Last Thursday, 50 creditors of Brendan Investments Pan European Properties (BIPEP) Plc turned on their computers in the morning and logged into a Zoom meeting.

In stark contrast to the 2007 nationwide roadshow fronted by the former television presenter and investment advisor Eddie Hobbs, this annual general meeting was a subdued and, at times, an angry, affair.

Brendan originally raised some €12.7 million from 800 investors; and the plan was to deploy their money in Europe rather than Ireland, where there were no longer any bargains to be found.

But it all went terribly wrong, leading to the High Court appointing Aidan Garcia of accountancy firm Sabios to liquidate the business.

And on the Zoom call on Thursday, Garcia was briefing investors just how badly things had gone wrong and what steps he was taking to find out where their money went.

In a very critical report into Brendan, Garcia outlined a “failure to keep proper books and records” and questioned the “commercial acumen” in the business pivoting from blue-chip property in Germany to distressed housing in the US city of Detroit.

Garcia also queried payments to a Tunisian company, the beneficial ownership of which he had eventually unlocked. As liquidator, he separately said he was “unhappy” about certain payments to a related company.

A complex money trail reveals how millions were raised in Ireland before monies were sent on to Germany, Portugal, Luxembourg, the United States and as he discovered recently, Tunisia.

A copy of the Sabios report obtained by The Currency, details what investors were told about the company. At the time of its liquidation in 2017, the company’s directors were Vincent Regan and Hugh O’Neill. Both men have denied any wrongdoing, and have given their versions of events to the liquidator.

Hobbs resigned as a non-executive director in March 2015, two years after the firm took the fatal decision to invest in property in Detroit. At the time, he said he took the move to concentrate on Renua, the fledgling political party he was involved with. He too has denied any wrongdoing as a director, as have other historic directors.

Losses in Germany, a pivot to the mean streets of Detroit

Before getting into his most recent findings, Garcia outlined how Brendan came to losing its investors almost everything. Brendan, he explained, raised €12.7 million from investors.

The Currency has been in contact with a number of creditors. In the main, they were relatively unsophisticated small business owners, retirees and farmers. Even a priest has been reported to have put his money into the property company. When Brendan was raising funds, the plan was to build a diverse portfolio in Ireland, Britain, Germany and Portugal.

But in the end, it only invested in Germany where it bought two commercial properties and a joint venture investment. For tax reasons, investors’ money was invested in Germany via Luxembourg, an entirely legal and not uncommon investment structure.

In Dusseldorf, a property was bought for €16 million. This consisted of €6 in equity and the rest in debt. This building was kitted out at a cost to Brendan of €4.5 million and was slated to be the headquarters of a large German retailer called Karstadt.

Unfortunately, Karstadt went into administration so Brendan decided to sell the property, thereby crystallising a loss of several million euros. It then sold the second property it had acquired in Frankfurt at a loss of €1.5 million, before backing out of its site development joint-venture allowing it in that case to get back all its money.

All told, its foray into Germany cost investors €5 million. But Brendan still had the majority of their money left – around €7 million. Given how badly the property market had turned in the years post the 2008 financial crisis, this wasn’t the worst outcome.

Then Brendan got a new idea. It abandoned the plan for blue-chip property in Europe and instead went after the fast money promised by the distressed property market in Detroit. In the Michigan city, houses were being abandoned in the wake of subprime crisis by low earners creating vast estates of half-built and semi-derelict homes. Maybe, there was money to be made snapping and fixing them up.

It was a roll of the dice by the directors of Brendan – done with the knowledge but not formal approval of investors. In time, it would cost them everything. 

Taxes and fire sales: a disaster in Detroit

In its latest report to creditors, Sabios explains how the mainly older investors in an Irish founded pan-European property fund ended up on another continent in the city of Detroit. According to Sabios, company director Hugh O’Neill told it that the directors of the business took the decision to invest Brendan’s surplus funds from Germany in Detroit with the money routed through company subsidiaries in Luxembourg and Portugal.

A lot of money was going into the city at the time, often from property syndicates in places like Belgium and Britain, many of whom were chasing losses elsewhere. O’Neill said Brendan bought about 500 houses in Detroit.

The decision to invest in Detroit was not put to shareholders nor were they given the option to cash out post the German property losses.

Legally, Brendan did not need its investors approval, a fact that investors would later complain bitterly about as they felt the risks involved were not explained to them. Investors were instead told by Brendan their money was going to Detroit in November 2012.

Hobbs was still a non-executive director at this stage, and he would resign a few years later on March 23 2015.

Sabios states in its report that issues “began to arise” for the business once it invested in Detroit. “It appears to us that some investors had begun to request the refund of investments post disposal of German assets and there may be questions to answer as to why funds were not returned given there had been a liquidity event, and why instead the entirety of funds appear to have been deployed in Detroit,” it said.

