Michael Lynn was nowhere to be seen on the Algarve this week, but his close associate, speaking publicly for the first time told Simon Carswellin Cabanas about what has happened to the missing lawyer's Portuguese property investments.
Cabanas is a quiet, sun-soaked Portuguese fishing village on the Algarve coast to the east of the region's capital, Faro. If you were trying to avoid €84 million in bank claims, 126 High Court writs and angry investors, this little oasis would be on your shortlist for a place of refuge.
You can see why solicitor Michael Lynn saw potential for a property development in Cabanas. The eastern Algarve is very different to the resorts west of Faro, which are largely overbuilt and packed with holidaymakers. Cabanas is sleepy by comparison.
Five years ago the man from Crossmolina in Co Mayo set out to build his first overseas holiday development at Cabanas through his Dublin-based property company, Kendar. He recognised that the attraction for investors would be huge - there are few places on the Algarve where you could buy an apartment for €220,000-€300,000 about 200 yards from the sea. He planned to build 272 apartments and 10 houses.
By the time Lynn's legal practice, Capel Law, was shut down by the Law Society on October 15th, 2007, amid concerns about his property business and his dealings with a multitude of Irish banks, only the first of three phases had been built at Cabanas - 76 apartments. Customers had paid substantial deposits on many of the remaining apartments in phases two and three of the development, called Costa de Cabanas. Many investors are now confused about what's going to happen next since the high-profile collapse of Lynn's property group in October. They are unsure whether they will get their money back or get a new holiday home in the Algarve.
In the meantime, Irish banks are going into the High Court on an almost daily basis seeking judgments against Lynn - and in some cases against his wife, Bríd Murphy, as well - for multi-million euro loans drawn down by the 39-year-old solicitor and property developer. The case taken by the Law Society, which regulates the legal profession, is ongoing in the High Court. It is still investigating Lynn and his practice, while legal papers in one case against him have been referred to the Garda Bureau of Fraud Investigation, which is also examining his affairs.
Lynn was nowhere to be seen at his Portuguese development this week and his whereabouts are unknown. He was meant to have appeared in the High Court in December for two days of questioning by the Law Society, but failed to show. A warrant for his arrest was issued, but because the Law Society's case against him is a civil matter, no extradition proceedings could be brought against him. An individual can only be extradited in criminal proceedings, though the Law Society has argued before the High Court that his failure to appear for his cross-examination could constitute criminal contempt.
The Law Society had intended to quiz Lynn on his property dealings, and in particular on his drawing down of multiple mortgages using solicitors' undertakings, a trust mechanism used by solicitors in residential property transactions. To speed up deals and to reduce costs, banks provide loans on the basis that one solicitor involved in the transaction undertakes to register the loan security on the property at a later date. It has been alleged that Lynn used undertakings to draw down multiple loans and build up such massive debts.
Lynn's disappearance means he cannot be quizzed on how he amassed so much in loans to grow his property business in nine countries. He had been attending court regularly since the controversy emerged in mid-October after a solicitor in his practice, Fiona McAleenan, tipped off the Law Society.
THERE WAS NO sign of Lynn at his properties in the Algarve this week. The shutters were down and the curtains drawn at his home in Quinta do Perogil, an estate that overlooks the town of Tavira. He was reported to have stayed here over Christmas.
Robert and Sheila Lee live in Lynn's house in Aldeia das Ferrarias, near the resort of Quinta do Lago in the western Algarve. Robert used to work for Lynn's Portuguese business as a project manager. Speaking at the house yesterday, Sheila said she had no idea where Lynn was and had not seen him since his wedding in Ireland last year. She said she was amazed at what has happened to Lynn in Ireland.
Not far from there, Lynn's apartment in Al-Sakia Village showed no sign of life. This was where Lynn accommodated staff who worked at the Kendar office in nearby Vilamoura. The office was also closed this week. Its windows have been painted white and a "for rent" sign has been posted on the door.
Property sources on the Algarve said Lynn paid his Portuguese staff exceptionally well. One agent said Lynn offered a colleague more than three times her monthly salary to move to his company but she declined. One source said he was originally involved with local investors in the Cabanas development but fell out with them and they subsequently parted company.
"[ Lynn] was in here with his wife a month or two months ago," said a barman at Pedro's restaurant in Cabanas, a five-minute walk from the property development. "He usually came in to eat most days when he was here but I haven't seen him for a month or two." Lynn was spotted at Newark airport in New Jersey in the middle of last month after arriving on a flight from Lisbon. He reportedly told immigration officers in the US airport that he was on a three-day visit to the US and intended returning to Lisbon.
He was also seen last month in Tavira, five kilometres along the coast, west of Cabanas. At that time, he was spotted with Nuno Paulino, an accountant originally from Lisbon who has been in charge of Kendar Portugal since last year. The company is now called Vantea, having changed its name on January 16th last. The company's web address, www.vantea.com, brings visitors to www.costadecabanas.eu, which advertises the final two phases of the Cabanas project but carries no details of who owns Vantea or the names of the people managing the development.
