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There's been a significant development in the ongoing saga of the German Property Group (GPG), formerly known as Dolphin Trust, which we reported on extensively some years ago here in REFIRE.
The Hanover public prosecutor's office recently filed formal charges against Charles Smethurst, the founder of GPG, alleging 27 counts of commercial fraud in what authorities describe as a sophisticated Ponzi scheme. The charges relate to over €56 million in losses, impacting thousands of investors, primarily retirees and pension funds from the UK, Ireland, and parts of Asia.
Founded in 2008, Dolphin Trust (later rebranded as GPG) was once heralded as an innovative investment vehicle, channeling funds into historical property developments across Germany. Promoted heavily to foreign investors, the company’s pitch combined Germany’s strong legal reputation with the allure of heritage-listed properties, promising steady returns and tax advantages. GPG managed to attract over €1 billion from pensioners and other individual investors through advisors who marketed these “guaranteed returns.”
Known for his persuasive sales skills, Smethurst focused on markets like the UK, Ireland, and parts of Asia, where he targeted established pension advisers to vouch for GPG’s projects. These advisers, drawn by the allure of German heritage properties and promises of steady returns, often recommended GPG's investments as secure, tax-advantageous options for retirement portfolios. This strategy brought in thousands of individual investors, many of whom were retirees looking to secure their futures but who may not have fully understood the high risks associated with such projects.
Ponzi scheme allegations and financial collapse
In 2020, GPG’s operations collapsed under the weight of mounting investor claims and stalled projects. Insolvency administrator Gerrit Hölzle, appointed at the outset of the bankruptcy, issued a scathing report, labeling GPG’s business model a Ponzi scheme. According to Hölzle, incoming funds from new investors were used to pay returns to earlier investors, rather than being deployed in viable development projects—a classic Ponzi structure where later investors unknowingly finance returns for earlier ones. His report detailed how many of the promised developments were either incomplete or severely delayed.
The insolvency proceedings later transitioned to Justus von Buchwaldt, who took over as administrator following a dispute between Smethurst and Hölzle. Under von Buchwaldt, the insolvency team revealed an asset-to-liability mismatch: GPG’s property assets, valued at €100-€150 million, fall significantly short of the €1.2 billion in claims filed by creditors. This financial gap suggests that most investors are unlikely to recover more than a fraction of their original investments.
CR Investment Management mandated to sell off saleable assets
To manage the unwieldy process of liquidating GPG’s assets, the insolvency administration appointed Berlin-based CR Investment Management. In February 2023, CR launched the second tranche of GPG asset sales, targeting 11 properties spread across Germany. These assets, largely comprising vacant heritage-listed buildings, hold limited immediate market value but offer long-term development potential. “Many of the properties in this tranche represent significant development opportunities,” said Marlene Auerbacher of CR Investment Management, at the time. The sales were set to conclude by last year, with proceeds allocated toward creditor claims.
While the scandal has made headlines internationally, its impact on Germany’s reputation for institutional-grade investment remains relatively contained. The affected investors were mostly individuals rather than major institutional players. However, the case has highlighted the need for stronger oversight and transparency, especially concerning real estate ventures marketed to foreign investors with limited regulatory scrutiny.
As the Hildesheim Regional Court evaluates the prosecution's case against Smethurst, the scale of GPG’s operations serves as a cautionary tale for foreign investors drawn to the German real estate market. The case highlights the need for more vigilant oversight, especially concerning real estate schemes marketed internationally without sufficient transparency.
While institutional confidence in German real estate remains robust, the scandal has triggered an urgent call in Germany for regulatory reforms, potentially prompting action from BaFin and other authorities to guard against similar incidents. For investors, GPG’s downfall is a stark reminder of the importance of due diligence in navigating complex, cross-border property investments.
