Dear all,
As you will see there is an article in today's Financial Times. We felt it important to list the questions which we were asked, along with the answers that we gave. There are a few inaccuracies in the article which disappointed us, however, you will be able to see for yourself what these are from our detailed response below. If anybody would like further info, please contact us via the usual methods.
Dear
sir
I
am a reporter for the Financial Times specialising on UK Companies.
I
was contacted in the past weeks by investors in your partnership named Collins
& Bone, which was run by yourself and your cousin, Liam Collins.
The two investors in question, Sally and Jasmine George, are
actively engaged in spreading libellous information which will be corrected in
due course in court. They have pursued a witch-hunt of both myself and David
Bone and have published inaccurate and highly defamatory information on their
blog. Given that it has not gathered the momentum they hoped, and in turn has
not led to the return of their original investment + interest, they have
threatened and are now enacting a PR campaign aimed at ‘exposing the fraud’.
The problem is that there isn’t one. Mistakes have been made and trading
conditions have been exceptionally tough, but we have a real business with
genuine assets, property investments, track record and validated model. In the
process of this witch-hunt they have gather every document ever promoted and
weaved as many aspects as they favour into the investment they wish they had
made, rather than the one they did. As you will see by our considered response
many of your questions are answered by the simple production of non-public
documents and the narrative behind there contentions.
Your questions intimate that there is no real business here and,
in effect, the operations have been another example of a classic ‘ponzi’ scheme
to fund the director’s lavish lifestyle. As we can easily evidence there have been
an abundance of projects completed, significant profits made and distributed,
an evolution of a business model to a point where it is very well protected and
lifestyles that have been the very opposite of lavish whilst we have fought
long and hard to come through a historically difficult period.
Based
on documents revealed by these investors, including email correspondence
between investors and yourself, promotional material distributed by Collins
& Bone and my own research, it appears there are serious concerns about the
propriety of the business you’ve been running.
It
appears that cash invested by investors has disappeared. Further, it appears
that inaccurate information has disseminated to the public and to investors
that had given those invested a false impression of Collins & Bone’s
affiliates and protections. This includes giving the appearance that your
business was FSA regulated, which it was not.
Giving the appearance of an FSA regulated business when we are
not is an incredibly serious allegation. None of the businesses you refer to
(either Collins Bone, CBS, or Castle & Gatehouse) has ever raised
funds on the premise of being FSA authorised or ever promoted that
investor money would benefit from the FSCS. The property investment industry is
not regulated by the FSA and we have never sold or promoted investments on the
basis that we were when not authorised to do so. Our sole venture into the
regulated world was the CBS Fund No.1 LP (IM attached as part of the evidence
requested). We did not issue this document without express authorisation and
when promoting it stuck rigidly to the strict interpretation of financial
promotions. This entailed all interested parties being referred to Chesterman
Capital who as operator would physically issue a copy of the IM once the
necessary checks had been performed. This was a matter of the utmost importance
and we categorically deny any statement suggesting otherwise. We strictly
promoted it once advertisement and wording had been approved and ceased promoting
it from the moment Pointon York withdrew their support.
We invite you to highlight any passage of any brochure, website
or otherwise that states ‘we are FSA authorised’ other than the CBS Fund No.1
LP. Any investor implying that they believed the business was FSA authorised is
being seriously disingenuous in doing so. It never formed part of any sales
promotion and was not part of the general sales discussion. It is highly
illegal and a serious criminal offence and we have been acutely aware of that
from day one.
The fact that the structure appears in early versions of aspects
of CBS, C&B and Castle & Gatehouse literature coincides with the period
of time that the fund was live. It appeared as a legacy item of text and was
eventually removed due to irrelevance to the evolution of the offer as it
progressed over time. It is a big step to state that this page implies either
or any of the businesses discussed were themselves FSA authorised and, as that
is a criminal allegation, we would ask you to seriously consider whether you
wish to run a story including that allegation on the basis of the small minority’s
distorted view and documents taken out of context.
There are over 100 investors and we would happily take a
consensus as to whether they invested on the basis of thinking any of these
businesses were FSA authorised. It may well be the case that Sally & George
are isolated or at best a part of less than 5% willing to say anything to
recoup their losses.
There
has been a series of incompetent business decisions and failures by your firm,
including the rolling over of £2.5m of “profits turned into debts” from your
previous business, CBS Investments/Group and as a result people have and will
lose huge amounts of money as a consequence.
