MP’s, Lawyers, Councillors, Ex-Councillors, Land Developers, Charities, Gangsters and the Labour Party – An Abuse of the Scottish Electorate – Part 5 – £600M – Ponzi Frauds

 

 

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£600million Ponzie Scheme – Glasgow and West of Scotland –  Mathon Ltd – Heather Hedge Fund – Gregory King –  Aarkad PLC – Peter Watson – Scottish lawyer and Sheriff –  Rea brothers – Lanarkshire gangsters – Steven Purcell – Allan Stewart & Stephen McKenna – Lanarkshire fraudsters – Lawrence Gillick – Bankrupt and fraudster – King & Co – Private Bank – Cannon’s Law Practice, Glasgow

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Heather Capital: How a £600 Million Hedge Fund Vanished – Big named Investors Ripped Off

In September 2008, Gregory King, a Scottish lawyer turned hedge-fund entrepreneur, celebrated his 40th birthday at a clubhouse near his Spanish villa. Several hundred of his friends, family and business associates descended on the Mediterranean for an elaborate party. As the night wore on, Mr. King got up and thanked his guests. He was riding high. After all, his hedge fund, Heather Capital, had swelled to $600 million, according to fund literature.

The fund had pulled in money from some big-name investors. The £141 billion Ontario Teachers’ Pension Plan and a fund run by Nicola Horlick, a London asset manager once known as the city’s “superwoman,” were investors. And so were what reads like a who’s who of the Swiss private-banking world, as well as several major specialist hedge-fund investors and even two doctors in the U.S., according to a share register of a Heather feeder fund from December 2009 and internal Heather documentation.

Heather aimed to profit from lending directly to companies—stepping into the void created as big banks pulled away from making loans themselves. Within months of the birthday bash, however, Heather itself had folded—another apparent victim of the global credit crisis. When a hedge fund fails, its manager is usually able to return at least something to investors. Not this time. A look through the wreckage of Heather yields a surprising discovery: There is almost nothing there. Many of the loans to companies are non-collectable. Many of the commercial properties against which the fund said it lent were left lying derelict.

Fund liquidators who have been working for years to salvage some assets now allege in court filings that many of the loans to property developers were in fact “a fabrication and a sham.” No criminal cases have been brought. An examination by the Journal shows that behind Heather’s rise and fall lies a murky tale. How did Mr. King persuade investors to part with their money? And where did it all go? Heather Capital lent money secured against Scottish real estate, but investors lost everything when it collapsed. Liquidators said many of the loans amounted to “a sham.”

Mr. King hails from a family of Glasgow bookmakers and moneylenders. His cousin is Stefan King, one of the country’s most prominent bar and nightclub owners. His father is Hugh King, chairman of a bookmakers’ trade group, who drives a silver Bentley. Gregory King trained as a lawyer in Scotland and went to the University of Chicago’s business school. He came back to Glasgow and started a car dealership, which is still in business. The dealership made headlines in 2002 when Mr. King’s business partner was brutally murdered in what is one of Scotland’s most notorious unsolved crimes.

In 2004, Mr. King decided to try to start a hedge fund. He travelled across North America and Europe to find clients. He dressed smartly and gave polished presentations to prospective investors in a gentle Scottish accent. One investor described Mr. King as “friendly and engaging” and “completely down to earth.” Documents shown to investors included a 17-page due diligence questionnaire answering hundreds of potential queries about the fund.

Mr. King made investing in the fund sound “bulletproof,” said the investor, who lost money. “He knew how to say the right thing,” said the investor, adding that “he made it sound like he had this little niche.” Mr. King would talk openly about his family’s background during investor meetings. In a video posted on YouTube in late 2007, Mr. King talked of the Kings’ more than 90 years in money-lending. “There’s no projects that we’ve lent on, which you wouldn’t want to lend your own money on,” he said in the YouTube interview. “We see ourselves as a very low-risk lender in these markets.” He said Heather dealt with “property professionals.” He had a big-name executive, Santo Volpe, co-founder of hedge-fund firm Eden Rock, advise Heather on how to raise money from institutional investors.

Mr. Volpe says Mr. King was a personal friend who “didn’t know anything about hedge funds. That is why he asked me to help him set up his fund.” “I never had any input on the investment activities of Heather,” Mr. Volpe said, adding he was never remunerated by Heather. He said he doesn’t know where Mr. King is now.

One of Mr. King’s funds hired as a director Peter Watson, a high-profile Scottish lawyer and part-time judge who has been on a committee debating press regulation in Scotland.

