Blue Chip Summary Post

A

alexlee

(NOTE: BLUE CHIP IN THIS THREAD REFERS TO A FAILED NEW ZEALAND PROPERTY COMPANY.)

After discussing this matter, the mods have decided to have one post in Caveat Emptor for all Blue Chip related posts. Please restrict posts to links to reputable newspapers (e.g. the (New Zealand Herald, the Australian, etc) and government websites (ASIC, etc). The mods reserve the right to delete and/or amend posts that may open the forum to legal action. Please note that repeated posts that the mods consider would leave the forum open to legal action may result in the poster(s) being banned from the forum.

Australia has had our own share of failed property schemes. In general forum members are aware of these and we have had plenty of threads in the past when a property scheme was dismembered by forum members because it sounded too risky.

The mods will move all posts that we consider conforming to the above into this summary post, remove them from other threads, and delete posts we consider inappropriate.

In addition, randomly posting references to this or that company in different threads does nothing for the credibility of the poster, and increases the chance that all your posts will be deleted.
Alex
 
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Facts

Securities Commission asked to solve Blue Chip identity crisis
Commerce Minister Lianne Dalziel has formally asked the Securities Commission to clarify the legal status of Blue Chip investments.

09 May 2008

By David Chaplin

Dalziel told Good Returns she recently wrote to the head of the Securities Commission, Jane Diplock, asking whether Blue Chip products would be covered under the Securities Act.

She said, for example, because some the Blue Chip products included a buy-back option they might be caught under the Securities Act.

"What was Blue Chip? Was it covered by the Securities Act? Was it all covered by property?" Dalziel asked.

"If it was all property, why were no licensed real estate agents involved in the sale of any of the apartments? Someone's broken rules, we just don't know what rules have been broken yet."

She said for some Blue Chip investors there was also a discrepancy between what they were told and "what they signed up for".

In her letter to Diplock, Dalziel has also asked the Commission to determine if the Blue Chip case has revealed any gaps in legislation that might need remedying.

"[Blue Chip] looks like an investment, it tastes like an investment, it smells like an investment. It does not look like an ordinary property transaction to me," she said.

"I want to be properly informed about where the dividing line is between investment advice and a straight property transaction."

While property advice looks set to be excluded from the proposed revamp of the Financial Advisers Bill, Daziel said she is working "very closely" with the associate Minister of Justice, who is responsible for the real estate industry, to ensure property salespeople meet similar standards as investment advisers.

"The point is that everyone is covered by someone," she said. "If you're a lawyer you're covered by the Law Society. If you're an accountant, you're covered by accountancy rules and if you're a real estate agent you're covered by [that industry's] rules."

The Securities Commission has not yet replied to her Blue Chip queries, Dalziel said.

http://www.goodreturns.co.nz/
 
This is what is coming to a town near you..

Widow's investment shock
5:00AM Tuesday May 13, 2008 NZ Herald
By Maria Slade
The parking lot devoid of an apartment.


A widow who thought she had bought a central Auckland apartment through Blue Chip has discovered she actually invested in a carpark next door.

She also found she does not have title to the carpark.

The 70-year-old Bay of Plenty woman, who does not want to be identified, said she and her family went to visit unit 404 at 22 Emily Place before investing in May 2006.

Her son owned an apartment in the same street, so she was familiar with the area.

The apartment was to be refurbished and rented out for short stays, she said, and was empty at the time she viewed it.

Despite her lawyer being against the idea, she followed the advice of a Blue Chip adviser friend and took out a $181,000 mortgage on her family trust-owned home to invest in a Blue Chip joint venture.

She received a $400 monthly "procurement fee", and Blue Chip covered the $1300-a-month mortgage.

"It was going along nicely, and I thought, 'Oh well, I'm set for retirement'," she said.

Last October, the procurement fees stopped. By February, Blue Chip had stopped paying the mortgage. The woman has since been forced to cover it.
When the payments stopped, the family looked into taking over the apartment and renting it out themselves. The woman's son went to see the building manager and discovered that the apartment had been owned by a man on Waiheke Island for the past two years.

The Waiheke owner confirmed he had refurbished the apartment and had had tenants in it for 18 months.

