I am not the only person up bright and early in embattled property investment firm Harlequin Property’s head office in a Basildon business park: two investors are also there, waiting for a meeting.
Unlike the majority of press coverage of late, the Buccament Bay investors are happy and speak glowingly of their investments and of the firm. They acknowledge that there are negative press reports, but state that they have not had a negative experience with the firm.
Harlequin chairman David Ames later tells me during our lengthy conversation it is press targeting of the firm and not investor dissatisfaction that has prompted regulatory scrutiny in recent months.
‘I am not a fraudster’
The group has several arms which between them develop overseas property in resorts in tourist destinations such as Caribbean islands, which are sold as investments to UK consumers.
From claims over delayed or suspended projects in relation to which investors have expressed concern over deposits, to more serious allegations about its fundamental model, Harlequin has been forced to defend itself vigorously over its practices in recent months.
The subsequent effect on income has seen sales arm Harlequin Management Services (South East), which trades as Harlequin Property, to enter administration. Empty desks now litter its offices.
Mr Ames vehemently denies claims that he is a “conman” or that Harlequin is involved in fraudulent activity. He says while the press comment does affect him, he believes there is only a select group of investors that no longer support him and that the vast majority do.
“[Investors say], ‘if you were a fraudster, Dave, you would have run off four years ago and you wouldn’t have spent the money building [resorts]’. I haven’t taken a penny out. All the money goes to the Caribbean and that is verified as I wouldn’t still be here. I would have gone years ago.
“I feel really upset as I know I haven’t done anything wrong and that’s what really frustrates me against these people. We have spent so much time on fire fighting all these problems and actually it’s very difficult to concentrate on the core business.”
‘Out to get’ Harlequin
The negative rhetoric started off with an alert by the Financial Services Authority in January this year, which was aimed at advisers and which Harlequin itself is said to have helped to draft.
The alert warned intermediaries to check investments were suitable and that they had done their due diligence in relation to recommendations to clients to invest large sums into self-invested personal pensions weighted heavily towards overseas property bought by Harlequin Property.
Following the FSA alert, the Serious Fraud Office announced that it was investigating complaints over the Essex-based group, together with Essex Police.
“The FSA alert affected us greatly, although it wasn’t aimed at us but at IFAs and [self-invested personal pension] providers. Overnight, that stopped our income and, at that time, we were owed £30m-£50m by investors.
“Overnight we lost all of our income through no fault of our own. We were building at that time and were working on four or five resorts, so things were going great up until then. That contributed to putting us where we are today and we are not out of that situation yet.”
When asked outright if he thought the investment was ‘Sippable’, after one provider’s claim that it was not and should never have been considered such by Sipps firms, Mr Ames said that it was “100 per cent”.
“What people don’t appreciate is every penny that we take from investors, other than the money we take to pay the commissions of the agent in bringing the business, has been spent to develop and build hotels in the Caribbean.
“We now have two hotels trading and we have actually done what we said we would. It’s a commercial, Sippable product.”
Legal wrangling
Harlequin is currently locked in a legal dispute with Jeremy Newman, who previously worked for Harlequin’s former accountants Wilkins Kennedy, and his former employer. The case is over a now-defunct website called ‘Harlecon’, which published allegations as to whether Harlequin was effectively operating a Ponzi scheme.
Harlequin’s action is set to go to trial in the High Court in London in November of this year. It is over allegations of defamation and breach of confidence.
Mr Newman admits setting up the website in his defence against the action, seen by FTAdviser, but claims there are “reasonable grounds to suspect that the Harlequin business is based upon a systematic fraud and/or a Ponzi scheme”.
Harlequin has vehemently denied the claim in its response to the defence. Harlequin said that since its only substantial source of income, pending completion of the properties, is investor deposits, an element of investor deposits necessarily funds those finance payments, but Harlequin has never claimed... “that such payments amount to investor returns. They plainly do not.”
This case is not the only legal front on which the firm is fighting; it is also involved in several other battles over a number of issues.
In one case Harlequin Property, alongside Buccament Bay resort and Mr Ames, was the subject of a ruling from a court in St Vincent and the Grenadines in August 2011, demanding that it pay close to £450,000 in redress to five investors that backed out of investments into a Harlequin resort in Buccament Bay in 2008.
Two years on from the judgement, the investors are yet to receive their compensation, which Harlequin has said is due to ongoing “discrepancies” over the amounts that are to be paid.
In another case relating to Buccament Bay, being contested in Ireland, Harlequin is itself pursuing compensation for alleged breach of fiduciary duty over claims a former contractor diverted $13m (£8.5m) meant for the resort to himself.
This case is one of several factors that Harlequin cited as reasons for delays to construction on another site in H Barbados.
Harlequin developments
Project delays and cancellations, often where deposits have already been received from investors, is another well-worn subject in coverage of Harlequin.
In one case Harlequin attempted to open a hotel in Brazil by purchasing an existing building and refurbishing it, but this was denied planning permission by authorities. As Harlequin presumed it would get the go-ahead, despite not owning the land, it pressed ahead by taking a £1,000 deposit from investors.
Mr Ames states that money has only not been returned in cases where the investor has decided to remain invested.
“We didn’t realise how difficult it was to buy land in Brazil and to get planning permission. I think some investors haven’t [had their money back] but they were offered it, as it stated that in the contract. They are hanging on as they think we may still do something.
“I am still interested in buying something, but I haven’t yet. The vast majority have either had their money back or have taken that deposit or reservation and put it onto another property in the Caribbean.”
What liquidity problems?
Overall the last six months have taken a toll on the Harlequin businesses, but Mr Ames states that recent months have seen a gradual improvement.
“We are actually in a far better position [financially] this month than we were this time last month.”
The fact that sales arm Harlequin Property is now in administration effectively means the group “can’t do any business”, but Mr Ames says he believes “once all the dust has settled” they will be able to get back to selling properties.
In spite of the obvious issues with the sales arm, however, Mr Ames strenuously denies the group generally has liquidity problems. “We are paying our way”, he states simply.
“Harlequin Hotels and Resorts, which are the operating hotels, don’t have liquidity problems. This business here [Harlequin Property] obviously has a liquidity problem because it is in administration, but then there is the construction company which is not building anything at the moment because of everything that is going on.”
Mr Ames flags up that the resorts do not have “any debt” and they are worth “hundreds of millions of dollars”.
“We own all our land outright and that is one of the big differences between us and a lot of the developers out there.”
Harlequin Hotels and Resorts, which are the operating hotels, don’t have liquidity problems.The future
Asked if Harlequin concedes that it has made mistakes, Mr Ames says he had been “naive”.
“Just before the financial crash happened, I was out there [in the Caribbean] seeing all the banks and they said to me that it was no problem and all investors will be given mortgages... but then the crash happened and all of a sudden no banks could help. Obviously the promises that I made when I spoke to people at that time completely changed overnight.
“So, yes, I’ve made mistakes, but you tend to believe people.”
In relation to one resort, The Merricks in Barbados, which has been mired in delays and has finally got planning permission, Mr Ames says he was told this would take “six months”, but “unfortunately it has taken six years”.
Notwithstanding the current issues, Mr Ames says he believes the majority of investors are behind the firm and that the firm “has a future” and will carry on.
“We have 10 or 12 banks or financial institutions that are looking to work with us now… and what we have had to do is talk to them, understand their requirements and how the business can be restructured. So there are plans.”