We are discussing failed businesses which by their nature will
not have delivered the service or product that they had hoped. Mistakes have
been openly admitted and learnt from, and the model has evolved into what we
consider a well protected investment. Whether it is or not is for each investor
to decide, but there are a plethora of examples where the premise of the model;
to buy, renovate and sell residential property, has worked very well and made a
good profit margin.
We are inclined to agree with this comment. Several mistakes
were made, and you can label them incompetent if you wish. It was a unique
moment in time and as this was our first business venture we were evidently ill
equipped to deal with the credit crunch and subsequent recession. No business
is ever infallible and we are not saying this is any different – far from it.
However, Sally and The George’s blog, and indeed your line of questioning here,
seems to suggest that there is nothing in between total success i.e. delivery
of all and every return, and fraud. Yes, many people stand to lose money.
However, the principals and those willing to assist in the turnaround have
fought longer and harder to correct their shortcomings than any investor could
reasonably lay claim to. Several dozen’s of investors will testify to this.
Further,
I believe that investors may still be at risk from questionable business
practices by a company with which you are intimately involved in, Castle &
Gatehouse, whom you refer to as your “sister company” in correspondence with
investors and for whom you are listed as “sales director” in promotional
material. That company is currently operational and actively seeking investors
according to its website.
Whilst myself and Davey were present at Castle & Gatehouse’s
creation, it is a statement of fact that we have not been involved with Castle
& Gatehouse for a long time now. We are not involved in the day to day
operations although at its outset we certainly played a part. Eventually the
business outgrew us and we naturally fell away from involvement.
Castle & Gatehouse is in the process of being closed. The
model it promoted (from its outset) was to buy, renovate, let and sell
residential student property. All investors into Castle & Gatehouse have
invested into a structure whereby they owned the asset in full, paid for the
purchase and renovations in cash, and split the profits of the subsequent sale
on a headline 50/50 profit share arrangement. Castle & Gatehouse has not
raised any other funds for any other purpose. Each project is funded and owned
by the investor outright. No investment has been pooled, and no purchase funds
have ever moved through Castle & Gatehouse accounts.
Castle & Gatehouse has delivered a significant number of
these projects as prescribed. Every investor into Castle & Gatehouse has
received a property, which they alone own, and properties have been renovated
to the agreed specification for the most part on time and on budget.
Sales have been made within the prescribed 6 months target,
although there have been instances where properties have not sold as quickly as
expected due to market conditions. In these circumstances investors have
received rental income whilst the properties were promoted for sale.
The model being promoted at Castle & Gatehouse’s conclusion
was one with the following features:
·
No upfront fees.
·
No reservation deposit.
·
Investor owns the purchased asset in full.
·
Fully transparent project figures agreed and fixed at the
outset.
·
Renovations paid 100% upon completion of works on a fixed price
basis.
·
Investors receive all rental income after 6 months should the
joint venture not sell within the expected timescale.
Where within this structure would you suggest improvements? It
is as bona fide a structure as you are likely to find in the property
investment arena. No investor in Castle & Gatehouse stands to lose money
they invested as a result of Castle & Gatehouse’s closure. Some have made a
lesser return than expected but none are in the position of losing original
investment due to the quality of the structure. All investors are financially
better off for having invested in Castle & Gatehouse. It is a far cry from
posing a risk to new investors and we would ask you to reconsider this statement
and viewpoint (which appears to be at the heart of your story) given the
information provided.
Here
is a breakdown of the information we gathered that supports the questions that
follow below.
FSA regulation and
misleading advisory listings
In
promotional material for Collins & Bone and Castle & Gatehouse,
Chesterman Capital is listed as the Fund Operator:
From
Collins & Bone brochure (FAQ’s section):
“Every
aspect of the Fund has been validated externally by third parties and it is FSA
authorised through their partners Pointon Yorke [sic] and Fund Operators
Chestermans.”
I
have contacted Chesterman Capital. It confirms that in 2009 they created one
vehicle called CBS No.1B for you but that fund never raised any capital and was
later dissolved. Chestermans has reviewed the advisors section of Castle &
Gatehouse’s promotional brochure. It appears that section was copied from the
document created on the basis of that relationship, which they said never
raised any money and ended their relationship with Collins & Bone and its
affiliates.
