Investors take property group to court in search of missing millions

Sonja Boric never thought she and her family would be involved in a landmark legal action.

“It’s one of those situations you read about, but you think you’ll never go through,” says Boric.

She and a family member are part of a group of 30 investors who have taken legal action in the Supreme Court of Victoria against Lion Property Group.

She says they joined the action because her family member, a retiree in his late 60s, is concerned about the fate of the money he invested – most of his retirement savings – in the property developer and investment manager.

The action seeks to learn more about what has happened to the money invested in a scheme believed to have raised between $140 million and $200 million from 350 investors since 2018.

Lion Property Group’s Zenith project in Hamilton, Brisbane.

The investor group has alleged in court that Lion may have misused their money. Some of the development projects they invested in have faced delays of up to five years, and some are yet to start at all. The court has already heard there are concerns that Lion’s projects operated like a Ponzi scheme.

Court documents reveal the investors have also accused Lion and its managers – the charismatic John Sader and award-winning mortgage broker Garry Pesochinsky – of misleading investors and running unregistered managed investment schemes for as many as 18 different investment projects.

Another group of investors, potentially as many as 20, are also considering taking legal action.

Investors have been left to bankroll their own investigation into Lion after the corporate watchdog ruled out intervening in their court case because it lacked strategic regulatory significance.

The allegations against Lion and the concerns of its investors have been laid out in detail in court documents released to this masthead, including a statement of claim, five affidavits by Lion investors and their advisers, and exhibits including emails between the customers and Lion, investor agreements, information memorandums, company documents, property titles and personal property securities registers.

The allegations have not been tested in court, and Lion is yet to file a defence to the claim, though it rejects the allegations in the strongest terms, is vigorously defending the matter and says most of its investors are happy.

Lion said in response to this masthead’s questions that it denied the allegations against the company, Sader and Pesochinsky.

“The suggestion that Lion is running a ‘Ponzi scheme’ is absurd,” it said. “Lion does not intend to litigate allegations via the press and is continuing to work to complete developments, repay its creditors with a view to returning capital to its investors.”

Lion said a “minority” of its investors had misunderstood their investment agreements and most of Lion’s clients were happy with how it was managing the situation.

It acknowledged projects had been delayed but said that was the result of issues with its builder, COVID-19, planning delays and other market forces. It also denied that it had raised $140 million from investors.

Sader, a self-described human behaviour specialist and life coach, lashed out at Lion’s disgruntled investors in a WhatsApp chat after the court granted the investors access to Lion’s bank account statements in May following arguments before the judge from both sides regarding the release of the documents.

John Sader, co-founder of Lion Property Group.

He described the legal action as a “strategy towards mutual self-destruction”.

“On the upside, now that they have the right to access the bank statements they’ll soon come to the realisation that funds haven’t been embezzled by Lion, Garry nor I,” Sadar wrote.

“Undoubtedly they will use the information to paint the direst of pictures before the courts and investors. In the meantime, Garry and I continue the fight to save projects despite the ongoing efforts of a group of incredibly misguided individuals.”

Asked about the message, Lion said it “was sent in response to unsupported and inflammatory allegations made by certain individuals that funds have been ‘embezzled’; this is not the case.”

In another message to the WhatsApp group of Lion investors, Sader said to the investors participating in the court case: “They relied on your naivety to get your argument off the ground. The court bought it. And everyone who backed that play has further empowered this senseless decline.”

Another investor said: “I’m with you John! All the way!”

Despite Lion’s confidence that its disgruntled investors are misguided, on Tuesday it agreed during a short court hearing for independent accountants – from KPMG and McGrathNicol – to be appointed to the business to address the investor concerns and test the group’s solvency. Lion’s lawyers also raised in court that the group might be insolvent.

According to an affidavit filed in the court proceeding, Lion has gathered investors – mainly from Melbourne, Sydney and Brisbane – since 2018 for various ultra-high-end boutique property developments in blue-chip Melbourne areas such as Brighton, Camberwell, Elwood and South Yarra, as well as some of the best areas of the Gold Coast and Brisbane.

The properties to be developed were expensive – often $4 million per townhouse – and immaculately designed thanks to the good taste of Sader and Pesochinsky.

The projects had names such as Prominence (Brighton), Eminence (Camberwell), Zenith (Hamilton, Brisbane), Elysian (Albert Park), and Aire (South Yarra) and were promoted with glossy brochures.

On the surface the investment seemed simple.

For each development, Lion would raise money from various investors. That money would be pooled in a syndicate-style arrangement and used to buy a development site and fund the building of the property. Investors would either be paid returns during the lifetime of the project or a lump sum when the property was completed and sold, depending on the particular project.

Many of the projects had ambitious timelines of 18 months from start to finish, but in some instances there were protections written into contracts promising extra payments if a project was late, according to an affidavit by lawyers for the investors tendered in court.

In every case investors were allegedly told their investments were secured against the development site – meaning that if anything went wrong, the undeveloped property could be sold and the money returned to investors.

Everything appeared to be going swimmingly until 2024, when an increasing number of investors began asking why some projects slated to begin in 2020 or 2021 were still yet to be started, court documents show. By November last year, some investors who had been receiving monthly payments stopped receiving their instalments, it is alleged.

Soon news travelled through Lion’s investors about the sale of one of the handful of projects fully completed through the scheme.

