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| Estates Gazette looks back at The Don’s dealings over the past few decades 1980s Kallakis meets his future business partner Williams while they are both studying at the University of Buckingham. 1995 The pair are convicted of defrauding Americans after selling fake Lord titles. Williams has brief spell in prison. Early 2000s The duo begin to get into renovating properties, and do work on behalf of a secretive overseas family trust; the Pacific Group is used as the main buying vehicle. April-June 2003 Kallakis emerges as a new entrant to the London commercial market and begins talks to buy Orion House, WC2, and the Mayfair InterContinental Hotel, W1, for £57m and £141m, respectively. July 2003 The deals both collapse. November 2003 Kallakis buys one of Network Rail’s head offices, Fitzroy House, NW1, for £16m. July 2006 Kallakis purchases the 20-storey, government-let Apollo House and Lunar House in Croydon from the Tchenguiz brothers for more than £100m. January 2007 Kallakis buys 23-storey Market Towers, SW8, from the Reuben brothers for £75m. August 2007 He snaps up the Daily Telegraph HQ in Victoria, SW1, for £225m from the Barclay Brothers. March 2008 Kallakis returns to talks to buy Orion House for £80m. The deal never goes through. Late Nov-December 2008 AIB transfers several assets bought by Kallakis to Stephen Vernon’s Green Property. 19 December 2008 Atlas Management Corporation, which managed the Pacific group of companies’ property, is put into solvent liquidation. March 2009 SFO confirms it is investigating an alleged fraud on AIB. Kallakis and Pacific are linked to the case. September 2011 Trial of Kallakis and Williams opens at Southwark crown court. January 2012 The trial collapses after being blighted by delays. September 2012 The retrial begins. 16 January 2013 Kallakis and Williams are both found guilty of conspiracy to defraud AIB and BoS. 17 January 2013 Kallakis is sentenced to seven years in prison. Williams is sentenced to five. Both are disqualified as company directors for six years. |
He may once have won $1m on a single poker game, but on Thursday 17 January, at around 12.15pm, Achilleas “The Don” Kallakis’ luck ran out. After a four-year investigation by the Serious Fraud Office into the corrupt business dealings of the former property tycoon, Kallakis was sentenced to seven years in prison for duping two banks into lending him more than £750m.
Over the course of the four-month retrial, the Greek shipping heir was exposed as a serial fraudster who used the proceeds from his life of crime to fund his super-rich playboy existence. His business partner Alexander Williams was also found guilty of fraud, and sentenced to five years. The pair were disqualified as company directors for six years.
Kallakis had been behind a number of high-profile property transactions in London in the noughties, including the purchase of the Telegraph’s £225m Victoria HQ. For five years, he and Williams built a business using debt to buy buildings that they could refurbish and sell on at a handsome profit.
But, a decade after the duo began their relationship with Allied Irish Bank – their main lender – Kallakis’ empire came crashing down.
The evidence showed how he used forged signatures and sham guarantees, among a catalogue of other tricks, to dupe banks and live a double life, before being caught when the property boom years expired.
He and Williams, both 44, were found guilty of conspiracy to defraud AIB and Bank of Scotland following the SFO investigation, which started on 1 January 2009. In total, AIB accrued losses of around £60m on £740m of loans, and BoS lost £5.8m on a £26m shipping loan. Both men pleaded not guilty to the charges.
Here, we look at how the Don of the international poker circuit fell from grace.
Where it all began
The story starts 10 years ago when AIB began working with Kallakis. It lent a total of £740m between 2003 and 2007 to firms and special-purpose vehicles affiliated with Kallakis to buy 16 properties. Kallakis claimed during the trial that the acquisitions were made on behalf of the Hermitage Syndicated Trust, which was set up for his children.
But, once the trial began at Southwark crown court, it was revealed that Williams and Kallakis had shady pasts. The prosecuting counsel for the Crown, Victor Temple QC, told jurors that the men changed their names, respectively, from Martin Lewis and Stefanos Kollakis after being convicted in 1995 of selling bogus honorary titles – mainly to Americans.
