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Advisers on the hook for collapsed £60m offshore property scheme

  • 15/08/2014
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UK IFAs are among hundreds of creditors facing severe losses in a £60m property scheme marketed as low risk but “tainted with illegality”, according to the firm’s liquidators.

The Louis Group, a South African firm with a wide range of companies located in the Isle of Man, saw parts of the business enter into administration in 2012 after being unable to pay back investors.

A report from liquidators PwC seen by Investment Week said the collapse affected 700 investors with around £60m of assets. The largest investor backed the venture with £5m, although the majority were smaller investors with between £10,000 and £30,000, and are understood in part to be the clients of UK-based IFAs and wealth managers.

Investments were spread across vehicles including the Louis Group Structured fund, and Louis Group Structured Capital, with the funds marketed as low risk investments.

PwC’s investigation into the actions of the Louis Group and its founder Alan Louis found a litany of failings, including hidden fees, conflicts of interest, and “substantial payments” made to personal accounts controlled by Louis himself.

Head liquidator Gordon Wilson said there was “a taint of illegality across the vast majority of the business carried out by this group in the Isle of Man”.

He added in his report that PwC uncovered “highly questionable retrospective documentation, missing documentation, unreliable accounting records, and evidence of false accounting.”

The Louis Group, founded in South Africa in 1935, came to the Isle of Man in 2002, expanding substantially to employ around 50 people by 2008.

“Its self-projected religious values, combined with representations of ‘low’ risk property backed investment and the support and co-investment from the Louis family proved to be a significant attraction for the investing public, both in the Isle of Man and elsewhere,” the liquidators said.

However, it has since emerged none of the six funds mentioned in PwC’s report have been backed by the family – in fact, it found multiple instances of Alan Louis diverting funds to his own bank account.

In April 2009, Louis sent the following to a member of staff: “Hi Dirk, kindly transfer from LGIH [one of the companies in question] to Alan Louis Fairbairn the sum of GBP300,000. Thanx Alan Louis”

He sent a similar instruction in December 2009 ordering “LGIH to pay £15,000 directly into my Barclays accounts”.

In total, Louis authorised payments totalling several million pounds to himself or companies personally controlled by him, PwC alleges.

Of the £60m of investors’ money, only £10m is still available to creditors, Wilson said.

Responding to PwC in a letter dated 10 January 2014, Louis said: “Alan’s instructions to make payments to his personal accounts is perfectly acceptable, because funds can be lent from LGSPI [LG SP Investments Ltd] to LFF [the Louis Family Foundation] and then distributed to Alan or his wife/children, or if preferred, moved from LGSPI to Alan direct as a recorded loan from LFF.”

In a statement this week, Louis rejected the claims made by PwC, pointing to another audit undertaken by Mazars.

“We will be submitting a comprehensive reply to this document, which will obviously cover the issues raised,” he said.

“Suffice only to say that the first report written by PwC was found to be wholly incorrect by Mazars Auditors and this current report withholds critical information to complete the picture – a wholly subjective analysis and wrong.”

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