'I saw it coming': Du Val insider speaks as investors consider claims

Saturday, 14 September 2024

After years fighting off claims of financial issues, disgruntled investors and unfavourable headlines the Du Val property group’s downfall has been swift. Nick Truebridge speaks to an insider who claims they saw it coming and covers the current state of play.

Kenyon Clarke set out to build a “billion dollar empire”.

He was the man at the top - a picture of power, vision and success.

A man who declared he not only wanted to build a multibillion-dollar business, but planned to give a billion dollars away, too.

But well before the billion dollar empire was built, its foundations crumbled away.

On the morning of August 2, police officers and Financial Markets Authority (FMA) agents descended on the Clarkes’ Remuera home.

Do you know more about the Du Val story? Are you affected? Email nick.truebridge@stuff.co.nz

The Du Val group of companies entered receivership and, 19 days later, statutory management.

Behind the public statements about empire building and the glitzy social media posts - complete with luxury cars and private jets - it has since become clear Du Val was falling apart.

The first receivers’ report reveals “cash flow problems” and “difficulties” meeting obligations since at least January last year - 21 months ago.

Some people are hardly surprised.

‘Wrong from the beginning’

An insider, who agreed to speak to Stuff on the condition of anonymity, says the issues within Du Val were clear well before that early morning raid in Remuera.

The likes of investors and first home buyers were “sold a dream”, the source says.

'They were very innocent buyers who have been convinced, or sold a dream.”

But he claims he could see the impending nightmare.

'I'm not surprised, to be honest with you, and I did personally see this coming,” he says.

“The decision-making has been wrong right from the beginning.”

Kenyon Clarke is described as headstrong by the Du Val insider: “If he's made his mind, he's made his mind'.

'It was really hard to talk to Kenyon about anything,” the source says.

“He wouldn't listen, he wouldn't listen.”

On the positive side, Clarke has been described as “energetic” and “a great salesperson”.

Those attributes are on full display in a video promoting his personal masterclass.

“I can take you through what it takes to build a hundred million-dollar, or a billion dollar, business and property development empire, because I’ve done it.”

Clarke appears self-confident and experienced - traits in stark contrast to those of a first home buyer spoken to by Stuff.

Her tone is muted as she runs through life in limbo land.

Two years ago, she put down an $83,000 deposit for a property at Du Val’s unfinished Te Awa Terraces in Mangere.

It was described as a safe bet. One selling point? Du Val staff had themselves invested in the group’s developments.

Now she wants out.

“Honestly, I just kind of want to wipe my hands of this,” she says.

“The best case would obviously be getting the deposit back and just forgetting about this ugly time.”

‘Sad it’s come to this’

We meet barrister Jeremy Johnson in his corner office at Bankside Chambers in downtown Auckland.

He represents 16 investors who have hundreds of thousands tied up in the Du Val Mortgage Fund.

“The lowest amount was sort of slightly less than $250,000 and then you had people who invested up to $750-$800,000 in our group,” Johnson says.

“I’m aware of other investors who invested a bit more - I know of one woman, who’s not part of our group but who I have spoken to, who invested over $1 million, which represented the proceeds of the sale of her home.”

Johnson’s clients are among those “sold a dream”, many of them via Facebook.

“Those ads were very much emphasising the sort of stable returns of 10% and, likewise, the original documentation for the mortgage fund, which is the fund the investors invested in, all referred to 10% returns,” he says.

Those claims previously led the FMA to warn Du Val for making misleading or deceptive statements to investors.

Johnson also details another group - those who simply wanted to buy a house, but were talked into something that turned out to be very different.

“The staff would say to them, ‘Look, we’re not ready to complete, we’re not ready to settle, we’re not ready to build it. You have your deposit, why don’t we put that into the mortgage fund and then you’ll get it out when it comes time to settle?’” Johnson says.

“Those people in particular are now caught in a terrible situation, because without their deposit they’re not in a position to be able to settle.”

Innocent, largely inexperienced investors whose cash is likely gone for good.

“There are other possible avenues - so there’s claims under the Financial Markets Conduct Act in relation to how the money was raised from our clients, and there’s also claims in relation to breach of directors’ duties and there’s also the potential that some of the funds were misapplied,” Johnson says.

