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THE TRIAL OF HENRY KAYE

THE TRIAL OF HENRY KAYE
Part One - A simple explanation of the charge.

by Neil Jenman


Notorious property spruiker, Henry Kaye, was yesterday committed to stand trial on a charge of obtaining a financial advantage by deception.

Kaye has pleaded not guilty in the Melbourne Magistrates Court.

The charge against Kaye follows allegations by the Australian Securities & Investments Commission (ASIC) that he deceptively obtained a credit facility of almost $18 million from St George Bank to fund the development of an apartment complex.

Speaking of complex, the case against Kaye seems complex.

So, like the Westpoint disaster (in which Kaye had a minor role), let's see if we can simply explain what [is alleged to have] happened in this case (one of Henry's many deals).

A developer was planning to build 236 apartments in St Kilda.

Henry Kaye negotiated with the developer to buy 168 of the apartments. Henry was to get a special price from the developer.

Henry would then re-sell the apartments to investors who paid several thousand dollars each to come to his wealth-creation seminars.

Henry would load-up the apartment prices substantially but he would tell his investors that they, too, were getting a special price.

Indeed, so bold and convincing was Henry that he even charged his investor-customers a "sourcing fee" for finding great investment deals for them. I'll find you a great deal if you pay me another $5,000 on top of the $15,000 you paid for my get-rich course.

To find the [not-so-great] deals, of course, all Henry had to do was look in the mirror.

But we are getting sidetracked. Henry is not charged with cheating even one of the thousands of consumers who paid him tens of millions of dollars.

Henry is charged with cheating one big bank.

Here's what he [is alleged to have] did to the bank. [Now, please understand that he may be completely innocent and this could all be a terrible mistake by ASIC.]

To get finance to build the apartments, the developer needed to show the bank that a large number of apartments had been pre-sold. It's called selling off-the-plan. Buyers pay a deposit and sign a binding contract promising to complete the sale when the building is completed.

Instead of paying deposits, Henry taught people how to use deposit bonds. This is where buyers can go to a company and, for a small fee, buy a deposit bond.

After satisfying itself of the financial merits of the buyer, the deposit bond company guarantees to the seller that the deposit will be paid. A deposit bond is a very strong arrangement. It means a sale is virtually guaranteed (at least for the deposit which is usually ten per cent of the price).

Henry Kaye [allegedly] asked GIO to issue deposit bonds to any buyers regardless of whether or not they could really qualify for finance. GIO agreed.

Now, why would they do this?

Well, according to ASIC, Henry Kaye (as the seller of the apartments) gave GIO a letter which let-them-off-the-hook for having to pay deposits if any of the buyers did not proceed with the sale.

In effect, this meant that any deposit bonds were potentially worthless in terms of being solid sales.

Henry then began selling the apartments using deposit bonds.

Soon, he had "sold" enough to convince the bank to lend the developer $18 million towards the cost of building the apartments.

Henry Kaye did not (sorry, allegedly did not) tell the developer or the bank about the little get-out letter he had given GIO.

ASIC alleges that had St George Bank known about Henry's quiet deal with GIO, it would not have loaned the money. It would have realised that the deposit bonds were "effectively worthless".

So, the most simple summary of the case is that Henry [allegedly] said, "Look at all these solid sales," when, in effect, they were flimsy sales. But the bank thought they were solid sales and approved the loan.

Hence, Henry is alleged to have obtained money by deception.

The case is set for mention in the Melbourne County Court on Monday May 28, 2007.

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This news article was taken from the News page of the Jenman website.

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