18 January 2013

Kallakis & Co

As a follow-up to comment earlier this week regarding the Kallakis trial I note the assessment by Goymer J -
AIB and BoS have undoubtedly acted carelessly and imprudently by failing to make full inquiries before advancing the money. Indeed the latter bank was given clear and precise warnings by its lawyers about the risks of accepting assurances in a letter from an alleged co-conspirator, a Swiss lawyer. It almost beggars belief senior management chose to disregard that warning and rushed to complete the deal at all costs. It is apparent from the evidence both the defendants took full advantage of the prevailing banking culture in which corners are cut, and checks on them superficial and cursory ...
While I do not equate the position of the banks with that of car owner or householder who forgets to secure his house or car and becomes the victim of theft, the banks do bear some degree of responsibility for what happened.
I'm reminded  that it is 120 years since the 'Liberator' corporate collapse in the UK, another high profile incident involving large amounts of money, credulous people, real estate and claims of forgery.

A contemporary newspaper account of the aftermath reported that
A cable message published last week stated that Jabez Balfour had been released. The circumstance revives the memory of the Liberator frauds. The failure of the Liberator Permanent Building Society and its allied companies was one of the most calamitous events of the year 1893, involving, it was estimated, a total loss to the investing public of about seven millions sterling. The society was systematically brought under the notice of thrifty middle and working class people who had small sums to provide against a rainy day, and the collapse of the society brought ruin to a large number of homes, the income of many thousands of people of advanced age entirely disappearing. The title "Liberator" seems to have been chosen with a view to captivate Nonconformists; many ministers not only invested in it themselves, but also advised members of their flocks to place their savings in an institution which had regularly paid a dividend of 5 per cent. How this was done was explained at the public examination of the directors and officers, when it was explained that in 1887, when £101,000 was paid in the shape or dividends, there was a nominal balance at the bank of only £22,500, the society actually owing the bank £58,000. At this time a million and three-quarters of the members' money was advanced to the Lands Allotment Company, the Real Estates Company, and other concerns promoted by Balfour, the greater part of the money which went as dividends consisting of deposits from new members. In this way the society was kept going for a long time, and the public confidence remained unshaken. Mr Jabez Balfour, M.P. for Burnley, was chairman of the society, and the other directors stated that they had implicit confidence in him, and accepted his statements as to the position of the society without troubling to verify them. On the collapse of the companies and the disclosures at the public enquiry Balfour fled to the Argentine, but three prosecutions for forgery and fraud in connection 'with the society were brought, and the offenders were found guilty and sentenced to long terms of imprisonment. On Balfour's retreat being found in the course of 1894 the courts of the Argentine Republic were moved for his extradition, which was secured after many months' delay, and on October 28th, 1895, he was placed on trial with three other directors, convicted, and sentenced to fourteen years' penal servitude.
Balfour is profiled in David McKie's Jabez: The Rise & Fall of a Victorian Rogue (Atlantic, 2004).

The Serious Fraud Office media release regarding Kallakis and Williams states that -
The defendants, who operated out of a Mayfair office as the Pacific Group of Companies, conspired over a five-year period (2003-2008) to defraud Allied Irish Banks ("AIB") by using forged or false documents or claims in order to obtain substantial loans to finance the purchase of what was mostly a commercial property portfolio. The loans to enable Kallakis acquire the 16-property portfolio amounted to £740 million.
The transactions were structured in a way that the bank loans exceeded the purchase price of the properties. This was achieved by providing the bank with a guarantee from a Hong Kong company, Sun Hung Kai Properties Limited ("SHKP"), of long term payment of rents at top market rates, , to the landlord of the commercial properties. SHKP are a large, well established Hong Kong property company with a high credit rating and the guarantees therefore had the effect of increasing the value of the properties substantially. The rationale provided to the banks for SHKP's involvement was that a subsidiary company of SHKP would receive large cash payments called a reverse premium, which was factored into the value of the loans, and a share of the profits on the sale of the properties. However, the reality was that SHKP had not entered into any guarantees and had no knowledge of the transactions or the purported subsidiary companies that had entered into them. The SHKP documents provided by Kallakis and Williams to AIB were forgeries and the reverse premiums were channelled into the pockets of the fraudsters.
Kallakis and Williams were able to maintain the deception over five years through skilful forgeries and manipulation of the bank. When in 2007 the bank requested a meeting with a representative of SHKP, Kallakis and Williams set up a meeting at their Mayfair offices with an individual who presented himself as being from the SHKP Treasury Department. SHKP have no knowledge of this meeting or the individual who purported to represent them.
A similar false arrangement to mislead the bank were guarantees provided by Oregon Finance Corporation, represented by Kallakis to be a billion dollar ship-owning company belonging to the Kallakis family trust. This claim was based upon forged and/or false letters regarding the company's assets, bogus financial statements of the company and evidence of its shipping assets taken from the internet. Oregon Finance was later found in reality to have no assets but liabilities of millions of pounds.
The loans advanced by AIB represented £60 million in excess of the cost of the properties and was designed to feed into the bogus reverse premiums. However by August 2008, alarm bells rang at AIB when they learnt that Kallakis had a previous fraud conviction in the name of Stefanos Michalis Kollakis and had subsequently changed his name, and they contacted SHKP to discover that they knew nothing about the guarantees. ....
During 2007 and 2008, in another fraud following similar lines to the property loans fraud the Bank of Scotland agreed a loan of €29 million which was wanted, claimed Kallakis, for the conversion of a former passenger ferry into a super-yacht for his personal use. He provided the bank with a worthless guarantee from Oregon Finance Corporation, using accounting documents that were false and bearing forged attribution certificates. Kallakis and Williams also provided a number of forged documents to the bank as it sought to carry out checks on the family trust, including a death certificate of Kallakis's mother in which her surname had been altered to hide Kallakis's name change. The ferry upon which the loan had been secured turned out not only to have no value but instead was a significant net liability as a result of work that had been carried out which had now ceased leaving the vessel contaminated with asbestos and no longer water tight.

