The firm due to take over Shoreham Airport tomorrow is being investigated over a suspected £10 million fraud.

The Erinaceous Group was forced to put out an announcement after the market got wind of a Serious Fraud Office investigation into an employee allegedly overvaluing a property so he could inflate borrowings against it to line his own pockets.

Erinaceous is taking over Shoreham Airport on a 150-year lease and the alleged fraud may prove embarrassing for the board of the property services company.

An Erinaceous spokesman said: "As far as the airport goes it is not an issue. The senior management of the company I know are incredibly excited about this project and there is a lot of scope for exciting changes at the airport.

"This is a big company with a £400 million capital and this will not affect things at all."

The company said City rumours senior directors had been arrested were "unfounded".

But it admitted police had raided the house of one of its valuers over a suspected mortgage fraud.

The company, which was set up in 1999, is planning extra flights to European destinations such as Paris, Amsterdam and Edinburgh from Shoreham, now known as Brighton City Airport.

These are linked to proposals for a runway extension to enable small jets to take off and land.

The scandal broke on March 10 when the Cheshire Building Society revealed it had made a £10 million provision against a suspected fraud relating to a commercial loan, forcing it into a net loss of £1.3 million for 2005.

A property had been valued at £10.5 million to £16 million, only to be reassessed at closer to £2 million.

Last week, police raided the home of Ian McGarry, the City of London head of valuations for Dunlop Haywards, part of Erinaceous.

He was arrested then released without charge.

Erinaceous, which suspended him on the same day, said it had no knowledge of the allegations until the arrest.

It described the incident as a one-off which did not reflect on the calibre of its management or internal controls.

But questions were being asked in the City yesterday about the possible ramifications for Erinaceous.

Friday, March 31, 2006