This section is discussing the CBS fund. It was issued at a time
when the fund was live and was included for a very brief time when it hadn’t
been made clear that we couldn’t reference the existence of a fund other than
directly promoting CBS Fund No.1 LP. Again, once the fund was pulled the
information was pulled from all other literature.
Pointon York SIPP Solutions Limited said it had detailed discussions commencing
in late 2008 with representatives who went on to form CBS Property Management
Limited, which led to the launch of CBS Fund No.1 LP in June 2009. They added
that this fund did not complete and was withdrawn in early 2010 with no funds
raised and since has had no business dealings with you or other principles.
That is correct. No investor has ever been told they were
investing into a fund. The literature does not state this at any point. Having
read through all the documents there is a theme of simply stating the premise
of the investment in layman’s terms. Had we have wanted to promote that (again,
a criminal allegation) then we would propose the documents would expressly
state it. None do. We would also suggest that more than 1-2% of the total
investors would be forcefully voicing that they were mis-sold a non-FSA
authorised investment as being authorised. Again, 50+ investors testify
otherwise but you’re running with a story based on the overwhelmingly small
minority. That small minority, mischievously or with rose-tinted memories, are claiming
that they were sold on this basis.
Since
neither fund confirms any money was raised, it appears that investors were
misled and or given the impression their investments would be in FSA regulated
funds.
Why does it automatically follow that because no funds were
raised in 2009-2010 (the heart of the credit crunch and recession) investors
were misled? The CBS Fund No.1 LP promotion gave rise to our dealings with a
highly respected venture capital firm in London who spent from October 2009 to
October 2011 preparing for a £20m investment. Contracts were signed on this
£20m agreement in October 2010, and a pilot scheme undertaken which was
delivered successfully in all aspects (summary accounts are attached). The
agreement was at the sole discretion of the investor and unfortunately he
ultimately chose (in October 2011) not to proceed when gearing wasn’t available
at rates they felt happy with. As of September 2011 this was a live deal that
had been signed and had delivered a successful pilot scheme on an initial
drawdown of £500,000.
From
Castle & Gatehouse brochure (Advisors section):
Operator:
Chesterman Capital Ltd
I
have contacted other members including Harrods Bank, Royal Bank of Canada Trust
Corporation Limited and Piper Smith Watton LLP regarding the promotional
material dispersed which claims they are affiliated with Castle &
Gatehouse. They categorically deny any affiliation to Castle & Gatehouse.
The Harrods escrow account was opened in the name of Piper Smith
Watton and was used twice (please see email from PSW & a copy of the
original agreement that confirms this – hugely important). Two investors placed
£300,000 and £150,000 into the escrow account in the early stages of the joint
ventures. Issues arose regarding whether the structure would be deemed to be
‘accepting deposits’ and the view was taken, led by PSW, to return the funds in
full which was carried out immediately. It was then deemed commercially and
legal more viable to create a joint venture structure where the investor simply
owned the property directly. All references to escrow accounts were made at the
time of this initial structure and related exclusively to Castle &
Gatehouse which it was in fact used for in two instances.
Unfortunately a handful of investors have then seized upon this
as a retrospective part of their investment. This is misleading as the account
was used for its purpose and only part of the structure for a very short period
of time in truth. Again, the documents you have read are being taken out of
context.
We do not claim to have traded on the names of these firms; as
mentioned they did not form part of the sales pitch per se. However, to claim
that they have never heard of Castle & Gatehouse simply isn’t true, as
evidenced by the emails. At the same point we do not wish to have their name
included if they do not want it to be. In this regard we have included evidence
that these events took place but would respectfully ask that you use this to
satisfy your own opinion rather than included it in any article. We will leave
this aspect in your good judgement. They are simply distancing themselves from
a horrific looking blog.
As we have said in our response previously; success has many
fathers and failure is an orphan.
Why
were these companies/firms listed as advisors for Castle & Gatehouse?
Please clarify.
At the time they were listed in the brochures shown the CBS Fund
No.1 was being actively promoted. Castle & Gatehouse was created in 2009.
It ran alongside the CBS Fund No.1 LP and those parties were part of CBS Fund
No.1. If any investor had shown interest and appeared suitable they were
directed to Chesterman Capital who would then issue the IM.
