Defrauded GPG investors worldwide in limbo as insolvency sell-off begins

We've reported in these pages before about the shocking scandal in Germany whereby thousands of foreign investors have been ripped off of more than €1bn by Hanover-based German Property Group (GPG), led by Charles Smethurst. The company is insolvent, and losses for the investors in GPG's funds are likely to be enormous.

Things are now moving forward, although this is likely to be a long and extremely painful process to discover what of GPG's assets is likely to be recoverable, and how can as much value as possible be realised from the known assets, mainly a number of historically protected and vacant buildings across Germany in various states of dereliction.

The Berlin-based CR Investment Management has been exclusively retained by the insolvency administrator Justus von Buchwaldt of the law firm BBL Brockdorff to sell off these real estate assets of GPG in a series of structured bidding process, to achieve as much value as possible.

The first property has just been sold, in Panketal close to Berlin. The 17,600 sqm plot is ready and available for development, with planning permission for 237 residential units and a planned GFA of 17,000 sqm.

CR Investment Management is providing transparency on the whole process of selling off as much as possible from the insolvency, by collaborating with tech company realxdata, which specialises in deal management, property analyses and site analyses, and with Cloudbrixx, a company digitising processes and workflows. Visitors to the sales platform www.gpg-vertrieb.de can access basic information about properties from the insolvency currently for sale to interested investors.

A link will take prospective buyers to the realxdata platform, where they are given clearly structured access to transaction data and comparables as well as to socio-economic location details. The next sell-off of up to 20 separate assets will begin on July 21st, with further details available on the internet platform. Interest in the assets is expected to be high, as presumably the most saleable properties are likely to be offered to investors first.

Marlene Auerbacher, head of transactions and acquisitions at CR Investment Management, outlined how the sales process will work. “The portfolio properties will be individually sold in several marketing phases. The portfolio covers a wide spectrum of vastly different assets. In addition to inner-city residential real estate, it also includes vacant development plots, for instance. Many of the standing—and often listed—properties are in an unrefurbished state.”

The asset at Panketal was clearly one of the insolvency properties that was ready-to-go and primed to get the whole sales ball rolling. Claudius Meyer, managing director of CR Investment Management, said of the sale: “Investor interest in the ready-for-development plot was overwhelming. We received numerous requests for purchase information along with a large number of concrete purchase offers. In July, we will launch a sales drive for roughly another 20 assets from the GPG portfolio. These properties are widely spread across Germany. We will soon publish more details about the sale.”

In June, auditors at the Hanover tax office (Finanzamt) officially pronounced that GPG had been operating as a Ponzi scheme as far back as 2017, and had notified the public prosecutor of this, but GPG had somehow been allowed to continue doing business after the public prosecutor closed its investigation after about six months.

GPG had been collecting inward investment into its scheme to invest in German listed properties, promising attractive interest rates of up to 25%. Thousands of investors, mainly in the UK, Ireland, France, Singapore and South Korea. After aggrieved investors started raising the alarm in 2019, several filed criminal charges against company founder Charles Smethurst and his family circle. An internal memo from the Hanover public prosecutor's office has shown that it was aware of serious abuses for three years, since 2017, before meaningful action was taken.

One of the at least 180 identified companies in the GPG group, called DC80 (after Dolphin Capital, the company's previous name), had already attracted the attention of the Bundesbank who examined whether the company was engaging in banking transactions without an appropriate licence when distributing its fund inflows to other sister companies. Smethurst himself held a prominent position in 174 of these companies, as a partner or director, but he seems to have alternated these positions in several companies with family members, according to the Hanover tax office's files.

With GPG paying commissions to intermediaries of 20% or more as incentives to sell investments in its schemes, and promising interest of up to 25%, the Hanover tax authority's report concludes that GPG was basically operating a classic Ponzi scheme. Such schemes rely on paying off the early investors with fresh fund inflows, recruiting more and more participants while advertising above-average returns, until it collapses when investors demand their money back all at once.

In Germany there has been growing criticism of the BaFin, the German financial watchdog, for its failure to pay attention to the giant fraud being perpetrated on its doorstep. The authority has been the subject of severe criticism for its complete failure to oversee Wirecard, the DAX-30 company that collapsed last year in the country's biggest postwar financial scandal. In the case of GPG, the BaFin has argued that the company was operating in a regulatory blind spot, gathering in its fund inflows in the form of loan agreements. This focus on debt, plus the fact that its investors were exclusively non-Germans, meant the BaFin didn't see any pressing need to supervise its activities.

Around the world investors in the GPG funds are likely to fare very differently in their attempts to gain redress from whoever sold them participation in the scheme. In South Korea, nearly $500m was raised for GPG, before big reputable and regulated firms such as Shinhan, Yuanta Securities, Hana, NH Investment & Securities and Woori Bank pulled the plug when they failed to gain sufficient evidence of real estate register charges. REFIRE understands that a number of these companies have offered their clients provisional payments of up to 50% of their principal while waiting to see if anything will be recoverable from the German insolvency filings.

In Singapore, a big distributor of GPG's products was Shenton Holdings, a firm unregulated by the Monetary Authority of Singapore. The company's subsidiary Shenton Wealth seems to have ceased trading and is now the subject of investigation by the local authorities.

It's also not looking good for investors from the UK and Ireland who largely put their money into the scheme through unregulated firms and are therefore unlikely to be covered by official compensation programmes. A separate scam has also been uncovered by the UK's Financial Conduct Authority in which stranded investors have been lured into further payouts to crooks promising to help them recover their missing money.

A group representing about 2,000 defrauded investors in the UK recently wrote to Germany's Chancellor Angela Merkel through their representative in Germany, outlining their complaints, and in particular how the authorities in Germany bear partial blame for their losses, given that it was Germany's solid reputation for fiscal prudence and regulatory supervision that was ultimately what was being sold along with the investment products. We understand reaction from her office so far has been muted and not at all helpful.

We reproduce this long letter on our website in full, under the heading: Open Letter to Angela Merkel from the GPG Creditors Association Kommission.

REFIRE reproduces a separate letter from Mark Hambling of the UK-based GPG Creditors Association (in German), this time to the State Prosecutor in Hannover, Florian Balken, also on our website, at www.refire-online.com.

We will continue to follow this story closely.