Wellington Capital PIF/Octaviar (MFS) PIF

I have been following the NZ experience of GFC and their response to similar Funds destruction and I think that PIF investors might like to read this article.

Sorry I cant post the link...too few posts on my behalf but if you
News google search Bridgecorp theres a very good article Titled
"Cleaning Up the Markets" on NZ Herald site written by Karyn Scherer
Mon October 4th.



to quote it
""We're regulating financial advisers for the first time - in 2010. Where have we been for the last 20 years?"cont..........and

"Former British Labour MP Bryan Gould, a Kiwi who also returned home, to head Waikato University, got it right when he suggested that the real key to politics was economics, he says.'cont.........and

"With financial regulation, it's important to understand that markets act as an organism, not as a machine, he believes. Therefore, it's a waste of time taking a piecemeal approach to fixing them. For that reason, he would also like to see a licensing regime for fund managers, especially as we are trying to persuade more people to save." cont..................

RBOS mentioned in this impressive article which tackles many issues that face ASIC today and that you are now discussing.

Sorry that I cant post links here.
Perhaps some-one else could help me out.
Cheers.

LTD here is the link http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10677347

Thanks Marcom.

Only a few more posts and I can post links for myself.

That article indicates to me, that countries are attempting to improve the flawed systems that so many have suffered from.
The courts and lawyers are into it, the journos are all over it, the street smart guys are checking it out and the population are investigating on every level with a thirst for transparency and a fair go...
The internet has given us the tools to talk, compare and learn.

I agree that politics has a lot, lot,lot... to do with economics but has that ever been appreciated?.....will we ever get politians that are adequately street wise?
They certainly have an enormous team on the internet,working for a better financial system..

Recently I attended the City Pacific EGM as an interested observer .They have a similar situation to ours in that the remaining assets require development in order realise their value .It should be acknowledged that BalmainTrilogy were prepared to give an honest assessment . They stated that the could no longer act as a Fund Manager after they had fully examined the Fund . This had been their orignal intention , but they now considered the only sensible course of action was to develop some of the properties , where possible, or maximize the asset value and sell to a developer. In other other words an orderly wind up , with the the interntion of obtaining the best possible return available over a period of approx 5 years .They cited the Martha Cove asset as an example of how difficult it would be for a Fund Manager to develop and sell the assets .This particular asset has huge potential ,but selling the residential lots on an individual basis , once fully developed ,could take a great many years .

I think everybody is now agreed ,that the above, orderly wind up scenario ,is the only sane course of action for our Fund., Mutchies has pointed how naïve ( or perhaps cunning) WC has been to make an agreement whereby the Wooloogong cash is only released when the last unit has been sold , As Duped has stated ,WC could keep this type of situation going for years with our other properties ,without ever formerly acknowledging that our Fund is a non liquid entity , slowly feeding of our remaining assets like a bloodsucking leech, with legal and other expenses.

The longer this travesty goes on the harder it will be to dislodge JH prom her perch.

This is another example of other countries acting against white collar criminals faster than Australia. Note the dates of French rogue trader Jerome Kerviel’s actions.

Associated Press 5.10.10: “Kerviel was found guilty on charges of forgery, breach of trust and unauthorised computer use over claims that he covered up bets worth nearly 50 billion euros between late 2007 and early 2008.”

Wake up, ASIC!

In the news today..

http://www.moneymanagement.com.au/news/fund-manager-conflicts-left-untouched
''....The corporate regulator’s moves to tighten the rules for responsible entities of managed investment schemes are positive, but don’t go close to addressing the conflicts of interest inherent in the current structure, according to Equity Trustee’s head of funds management, Harvey Kalman...''

''....Kalman said recent investment collapses, and the decision from Justice J Judd, had highlighted the need for a “broad review of licensing criteria for responsible entities”, with the current approach “clearly failing many investors”.

''.....Kalman said while the financial strength of a responsible entity and the strength of those running the fund are important, “there are other areas requiring examination that are just as critical”.

In particular, there is a need for “a greater degree of separation between a fund manager and the responsible entity”.

He pointed to the role of the responsible entity in funds such as the Astarra Growth Fund and MFS Premium Income Fund as examples of the failure of the model.