17 January 2013

Fictions

Two identity incidents in court.

In the UK the Guardian reports that "Britain's most successful serial confidence trickster" Achilleas Kallakis has been found guilty of tricking bankers into believing he was "a super-rich Mayfair property baron" as the basis for loans of £750m for property deals.

Kallakis (formerly Stephan Kollakis) and associate Alex Williams (formerly Martin Lewis) had moved on from business selling dodgy manorial titles to gullible people in Australians and the US (deals for which they pleaded guilty 18 years ago).

In 2009 the Guardian commented that Kallakis/Kollakis addmitted
selling "lordships" to Americans, Australians and Arabs for £85,000. Kollakis, who at the time worked for a travel company in Croydon, bought the titles from the Manorial Society of Great Britain, sub-divided them into districts and then offered them for sale via newspaper adverts. The scam claimed to be taking advantage an ancient process known as subinfeudation - splitting and increasing the number of titles. But the practice had in fact been banned in 1290.
A jury had heard how Kollakis and a co-conspirator used false names and passports as well as bogus companies, including a fake firm of solicitors, to set up the Institution of Heraldic Affairs. One of the phoney companies used a Latin motto which translates as "virtue is the way".
Various sources report that forgery in the 'lord of the manor' scam included forgery of Lord Denning's signature and that Kollakis was investigated over allegations he was selling fake Hong Kong passports for $50,000 each.

