Antonio Flores’ Blog

Talking to a local Notary last week, he was bitterly complaining about the decision by the Supreme Court to eliminate the registry of revoked powers of attorney, after denying its validity. The reason for his tantrum was that a sale had been concluded by someone who had received a power of attorney (POA), who, in spite of knowing that he no longer had the authority to use it because it had been revoked and such revocation communicated to him, still decided to use it to his own advantage (most probably, to defraud). This, he says, would have been prevented had the Supreme Court not acceded to the petitions of nasty and envious land registrars (and a few notaries as well), who were behind the action.

The Supreme Court ruling (full text in Spanish), which is more than two years old, but whose consequences are emerging now, is yet another example of a traditional power struggle between notaries and property registrars (defined once as “centenary parasiting casts”), that has dented the protection our notarial system has traditionally offered to people dealing with, particularly, property, via the Notarial Archive of Revoked Powers of Attorney.

The above ruling is counterproductive because it has banned the use of a registry (or archive) notaries had come up with, in essence, to keep a record of powers of attorney that had been revoked by the grantors, because they did either not trust the beneficiary, or did not wish to keep them valid indefinitely. Now the powers can still be revoked but no longer is the notary able to consult a nationwide registry to find out if a power of attorney have been revoked (at one point, there were 130,000 revocations recorded in it!).

The problem is that now, even if you give a power of attorney, you have to rely on the honesty of its recipients, because, unless you physically remove it from them (and ensure they cannot get a copy) you can never be sure that it will not be used. It is therefore important that powers of attorney, other than to trusted family members, are only given to reputable professionals that are registered with a professional school.

If the above is not possible, try to:

• Limit the scope of a power of attorney to specific assets.
• Avoid giving powers of attorney to sell property unless you have substantial trust in the recipient.
• If the power of attorney is not going to be used again, have it revoked at a Notary Public, who will then notify the beneficiaries.

Lately, a new fraud consisting on giving out powers of attorney by falsifying identity documents has been detected. The perpetrators, who have access to personal details from, for example, a rental agreement, forge the identity document or passport and sell the property. This happened to a rich Arab in Marbella, who, to his shock, found out that someone had sold his plots with a power of attorney forged in Holland. One of the buyers happened to be a high planning official in Marbella, who is indicted on charges of alleged fraud. 

Unfortunately, here one has to rely largely in the police forces and to a lesser extent, in notary publics, who should only accept powers of attorney to sell given to known-to-them lawyers, or attorneys, as the name of the document indicates.

Antonio Flores Litigation, Property Archivo de Revocación de Poderes, power of attorney in spain, spanish poa, spanish power of attorney

Surfing the web in search for information on the so-called equity-release fiascos, I came accross a very interesting article in respect of Danske Bank being sued by around 100 customers over the loss of 80% of their investments on an financial product that, allegedly, the bank sold as being low-risk.

According to the bank, the investment project was sold only to wealth customers, who were provided with adequate information about the risks. According to the financial experts at Oslo University, the project was presented to the customers as being far less risky than it actually was, and according to the lawyers dealing with the case, their clients would have never invested in the product if they had been fully informed of the risks.

I happen to have one client in the same situation, although with a distinct difference. He was not sold the product directly by the bank, but by an insurance broker based in Alicante, registered with the DGS (Insurance Directorate General) to sell life insurance policies.

