$96 million fraud fallout: Investors caught in UK assisted living scam
$96 million fraud fallout: Investors caught in UK assisted living scam
A liquidation petition submitted to the court this month reveals a colorful story about an investment amounting to tens of millions of shekels in assisted living housing in the United Kingdom. Allegedly, it turned out to be a scam worth about $96 million, wherein properties on the verge of collapse were sold as luxury housing.
The British real estate sector has been marketed in Israel in recent years as attractive for investment. However, an application for the liquidation of an investment marketing company, submitted at the beginning of the month in the District Court in Lod, reveals a colorful story about an investment amounting to tens of millions of shekels in assisted living housing in the United Kingdom. The investment, it turns out, was apparently a scam of about 360 million shekels (approximately $96 million), involving buildings that were about to collapse being sold as luxury housing.
The assisted living units were marketed in Israel by Galon Invest, a subsidiary of the Galon Group, founded by Yossi Galon, formerly the founder of Makhteshim Agan. Galon Invest is currently managed by his two sons, Itai and Ili. Galon served as a sub-marketer in Israel for a company called Carlauren, which belongs to British entrepreneur Sean Murray. The investment product was "luxury housing units" for the elderly in England that were marketed between 2018 and 2019 under particularly attractive conditions. Galon sold rights in assisted living housing units as a profitable transaction, which included two main obligations on Carlauren's part: payment of rent at the rate of 10% of the property value for ten years and repurchase of the assisted living housing unit after the investment period, in an amount that reflects a return of at least 10% on the purchase price. In other words, Carlauren and Galon promised investors a double return - both rental income and repurchase.
According to the application for liquidation, Galon sold 148 assisted living units in England to the Israeli public, half of which belonged to Carlauren, charging between 5% and 6% commission on each sale. Investors paid between 300,000 and 500,000 shekels for the right to a housing unit. Galon obtained customers through internet publications, investment advisors, and insurance agents. However, despite the promises, the investors' dreams were quickly shattered. In April 2019, Carlauren stopped making payments to Israeli investors. In September 2020, a complaint was filed by 36 Galon customers, who claimed that the company's representatives described the investment in the Carlauren properties as free of any risk to the investors and described the British company as "veteran and having great financial strength, owning dozens of buildings throughout England, which it operated as luxury assisted living housing, as well as additional business activities, including in the field of aviation."
Furthermore, investors were informed that Carlauren "collects a monthly payment of approximately 5,000 pounds or more from its tenants in England for the use of each of the housing units purchased," ensuring it would have no difficulty in meeting its obligations. However, when Israeli investors investigated the nature of the properties they had acquired rights to, it became clear to them, according to the lawsuit, that "the properties are abandoned and do not generate any income for Carlauren from operating them as assisted living housing. Therefore, it appears that the plaintiffs fell for a 'Ponzi' scam, in which the rents paid to the plaintiffs for a short period of time were actually financed by investment funds of later buyers, without any actual economic activity that enabled the payment of the rents to the plaintiffs." They also discovered that Murray "is a con man who was previously involved in fraudulent transactions of a similar type in the USA and was even appointed a trustee in bankruptcy in England," and that Murray "used the funds paid by the investors to finance the private purchase of luxury cars, a yacht, and a private plane." The properties marketed as luxury housing were abandoned houses. Murray sold rights to assisted living units to more than 600 investors, leaving debts of more than 76 million pounds, almost 360 million shekels. According to Galon company, the amount raised for Carlauren ranges from NIS 30 to 50 million that disappeared.
"We based ourselves on the experience of the family patriarch, Yossi Galon, and his connections in England. The investors were aware that for him it was only a brokerage deal. There was no indication to understand what was going on behind the scenes. The name of the English entrepreneur (Murray) preceded him. He had a record of many years in the industry. For him, it was like investing in Yitzhak Tshuva's assets," Itay Galon explained to Calcalist.
Galon was ordered to pay investors NIS 3.8 million, of which NIS 2.3 million will be paid directly by the shareholders. According to the liquidation request, the disappearance of the investors' money did not weaken the desire of the Galon company to continue to engage in public housing in England. In the second phase, the Galon family established the GWC Group company, which was engaged in the purchase of assisted living housing in England and marketed directly to investors in Israel. GWC's subsidiary, the Cartwright company, purchased real estate for two assisted living facilities, one in Leeds and the other in Manchester. Additionally, the shareholders established other subsidiaries involved in operating the sheltered housing. The company managed to raise an additional NIS 30 million from investors, and the assets were purchased in March 2020.
However, with the outbreak of the coronavirus, supervision procedures in public housing institutions in the United Kingdom were changed, and GWC did not meet the payments it had promised to investors. It is now seeking dissolution. Galon predicts that other investors in Carlauren's projects, as well as investors in the projects it initiated itself, will file financial claims against them. Thus, the 30 million shekels invested in those properties are also in danger. In recent months, GWC has been negotiating with the buyers of the units to find an agreed outline for the fate of their investments, but the parties have not yet reached an agreement. Galon's response, represented by attorney Rami Kogan: "From a place of responsibility and reluctance to favor creditors and according to the principle of equality, we went to court so that anyone who claims to be a creditor will receive relief in a legal and informed manner."