Having reinvented themselves, with the help of some forgery, they acquired prominent bank-finance real estate and rewarded themselves with the usual private yacht - apparently the vessel featured in Top Layers Interior Ltd v Azure Maritime Holdings SA [2007] EWHC 2844 (QB) - helicopter, jet and overseas holidays.
With loan financing often higher than the value of properties he targeted, Kallakis snapped up some of the most sought-after houses in Mayfair and Knightsbridge as well as landmark commercial properties such as Home Office buildings in Croydon and the Telegraph Media Group's headquarters in Victoria, acquired from the Barclay brothers.
But to keep up the sham, Kallakis and his inner circle had to work tirelessly, deploying actors, secretive offshore trusts, fictional backing from an overseas shipping empire and string of bogus references, to stay one step ahead of suspicion. 
Cursory checks would have guided the curious to entries in Debrett's or Marquis Who's Who, where readers can still see Kallakis listed as an "ambassador for the Republic of San Marino", author of The Wonders of Italy (1996) and a member of the development board of the National Portrait Gallery – all bogus claims. 
Kallakis and his helpers were able to conceal the truth for more than five years, wining and dining gullible bankers. The biggest victim of Kallakis had been AIB, which had advanced in excess of £700m and ultimately reported a £56m loss on the deals. A second count was tied to a loan from Bank of Scotland, now part of Lloyds Banking Group.
Other lenders who were taken in included Barclays, Bristol & West and GE Capital. HMRC was also duped. Tax officials conducted an inquiry into Kallakis's affairs in 2005, but was eventually satisfied that all the paperwork relating to his complex offshore empire appeared to be in order.
The Guardian reports that
At the heart of the Kallakis confidence trick were purported financial guarantees from a large Hong Kong investor. The only catch, banks were told, was that the guarantees would fall apart if the investor – Sun Hung Kai Properties (SHKP) – was contacted directly. 
This explanation was accepted by the bankers who were desperate to lend to Mayfair tycoons such as Kallakis. Years later, however, they were to learn the SHKP paperwork had been forged by Williams. Those who had sought to question the rationale for SHKP's guarantees were subjected to angry tirades of abuse.
It is unclear from the Guardian report why the 'don't contact us' paperwork was convincing. However, as they say in movies about preposterous scams, it just keeps getting better.
[T]here were some within AIB who had their doubts and it was not until the bankers started making arrangements to fly to Hong Kong and seek a meeting directly with SHKP that Kallakis agreed he would broker some contact. 
Jonathan Lee cut an impressive figure to the two men from AIB's property team in March 2007. A director in the treasury department from an Asian property giant – SHKP – he had agreed to stop off, on his way to Hong Kong from New York, for the brief meeting at Kallakis's Mayfair offices.
Lee impressed the two bankers although, in retrospect, they found it strange that he had no business cards. The SHKP man appeared to have a good knowledge of Kallakis's loans and asked informed questions. It was the comfort they craved. Any doubts about the financial guarantee's underpinning Kallakis's property empire had been well and truly put to bed.
As they later discovered, however, SHKP never employed a "Jonathan Lee". It did not even have a treasury department. It had never been involved in rental guarantees. And SHKP bosses AIB believed had signed the paperwork had never heard of Achilleas Kallakis. ….
AIB felt they had little reason to doubt Kallakis. They had been overwhelmed with bogus references from sources ranging from Credit Suisse to the economist Lord Harris of High Cross, all purporting to confirm the credentials of Kallakis. But in evidence Harris's widow said she knew nothing of the family friendship Kallakis claimed. 
In his defence, Kallakis expressed incredulity at evidence of forgery and clung desperately to claims that his connections to establishment figures were genuine. ... The undoing of Kallakis's scam came in 2008 when AIB had sought to sell on some of its loans to other banks to spread the risk. One of those it approached, the German bank Helaba, conducted some checks into the property tycoon's background and hired a private investigator who quickly began to peel back the fraudulent facade. They took their findings to horrified counterparts at AIB just as they were invited by Kallakis to his lavish 40th birthday party in Mykonos.
Less dramatically, the Canberra Times reports that Matthew Rixon has pleaded guilty in the ACT Magistrates Court to representing himself as a police officer and to public mischief. He had reportedly pretended to be an officer in an attempt to have his ex-girlfriend evicted from her home.
 According to a statement of facts tendered in court, the charges relate to a string of phone calls Rixon made to his ex-girlfriend’s rental property manager and police after their six-month relationship turned sour in June last year. 
The 28-year-old, pretending to be a NSW detective even though he had never been a sworn officer, rang the real estate agent and told him the residents of the southside property were under surveillance for cooking drugs. 
Rixon told the agent that a raid was imminent. 
Later that day, the defendant called the property manager a second time and said he wanted the tenants evicted so they would be “flushed” to NSW and arrested. The real estate agent became suspicious and played along with Rixon’s demands in subsequent phone conversations. 
Police investigations found there was no NSW officer by the name given by Rixon. Rixon also admitted to public mischief when he called police to the women’s home by [falsely] reporting a domestic disturbance.

That's Entertainment?

That's entertainment, folks, and not commerce?

The Federal Trade Commission has announced that a enterprise compiling and selling criminal record reports - accessed on mobile devices - has agreed to settle charges that it operated as a consumer reporting agency without taking consumer protection measures required by the Fair Credit Reporting Act (FCRA).
 The FTC’s settlement order, which prohibits the respondents from future FCRA violations, resolves the agency’s first FCRA case involving mobile apps. 
According to an administrative complaint filed by the FTC, Filiquarian Publishing LLC, Choice Level LLC, and their CEO, Joshua Linsk, failed to ensure that the information they sold was accurate and would be used only for legally permissible purposes. The FTC also alleged that they failed to tell users of their criminal record reports about their obligations under the FCRA, including the requirement to notify consumers if an adverse action was taken against them based on a report. 
According to the FTC, Filiquarian claimed consumers could use its mobile apps to access hundreds of thousands of criminal records and conduct searches on potential employees. One app stated, “Are you hiring somebody and wanting to quickly find out if they have a record? Then Texas Criminal Record Search is the perfect application for you.” Consumers who paid 99 cents to download one of its apps from iTunes or the Google Android store (now GooglePlay) could conduct an unlimited number of searches for criminal records within a particular state or county. Choice Level provided the criminal records to Filiquarian that were accessed via Filiquarian’s mobile apps. 
As alleged in the complaint, both companies used disclaimers stating that they were not FCRA compliant; that their products were not to be considered screening products for employment, insurance, and credit screening; and that anyone who used their reports for such purposes assumed sole responsibility for FCRA compliance. According to the FTC’s complaint, these disclaimers are not enough to avoid liability under the FCRA because the company advertised and expected that its reports could be used for employment purposes. 
The settlement order bars the respondents from furnishing a consumer report to anyone they do not have reason to believe has a “permissible purpose” to use the report, failing to take reasonable steps to ensure the maximum possible accuracy of the information conveyed in its reports, and failing to provide users of its reports with information about their obligations under the FCRA.