be underwritten by a `blue chip insurance company' to protect investors in the event of gaps in tenancies was found to be a sham. The policy was essentially worthless due to the limitations it imposed and PPP admitted to using it as a marketing tool and to paying investors their own funds back as rent instead.
In effect, the scheme became in its simplest form, a type of `Ponzi' scheme, whereby the funds of investors were used on the one hand to pay the expected rental returns, and on the other to fund the lavish lifestyles and salaries of the defendants.
Use of investors' funds
The use of company funds for personal gain by some of the defendants in this case was simply staggering.
The following examples are illustrative. £500,000 was spent on a fleet of luxury cars including Aston Martins, Bentleys and the 1960 Mark II Jaguar known as the "Inspector Morse Car". Approximately £250,000 was used by John Potts and Peter Gosling to purchase and maintain racehorses. Almost £300,000 was spent by Mr Potts on furnishing his home with art and antiques. A further £200,000 alone was spent on luxury clothing.
Even the use of investor funds to fund office overheads was completely disproportionate for a company of this size and illustrated the contempt the Defendants had for their obligations to investors. PPP, at its peak, employed little more than 100 people. However, the PPP Christmas party in 2002 is estimated to have cost £500,000. At the party prizes were awarded following a sales competition.The first prize was a villa in Spain worth £100,000, the second and third prizes were respectively a boat and £10,000 in cash. Staff on the same table as a prize winner also "won" prizes such as DVD players.
Chronology of investigation
PPP was wound up by the DTI in spring 2003 as a company not being run in the public interest.
The Serious Fraud Office and Northumbria Police Economic Crime Unit commenced a joint investigation in May 2003.
The defendants were charged jointly with one offence of conspiracy to defraud in summer 2007.