To crack the distressed Detroit property market, Brendan teamed up with a company called the Metro Property Group. Metro promised to refurbish its 500 properties so they could be sold or rented. There was a lot of refurbishment involved as some of the properties had become crackhouses, while others were poorly finished or damaged from being abandoned.

The renovations, however, never took place. Then in 2016, Detroit introduced a new tax on every house to fix its water supply which was toxic. Now Brendan not only owned 500 run-down houses that were too bad to rent but it also had a big tax bill.

The best 150 to 200 properties that Brendan acquired were sold off for between $3,000 and $20,000 each, a sell-off that crystallised losses. The remainder were so bad the company later said it decided to leave them with Metro to deal with.

“The Company’s position is that without the receipt of rental income, the Company could not meet the carrying charges of the property and as a result they decided to ‘leave’ the properties in the ownership of ‘Metro’. I am fundamentally unhappy with this position,” Garcia told creditors.

Brendan was left with just one house 16833 Saint Mary’s Street on the west side of Detroit. This house was valued at just $7,000 but Garcia said the cost of selling the property would not be enough to cover taxes and estate agents’ fees so he had halted its sale.

The way that Brendan managed to lose almost everything in Detroit raised further questions for the liquidators.

Enter a US fraudster

Brendan Investments Pan European Properties (BIPEP) plc went into Detroit by teaming up with Sameer Beydoun, who claimed to be an urban pioneer and presented him as a property evangelist who was unafraid of going into rough areas and sprucing up boarded-up homes. The son of Lebanese immigrants, Beydoun played football for the University of Toledo and then ran a Subway franchise before going into the property game.

He made the jump from fast food into real estate development he explained in a 2013 interview because “I didn’t want to be asking people if they wanted extra mayo on their subs for the rest of my life.”

“I have not to date been given adequate explanation for a number of events that took place within the Company (or its wholly owned subsidiaries in the periods prior to its liquidation.”

Aidan Garcia

Initially, he seemed like a success. From 2011 on, he convinced hundreds of investors from countries like Belgium and Britain to go into Detroit property. Brendan also unwittingly piled in, lured by his claims of rich pickings from the detritus of the financial collapse.

It was, they would later discover all a mirage. 

In October 2017 US District Judge Paul Borman sentenced Beydoun to 24 months in federal prison for wire fraud, a reduced sentence because of his guilty plea.

“This was a very serious offense, a sophisticated offense,” Judge Borman said. He said the fraud was a quasi-Ponzi scheme which relied on the buyers of properties in Detroit not visiting the properties and knowing nothing about the dynamics of the market or the areas they were investing in.

“I am painfully aware that I have deeply hurt many people,” Beydoun told the court. “I accept full responsibility for my conduct. … I should have been honest with the investors from the beginning.”

He was not however, and Brendan’s investors lost millions in the scam.

*****

In the liquidators report for creditors reference is made to a related Irish company called Brendan Investments Property Management (BIPM) which has invoiced Brendan Investments Pan European Property Plc for services relating to property management. “It appears that BIPM was entitled to charge a % of the total asset value of BIPEP. However, from circa 2013 onward [i.e. from Detroit on] the Company was devoid of any meaningful asset base,” according to the report.

“I am unhappy with the way certain payments were made,” Garcia said.

In total this management company was paid €3.5 million by Brendan. These fees are a lot of money and cover both the period in Germany and Detroit. Between 2013 and 2017 after Brendan had pivoted into Detroit it was paid €806,000. In addition, an American company called Artesian Equity set up to fix up the Detroit properties paid this management company over €100,000 in 2016. Eddie Hobbs resigned from this management company on October 21 2014 – and its directors currently are Vincent Regan and Hugh O’Neill. This business is currently in liquidation. Hobbs did not respond to questions about this company. Reagan and O’Neill have said fees to this company were reasonable. The relationship between the management company and Brendan was explained to investors when they invested. Some investors – now creditors of Brendan – have complained since about the relationship. 

*****

Assets and liabilities

Creditors of Brendan were also given a detailed update on the work carried out over the last two years investigating Brendan. “The Company’s books and records are, as I have highlighted, poor. Given this was a PLC and an entity acting, in effect as the custodian for investor funds, in my professional opinion, the record-keeping falls way below what could have been expected,” Garcia said in his report.

“This is particularly the case when one considers that the promoters of the Company contained amongst them; a chartered accountant and an ex-Revenue official and an authorised financial advisor. The piecing together of the books and records has been a time consuming and arduous task – to the extent that this has been possible. I certainly believe there is an accountability issue in relation to the directors of the Company. The failure to keep proper books and records is one of these issues.

“If this was an investment vehicle authorised by the Central Bank I do not believe it would have been managed the way it was (given the threat of sanctions). This however does not apply in this instance as what was sold was shares in a limited liability entity with every €10 euro investment appearing to take the form of a €1 share investment stapled to a €9 loan note.”

