Property manager StayMint fined for defrauding landlords

The property management arm of ASX-listed Ariadne has been fined by the Brisbane Magistrates Court for defrauding landlords, after finding the property and investment group guilty of 231 counts of dishonestly converting trust money for its own use.

The court found StayMint, which trades as Mint Hotels, wrongfully converted $141,466 of money – that should have gone to landlords – into its own trust account.

The landlords owned apartments in a Broadbeach complex, Carmel by the Sea.

David Stevens, chairman of the Carmel by the Sea body corporate committee, said problems began when Mint tendered for management rights and tried to take over the rentals by offering a "lease back" where the landlords got a fixed amount from the property manager to let their unit at prices "far in excess" of anything offered before.

"The guests would arrive and they would put them into other owners' units which were not on their list of lease backs," Stevens says.

Mint then leased the units regardless of whether they were being rented, ensuring the apartment owners who signed up had a constant income stream.

But the landlords then discovered people had stayed in their apartment, but the stay was not recorded in the monthly statement to the owner, and the rent not paid.

According to BRW, the irregular financial records were discovered after the Office of Fair Trading commenced an investigation and raided Mint's office, seizing a hard drive and trust account records.

The court found Mint booked tenants into rooms in Carmel by the Sea and then, after the guest had checked out, changed the records to indicate the guest had stayed in a leaseback unit.

Ariadne chief executive Murray Boyte said Ariadne executives did not have any knowledge the scam was taking place.

"This was a flagrant breach of our policies by an employee. They were acting outside of our authority," he says.

Boyte says the Office of Fair Trading investigation confirmed Ariadne's directors were unaware of the employee's actions, which went undetected by the regular and mandatory independent audits of the trust account records.

"The directors were shocked to learn of the employee's conduct," Boyte says.

"As soon as they were made aware of the allegations, they ordered a thorough internal investigation into the matter to determine the extent of the employee's unlawful activities."

Boyte says Ariadne has cooperated fully with the Office of Fair Trading and worked to ensure owners were compensated for the misallocation of funds.

Ariadne's co-operation with the OFT and its unblemished record were taken into account by the court in imposing a fine of $50,000 after Ariadne repaid $75,000 of the misappropriated money owed to 34 affected unit owners.

But David Stevens, chairman of the Carmel by the Sea body corporate committee, says the fine is disappointing as the maximum penalty available was in excess of $3 million.

"[Ariadne] has pleaded guilty to the charges as a company but nobody has been charged as an individual," he says.

"But as the magistrate said, Ariadne will pay a very heavy price in public opinion."

Stevens says the result is a victory for the landlords but the penalty could have and should have been more.

"Ariadne is a big company with deep pockets and they have given us six years of hell," he says.

This article originally appeared on SmartCompany.