All quiet on home front as iProsperity’s Michael Gu goes to ground

The founder of the collapsed iProsperity real estate group has not been spotted at his waterside mansion for at least two years.

Michael Gu. Supplied

Michael Gu, founder of the collapsed iProsperity real estate group that has investors baying for the return of about $185m, has not been spotted at his fortress-style mansion overlooking Sydney’s waterside suburb of Seaforth for at least two years.

A long-term resident of the four-level contemporary mansion in David Place told The Australian on Wednesday that he was minding Mr Gu’s sick mother at the house and did not know the whereabouts of Mr Gu.

In the five years since Mr Gu paid at least $5m for the mansion, which now carries a mortgage to the HSBC Bank as well as several caveats, the former telco entrepreneur has attracted at least 122 creditors after reneging on last year’s biggest local hotel deal — a $220m play to acquire a swag of hotels from French-owned hotel behemoth Accor — even though he raised about $60.5m from investors to help fund it.

Another deal involving iProsperity and two of its partners in a $US483m ($676.75m) purchase of a portfolio of up-market Kimpton Hotels from US hotel company Xenia collapsed in March.

In a sign that the Midas touch had gone missing from Mr Gu’s relentless deal-making, Xenia recently struck a settlement in which it received $US19m of the $US20m non-refundable deposit.

As with much of the iProsperity collapse, it is unclear who was left out of pocket.

It is a long way from Mr Gu’s declaration two years ago that the company was on a “growth trajectory towards $10bn of assets under management by 2020”. Now what remains of the iProsperity operation is facing multiple court cases from soured deals, including a proposed purchase of Casino Canberra that did not go ahead.

While Accor has not appeared on the long list of creditors, public documents reveal the Australian Taxation Office is claiming $2m while Revenue NSW, a collector of traffic fines for the state government, claims it is owed at least $34,000.

The claims pale when it comes to one investor, David Hetao Gong, who is claiming $43m amid one of the largest corporate scandals in Australian business history.

By the time of iProsperity’s collapse last month, Mr Gu had developed a taste for the high life.

Several high-profile Sydney real estate executives were not forthcoming yesterday, ducking calls as details emerged of Mr Gu’s appetite for lavish offshore parties involving his property contacts.

Wild parties were de rigueur, as was the frequent hiring of a helicopter for the 15-minute hop between Hong Kong Heliport and Macau at a cost of more than $8500 a flight for Mr Gu and up to 11 of his mates. Hong Kong, Singapore and China were stomping grounds for the entrepreneur, who was keen to attract high-net-worth Asian backers to fund his appetite for hotel portfolios.

Mr Gu appears to have hailed from humble beginnings but he got his first break when, as a business development manager for telco reseller People Telecom, he introduced a large number of airline clients to the business. He subsequently left People Telecom to start up Planet Tel with two other executives, including Gary Sue Fong, leasing lavish Sydney office premises in the process.

While an admitted Lamborghini lover, Mr Gu, 32, did not appear to pay as much attention to company record-keeping.

According to iProsperity’s administrator, KPMG, the company failed because of its poor financial control, including lack of records, and poor management of the business, coupled with high cash use including the transfer of funds to related entities.

KPMG believes the company was insolvent since it was incorporated mid last year and that there was “potential misuse of investor funds by the company and the director”.

iProsperity raised funds from high-net-worth investors in China, Hong Kong and Singapore and operated within the Significant Investor Visa scheme, which offers a four-year pathway to permanent residency for entrepreneurial and high-net-worth individuals willing to make substantial complying investments in the Australian economy.

But Mr Gu, who graduated with a bachelor’s degree in applied finance from Macquarie University in 2007, did not leave himself short-changed.

KPMG said $13.8m was transferred to Mr Gu between December last year and May this year. “The basis upon which the director received significant payment from the company using investor funds in breach of certain agreements between investors and the company is unclear,” KPMG said.

The Australian is not suggesting the allegations against Mr Gu are true, only that they are being investigated by KPMG.

NSW Police’s Financial Crimes Squad also confirmed it is also involved in the iProsperity collapse. Sydney-based law firm Landerer & Company alerted police as it received inquiries from Hong Kong-listed funds manager ZACD about the transfer of $30m held on trust for the Accor deal to a Singapore company.

The Sydney law firm, chaired by John Landerer, who was promoted as but not appointed chairman of iProsperity, called the police.

“On Monday 27 July 2020, police received a report that a Sydney-based business transferred more than $30m to a bank account after receiving an email, that was believed to be fraudulent,” NSW police said.

KPMG found just $1271 in the iProsperity bank accounts it took control of in mid-July. It instructed CBA to freeze any bank accounts held in the name of the company. Further revelations are expected as administrator Cor Cordis was finalising on Wednesday night a 200-page report into 11 iProsperity entities that it controls.

The collapse has left even seasoned observers of Sydney’s colourful hotel scene shocked, with some even speculating that Mr Gu had been seen in New Zealand, although the entrepreneur certainly was not taking calls.