Lies, Forged Guarantees And Impersonating Investors: New Verdict In On Case Of Ill-Gotten £710M Loan

A high court judge has dismissed a claim in which the son of a fraudster who tricked a bank into lending him £710M sued the bank that was the victim of the fraud. 

Following a civil trial in the King's Bench of the UK High Court over the summer, Justice Andrew Baker last month dispensed with all claims made by Michalis Kallakis against Allied Irish Bank. 

Kallakis claimed that AIB left him tens of millions of pounds out of pocket when it sold a London and UK portfolio built up by his father, Achilleas Kallakis, between 2003 and 2007. AIB struck a deal in 2008 to recoup its potential losses when it discovered leases with the elder Kallakis had been faked and the assets were worth less than the loans against them. 

Achilleas Kallakis has been called “Britain's most successful serial confidence trickster” after using fake lease guarantees and a hired impersonator to pull off the scam.

The younger Kallakis alleged that he was the real owner of the assets through a trust and that AIB had sold them too quickly and without a wide sales process to enrich itself, depriving him of profits on the portfolio. 

In a claim form filed ahead of the trial, his lawyers said AIB had duped his father to take control of the properties. Achilleas Kallakis was jailed for 11 years for the fraud in 2013 and was also a defendant in the case brought by his son.

“Achilleas Kallakis, as a professional fraudster, is particularly vulnerable to being deceived himself,” the Kallakis family filing said. “As anyone who has seen Michael Caine and Steve Martin in Dirty Rotten Scoundrels will appreciate.”

But in his judgment, Baker said that the claim against AIB had no merit. The judge also said that rather than being a defendant, Achilleas Kallakis had initiated the legal action and his son was acting on his orders. 

“I find that these proceedings were brought at the instance of, and to pursue the interests of, Achilleas, using Michalis as his nominee,” Baker wrote. “They were dishonest in conception, inception, and prosecution. They have been an abuse of the court's process, and of a son's misguided loyalty to his father.”

In his conclusion, Baker summed up Achilleas Kallakis' aims with the original fraud and in bringing the new case. 

“Achilleas Kallakis strove for financial greatness, and for a time achieved a measure of it, but he did so using the dishonest means of a conman and forger,” Baker wrote. “He was brought low by the depth of his dishonesty, acting in combination as it did with fate in the occurrence, and timing, of the global financial crisis.

“The impudence of Achilleas' claim to have been more sinned against than sinning was brazen. The extent of his dishonesty is astonishing, and some of the individual charades in which he engaged are almost comical. However, his dishonesty indeed did cost AIB over £150M, and there is nothing funny about his attempt, using his son, to sue AIB rather than make some reparation, if he can, for the harm he has caused, and nothing funny about his consequent abuse of the court by and through these proceedings.”

Michalis and Achilleas Kallakis could not be directly contacted for comment. The barrister representing Michalis Kallakis, Julian Malins, said that he and a colleague had only been working for him at the trial and did not know whether he would be appealing the decision. 

In his judgment, Baker gave new details about the original transactions between AIB and Achilleas Kallakis, how the deals came about and the fallout of the fraud.

Achilleas Kallakis was born in 1968 and brought up as Stefanos Michalis Kollakis, changing his name after he and a university friend, Martin Lewis, were convicted in 1995 of selling fake heraldic titles issued by fabricated organisations with names like the Institution of Heraldic Affairs. Lewis changed his name to Alexander Williams, according to the judgment.

Under his new name, Achilleas Kallakis started investing in property, inventing a background as a scion of a Greek shipping and property dynasty to secure introductions and get a foot in the door with lenders.

On the back of modest deals using loans from a small bank called Bristol & West, he started dealing with Irish lender AIB, which was then expanding its UK property loan book.

In 2003, AIB lent Kallakis £19M to buy 355 Euston Road in central London at a valuation of £24M. The tenant for the building was Network Rail, but Kallakis purported there was a head lease to Hong Kong property giant Sun Hung Kai Properties, one of Asia’s biggest property companies, and that Network Rail would sublease the building from SHKP. The lease to SHKP guaranteed a higher rent than that being paid by Network Rail.

