Thursday 22 March 2018

Super-rich duped in €30m US land scheme

Merrion Square financier Duignan is now said to be in Singapore

Nick Webb

Nick Webb

"WHERE do you think you'll spend time in prison, Frank?" asked one investor. "Do you think it'll be here or do you think it'll be in America?"

"I don't know. We'll soon find out," answered Frank Duignan.

They are the words on a secret tape recording of exchanges between financier Mr Duignan and a group of shocked investors who had just realised that they had lost €30m on a get-rich-quick scheme in the US.

The meeting, in the summer of 2010, was in the plush Merrion Square offices of Duignan's firm, Money Concepts. Four years earlier, things had been much chummier as Duignan lunched in Dublin's finest restaurants and regaled his clients with tales of his Tuscan vineyard and Wicklow estate. He talked of tennis matches at the exclusive Fitzwilliam tennis club and travels on private jets.

The truth was somewhat different. Duignan lived in a modest two-up, two-down home in Bray and later in a townhouse estate in Donnybrook. But he also talked of magnificent property schemes that offered a 35 per cent return over a short period.

What the investors did not realise was that they were about to be taken for a ride – and their €30m was about to vanish in a puff of smoke.

They would have nothing to show for it except pain and a nearly incomprehensible paper trail of US partnerships and operating companies. They would also find themselves cast as stooges in a massive banking fraud carried out by the ostensibly respected president of a regional US bank.

The investors were not mugs. They are high-flying executives and entrepreneurs from financial services and the motor, property and retail sectors. Some are household names. For legal reasons, they cannot be identified here.

Ireland's investment community is small, and high-net worth individuals – during the boom – had money to burn. They ended up at Mr Duignan's door.

The Samurai sword-collecting accountant had made good returns for some of them, punting on US properties in the early 2000s. One scheme providing mezzanine finance to a Florida property syndicate had worked out well, generating returns of 30 per cent over two years.

From 2006 onwards, Duignan promoted three schemes for investors. One was the purchase of an $18.4m (€14.3m) portfolio of distressed loans secured against property in Florida and Alabama. About $2.6m in cash was invested in the portfolio, with the remainder of the money coming in non-recourse loans from regional US bank First City. This is when the investors first crossed the path of Mark Conner, the ebullient president of the bank. He was closely involved in the deal.

"Conner was a larger-than-life man. He really was. He was huge, about 150kg. Every restaurant we went into, they knew him. He had a bottle of his own special wine in every restaurant, too," one source told the Sunday Independent.

Conner lived in an enormous mansion, which had one "perfect golf hole" out the back. Investors would be invited out to play golf on this hole before a sumptuous dinner and "huge cigars".

The portfolio included 15 homes in the Crystal Lake development near Atlanta Airport worth $3.86m, which were being rented out for $289,800 per year.

It also included 324 lots and 70 acres of land near Milner, Georgia, worth $8.56m. The final part of the basket of property loans included 684 acres of lakeside land at Blount County, Alabama. These lands were valued at $6.9m – having been bought by the original owner for $10m in September 2006. The deal promised huge returns, according to promotional literature obtained by the Sunday Independent.

Investors were told that "after repaying the relevant loan you would have made a 100 per cent return on the total equity of $2.67m required to fund the total portfolio regardless of profits generated on the other parts of the portfolio".

The financial crisis ripped through the US market, shutting down finance and hammering property values. The loans went into default, and US asset manager Rialto Capital moved in to foreclose. It was too late by the time the investors realised there was a bad smell from the deal.

Jon Griffin, from iCapital, a specialist corporate financier, was tasked by investors to examine the scheme. He uncovered companies and partnership structures that raised questions as to which of the investors actually owned parcels of these loans, through a complex series of US partnerships.

The assets that came with the portfolio were not quite as blue chip as they had been promised. "A crock of shite," was how one source described them. A block of land in Alabama was actually the top of a mountain. "You couldn't even get up there in a 4X4."

Rialto Capital has taken control of the assets, and the Irish investors have been wiped out completely.

But the loans portfolio was only one of the deals that Duignan had sold to his client base. Some €20m was raised from investors in the motor, financial services, retail and property sector to buy a 322-acre site in Farmville, North Carolina, in 2007. This was pitched as a once-in-a-lifetime chance to build a golf and country club development near a local university – one with an extremely deep-pocketed alumni.

An existing golf course and restaurant were to be massively redeveloped, with the provision of high-end housing and accommodation for guests. One investor recalled he was told that if he invested $2m, he would get $30m back. But the project suffered delays and began to haemorrhage money – with the tiny golf course alone losing a staggering $8m.

The financial crisis slammed into the scheme. A US firm, Flint River Advisors, moved to foreclose on the loans, subsequently taking control of 35 per cent of the project. It would later emerge that Mark Conner was behind this move, as he was a beneficiary of Flint River.

Existing Irish investors assembled by Mr Griffin moved to take control of the other 65 per cent of the project as they tried to salvage some value from the scheme. Although upwards of €20m was pumped into Farmville, Mr Griffin's group was able to buy into the project for just over €1m. The original ownership of the project is still being unpicked as the complexity of the partnership structure put in place by Duignan has left the investors unclear as to what they actually own.

Just down the road from Farmville, Mr Duignan had also raised around $6m from investors to develop another country club scheme in the centre of the town of Greenville. That scheme has been becalmed for several years as investors wrangle over ownership rights. It appears that the Irish funds never made it to the project.

In July 2010, investors arrived at Duignan's office on Merrion Square to seek answers. For one hour and 20 minutes he moved one way and then another.

"What happened was that we got further and further into the Farmville thing and the money just went to keep it afloat," he told the assembled investors. "The thing just got out of hand in terms of expenses. Other projects just got sucked into it. It shouldn't have happened, but it did."

Duignan was asked whether the investors owned anything at the Greenville project. "No, we don't," he answered to shocked silence.

"I'm not just saying shit happens. I'm saying that a lot of stupid things were done here. What I'm also saying is that none of the money came to me. It went to keeping things on the go. I haven't pocketed anyone's money. There isn't a penny anywhere."

The investors have disputed whether Duignan made any money from the schemes. The US Internal Revenue Service is now said to be preparing to audit the schemes.

Duignan is no longer in business in Ireland. His Money Concepts company, which last filed accounts in 2010, was dissolved in January. A related company, Lighthouse Capital, was dissolved just over two months ago, with his Cerebus Capital Partners strike-off listed early last month.

Cerebus Capital Partners is no relation to the $20bn Wall Street private equity firm Cerebus Capital Management. Duignan's Deephaven Capital, which last filed accounts in August 2011, is no relation to the former Knight Capital hedge fund group.

Duignan is thought to have spent time in the US, meeting with an investor in Atlanta where he owned a house in August 2010. More recently, he was tagged in a photo at a reception for Failte Ireland's The Gathering in California last year. He is now thought to be working in Singapore, and has not responded to queries to a mobile number and email address obtained by the Sunday Independent.

Mark Conner was arrested by the FBI in Miami Airport in March 2011 while returning from the Turks and Caicos islands in the West Indies. Last year he was sentenced to 12 years in prison for fraud, perjury and conspiracy. He has been ordered to pay back $19.5m to US authorities and victims.

The Irish investors are still trying to piece together what happened to their money. They are angry, but they are not giving up.

The domain name has been bought and the gloves are coming off.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business