St Camillus Investors.
One of the sales agents who sold rooms in a number of hotels and care homes to investors is now contacting investors in the St Camillus hotels. He claims to own rooms in a number of properties and it is quite possible that he does. One of the questions that needs to be answered is whether he actually paid any money for those rooms or whether he accepted rooms in lieu of commission payments. We quite often see sales agents accepting rooms in lieu of payment as a means of encouraging them to sell more rooms and avoid personal tax. Sales agents in scam room sale operations are typically paid between 10% – 15% commission which is more than four times the levels charged by mainstream estate agents.
Some of the St Camillus investors have forwarded unsolicited emails they received which originated from this salesman. The email was asking investors to pay £580 for Phase 1 of his proposed action. It wasn’t clear who the money would be paid to or even what it was actually for because there is no need for a solicitor to be involved at this stage. Creditors can register their own voting preference on the Proof Of Debt form. People don’t pay someone to go and cast their vote on polling day and they don’t need to pay a lawyer to do it in an administration case.
The email describes Phase 1 as being “Appoint Kevin [Kevin Brown of ELS Advisory Ltd] to be liquidator with the aim of transferring the freehold into a trust for the benefit of the leaseholders subject to paying off any trade creditors and HMRC. If this amount is reasonable and can be shared amongst investors, then we can pass on to Phase 2. To do so Kevin will need to find out who the creditors are and how much they are owed.” It’s pretty obvious that Kevin will need to do that. What isn’t obvious is why investors have to commit to paying £580 before the existing administrator publishes the full creditor list which it has to do on or before 9th March. Why are investors being rushed into paying money again like they were in Qualiacare ? According to the email Kevin had been on a Zoom meeting with investors explaining the proposal.
This strategy of claiming to investors that insolvency practitioners will transfer freeholds into a trust for NIL value has been tried by this team before. So far it has failed in all of the cases that the saleman’s team has been involved in.
What we do not understand is why the salesman, his law firm partner and his insolvency partner did not tell the St Camillus investors that for the first hotel which went into administration in January, the value of the claims of the ‘non-investor’ creditors was more than £500,000 and there are 25 investors in that hotel. We don’t see those 25 investors stumping up £20k each to pay off non-investor creditors when £500k is far more than the hotel is actually worth. Hopefully none of the St Camillus investors have fallen for this ‘you must pay now’ demand and they have held on to their money.
Today we received notification that a second St Camillus hotel in administration has reported that non-investor creditors amount to more than £275,000. None of the St Camillus investors are going to pay that kind of sum to buy out other creditors for what is a very poor hotel. It is one of the worst hotels we have ever seen in these hotel room scams. It is a terraced property in a back-street of Blackpool, the rooms are tiny and the furniture (what there is of it) is from the 1970s. The strategy outlined by the sales agent’s team has fallen apart in the space of just two days.
The email goes on. After Phase 1 they would move onto Phase 2 which was “to carry out the transfer of freeholds and if it is discovered that the directors have committed any criminal offence go after all their assets and pay to us creditors any recoveries“. That’s a case of telling investors what they want to hear to get their £580. The proposal does not mention who will fund the criminal prosecution. Private criminal proceedings are horrendously expensive and are not going to be undertaken by administrators. It would have to be funded by investors and they won’t do it.
The initial payment for Phase 2 was estimated at the same level or double that of Phase 1. There is no way that Phase 2 funds would come anywhere near covering the cost of a private criminal prosecution. This team used exactly the same approach in the Qualiacare case. We have already had correspondence with the law firm over the Qualiacare situation. What bothers us is that investors are being told what they want to hear and that this is being used to get them to pay money over without any idea of how they could possibly realistically benefit and achieve a better outcome.
The Qualiacare companies are subject to restrictions imposed by The Financial Conduct Authority (“FCA”) which intervened to protect investors. This sales agent and his solicitor have taken almost £60,000 from Qualiacare investors and it is questionable what benefit those investors may actually get for their money. The FCA is the guardian in that case. It will not allow investor positions to be eroded because the FCA is in place to protect investors.
