Blue Chip guilty of 'financial rape' of investors, court told

Paul Dale. Photo / Brett Phibbs

About 250 Blue Chip victims hope to claw back some of their losses through a six-week High Court hearing.

The action began in Auckland yesterday and targets three property development companies which are demanding the investors buy central city apartments they cannot afford.

Barrister Paul Dale has brought 34 representative cases of investors who mostly borrowed against their homes to put funds into unusual agreements through Blue Chip.

Dale said the investors - many retired and living solely on the pension - were led to believe the "joint ventures" (JV) and "premium income products" were loan products.

They put deposits of around 10 per cent down on yet-to-be built apartments and paid an exorbitant range of fees. Blue Chip in turn paid them a return of 16 per cent for the use of their money. Some invested in multiple apartments.

When the developments were completed Blue Chip was to buy the properties and return the investors' deposits.

But when the scheme collapsed in February 2008 the investors were left holding sale and purchase agreements for the apartments which the developers were now trying to enforce.

The action relates to four central Auckland buildings - the then-called Barclay on Albert St and the Chatham on Pitt St; the Icon in St Martin's Lane, just off Symonds St; and the Bianco, just off the top of Queen St.

All are now built.

Dale said Blue Chip told investors they would never have to settle on the apartments, and therefore had "no obligation to bother with valuations or to take the normal steps that a prudent purchaser would take".

The court would hear evidence that the apartments were over-valued. He said the way the products were marketed by Blue Chip breached the Fair Trading Act.

Because the products were effectively loans, Blue Chip had also breached the Securities Act by offering investments without a registered prospectus and investment statement.

The investors said the deals were 'unconscionable" for a range of reasons.

Dale told the court that the joint ventures, in particular, were "truly awful documents".

Investors paid "working capital" payments of roughly $50,000, but these were not even mentioned in the JV agreements. It turned out that this was what paid for the investors' regular 16 per cent return, meaning they were effectively paying themselves. "It's just financial rape."

The investors would also argue that Blue Chip steered them towards "tame" solicitors and discouraged them from seeking independent legal advice. "How any competent solicitor could have allowed their client to stay with agreements as badly worded as this is a matter for amazement," Dale said.

The investors said Blue Chip was the agent for the developers in selling the apartments, and therefore the developers must accept their cancellation of the deals and return their initial deposits held in solicitors' trust accounts.

Dale said by the time Blue Chip was selling apartments in the planned Icon development it was insolvent.