“The common denominator in these cases is an internal responsible entity which, as Justice Judd said, can be severely conflicted.”

also...
http://www.asic.gov.au/asic/asic.ns...ment scheme responsible entities?opendocument

This could be an avenue to raise our concerns....

k.smith said:

In the news today..

http://www.moneymanagement.com.au/news/fund-manager-conflicts-left-untouched
''....The corporate regulator’s moves to tighten the rules for responsible entities of managed investment schemes are positive, but don’t go close to addressing the conflicts of interest inherent in the current structure, according to Equity Trustee’s head of funds management, Harvey Kalman...''

''....Kalman said recent investment collapses, and the decision from Justice J Judd, had highlighted the need for a “broad review of licensing criteria for responsible entities”, with the current approach “clearly failing many investors”.

''.....Kalman said while the financial strength of a responsible entity and the strength of those running the fund are important, “there are other areas requiring examination that are just as critical”.

In particular, there is a need for “a greater degree of separation between a fund manager and the responsible entity”.

He pointed to the role of the responsible entity in funds such as the Astarra Growth Fund and MFS Premium Income Fund as examples of the failure of the model.

“The common denominator in these cases is an internal responsible entity which, as Justice Judd said, can be severely conflicted.”

also...
http://www.asic.gov.au/asic/asic.ns...ment scheme responsible entities?opendocument

This could be an avenue to raise our concerns....

Click to expand...

It is my understanding that Anthony Stanton successor is Mr Mark Halle who is the fund manager for a number of funds managed by Wellington Capital Limited. I am also of the understanding that KordaMentha are no longer involved in the management of a particular substantial PIF asset of which WC are 'mortgagee in possession' as Wellington Capital is now controlling these entities as “(Controllers Appointed)”. I also understand that the particular substanial property referred to has gone backwards financially in relation to previous projected income streams with serious staffing and management issues while under Wellington Capital control as RE. Wellington Capital will have to be under close scrutiny I would hope'
So...... draw your own conclusions.

Seamisty

Re K Smith's post above: A brief coverage of Justice Judd's decision on 6 September 2010 in the case Lachlan Reit Limited v Garnaut & Ors [2010] VSC 399

Supreme Court warns on conflicts of interest
By Lucinda Beaman on 24 September 2010 Money Management

http://www.moneymanagement.com.au/news/supreme-court-warns-on-conflicts-of-interest

..."Justice Judd’s statement referred to a case brought by a property fund manager against Melbourne adviser Chris Garnaut, director of Garnaut Private Client Advisers, and Century Funds Management and its advisers, Castle Partners.

The case was brought by Lachlan Reit, a wholly owned subsidiary of the Becton Property Group, following Garnaut’s efforts to hold a meeting of investors to propose replacing Lachlan Reit with Century Funds Management as the RE of two unlisted property trusts.

Garnaut and his clients ”” who held a considerable proportion of the funds ”” were concerned that Lachlan Reit’s ability to function as manager was potentially compromised by its “inseparable relationship” with the Becton Group, which was under significant financial duress.

As acknowledged in Justice Judd’s decision, were the Becton Group to slip into insolvency or an administrator appointed Lachlan Reit would be regarded as an asset of the group, even though the assets under its management were not.

Lachlan Reit tried to restrain Garnaut from convening the meeting on the basis that he, Century and Castle Partners were circulating misleading or deceptive information that would influence investors’ votes, among other concerns.

Justice Judd said Becton was “quick to respond” to that perceived threat by preparing contradictory material. In disseminating that information, both Lachlan Reit and Becton strongly advocated a vote against the resolution to remove Lachlan Reit as RE.

Justice Judd said investors were entitled to meet to consider the resolution, and that “the conflict of duty and interest, evident in the position of the plaintiff, should cause it to maintain a neutral position in the meeting process”.

However, he found that as Lachlan Reit and the Becton Group were fighting for Lachlan’s survival as the manager of funds, they were not in a neutral position. Justice Judd found that the plaintiff’s attempts to block the meeting came from a place of “profound, irreconcilable conflict, between its duty to investors and its self interest”.

Justice Judd said where the distribution of information to investors was concerned, the fact that Lachlan Reit had “chosen to engage in a debate advocating for its own survival” caused him to conclude that a “clean process” for the delivery of the corrct information was “illusory”...."

