Archive for fraud


Preferred shares of Spanish banks

Preferred shares of Spanish banks

By the end of 2008, Spanish saving banks and banks already had clear reports stating that current high interest rates may drop and the property bubble was about to burst. In addition, they also knew that the lucrative business of saving banks in the construction sector by means of credits for developers and mortgages for individuals, was about to go to ruin.

Regarding that their core business in the housing sector was about to finish and that saving banks could not issue shares as banks could, they “invented” the sale of a product to obtain funds known as participaciones preferentes (preferred shares). This financial term may be defined as debt securities issuances for an undetermined period of time, in which saving banks pay returns depending on their profits. But they may not even pay anything at all—although this product offered up to 7% returns—, because the payment of these returns depended on the financial entity profits. Thus, as a result of the housing sector slump and saving banks loss, there was no profit. Furthermore, these preferred shares have no voting rights and are not guaranteed by the Deposit Guarantee Fund—which covers people’s savings up to 100,000 Euros—and has no maturity, that is, they are perpetual.

Most of the investors who purchased these preferred shares were retail clients of these financial entities. Most of them thought that this product was similar to fixed income deposits. In most cases, these clients did not have any knowledge about financial risks neither any intention to risk their savings—their money was invested in fixed term deposits and one day they received a telephone call from the bank convincing them of the “advantages” of purchasing preferred shares; however, most of the disadvantages were not explained to them, because the bank employees did not probably even know what they were offering. They just followed the financial entity instructions.

Result: 300,000 people affected by the purchase of these preferred shares which may amount to 30,000 million Euros, although this sum may be higher.

Financial entities are allowed to sell this type of products if they carry out the following: study of the investor’s profile and performance of the private investor test for suitability. In most cases, it is obvious that financial entities should have not sold the aforementioned preferred shares to most of their retail clients, because they did not match the suitable profile to purchase this type of products and had limited savings to be invested only in conservative products, such as fixed income deposits.

Holders of the aforementioned preferred shares have the following options:

A) Secondary market offering, although they may be sold at a loss considering current circumstances.

B) Conversion into shares of the entity—this is the solution offered by saving banks. However, this exchange is also at a loss, as Bankia has already done two weeks ago—in this case, its clients have lost up to 70% of their investment when the preferred shares were converted.

C) Going to the arbitration offered by the Government—we sincerely have misgivings about its results and clients may also have to assume significant losses.

D) Going to court through civil proceedings to claim for the invalidity of the contract which served as a basis for purchasing preferred shares.  This is the most recommended procedure for all people affected, as court orders which have been already known are pronounced in favour of these people. Although this action may imply a longer procedure to recover the invested money, the result is much more advantageous.

We finally recommend you to consult an expert before taking any decision if you are a person affected by this matter, so that all possible options are explored particularly.


Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)




Property fraud Andalucia Spain

Property fraud Andalucia Spain

Last Monday, the 13th of December, I read an    article in the newspaper EL MUNDO in which they inform that about a hundred people from Northern Ireland were victims of a property fraud through the Ocean View Properties agency. It was supposed that the development company would build a housing estate in a plot located in Estepona (Malaga). Apparently fraud people made important payments on account of the purchase price in 2005 and 2006 for their future homes in Spain.

Concerning these off-plan property sales, directly from the developer (new property), apart from confirming whether the developer that sells is the owner of the buildable plot, and the relevant Town Hall has approved the urbanization project of this land, the buyer should request the immediate handing of the bank guarantee along with the interim payments that the buyer are going to carry, guaranteeing every payment for the building process until the granting of the purchase title deed. In this way, if the urbanization project may not be completed because of an administrative cause, because of the insolvency of the developer or any other cause non attributable to the buyer, then he can get back every payment made by enforcing this bank guarantee.

In this case, it is obvious that buyers and their solicitors did not require these bank guarantees to the developer. Now, the buyers should associate each other to force in the judicial proceedings, relying on a competent legal team that may advice them properly. It is essential to bring a lawsuit against them (civil action) or criminal charges (criminal action depending on whether it is considered a fraud or not) expeditiously so to call for the preventive seizure of all the goods that the developer may have, and all the administrators' goods in any country, to study if the administrators have other companies opened so to attack all these goods.

When trying to get back money, the judicial proceedings is very long, so fraudsters or possible insolvents can hide or squander their patrimony and the trail of the money would be lost. The result of it may not guarantee the success.

Conclusion, if you are going to buy off-plan directly from the developer, make sure of who is the owner of the plot, of the urbanization project, and, specially, do not pay anything without receiving the corresponding bank guarantees for these interim payment until the granting of the purchase title deed. If you have signed a purchase private contract with a developer and you have not still the bank guarantees, it is time to require them, because the financial situation of the developer is complicated and, in short, you never know. Our advice is, if in doubt, you consult a solicitor in order him to analyze your situation.


Author: Gustavo Calero Monereo, C&D Solicitors (lawyers)
Torrox-Costa (Malaga/Costa del Sol/Andalucia)



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