Britain’s Fraud Office Probes Biofuel Scheme

A biofuel company is currently under investigation for fraud in the U.K. after millions of dollars of investors’ money was spent on a jatropha plantation in Banteay Meanchey province that never produced even a single drop of biodiesel.

The company, London-based Sustainable Agro Energy PLC, had its assets frozen by the U.K.’s Serious Fraud Office (SFO) in February after investigators suspected its management of employing unscrupulous agents that sold people the chance to invest in Cambodian plantations of jatropha—a tree whose seeds can be used to make biodiesel, a much-vaunted source of green energy.

According to investigators, as many as 2,000 individuals in the U.K. invested as much as $230,000 each since 2007 with the hope of earning high interest rate returns and increasing their retirement funds.

But a fraud office report dated February 2012 shows that Sustainable Agro Energy continued collecting funds from investors even after it realized its investment in Banteay Meanchey was going nowhere and making no profit.

“What are we doing about clients that are now in their 3rd year of investment and expect a 50 percent share of oil revenues that don’t exist?” an unnamed official at Sustainable Agro Energy wrote in an email, which is being used by the fraud office as evidence in the case.

The fraud office has also accused Gregg Fryett, a British national who runs Sustainable Agro Energy, and other employees at the company, of personally enriching themselves with investors’ money.

Mr. Fryett has not yet been charged with any crime.

“I believe that Mr. Fryett has a criminal lifestyle,” Mark Thompson, an investigator for the SFO wrote in a report, which was submitted to London’s Southwark Crown Court in February.

Mr. Thompson added that he had evidence that Mr. Fryett had paid himself a salary of $25,000 per month while in charge of the failing biofuel investment scheme.

In the report, Mr. Thompson explained how Mr. Fryett’s company had made mysterious payments to bank accounts in Switzerland and Tanzania and to a company incorporated in the British Virgin Islands—amounting to more than $5.7 million.

He also noted that investor money had been raised by unscrupulous sales agents who used “cold calling” tactics to sell investments in the Cambodia project. The sales agents had also received commissions of up to 50 percent on investor funds, Mr. Thompson wrote.

Mr. Fryett’s company continued selling financial products until February, despite auditors in June 2011, “raising questions about financial difficulties caused by the failure to plant sufficient jatropha trees to have any prospect of generating returns for investors,” the report says of the Cambodia project.

Mr. Fryett has denied the fraud allegations but said the pension investment scheme had encountered difficulties with planting the jatropha crop and consolidating its land ownership deal in Cambodia.

“Everything they say is based on secondhand information and hearsay,” Mr. Fryett said in a phone interview from London on Monday, adding that the U.K.’s SFO was using “draconian powers” to investigate his company.

“I am trying to fix all the issues created by the [SFO], who have got their facts wrong and have created this issue,” he said.

According to Mr. Fryett, the key issue in his company’s failing was difficulties with the techniques used to farm jatropha trees.

At the Phnom Penh office of the Sustainable Agro Energy’s local affiliate, International Green Energy (IGE)—of which Mr. Fryett is the majority owner—Sam Ourm, the company’s director, said that he had no details about the fraud case in London, but confirmed that the company does not own any land concessions in Cambodia and that biodiesel production has not begun on the land in question, which is located in Banteay Meanchey province.

“I don’t know about the misuse of funds or anything like that, but Gregg Fryett is a really good person,” Mr. Ourm said, adding that he only heard about the fraud investigation in March when funds expected to be sent from London did not arrive.

Mr. Ourm said the company owned no land or concessions in Cambodia, but has a so-called “handshake” agreement with Mao Malay, the wife of Deputy Prime Minister Ke Kim Yan, who was previously commander-in-chief of the Royal Cambodian Armed Forces (RCAF), to take over two economic land concessions in Svay Chek district.

Mr. Ourm said that one of the concessions in question measured 992 hectares and is currently held by a company called Aphivath Meanchey, which is controlled by Ms. Malay.

Sustainable Agro Energy has begun developing a plantation on the Aphivath Meanchey land but poorly executed farming techniques had meant that most of the jatropha crop planted was useless, Mr. Ourm said.

Mr. Ourm said that his company had agreed to pay $2,000 per hectare to buy the land from Ms. Malay and that $1.3 million of the nearly $2 million total cost for the 992-hectare concession had already been paid through Phalla Development, a company owned by RCAF General Hanh Chamrong.

Documents provided by Mr. Ourm show that another deposit of $150,000 had been paid to YLP Group, another of Ms. Malay’s companies, in 2008, to obtain a much larger economic land concession measuring 5,079 hectares in Svay Chek, which was to be passed to Sustainable Agro Energy. YLP Group is best known for  being in charge of the $600 million Grand Phnom Penh International City development in Phnom Penh.

Gen. Chamrong confirmed last week that he represents Ms. Malay and said the deal with Sustainable Agro Energy to buy the land would still go through, though his firm had only received partial payment for the land from Mr. Fryett.

“We received some money from the company,” Gen. Chamrong said. “I can’t confirm this amount of money to you.”

Mr. Fryett, however, claims that Phalla Development had not upheld all of the deal.

Phalla Development “took money for land they represented they had rights to sell, but they did not complete on the terms of contract and actually slightly over represented the state of the [concession],” he said.

“However, the fundamentals and overarching agreements to sell and transfer are sound,” he said.

SFO investigators, however, believe that Mr. Fryett continued collecting money from investors in the U.K. even when he knew his jatropha plantation scheme was doomed.

Far away from Svay Chek district and Sustainable Agro Energy’s failed jatropha plantation, Chantrey Vellacott DFK, an accounting firm based in London, is trying to refund U.K. investors in the pension scheme. The firm was appointed to the case by the fraud office.

Adrian Hyde, an insolvency practitioner at Chantrey Vellacott, said in several interviews over the past month that Sustainable Agro Energy had sold to its investors the equivalent of about 8,000 hectares worth of jatropha in Cambodia on the basis that crops would be planted immediately and profits would start being made.

While the company also has interests in Thailand and the Philippines for similar operations, Mr. Hyde said that between $54 and $62 million worth of investment in the Cambodian scheme had been identified by his firm so far, and that angry investors were still coming forward to register their complaints.

According to Mr. Ourm, fewer than 600 hectares of jatropha were ever planted by the company in Svay Chek and in other Cambodian sites where contract farmers were growing the trees for the company, and no biodiesel was ever produced.

Mr. Ourm also provided bank documents that show a total of $7 million has been spent in Cambodia by Mr. Fryett’s firm, while Mr. Fryett claimed he had spent more than $12 million.

Mr. Ourm “would not have seen all the payments through IGE which were for the Svay Chek plantation,” Mr. Fryett explained.

(Additional reporting by Hul Reaksmey)

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