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Real Estate Industry

May 29th 2007

THE COLLAPSE OF ACR

How 7,000 families lost $330 million.


UPDATE. July 23. To watch Paul Barry's report on ACR (and others), which was the cover story on Channel Nine's Sunday program (July 22), please click here
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Opinion by Neil Jenman

Samuel Jonathan Pogson is 46-years-old. He lives in a big house in a beautiful suburb on Sydney's Upper North Shore.

Sam drives a gleaming black BMW, the latest 5-series. I think it's the one with the TV in the dashboard.

Sam's wife also drives a Beemer. She's got a stunning little red convertible. Ah, the wind in the hair.

Murray John Lapham is 45-years-old. He lives in Sydney's North-West, deep in McMansion territory.

But Murray's home is no ordinary mansion, it's a super-sized McMansion, spread like a giant brown burger across an entire housing block.

Murray has a shiny silver Mercedes (in which he often breaks the speed limit).

Sam Pogson and Murray Lapham are co-directors of a property group called Estate Constructions of Australia which they describe as "successful and rapidly expanding".

As well as projects across Sydney they've also expanded north to Newcastle and south to Melbourne.

They've developed upwards of two thousand apartments and homes including what's billed as "the tallest residential building" in western Sydney, 93 apartments at 138 Church Street Parramatta. The penthouses in this tower are priced as high as, wait for it, $1,399,000.

But in recent times, Sam Pogson and Murray Lapham have found it harder to make sales. The reason is simple most of their properties are over-priced.

Now, when most developers can't sell properties, they can't pay their debts. And so they go broke. Fast.

Unless, like Sam and Murray, they have some other way of getting money.

For several years, Pogson and Lapham have been raising money through another company called Australian Capital Reserve (ACR). They are both also co-directors of ACR.

So, ACR raises the money, mostly from mum-and-dad investors by promising to pay them 9.55% interest. This money goes to Estate Constructions to build apartments (never mind supporting grand lifestyles).

If the apartments don't sell, no worries, ACR just raises more money.

As money comes in from new investors, it gets used to pay the old established investors and the company's debts.

On the surface, everything looks good. Sam and Murray are driving around in their flash cars, living in their big houses and paying their debts by raising more and more money from more and more mum-and-dad investors.

Using this scheme, the two lads have managed to rake in more than $330 million.

But, on March 30 this year, the Australian Securities and Investments Commission (ASIC) placed a "stop order" on ACR. Sam and Murray were banned from raising any more money from the public.

At that point, ACR became a ticking time bomb.

Pogson and Lapham were desperate. Anticipating the ASIC action, they tried to raise money from New Zealanders by setting up an off-shoot of ACR across the Tasman.

To try and sell apartments they offered huge incentives to accountants and mortgage brokers.

Get this they were prepared to pay up to six per cent of the sale price just for the name of someone who would buy a property.

That's right, if you were an accountant you could get $60,000 just for giving Sam and Murray the name of one of your clients.

But even these desperate measures were not enough to save Australian Capital Reserve. Yesterday, it was placed in administration.

This collapse is bigger than the recent Fincorp disaster in which around $290 million was lost. With ACR, it seems that at least $330 million has gone down the gurgle hole.

Yes, and around 7,000 families have lost their savings in another dodgy property company.

And, make no mistake, ACR was Dodgy with a capital D.

How so?

Well, a book could (and will) be written about how these schemes operate. But the key to the ACR disaster was the dodgy way in which Pogson and Lapham ran their companies.

To any experienced investor or financial analyst, ACR always stank like a skunk.

Pogson's and Lapham's salespeople made inexperienced investors believe that everything was ever-so safe.

For example, back in 2001, one potential investor (a researcher for respected financial commentator Paul Clitheroe) was told that ACR was "more secure than a term deposit". Pogson denied this comment. [Yes, sure, the researcher lied and the salesman was truthful).

But what really fooled most unsophisticated investors were the dodgy property valuations.

For example, an ACR prospectus said that one property was valued at $30 million. It had been bought in the same month for $13.3 million.

A jack-up of $16.7 million.

It's the oldest and most common property scam. Jacking-up valuations to fool nave investors.

It goes on from one-bedroom units in Footscray where investors are duped into paying almost $400,000 for properties worth closer to $200,000, right through to multi-hundred-million-dollar projects where properties worth around $40 million are shown as being worth around $120 million.

A jack-up of $80 million.

That's what was happening with Australian Capital Reserve. And much more.

Nave and trusting investors saw the ads, heard the sales pitches, looked at the "values" and thought everything was safe.

Inexperienced investors the sort of people who have worked hard all their lives in a blue-collar job cannot tell the difference between safe investments and high-risk investments.

How many more financial lives must be ruined before action is taken? How much more money do Australians mostly retirees have to lose before something is done to stop the likes of Sam Pogson and Murray Lapham?

This country needs a rating system where investment products carry graded warnings.

Recently there has been Westpoint in which around $400 million was lost. Then came Fincorp in which another $290 million lost. And now ACR with around $330 million.

There's no change out of a billion dollars, the bulk of it being the hard-earned savings of decent Australian families.

The sort of people who drive Holdens.

Meantime, Sam Pogson and Murray Lapham are still driving their prestige cars.

But not returning phone calls.


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Footnote: Show your faces boys. Meet Sam Pogson and Murray Lapham.


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UPDATE: July 16, 2007: Dear Sir/Madam, I am writing to you on behalf of the ACR Noteholders Action Group. We would ask that in your articles with relation to ACR could you please mention our group and list our web address? Your help is gratefully received. Our site is temporary but when the new site is up and running a link will be placed on the existing site.
http://finance.groups.yahoo.com/group/notehodlersactiongroup/

Yours with regards

Karl Bewley
ACR noteholder


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