The FCA intervention in Qualiacare occurred because they allege that the Qualiacare investments were unregulated collective investment schemes. We would argue that the St Camillus hotel room schemes are also unregulated collective investment schemes (“UCIS”). UCIS are covered under S235 of FSMA 2000 [LINK].
Under the regulations it is unlawful for any party to be involved in the formation, promotion, sale or operation of a UCIS and they can be prosecuted to compensate investors for their losses. This notice from the FCA website confirms that a range of different parties can be included in a prosecution [LINK]. This prosecution included the founders, consultants, a solicitor and a sales agent company called Regency Capital Ltd. Sales agents can be held liable to compensate investors. That is a very important fact that has not been mentioned by the law firm to its clients in both St Camillus and Qualiacare.
In view of this, and the fact that the FCA allege that the Qualiacare investments were a UCIS, this raises an interesting point in respect of whether the law firm should have declared a conflict of interest. Did it advise investor clients that the introducer of investors to the law firm was both its client and a sales agent, and that as the FCA had claimed the investment was a UCIS this meant that their introducer client could be a potential source of compensation for its investor clients ? We doubt that it did because this sales agent has been bringing in a lot of business for the law firm. An estimated 230 clients in Qualiacare alone. Why has the law firm not advised its investor clients of how the FCA’s allegations might enable them to benefit from a UCIS prosecution and who the potential targets could be ? What’s more, some of the “investor co-ordinators” in the law firms’ structure are also both clients and sales agents, but they are made to look like genuine investors. They are also potential sources of compensation under a UCIS claim. This is, in our view, an important material consideration which should have been declared to the law firms’ investor clients. We have asked the law firm to comment on this situation and to inform their clients immediately. We believe its clients should be asking for a full refund and if they don’t get it they should go online and report the matter to the Solicitors Regulation Authority.
The same is likely to be true of the St Camillus investment and we have a solicitor looking into it.
We also questioned the law firm over the use of ordinary investors as “investor co-ordinators” and sending out invitations to other investors they do not know. This is a very worrying development because it is in essence a sales agent and solicitor using members of the public to recruit business for them.
Unsolicited letters were sent to investors from these “co-ordinators” inviting those investors, who were unknown to them at the time, to join this law firms’ legal action. The investor co-ordinators were effectively being used as introducers to the law firm. This kind of activity is covered under the claims management regulations [LINK]. We have asked the law firm if their actions may have exposed ordinary people to a potential FCA investigation. If there is any likelihood of that being the case we advised them that they must immediately inform those investors who may be affected. It is clear to us that the main sales agent is certainly acting as an introducer to the law firm and is captured under these regulations, but ordinary members of the public should never have been drawn into being used in such a way. If they are captured under the CMC regulations it was extremely irresponsible and indefensible of the law firm and its agent to have put them in that position.
We believe there may be a pattern emerging which is where a sales agent takes control of investor actions using a friendly law firm. The law firm chooses not to inform its clients of what is most likely their best recovery option i.e an action against the parties involved in a UCIS investment.
There is a simple solution for investors which does not involve them paying into the sales agent and lawyer scheme. It is:
1. Make an offer to the administrator to buy the freehold.
2. Bring investors together to join in the ownership.
That’s all that has to be done. There’s no need for investors to buy out trade creditors or start a series of payments to a law firm. There’s no reason why an offer would not be accepted and it is likely to be a much cheaper option for investors.
Investors are being told by the sales agent that lots of investors have signed up with the law firm. That is the sales agent reverting to his standard sales technique of frightening investors into believing that if they don’t sign up then they will miss out. It’s what all salesmen do and investors should not be fooled by it.
To view our previous article on Qualiacare please click here [LINK].
Any investor who has received an approach by the sales agent and his law firm partner, whether it was in connection with St Camillus, Qualiacare, Carlauren or NPD, should report it to the Supervision Hub of the UK’s Financial Conduct [LINK] to seek reassurance that the approach was lawful.
To view a more recent update on the St Camillus case please click here [LINK].