The CEO of the brokerage arm of Shinhan Financial Group, one of South Korea’s largest banks, has stepped down in an ongoing scandal partly involving the funnelling of investors’ money into Dolphin Trust (aka German Property Group).

Shinhan funnelled $306 million into Dolphin Trust via derivatives, according to The Korea Herald.

But the return on investment now looks bleak due to the repeated extension of maturity caused by the German authorities’ apparent reluctance to approve the project and other complications within between related parties.

Dolphin Trust first started defaulting on payments to investors in the latter half of 2018. In February it told investors that a buyout offer had been received but I’m not aware of any more recent news about this.

On 12 March Dolphin’s LSE-listed offshoot, Vordere plc, applied to de-list from the stock exchange. In a letter to shareholders it announced:

As Shareholders will be aware, trading in the Company shares has been suspended since 5^th July 2019.  At that time, the Company had been seeking the necessary approval of the Financial Conduct Authority (“FCA”) to a Prospectus to enable the listing of the German Shares.  When your New Board was appointed it became apparent that your Company was a long way off agreeing the terms of an FCA approved Prospectus and, having investigated the matter in considerable detail, your New Board are now of the view that the prospects of securing an FCA approved Prospectus are highly unlikely and, therefore, consideration needed to be given to alternative strategies.

After much consideration and discussion with the Company’s advisers, your New Board have concluded that it is in the best interest of all Shareholders that the Company be de-listed.

Vordere shareholders will therefore no longer be able to sell their shares via the LSE, although Vordere says it will put in place an alternate trading platform in place, and investigate the possibility of the company making a buy-back offer.

Vordere is currently mulling legal action against three former directors, Nicholas Hofgren, Stuart Cheek and Graeme Johnson, the former two of which were directors of a Guernsey-based Dolphin company.

Troubled German property scheme Dolphin Trust (now known as German Property Group) has frozen payments to investors in Ireland and told them it hopes to recover their money after receiving a buyout approach for their property assets.

According to The Times, an introducer has told investors that they risk losing everything if they enforce their loans to Dolphin Trust.

Dolphin Trust has been offering its loans to investors since at least 2013, when it was offering 12% per year for a 5 yar term. An investor told the BBC in 2018 that it successfully returned their money.

How Dolphin Trust went so quickly from paying out 12% per year (and 20% commission) to introducers telling investors that there is not even enough money to pay administrators is not clear. Dolphin is already paying restructuring specialists CFE to manage its cashflow problems.

Dolphin Trust has taken in nearly a billion euros from investors in Ireland, Britain, South Korea, France, Singapore and Russia.

Dolphin’s tentacles

Dolphin Trust has or had three offshoots in the United Kingdom in particular:

• Project Seascape, a P2P investment offered via Nicola “Superwoman” Horlick’s Money & Co
• Grounds Investments, which abruptly and mysteriously reverse ferreted and returned investors’ money after attempting to raise money via an IFISA (again using Money & Co as a conduit)
• Vordere plc, an AIM-listed company which Dolphin gained by acquiring and renaming a company called Acorn Growth plc.

Some Dolphin investors were offered Vordere shares in lieu of repayment of their loans.

Vordere shares were suspended in July 2019. In October 2019 three Vordere directors were ousted by shareholders following allegations of fraud.

On the 16 September 2019, following the Annual General Meeting, one of the Company’s major shareholders, Mr John O’Donnell, requisitioned a General Meeting of the Company for shareholders to consider the removal of three of the incumbent Directors, Nicholas Hofgren, Stuart Cheek and Graeme Johnson, and the appointment of David Irving as a Director of the Company. Allegations of fraud were made and the Company is currently working through the fact finding stage of their investigation into these allegations and will update shareholders once finalised.

Hofgren and Cheek were directors of Dolphin Property Fund 1, a cell of GFC Fund PCC registered in Guernsey.

The investigation into these allegations continues, with the company recently obtaining an injunction in the UK High Court:

preventing the former directors from deleting or destroying Company documents and requiring them to deliver up certain Company documents by 14 February 2020.

UK public on the hook

Should Dolphin collapse, one significant loser is set to be the UK general public.

Any investor who was advised to invest in Dolphin Trust by an FCA-regulated adviser, or invested via an FCA-regulated SIPP provider, has a slam-dunk case for compensation, which would be covered by the Financial Services Compensation scheme. (And, incidentally, there is no need to use one of the solicitors or Claims Management Companies jockeying for position in Google searches for Dolphin Trust.)

When the FSCS pays compensation in respect for bad advice or poor pension trusteeship in respect of an unregulated investment, it takes on the right to any returns from the unregulated scheme (so the investor does not get to have their cake and eat it if the investment somehow comes good).

A significant tranche of investors in a German property scheme – those using FCA-regulated advisers or SIPPs – will therefore be bailed out by the UK general public via the charges they pay for regulated investments.

It would be tempting to wangle in a Brexit angle here, but the fact is that Dolphin could have been from Burkina Faso or Cape Verde for all anyone cares. Dolphin Trust itself broke no rules as far as its offering to UK investors is concerned; as long as the UK allows securities to be offered to the public without requiring those securities to be regulated, there is nothing to stop overseas unregulated investment schemes from attracting investment from UK investors, except finding a UK adviser or unregulated introducer to do the work of sourcing them (taking on the legal liability of ensuring suitability or exemption from financial promotion rules).