Mr. King talked up Heather on CNBC and, in an interview published in March 2008 in the Financial Times, said Heather had only had one loan default in three years. Heather’s performance figures were the stuff of hedge-fund investors’ dreams. Heather said it made money every single month between January 2005 and August 2008, averaging slightly more than 1% a month, or about 13% a year, according to a September 2008 presentation. That summer, Vatican records show, Mr. King became a knight of the Pontifical Order of Pope St. Sylvester.   Cash poured in.

But there had been signs of trouble, including highly unusual statements in Heather’s accounts. In the 2006 and 2007 accounts, auditor KPMG had flagged around £150 million of loans that Heather had made to Gibraltar-based companies, some of which, according to the accounts, were connected to Mr. King. KPMG said it didn’t know what the money had been lent out for. Meanwhile, another investor was troubled that Heather said it couldn’t reveal who it lent money to because of debtor privacy laws. In an internal memo, the investor described that reason as “trite and unconvincing.”

Major financial Investors in the fund included, Banque Privée Edmond de Rothschild Europe, Bordier & Cie, Peak Partners, Bank Julius Baer & Co., Quilvest, Union Bancaire Privée a unit of HSBC Private Bank, Bramdean Alternatives and the Ontario Teachers’ Pension Plan

Mr. King ran Heather for years from an office in Gibraltar. Now he lives in a villa in a country club whose members include corporate chief executives. It has two golf courses and stables and describes itself as “possibly the most beautiful site in Europe.” The club sits behind a guardhouse a short drive into hills above the town of Marbella, Spain. The Mediterranean stretches out below.

In late 2008 and early 2009, amid the financial crisis, worried investors pulled their money out of hedge funds across the board. Heather’s clients were no different. Heather quickly stopped giving them their cash, and it was put into liquidation in 2010. Liquidators took control of Heather and began looking for investors’ money. It was identified that some of the money ended up back in Glasgow, far from the world of high finance.

A chief beneficiary appears to have been Mr. King himself. According to Heather’s financial reports filed at the Isle of Man’s companies registry, he personally took nearly £52 million in fees between 2005 and 2008. The money was paid to a British Virgin Islands company controlled by Mr. King, and the amounts were in large part justified by Heather’s supposedly sterling performance.

But performance turned out to be anything but. In 2008, according to the accounts, Heather wrote down £76 million on its loans and £92 million on foreign-exchange losses. There was a pattern. Heather would make large loans, ostensibly for property development. The loans often wouldn’t be paid back, leaving the beneficiaries with the cash. Over the years, much of the cash Heather raised from investors appears to have been disbursed this way.

Heather made many loans through a British entity called Mathon Ltd., which was also controlled by Mr. King. But an examination of lending and land records shows that Mathon often lent money against poor-quality properties. They include rundown churches, derelict pubs on the outskirts of Glasgow and a former garden centre in a Scottish port town.

At many of the sites, there is no sign that Heather’s borrowers carried out development. Industrial land in a village outside Glasgow had rubbish strewn around its rusting, broken gates. A pub called The Winning Post had, after being vandalized, been demolished and now consists of nothing more than a few rocks on a vacant lot. And a site on the banks of the river Clyde in the working-class district of Yoker lies strewn with litter, with its remaining buildings boarded up. Mathon’s liquidators say in a court filing that they have minimal documentation of the loans it made.

An examination revealed that some of Mathon’s borrowers—the purported developers of the sites—were unusual. Five companies that received 10 loans from Mathon listed boxing promoter Mario Rea as a director or secretary. Another loan was made to a company of which Mario’s twin brother, Carlo, was director and cousin Anthony was secretary. Regulatory filings show that 9 of these 11 loans are still outstanding.

In 2008. Scottish authorities charged Mario and Carlo Rea with money-laundering offences unrelated to Mathon, but the charges were later dropped. Mario Rea was found guilty last year of assault at a cinema near Glasgow and sentenced to 200 hours of community service. The U.K.’s Insolvency Service barred Mario Rea from serving as a director for seven years in 2011 and cousin Anthony Rea for nine years in 2010 for unexplained money transfers, involving in part companies that borrowed from Mathon.

Other beneficiaries of Mathon loans were firms part-owned by businessman Lawrence Gillick. Two firms each borrowed money from Mathon in 2006 and 2007. Regulatory filings show that none of those loans have been paid back. Mr. Gillick was declared bankrupt in 1980, according to government records. And in the 1990s, the Salvation Army obtained a court judgement against him, forcing him to sell a property, after the charity lost £8.8 million in an alleged fraud.