The Facts of the Case

Who’s Who

• Danske Bank: a Northern European financial services provider, authorised by the Danish Financial Supervisory Authority. It is currently the largest bank in Denmark and is listed on the stock exchange.
• OFS Spain (Overseas Financial Services): An insurance services intermediary company based in Calpe. This company is not authorised by the regulator (CNMV) to operate in Spain as a financial advisor even though they call themselves Overseas Financial Services. They do sell, however, anything from aircraft to sweet potatoes and virgin coconut oil, and as of late, the principal sells light-bulbs.
• L.V. (OFS Principal): MLIA (Dip) and Financial Planning Manager, according to his business card. L.V. is registered by the DGS to operate as an insurance intermediator, given his prior registration with the Irish Financial Regulator, pursuant to the European Communities (Insurance Mediation) Regulations 2005, which gives effect in Irish law to the European Communities Insurance Mediation Directive. According to the regulator, insurance intermediaries can provide general, life and health insurance products to consumers, depending on the type of insurance companies from which they hold an appointment. And that’s about it. L.V. is not regulated or authorized to provide financial advice in either country.
• Inter Alliance WorldNet Insurance Agents & Advisors: An “umbrella” association that provides compliance and regulation for insurance business. It is registered in Cyprus and is registered to operate in Spain, through the appointed insurance brokers, as well as in the United Kingdom, but the FSA (Financial Services Authority) still recommends enquiring for further information, since they are “passported” EEA firms.
• Inter-Alliance Group plc (IAG Group): Mentioned in LV’s business card as part of some operating joint venture: after merging with Millfield Group plc, it went bust, not before being prosecuted by the FSA for regulatory irregularities that found the directors to have failed to exercise due candour, skill, care and diligence when providing what seemed a very important letter. They are no longer authorised by the FSA (Financial Services Authority), and have never been authorised in Spain, by the CNMV.
• Inter-Alliance International (IAI): mentioned in LV’s business card as part of some operating joint venture. It´s website is under construction. De Vere apparently bought it for 750.000 GBP back in 2005.
• The “wonder” financial product offered through LV and OFS by Danske Bank: The wording of the contract for this product is so complicated that I have sent it to a specialized financial-forensic expert to get some form of understanding (The Courts will also need it). Hereby some excerpts that will help understand why I can only mumble when reading the contract: Investment Focus: Funds-of-Funds, funds automates rebalancing and re-investments, Defensive low-duration bonds, Overweight credits (not people 🙂 ), Strategy: Cautious (I did understand this one!!), arrete de compte, pari passu (it’s got to be a different language), Actual Security Ratio or Requested Security Ratio, which means, according to Danske Bank, the weighted average of the Requested Security Ratio for each individual security in the pledged portfolio (self-explanatory, no doubt). Fidelity Funds Sicav (non-geared), Individual Capital Assurance with PanEuroLife S.A.- policy nos. DFD00009-DFD00013,Bonds DI GIbIdeksobAK, NykVar31E F3H 11…, and it goes on and on, till you contract perpetual insomnia.
• My client: A 72 year-old retired mariner owner of a Costa del Sol unencumbered retirement home, who was sold a product that would bring him an income, a cash lump sum (which he partly used to buy a little boat) and no IHT for his offspring. As a consequence of the fiasco, he was forced to sell the boat to try to mitigate the losses of the “Luxembourg wonder-bond”, has been now forced to sell his home and has had to start working again.

Brief Description of Events

• As one can imagine, the pitch was clear:
  

  Client: I am a bit concerned, rather apprehended, I don’t quite understand how this all works, it´s all pretty confusing, baffling…!

  Broker: But why? Don’t you worry, this is a simple over-the-counter equity release programme that, by mortgaging YOUR unemcumbered retirement home WHICH you bought with YOUR life savings, and taking an upfront draw-down for you to enjoy, will allow you to have a monthly income, reduce your IHT exposure and bring you happiness, it’s crystal clear, trust me, no word of a lie!

• Quoting the broker at the end of 2004 (excerpt from email by LV):
  

  “Neither Danske Bank nor ourselves stipulate that you must use a tax advisor to apply for the scheme – we always recommend clients obtain effect and individual tax advice before going into the scheme, but it is not a pre-requisite as Danske Bank are very experienced in this area and can guide you substantially (John Lundskov, in particular).”

• Quoting Danske Bank August 2010 (excerpt from email by Morten Runo Waaben):
  

  Dear Xx, As mentioned, I need to speak to you soonest possible. It is now critical that you get your property sold. Together we made an action plan on the 8th of June 2009 for selling your property in Alhaurin. At the meeting you mentioned that your boat was for sale as well, have you sold any?

  Is this Danske’s substantial guidance the broker was referring to?

• Quoting my client August 2010:
  

  Evening Morten, we are in the process of renting the house for one year to try and raise some money for living and we will move into a small apartment…

  At 72, and after having taken up a new job!

And what about the broker in 2010? Well, he is back selling Equity-Release schemes again, alongside light-bulbs and virgin coconut oil.

The (I)Legals of the Case

• OFS and LV are and were not authorised to offer in Spain financial or investment advice, other than life insurance policies, according to the DGS (Insurance Regulator) and the CNMV (Financial and Investments Regulator).
• Inter Alliance WorldNet Insurance Agents & Advisors are and were not authorised to offer in Spain financial or investment advice, other than insurance policies, according to the DGS (Insurance Regulator) and the CNMV (Financial and Investments Regulator).
• Danske Bank is authorised to operate in Spain. Danske bank however failed to comply with a number of provisions, namely that of employing registered and regulated individuals and companies to offer, market, intermediate, sell and follow up it´s highly volatile and complex financial Luxembourg-based products, pursuant to the  MiFID (Markets in Financial Instruments Directive). Danske Bank failed to ensure that:
  1. The intermediary individuals and companies used were registered as either a regulated ESI (Empresa de Servicios de Inversion) or an EAFI (Empresa de Asesoramiento Financiero), in accordance to the CNMV.
  2. The products were not sold indiscriminately, or sold without offering full, mandatory, unqualified and transparent information, exercising good judgement when disclosing the risk (get a bus driver to fly an F-16 and you´ll see what happens).
  3. The client’s profile was examined carefully so that he was offered only a financial product that was adequate or consistent with the aim pursued (a person aged 70 years of age with no prior experience in financial invesments, attempting to obtain a regular montly income, would have hardly gambled his life earnings away).
  4. The contracts used were pre-approved by the regulator (I have not found trace of compliance with this obligation).

