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Troubled property fund fights to recover £50m

by Rachael Revesz on Feb 14, 2013 at 10:11

Troubled property fund fights to recover £50m

Troubled property fund Stirling Mortimer Global Property is fighting to recover more than £50 million from property developers and lawyers.

In its results for the year ending 30 June 2012, Stirling Mortimer said it was claiming €23 million (£19.4 million) from Spanish property developer Geprolar ‘for non-delivery of the funds’ units’, and €2 million from Prasur.

Geprolar has since entered administration, but the Stirling Mortimer board said it was still confident it could get the money back after a previous successful claim against the firm. ‘The board has reviewed the latest accounts of Geprolar available to it, which indicated substantial assets which the claims could be based on,’ it said.

The fund is also locked in a battle over the termination of contracts made by its Cape Verde II sub-fund. Stirling Mortimer said a memorandum of understanding struck with the developer had not been adhered to and that it was in the process of starting legal action against the developer. It added it believed it had ‘a good chance of success’ of receiving €11.8 million.

The legal battles are not Stirling Mortimer’s first foray into the courts. In November 2010 the High Court ordered law firm ELS International to pay it €9.8 million that went missing from the fund. Former ELS partner Joe Ezaz was accused of misappropriating the money and in April 2012 Stirling Mortimer reached an out-of-court settlement with ELS and Ezaz over the funds. The board said that to date it had sold some of Ezaz’s previous assets for €3.5 million and was in the process of selling others.

ELS has now fallen into administration and Stirling Mortimer said it was seeking to recover €27.4 million it said it is owed from the law firm. It said that amount represented the difference between the sums paid to ELS for right-to-purchase contracts and the sums received by property developers. The claims relate to its No 4 Cape Verde, No 6 Morocco and No 7 Cape Verde II sub-funds.

‘Although ELS is in administration, the directors are investigating all possibilities of recovering the monies owed to the fund,’ the Stirling Mortimer board said.

New Model Adviser® reported in October last year that investors in the Stirling Mortimer funds had launched legal action against ELS, alleging professional negligence in relation to their investments.

26 comments so far. Why not have your say?

Julian Stevens

Feb 13, 2013 at 09:53

What next? The Stirling Mortimer Jurassic Park fund? High commissions, backed by a consortium of wealthy businessmen so it can't fail and unregulated to boot. Who could resist?

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Paul Brown via mobile

Feb 14, 2013 at 10:37

What an absolute mess! No hindsight required, this was all very avoidable.

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Pat Riot

Feb 14, 2013 at 10:44

Morrocco and Cape Verde Islands, sounds just the thing for some widows and orphans.

what a joke

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Hickky

Feb 14, 2013 at 10:53

So who takes all the money left that is owed to the investors? Lawyers!

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Short of Understanding

Feb 14, 2013 at 10:54

To be fair, Stirling Mortimer are actually trying to recover losses, which is far at odds with a lot of other "property development schemes". Read up on Arck, for example, the sub-story of which seems to be one party being alleged to have mugged the other party on some land rights that were or were not purchased under a less than watertight legal contract, and the current case of Harlequin vs O'Halloran in the Irish Courts (I think) in which it is alleged that the developer was ripped off by the builder.

What it all underlines is that this overseas property development game is infested with less than fully scrupulous individuals, and is extremely high risk. Once and for all, will retail investors leave it alone, and leave it to institutons who are more capable of doing the DD. So anyone looking at the latest craze of funding Brazilian "affordable homes", just leave your cash in the bank, and do something to take your mind off these schemes.

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l'ifa passeport en provenance de France

Feb 14, 2013 at 11:49

Julian

and the bank guarantee ! 2 years if memory serves me correct

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BGM

Feb 14, 2013 at 11:54

Probably playing a nice round of golf instead of performing due diligence. Always suspected that that the reason the locations were chosen, as opposed to any actual profitable investment potential.

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Arthur Schopenhauer

Feb 15, 2013 at 06:42

Most of the UCIS that have failed involve fraud by an unregulated party It is to the credit of Sterling Mortimer that they ignore the ignorant comment and concentrate on chasing the money as they know they will have no help from regulators and maybe even obstruction and insult

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Arthur Schopenhauer

Feb 15, 2013 at 06:42

Most of the UCIS that have failed involve fraud by an unregulated party It is to the credit of Sterling Mortimer that they ignore the ignorant comment and concentrate on chasing the money as they know they will have no help from regulators and maybe even obstruction and insult

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Man of Kent

Feb 15, 2013 at 09:31

@ Arthur S - why would anyone running an unregulated collective expect any help from the regulators?

It's not as if this is the first Stirling fund that's foundered - Majestic Villages (various numbers) etc.

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Compliant Officer

Feb 15, 2013 at 10:09

I don't want to say it but....... I told you so!!