The son then checked the certificate of title on the sale-and-purchase agreement for unit 404 which his mother held, and found it referred to a carpark on the next-door property.

Quotable Value records show that site is owned by Ile My Ltd, a company associated with Blue Chip co-founder Mark Bryers.

The woman said there was no mention on the title of the family trust that owns her home, or of the trustee company she was required to set up to make the Emily Place investment.

"I don't own anything. What I've got I've earned and worked for, and now it's going down Blue Chip's drain."

Blue Chip was to develop a 149-unit apartment building in Emily Place, and the future apartments were being sold through a company called Becroft, which is now one of the 22 Blue Chip companies in liquidation.

Liquidators Meltzer Mason Heath have said the development is not proceeding, and any claims for funds owed need to be made against Becroft.

The woman's Blue Chip adviser friend referred her to Auckland property lawyer Zeljan Unkovich, who acted for her on the investment.

Mr Unkovich said yesterday that he did not know how the mix-up could have occurred, and believed the woman was mistaken in thinking she had invested in an existing apartment.
 
Another link to the Herald re Joint Ventures

http://www.nzherald.co.nz/feature/story.cfm?c_id=1501803&objectid=10509690

Blue Chip's joint deal clients the 'worst hit'
5:00AM Tuesday May 13, 2008
By Anne Gibson


Paul Dale. Photo / Brett Phibbs

The tangled web of Blue Chip
Widow's Blue Chip investment shock
'Self-employed' tag on many Tasman loans
Blue Chip clients who entered joint venture deals with the company to buy Auckland apartments are in the worst position of any investors, according to two barristers assisting them.

Daniel Grove and Paul Dale, Auckland law experts acting for a large band of investors who stand to lose millions of dollars, said the joint venture arrangements were the worst scheme Blue Chip ran.


The rest of the story accessible from the link.........
 
Caution all Investors !!

The Blue Chip scandal: The franchise deal
Sunday Star Times | Sunday, 18 May 2008

On September 10 last year, listed company Blue Chip Financial Services spun off its New Zealand operations to a newly created entity called Diem Ltd.

Diem was owned by the three senior managers who ran the NZ operation, Neil Bell, Rikki Flowerday and Blue Chip's co-founder Bob Bangerter.

The arrangement was that Diem would run the New Zealand business on a franchised basis and pay the listed company a fee of $22,500 for every property investment package it sold.

The deal was sold to BCFS's shareholders in jargon-loaded terms which talked about "quarantining legacy issues within the NZ franchise" without explaining exactly what those legacy issues were.

But the main selling point for BCFS's shareholders was that the deal would provide the listed company with "significantly improved operating cash flows".

There is no doubt that the new deal was beneficial to BCFS and its shareholders.

Under the old arrangement, BCFS received most of its income from the deposits investors paid when they signed up for a new property package and the balance of the purchase price when the property was completed.

From this income the company had to pay all of its operating expenses, such as paying the developers for the apartments it was on-selling, the commissions of its sales staff and other marketing expenses and all of the other costs associated with running the business.

And there could be considerable delays between the time the company received the initial deposit from an investor and the final cash draw-down when a property was completed.

The longer the delay, the more pressure this put on the company's cash flows.

The franchised deal meant that all of the NZ business's operating costs would now be borne by Diem or companies it subcontracted work to.

And Blue Chip structured the deal so that it would have first call on any money received from any new sales.

Disclosure documents BCFS filed with the ASX, stated that the franchise fee of $22,500 was to be "paid directly to BCFS from the proceeds of sale BEFORE [the company's emphasis] contribution to NZ Franchisee cost base".

What this meant was that the moment an investor signed up for a new property package, $22,500 would be deducted from the deposit and paid to BCFS.

The NZ operation would then have what was left over and would have to wait until the property was completed before receiving any more cash.

In the meantime, it was required to pay all of the operating costs of the NZ operation.

Effectively this meant BCFS got paid upfront, even if a particular project did not make a profit or, as some investors were later to discover, was never completed.

The sale of the franchise also created a $38m debt back to BCFS.

This also had to be repaid from the cash flows of the NZ operation, which would have put further pressure on its finances.

Adding to that pressure was the fact the NZ franchise was saddled with the mysterious "legacy issues".