The above failures have seen my client’s “cautious low-risk” bond investment dwindle from €850K to €350K thanks to the “conservative” approach of Danske Bank’s Luxembourg financial “advisors”. He has effectively now lost €500K of the equity he released. In addition to this, the promised income has converted into a mortgage-loan payment which he cannot afford and his retirement previously unemcumbered Costa del Sol home is now threatened by Danske Bank’s heavies who are forcing him to sell everything, or face legal eviction.

So where do we go from here?  Well, I suppose, take some time to read, examine and draw conclusions from the very recent and very lenghty Supreme Court ruling of the 17th of June 2010, that has forced Caja Rural del Mediterraneo/Rural Caja to refund over €3 million for selling complex high-risk products to retired/conservative investors without fully disclosing the associated risks.

Antonio Flores Litigation, Mortgages, Scams Danske Bank, equity release, Inter Alliance WorldNet Insurance Agents, Inter-Alliance Group plc, Inter-Alliance International

It’s not been quite like the search for Bin Laden, but we have been scouring all case law databases for the last couple of years trying to find any ruling that would point to the direction of the banks’ liability to refund property buyers, in the event of developers falling foul of their obligations to refund deposits, where the latter had accounts opened with the former and were using them to trade in property, irrespective of whether bank guarantees were available or special accounts opened at all, these being the 2 main obligations developer’s had, in accordance to the 57/1968 Act on Off-Plan Property Down Payments (Ley 57/1968, de 27 de julio, reguladora de las percepciones de cantidades anticipadas en la construcción y venta de viviendas).

One very web-active colleague that was initially admitting to having the evasive case law but was reluctant to disclose it (we still don’t know if they really have any of it), is instead now hinting that there was something to that effect, always in a vague but nonetheless “mercantile” manner, so as to no doubt monopolize the information and release it with a big bang when the time was right (all very strange, really). A website with a pretended interest in helping thousands who have lost thousands to rogue developers also claimed this case law existed but my insistent requests to have a copy of such ruling were left unresponded.

And then, just by chance, we have come across a ruling, written up by the Judge in charge of Court of First Instance number 54 in Madrid, that finds a bank responsible of being irresponsible and forces it to repay a buyer who bought into a development that was never completed. We have asked for a copy of the ruling from our Madrid colleague who, as we expected, has kindly and promptly acceded to forward us one, after the long-weekend, that is. Once we have received it, we will discuss it, as it has the potential to set a precedent that can make banks responsible in any event, where they consented developers to use their accounts to trade in property, without securing the deposits that were being paid into those accounts by customers. In the ruling, the Judge determined that the bank manager, who knew the buyer personally, had lent him the deposit that was to be invested with the developer, who was also his client. The Judge found the developer’s bank (and buyer’s lender) morally responsible because it knew that the loan was to be used to buy a property, and consented that the loan was paid directly into the developer’s account, which, known to the bank, did not comply with the 57/1968 Act. Indeed, all very incestuous!

It is soon to draw conclusions but I can say that:

• The ruling has not been appealed, presumably to avoid the inevitable publicity it would attract if it went to a higher judicial instance, in this case, the Provincial Audience (quoting my colleague).
• The case is specific, in that the bank assisting the developer was also the lender for the buyer, perfectly knew that the funds were going to be used as a deposit for offplan property, and allowed these funds to be lodged in one of their accounts.
• According to our Madrid colleague, barring error or omission, there is no known case law on the matter (note that a ruling of a Court of First Instance is not deemed as case law).

Another consequence of this rulling is that a developer may force banks to advance funds to complete unfinished developments as, if unprotected buyers can find solace in this doctrine, so should the developer (although that’s another story altogether).

This ruling can be the beginning of the end of the nightmares many bona fide buyers have and are going through. My advice is, in any event, to apply caution and prudence, until we can get hold of it (ruling) and have it read, dissected, interpreted and, ultimately, draw reasoned and balanced conclusions on how to proceed.

It should be stressed that this is a very specific case, with a very particular set of circumstances that render it unique, and cannot be considered of general application against all banks and developers (at least with what we have so far). Each case we come across needs to be analised thoroughly and clients advised that losing it will almost invariably attract subtantial legal costs (and certainly where a claim is deemed to be “reckless”).

Documents

• Judge Rulling Sentencing Bank to Refund Moneys not Secured With Bank Guarantee (pdf – 1.44Mb.)

