The Rise in Fraudulent Investment Schemes Targeting Israeli Investors

11 Oct

The last few years have seen a significant rise in the volume and sophistication of fraudulent investment schemes based in England and targeting Israeli investors.

There have been a number of legitimate and successful investment programs over the past decade giving Israelis the opportunity to invest in large-scale property developments in England and providing good returns. Fraudsters based in England have increasingly been devising similar, but fraudulent, property investment schemes promising high, consistent return on investment and marketing the schemes potential Israeli investors. Israeli investors often invest as a group, with one investor recommending the investment to family members or friends.  Investors rely on seemingly legitimate security for their investment, often being provided with legal documents demonstrating their investments are secured through charges over the property or other

Recent examples

In one recent case, Israelis were approached to invest in property development proposals and were provided with formal Investment Agreements and Security Documents showing that a legitimate trustee had been appointed and escrow account created to protect investment.  Ultimately, both the investors and the trustee were fooled by the fraudster who collected c. GBP 10 million in investment allegedly secured by an escrow account holding only GBP 1 million.

In another recent example, Israeli investors in the Carlauren assisted-living investment scheme lost c. USD 100 million. Approximately 148 UK assisted-living units were marketed and sold to Israeli investors between 2018 and 2019 with promised 10% annual returns, guaranteed buybacks and luxury retirement accommodation investments. The later collapse of the projects led to claims by investors that they were defrauded.

Many schemes are simple ‘Ponzi-style’ schemes in which investors receive initial promised returns for a year or two. In reality, these payments are sometimes derived from the money contributed by new investors rather than from genuine rental income or profits generated by the development itself. Once investment inflows slow or cease, the scheme becomes unsustainable and collapses.

Risks for Israeli investors and beyond

It has become apparent that Israeli investors may be particularly vulnerable to these arrangements for several reasons.

  1. The geographical distance from the underlying asset: this often makes independent verification difficult. Investors may never visit the property and instead rely entirely on promotional materials and representations made by marketing agents that the investments will be high yield.
  2. Local intermediaries: the investments may be sold through local intermediaries rather than through UK-regulated financial advisers.

The issues are also seen on a broader scale. We note that the UK authorities continue to report substantial losses arising from investment fraud, given that fraudsters are increasingly using professional marketing materials, sophisticated sales techniques and promises of high returns with little apparent risk. A well-marketed UK property or a professional-looking investment opportunity does not always indicate a legitimate investment scheme.

Key takeaways and practical guidance

For investors, there are clear takeaways. Potential investors should seek legal advice from English solicitors before investing. It is also advisable to approach promises of guaranteed returns, guaranteed buybacks and unusually high yields with appropriate caution. Prior to investing, it is recommended that potential investors undertake thorough due diligence, such as by verifying whether both the firm and the investment are regulated by the Financial Conduct Authority (FCA). 

Yisrael Hiller is a Partner and head of Defamation and Reputation practice at Asserson. For more information on the topic or to get in contact, feel free to email him at Yisrael.Hiller@asserson.co.uk.

Written by Yisrael Hiller with Ruby Levy