The real hustle

In recent years, fraud and methods to fight it have been steadily encroaching on the public’s consciousness. In some sectors this has been more apparent than others. The property industry recently received its wake up call after Anthony Lee, an unemployed truck driver from East Yorkshire, was found guilty of deception for his part in an audacious scam to sell the Ritz hotel on the second of July 2010.

The facts of this high profile case involving the famous landmark  are quite extraordinary and provide an extreme example of property fraud. Lee, an undischarged bankrupt, had claimed he was in a position to procure the sale of the Ritz. He convinced potential buyer Terence Collins that he was a ‘close and personal friend’ of the owners, stating they had ‘secretive reasons’ for wanting to sell the Ritz via Lee.

The hotel is owned by the Barclay brothers, who had never met or heard of Lee prior to his trial. They were completely unaware he as offering to sell their building at the £250m being mentioned (though some have suggested that £600m may have got the Barclay brothers’ attentions). Lee’s offer to facilitate the sale was thus completely fraudulent.  

During the trial, it emerged that Lee had asked a chartered surveyor with contacts at the hotel for a letter stating that it had a contract to sell the Ritz, which would have given the scheme further legitimacy.  Giving evidence, the surveyor understandably stated that only the Barclay brothers could give any kind of letter to that effect and that would require a £30m bond.

Neither the requested letter nor contracts for the sale ever materialised. Credence was given to Mr Lee’s claims through his solicitor’s assurance to the purchaser that he had contracts for the sale when in fact he did not. Indeed, during the trial it transpired that the solicitor had told the prospective purchaser that his clients had received a higher offer for the Ritz “in order to inject a sense of urgency”.  The solicitor was ultimately cleared of conspiracy.
Following statements and promises by Lee, Collins, with the support of billionaire Dutch financier Marcus Boekhoorn, put up a £1m deposit in December 2006.  No contracts were ever issued and the money was never returned.

The QC for the prosecution conceded that “it is not, perhaps, a terribly sophisticated fraud, but it was effective enough”.  Though avoiding the offence of conspiracy to defraud, Lee received a sentence of five years in prison for obtaining money by deception.

The case, which took two years to come to trial,  highlights the ongoing and very real issues facing property professionals in the continuing fight against criminal activity. Although the facts of the case and the property involved occurred in the rarefied atmosphere of high-end trophy properties, all practitioners are possible victims of fraud of some description.

In 2007, the Association of Chief Police Officers estimated that fraud cost the UK at least £14bn. Meanwhile worldide, high profile fraud cases involving Enron, WorldCom and Parmalat have shown that the prevelance of fraud even at the highest levels of business.

Historically, fraudsters in the property markets have operated within a largely benign environment that was booming and thus appeared to be victimless. In a buoyant market, the chances of a fraud being discovered were low.  Even if a fraud was discovered, fraud trials are very expensive to run and with some scams being extremely sophisticated, the authorities have in some instances been lagging behind the criminals.  

If the authorities have been slow in catching property fraud, industry-specific procedures have been even worse. Some internal compliance procedures within property companies have merely paid lip service to the onerous obligations placed on property professions to various degrees by money laundering and anti-fraud legislation.

Never ones to miss an opportunity, a new class of criminal emerged during the credit crunch and the collapse of the sub-prime market that provided intelligence to fraudsters on which banks were easy targets and which intermediaries would turn a blind eye.  Sadly, the imprudent lending practices which we have all come to bear the cost of did little to discourage the activities of these fraudsters.

The price for the Ritz being offered by Lee was, as the prosecuting QC stated “too good to be true and a complete fantasy”;  just one of the many warning signs that there may be a risk of fraud.  Practitioners should be aware of any party in a transaction not already known to them and should always attempt to independently verify the identity of those parties. If the transaction appears to be ‘unusual’, the matter should of course be discussed with the buyer thoroughly to ensure all involved understand the situation.  

Experienced practitioners will know that if something is out of the ordinary and appears to be too good to be true, it probably is. Any aspects of a sale that seem out of the ordinary should be investigated further and any unusual requests should be discussed with the buyer. That is not to say that all unusual or complicated transactions should be abandoned in case they turn out to be fraudulent however. Property professionals instead need to take all possible steps to ensure that the deal is genuine. A failure to do this could see a client make a professional negligence claim against their advisor.

Up until 2007, the economic crime department of the City Of London police stated that “Mortgage Fraud was not a priority for British Police”.  As such, individuals may prefer to hire private investigators to look into the matter – especially if reputations are at risk.

That may be the recourse for the likes of the Barclay brothers and other high net worth individuals but, as the Ritz case shows, all property practitioners need to be vigilant against fraud.

Matthew Williamson is an associate in the commercial property team at law firm Weightmans LLP. Email: matthew.williamson@weightmans.com