Property developers around Australia have been in hot water with the Australian Securities and Investments Commission (ASIC) in recent months. The following proceedings serve as cautious reminders for developers to seek legal advice to help prevent a brush with the corporate watchdog.
NSW
In a statement dated 23 April 2007, ASIC announced NSW-based property developer Robert John Orehek, pleaded guilty in the Sydney District Court to two charges of fraudulent misappropriation amounting to $170,000.
The proceedings arose when 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 said many of the investors were associated with the Hillsong Church in Castle Hill.
However, ASIC revealed that 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.
The matter has been put over for sentencing on 12 July 2007 in the District Court of New South Wales. Mr Orehek also agreed that a third offence of fraudulent misappropriation of $20,000 may be taken into account for the purposes of sentencing.
Victoria
In March this year Victorian-based property spruiker Henry Kaye battled in court over an alleged $18 million fraud, following an investigation by ASIC. The proceedings arose from accusations that Kaye dishonestly secured $17.7 million in finance from St George Bank for property developer, Inkerman Developments. The case against Kaye concerned his alleged failure 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 on-sold them at a mark-up to seminar participants. But instead of a cash deposit, apartments were purchased using deposit bonds provided by an agent of GIO Australia called Deposit Bond Australia.
He was charged with one count of obtaining financial advantage by deception after and faced a committal hearing at the Melbourne Magistrates' Court on 7 March 2007.
Queensland
On 9 May 2007, ASIC announced 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 corporate watchdog.
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 purposes.
ASIC said its winding up application followed a Court ruling in March 2007 that the investors were shareholders, rather than creditors.
The Court was informed that it was likely 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.