Spruikers who targeted Australian investors and SMSFs, securing more than $50m in investments for offshore funds, must now face the music.
The operators of more than a dozen offshore managed investment funds, which ASIC found to collectively comprise a single unregistered managed investment scheme, will face court next month.
Overall, the scheme contained 14 individual investment funds in far-flung locations such as the US, Hong Kong, Vanuatu, the Bahamas, Anguilla, and the Turks and Caicos Islands.
“In a decision late last month, the Supreme Court of NSW found David Hobbs of New Zealand either 'personally chose' or 'implicitly approved' of each of the individual scheme administrators including David Collard of Peakhurst, Min Hua (Lili) Li formerly of Lugarno, Hui Min (Nancy) Wu of Strathfield, Brian Wood of Davistown, Jimmy Truong of St John’s Park and Con Koutsoukos of Wiley Park and his wife Jacqueline Hobbs of Nelson, New Zealand, knowing these individuals were not sophisticated financial advisers and that most of the other scheme administrators also lacked financial sophistication or expertise,” said an ASIC statement.
“The Court found Mr Hobbs was the 'mastermind' behind the scheme with 'effective control' over all of the scheme funds and there was 'ample evidence' of improper payments out of fund monies including Ponzi payments, the payment of Mr Hobbs’ private expenses and payments to Mr Hobbs’ family and also to some scheme administrators.”
According to ASIC, Australian investors were lured into subscribing to so-called investment education packages and setting up personal offshore companies.
Investments would them be streamed through these offshore companies “in an attempt to thwart the Australian laws regulating financial services and products and protecting the interests of Australian investors”.
ASIC also alleges that the defendants made false representations as to the characteristics of the scheme and performance of the investments by creating the impression that:
the offshore investments were legal when they were illegal in Australia;
there was no risk of losing the money they invested (capital) because it was 'capital guaranteed' or 'principal protected' when in reality it was 'at risk and that because of the leveraging of those investments, it was possible … to lose more than 100%' of most invested funds; and
their investment would return likely 'around 4% per month', when it 'might make no return at all for any number of months' (in the circumstances the use of qualifications such as 'best efforts' or 'there being no guarantee' did not 'remove or counteract the misleading effect of what was said').
The regulator added that other types of misrepresentations that were made on different occasions to different investors included:
that their investment could be redeemed on 60 days’ notice after 12 months when there was no mechanism to allow this;
that the scheme was generating profits or sufficient profits to pay purported profit to the investor when it was a Ponzi payment;
investor funds would be invested in AA+ or A+ securities or the underwriting of those securities when they were not so invested; and
they would become shareholders in a company that would generate profits for shareholders through investments in China, do a commercial bond to fund a project in China and Mr Hobbs would give $200m from the proceeds of a sale of rights to the company.
The regulator first took court action against the operators of the funds in April 2010 and has also taken criminal action against several individuals who, under Hobbs’ guidance, operated a fund which raised more than $30m from about 270 investors.
The penalty hearing will be heard on 14 and 21 December 2012, and ASIC is seeking orders of disqualification from managing corporations, disqualification from providing financial service, and pecuniary penalties.