While the nature of these issues was never satisfactorily explained, it is clear from company documents that they were liabilities.

So as well as having to part with cash flow upfront when a deal was signed and repay its $38m debt, the NZ franchise also inherited BCFS's NZ operating liabilities.

"Legacy issues quarantined inside NZ Franchisee mean significant reduction in liabilities for BCFS," the company said in documents which outlined the plan.

The term "quarantined" implies that these "legacy issues" or liabilities would not be able to impact on BCFS.

The major effect of this arrangement was that BCFS received a substantial portion of the NZ franchise's cash flows but could not be called upon to meet its liabilities.

If the NZ operation got into financial difficulties, BCFS could carry on with its Australian operation, having already had the cash upfront from any NZ sales.

It did not take long for that to happen.

A few weeks after the franchise deal was completed, reports started to filter out which suggested the NZ operation was facing cash flow difficulties.

By the end of last year the trickle had become a flood and in February companies in the NZ franchise operation were being tipped into liquidation.

What the liquidators are finding is companies with lots of liabilities but not much in the way of realisable assets.

But BCFS, which has since renamed itself Northern Crest Investments, has been able to carry on with its Australia-based business operations.

This raises the question of whether the separation of the NZ operation was a truly commercial transaction or merely a way for the listed company to escape its mounting liabilities while at the same time maximising its cash flows.

The answer to that question may depend on whether the NZ franchise ever had any real chance of being commercially viable.

Although recent events suggest it did not, decisions made at the time did not have the benefit of hindsight.
 
More & More

The Blue Chip scandal: the valuations process
Sunday Star Times | Sunday, 18 May 2008

Investors who paid Blue Chip a substantial deposit for apartments that have not been built have probably lost their money, but they may be the lucky ones.

Many of those who have taken title to completed apartments they bought through Blue Chip could face bigger losses when they try to sell them because in some cases, the properties may be worth tens of thousands of dollars less than what they paid for them.

It is widely assumed that this is because apartment prices generally have fallen, and although that may be a contributing factor, it is not the full story.

It is likely that apartments sold by Blue Chip would never have fetched the prices they were sold for had they been sold on the open market.

Blue Chip's business model appears to have worked something like this:

A developer (who may have been a related party) would propose building a new development such as a block of apartments.

The cost of construction and the developer's margin might average $300,000 per apartment.

This might be a problem, because similar apartments being sold on the open market may have been selling for just $280,000, a price at which the new development would be uneconomic.

On top of that, if Blue Chip was to sell the apartments to investors it would need to cover its own marketing costs and make a profit. This might add another $50,000 to the cost, bringing the total price that needed to be achieved to $350,000.

To achieve that it would form a marketing company called, say, Puffed Ltd.

Puffed would sign sale and purchase agreements with the developer to buy all of the apartments and begin selling them to investors for $350,000 each through Blue Chip's adviser network.

At this stage the apartment block would still be a piece of bare land and an architect's drawing, so Puffed was on-selling the apartments before they were built and before it had title to them.

Once the first few sales were made, Puffed could go to a valuer and say, "Look, we have sold these apartments for $350,000 each, so all of them in the building must be worth that much."

The valuer would then provide registered valuations for $350,000 for all of the apartments in the building, which would help Puffed sell the rest of them.

Once investors had agreed to buy the apartments and the building was completed, settlement of the sales process, from the developer to Puffed to the investor, would be completed at the same time.

So although Puffed's name would appear on the title of the property, it never actually took possession and more importantly, never had to pay for it.

Using a company like Puffed to sell the properties had another purpose.

It allowed Blue Chip to sell large numbers of properties without involving real estate agents. This was because the sale and purchase agreements companies like Puffed signed with developers allowed them to claim they were selling their own properties.

This meant the sales process was not covered by the regulations which govern the way real estate agents operate, such as requiring the use of trust accounts when handling investors' money.

If investors who had bought an apartment later decided to sell, they may have found that it was only ever worth $280,000 and that prices of similar apartments had dropped a further $30,000 since they signed up for it, leaving them $100,000 out of pocket.
 
Northern Crest Investments,Barkly Walsh.

