It was, according to her financial adviser at the time, “a real winner” and as safe as houses. So, almost seven years ago, Alison Moncrieff-Kelly invested £80,000 of her inheritance in a German property company.
The firm, then called Dolphin Trust and now known as German Property Group (GPG), described itself as “master builders and monument experts” and “Germany’s market leader in redeveloping listed buildings”.
By restoring historical buildings and turning them into luxury apartments, taking advantage of German tax breaks, it said it would provide investors with double-digit returns.
Moncrieff-Kelly, 59, a freelance musician from Kent, is one of thousands of UK individuals who invested more than €300m (£260m) of pension cash and other savings in Dolphin over a period of several years before the company collapsed last summer.
In total, it owes more than €1bn to investors all over the world, although mainly in Britain – where there are an estimated 6,000 affected individuals – Ireland and Asia.
It is one of a number of investment schemes where small UK investors have lost money in recent years. Moncrieff-Kelly, a classical cellist, also lost out after investing in a scheme called Harlequin Property, which was initially backed by famous names and promised high returns.
“I relied on my financial adviser totally: he told me this [Dolphin] was a guaranteed 10% return and absolutely safe, as the investment was in buildings, which have an intrinsic value,” she says.
“The fact it was German was the icing on the cake – it seemed so safe. He also told me that the company was well run.”
Dolphin was founded in the town of Langenhagen, near Hanover, in 2008 by Charles Smethurst, a German-British businessman. When the company, by then renamed GPG, filed for insolvency in Bremen in July 2020, it had about €200,000 in the bank and 60-70 properties on its books – though most of them were run-down and were never developed.
The public prosecutor’s office in Hanover has begun an investigation into alleged fraud and other offences by Smethurst and two other company officials.
According to German media, this could be Germany’s biggest alleged property fraud in a decade.
Moncrieff-Kelly invested £80,000 in Dolphin loan notes in October 2014, which the company said were secured against property, after her financial adviser suggested it. When she first met him, he worked for a Bristol-based firm, and, she says, she had no idea that he was selling unregulated products.
If financial firms are not authorised and regulated by the UK’s Financial Conduct Authority (FCA), such as Dolphin or GPG, investors cannot use the Financial Ombudsman Service or the Financial Services Compensation Scheme if things go wrong.
Advisers or introducers were typically paid commission of 20% to 30% by Dolphin – but Moncrieff-Kelly says she did not know this at the time and does not know if her adviser received that level of payment.
“I’m an inexperienced investor – until I inherited the money from my mother’s estate, I had modest means and very little investment.”
Like other Dolphin investors, she received regular interest payments – in her case, a total of £12,000 – but, two months before her investment was due to be returned in October 2019, she received a message from the company saying that it could not give her the projected £100,000 payout.
The Guardian has spoken to about a dozen Dolphin investors, none of whom have had their money returned.
Deborah Kay Randles, 62, a former TSB employee who lives in York, says she invested £25,000 in Dolphin.
“I was never told it was a risky investment – I was told it was an investment in listed buildings. There were no warnings it would go tits-up,” says Randles, who now works as a consultant for a window blinds business. “It’s £25,000 that I would have liked for my retirement. I had my eye on a new car but that’s not going to happen.”
Roger Feist, 55, a former operations director for an international packaging company, says he was advised by an introducer in 2015 to transfer his £185,000 personal pension he held with Aviva into a small self-administered pension scheme and to invest most of it in two Dolphin Trust loan notes paying 10% annual interest.
“In 2019, I was starting to get a bit shaky because I was getting calls from claims companies every day asking me whether I’d invested in Dolphin,” Feist says.
He travelled to Berlin and met Smethurst and also a man called Mike Boyle, whose company did “client relations” for Dolphin. Feist was shown two developments: a former power station in Berlin and an East German post office that was being converted into apartments and was close to completion. He says Smethurst told him that his loan notes were secured against the former power station. “Smethurst seemed totally credible,” says Feist, from Hertfordshire.
In December, Smethurst said in a submission relating to UK investors made by his lawyers to the Hanover prosecutor’s office that the firm collected a further €100m from investors in 2019, even though its total liabilities of €1bn, including €800m put in by investors, exceeded the €700m value of its properties at the end of 2018. He described this as a “big mistake”.
The submission added that the assets in the land register were no longer sufficient to secure all investments, and “this was not transparently disclosed … Investors were deceived about this by our client and people involved.”
It added: “From today’s perspective, our client deeply regrets this situation and accepts responsibility for it. Even though our client realised at the time that investors no longer had sufficient security, he still had a strong hope that the investments could be recouped.” This was first reported by Business Insider.
Justus von Buchwaldt, the insolvency administrator appointed by the Bremen district court, expects insolvency proceedings for DC 80 – the investment vehicle into which most of the UK investors put their money – to begin in March or April. However, it is likely to take years to fully sort out.
Von Buchwaldt says there is a “big discrepancy” between the €1bn-plus that the firm collected from investors and the €100m that could potentially be raised from the sale of its remaining properties. “Where is the remaining €900m?”
The consultancy EY has also been drafted in, and its forensic investigators said in an interim report in September: “It is possible that various offences from accounting fraud and tax offences to embezzlement and fraud offences have been committed.”
Boyle expresses sympathy with investors who have lost money, telling the Guardian: “There’s nobody angrier than me about people potentially losing their money. I understand why some people should never have been in this investment.”
Boyle also says he was not employed by Dolphin or GPG, that his company was outsourced to take calls as “client relations”, and that he had no knowledge of what was happening. He distanced himself from GPG and Smethurst. “I had no say-so in board meetings or what was issued out to investors … I didn’t attend financial meetings.”
He says he is still trying to help investors in the UK, Korea and Singapore recoup their money.
Lawyers for Smethurst say they are currently limiting themselves to answering the Hanover public prosecutor’s questions and so are not making any external comments at this time.
Feist has filed complaints against GPG with the UK’s Serious Fraud Office and Action Fraud, and the German financial regulator, BaFin.
The GPG creditors group represents more than 1,700 UK investors. It has compiled a dossier on the company that has been sent to close to 200 MPs. The group is calling for a formal investigation by the FCA and action against the introducers who, it claims, pocketed hefty fees without doing due diligence on Dolphin.
An FCA spokesperson says: “German Property Group (GPG/Dolphin Capital/Dolphin Trust/Red Rock) is a German company and is not authorised by the FCA. However, we are aware that a number of UK consumers may have invested in GPG either directly or via a self-invested personal pension scheme (SIPP) or small self-administered scheme (SASS).
“If you did, you should immediately contact the firm that advised you to invest in GPG or your SIPP operator. If you are unhappy with their response you can ask the Financial Ombudsman Service to investigate and decide whether you are eligible for compensation.
“If the adviser or SIPP operator has gone out of business, you should instead contact the Financial Services Compensation Scheme.
“We are also aware that a number of investors have been targeted by a potential scam that asks them to transfer more money in order to recoup their original investments.
“These should be treated with extreme caution and we urge investors to ignore any such contact. Any money you send in response to such an approach is likely to be lost forever.”