Two men have been sent to jail for their roles in running a fraudulent property franchise business which conned scores of people across the UK out of their life savings.
The £2m scam, which involved promises of wealth and left 133 people out of pocket, led to one of the biggest fraud investigations ever.
Richard Hodgson, 66, of York, was jailed for four years and two months, and Christopher Douglas, 47, also of York, was jailed for three years and eight months.
Hodgson was jailed back in 1991 for deception and forgery, and declared bankrupt. His then firm, Business and Professional Services, had debts of £1.3m. Hodgson went on to set up and run a firm called Century Mortgage. It was wound up in the public interest amid claims of aggressive selling.
Last Friday’s sentences follow a 12-week trial which concluded in December 2011, when a jury at Leeds Crown Court found Hodgson guilty of participating in a fraudulent business. Douglas pleaded guilty to the same charge at an earlier hearing at Bradford Crown Court in July 2011.
The pair operated a property club called Challenor Property Developments (CPD) based in Nether Poppleton in York. The company was established in 2005 but eventually collapsed in June 2008.
CPD worked by negotiating the bulk purchase of new-build properties and negotiated discounts which were then passed on to their clients.
Problems began for CPD when they began selling franchises based on this business model, promising a low-risk, high-return investment and exclusive access to a particular postcode area, but this was not the case.
In the summer of 2008, alerted by calls from more than 200 of Challenor’s concerned clients, North Yorkshire Police began what was to become one of the largest fraud investigations the force has ever undertaken.
The three-year investigation saw officers take statements from 130 witnesses, seize 33,000 paper documents and recover 1.5 terabytes of digital data – the equivalent of 1,500 copies of the Encyclopaedia Britannia.
The fraud team also worked closely with HMRC Criminal Taxes Unit. Their interrogation of the company’s complex VAT records provided essential information to help secure the prosecution.
CPD used a high-pressure sales technique to sell the franchise to clients, making unrealistic claims of potential earnings and false promises that if it was not a success, they would get their money back.
They promised training and support in how to run the franchise, but for most clients these never materialised, and after paying between £5,000 and £50,000 each, as well as additional support fees, the clients felt abandoned.
Complaints began to flood in to the company from late 2007, and by the spring of 2008 it was clear that the company was descending into deep financial trouble. Despite this, they continued to sign up new franchisees, take their money and siphon off huge amounts of cash for themselves.
When it became obvious that the company was in serious trouble, Hodgson left at the end of March 2008 but Douglas remained until the firm’s collapse. The court heard that on the day of its demise, Douglas spoke to staff at a nearby pub and then escaped down a fire escape, clutching the company’s financial books and customer database.
A small minority of franchisees had some cash returned to them by CPD in an attempt to avoid police involvement.
The company also made out credit notes to their franchisees – which they had no intention of paying – in an attempt to reduce the apparent liability of the company on paper and conceal the extent of the fraud.
Seven suspects were arrested during the course of the inquiry, but only four were charged with fraudulent trading. Two of those charged, Carl Gilfoyle, 42, of London, and Peter Carbert, 56, of Darlington, were acquitted at the direction of the judge after he found that they had insufficient control over the company to be convicted of fraudulent trading.
Detective Inspector Ian Wills, who heads North Yorkshire Police’s Major Fraud and Financial Investigation Unit, said: “The sheer scale and complexity of the investigation into Challenor Property Developments posed a significant challenge to North Yorkshire Police. However, I am very proud to say that the Major Fraud Team more than met this challenge, securing justice for the many victims who each lost thousands of pounds.”
The investigation spanned a much longer timeframe than the franchising alone and there were over 100,000 pages of investigative material including statements and exhibits which were not used during the 12-week trial.
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