The website tells potential investors that they must pay a €5,000 deposit for a property at Costa de Cabanas and 21 days later they must sign a contract and pay 30 per cent of the total apartment cost. The remainder must be paid on completion.
FOR SOME TIME, The Irish Times had been trying to contact Nuno Paulino to find out whether Irish investors would get their deposits back, but he failed to return calls or e-mails. On Thursday morning, this newspaper caught up with him as he arrived at the Cabanas sales office.
Speaking publicly for the first time, Paulino claimed Lynn was no longer involved in Costa de Cabanas and had sold his shares in Kendar Portugal last year.
"Michael Lynn sold his shares in the company and he resigned as manager in the third or last quarter of 2007," said Paulino. Asked if Lynn received any money for his shares in Kendar, Paulino said: "Supposedly yeah - he should have." He said Vantea was now owned by two Portuguese companies, Nota Breve and Numero Misto. He claimed Portuguese investors owned the companies but refused to name them.
Nota Breve and Numero Misto are "sociedades anóminas" (SA) or anonymous societies, which are not required to publish the names of shareholders. Official Portuguese records show that Lynn transferred his interest in Kendar Portugal to the two SA companies on December 6th, 2007 - the week before his disappearance in Ireland.
Paulino said Nota Breve and Numero Misto were "normal companies" and "not covering up anything", yet he still would not reveal their shareholders. The companies' registered address is an apartment in the tourist resort of Alvor, which is in the western Algarve. No one answered the door at the apartment yesterday.
Paulino said that, despite Lynn's financial difficulties, he wanted to protect his staff and clients by completing the Cabanas project. He claimed that even in the event that the project is not completed and investors do not receive properties, they would be able to register their interest in the land at Cabanas. He also claimed that the company still had the support of Millennium BCP, Portugal's largest bank, and local people. "These new investors are represented by myself. We needed something behind us to finish the project. They are Portuguese, based in the Algarve," he said.
Paulino hasn't seen Lynn since last month. "I saw him when he was here in Portugal at the beginning of the year."
No work has yet started on the second phase of Costa de Cabanas, even though investors were told before Christmas that work was due to start imminently. Paulino said he hoped "infrastructure work" would start over the next six months and that the remaining apartments and houses would be built over the following 24 months. He claimed the company was still assessing tenders from contractors.
"We are still trying to commit with deadlines. There was a one-month delay. We had expected to start in December. The contract is ready to be signed. We are deciding who will have the best offer," he said.
Referring to Lynn's problems in Ireland, Paulino said Kendar Holdings, "the mother company" of the group, had collapsed, leaving its European subsidiaries as "orphans". Despite this, he said Vantea would open a new office next to the town hall in Tavira to sell properties in the Algarve. It was outside this office that Lynn was seen with Paulino last month.
Investors are growing frustrated at the delays in the Cabanas project. A group of 36 investors who bought in the second and third phases of Costa de Cabanas off the plans have hired a Portuguese lawyer, Alves Caetano, who has offices in Vilamoura and Quarteira. He is planning to register a claim against the land in Cabanas to protect the investors' money.
Under Portuguese law, investors can claim double their money back from a developer if the project is not completed as agreed. This would give investors a strong hand in ensuring it is completed. Also, 2 per cent of the company is owned by Kendar in Dublin, Lynn's "mother company", as Paulino put it. A liquidator was appointed to Kendar earlier this month and he may be able to have some say in the assets of the Portuguese company.
ONE DUBLIN WOMAN who paid a deposit on an apartment in Cabanas said she and her husband had also paid the full amounts for properties "off the plans" in two other Kendar projects, Amber Square in Hungary and in the Bulgaria ski resort of Bansko. She said they paid the full price in advance because friends had bought properties from Kendar and had made a substantial profit on their investments.
The investors would have been impressed with Lynn's strong network of auctioneers and sales agents, high-profile publicity campaigns, and with what appeared to be a large Dublin law practice, she said.
"In the cold light of day we were very naive. We took it in good faith that they were going to be built. We are shattered, absolutely shattered over what has happened," she said.
No investor who spoke to The Irish Times wanted to be identified. One said he had bought in the first phase of Cabanas and had encountered no problems receiving rent from the management company in charge of the development, but he was owed money on the second phase.
Cabanas was one of Lynn's most valuable projects. A Kendar document dated April 18th, 2007, showed the company had taken €12.1 million from investors in the first phase of 76 apartments. Last summer Kendar received loan approval of €25.6 million from Portugal's largest bank, Millennium BCP, to build phases two and three. Of this, €6 million was provided to Kendar Portugal the day the loan deal was agreed, according to a Portuguese title deed obtained by The Irish Times. It is not clear where this money has gone, however. According to the affidavit filed by Lynn in the High Court on November 19th last, the largest cash balance in any of his 10 accounts with four Portuguese banks was €924,349 in an account in Millennium BCP.
The deed valued the land on which phase two would be built at €15 million and the phase three property at €12 million - about four times more than what Lynn paid for the land. Given that the firm was charging an average €250,000 a property, the final value of the entire project could have been far in excess of €50 million. This may also explain why the company is so eager to complete the development.
