Germany's Dolphin Trust was a pyramid scheme, causing devastation for investors
When it comes to German corporate fraud, Wirecard has been hogging the headlines for a while.
But there's another German company that has plummeted to
Earth after a more than €1 billion hole emerged in its accounts. Except unlike
with Wirecard, this was money that once actually existed and which belonged to
ordinary people.
The tale of Dolphin Trust, in more recent times known as
German Property Group, is a cautionary one.
A property investment company based in Hanover, for years
Dolphin Trust benefited from a shiny image that presented it as both a safe and
profitable choice for those looking for alternatives to banks as places to put
their money.
Dolphin Trust's pitch was as follows: Using investors'
money, they would buy old buildings in Germany at knockdown prices and then
renovate them into high-end apartments. Proceeds from the sales of these
apartments would then go back to the investors, netting them tidy profits.
Little known in Germany, Dolphin Trust targeted customers in
the UK, Ireland and several Asian countries including South Korea and
Singapore. It was sold as a canny investment choice by several financial
advisors in those countries.
But in July 2020, the company filed for insolvency in
Bremen, with debts estimated between €1.2 billion ($1.4 billion) and €1.5
billion. A month later, German prosecutors began a criminal investigation into
suspected fraud. What for years looked like a respectable investment vehicle
now bears the hallmarks of a pyramid or Ponzi scheme.
The rise of Dolphin Trust
Dolphin Capital was founded as a merger of several companies
in 2008 by a German-British man called Charles Smethurst. It changed its name
to Dolphin Trust in 2014.
In its early days, the company did make some payouts to
investors. But for much of the last decade, the reality behind the polished
corporate sheen was that the company was doing little other than buying
properties with other people's money and leaving them untouched thereafter.
The company hasn't filed accounts since 2015, but the first
public signs that it was in serious trouble came in May 2019, just a month
after it changed its name to German Property Group, complete with its own
YouTube "news" channel.
In May 2019, the BBC consumer affairs show You and Yours
spoke to several people who had invested in Dolphin Trust but had received no
money back, nor any information as to the state of their investments.
At the time, Dolphin Trust said investors' money was safe
and that even if buildings were not successfully redeveloped and sold,
investors were guaranteed to recoup their original investment as they had a
stake in the purchased building.
Falling into ruin
The company rumbled on but its reputation became ruined as
thousands of investors around the world began to realize that the money they
had invested — often relatively small amounts but of huge significance to them
personally — was gone.
When the company entered bankruptcy last year, a document
filed to the court revealed that the group held around 70 properties, the
majority of which were not being developed — and with many in various states of
disrepair.
In 2019, Ludwig Wallinger, the mayor of the small German
town of Schonthal near the Czech border spoke to the BBC about an old monastery
Dolphin Trust had purchased in the town in 2017.
"The last time I heard from anyone was in spring 2018,
when they asked me what I thought they could do with it," he said.
"They suggested perhaps luxury apartments, to which I laughed, because
this area just does not have the market for upmarket flats."
In April this year, a report by the television program Prime
Time for the Irish national broadcaster RTE detailed the huge scale of damage
done to Irish investors by Dolphin Trust, with just under 2,000 people owed
around €200 million by the bust company.
RTE spoke to Stephan Schlier, the mayor of the Bavarian town
of Bad Aibling, where Dolphin Trust bought an old brewery, long since left to
the elements.
"We are angry, very clearly. The building in this
condition does not suit Bad Aibling," he told the program "Dolphin
don't want to develop anything."
RTE also spoke to two independent German valuers about the
property, both of whom said the brewery was worth no more than the original
€5.6 million Dolphin had paid for it.
'Pyramid scheme'
The properties still owned by the company at the time of
bankruptcy are estimated to be worth no more than €150 million collectively.
With at least €1.2 billion owed to investors, and possibly much more, there is
no hope of those people getting their money back.
Gerrit Hoelzle, an insolvency administrator who first dealt
with the case, said in 2020: "The originally pursued business model
collapsed years ago. Obviously as a result of the increasing financial
shortage, the business model, which was initially focused on real estate
transactions, gradually developed into a pyramid scheme."
Justus von Buchwalt, an insolvency administrator working on
the case, told RTE for its recent report: "There are strong indications
that Dolphin Trust was a pyramid scheme."
The investigation is continuing. In March, Smethurst's home
was raided by police, who seized computer servers and files. Finding out
exactly what happened to all the money will be a complicated task, although it
is clear that Smethurst's wife, Kerstin Manuela Lenz (pictured at the top of
the article, left), directly benefited, having been loaned several million by the
company over the years.
The case is shining another unwelcome light on Germany's
corporate sector and, in particular, its financial and corporate regulators, so
battered by Wirecard and other recent scandals.
Financial advisers in Ireland, the UK and elsewhere are also
facing heavy scrutiny for selling Dolphin Trust as an investment for so long.
But Dolphin Trust's long-established pitch had traded on the
idea of Germany itself as a paragon of economic virtue and prudence. Cloaked
under this apparently respectable cover, Dolphin Trust — like Wirecard — was
able to hide its sins in plain sight.
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