Embedded Files
During the three to four month period following the announcement that LMIM were in administration there occurred what has been referred to in some quarters as a 'fight for turf'. The bad news of administration was followed by the bad news of the administrators discoveries which was followed by the bad news of their costs which was followed by claims that the administrators were not suitable that was pursued through the courts. It went on and on and the costs were going up and up. Costs that were being charged to the already emaciated funds. Costs that in some cases were doubled as administrators or trustees were replaced after court action. It was as if the vultures had descended on the cadaverous remains of Drake's lavish, ugly, self indulgent party and investors were forced, tied and bound, to watch, punishingly, from the cruelest seat in the house. The most optimistic of aggrieved investors were in despair and the pessimists amongst us were thinking to jump from the balcony.
As an aggrieved investor, one reflects on this period now with disbelief. Apart from having a set of regulations that are properly enforced to prevent re-occurrence there has to be a much cleaner, sharper and precise process for moving into the recovery phase. Australia surely must see this. LM investors and their story to date have nothing to commend Australia with and everything to condemn them with. They will write their own message over time and it will be, as bad news always is, seized by the media and stamped indelibly across the profile of, contrarily, a proud and great nation.
Yet Australia could still scoop this up and, with some clever maneuvering, turn this around. Every disaster comes with an opportunity to create a hero, a champion, and the LMIM disaster is no exception.
The Madoff scandal, which broke in December 2008, was a beast of different nature and magnitude (approaching 20 billion USD of principal) however there is one illuminating difference in approach to resolution for investors worth examining. The court appointed trustee for the recovery of investors funds stolen by Madoff, Irving Picard, and his team of lawyers at Barker Hostetler in New York have their bills paid from a trust funded by Wall Street and operated by the Securities Investor Protection Corp. (SIPC). In short investors facing losses due to fraudulent behavior are not penalized a second time by having their already ailing funds subject to unchallenged charges by trustees for the wide range of recovery activities. Nearly five years later the Madoff Recovery Initiative is reporting recoveries and settlement agreements to be at almost fifty percent of the defrauded amount.
Australia's position in the international investments market is in the process of taking a considerable hit as a result of the LMIM debacle. Investors, investor groups and investor institutions around the world are revisiting would be opportunities against the backdrop of revelations about how successful other people, from advisors to administrators are at placing investors money in their own pockets.
The opportunity presents itself to Australia with startling clarity. Put the investors first, you're in danger of losing many more would be investors if you don't. Create that 'Recovery Fees Fund'. Give it some rules and regulations. Establish its ongoing ability to survive with appropriate feeds from the finance industry. Remove the massive obstacle of recovery fees from investors at an already distressed status. Show it off by using the LMIM disaster to demonstrate that investors positions are revered, supporting the best possible chance of recovery and, at the same time, turning around the millions of investors, in groups or institutions or as individuals who are shunning the opportunities in Australia because of the horrors exposed by the LMIM debacle.
As a footnote to this suggestion the following questions were put to ASIC on the 7th November 2013:
Quote
Dear Sir or Madam,
I am an LMIM MPF Investor. I am alarmed at the costs the trustees are incurring and charging to the ailing fund itself in pursuing monies that are essentially investors monies. In fact it is quite clear that these costs are actually a barrier to healthy recovery for investors in this situation.
I note, now, that action appears to have commenced against the LM founder by ASIC also, presumably, in part at least, to track down monies that are essentially investors monies.
Q1. How does ASIC establish what actions it will pursue with ASIC resources including legal counsel and the associated costs and what must be pursued by the fund trustee / responsible entity with charges made to the usually already ailing fund?
Q2. To restore investor faith in a regulatory system that appears to have been caught out by the LM situation would it not be a good idea to fund trustee / responsible entity activity from a central pot? For example the United States promotes trustee fund recovery activity via SIPC financial support removing major barriers to recovery and subsequently lifting and maintaining confidence and faith in the investment market.
Finally please indicate if you are willing to endorse the publication of this enquiry and your answer on the LM Investor Victim Centre web site at https://sites.google.com/site/lminvestorvictimcentre/
Yours Sincerely,
Unquote.
27th November 2013, reply received from ASIC.
ASIC has not provided endorsement for publication of the reply. What follows is a layman's interpretation of the response:
Q1: ASIC state that they do not comment specifically about internal operational decision making. However ASIC point out that there is an information sheet available on ASIC's approach to enforcement. Information Sheet 151 from www.asic.gov.au
Q2: ASIC state that the formation of a similar body to the US SIPC is a matter for responsible entities / trustees to decide.
ASIC also comment that financial service licensees (which may include trustees and responsible entities) are required to have an internal complaint handling procedure as well as being a member of an external dispute resolution scheme approved by ASIC.
11th December 2013, further questions put to ASIC
Quote
Dear Madam,
thank you again for the reply to my questions.
As an aggrieved LM investor and a LM Investor Victim Centre lead volunteer a major investor concern is that the appropriate investor restitution and compensation actions and processes are being initiated.
From the information provided to date there is an indication that Peter Drake's activities, in regard to the LM collapse and the associated looming financial devastation for thousands of investors, are being investigated.
Information sheet 151 from ASIC suggests that a key investigation milestone is the referral of a case to the Commonwealth Director of Public Prosecutions.
Question - has this point been reached and has the case been referred to the CDPP?
Question - How will ASIC provide the assurance and confirmation, should it be determined wrong doings did indeed occur in this instance, that investigation of complicit parties (for example, banks, auditors, planners and other peripheral organisations) is being pursued along with appropriate restitution and compensation actions?
For the benefit of all investors who visit the LM Investor Victim Centre seeking confirmation and re-assurance that appropriate actions are being taken by authorities, please provide endorsement for your answers to be published at the LM Investor Victim Centre at https://sites.google.com/site/lminvestorvictimcentre/
I thank you sincerely for the patience and attention you are demonstrating during this very harrowing time for myself and many fellow aggrieved investors.
Yours Faithfully,
Unquote.
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