The Brexit angle is that now the UK has left the European Union, there is no reason whatsoever not to require all investment securities advertised in the UK to be registered with the Financial Conduct Authority – whether from the UK, Germany or Timbuktu.

Unregulated German property scheme Dolphin Trust (now known as German Property Group; for clarity we will continue to use its less unnecessarily generic name) continues to struggle with repayments, according to media reports.

Wealth Options Trustees, an “investment wholesaler” based in Kildare, Ireland, has threatened to foreclose (presumably on behalf of Irish pension investors) in the event of non-payment.

Dolphin Trust’s CEO Charles Smethurst has admitted to “short-term cash-flow difficulties” according to WOT.

Dolphin Trust’s short-term difficulties started in the latter half of 2018, according to unpaid investors who spoke to the BBC last year.

WOT runs small pension schemes for members in Ireland, serving the same function as a SIPP / SSAS provider in the UK. How much it facilitated being invested into Dolphin Trust is not known.

Over in South Korea, Korean banks are facing lawusits from aggrieved investors for facilitating investment into Dolphin Trust via a product called “German Heritage DLS”.

German Heritage DLS is based on funds managed by Singapore’s Banjaran Asset Management that invest in historic site remodeling projects conducted by German Property Group, formerly Dolphin Trust. But the company failed to pay the investments back and keeps extending maturities due to the delay in receiving authority’s approval for the projects.

Shinhan Bank, KEB Hana Bank and Woori Bank are alleged to have sold a total of 473 billion won (£312 million) worth of investment in German Heritage DLS / Dolphin Trust, according to Pulse News.

Dolphin Trust’s unregulated bonds, which pay returns in the region of up to 12% per year, have been extensively sold by unregulated introducers in the UK and have also been used as the underlying investment of pension liberation fraud schemes such as London Quantum. (To clarify: the schemes were fraudulent because they claimed members could legally access their pensions before they were eligible to do so, not because of anything to do with the underlying investments.)

Dolphin Trust paid commission of up to 20% to introducers, according to the BBC.

Last year Dolphin attempted to launch a spin-off in the UK called Grounds Investments. The company withdrew and returned investors’ money in August, citing Dolphin’s negative publicity and the collapse of P2P platform Lendy and FCA-authorised Ponzi scheme London Capital and Finance as its reasons for having second thoughts about raising money in the UK.

The BBC’s You and Yours consumer affairs programme reports that multiple investors in Dolphin Trust (known as Generic Property Group, sorry German Property Group, since April 2019) are months late in receiving the repayment of their capital.

According to the investors who allege late payment, the repayment problems appear to have begun in the second half of 2018.

The investors were sold the Dolphin bonds by salesmen who were being paid commission of up to 20%.

Charity worker Samantha Hields had saved up a pension of £16,000 and, after being made redundant, was given an offer she could not refuse.

A salesman called her out of the blue and told her she could boost her savings by lending the money, securely, to a company redeveloping listed German buildings into luxury flats.

“He said it would double my money, and my money would be safe, as long as I was happy to invest it for five years,” she says.

She was expecting the money to be paid back to her in September last year. So far, she says she has not seen a penny and has not been given any information about what has happened to it.

The BBC also alleges that work has not started on some of Dolphin’s buildings despite Dolphin having owned them for many years. Dolphin intends to fund returns to investors (and its high commission levels) by redeveloping German buildings.

Visits to those buildings by Anna Kluehspies, a reporter from the German public broadcaster BR, found that although one was finished, and another was near completion, no work had been started on the rest, despite them being owned by GPG for more than five years.

Separately, another property not on the list of those supposedly in Project 80, a Bavarian monastery, was purchased by Dolphin in 2017 for €1m is located in Schonthal, a rural village close to the border with the Czech Republic.

The mayor of the town, Ludwig Wallinger, told Radio 4 he was disappointed with the lack of engagement he has had from Dolphin since it took it on.

“Strangely, Dolphin never came to look at this building before they paid for it,” he says.

“The last time I heard from anyone was in spring 2018, when they asked me what I thought they could do with it.

“They suggested perhaps luxury apartments, to which I laughed, because this area just does not have the market for upmarket flats.”

Dolphin states that 20% of its investors are affected by the delays. It also states that it now pays a lower rate of commission.

GPG responded to You & Yours’ investigation saying that the investors’ money is safe. Investors’ capital is not at risk, because it is secured against property on the German Land Register, it says.

It says only 20% of its customers are affected by delays on projects, which have been caused by various issues with planning and construction work.

Addresses are not always provided to investors, it adds, because that information is not always relevant. However it says it does plan to provide customers with addresses in the future.

It adds that there is no legal obligation to inform loan customers if funds are reallocated to new properties.

Dolphin says it is currently involved in real estate investments of 60 properties. There are currently delays in 10, they say for the other 50 everyone will get their money back on time.

GPG also says introducers are now paid a lower rate of commission.

In February 2019 – in other words, months after the investors in the BBC article allege they were due to be paid back and weren’t – a number of former Dolphin Trust staff formed Grounds Investments plc.

Dolphin CEO Charles Smethurst, CFO Thomas Prax, and director Christopher Moss, have all either served as directors or have held shareholdings (direct or indirect) in Grounds.

Like Dolphin, Grounds Investments plc invests in German property.

Grounds Investments plc is itself not regulated by the FCA, but offers an ISA product via Nicola Horlick’s Money & Co, which is.