They did not appear in newly produced literature after the CBS
Fund No.1 LP was closed, although may have been included in a few legacy pages
which were in time removed due to irrelevance. They do not appear at all in
recent Castle & Gatehouse documentation. They formed no part of the sales
pitch and all Castle & Gatehouse investors should corroborate that. You
appear to be driving at the allegation that we traded on their good name – far
from it. It would be a surprise if any Castle & Gatehouse investor could
tell you who they are. It simply didn’t form part of the general promotion and
was only quoted at a time when the fund was open for business.
Harrods Bank was unique in that group in that they were never
directly engaged as part of the fund. As mentioned PSW opened a client account
as part of the initial structure of what would become the joint venture. At the
time the proposed structure had been to take money into an escrow account, buy
a property and give the investor a legal charge. The legals surrounding this
were complicated and lengthy. The account was set up but only used twice (with
the money being returned in full) as the structure shortly evolved into the
investor owning the property directly which we felt was better, easier and more
saleable than the initial proposal. The Harrods Bank name was removed from all
literature immediately upon request shortly thereafter.
It
appears as though the advisors are listed to give Castle & Gatehouse a
sense of legitimacy, but those listed deny knowledge of Castle & Gatehouse
in its entirety.
The Castle & Gatehouse joint venture was sold on the
security of the investor owning the property in full. This has happened on
every single joint venture to date. At no point did the names of those firms
make up part of the sales process, and the investors would confirm this. Castle
& Gatehouse didn’t need ‘legitimacy’ as it was perfectly presentable in its
own right. Several people have made good profits by buying, renovating and sell
properties via the JV structure. You appear to have taken the words of sources
who have had nothing to do with Castle & Gatehouse and evidently have
little understanding of how it functioned which shines through in your line of
questioning. It simply isn’t the case.
Further,
the single vehicle structured for Collins & Bone was never used but every
investor I have spoken to felt that these assurances were legitimate.
What then happened with the over £1m that was raised by the firm? Please
clarify and explain.
Relationship with
Castle & Gatehouse
Based
on the due diligence section of the Castle & Gatehouse brochure, the
management structure section of the brochure, and emails obtained from
investors, we are left to conclude that your role in Castle & Gatehouse was
beyond that of a normal employee.
It
appears that you, after referring to them as your firm’s ‘sister company’, you
may have been pooling assets between Castle & Gatehouse and Collins &
Bone. It appears monies raised from investors may have been transferred into
Castle & Gatehouse. Please clarify.
We have already clarified this in full and are happy to do so
again. No assets were pooled between Castle & Gatehouse and C&B. All
assets traded via Castle & Gatehouse were owned in full by the investors
who put the funds up for each individual project. No investment was pooled
between Castle & Gatehouse and C&B, and moreover no investment was
pooled between individual Castle & Gatehouse investors.
In terms of your question, quite the reverse is true. Profits
from Castle & Gatehouse were transferred to support C&B where possible.
It was felt crucial to the ongoing success of the £20m deal as well as the
ethical and moral purpose of repaying all investors that Castle & Gatehouse
profits would support C&B where possible.
Debt-free asset
security and general collateral:
In
promotional material sent to investors in a Collins & Bone brochure
entitled “Collateral”, you write the following on page 2:
“An
opportunity to invest in 12 month fixed income 8% Guaranteed Promissory Notes
secured against debt-free property assets. The product takes advantage of current
market conditions to capitalise on low prices, strong demand and the lack of
traditional finance”
On
page 3 of that brochure, you list the following among reasons why to choose
your firm:
“Guaranteed
promissory notes used to fund 100+ pre-order investment property development.”
And “Debt free assets back promissory note in full”
It
appears that the investors were given the impression that their investments
would be backed by debt-free assets. Was that the case? If not, please explain.
The brochure is an early version of what evolved into the Joint
Venture model. In first instance it was felt better to raise the investment
into the business, have the business buy the property and then give legal
charges to the investor whose funds had purchased that particular property.
This proved to be legally complex and unworkable. It evolved into the investor
owning the asset in full which would be purchased for cash (ie without a
mortgage) and in doing so provide debt-free support for their investment. This is
effectively exactly what the Castle & Gatehouse model does very well.
Collins & Bone tried several variants of which this was one but we couldn’t
build any momentum and the product was subsequently re-designed.