The court-appointed liquidator then turns to the auditors of Brendan. He said he was “unhappy” about the provision to him of information by Brendan’s auditors, and had sent legal letters expressing this view. This view has been denied by its former auditors PWC.

The liquidator then turns again to the fatal decision to invest in Detroit. “The lack of what I, as liquidator say is commercial acumen, in relation to the investment in Detroit is self-evident from the paperwork I have been provided with. I have seen nothing in terms of cash flow forecasts or budgeting that would allow me to form the view that the Company’s solvency (or otherwise) was being monitored adequately,” he said.

“I also believe that there has been a lack of internal controls in relation to the expenditure of company assets. I am aware that the directors have engaged external advisors to represent them, given their awareness of my unhappiness in relation to certain matters.

“The argument has been made to me that Artesian Equity (the US subsidiary) is a separate limited liability entity of which I am not liquidator. This is a premise I accept, however, it is an asset of Brendan and as such, I am entitled to review how assets of the company were managed, especially when one considers that once a company becomes insolvent, its assets are beneficially owned by its creditors and it is to creditors whom the duty of care is owed.

“I have not to date been given adequate explanation for a number of events that took place within the company (or its wholly-owned subsidiaries) in the periods prior to its liquidation.

“One such event pertains to the funds paid out to Detroit Property LLC. From the work I have been able to undertake and/or representations made to me it appears that these amounts $1,196,578 pertain to property refurbishments.

“I am however unable to reconcile this with the premise that Metro Property was the entity engaged to refurbish and rent property on behalf of the Company.

“A further entity Atlas Construction Services LLC, also received $3,949,145. I have requested, inter alia, a detailed analysis of the payments made to include: property addresses, dates of payments and the summary of work done. None of this information has been forthcoming.”

A Tunisian money trail

Aidan Garcia then turns to Vincent Regan, one of the founders of Brendan and a director at the time of liquidation. He said he was looking for more information about payments made in 2013 to KEL Consulting, which is a Tunisian Company, beneficially owned by Regan.

“Payments in the amount of $186,500 were paid to this entity, it taking some time before Mr Regan was revealed as the beneficial entity behind same,” he said. “Mr Regan’s position is that KEL was engaged to find euro buyers for properties but that he cannot provide details of same due to GDPR. I do not accept this position as GDPR relates to the EU protection of Data and KEL is a Tunisian Company (Non EU) and was engaged by an American company – thus not bound by GDPR.

“Further discrepancies exist in relation to Boxster LLC. This entity appears to be owed money but is not present on the company’s statement of affairs – to date this has not been adequately explained.

“I am not in agreement with the level of fees paid to BIPM (Brendan Investment Property Management) when considered within the context of the services purported to have been provided to the Brendan Group. Given the Metro group was engaged to source, renovate and rent property and then KEL was paid for sourcing purchasers, I am unable to ascertain what services were provided to Brendan by BIPM and the arms-length value of same.

“I also note this Company has been placed into insolvent liquidation and one is left querying the recovery route of same. I am however also concerned at the rationale behind the payments to BIPM, given BIPM was an unsecured creditor and appears to have been discharged in preference to shareholders loan notes.”

Garcia said he had begun recently working with an Irish entity with operations in the United States to work on realising assets in the United States.

Recently he said a decision was taken relating to foreclosed property which states that any proceeds over the foreclosure amount have to be returned. “I am providing details of Brendan’s property in the US to this entity. I cannot however guarantee that this will produce any funds,” he said. “It may well however also identify the current owners of the Detroit properties which would then circumnavigate Mr Regan’s GDPR concerns. This information is also likely to validate or otherwise much of the representations made to me by the directors in relation to the events in the Company.

“I am also working with a US law firm in order to allow me to take control of Artesian Equities which should, if successful also facilitate the final piecing together of events to allow me to draw firm conclusions in relation to the Company’s affairs and the conduct of its directors.”

*****

Aidan Garcia of Sabios concludes his report by telling creditors that he was aware of his obligations to report relevant concerns to the Office of the Director of Corporate Enforcement. He said as in all liquidations these would relate to the reasons for the liquidation and the actions of directors. Upon reviewing the affairs of the company he said he would consider if proceedings were necessitated against any directors or not and that these recommendations would be brought to the attention of creditors.

Hobbs did not respond to requests for comment or seven questions put to him in relation to Brendan, but he has said previously he did nothing wrong and noted he resigned from Brendan in 2015. In an email in March 2015 he said he was resigning from Brendan and another company as it was “non-core” and he wanted to concentrate on being president of a political party called Renua. Regan and O’Neill could not be contacted for comment. Sabios declined to comment. While much has been explained to its creditors, there is still some way to go on Brendan’s final voyage.