An eventful history
Housers is a Spanish participatory finance platform specialising in property investment.
Since its creation, it has been at the heart of numerous disputes. In 2020, faced with an increase in unpaid payments by the platform, a group of investors took Housers to court. The company is accused of fraud, misappropriation of funds and unfair administration.
There are many indications that investors have become suspicious of the Housers platform. Today, as an investor, it is necessary to know how to recognise a fraudulent participatory financing platform and to be able to recognise the first signs of failure.
However, the details have multiplied:
– The first indication that emerged with the Housers platform is the systematic postponement of the project’s expiry date in exchange for default interest, which is a form of compensation for the damage caused by the postponement of the project’s expiry date. If the platform is not honest, there is a strong chance that it will eventually announce the failure of the project. This has already happened with many platforms, e.g. Wisefund continued its activity by multiplying late payments and justifying its loss of capital by the risks linked to the investments. The objective behind providing interest on arrears was to be able to continue its activity without raising doubts among customers.
Yet, the failure or success of the project is not the responsibility of the platform, as it only acts as an intermediary and not as a financial advisor, according to the Spanish law 5/2015 of 27 April. And despite the selection of projects it is forced to make beforehand, it is in no way responsible for their success or failure. But then, how do you turn against the platform if there is reason to suspect that it plays a role in the failure of these projects?
Fictitious projects organised by the platform
For example, the participatory finance platform was able to set up fictitious projects with the aim of collecting funds that it does not use in any way for this project and without any desire to reimburse the contributors. This is an illustration of the notion of misappropriation of funds. The investors must succeed in proving that the funds recovered by the platform were not used to finance the project. But several problems arise. Firstly, Housers’ investors have no control over the use of the funds invested, so it is difficult for them to prove that they were misappropriated. The second problem is that the failure of the project is a risk inherent to participatory investment, therefore, investors can not rely on the simple failure of the project to engage the responsibility of the platform, it will be necessary to demonstrate an additional act on its part that would have led to the failure of the project, for example, it may be the failure to send the funds collected to implement the project.
The second issue with the Housers participatory finance platform is its lack of transparency.The Law 5/2015 of 27 April regulating participatory finance in Spain imposes an information obligation on platforms towards their investors, its Article 70 states that “The project must contain at least a description of it in a concise manner and in non-technical language, which provides the necessary information to enable an average investor to make an informed judgement on the decision to finance the project.” However, in the case of the Housers platform, it does not disclose the names of the companies carrying out the renovations of the real estate projects or the cost of these renovations. This implies that investors do not have the necessary information to make informed decisions or to monitor their investments. The regulations in force distinguish between accredited and non-accredited investors, the protection that the platform must provide to the latter is much more important, for example, the platform must control more thoroughly the investments of non-accredited investors investing a maximum of 3,000 euros in the same project and up to a total of 10,000 euros per year in the same real estate crowdfunding platform in Spain.
Clear and unambiguous transparency law
As an investor, being aware of your situation is therefore fundamental, as the grounds you can invoke against the platform during legal proceedings will differ depending on the obligations to which it is subject and which it has failed to comply with. For example, Article 81 of Law 5/2015 states that:
“1. Investors may be accredited or non-accredited.
2. In the case of the projects referred to in Article 50.1.b) and c) of this law, the following shall be considered qualified investors: .
a) The natural and legal persons referred to in letters a), b) and d) of article 78 bis.3 of the Stock Exchange Act 24/1988 of 28 July..
b) Entrepreneurs who individually meet at least two of the following conditions:.
1. That the total assets are equal to or greater than EUR 1 million, .
2. That its annual turnover is equal to or greater than €2 million, and
3. That its own resources are equal to or greater than 300,000 euros..
c) Persons who fulfil the following conditions: 1.
1.º Accredit annual income of more than 50,000 euros or financial assets of more than 100,000 euros, and.
2.º request in advance to be considered as accredited investors and expressly waive their treatment as non-accredited clients. […].
d) Small and medium-sized enterprises and legal persons not mentioned in the previous sections when they comply with the provisions of number 2 of the previous section.
3. In addition to the aforementioned persons, natural or legal persons who certify the provision of financial advice on the platform’s financing instruments by an authorised investment services company shall also be considered qualified investors. 4.
4. Any investor who fails to comply with the provisions of sections 2 and 3 of this article shall be considered unlicensed.”
It can therefore be seen that in order to qualify as an authorised investor it is necessary to meet extremely precise conditions and the characteristics of this type of investor differ between each regulation
Secondly, it seems that Housers gave its investors wrong information: the platform led them to believe that they would be owners of part of the company in which they contributed their capital, in reality they are only partners. This difference is considerable in the event of the project’s failure, especially with regard to the recovery of the loaned funds. The fact that a party to a contract transmits false information to his co-contractor in order to induce him to conclude the contract constitutes fraud, which is a defect of consent. The penalty for this type of error may be the nullity of the contract.
Problems around the recovery of funds
To back up their claims, investors contacted the Spanish National Stock Market Commission (CNMV) and denounced several infringements, including the lack of transparency but also the fact that the platform was involved in the management of investor funds, an activity prohibited by regulations that limit the activity of participatory finance platforms to that of intermediary. This is not the first time that the CNMV has looked into the Housers platform, it was condemned in 2019 for the same facts that it is accused of today: “For the commission of a very serious offence, characterised in Article 92.1.d) of Law 5/2015, of 27 April, on the promotion of the financing of companies, for the exercise, not only occasional or isolated, of activities that do not appear in your authorisation; fine in the amount of 75,000 euros. “.
As the participatory finance platform Housers has already been convicted for carrying out activities without authorisation, if the CNMV characterises the fraud a second time, the risk is that the platform will be stripped of its authorisation, so it will no longer be able to carry out its activity. In fact, Article 92 of the law regulating participatory finance considers it a very serious offence for participatory finance platforms to carry out activities that are not included in their authorisation. As the penalty for this offence can go as far as the withdrawal of the authorisation to carry out the activity, this implies that investors who have brought an action against Housers must take into account the hypothesis that the platform would lose its authorisation in order to be able to bring their action.
The Housers platform now seems to be at the heart of various lawsuits and has already been condemned: on 27 January 2020, the Court of First Instance of Valencia issued a decision by which it sanctioned the company. The judge sentenced the participatory finance platform Housers to pay €2,600 with the additional payment of interest to the claimant. Although this sum seems derisory compared to the platform’s turnover, this decision remains a victory as it demonstrates that Housers is not regular in all its activities and offers a glimmer of hope to all the aggrieved people who bring an action against it.
There are therefore many ways in which investors can support their case. Similarly, they have as much scope for seeking civil as well as criminal prosecution of the platform. It is only necessary to determine which action has a greater chance of success and which interests are at stake.
Eternoscorp remains at your disposal to support you in the event of a dispute with a crowdfunding platform and to guide you in order to define which procedures are the most suitable for your situation.