Northern Crest Investments,Barkly Walsh,property investments,have the same ceo,Mark Bryers,that started the troubled Blue Chip Financial Solutions company in New Zealand.There are detailed press releases under buyer beware,posted by ollypop.Interesting read.
 
and more news from the NZ Yahoo web site

The man behind the controversial collapse of property investment firm Blue Chip and its related companies has come under scathing attack in Parliament.

Te Tai Tokerau MP Hone Harawira has lashed out at the way investors have been left out of pocket and has doubts about whether the Serious Fraud Office's investigation will result in prosecutions.

But Mr Harawira reserved most of his disdain for the man who co-founded Blue Chip, Mark Byers. He told the House that when he heard Mr Byers say he wanted to put some of his own money into a compensation fund, he was reminded of a Tui beer ad which has the slogan "yeah, right."

Around 2,000 Blue Chip investors are owed nearly $59 million. Byers is now in Sydney.

http://nz.biz.yahoo.com/080520/2/5j29.html
__________________
 
While I assume the intention of these posts are noble, I am not sure if the constant updates are beginning to have the "boy who cried wolf" syndrome - i.e. we are so tired of hearing about it, that we simply "switch off" - which would be a great pity for the next victim that comes along.

Cheers,

The Y-man
 
"boy who cried wolf" syndrome - i.e. we are so tired of hearing about it, that we simply "switch off" - which would be a great pity for the next victim that comes along. The Y-man
Click to expand...

Y-man, is it only here you are hearing about it or is it in the media as well. I very much assure you we do have a "wolf" amongst us.
 
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The point is that the "next victim" might not know about it. Mark Bryers and Co. have created financial havoc in NZ and put thousands of people under real financial hardship. Any chance that you guys have as moderators of a property forum have to offer genuine information to people who might not know better should be encouraged. It's an ongoing investigation and updates are relevant and I would have thought, welcome.
 
airguard2 said:
Y-man, is it only here you are hearing about it or is it in the media as well. I very much assure you we do have a "wolf" amongst us.
Click to expand...

I've only seen snippets on the Australian news, so most of the info is here (in this thread).

I have been thinking a bit about why this case doesn't "click" for me, and I'll try to articulate it.

I think personally, I like to hear first hand stories - not "hearsay" through the media. So I would much more prefer someone coming on here and posting "How the #$%@ing company lost me $xxxxxxxx" rather than a member who has only ever posted quotes and links to a news article. Again, don't get me wrong - I have sympathy for the people involved, but I want to get to know what went through the victims minds (their thought process) that got them into the situation - because I personally believe that this in fact is the key to avoiding future repeats. Was it just greed? Was it lack of knowledge? etc

So maybe what I am really looking for, and really looking forward to, from the posters here is not just news articles related to this one company and it's dodgey people - but a discussion on how do we identify the hundreds more dubious operators out there, how to flush them out etc.

Again, I am not trying to get on my high horse here to say "hey, look at these suckers!" I have been the victim of several scams including a dud representative of a property developer (see the interview thread) and losing tens of thousands of dollars in a company where the director ran off with the money.....

So these days, to avoid people getting scammed, I quite simply take a sledgehammer approach - and tell anyone who asks on the forum simply "Don't buy off the plan, don't buy anything new" (in a subtle way of course!).


Cheers,

The Y-man
 
Ah, ha Y-man, it won't be the forum reader that will be getting scammed but the little old mum and dad investor who are convinced by the appropriate people to invest in their scheme that will eventually be hurt.

It has (in NZ's case) taken a number of years before people who invested in the BlueChip scheme realised that all was not right and are now suffering.
Hence many news items.

And where there is smoke there very likely will be fire.
 
So what's the point of airing this on the forum? Go pepper newspaper editors with letters. Making forumites aware of this isn't going to help much, since we're already aware of such things.

jym said:
It has (in NZ's case) taken a number of years before people who invested in the BlueChip scheme realised that all was not right and are now suffering.
Hence many news items.

And where there is smoke there very likely will be fire.
Click to expand...

NZ didn't invent this sort of thing. We've had a few of these in recent years. It's not like we haven't seen these before. If you read the forum you'll note that we are generally very skeptical torwards 'property schemes' and so on.
Alex
 

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