Property developers around Australia have been at odds with the Australian Securities and Investments Commission (ASIC) recently. We will examine some of the disagreements which will be cautious reminders for developers to seek legal advice to help prevent a conflict with the powerful corporate watchdog.
In March of this year Victorian-based property spruiker Henry Kaye fought proceedings in court over an alleged $18 million fraud, following an investigation by ASIC. The proceedings included accusations against Kaye that he unlawfully obtained $17.7 million in finance from St George Bank for property developer, Inkerman Developments. Kaye is alleged to have failed to disclose a letter to GIO in a meeting with St George Bank in June 2000.
According to ASIC, “Kaye’s company Oasis Investments bought 168 off-the-plan apartments to be built in St Kilda from Inkerman at a discounted price. Kaye then sold them at a mark-up to unsuspecting buyers. He used deposit bonds provided by an agent of GIO Australia called Deposit Bond Australia, instead of a cash deposit apartments”.
He was charged with one count of obtaining financial advantage by deception and faces a committal hearing at the Melbourne Magistrates’ Court on 7 March 2007.
On 9 May 2007, ASIC announced that “the Supreme Court of Queensland ordered the winding up of a Brisbane-based company Property Developers Fund Ltd (PDFL) on “just and equitable grounds”, following an application by the ASIC”.
The proceedings arose from PDFL raising capital from members of the public through offers of Cumulative and Participating Redeemable Preference Shares (CPRPS) and providing loans for property development.
ASIC said it’s winding up application “followed a Court ruling in March 2007 that the investors were shareholders, rather than creditors”. The Court was informed that the investor shareholders stood to suffer a “substantial shortfall” on their investment.
“ASIC assisted with the appointment of a liquidator when it became clear that this was the best course of action for investors,” said ASIC deputy executive director of enforcement Allen Turton.
According to ASIC, “the application was supported by the company’s directors and investors”.
NSW-based property developer Robert John Orehek, pleaded guilty in the Sydney District Court to two charges of fraudulent misappropriation amounting to $170,000, according to the NSW.
Mr Orehek, through a group of private companies he owned and controlled, raised mezzanine finance between February 2000 and November 2002 for prime residential property developments. According to ASIC, “Mr Orehek raised over $20 million by issuing Deeds of Loan to over 200 investors for his failed property development scheme” ASIC also reported that many of the investors were associated with the Hillsong Church in Castle Hill.
None of the proposed developments were ever completed and all of the companies in the Orehek group are now in liquidation. Nearly all of the investors have lost their money, according to the ASIC.
The matter has been continued for sentencing on 12 July 2007 in the District Court of New South Wales. A third offence of fraudulent misappropriation of $20,000 may be taken into account for the purposes of sentencing.