Marcom

ASIC responds to collapses Colin Kruger
October 7, 2010

MORE than two years after $21 billion worth of unlisted mortgage schemes began imploding under the weight of the global financial crisis - and in some cases, with allegations of mismanagement and fraud - the corporate watchdog has finally acted.

The Australian Securities and Investments Commission published a consultation paper yesterday outlining proposals to ''further improve disclosure for retail investors considering investing in unlisted mortgage schemes'' and ''address certain risks associated with mortgage schemes''.

Changes to disclosure are unlikely to prevent a repeat of the debacle surrounding the collapse of City Pacific and MFS.

Advertisement: Story continues below More than $1 billion has been lost by 20,000 investors in mortgage schemes connected with the Gold Coast property groups - the MFS Premium Income Fund (PIF) and City Pacific's First Mortgage Fund (FMF).

ASIC has taken legal action to claw back up to $147.5 million from MFS executives. The money was allegedly siphoned from the Premium Income Fund to bail out an MFS group.

ASIC claims that the executives later fabricated and backdated documents to try to legitimise the transactions.

Full Article: http://www.smh.com.au/business/asic-responds-to-collapses-20101006-167wu.html

Last month, the new managers of the First Mortgage Fund said that some of City Pacific's distribution practices fitted the definition of a ''Ponzi, or pyramid, scheme''.


I have absolutely no doubt that we would find a similar situation
in the PIF , If our class action solicitors and IMF were allowed to examine the books, as had been promised by WC.

ASIC finally moves on mortgage funds
Scott Rochfort Business Day Sydney Morning Herald
October 7, 2010
http://www.smh.com.au/business/asic-finally-moves-on-mortgage-funds-20101006-167wv.html

"The Australian Securities and Investments Commission has again displayed its lightning-fast reflexes by releasing a consultation paper on the unlisted mortgage fund sector.

More than two years since tens of thousands of investors in various funds, such as the City Pacific First Mortgage Fund and MFS Premium Income Fund, were blocked from redeeming their savings, the Tony D'Aloisio-led ASIC has finally cottoned on to something.

The corporate grime fighter noted in the paper yesterday that it ''found there was a high level of inconsistent disclosure'' in the withdrawal arrangements from mortgage funds, in which a total $21 billion was frozen in 2008.
Advertisement: Story continues below

''The responsible entities adopted different interpretations of what constitutes a 'right to withdraw', particularly in relation to frozen schemes and contributory mortgage schemes,'' the commission said.

The many investors who still have their life savings trapped and rapidly eroding in various mortgage funds will no doubt be heartened at the fast progress the corporate grime fighter is making.

ASIC in the consultation paper noted how it engaged with the managers of unlisted mortgage funds between October and November 2008 to ''assist them to implement the benchmark disclosure in line with ASIC's implementation timetable''.

The regulator then reviewed early last year the product disclosure statements in the mortgage fund sector ''to check that disclosure against the benchmarks was adequately made to retail investors''.

Now 21 months later, the commission has recommended tougher disclosure benchmarks to ''improve the consistency and quality of disclosure by responsible entities of unlisted mortgage schemes and to enhance investor confidence''.

The regulator is seeking feedback and hopes to release a ''regulatory guide'' on March 31 next year, more than three years after the unlisted mortgage sector started to implode.

In a press release the ASIC commissioner, Greg Medcraft, remarked: ''Changes in market conditions have led to a reassessment of the risks and business practices in this sector.''....

TOO LITTLE VERY VERY LATE!

Jadel said:

Last month, the new managers of the First Mortgage Fund said that some of City Pacific's distribution practices fitted the definition of a ''Ponzi, or pyramid, scheme''.

I have absolutely no doubt that we would find a similar situation
in the PIF , If our class action solicitors and IMF were allowed to examine the books, as had been promised by WC.

Click to expand...

Not directed at you Jadel but I vaguely recall reading re the Madoff scheme that, in the US, money can be recovered from investors. I.e. us. I'm not sure about Oz. If so, then what about the tax paid on the 'income'.

Link for the ASIC page is http://www.asic.gov.au/asic/asic.nsf/byHeadline/10-209AD%20ASIC%20releases%20proposals%20to%20strengthen%20disclosure%20by%20unlisted%20mortgage%20schemes?opendocument

What's the point of their proposal when the next batch of retail investors cross paths with the Commonwealth branded 'AFS licenced' pushers who will talk down all the risks and warnings. ASIC will merely perpetuate it's failure to protect investors.

