SFO launches 'related party' probe into Capital + Merchant

The Serious Fraud Office has confirmed today that it has launched an investigation into Capital+Merchant, more than two years after the firm went into receivership.

The investigation was started after a referral from Grant Thornton, the receivers of companies within the failed finance outfit’s group.

Although the investigation is only in its earliest stages, SFO chief executive Adam Feely said it would focus on specific transactions which appeared to have benefited certain related parties through the use of Capital &Merchant funds in “contrived structures and with questionable supporting documentation.”

He said the SFO would form a view “as quickly as reasonably possible as to the merits of these matters.”

“We have received excellent co-operation from Grant Thornton, and from other parties including the second receivers Korda Mentha. We will liaise further with them, and continue to collaborate with other regulatory agencies as appropriate.”

The company went into receivership in November 2007, one year after it was given a four star rating by Property Investment Research for its capital secured debenture stock.

Breached security agreement

But it ran into strife when its trustee Perpetual Trust learned it had breached general security agreements with Australian company Fortress Credit Corp.

The collapse was one factor behind the subsequent failure of financial adviser Vestar, which had recommended investing with Capital+Merchant as every Capital Secured funded loan was supposedly secured individually by a Lloyds of London Insurance policy.

Investors in the company were initially told they could receive less than 60% of their money back, but this soon dropped to 10% and by November 2008, they were told there was no assets left to help them recoup the $167 million they were owed.

In February last year, Grant Thornton uncovered a $41 million chunk of related party loans not recorded as such on the company’s books, with just $1.75 million reclaimed from those loans and the rest written off. 

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