But is there any point? That’s the difficult discussion Johnson’s currently having with his clients.

Whatever the decision, he makes one thing clear - it should not have come to this

“It’s a little sad that it’s come to this,” Johnson says.

“You do have to ask the question, particularly with the FMA warnings in the past, as to whether the regulation of the raising of money from the public in this country is still quite right, or whether deeper thought needs to be given to how the Government responds to these types of situations.”

(In a statement to Stuff late on Friday, Kenyon Clarke said Johnson had agitated for an outcome to the detriment of his clients. He said, “The assets of the Mortgage Fund were its mortgages and the only route for investors to be repaid is for projects to be completed and mortgages repaid. A half finished project, like a half baked cake is worth nothing and his agitation has cost his clients everything.”)

‘A number of inconsistencies’

So what is that pool Johnson's clients sunk thousands into?

What is the Du Val Mortgage Fund?

PWC’s John Fisk, Stephen White and Lara Bennett laid it out in their initial receivers’ report, released last week:

“Its purpose was to solicit funds from wholesale investors to fund the development of residential buildings through limited partnership special purpose vehicles in the Du Val Group.”

A quick note here: Johnson argues his clients are not what one would call wholesale investors. They are “ordinary New Zealanders”, without the experience to make a proper assessment of investment opportunities.

Back to the mortgage fund. In picking over the Du Val carcass Fisk, White and Bennett raise serious questions about how the funds were used.

They’ve identified “a number of inconsistencies” in its operation, relative to its intended purpose, and related party transactions.

One example jumps off the page:

“In addition, we have sighted information that appears to indicate that a $1.5m loan was advanced to a person associated with Mr and Mrs Clarke in the March 2022 year,” the receivers wrote.

The loan was repaid, but the receivers have found nothing to show it was consistent with the fund’s purpose.

‘Sidelined and ignored’

Separate to out-of-pocket investors is a highly frustrated group of minority shareholders, who each own a stake in Du Val Property Group Ltd.

The group is made up of mortgage fund investors who converted their investment to shares.

A committee of minority shareholders, led by Karl Lindeman, who owns 2.89%, wants the statutory management to end.

While Commerce and Consumer Affairs Minister Andrew Bayley said the management was to “protect investors and creditors from further losses”, Lindeman argues the opposite is true.

In a letter to Bayly on September 3, the shareholders claim the situation with Du Val has worsened since August 21.

Du Val has received notices from funders which notify the company has defaulted on its loans.

“The PLA notices we were provided by our funders specifically advise the cure to the default - being the end of PwC's involvement as interim receiver or statutory manager.”

But it seems the shareholders have made little to no headway - Stuff has seen a response from Minister Bayly:

“I am conscious that the reasons for my decision and the recommendation from the FMA have not yet been made available to the public. This is due to the ongoing court proceedings and FMA investigation requiring a level of confidentiality.”

He then referred the shareholders to Fisk, White and Bennett, much to Lindeman’s disgust.

“This is completely unacceptable that we as levers of the business have been completely sidelined and ignored,” Lindeman wrote in an email to Stuff this week.

“We wish to make matters public as there needs to be light shone upon this matter.

“Our entire life savings are on the line and no one wants to acknowledge that or us.”

So what now?

Stuff approached Fisk, White and Bennett with a number of questions about their next steps in the management of the would be multibillion-dollar Du Val empire.

The plan is to keep building, sort of - construction has continued at Mangere’s Mountain Vista and Te Awa developments, with settlements upon completion, they say.

“For other sites, where only preliminary or no active construction works were in progress at the date of our appointment, option and outcome discussions with secured funders for those sites are ongoing.”

But what about the wider group? The “spaghetti” of companies Fisk’s previously labelled “hopelessly insolvent.”

The managers respond saying “analysis and investigations” of “this complex group” are ongoing.

But they add: “Our view in respect of solvency remains unchanged”.

Kenyon Clarke previously said Du Val was in good shape.

“I can say that our accountants have supplied information to the shareholders, where we believe we’re a solvent and good business, that has $5.1 million in its corporate bank accounts and we have the support of its lenders.”