Named the Zenith, it was an immaculate renovation of a historic home in one of Brisbane’s best suburbs, Hamilton, and had sold for $10 million – but Lion had not distributed the majority of the money to the investors in that syndicate, the court has heard. Then it acknowledged it had made payments to some, but not all, investors in the project on a “progressive” basis, it is alleged.

Around this point, panic set in for many of Lion’s customers.

From his office on Melbourne’s St Kilda Road, forensic accountant and financial planner Michael Landy is leading the charge to find out what happened after being recruited by the investors involved in the legal case.

Michael Landy, founder of Eagle Financial Solutions, is helping investors take legal action against Lion.Credit: Wayne Taylor

Landy’s forensic review of Lion’s business, tendered as evidence in court in an affidavit from the investors’ lawyers, has found a litany of problems.

The lawyer’s affidavit alleges that many of the syndicates did not own the development site directly, as investors were allegedly promised, and instead, a Lion entity owned the property. It was also alleged in the affidavit that Lion had taken the money out of most of the syndicates as “loans” to its businesses without the investors’ knowledge and without security.

Worse still, land titles for the properties included as exhibits to the affidavit allegedly showed Lion had taken out millions of dollars of additional mortgages, in some cases up to three, over the development sites. Some of these new undisclosed mortgages allegedly had interest rates of up to 30 per cent a year.

On top of this, Lion had then failed to repay some of the mortgages and the lender had taken possession of the property, it is alleged in the affidavit. Last week, one of those sites in Brighton was sold to new owners. Lion confirmed in response to this masthead’s inquiries that another two properties had also been sold as mortgagee in possession.

For some syndicates, that meant that not only was the hope of any profit gone, but also there was now no longer a property to develop.

This home was a development site slated for a Lion project before it was sold to new owners last week. Credit: Joe Armao

In court in April, counsel for the investors, Justin Graham, KC, described Lion’s projects as a Ponzi scheme.

“On examination of the defendant’s business model and the materials they’ve so far denied to show us, the defendant’s projects are being operated as a giant Ponzi scheme,” Graham said.

“It is riddled with conflicts, and money and assets are being used hither and thither for wherever it is needed in the group in order to stave off the most pressing creditors.”

Shaun Newberry is also seeking answers about the fate of his wife’s investment in one of Lion’s syndicates.

“I just want accountability,” he says, adding that he is worried the scheme will go “belly up” – a live prospect given Lion’s own court admission of concerns around its solvency.

Sader and Pesochinsky – both in their mid-40s – might not be big names in the property sector or in the financial planning industry, but the pair have fascinating backgrounds.

Sader is a fan of American 1990s self-help guru Tony Robbins and a graduate of Australian life coach school the Coaching Institute. On his LinkedIn profile, he describes himself as being a human behaviour specialist and certified practitioner of “Deep State Repatterning” and of “Neuro Linguistics Programming” – types of self-help psychotherapy to build self-esteem and influence.

Sader brought the skills and drive to enliven a team of sales staff – including a bell he rang in the office for each new investor. Pesochinsky, a more reserved figure, had a long background in property investment and development via Full Circle Financial Services.

Garry Pesochinsky, co-founder of Lion Property Group.

Responding to this masthead’s inquiries, Lion said it disputed that the investment and ownership structure of specific investments was not properly explained to investors. It also denied investors did not have security over the property.

Instead, it claimed that investors were “for the most part” purchasing shares in entities that owned the real estate – a claim that allegedly stands in contrast with the investor agreements and land titles included as evidence in the case.

Lion said additional loans it took out for the developments were standard industry practice. “The fact that external debt would be required to complete construction projects is detailed in feasibility studies that were provided to investors as part of the information memorandum for each project. A funding combination of equity and debt is required in the delivery of almost every property development.”

Asked why Lion’s bank accounts, provided to investors as a result of the court action, showed Lion had borrowed the money raised from investors to fund other projects and payments, Lion said: “While there are inter-company loans, these have been made on commercial terms and in accordance with the processes, structure and procedures that the group adopts to complete projects.”

A spokesman for the Australian Securities and Investments Commission said it was aware a report on the financial position of the Lion group was to be prepared by independent accountants. “In line with our usual process, ASIC will continue to monitor the situation, and we will assess any new information that comes to our attention on this matter,” the spokesman said.

A source close to the regulator, not permitted to speak on the record, confirmed it had investigated Lion in 2020 and the group agreed to change some of its investor material. ASIC also considered opening a new formal investigation earlier this year, but by that time it decided not to as the Supreme Court matter had begun, the source said.

Meanwhile, investors nervously wait for the outcome of the accountants’ report to the court and hope for the completion of its stalled projects.

A Melbourne-based investor, who asked not to be named, says he first invested in the Eminence project in Camberwell in March 2020.

He was told the project of four high-end townhouses would take 18 months to complete and Lion would pay late fees if the project ran over.

Lion’s Eminence project in Camberwell. Credit: Joe Armao

More than five years later, he is still waiting for final completion of the project to get any return on his investment. Lion recently promised it would be finished by the end of September.

“I’ve often visited the project site after some favourable updates, and it was obvious from early on that there were issues,” the investor said.

“My main priority is to see all the investors who invested with Lion retrieve as close to their capital back as possible.”

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