Heather Capital Manager Behind Advalorem’s Alleged Deceit, Regulator Concludes
Gibraltar’s financial regulator says Advalorem, which bought land from Scottish lawyer Gregory King, was run to the detriment of investors
Secretive offshore companies helped Gregory King, manager of a failed hedge fund, quietly return to investing four years ago.
Mr. King was a lawyer and a Glasgow car dealer before becoming a hedge- fund manager in Gibraltar, a British territory on the southern tip of Spain. But his $600 million property-lending fund, Heather Capital, crashed in 2010. Mr. King and three other men were investigated by Scottish police for suspected fraud, the police have said. Scotland’s prosecutor says it is now considering action, and Heather Capital is being liquidated in the Isle of Man.
So investigators at Gibraltar’s financial regulator were surprised when they found Mr. King, living nearby in Spain, at the heart of a second alleged investment fraud in 2013. Advalorem Value Asset Fund used money from investors to buy land Mr. King owned anonymously through several Gibraltar companies at inflated prices, according to the Gibraltar Financial Services Commission.
Mr. King, through a lawyer, said he strongly denies any wrongdoing in relation to Advalorem or Heather. Advalorem is now being liquidated. A lawyer for Mr. King previously said Mr. King “acted fully in good faith” during his involvement with Heather.
The issue of companies’ beneficial ownership has jumped to the forefront of government agendas this month after a trove of documents were allegedly leaked from Panamanian law firm Mossack Fonseca & Co. There is no indication that Mr. King was a client of the law firm.
An outpost of the former British Empire, Gibraltar is a popular place to incorporate offshore companies and trusts because of its 300-year ties to the U.K., low taxes and European Union membership. The listed owner of such companies, in Gibraltar and other places, is often a hired professional or an overseas company.
Last week, Gibraltar said it would start automatically sharing information on the real owners of companies with other national authorities, as part of a European effort to curb money laundering, tax evasion and other illicit activities. The moves were taken in the wake of the Panama Papers leak.
In the summer of 2012—two years after Heather Capital’s collapse—Advalorem was set up in Gibraltar to invest in land and housing development. A marketing brochure reviewed by The Wall Street Journal listed a British Virgin Islands company as Advalorem’s investment manager and projected 10% annual returns.
Two people with business and social ties to Mr. King were signed on to select land purchases and to raise money from investors, according to a confidential report by the Gibraltar Financial Services Commission, also known as the FSC. One person previously worked with Mr. King. The other had dealings with Advalorem and knew Mr. King, according to the FSC.
Within months, Advalorem had raised £7.8 million toward the ultimate goal of collecting £300 million, according to the report, which was reviewed by The Journal.
As investor money poured in, Advalorem started buying Mr. King’s land, the FSC said. In December 2012, the fund paid £6 million to a Gibraltar company called Thistle Holdings Ltd. for two companies that owned 37 acres of farmland near Glasgow. The land, on a river flood plain and protected from development, was worth about £190,000, according to a valuation commissioned by the FSC while it probed the fund.
Before Advalorem bought it, the Scottish land passed through a string of companies in Gibraltar and the British Virgin Islands, another offshore center, according to the FSC’s report. Those companies all belonged to Mr. King, the FSC found. The £6 million paid to Thistle for the land ended up in one of Mr. King’s bank accounts, according to the FSC report. Its investigation found that Mr. King had originally paid £305,000 to buy the 37 acres in 2008.
Advalorem was preparing to spend £21 million to buy more of Mr. King’s land in Scotland when the FSC received an alert from the U.K. pensions regulator, according to the FSC report.
The U.K. regulator had monitored British savers transferring their entire retirement pots into Advalorem after being offered cash incentives by financial advisers, according to the FSC. Britain has sought to clamp down on “pensions liberation” schemes, in which investors are told they can tap their retirement savings by moving them outside the U.K.
Overpaying for land is legal. But the FSC alleges that Advalorem was being run to the detriment of its investors in an apparent fraud. It said last week in a statement that it took “swift regulatory action,” suspending Advalorem and censuring the fund’s directors.
A lawyer for several directors on the fund and its BVI investment manager declined to comment. One director couldn’t be reached for comment.
People familiar with the case say Advalorem wouldn’t have been able to function under Gibraltar fund rules if the ties between Mr. King, the land and the alleged middlemen had all been fully disclosed.
The FSC referred the case to the Gibraltar police. A police spokesman said last week there wasn’t enough evidence to support a criminal prosecution.
To try to recoup investor money, the liquidator for Advalorem put a freeze on Mr. King’s assets in September, a Gibraltar court filing shows. The liquidator said he is pursuing a civil fraud case against Mr. King.
Mr. King’s exact wealth isn’t known, but he received nearly $52 million in fees from Heather Capital between 2005 and 2008, according to Heather’s financial reports. The money was paid to a BVI company controlled by Mr. King.
At his home in a gated mountainside complex near Marbella, Spain, Mr. King tried to avoid being served with legal papers, people familiar with the matter said. Without looking at the papers, he ripped them up and handed them back to the person who delivered them.