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SFO warns of inflated valuations


Friday 8th July 2011

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Investors considering individual properties or companies with property development portfolios have been urged by fraud investigators to be wary of inflated valuations.

The Serious Fraud Office said it had investigated cases where property values had been significantly overstated to the detriment of persons investing either directly in the over-valued property or indirectly in companies owning property portfolios.

"In recent weeks we have concluded investigations involving property valuations where we have been disappointed to see investors making bad investment decisions based on information which can only, at best, be described as optimistic values," said SFO chief executive Adam Feeley.

"It is imperative that investors are made aware of the underlying assumptions on which the valuations are based".

In most of the cases which it investigated, the valuations had been commissioned by the owner of the property, or property-related company, parties which had an incentive to inflate valuations.

Some valuations were at the margin of what could be regarded as professionally justifiable, but properties had been valued 500 percent over their market value.

"Where there is a clear intention to deceive an investor with false information, the SFO will lay criminal charges against all parties to that offence, including any valuer who is knowingly a party to the deceit," Feeley said.

But in many cases the valuations fell short of a criminal standard of proof for fraud.

Feeley said that his investigators were referring some transactions to the Valuers' Registration Board.

"There are a small number of valuers who are undermining confidence in a profession which is an important adjunct to investment decisions, and we are determined to work closely with the valuation profession to ensure rogue valuers are not tolerated."

While the cases with which it was dealing were exceptions -- and valuers generally operated to professional standards -- the impact of a few individuals had had a disproportionate impact on the investment market.

Investors wishing to obtain advice on property valuations could contact the Institute of Valuers, said Feeley, who noted that the best protection for investors was to commission their own valuations.

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