German Property bankruptcy: The king of ruins in court

Charles Smethurst, the man many called the "gentleman of the real estate industry" in his prime, enters Court 134 of the Hildesheim Regional Court wearing his old professional attire: a gray suit, light blue shirt, and black shoes. Tall, powerfully built. Except that his old profession is no longer his.

"Retired," Smethurst answers the judge's question. "If that's a job," he adds questioningly.

The man, so demonstratively serious and striving for integrity, seems like someone you would trust without reservation. You believe him when he promises to take good care of other people's money and make it grow. That was precisely the problem.

Because what's at stake here, on the first day of this trial, is possibly one of the largest real estate fraud cases of recent years. The prosecution is charging him with a total of 27 cases, totaling €56,395,502.82 in damages. The investigators themselves are aware that this isn't all.

Investigators explained before the trial even began that they had limited their investigation to a subset of the cases. The sentence would not change even if the full range of cases were prosecuted. This principle is called procedural economy.

Curiously, it only seems as if the judiciary is following the same idea that Smethurst may have had at some point: a few million or many millions, at a certain point it doesn't make much difference.

In fact, the 65-year-old has collected well over a billion euros from thousands of investors in Great Britain, Israel, and Southeast Asia. Money that was largely lost to them. "The dimensions of this case," says Munich lawyer Peter Mattil, who represents hundreds of victims, "clearly rival those of the P&R and Wirecard cases."

P&R was a container investment firm in the 2010s. Except that many of the steel containers didn't even exist. A criminal trial is currently underway in Munich involving the financial services provider Wirecard and its flamboyant, fugitive former executive Jan Marsalek. He, Charles Smethurst, would be behind it somewhere.

The only question is: How did the man who once ordered the next season's trousers and sweaters for C&A become the real estate tycoon who turned the whole big wheel?

And last but not least: Where did all the money actually go?

The promise with which Smethurst asked people for their money did indeed sound promising. Their capital would flow into listed buildings throughout Germany, which he would help restore to new splendor and value. Thanks to tax advantages and his skill, double-digit returns could be expected, along with a wonderful return in stone. In 2008, he founded the company Dolphin Capital in Langenhagen near Hanover, later renamed German Property Group.

The list of buildings Smethurst acquired over the course of his career must have sounded like a mental journey into a German fairytale world to foreign investors. Dwasieden Castle on Rügen, Arensburg Castle near Rinteln, the Hohes Meer Inn in Augsburg, the Imperial Barracks in Jüterbog, the Zehdenick Leather Factory. And so on. In total, almost 60 properties are said to have belonged to the group. Except that many buildings are still decaying, as if nothing had ever happened.

Purchased by the German Property Group, but never renovated: the Dwasieden castle ruins on Rügen.

Source: imago images/STAR-MEDIA

One person who trusted Charles Smethurst and the glossy brochures was Briton Mark Hambling. Now 64, he's an accountant with a long career in the real estate industry—and was therefore anything but naive when he came across Smethurst and Dolphin Capital through a financial broker in 2014.

Lost half of his fortune: German Property victim Mark Hambling.

Source: private

On paper, Hambling says today, everything looked really good. "And like most people, I considered Germany a very safe place to invest my money."

He sees things differently today.

At the time, Hambling, 53, was looking for a way to save for his retirement. This German-British man named Smethurst, who seemed so solid and modest, came in handy. "The opposite of a show-off," Hambling still says today. He invested half of his savings, a total of several hundred thousand pounds, in the project.

In the first few years, he still received interest. Regular payments that reassured him. But after a few years, they stopped. In 2019, he heard a BBC radio program exposing the Smethurst case. Hambling says he immediately suspected that everything in it was true.

What does the loss mean for his life? "Well," he answers with British understatement, "if I'd never heard of Smethurst, I'd certainly be driving a different car today." A bigger, better one, he means. But he's still better off than others who relied entirely on Dolphin for their retirement savings. Hambling founded a group representing the interests of creditors, with several hundred members.