Further,
in an email dated 18 March 2011, you wrote the following to investors in
Collins & Bone following an open day, in which you sought to allay investor
concerns over late interest payments:
“Your
capital is safe and both David and I have our own homes as collateral to
protect your assets as well as 27 other assets and the trading inside our
sister company (Castle & Gatehouse) also acts as security with future
contracts worth in excess of £3m at present. So we have both cash profits from
trading, real bricks and mortar as well as rental income from the portfolio to
secure your investment. I know on the day there were a few of you who had
concerns over the liquidity of the company and rightly so as many property
companies have had severe problems in the recession. As explained we have an excellent
product built to not only survive a recession but built to thrive in it.”
It
appears that investors were reassured that their investments in Collins &
Bone were secured by 27 assets plus Liam’s home and your own.
That is correct and at the time we were trading the valuation of
the portfolio provided enough cover. There are two ways to value a property portfolio;
residentially and commercially. The value commercially and the equity
commercially is underpinned by the rental profits. At many times throughout the
last few years C&B properties have enjoyed close to 100% rental capacity
pushing the commercial value up whilst the residential value of the asset may
still remain stagnant in today’s market. When investors were told that the
commercial equity in the properties was significant this was always followed up
with an explanation of how a commercial valuation is carried out. The reason we
focussed on this was that a division of the business which was trading HMOs was
selling them on a commercial price tag. Prior to this we had been advised by
both Nat West and other large mortgage institutions that they would value any
portfolio greater than the critical threshold of £2m on a commercial valuation.
Our portfolio fitted into this category so we had no reason to believe that
quoting a commercial valuation would be inaccurate.
The problem we have now is that the commercial valuation is likely
to be irrelevant under fire sale conditions as the bankruptcy receivers will
simply attempt to sell them as family homes as which they will have a much
lower value in today’s market. We always made it clear that for investors to
lose their investment we would also lose our homes and all of our assets. Sadly
this has now become true.
Was
that the case? Were there any cash profits?
Yes, the portfolio generated a profit and the profits were used
to pay the interest to those who opted for monthly interest. When there was a
shortfall Castle & Gatehouse assisted with this.
Further, was any equity in your homes
available? What is the status of those assets? If they were valueless, why did
you tell investors their investments were secure?
I have explained this in full and can also evidence commercial
valuations to demonstrate the distinction.
Investments in
Collins & Bone and Number of Investors
How
much money has been lost? What were the assets? How is it possible that the
entire investment of over £1m was spent?
£1m has been lost but this includes adding interest to the
total. If we are looking at how much of their original capital has been lost it
reduces the sum to well under £1m. The assets I have discussed above and all
assets will have to be disclosed for the assets and liabilities for the
receivers. I have prepared a full breakdown of the assets and many of our
investors who asked to see this have been sent this.
One thing that must be made clear. Having spoken for hours on
the phone and with the average investment coming in around 4-6 weeks after
first contact I can say that hundreds of investors enquired and the reason only
a few invested was because the other investors simply were not happy with the
risks. The pitch was exactly the same and the transparency was the same but
some believed this was risky and others were happy to take the risk. Most
investor comments were anything above 6% is too good to be true. We had proven
historically that we could use the capital very effectively to buy assets and
return the investors capital with their interest enabling them to get a good
ROI and for us to expand the portfolio.
The average investment was around £25,000, meaning no one
investor could rationally think that their investment was directly being used
to buy a property although some are now claiming that. No one C&B investor
thought or was led to believe that their money was sat in escrow although but
the small minority are claiming this. Out of 100+ investors less than 5% are
making this statement, which suggests they have taken information out of
context rather than been mis-sold a property investment.
As part of the narrative I explained how we had used loans from
family and friends in the past successfully to buy assets and expand the
portfolio and that provided enough was raised to reach a threshold where by the
capital could be used to buy an asset it would be and if it couldn’t be (i.e.
in the case of the Georges with £15k invested) collectively it would be used as
we felt fit. Some were happy with this answer and many were not who then didn’t
invest.
At the time we had several irons in the fire all of which were
positive and part of the sales pipeline. There was no reason to suggest that
almost all efforts would fall foul of the general economic downturn.
In terms of where the cash was spent it went on expensive
C&B legal advice, expensive promotional material (we were trying to create
a premium brand), exhibitions, subcontractor bills, IT, renovations and all of
the costs of running a business together with the profits generated from the
C&B rental income the support from Castle & Gatehouse. We had not thought that carrying the debt
from CBS would bring so many problems which would cost us so much of our time.
In hindsight we agree that we should have left the cash in CBS and then
returned with profits to repay them in due course and giving them a 6 month
Promissory note was just too optimistic in the economic climate.