Matters have changed drastically since then. Irish banks are trying to untangle the complex web of property deals and money transfers around Lynn's companies. The situation has been further complicated by the free flow of money between Lynn's law practice and property business, which are being investigated by a variety of parties.
THE HIGH COURT heard on Monday that €13 million was moved from Lynn's law practice to his property business last year, while €5 million came back to the practice. This flow of money concerned the Law Society deeply when it investigated Lynn last September - solicitors are forbidden from using client accounts for personal transactions. A substantial deficit in Lynn's client account prompted the Law Society to shut down his practice and seek a High Court order freezing his assets. This precipitated the collapse of his entire property group.
There appears to have been little separating Lynn's law practice and his property business. They had common staff, with the same individuals signing cheques for both the legal practice and Kendar. Their offices were next to each other in the ultra-modern Capel Building near the Four Courts, where Law Society officials are still sifting through Lynn's papers.
A separate company also linked the practice and business. Some investors said they were advised by Kendar or its agents to seek legal advice from a firm called Overseas Property Law (OPL) in Dublin. One investor said OPL demanded €2,000 up front for the advice and was not informed by Kendar that OPL was in fact part of Michael Lynn's law practice.
Many investors paid well over the odds on deposits for apartments in Cabanas. One investor said he paid a deposit of €100,000 to avail of a reduction in the overall price of the property.
About €84 million is now owed to Irish financial institutions by Lynn and his property companies. Millions more are owed to investors. Lynn said in his affidavit that his assets, mostly his 148 properties, were worth €52.4 million. This leaves a shortfall of at least €30 million. The affidavit, which lists 154 bank accounts, sheds little light on where this money might be. The top 20 cash balances in the 154 accounts total only €3.5 million and the affidavit does not list balances on many accounts.
Banks have been scrambling to register first claims against him and his properties since Lynn's house of cards fell last October. Some have examined his overseas assets to see whether they can make claims against them. Last month ACC Bank obtained a European Enforcement Order, which enables it to take steps in countries where Lynn has properties to recover debts due in Ireland.
However, it will be extremely difficult for the banks to "follow the money" around Lynn's labyrinthine business empire or trace the links between his companies. His affidavit lists 72 bank accounts across continental Europe, including two in the names of "Caviarteria Technologies" and "Merola Consulting" in Liechtenstein, the European principality well known for its impenetrable secrecy laws.
One source who had dealings with Lynn said he had been setting up an overall parent company for his group in Luxembourg, the ownership of which is held in bearer shares, when the Law Society launched its investigation. Such shares are like cash, which is essentially a type of bearer bond - whoever physically holds the bearer shares owns the company. This will make it exceptionally tricky to decipher Kendar's ownership structure.
Other individuals working in Lynn's law practice and property business have been drawn into the legal proceedings against the solicitor. The court was told last Monday that Liz Doyle, an employee of Kendar and Lynn's PA, who helped Lynn manage the company while he was away on business, had been added as a defendant to the action being taken by Irish Life & Permanent, which is owed €10 million. The group is also suing Fiona McAleenan. Doyle and McAleenan deny any wrongdoing.
A number of investors who spoke to The Irish Times expressed surprise that few investors have issued proceedings against Lynn and that little has appeared in the media about their plight. Several investors expressed disbelief that the banks did not spot the warning signs earlier and that it took an employee of Lynn's practice to blow the whistle. However, one lawyer representing a bank owed money by Lynn explained that, while he may have over-borrowed on his properties, bells did not sound in the financial institutions because Lynn managed to keep up repayments on all of his loans, some of which were interest-only mortgages.
ONE SOURCE WHO had dealings with Lynn in recent months said that even when his business empire was crumbling around him and banks were queuing up to sue him, Lynn still had "a remarkable capacity to absorb a huge amount of stress". This was borne out as he attended court for more than six weeks.
Things quickly changed as the cases against him progressed. His legal team said he wanted to co-operate with the investigations and the civil actions against him but he was fearful of incriminating himself by providing information that could be used against him in any future criminal proceedings. He outlined this in his affidavit, which is still the only detailed document he has filed in any of the cases against him.
This may have been why he failed to appear for cross-examination on Tuesday, December 11th. Since his disappearance, the courts have become even busier. The number of High Court proceedings against Lynn has risen to 126, with most banks issuing multiple writs over their loans to him.
In his absence, the court has allowed the banks to serve their writs to his home in St Alban's Park, Sandymount, Dublin 4. The house was empty and in darkness on Tuesday. Lynn's home, like many of his Irish properties, will be sold to repay some of his debts.
Lynn remains at large. There have been sightings of him in eastern Europe and even reports of him in Brazil. International police were alerted last month about the outstanding arrest order against him. He faces arrest if he returns to Ireland.
His investors are watching developments in Cabanas closely. A Dublin woman who paid a deposit on an apartment in Portugal is waiting for positive news about Cabanas, while she and her husband are forced to repay a substantial bank loan drawn for the investment. "We are adults - we took a chance and we got burnt."