As more revelations emergethis week about the alleged mortgage fraud on Allied Irish Bank, questions are being asked about Greek property tycoon and poker fanatic Achilleas Kallakis and his company Pacific Group. Julia Cahill and Paul Norman report
When 70 members of the property industry met at New Scotland Yard last month to discuss the growing problem of property fraud, little did they know that their hosts would shortly be searching the premises of one of the most prolific investors of the boom years: Achilleas Kallakis.
On 25 March, during the day and evening, the Serious Fraud Office and City of London Police conducted searches at three properties – including Kallakis’s suite of rooms in Carlos Place, Mayfair – as part of an investigation into an alleged fraud on the corporate banking department of Allied Irish Bank.
Kallakis, 40, and Pacific Group, the company that he heads, are understood to be working with the police and the SFO as they investigate allegations that the values of a string of UK properties were inflated using fraudulent leases.
Kallakis and Pacific Group are also understood to have hired their own private investigation company to find out what went wrong with the investments that are now being probed by the SFO.
The outcome of all of this will not be seen for many months. Nevertheless, the investigation heightens the wider market concerns that prompted last month’s meeting at New Scotland Yard between the industry, the SFO, and the Metropolitan Police; and the launch of a forum (called the Property Forum Action for Safe Transactions or PFAST) to share information and experience (News, 14 March).
But the initiative has come late in the day. The worry now is that today’s falling market will expose property frauds on a much larger scale than had ever been suspected. Already, more than £1bn of fraud is under police investigation, including a £40m alleged mortgage fraud involving the purchase of 500 flats in Ipswich and Eastbourne and alleged buy-to-let frauds involving properties in Leeds, Liverpool, London and Glasgow.
And last month, another investigation culminated in prison sentences being handed down to four pensioners for conning Nick and Christian Candy and their bank, HBOS, into paying £6.5m for 47 acres of land that they did not own. The scam involved duping the Land Registry with forged paperwork.
Hitesh Patel, a fraud investigation partner at KPMG Forensic, believes there will be many more fraud cases to come -partly because organisations are looking rather more closely at their operations as the global economic downturn takes hold. “It is very likely that more cases will come to light,” he says. “The real impact of the credit crunch on fraud is yet to be fully felt.”
The transactions at the heart of the alleged fraud on AIB were all made as the investment frenzy reached its climax, between 2003 and 2007.During this time, Kallakis bought a string of properties on behalf of a Swiss family trust.
Little was known about him, except that he was a well-connected, London-born investor based in Monaco, who was thought to be related to a wealthy Greek shipping family. He was also known on the World Series poker circuit, where he acquired the sobriquet of The Don (see p47).
His acquisitions were more high profile. They included Astral Towers in Crawley, which he bought from a private property company for £21m; and two government offices in Croydon, called Lunar House and Apollo House, for which he paid Vincent and Robert Tchenguiz £100m. He also bought the 23-storey Market Towers in Vauxhall, SW8, let to the Department of Health, from the Reuben brothers for £75m.
Then came the Telegraph Group’s HQ in Victoria, SW1, which he bought for £225m from the Barclay brothers; and finally 7-8 St James’s Square, a prime SW1 development site, which Kallakis bought from Hermes for £125m. Another firm, run from Carlos Place, Atlas Management Corporation, managed the assets.
Allied Irish Bank backed these deals. But the bank and the SFO are concerned that the loans were raised on the basis of fraudulent claims that the buildings earned higher rents and had longer leases than was actually the case.
It was not until last year that AIB identified a problem. During an internal review, itbecame apparent that the guarantees of certain lease payments on the properties by “a blue-chip property company” were fraudulent, the SFO said last week.
The alleged scam involved borrower companies creating overriding leases involving this investment grade counterparty. The SFO claimed in a statement last week that the blue-chip property company “has since indicated to Allied Irish Bank that the overriding leases are fraudulent”.
Last year, AIB took action: it took control of Astral Towers, Market Towers, Lunar House, Apollo House, the Telegraph HQ and 7-8 St James’s Square and sold them to Stephen Vernon’s Green Property group. That sale resulted in a write-down of the outstanding loan balances by £56m.
Pacific Group told EG at the time that it planned to divest from UK property and concentrate on business in the Far East.
The SFO’s investigations are still in their early stages – but it could lead to the biggest property fraud case yet seen in the UK market. With the SFO claiming that several individuals were involved and warning that other financial institutions may also have been deceived, the alleged fraud is likely to take months -if not years -to fully unravel. AIB is said to be considering legal action against a number of parties, but it looks likely to have a long wait before it recovers its losses.
The rise of Achilleas Kallakis
April 2003 A new entrant to the London scene, secretive Greek millionaire Achilleas Kallakis, acting on behalf of an equally secretive overseas family trust, enters talks to buy Haslemere’s flagship Orion House, Upper St Martin’s Lane, WC2 for £57m.
June 2003 Kallakis’s Pacific Group enters talks to buy the Mayfair InterContinental Hotel in Stratton Street, W1, for £141m.
July 2003 Both deals fall through because of “problems” with the opportunities, according to a Pacific source.
November 2003 Kallakis’s Pacific completes a first UK acquisition – the more modest £16m purchase of Fitzroy House, one of Network Rail’s head offices in Euston, NW1.
July 2006 Kallakis, acting as chairman and CEO of Pacific Group, returns with a bang to complete the £100m-plus acquisition of the two Home Office buildings in Croydon, Surrey, from property tycoons Vincent and Robert Tchenguiz.
January 2007 Kallakis buys a 220,000 sq ft government HQ building overlooking the Thames in Vauxhall, SW8, from the Reuben brothers in a £75m off-market deal.
August 2007 Pacific Group buys the Daily Telegraph HQ in Victoria from the Barclay brothers for around £225m.
September 2007 Pacific Group buys 7-8 St James’s Square, SW1, from Hermes Real Estate for around £120m.
March 2008 Kallakis returns to Orion House, entering talks to buy it for £80m – a 5.3% initial yield. However, the deal never goes through.
December 2008 Allied Irish Bank transfers several of the assets bought by Kallakis to Stephen Vernon’s Green Property, including the Telegraph Media Group HQ in London’s Victoria, along with the St James’s Square scheme. Atlas Management Corporation, which manages the Pacific Group of companies’ property from headquarters in Mayfair, is put into solvent liquidation on 19 December. The group employed 28 staff, including a five-strong property team.
March 2009 The Serious Fraud Office says that it is investigating an alleged fraud on AIB. Press reports quickly link Kallakis and Pacific Group to the investigation.