At the time we did have the CBS
Fund No.1 LP live and were advised on several occasions that ‘the fund will
fill very quickly’. Pointon York also stated on many occasions that they could
fill the fund and then, after the economic situation turned out to be far worse
than anyone expected, the burden of selling the fund fell on our shoulders.
That was the reason for its inclusion in the documents at the time. In order to
sell the fund we felt we have to tell people about it to see if they were
interested.
Further, you have said that you transferred over £2.5m in profits into debt
following the collapse of CBS Group/Investments. Please explain what exactly
you mean by this.
At the time of closing down CBS, the CBS Fund No1 LP was ring
fenced with its own satellite companies as advised however due to the
contamination of the name we felt it better that we take the debt on personally
and offer promissory notes. We saw this to be both an ethical decision as the
Fund was very capable of repaying this money and we saw it as a commercial
decision too. We did not owe this capital to the investors it was never a loan
to CBS or to C&B it was made up of upfront non refundable profits which can
be evidenced in the original CBS
contracts. This meant we had to take out what was logged in accounts as an
upfront profit and we had to in turn lodge it as a debt against me and Davey
personally. A hugely ethical if misguided decision which does not fit with the
fraudulent activity that this small minority are proposing.
Crucially, we did not take over the initial debt, nor take on
new debt, without thinking we had sufficient commercial equity which could be
realised together with profits from trading. Until late 2011 the outlook had
several highlights which we felt were likely to come to fruition and had signed
contracts to support this view.
Student HMO Lettings
Ltd
·
I
have seen a copy of liquidation letter sent to creditors of Student HMO
Lettings, one of your former companies. In it, creditors are stated to be owed
£1.678m but there are only a small amount of assets, including some furniture
purchased below value by David Bone on the company’s books. Did Student HMO
Lettings, of which according to Companies House you were listed as a director,
ever have any assets? If yes, what happened to those assets? If no, how did the
company let to students?
This
was part of the collapse of CBS. It was the lettings arm of the business and
never had any assets. It managed the properties that investors
had purchased via CBS in the same way that any other
lettings company would. We don’t quite understand the question; why
does a lettings business need assets? We had a rented office in Bolton where
the lettings operation was run from.
It’s worth pointing out that CBS was a
sizeable business with some 50-60 staff employed, mostly in renovation teams.
It’s currently being ridiculed and made to look like a handful of people in an
empty office by this blog but it was built up ready to manage a £20m fund that
never transpired.
We
have also missed some aspects of the previous questions that it is worthwhile
for you to view prior to deciding whether to publish your article:
·
With
regard to holding Castle & Gatehouse out as FSA authorised it strikes us
that you haven’t fully looked at the website or the Castle & Gatehouse
brochure on it (attached). We refer you to page 19 titled ‘Important Information’.
We would also ask you to look at the properties of the document and see that it
was last modified on 2nd September, 2010. Castle & Gatehouse has
never held itself out to be authorised and this was clearly stated on both the
‘Important Information’ page of the JV website as well as in the literature
over the period it raised funds; well before this blog came to light. We would
suggest this is compelling evidence of a company trying to operate properly and
in full compliance with the FSA.
·
We
have also attached summary accounts of the pilot scheme passed in early 2011
along with the detailed figures of the projects themselves. The business model
works and has on occasion produced impressive returns amidst the difficult
trading environment.
·
It
worth highlighting that the original CBS fund was due to earn CBS some £2.9m
over its lifetime (please refer to the Bond partners figures attached). The
later £20m Matterhorn facility, which was aimed at a 100% trading model, was
due to earn significantly more. Again, strong evidence of what we have been
saying.
·
For
what its worth we attach a screen shot of the George’s overpopulation blog,
with Jasmine’s video. When they aren’t making libelous allegations they are off
saving the world. Remember that they are the minority and we have several dozen
investors willing to rebuke their allegations.
I now present some
further specific questions:
1)
Please list the ‘debt-free’ assets which Collins & Bone promissory notes
issued and purchased by investors were backed against.
No investor ever invested the £150,000
which as the brochure says is the minimum before you would have a first charge
over debt free asset. There are many investors in Castle & Gatehouse which
dealt with the higher ticket sales who have run with this model very
successfully and can verify that they own the property debt-free. None of these
investors invested in the C&B PNs.