Per the judgment, Kallakis told the lender that SHKP was using him to invest in UK property and he was paying the company “reverse premiums,” or the difference between its rent and the rent being paid by the company in occupation.

That structure was used in almost every case as Kallakis and AIB undertook 14 more deals, the judgment says. The bank lent a further £710M, including a £224M loan secured against 111 Buckingham Palace Road in July 2007 and £152M secured against 7 and 8 St. James’s Square in November that year.

But these lease guarantees were forgeries, and no such leases with SHKP existed, meaning the properties were worth far less than AIB thought — less, in fact, than the amount loaned against them. The reverse premiums supposedly going to the Hong Kong firm were never paid.

At first, AIB undertook no due diligence of its own to check on the relationship with SHKP, per the judgment. When the bank asked for a meeting in Hong Kong with an SHKP director, it was told no one was available.

Instead, a meeting was set up in London with a supposed SHKP officer called Jonathan Lee, attended by bank officials and one of Achilleas Kallakis’ business partners. Lee told the AIB officials that SHKP was very happy with the lease arrangements and wanted to do more business with Kallakis. 

“No trace of ‘Jonathan Lee’ has ever been found, and despite Achilleas' ... protestations to the contrary in evidence, the probability is, and I find, that he was an impersonator, engaged by them, to play a part,” Baker wrote in his judgment.

AIB only became aware of Kallakis’ past when it was tipped off by another bank, Helaba. The German lender had been looking into refinancing some Kallakis loans, but a private investigator uncovered the name change and previous convictions. 

Private investigators engaged by AIB confirmed in June and July 2008 that Achilleas Kallakis was indeed probably Stefanos Kollakis and that he and Martin Lewis, his partner, had previous criminal convictions. 

AIB then contacted SHKP, which let it know in August that it had no knowledge of Achilleas Kallakis or any lease guarantee. 

On 15 September 2008, the day Lehman Brothers collapsed, AIB arranged a meeting with Kallakis and outlined what it had discovered, later sending him an email asking for all documents relating to the portfolio he had borrowed against and giving him a day to put up £200M to pay down debt or come up with a plan to refinance or sell the assets. 

When no money or plan was forthcoming, AIB shifted its strategy. The course it chose was to put the loans into default and sell the portfolio to a new company called Green Property, set up by veteran investors Pat Gunne and Stephen Vernon to work with banks on distressed properties. 

AIB reached a November 2008 deal to sell the portfolio to Green Property for around £654M before stamp duty, though it was not a sale in the traditional sense: AIB provided a nonrecourse loan to Green Property for the full purchase price and transaction costs, with Green Property receiving an asset management fee for managing the portfolio and a profit share of 20% if the assets were sold above a certain level. 

The deal caused AIB to take an upfront write-down on its loan of £56M, with the hope that the value of the properties would rise over time and the loss could be recouped.

Instead, the judgment said, AIB recorded a loss of £156M on the portfolio. That made the idea of any profit share moot, the judge wrote, adding that it made it impossible to say that AIB had enriched itself from the deal. 

As to the claim that AIB would have gotten more for the portfolio if it had been widely marketed, the judge wrote that was untrue due to the turmoil in the market at the time. Expert evidence at the trial indicated the portfolio would have fetched less than £500M if sold on the open market, either asset by asset or in aggregate. 

After he was convicted, an order was made for confiscation of an available amount assessed at £3.25M despite the fact Kallakis' benefit from frauds had topped £95M, per the judgment. Most of the proceeds of the fraud have not been traced.

“The consequences of Achilleas' dishonesty have been substantial and far-reaching. It cost AIB over £150M,” Baker said in his conclusion. 

“It had the deserved but nonetheless serious human cost of criminal convictions and lengthy prison sentences for Achilleas himself and for Mr Williams. ... It has now resulted in the abusive manipulation of Michalis and his misplaced loyalty.”