A British judge who, on Monday, ordered an accounting firm to pay Harlequin Property SVG Ltd. US$11 million, says that Harlequin’s business model might be said to bear “the hallmarks of a serious and significant scam”.
In his ruling, Justice Coulson said that the case that Harlequin brought against Wilkins Kennedy, its accounting firm between 2006 and 2010, “does not lack startling features”.
He noted the ongoing Serious Fraud Office investigation into Harlequin, adding that putting the words “Harlequin Property” into any search engine or social media “immediately brings down a shower of invective and complaint by their erstwhile investors.
“There have been significant findings of fraud and dishonesty against Mr. [Padraig] O’Halloran, in connection with the construction of the resort, made by the High Court in Dublin,” he said.
O’Halloran is owner and controller of ICE, a construction firm that worked with Harlequin from 2008 to 2010.
The judge further noted that there have been defamation proceedings, resolved by an apology and a payment of money to manager of Harlequin, Dave Ames and his wife, Carol, as a result of a website which published lies about and threats against Harlequin.
The website was discovered to be the work of Jeremy Newman, a senior employee of Wilkins Kennedy, who provided services to Harlequin at the same time as being ICE’s chief financial advisor.
As it relates to the actual location of the resort, the judge said that despite the “limited land purchased by Harlequin at Buccament Bay, and the very obvious physical restraints of the site as a whole, there was no limit to the number of deposits which were taken for the proposed resort there, with the result that there was a huge imbalance between the properties for which a 30% deposit was paid to Harlequin, and the number of properties that had been (or were realistically going to be) built at the Buccament Bay resort.
“This discrepancy was exacerbated by the fact that, of all the numerous Harlequin projects in the Caribbean and elsewhere, it was/is only the Buccament Bay resort that has ever been built. So, although more than 1,900 deposits were taken for Buccament Bay, and 8,200 overall for all Harlequin developments worldwide, only 195 units have been built at Buccament Bay and none anywhere else. Of those completed units, only about 16-20 are now owned and occupied by the 1,900 investors: the other buildings are used as hotel rooms, with Harlequin, not the investors, receiving the sums paid by the holiday-makers who stay at Buccament Bay. These two elements of the Harlequin business model might be said to bear the hallmarks of a serious and significant scam.”
The construction works at the resort were funded by deposits made by Harlequin investors who wanted to purchase cabanas or apartments, either at this resort, or other resorts planned by Harlequin round the world.
However, the deposits were not ring-fenced, so there was no link between an investor’s 30 per cent deposit for a property at one of the Harlequin resorts, and the destination of that money.
The money might go to any other of the numerous Harlequin developments, or might be used for entirely different purposes altogether, such as the generous commissions paid to Harlequin’s sales agents, the large sums paid to the Ames family as directors of the web of related Harlequin companies, or separate enterprises altogether, such as the Harlequin travel agency, and the sponsoring of Port Vale FC, the judge said.
Harlequin paid ICE US$52 million not only without any sort of written contract, but without any detailed agreement as to the scope of the works to be carried out, the monitoring of those works, or their valuation.
Although fixed weekly payments were agreed in significant sums, these payments were not in any way tied to interim claims for payment made by ICE, let alone an independent valuation process operated on behalf of Harlequin SVG.
From 2008, Harlequin made a considerable number of payments to ICE at US$125,000 per week.
These were subsequently increased to US$165,000 per week.
In March 2009, the weekly payments increased again to US$400,000 per week.
“ICE received the agreed amount every week, regardless of what, if any, work they had carried out,” Justice Coulson said, noting that an Irish court described the situation as “extraordinary”.
Justice Coulson commented: “That is, if anything, an under-statement. In my view, for a project of this size, the fact that there were no financial controls whatsoever beggars all belief.”
The judge further said that the fact that Wilkins Kennedy acted for both Harlequin and ICE, not only on other projects, but specifically in respect of the Buccament Bay construction works.
“This unsatisfactory arrangement unraveled in two separate strands of the evidence.”
He said an unusually close relationship developed between Padraig O’Halloran, owner and controller of ICE and Martin MacDonald, a partner in Wilkins Kennedy, which acted as Harlequin’s accountant and business advisor between 2006 and 2010.
MacDonald was variously referred to as Harlequin’s Chief Financial Officer or Financial Director, and Mr. Ames’ right hand man.
“Eventually, Mr. O’Halloran offered Mr. MacDonald a job, and Mr. MacDonald agreed to be his best man, although the lavish stag weekend at the Monte Carlo Grand Prix occurred at just the time that the relationship between Harlequin and ICE began its final, inevitable collapse. Since Mr. MacDonald reported Harlequin to the SFO (Serious Fraud Office) in June 2010, with assistance from Mr. Newman and Mr. O’Halloran, he has invested half a million pounds in a business venture with both men,” the Justice Coulson said.
The judge further said that internal documents emanating from Wilkins Kennedy in the early part of 2010 reveal an attempt by Wilkins Kennedy to protect ICE at all costs and “to ensure that Harlequin paid ICE as much as possible (whether it was justified or not) before the inevitable parting of the ways.
“This was the strategy that was adopted, regardless of the value of the work that ICE were doing (or, by then, not doing). On a project where Wilkins Kennedy, through Mr. MacDonald, was attending meetings on behalf of Harlequin purportedly to argue with ICE about money, it meant that WK were on both sides of what was (and remains) a very bitter dispute.”