2)
Did Collins and Bone purchase any new homes as it promised investors in its
marketing
literature? Please provide details if so.
Many attempts were made to do so but due to many reasons our new
lines of business didn’t get off the ground. As such there was no purchasing of
new assets under C&B between 2009 and 2011.
3)
Have the mortgage lending banks repossessed any properties which to our
understanding were held in the Collins & Bone “fund”? If no, what is the
status of those properties you make reference to in notes to investors? No
assets were held in ths C&B Fund as there was no C&B Fund.
There was no C&B Fund; it was mentioning that a fund was
available which had any investor enquired about they would have been passed to
Chesterman Capital to verify and issue the CBS Fund No.1 IM where appropriate.
Predominantly this was to allow us to track where leads and investment had been
generated and pay commissions where appropriate.
You are referring to the C&B overview literature which was
pulled down shortly after it was put live as we were pointed out that we could
not use C&B as a platform to market the Fund and if we did it could be
viewed as an offense so we immediately took this down. This is the same CBS
Fund No.1 LP which did not raise any subscriptions and never took off. So to answer the question there were never
any properties to repossess.
Two of our personal properties have been repossessed due to not
being able to make the mortgage payments. I will add that we prioritised
investor interest ahead of our own mortgages for a while but ultimately
realised we were compromising the security with the assets acting as the
backbone to the PNs and so that was the time we contacted all investors to say
interest had to stop indefinitely.
4)
How much money did Collins and Bone raise from investments, and the prior
company, CBS, raise from investors? From emails, you have written that £4m was
raised from a pool of over 130 investors. Are these figures accurate?
CBS never raised money per se; it was a service provider.
Investors wanting to get properties using 85%-100% finance were in a queue and
had to pay a £7500 non refundable upfront renovations profit which they would
lose if they could not buy the property. We have contracts to prove this. When
almost 100% told us they could no longer buy properties due to the mortgages
being withdrawn we made a decision to carry their monies and change them from a
renos profit to a loan which they never were.
The £2.5m refers to CBS investor’s initial non-refundable
deposits plus accrued interest so you would be more accurate to call this approximately
£2m and £800,000 from C&B if you take interest off. We have not done so in
our accounts as we still intend to pay investors back their full amount if we
can. A negative blog and a negative
press article makes things very difficult for us ever to do any business in
property again.
5)
Can you confirm that 130 investors existed? Why do you later say there are only
28?
To say that 130 people
invested with C&B is inaccurate. 28 people invested with C&B and the
remainder were people given security to protect non-refundable deposits from
CBS. We did not take this debt over with investors in C&B, the investors
into C&B came later and the debt was taken into consideration when put
against commercial equity and future validated cashflows from models either in
action or going live. We had no reason to ever believe almost 100% of what we
attempted would fail.
6)
What did you do with the £4m raised if you did not purchase any new properties?
Were these funds used to finance the 10% return payments promised to investors?
The majority of these funds
was money carried over from CBS. The cashflow of CBS used upfront deposits to
quickly grow the business and as the deposits were non-refundable they could be
used as such. In hindsight this was a poor decision and gave no room to adapt
if something unforeseen – such as the mortgage market collapse – interfered
with the way the business model had always ran. It was spent running a company
that operated in 3 regions of the country, we had renovation teams, lettings
teams, accountants, property sourcers, and more who were all employed. The 3
offices were set-up to run a £20m property fund which we were continually
assured would fill and launch. Our wage bill reflected this.
As explained above, the direct cash was spent on trying to grow
a business (legal advice, websites, promotional material, publicity, exhibitions,
subcontractor bills, IT etc)
You are asking what we did with upfront loaded profits and the
answer is we drove the business forward. There are no Bentley’s or Ferrari’s and
never have been. The idea that we have been living the highlife couldn’t be
further from the truth. The past few years have eroded all the progress we made
prior to the credit crunch and trying to turn a failed business around has been
to our severe financial detriment. We have effectively gone without for several
years now whilst trying to turnaround a business in the worst recession in
living memory. It has brought us to the point of ruin so the typical motive of
the classic ponzi scheme you appear to be alluding to has never been present.
7)
Did you tell investors that in order to achieve your metrics for their
guaranteed 8-10% annual interest payments, you needed a 25% return on your
investments? If yes, please provide documentation.
All projects worked on the basis of a 15% margin within 6 months
(as evidence in the supporting information provided). This gave an annualised
margin of 30% per annum i.e. two 6 month projects at 15% over 12 months.