Companies controlled by Scottish businessmen Allan Stewart and Stephen McKenna also received at least 11 loans from Mathon. Most of these were not paid back, according to regulatory filings. According to government notices, Mr. Stewart had been banned by a court from serving as a company director for seven years in the 1990s.

By December 2010, liquidator Paul Duffy of Ernst & Young had realized that the quality of the real estate that Heather had seized when loans defaulted was “very poor,” and he told investors they were unlikely to get anything at all, according to a letter to investors. A spokesman for Ernst & Young said the liquidation of Heather and its feeder funds is complex and progress had been hampered by “the initial dearth of information.”

With so few answers, liquidators are now turning up the heat. Civil proceedings in the High Court in London have raised the possibility of fraud. In a case in which Mathon’s liquidators sought disclosure of documents, the liquidators said properties valued on Mathon’s books at around £161 million had been sold for just £8 million. They alleged that the loan book was a sham concocted to hide the fact that money may have been embezzled.

The High Court judge hearing the dispute concluded there is strong indication that “fraudulent conduct exists even though the precise nature of the fraud and the identities of those involved still needs to be ascertained.” Investors, meanwhile, have been left with few answers.

King

2010-2011 – Scottish Crime & Drug Enforcement Agency

In 2010, the Law Society of Scotland received allegations that Cannon’s Law Practice, in Glasgow was involved in the embezzlement of millions of pounds of cash linked to Heather Capital and Gregory King, a director of Mathon Ltd and Heather Capital’s founder. The society completed a financial audit of the company and submitted a report to the Scottish Crime & Drug Enforcement Agency, who obtained search warrants and recovered documentation from the company in July 2011. Information recovered identified that millions of pounds had passed through Cannon’s client account in relation to a series of offshore transactions involving their client, Gregory King.

Police Scotland submitted reports to the Crown Office. The Lord Advocate – Frank Mulholland – is still to decide on whether any prosecutions will take place in relation to the collapse of Heather Capital and the hundreds of millions of pounds lost to private investors. A legal insider said it would be a difficult proposition for the Crown Office to deny any knowledge of the SCDEA raid on Cannons Law firm in 2011 or knowledge of what would have likely been a lengthy SCDEA investigation prior to warrants being served.

14 Feb 2015: Suspension of Sheriff Watson

In February 2015, Sheriff Peter Watson was suspended by Scotland’s top judge Lord Gill, after the Judicial Office received enquiries from the media in relation to a multi million pound writ naming Watson among a slew of allegations in the £400m collapse of Heather Capital, a hedge fund set up by Spanish based Gregory King. It has since been reported Watson held a number of directorships in firms linked to the collapsed hedge fund – directorships including Aarkad PLC, based in the Isle of Man. Mathon – another company linked to the collapsed hedge fund, and a directorship of King & Co, a private bank set up by the Hedge Fund’s founder – Gregory King.

18 Aug 2015: Heather Capital (Hedge Fund) collapse – Court of Session – Lord Woolman Presiding

Lord Woolman:: Heather Capital Ltd (‘HC’) was incorporated in the Isle of Man in 2005. Prior to its liquidation in 2010 it had received investments exceeding $400 million. The present action has been raised in its name by the liquidator. The first defender is the firm of Levy & McRae. The other defenders are individuals, who were partners in the firm in the period from 1 January 2007 to 31 December 2008.

The liquidator contends that the company was defrauded of a sum of about £90 million. The scheme involved the transfer of funds to companies incorporated in Gibraltar that were owned or controlled by one of Heather Capital’s directors, Gregory King. A firm of solicitors in Gibraltar, Hassans, acted in these transactions. According to the liquidator, in early 2007 Heather Capital’s auditors raised queries about these transactions. Subsequently, Mr King sought to conceal their true nature.

One of the transactions concerned a company called Westernbrook Properties Limited. On 4 January 2007 the sum of £19 million was paid into the first defender’s client account. It was paid out 5 days later to an account with HSBC Private Bank in Monaco held by a Panamanian company. On 24 January 2008 the sum of £9.4 million was paid into the first defender’s client account. It was paid out on 28 March to the client account of Hassans. On 23 December 2008 a payment of £200,000 was made to the eighth defender, Mr Peter Watson, from Hassans’ client account. The case was continued.

Comprehensive analysis of Watson’s activities here:

https://petercherbi.wordpress.com/tag/peter-watson/

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