TWO York businessman masterminded a nine-month property fraud that lost investors nearly £2.5 million, a jury heard.

Chris Douglas and Richard William Hodgson took £1.4 million between them out of Challoner Property Development in the months leading up to the Poppleton-based business’s collapse, Paul Reid, prosecuting, told Leeds Crown Court.

Hodgson boasted to would-be investors of his wealthy lifestyle with expensive cars and watches and an American Express card with no upper spending limit. But people who believed his and fellow salesman Peter Carbert’s claims that Challoner was a successful business and who then invested in it lost everything and some went bankrupt, the jury heard. Shortly before it folded, according to the prosecution, Douglas made a “sham” sale of Challoner for £100,000 to Carl Gilfoyle in a bid to escape responsibility for what had happened to the business, which had had a turnover of £8.2 million since the previous August.

For months, its employees had been fielding calls from investors who had mostly paid tens of thousands of pounds each to buy franchises as part of Challoner’s legitimate trade in buy to let houses. Staff later told police of a “desperate drive” to get money into the business from spring 2008 onwards.

Mr Reid said: “Challoner closed down at the end of May 2008. The remaining staff went off to the pub with franchisees literally hammering on the door of the pub.”

Hodgson had told potential investors: “The last thing I want to do is take people’s money when they cannot make it (the franchise) work,” said the barrister.

“The essence of the prosecution case is that these men were involved in an enterprise which did indeed take people’s money off them, who could not make it work or Challoner did not make it work for them.”

Among would-be franchisees were a former police officer and some who had no background in sales or property, claimed Mr Reid.

According to the prosecution, Douglas took nearly £900,000 out of the business after August 2007, Hodgson took £500,000, Gilfoyle took £62,000 and Carbert took just under £74,000 after September 2007 .

Hodgson, 65, of Sycamore View, Nether Poppleton, Carbert, 55, of Woodvale Road, Darlington, and Carl Gilfoyle, 42, of Florida Street in London, all deny business fraud between August 2007 and June 2008. Douglas, who also called himself Chris Challoner, 47, of Naburn Lane, Fulford, has already admitted the charge.

Opening the prosecution, Mr Reid said: “Members of the public were in fact conned out of significant sums of money believing they were buying into a legitimate company, by being sold what was – for them at the time – a dream, to make a great deal of money relatively quickly.”

Altogether, the investors who became franchisees put in £2.5 million and only a few got any money back. The court heard when confronted by Alex Tamblyn who allegedly lost his initial £30,000 investment and claimed up to £70,000 in commission, Gilfoyle broke down in tears and said: “My family, my kids, I did it all for them.”

Gilfoyle later dispensed a few thousand pounds each to Mr Tamblyn and another investor Andrew Wakefield from a £30,000 pile of banknotes in the back of a Range Rover in the firm’s car park, according to the prosecution.

Douglas, Hodgson and Carbert had been together twice before in businesses that ceased trading after a short time, the court heard. In the 1990s they were involved in a mortgage company that persuaded members of the public to act as agents selling mortgages and in August 2000 they were involved in a company that recruited members of the public to sell websites to small businesses.

Challoner started trading in 2005 as a partnership between Douglas and Hodgson’s wife Muriel. She played no active part in the business and has not been charged.

The trial continues.