HAMBURG, Germany -- A German real estate company is at the center of allegations of thousands of investors in Asia and elsewhere being bilked of more than $1 billion in an investment scandal, and authorities are now racing to recover at least part of the funds.
A court-appointed liquidator is seeking to identify the investors in South Korea, Hong Kong, Singapore, Malaysia and elsewhere who funneled more than 1 billion euros ($1.16 billion) into the company -- which promised double-digit returns from the redevelopment of historic German buildings -- until most of the money disappeared.
German Property Group, a Langenhagen-based company also known by its previous names, Dolphin Trust and Dolphin Capital, is being investigated by authorities in Germany and the U.K. for suspected corporate crimes, including embezzlement and delay in filing for insolvency, and has collapsed. Investigators in London have asked for assistance in the case from prosecutors in Hanover.
The company filed for bankruptcy in Germany in late July, and the liquidator, Gerrit Hoelzle, an attorney with the Goerg law firm in the city of Bremen, is now trying to untangle an opaque web of roughly 200 affiliated companies.
Hoelzle's initial findings have reinforced fears that many of the heritage buildings are actually rundown properties that were never developed by GPG as promised to investors. The liquidator has so far found less than 200,000 euros in liquid assets and identified 50 properties across Germany that are collectively valued at much less than 1 billion euros.
The CEO of the brokerage arm of South Korean bank Shinhan Financial Group stepped down in March in part to take responsibility for GPG-related derivatives sold to investors.
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GPG initially made interest payments to investors, but in 2018 the company failed to make regular and timely payouts. Eventually, the payments stopped altogether, and the company also failed to make maturity payments.
When GPG's debt burden reached 500 million euros and lawsuits against the company piled up, GPG filed for bankruptcy in Bremen.
German attorneys representing GPG's investors believe that many of the Asian investors are not even aware yet of the bankruptcy.
In one exception, however, the chief executive of the brokerage arm of South Korean bank Shinhan Financial Group, Kim Byung-cheol, stepped down in March in part to take responsibility for 379.8 billion won ($327.5 million) in GPG-related derivatives sold to retail investors in South Korea.
A total of 530 billion won worth of investment products called the German Heritage DLS that channeled funds to GPG had been sold in the country, according to South Korean news reports.
"We have been approached by investors in Ireland, the U.K., Singapore, [South] Korea, Hong Kong and Malaysia, with Korean individual investors having invested untypically large sums of between 500,000 and 1 million euros," Peter Mattil, a Munich-based lawyer representing some investors, told Nikkei Asia.
"GPG's messy bookkeeping makes it difficult for the liquidator to identify and contact individual Asian investors, so we recommend them to actively come forward with their claims, as some money will surely be retrieved through the liquidation," he said.
A lawyer helping to recover investors' funds said Germany's financial regulator, the Federal Financial Supervisory Authority, or BaFin, ignored warning signs about GPG.
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Mattil noted that the liquidator has so far managed to link around 80 German properties -- including buildings and plots of land -- to the GPG company network, illustrating the urgency for investors to come forward quickly.
He has accused German regulators of shrugging off warning signs about GPG because the company solely targeted foreign, rather than German, investors.
Warning signs came as early as 2015, when the Monetary Authority of Singapore placed Dolphin Capital Asia and Dolphin Capital Asia Pacific, two of the affiliated companies, and Singapore-based Shenton Wealth Holdings on its investor alert list as unregulated entities that may have been wrongly perceived as being licensed or regulated by MAS.
A spokesperson for Germany's financial regulator, the Federal Financial Supervisory Authority, known as BaFin, told Nikkei that GPG does not fall under its supervision.
Shenton Wealth, which describes itself as a Singapore-based alternative investment house, had together with Dolphin been recruiting investors in the country at "investment seminars" in 5-star hotels with complimentary buffet dinners. It promised double-digit returns, with Germany advertised by GPG as one of the world's safest and most stable property markets.
GPG claimed the German apartments that were to be redeveloped with investors' funds would be highly attractive for buyers because they would be able to claim back a large part of the construction costs for tax purposes under the German Income Tax Act.
Lee Seong Wee, a Singaporean business engineering consultant, attended three Shenton investment seminars in 2016. While he did not make an investment himself -- he said he was skeptical over the high returns promised in the German property sector -- he became an unofficial spokesperson for a number of people who did.
A listed property in the town of Hanau, near Frankfurt. Dolphin failed to develop it as promised and city officials say it has been a problem for years. (Courtesy of the Hanau, Germany, press office)
Lee believes that GPG has defrauded thousands of investors in Singapore and Malaysia of roughly 60 million Singapore dollars ($44.1 million).
"The key part of their clever strategy was that they -- in the early stages of a new product -- did pay out the investors, who then happily let themselves be dragged onto the stage at the investment seminars to give mouthwatering testimonies," Lee told Nikkei.
"And, because the borrowed money was never directly linked to any specific real estate, that same building could be used multiple times to borrow new money as long as the investors were not aware of it," he said.
Investors in Asia -- given the distance from Germany and the unfamiliarity with the country's property market -- largely did not know that the projects lacked realistic business models.
For example, a Dolphin entity purchased a monastery in 2017 for 1 million euros in Schonthal, a remote Bavarian village, where there is no market for the upscale apartments the company promised to build.
In Bamberg, a Bavarian city listed as a UNESCO World Heritage Site, Dolphin bought a historic house in 2013, only to let it reach a state of collapse. The municipality eventually purchased the house in January.
Neither GPG nor the defense lawyer of GPG founder and Chief Executive Charles Smethurst responded to requests from Nikkei for comment.
The company on its website blamed the structure of the Germany property market for the slow turnaround in property sales, saying in a statement dated Sept. 10, 2019: "A corollary of the top-quality security offered by German property is that transactions can take longer to do than, say, in the U.K. market."
Lee noted that in recent days, WhatsApp groups with Singaporean and Malaysian investors in GPG have been abuzz over unconfirmed news reports that Smethurst has applied for a Turkish passport in order to escape prosecution.
"The investors here in Singapore are told to hold off so that new investors can be found to take over the developments in a supposed attempt to do a better job than Dolphin," he said.
