How refit fraud is hurting yacht owners and the industry.
The yachting press buzzed in 2016 about Anodyne, the 98ft motor yacht being lengthened and rebuilt in South Florida. The project manager was quoted as saying the owner wanted “the finest yacht ever created” for the size of vessel, and that it would exceed class and flag state standards. From all accounts, the enthusiastic owner appeared to be all-in for the monumental refit. When the yacht would launch in 2017, she would be a testament to the high quality of American artisanship.
Three years later, in August 2019, with fabrication just 65 percent complete, all work ceased and the lawsuits began. The metal fabricator sued the owner, who turned around and countersued the fabricator, then sued the project manager, shipyard and naval architect. What unraveled in the court filings are allegations of bribery — with Rolex watches, trips, prostitutes, helicopter lessons, even a house — kickbacks, fraudulent invoices, inflated commissions, deficient work and plain old ineptitude.
The case against the project manager was closed when he declared bankruptcy, while the other cases are still awaiting their day in court. What is known, though, is the owner paid $62,132,970.32 for just the metal and pipe work. Some estimate he spent more than $100 million in total — for a 110ft yacht that was never finished.
This is certainly a worst-case scenario for an owner and begs the question: how did it get to that point? “Olderboater” on yachtforums.com put it well when he posted: “What continually amazes me is that wealthy owners of boats, who have been successful in business … use none of their basic business principles when it comes to boats. They don’t do due diligence. They don’t have adequate checks and balances. They just toss money in the direction of the glitter.”
John McCaughey of John Francis International in Fort Lauderdale has seen the corruption firsthand. One of the specialties of the former captain — now broker, owner’s rep and project manager — is refit fraud and theft investigations. In one case, he took over a large motor yacht project when it was discovered that the project manager had embezzled hundreds of thousands of dollars and squandered millions more. After a vendor reported a $200,000 kickback, the owner showed up at the shipyard one morning with a police officer and demanded his money back; by 3:30pm, $420,000 had been wired to the owner, who never prosecuted. A month later, John spotted the same project manager at another shipyard — on a bigger boat.
“Owners just want to cut their losses (and don’t prosecute), but until someone goes to jail, this will continue,” he says.
That particular project got off on the wrong foot with an inadequate pre-purchase survey that failed to note some major corrosion issues, which is something John says happens all too often and translates into a significantly higher refit price tag and ultimately higher purchase price.
Speaking in general and not about any specific case, John lists: “ghost crews” of workers that don’t exist; “phantom services” that weren’t performed; overcharging; expensive warranties that aren’t honored; counterfeit parts and materials; and shell companies that declare bankruptcy before a project is complete, as some refit scams.
Labor is another issue. The world’s fleet of yachts over 98ft has more than tripled in the last 25 years, according to BOATPro data. Maintaining this fleet takes a skilled workforce. “It’s overwhelming the vendors. There may be enough of them, but not enough are qualified,” John says, pointing out the lack of vocational training and apprenticeships in South Florida. Meanwhile, unskilled day laborers can cost the same as skilled ones. “There are no graduated labor rates in this town. Vendors typically charge a flat labor rate for every worker assigned to a yacht, irrespective of whether they have experience, licensing and certifications.”
Mitigating the risk of fraud starts with proper vetting of a project manager, John says. “You should ask them for references. Ask them, ‘What is your methodology for reporting scope of work and timelines, and what kind of invoicing do you require?’ The invoices should be really detailed with photographs.” He adds that there also needs to be “document version control,” which means properly coding quotes, invoices and change orders so they can be categorized and tracked.
Then it’s a matter of “trust but verify,” John says, recommending third-party oversight. “There has to be a consultant peeking over the project manager’s shoulder, maybe once a week, looking at invoicing, scope of work and labor hours.
“People just shrug it off with, ‘They’re billionaires, they’re not going to miss $100,000 here and there,’ and they take advantage,” says John. “The life expectancy of a new boat owner in this industry is just two years. I want to help turn this thing around.”