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Arthur Schopenhauer

Feb 15, 2013 at 10:33

@Man of Kent

You need to analyse the problem and identify the cause

If they seek to make UK IFA's responsible then they might get off their **** and help to coordinate matters with the police and the advisers in nailing the thief rather than the adviser who would have been unaware of any wrong doing insider the admin or the commercial end or the lawyers client account Either get involved or do not inhibit those trying to rectify a wrong

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Compliant Officer

Feb 15, 2013 at 10:55

I disagree. UK IFAs should have read the prospectus' and realised that this (and other schemes like it) were an accident waiting to happen! That was certainly my own view of this product.

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Arthur Schopenhauer

Feb 15, 2013 at 11:04

@ Compliant Officer

Beam me up Scotty there is no intelligent life down here

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Hickky

Feb 15, 2013 at 11:10

Three cheers for Compliant Officer, there is intelligent life down here.

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Compliant Officer

Feb 15, 2013 at 11:21

Hear, hear Hickky!

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Arthur Schopenhauer

Feb 15, 2013 at 11:22

@Hikky

If there is intelligence then it must be the unique bliss that comes from compete ignorance of the subject

Plainly some people here have 20:20 hindsight and very little experience of the matter they are talking about but that does not stop the opinionated ignorant views

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Julian Stevens

Feb 15, 2013 at 11:27

Any intermediary who felt the need to bother reading the prospectus must have failed to notice all the flashing red lights of Stirling Mortimer's presentations ~ high commissions, can't fail, unregulated, investors will keep coming back for more time after time. What more might you need to know to recognise the pitch as something from which to stay well away?

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Compliant Officer

Feb 15, 2013 at 11:36

Perhaps those with 20:20 hindsight now also had excellent judgement then - which is why they don't need to spend time getting experience in this protracted debacle!

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Hickky

Feb 15, 2013 at 11:41

@ Arthur

I submit it is you who live in la la land, and it is you who post ignorant opinionated comments.

If you had removed the cotton wool from your ears when learning about this SM investment, you may have avoided thoughts of recommending it to clients. This is just another case of UCIS fraud. If you recommended this, or indeed were part of the sales team, then 'shame on you'. I sincerely hope that if you were one of the promotors of the scheme, or even were duped into recommending it, you are prepared to spend some time in jail.

It is funny that all the defenders of SM have short memories, Majestic Villages? The recovery litigation will mainly benefit the promotors and is an excuse to show to a regulator or fraud investigator that it was SM that was duped, wrong! Feeble excuse that can be seen through easily.

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Luxemburg3r

Feb 15, 2013 at 15:04

I have to say Hicky, you have missed the point being made by Mr Schopenhauer.

While the fund is unregulated, it does not always follow that the fund sponsors or managers are crooks. As a general rule, these funds fail through mis-management or fraud and not always fraud perpetrated by the sponsors but by some counterparty - Connaught springs to mind, where the fraud has been alleged to have been committed by a counterparty to the fund.

What usually happens is that a mis-guided financial adviser recommends the fund to a strictly retail client, when it should actually only be offered to a different class of investor, better able to identify and understand the risks. Goodness knows why a professional adviser would do that, but again, as a general rule it is pure greed or stupidity and far too often the latter.

In these cases, if the regulator were to get involved sooner it could help protect the interests of investors who may lose money, rather than just dump the ultimate liability on advisers, who do bugger all until it too late and then blame everyone else but themselves. However, by dumping the liability on advisers the regulator will eventually force most of the mis-guided out of the "profession".

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Julian Stevens

Feb 15, 2013 at 15:23

Points well made and better (IMHO) than slagging off those set out by others, even if they may appear to be misinformed or skewed.

Just one thing though ~ the regulator would (if it had the decency to contribute to these forum debates) doubtless point out that it simply cannot regulate unregulated investments. It can only regulate the advice given on them by regulated advisers, which means that it can do so only after the event, by which time the brown stuff's already flopping off the fan blades.

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Luxemburg3r

Feb 15, 2013 at 15:54

@ Julian

I can't help thinking that the regulator has to protect the interests of investors. The fact it does not authorise and regulate a particular fund (manager) does not mean it has no duty of care to UK unit holders? I don't know the technical and legal answer to my own question, but I would have thought protection of investors comes first.

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Julian Stevens

Feb 15, 2013 at 16:17

Yes, but surely the FSA canniot regulate what it is constitutionally not authorised to regulate?

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Luxemburg3r

Feb 15, 2013 at 16:24

Agreed. But the regulator does regulate advice and UCIS should not find their way into the retail advice "food chain" as they should only be promoted to a different class of investors, i.e. Certified HNW and Sophisticated investors.

If advisers recommend UCIS to ordinary retail investors, the regulator should step-in immediately - IMHO.

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Julian Stevens

Feb 15, 2013 at 16:53

Buit that could only be achieved if all intermediary recommendations were to be made subject to pre-approval. The FSA couldn't possibly do that for any DA firm, though it manages it for network members by dumping responsibility for the pre-approval of all sales of any off-piste financial products ~ ergo, the FSA regulates network members by proxy and more intrusively than it could ever do itself, yet still we have to pay full regulatory levies for the privilege. Many are beginning to wonder if membership of network is really such a good thing any more (though it has been in the past).

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