HENRY Kaye, Australia's most notorious property spruiker, has been charged with criminal fraud after allegedly deceiving St George Bank to secure finance for his most ambitious development.
Kaye, who taught tens of thousands of low income earners to become speculative property investors, could face up to 10 years' jail under Victoria's Crimes Act if found guilty of obtaining financial advantage by deception.
The charge with summons was served by Australian Securities and Investments Commission officers at his solicitor's office in Melbourne at 1pm yesterday after two years of investigations and deliberations.
Kaye did not answer phone calls but was said to be "shattered", he having moved on to other businesses thought to include debt collecting.
Kaye bought about 200 apartments off the plan at the Oasis complex in St Kilda, intending to immediately on-sell them at a profit to his Melbourne and Sydney seminar clients.
The corporate regulator alleges Kaye fraudulently used deposit bonds to convince St George to loan the Melbourne developer about $17 million, enabling the project to proceed.
Its inquires began after Kaye's unusual deposit bond dealings were revealed by an Age investigation, the results of which were published on September 22, 2003.
"The whole deal was used for the developer to get finance," Kaye then said in a taped interview, which has been provided to ASIC.
The transaction was above board, he said, because a secret letter invalidating the bonds was only temporary.
"I'm going on the record and if I'm wrong I'm in deep shit," he said. "Why would anyone take the reputational risk?"
A spokesman for AMP, which acquired the GIO division that sold the bonds, told The Age that the side letter carried no time limit.
Later, in written answers to questions, Kaye said the waiver was temporary because of a verbal agreement.
ASIC alleges that the developer, Inkerman Developments, was an "innocent agent" of Kaye's deception against the bank.
The charging of Kaye represents an important win for ASIC boss Jeff Lucy, who has been under fire from commentators and consumer advocates for not protecting property investors or being sufficiently aggressive against white collar conmen.
But it highlights a gaping loophole for property in Australia's otherwise stringent investor protection laws. ASIC investigators apparently found no fraud on consumers by Kaye that would support a criminal prosecution despite thousands of consumer complaints.
It also illustrates growing tensions between ASIC and the Commonwealth Department of Public Prosecutions, which took more than a year to accept ASIC's recommendation to charge Kaye.
The broader Oasis transaction presents a case study of Australia's property mania, which peaked as Kaye's "property education" empire was placed under administration in the last quarter of 2003. Oasis was Kaye's first large project and the template for later transactions.
Low-income earners were lured into the investment market by hungry promoters, new types of finance and wild expectations that prices would inexorably rise.
Kaye enabled clients who had no savings to buy the Oasis apartments off the plan by arranging deposit bonds in place of cash deposits.
On face value, the deposit bonds entitled Kaye, and therefore the developer and its financier, St George, to rely on GIO to cover the deposits in the event investors failed to pay at settlement.
But ASIC alleges that neither the developer nor the bank were aware Kaye had also signed a letter to the insurer waiving all rights to use the deposit bonds.
ASIC alleges that, in effect, Kaye deceived the developer and St George to proceed with a high-risk investment without substantial security.
Kaye said he signed the waiver letter only to fast-track the approval process and get the project under way: "I just wanted them to say, 'Yep, the project's approved,' so I can start selling Otherwise the developer was going to cut me out."
Kaye said the transaction was legitimate because he was the only party placed at risk and because nobody lost any money.
"The only person that gets hammered is me," he said.
GIO's role has been investigated, but charges have been ruled out.
In September last year the Federal Court found Kaye had breached civil misleading and deceptive conduct laws under the Trade Practices Act, but the breaches did not give rise to any jail term or financial penalty (a result directly supporting Corporate Fraud - CorpAu inserted) .
Thousands of Kaye's clients are also taking a class action against Australian Finance Direct, which gave them personal loans to pay Kaye's course fees of up to $80,000.
Kaye has recently been seen at St Kilda's cafes and solariums and in the Bangkok Post newspaper for coming third in a sailing race in Thailand (and who said Crime does not pay ?? - CorpAu inserted)
Neil Jenman, consumer protection author who has been warning about Kaye since 2002, said Kaye's clients often paid so much for his advice they were left with no money to buy property. He said regulators were shamefully slow to act and noted some of Kaye's former colleagues continue to present property advice seminars in Sydney.
"Most of our regulators wait until they see debris before taking action," he said.
The Age 9 December 2005
The Government withheld his passport, but then returned it to him, on his promise that he would not go overseas. Ha !!! Guess who the joke was on?
Anyone saw that coming, or was it done deliberately?? Just another way of promoting Corporate Fraud.
His previous businesses included Sphere Computer System, and Futuretron Notebooks.
Henry Kaye also goes by the name of Henry Kukuy, he has a sister Julia.