Just like the registration of the Fortress charge failed us. So what if there was a charge. MFS was out there telling the world that the YVE loan wasn't covered by the charge. Until it changed its mind at the 11th hour. Apparently that's OK. Epic legislative failure.

How about some big fines for a few directors/execs of the RE AND financial advisors AND then bunging them in jail. That'll "improve the consistency and quality of disclosure by responsible entities of unlisted mortgage schemes and to enhance investor confidence" pretty fast.

Give em an inch and they'll take the whole rope. What a farce. A superficial patch and a thick coating of 'consultation' whitewash. We'll still be here arguing over the interpretation of terms like 'right to withdraw' in the next millenium.

Where's the legislation for financial advisors 'duty to put clients financial interests before their own' up to? It's nearly a year since Ripoll's recommendation. I can't believe the legislation that gave birth to PIF was unleashed before such a duty was in place.

We pay our taxes so you lot can try and protect us from 'misleading and deceptive' conduct. So get into the ring and start stinging some of them and locking them up. If not then pack your bags, find another job and stop taxing us so much. We can look after ourselves better if not carrying monkeys on our backs. The French and Americans have already locked a few up. Why are our financiers so precious. Like sacred cows. Like wayward footy players. Revered like Ned Kelly and Melbourne's Underbelly. Or are you hiding something?

Take ASIC's proposed benchmark 5: asset Valuation:

- a valuer to be a member of an appropriate professional body in the jurisdiction in which the relevant property is located; [And who's looking after the conflict of interests of the professional body?]
- a valuer to be independent; [Is there a bench mark for the term 'independent'? Or is ASIC leaving that for improvement after the next disaster?]
- procedures to be followed for dealing with any conflict of interest;[What? Like PIF's compliance committee?]
- rotation and diversity of valuers [Is there a bench mark for the terms 'rotation' and 'diversity'? or are you leaving that for improvement after the next disaster?];
- in relation to security property for a loan, an independent valuation to be obtained:[Is there a bench mark for the term 'independent'? Or are you leaving that for improvement after the next disaster?]
− prior to the issue of a loan:
--for development property, on both an ‘as is’ and ‘as if complete’ basis; and [Good. But what about the RE shopping around for the most favourable valuers. All formal and informal valuations given should be disclosed. Recall that CBA was busted recently for using one advisor for Oz home affordability and another for the foreign home affordability figures. There's your financial leaders for you.]
--for all other property, on an ‘as is’ basis [see above]; and
− within a month after there is a decrease in the value of the security property, if the decrease is likely to have caused a breach of loan covenant [When do they have to disclose it? Do they need to disclose the ID of the property?].

Insipid. And what's the point of all this when you can't get out of the fund without taking a massive loss?

How about estoppel? That'll slam the doors quickly on the fingers of the hustlers. Where was estoppel in the Octaviar decision?

Well well well. The High Court's Octaviar decision isn't as universally celebrated by the law fraternity as my google searches to date have suggested.

http://lawmanship.blogspot.com/2010_10_01_archive.html

I'm not on my own.

There should be powers available to jail any RE guilty of making exaggerated verbal forecasts if they knew at the time that those claims were actually fantasy..

selciper said:

There should be powers available to jail any RE guilty of making exaggerated verbal forecasts if they knew at the time that those claims were actually fantasy..

Click to expand...

SHEE ITE selciper!! The building industry would well and truly be stimulated if that was the case. The existing infrastucture would never be able to house the influx of those found guilty!!
Seamisty

Duped, here are a couple of quotes from an old Crikey article I'm sure you will appreciate:

ASIC caught waving horses through gate
Friday, 12 September 2008 Crikey
Michael Pascoe writes:

"A penny please for every story about the Australian Securities and Investments Commission shutting the gate after ponies decamp – but they’re wrong: ASIC has been caught removing the hinges and waving the nags through....

Yet this appalling story of gross stupidity is only a symptom of a deeper malaise  ”” an apparent lack of any willingness by ASIC to be anything more than a dung beetle, carting away some of the mess long after the event and doing nothing to prevent it...