AIB was introduced to Kallakis in 2003 by brokerage firm CLP and a relationship was quickly established. However, the key to the deals and securing the AIB loans, was Kallakis and Williams pretending Hong Kong-listed company Sun Hung Kai Properties was providing lease guarantees on the Kallakis buildings. This inflated the price of some of the properties to £60m above their cost.
The fraud
The first AIB-funded purchase was modest – circa £16m for Fitzroy House, NW1, one of Network Rail’s head offices, in November 2003. The amount the bank loaned quickly escalated, with the purchase of the government-let Apollo House and Lunar House blocks in Croydon from the Tchenguiz brothers for more than £100m in 2006; and the acquisition of the 220,000 sq ft Market Towers in Vauxhall, SW8, from the Reuben brothers for £75m in 2007.
During the trial – in which there were 84 witnesses, 36 of whom were called to stand, while the others had their evidence read out – Walter Kwok, former chairman of SHKP, appeared via video link from Hong Kong. He claimed he had never met nor spoken with the defendants and that his signature – which appeared on purported guarantees – was forged.
Jurors also heard how Kallakis provided false guarantees from a company called Oregon Finance Corp, which he claimed was a billion-dollar ship-owner belonging to his family trust. Oregon Finance, however, had millions of pounds of liabilities and no assets.
In addition, the elaborate hoax included a bogus reference from Lord Harris of Highcross, a founder of the Institute of Economic Affairs.
Blinded by the gold rush
Michael Cooke – a former member of AIB’s team based in London – said the bank got involved with Kallakis in 2003 to capitalise on the real estate “gold rush”. He said: “In 2001, a decision was made to be a big lender in the UK property market. It was an aspiration to build a substantial property loan book with UK clients acquiring UK properties.”
It emerged that the bank did not probe Kallakis’ financial situation or the SHKP guarantees. “I told them that we had an informal agreement [with SHKP],” said Kallakis. When asked whether AIB had asked further questions on legal agreements, he responded: “No.”
Defence lawyer George Carter-Stephenson QC asked whether the accused was asked for additional information about himself by the bank when buying at the height of the property boom in 2006.
Kallakis replied: “I was never asked from the beginning, let alone at this time.” With reference to 2006, he added: “By this stage deals were coming in thick, so I was seeing [staff at AIB] at least once a week.”
Kallakis also provided AIB with years of lavish hospitality. Cooke visited Kallakis on his yacht in Monte Carlo and dined with him in Cannes. He was invited to stay on the yacht in Monaco during the Grand Prix, although he could not attend.
Other witnesses called to court included former AIB chairman Dermot Gleeson, who said it was no surprise the bank had wanted to sell on the “box of horrors” that made up Kallakis’ property portfolio to Green Property quickly.
The sale
In 2008, AIB panicked when it started to become clear that all was not legitimate with Kallakis. It was contacted by German bank Helaba about a previous conviction Kallakis had under another name.
Donal O’Shea, head of AIB’s British property unit at the time, said it was “worrying and disturbing news. It was Kallakis, one of AIB’s biggest customers”. The bank hired detective agency Quest to investigate, which led to a 5 September 2008 meeting in Hong Kong, at which point AIB discovered the SHKP guarantees were false.
Just under three months later, the bank made a quick £650m sale of the properties from Kallakis’ portfolio to Dublin-based Green Property.
The sentencing
After an original trial beginning in September 2011 collapsed after being dogged by delays, including Williams’ attempted suicide, the jury delivered a unanimous guilty verdict in the retrial on 16 January.
Judge Andrew Goymer said neither Kallakis nor Williams “is of previous good character”. He added: “I have no doubt that the directors, who had some previous experience of property, hoped that SHKP and Oregon guarantees would never be called in, and that the property market would go on expanding towards infinity, so that any losses would, in fullness of time, be made good and never discovered.”
The banks also came under fire, with Goymer making reference to his shock that they did not carry out proper checks on such a significant client.
The repercussions
Hitesh Patel, UK forensic partner at KPMG, believes cases of this sort should encourage greater diligence on all sides of a transaction: “The more complex property deals get, the more both parties have to investigate.”
