Guernsey property fund seeks £9.8 million misappropriated from legal firm escrow account

Written by Ray Clancy

Monday, 01 March 2010 09:38

An investigation has been launched over the disappearance of £9.8 million owed to a Guernsey based property fund.

The Solicitors Regulation Authority (SRA) is examining how a former partner of a London law firm is linked to the disappearance of the cash which was being held in escrow.

A High Court order has frozen the worldwide assets of Joe Azaz who used to work for ELS International lawyers and Stirling Mortimer Global Property fund confirmed that two of its sub funds were yet to be paid cash they were owed from ELS and European Legal Solutions, two law firms that share the same logo and website.

The closed-ended fund consists of a number of cells, each of which invests in a specific property market. It uses investors’ capital to buy off-plan property at development sites in areas such as Spain, Cape Verde and Morocco.

The fund uses investors’ capital to place deposits on the properties, giving them the right to purchase the property in the future. The aim is for the value of the properties to rise as they near completion, with the fund getting a share of the growth.

To incentivise the property developers to get sales completed, the fund kept hold of a portion of the deposit in the event that the properties did not sell within a given timescale. This was to be paid to investors as a penalty payment if there was no early sale, and the money was held in escrow by the law firm.

The payments are due to the company’s £53 million No 4 Cape Verde Fund and No 5 Spain Fund. Stirling said that the law firm had agreed it did owe the fund the money via its escrow arrangements and had also taken action against its former employee.

‘A worldwide freezing order has been obtained by ELS in the UK High Court of Justice against the former ELS partner’s assets,’ a spokesman confirmed in a statement on behalf of the board. The statement added that based on information it has received, the board believes that the money will be reclaimed.