As part of an ongoing series of articles looking at investment fraud cases, this article will examine what happened when an overseas property fraud was perpetrated on unsuspecting UK investors.
Boiler room scam involving property fraud
A typical boiler room scam involves the selling of worthless or overpriced shares in non-existent companies or companies listed on an overseas stock exchange.
The investment ‘hook’ usually follows a fairly predictable pattern: the company is just about to launch a ground-breaking new product or it is an innovative tech company that is about to be listed on the stock market. The scam is presented as a great opportunity to get involved before other investors.
However, sometimes the investment opportunity is not a tech company with an innovative new product, it can be a property company with development land in an overseas location. But the same boiler room sales techniques and bullying tactics are deployed.
One such property fraud took place between July 2010 and April 2014 and involved persuading members of the public to invest in a company that had acquired a piece of land to develop twenty holiday villas on the Portuguese Island of Madeira.
In total, 170 people committed £2.8 million to this investment opportunity.
What was the investment proposition?
Investors were told the land (held by the company) would generate investment returns of up to 228% – once planning permission was secured – as it was adjacent to the proposed development of an upmarket golf course.
Investors were led to believe that the Four Seasons hotel chain and Hilton Hotels had confirmed their interest in buying the Madeira development for £43 million once complete.
They were also told that the ‘development’ was partnered with Barclays Bank Plc and that a guaranteed share buy-back scheme was in place.
What happened next?
The perpetrators of this property fraud had established five separate limited companies none of which were authorised by the Financial Conduct Authority (FCA) to provide financial services in the UK.
The main instigator of the property fraud Michael Nascimento together with his associates went to great lengths to deceive their victims.
In convincing investment brochures seized by the FCA, one of the boiler room companies boasted of being “one of the UK’s largest wealth advisory firms”. The website content was copied from banks such as Commerzbank and Citibank.
Documents were forged under the name of the Four Seasons and Hilton Hotels to con investors into thinking the hotel chains were interested.
One investor and his wife were even flown to Madeira to meet Mr Nascimento and an associate, Charanjit Sandhu, who were both using fake names. The couple were shown land that was not the land they were said to be investing in.
Where’s the money gone?
The evidence suggests that most of the money was spent on funding the lavish lifestyle of Mr Nasciemento.
What was the outcome for investors?
Investors received none of their capital back nor any of the investment returns they were promised.
Because the firms involved in this scam were not authorised by the FCA and as the ‘investments’ were held in overseas land which is deemed an Unregulated Product by the FCA; this meant that investors were not entitled to compensation under the Financial Services Compensation Scheme
However, under the Proceeds of Crime Act (POCA), the FCA has made an application to recover assets from the perpetrators. It is not known yet whether this application has been successful.
What was the outcome for the perpetrators?
The Financial Conduct Authority (FCA) pursued a case against the perpetrators of this property fraud. It was the second largest criminal investigation ever pursued by the FCA.
In September 2018, the individuals behind this investment scam were found guilty of conspiracy to defraud, fraud, money laundering and perverting the course of justice.
They were sentenced to a total of 29 years in prison.
The FCA investigation
To illustrate the complexity of this type of financial crime, the FCA seized more than 100 computers and the evidence gathering included the review and analysis of 65 bank accounts; over 4 million documents; and 3,682 exhibits running to 23,642 pages.
Despite the successful prosecution by the FCA, questions were raised as to how the same perpetrators were able to continue to operate over a four-year period.
They somehow managed to reinvent themselves even after the FCA was made aware of the first iteration of a boiler room operation involving Mr Nascimento in 2011.
Mark Steward, the FCA’s director of enforcement and market oversight, said this was because Mr Nascimento used numerous tactics to avoid detection; “he deliberately hid his identity, used other people as the directors and signatories on the bank accounts, [and] avoided having his name on any documentation”.
Do your own due diligence
If you believe you have been scammed then please report it on the FCA’s consumer helpline 0800 111 6768 or use their contact form.
Also, please be alert to any follow-up asset recovery scams. Fraudsters have been known to pass your details on so you may receive offers to buy back your investment or advice on how to get your money back for an up-front fee.
For more information on how to deal with boiler room scams please click here.