He says: “While the total value of fraud has dropped substantially in the absence of so-called fraud ‘super’ cases, the old-fashioned conman hasn’t given up his tricks.”
David Lytton, senior associate at law firm Dundas & Wilson, says: “Many criminal and civil actions arising out of pre-October 2008 lending are only now beginning to surface. I anticipate that the Kallakis prosecution will be but one of a number of high-profile judgments in 2013 which demonstrate both the lax risk environments in place in financial institutions at the time and the lengths to which committed fraudsters would go to capitalise and take advantage.”
There will always be wheelers and dealers looking for a bargain, and fraudsters will always try their luck. Over the past two years, self-styled “Lord” Edward Davenport has been sent down for his part in a commercial loans advance-fee fraud, while property developer Saghir Afzal and surveyor Ian McGarry were jailed for 13 years and seven years, respectively, for a £50m mortgage fraud.
But will this case act as a warning to would-be fraudsters?
Simon Baynham, property director at the Howard de Walden Estate, believes it won’t: “If seven years meant seven years, it would represent a meaningful deterrent. But we all know that seven years means three and a half years, which is, in my view, a soft punishment for a crime involving such a large amount of money.”
How the SFO got its man
The past two years have not been the smoothest for the Serious Fraud Office.
Most notably, it came under fire after abandoning an investigation into the Tchenguiz brothers last October. A high court judge accused it of incompetence during its investigation into the property tycoons’ alleged role in the collapse of Iceland’s banks. The brothers are now suing the SFO for more than £200m following the failed investigation.
The conviction of Kallakis and Williams, therefore, couldn’t have come a moment too soon for the SFO, boosting the department’s credibility.
The chief SFO case officer on the Kallakis and Williams case was 41-year-old Ronan Duff. Following the sentencing on 17 January, he said: “This was a persistent fraud that enabled these defendants, Kallakis in particular, to lead the lifestyle of the super-rich. The SFO has been equally persistent in investigating and in ensuring that justice has been delivered.”
Duff joined the SFO in 2008 and in 2009 became an investigative lawyer on the case. In 2011, he became the case manager. Prior to joining the SFO, he was a defence solicitor at Christian Khan.
Here, Duff tells Estates Gazette just how laborious this £1.2m investigation was, before lifting the lid on one of the most “audacious and elaborate scams” he has seen in his entire career.
How labour-intensive was the investigation and how many staff worked on the case?
There was a core case team of five who spent differing percentages of their time on the case depending on the stage it was at. Others assisted at key times, including City of London police, at the searches and interviews.
There was a vast amount of material to go through and a number of interviews to conduct. In total, during the trial there were 84 witnesses, of which 36 gave actual evidence and the remainder were de-warned [the witness’s statement was read in his or her absence] while the trial progressed. It is difficult to give an overall page count of how many documents we had to examine. With the digital material, there were almost 2m files to review and the total amount seized amounted to around a terabyte. In terms of served material, this would be a fraction of the material reviewed. We served around 600 pages of witness statements and around 18,000 documentary exhibits.
During the trial, jurors and the public gallery heard details about forged documents and impersonation. What did you consider the most shocking aspects of the case?
The most striking aspect is the audacity of the fraud. It did have elements of quite a traditional con, but there was a lot of manipulation going on.
We heard about a 2007 meeting in London between the bank and a man who was purportedly representing SHKP and false company stamps used. They had to go to elaborate lengths to deceive, and this really was an elaborate scam.
This case required a lot of SFO manpower and time. How did you feel about the first trial collapsing and a retrial being called?
We managed to get charges brought relatively quickly, with the defendants charged in February 2010 [13 months after the SFO investigation began]. One of the most frustrating aspects for us was having to go to retrial. Agreeing witnesses, getting AIB staff over from Ireland to testify and setting up video links with Hong Kong required a lot of work. To have all that time and effort wasted [and recall witnesses] was very frustrating.
How important is this conviction to the SFO?
The case team put in the hours over the past four years to build a robust prosecution case. There were a number of setbacks beyond our control along the way, which makes it particularly satisfying to have reached this conclusion.