What the Asset Life story and Michael West’s plea for ASIC help for investors in the MFS graveyard and the reports that cricketer Craig McDermott may have “misrepresented his assets” to Bridgecorp and the story about ASIC being warned about ABC Learning’s dodgy accounting and ASIC being warned about the whole Firepower racket and a dozen similar yarns ”” what they all do is underline the pathetic and not-even-reactive nature of ASIC.

Where’s the urge to get on the front foot, kick down doors, drag scumbags in for questioning, utilise the media the way Al Fels used to at the ACCC, name-and-shame-and-throw-the-legal-book-at-them?

We could do with an Elliot Ness who’s not afraid of making enemies, instead of an overly cautious, legalistic bunch of procedure-followers happily sitting back and making a profit for the federal government out of fees and charges levied on legitimate businesses.

Parking police do more."

This article was published 2 years ago AND STILL NOTHING HAS HAPPENED!

http://www.crikey.com.au/2008/09/12/asic-caught-waving-horses-through-gate/

MARCOM

seamisty said:

...I am also of the understanding that KordaMentha are no longer involved in the management of a particular substantial PIF asset of which WC are 'mortgagee in possession' as Wellington Capital is now controlling these entities as “(Controllers Appointed)”. I also understand that the particular substanial property referred to has gone backwards financially in relation to previous projected income streams with serious staffing and management issues while under Wellington Capital control as RE...
Seamisty

Click to expand...

I was trawling about in some old Crikey articles on MFS and found this quote in an article "Time to put MFS out of its misery" by
Stephen Mayne Friday, 8 February 2008 Crikey:

"...Take the suspended $770 million MFS Premium Income Fund. CEO Guy Hutchings came out with all sorts of platitudes in Crikey on January 31, but the fact remains that this vehicle has been lending to various risky developments across the country, many of which have a connection to the MFS group.

There is now a mad scramble over this cash with investors wanting out and sub-contractors of developers wanting payment. The very colourful Jim Byrnes is even in there negotiating with Korda Mentha on behalf of various aggrieved subbies..."

Seamisty, Is this the same Jim Byrnes and the same substantial property?

More trawling in the Crikey archives:


MFS flogs control of Stella to CVC
By Stephen Mayne, Monday, 4 February 2008 Crikey
http://www.crikey.com.au/2008/02/04/mfs-flogs-control-of-stella-to-cvc/

"...All this cash (ie Stella 65% sale) will go to repay short term debt, but the problems go a lot deeper because the MFS board basically used the suspended $770 million MFS Premium Income Fund as a private bank to fund development projects all over the place, including many with links to the broader MFS empire.

Word is starting to circulate that MFS was lending the funds and then recovering some of them in advanced profit sharing fees before the profits had actually been made..."

Now add the recent evidence of Craig White in the Octaviar liquidators examinations as reported in Fund used to cover MFS shortfall, NSW Supreme Court told Bridget Carter The Australian August 17, 2010
http://www.theaustralian.com.au/bus...tfall-court-told/story-e6frg8zx-1225906069116

"...Mr White was asked if he was aware that Management Finance had set up a margin loan facility using as security units in the PIF. Mr White agreed that "on the face of it" this would breach PIF's compliance plan, which required transactions to be in the best interest of security holders.

When asked if PIF unitholders would receive a benefit from this, Mr White said "no"..."

Stephen Mayne reported this two and a half years ago! The evidence or at least some of it is now a matter of court record - WTF is ASIC????

MARCOM

marcom said:

There is now a mad scramble over this cash with investors wanting out and sub-contractors of developers wanting payment. The very colourful Jim Byrnes is even in there negotiating with Korda Mentha on behalf of various aggrieved subbies..."

Seamisty, Is this the same Jim Byrnes and the same substantial property?

Click to expand...

It would more than likely be the same Jim Byrnes and the same property but my understanding is Mr Byrnes has had no connection to this property for quite some time although I think he may have been trying to re kindle some contact with the original developer prior to the ALF PIF takeover offer in the hope to garner some leverage/support for the ALF bid. My understanding is Mr Byrnes may have been over stating his involvement. He definitely has no current connection to the property. (Wellington Capital has managed well enough on their own to stuff this one up!) Seamisty