Antonio Flores Litigation, Property bank guarantees, Bank Guarantees in Spain, ley 57/1968, litigation against spanish developers, spanish developers, special accounts

THE FACUA (Spanish Consumers Association) recently issued an official statement warning there was still little Government control over how  timeshare in Spain was being sold, in spite of the existence of a law to the effect.

I don’t perceive, however, that FACUA’s concerns are well-aimed,  considering that they skipped over timeshare resale scams, recovery room scams (anyone who has been conned in Spain will receive a cold-call from these guys), land banking frauds, etc.

And just when we thought that impunity and immunity was the norm when it came to Costa del Sol white-collar crime, the Court of First Instance 2 has formally transferred the Timeshare Resale Scam case proceedings to the Malaga Provincial Audience, for public hearing, trial and sentencing. The 12 named individuals are accused, separately, of:

• Criminal swindle against a generality of people, thereby being classed as of special graveness.
• Association to commit offenses (conspiracy to defraud).
• Possession of illegal firearms.

Our firm represents approximately 160 clients that, many years back (9), paid an upfront fee to the above individuals to have their timeshare sold, who claimed, among other lies, via a telephone cold-calls, that buyers were waiting with a check in hand to buy their timeshare week(s).

The Malaga Fraud Squad, and my contact within it at the time,  Juan Fernandez, tackled the matter with excellence and professionalism and managed to impound cars (can we only imagine their current state and value!), material (computers etc.) but more importantly, approximately €150K  in several bank accounts. This sum is meagre compared to the tens of millions scammed but it’s better than a kick in the ass!

The big kick however could be reserved to the perpetrators if we add the years the Spanish Criminal Code imposes to people found guilty of those crimes:

• Swindle (as above): Up to 6 years
• Conspiracy: Up to 4 years
• Illegal firearms: Up to 3 years

What is more surprising is that some of the names on the attached document were arrested again in 2006 on identical charges, and will, obviously, face the same charges again, as per this Times Online article.

This article mentions that:

• The fraudsters even used false documents to offer to undertake legal action against other fraudulent companies they also ran, defrauding many victims twice in the process.
• Some victims are believed to have been stung twice after turning to companies set up by the alleged fraudsters to offer legal help to the victims of other firms they were behind.

This exactly now seems to be all the rage in the boiler room industry and we can mention, inter alia, given that the modus operandi is exactly the same, Ramirez & Ramirez (formerly Legal Specialists Advisory Service SL), Legal Advice Counsel (defunct), First Legal Services (defunct), European Mediation (defunct) as well as many others, and as of late, a few Nigerian scammers who have found a niche too.

Documents

• Timeshare Resale Scam Court Writ (PDF)

Antonio Flores Litigation, Scams

MRI Headquarters in 2010    

According to the Companies House, MRI International has relocated to the Spanish capital, Madrid, presumably with the intention of (dis)accommodating the company’s ever-expanding number of disgruntled clients.

Since Calle Azulinas to us means nothing, we decided to send a member of our firm to talk to their ever-attentive staff members, and find out if they would be willing to assist. However, when we got there, all we found was a decaying block of flats for the Madrid middle-class with no physical trace of the address they now claim to, which is Calle Azulinas 7, Bajo Izda (Ground floor 7).

This is a far cry from the times of the Ferraris, Lamborghinis, €100K beach-parties, bodyguards and the rest of paraphernalia that was associated with the now defunct organization. However, notwithstanding its apparent return to humility, the move implies more sinister motives, for what they have effectively done is “kill” the company by relocating to a fictitious address, appointing, at the same time, a director that happens to be no other than a purposely incorporated Peruvian-based company called Inmobiliaria Vasco-Peruana de Inversiones. This is a dead end where the postman does not always ring twice, because he simply cannot find a ground floor!

When going to the companies house we find that these inexistent offices are also company addresses for the following Spanish limited companies, all of which share one common denominator: they don’t have websites nor Spanish telephone numbers (and some share the same director):

• Macanthony Reality International Spain S.L.
• Jaguar Ardey Spain S.L.
• Groot & Deed S.L.
• Nass Servicios de Automoviles
• Alkonda Inmobilien S.L.
• Inversiones Suelos Comerciales de Murcia S.L.
• Rochester Iberica 2000

The representative of the Peruvian company is a Spanish chap with a “conquistador”  name, Fernando de Arespacochaga y Alcala del Olmo who, according to a report we have obtained, travels regularly between both countries. No further information has been gathered, since they are not available nor are their phone numbers operative.

MRI Headquarters in the 'glory' days

It should be noted that this is the most unusual way to wind up a business and make it disappear forever, given the responsibility attributed to company directors. Unless of course they are based in Peru!

Antonio Flores Litigation, Property Inmobiliaria Vasco-Peruana de Inversiones, Macanthony Reality International Spain S.L., Macanthony Realty Investments, MRI International