Buy-to-let scam smashed

A buy-to-let investment scam has been smashed after the companies involved were wound up by the Government today in a crackdown on get-rich-quick schemes.

The High Court ordered the closure of Sterling Mansion, Mansion Investments and CM2 Services, which took large sums of money from the public after promising to help them build large property portfolios.

Two related companies, Furniture Right and Seal Properties, were also shut down, while action against Portfolios of Distinction, Turningpoint Seminars and SMI (Overseas) was adjourned.

The closures follow an investigation by the Department of Trade and Industry, which has since been renamed the Department for Productivity, Energy and Industry (DPEI), into the property investment club market.

The syndicates seduced investors, many of whom were inexperienced in the buy-to-let market, with lavish seminars where they were offered new flats at a discount, usually before they had been built.

Many of the those targeted did not have the resources to pay for the flats and often used credit cards to pay deposits. They also faced the risk of negative equity as the price of new flats has slipped in recent months due to a softening housing market and over-supply.

Around 56,000 new properties were built last year, but developers have been forced to offer generous incentives this year, including large discounts, cashback deals or free furniture, to help shift new-builds.

Mansion Investments offered membership of its property scheme for a one-off investment of £27,000. The company told investors that they would get knock-down deals on properties that the company would buy in bulk from developers.

Sterling Mansion was set up after Mansion's directors placed the company into administration. A total of 53 investors signed up handing over a total of £518,000 in membership fees. Within a year of trading only 14 properties were purchased with no-one amassing the £1m property portfolio they expected.

CM2 Sevices operated in the debt collection market, offering investors the opportunity to purchase 'portfolios of debt' at knock-down prices. Nearly 200 investors handed over £3.3m but investigations revealed only a small amount went towards purchasing debts.

DPEI minister Gerry Sutcliffe said: 'These companies knew that their clients, who had all invested substantial amounts of money, couldn't make anything like the returns that were promised. The schemes were completely misleading and set up with the sole aim of parting people from their money.'

He added: 'This should serve as a warning to any other unscrupulous operators that we will not hesitate in tracking them down and bringing them to book.'

Bradford & Bingley managing director of strategy Mark Stevens added: 'These companies have promised people the earth, often charging ridiculous prices for poor or no advice on what is a substantial investment.

'These large residential investment schemes which the Government is concerned about are only suitable for a very small minority of people and we would advise anybody to think very carefully before joining one.'

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