The Office of Competition and Consumer Protection (UOKiK) has imposed nearly PLN 12 million in penalties on companies in the HRE Investments group, the Office said. Fines totalling PLN 1.4 million were imposed on two managers. The OCCP found that consumers were misled about the guarantee of return on investment in property development projects and the associated risks.
Companies in the HRE Investments group were engaged in investment and development activities until 8 November 2023. They offered purchasers, including consumers, to purchase shares in special purpose vehicles set up by the HRE group for the realisation of various property development projects. According to the business model, after a predetermined period of time, these shares were to be bought back by the group’s entities at a specific price and return. Under this model, consumers were subject to risks specific to the company’s shareholders, i.e. much higher than those of people investing their savings in a bank or buying Treasury bonds. In the event of possible difficulties of the SPV or the entity obliged to repurchase the equity instruments, loss of liquidity or bankruptcy, such persons – as shareholders – have little possibility of recovering any funds. Possible difficulties in the operation of the investment component may at the same time have a negative impact on the development component of the project, which may affect not only consumers – shareholders – but also consumers – purchasers of flats from SPVs. As of 10 November 2023, i.e. after the amendments to the crowdfunding legislation, it is prohibited to offer and promote the acquisition of shares in limited liability companies that would be targeted at an unspecified addressee, according to UOKiK report.
Among other things, the content of offering materials prepared by the HRE group or information encouraging consumers to purchase shares in SPVs raised doubts in the OCC. These appeared on popular internet portals. The objections concerned promises of high returns, emphasising the safety of the investment and its alleged profitability as opposed to other forms of investment. The messages emphasised the benefits to the exclusion of important information about the risks – thus misleading consumers about the guaranteed outcome of the investment.
Messages to consumers used words such as ‘maximum security’, indicating that the investments were intended for consumers ‘who value security of investment’, highlighting not only economic security but also ‘legal security (deed)’. It communicated ‘stable growth’, a ‘safe, high’ rate of return, or ‘one of the safer havens for investors’. The business model consisting of an unconventional system of investing in the purchase of shares in special purpose vehicles (of which there were at least several dozen in the group), the non-transparent structure of these companies and other companies in the group, the lack of sectoral supervision and the simultaneous emphasis on the safety of such solutions, made it difficult for consumers to assess the existing risks and verify the truthfulness of the declarations about the achievement of the assumed objectives. It is also worth mentioning that in the course of the proceedings, information was obtained from purchasers of residential units developed by the SPVs about the delay in the execution of development investments by the HRE Investments group, UOKiK reported.
“Many consumers familiarising themselves with the information message may have considered that investing in the real estate market is safer and more profitable than other forms of investing savings. The business model adopted by the HRE Investments group was based on soliciting share deposits from consumers, who were consistently assured of safety while ignoring significant risks. Consumers, by becoming shareholders in SPVs, in practice financed the activities of the group and it was in fact consumers who were burdened with the risks of the business. The one-dimensional narrative adopted in the information messages, emphasising safety and guarantees of obtaining benefits in the assumed amount, violated consumers’ interests and misled them,” said UOKiK president Tomasz Chróstny.
The President of UOKiK imposed a fine of almost PLN 12 million (PLN 11,803,666) on three companies in the HRE Investments capital group for violating collective consumer interests. Respectively: HRE Investments (PLN 300,632), HREIT (PLN 9,776,023), Heritage Real Estate (PLN 1,727,011).
Responsibility was also not avoided by the persons who were responsible for managing the companies: Michał Cebula (the fine imposed was PLN 450,000) and Michał Sapota (the fine imposed was PLN 950,000). These persons intentionally led to the violation of the collective interests of consumers, inter alia, they were responsible not only for the preparation and implementation of the offer and marketing message, which exposed the benefits and minimised the risks, but also actively promoted this way of investing, UOKiK further reported.
The decision is not final and can be appealed before the court.
Source: UOKiK and ISBnews