Some lost everything they had saved for retirement and ultimately fell into despair. "I know of investors," says Hambling, "who took their own lives."

The big question is whether Dolphin was ever intended to increase investors' money – and not just that of the founder. As early as 2015, auditors reportedly pointed to irregularities and a "suspected pyramid scheme." According to an expert report, by 2018 at the latest, the company responsible for payment transactions in the structure consisting of 150 subsidiaries was over-indebted. According to the indictment, Smethurst was no longer able to pay invoices and loan repayments.

The corporate network was controlled from here: the office building of the German Property Group (formerly Dolphin Trust) in Langenhagen near Hanover.

Source: Conrad von Meding (Archive)

Nevertheless, Smethurst allegedly continued to operate as if the collapse hadn't been foreseeable long ago. He recruited additional investors and concealed the fact that Dolphin had long since gone bankrupt. The company only formally filed for insolvency in 2020.

The 65-year-old already knew that nothing could be saved. He now says so himself.

In 2003, as he now explains in court, he, a man from the fashion industry, found his way into the real estate business. He calls the renovation of listed buildings "a fascinating business model." After a divorce and a prison sentence, self-employment was his way out of a personal crisis. "My work brought me back prestige, money, and my self-respect," he explains.

Except that his actions led thousands of others into the midst of personal crises.

Smethurst describes what followed as a story of a rise that was too rapid. He successfully completed a total of 100 projects. But he realized too late that his company was "growing too quickly" and was constantly dependent on new investors. Starting in 2015, he began trying to restructure the company—and made one final attempt in 2018. "On an intellectual level, I knew that every further attempt would fail," he says. "Yet I didn't want to admit my failure."

It almost sounds as if he sees himself as the victim, and not the others.

But part of the story of this scandal is the leniency of the authorities, who ignored the warning signs for years. Neither BaFin, the federal financial supervisory authority, nor the tax office stopped Smethurst and Dolphin. The Federal Office of Justice imposed fines totaling €650,000 for missing financial statements, but let it go.

People who worked with Smethurst describe him as a "sales genius." It seems as if Smethurst was able to sell something even to the authorities for a long time: the story of the honest merchant.

Investor lawyers see the fact that he was not remanded in custody as nothing more than a continuation of this leniency. And the fact that he is now on trial for only 27 cases, criticizes Peter Mattil, "is like someone clearing out a supermarket and being charged for a can of Coke."

It's the authorities' inaction that upsets Mark Hambling, the man who lost half his savings, even more than the fraud itself. First, he claims, they breached their duty of care, then they didn't pay compensation. He feels powerless, he says: "You're a victim of a crime—and nobody cares."

His hope of getting his money back is slim. Where the money went is one of the mysteries in this case. What is clear is that financial intermediaries profited; Smethurst paid them generous commissions until the very end, reportedly between 20 and 25 percent. According to documents obtained by the RedaktionsNetzwerk Deutschland (RND), Smethurt's current wife also received sums – she temporarily ran a TV shopping channel from Hanover and founded a fashion line.

In fact, the investors' chances of getting their money back are apparently slim. According to insolvency administrator Justus von Buchwaldt, there are 7,500 creditors. In total, Dolphin is said to have moved around €1.5 billion. While it owns 55 properties with a total value of €150 million, each of them is encumbered by multiple land charges, making a sale almost impossible. Several costly lawsuits are currently pending.

And apparently, there's nothing to be gained from Smethurst either. He's been in personal bankruptcy for three years.

For this, he now faces a comparatively lenient sentence. Ten years in prison is the maximum sentence for serious fraud. On the first day of the trial, the court, the prosecution, and the defense reached a plea agreement: In return for his full confession, the case would be dropped on 21 of the 26 charges. The sentence is expected to be between six years and nine months and seven years and three months. If it turns out that he has cancer, as he himself claims today, the sentence could be reduced by several more months.

“I feel sorry for those who were harmed,” Smethurst asserts.

According to the insolvency administrator, none of them have received any of their money back so far.