8)
Did you tell investors that part of the capital you were investing would be
used to finance interest payments owed to earlier investors? If yes, please
provide documentation.
I have answered this above however it was rental income together
with profits from Castle & Gatehouse which paid investor interest and when
we could not afford to do so we told all investors and have recently invited
them all to meet in London. So far the vast majority of them have said they do
not feel the need to and they are wishing us luck. We have only 4 people
confirmed to attend next weeks meeting. Incidentally the Georges have not taken
up the invitation for a face to face.
9)
It appears the money that Collins & Bone raised from investors was used to
refinance the personal property portfolio for you. Do you agree that this is
what has happened?
This is categorically not the case. We have not refinanced the
portfolio at all since before Mortgage Express became nationalised as
they simply will not allow it. My personal home has never once
been refinanced. This is a leading question and its aim is grossly inaccurate.
10)
What is your relationship with Castle and Gatehouse?
Mark Black and David Bone Snr were the drivers of CBS Fund
No.1LP. In 2009 it was felt that the legacy debt of CBS was proving too much of
a risk to new business so Castle & Gatehouse was created as a separate
vehicle aimed at trading properties in cash. Myself and Davey were part of the
set-up of Castle & Gatehouse in the early stages and I sold a few
investments into it in the early stages. Davey ran a few of the renovations
projects in the North West during 2009 and 2010. From the early stages the
business evolved to a point where we were no longer up-to-date with investment
structure, financing, renovations specification and other aspects. We had
little involvement from late 2010 to the present time. Investors will
corroborate that they have spent little time, if any, with myself or Davey and that
Mark has raised the vast majority of funds for Castle & Gatehouse including
being the principal on the £20m joint venture. That people would say they have
not dealt with myself or Davey would ring true with regard to Castle &
Gatehouse. It is a markedly different financing structure and this is supported
by the fact that every investor into Castle & Gatehouse owns the property
their funds were used to purchase and closing Castle & Gatehouse will not
impact upon their original funds.
An agreement was in place, in goodwill, that should Castle &
Gatehouse be successful in executing the £20m deal, for which the Castle &
Gatehouse profit share was expected to be around £1.5m-£2m per year, that Mark
& Dave Snr would support C&B in first instance to repay all investment
and that this debt would then be carried and repaid at a later stage. Remember
that this was live as of September 2011 and collapsed in October 2011. A second
investor who was willing and capable of replacing the original financier
undertook a process of due diligence and eventually withdrew in early January
after having spoken to Sally and Jasmine George.
The failings of myself and Davey via Collins & Bone are not
the failings of Mark and David Snr. Castle & Gatehouse has been hugely
effected by the libellous comments on the blog and in doing so Mark and David Snr
have felt that its trading position has become untenable.
Great effort appears to have been made to close the link between
C&B and Castle & Gatehouse, but it appears to be motivated by the false
assumption that money has moved in that direction or that Castle &
Gatehouse holds any assets. Neither is true, and a simple reading of any Castle
& Gatehouse literature will support that the structure has always been for
each investor to have total control of their own funds i.e. by owning the
property. The assets that Castle & Gatehouse held were its 50% shares of
each project which has been lost due in large part to the blog’s efforts. By
effectively killing the pipeline of new investment they have forced the closure
of Castle & Gatehouse which triggers forfeiture clauses in each joint
venture. As such, it is in fact a huge paradox that Sally & Jasmine’s
actions have alienated two huge supporters and a very real possibility of
correction in the short and medium term.
If the credit crunch and subsequent recession had afforded an
easier learning curve it is likely that the model would have taken off.
Unfortunately, to everyone’s regret, the learning curve demanded of two young
businessman was too steep, too quickly. It exposed faults and forced mistakes
that may not have been made in easier trading conditions with more time to
consider the best options or seek councel from more experienced people. There
have been some wonderful successes and some avoidable failures. but to write an
article painting these efforts as a ponzi or fraud would be a huge injustice.
We would like to invite you up at your convenience to view the
properties, meet with us and see our systems, processes and evolution first
hand. Before you force fit the classic ‘ponzi to fund lavish lifestyle’ story,
please allow us the courtesy of seeing the efforts first hand.
You may think we deserve to be out of business and nature has
run its course in that regard. However, we do not deserve to be labelled
fraudsters and conmen.
