The ASIC Connection

Introduction

2001 - LMIM prospectus criticised for 'undue prominence given to proposed returns for the investment'.

LMIM prospectus criticised for 'undue prominence given to proposed returns for the investment, without them being adequately linked to the detailed forecasts and underlying assumptions.' ASIC to place an interim stop order on their original prospectus on 24 July 2001. See Report 1 below. Fittingly, ASIC display, at an early stage here, the attention to detail and re-action to mis-representation that is appropriate to their role.

What follows is a stark, factual, catalogue of ASIC negligence. Negligence completely incongruous to the stop order action in 2001 detailed above. Negligence cunningly leveraged by LMIM to the extent that ASIC became an unwitting accomplice to Australia's biggest investment management Ponzi scheme.

2002 -

Denise Brailey, of the Banking and Finance Consumer Support Association (BFCSA) warns ASIC of a suspicious investment model attracting increasing attention. Read Denise's summary of those warnings / meetings in Report 6 below. LM Investors see para 3 - sound familiar?

2002 - 2008 LMIM made a number of Product Disclosure Statements to ASIC. No evidence of ASIC periodic closer scrutiny normally indicative of a well organised policing regime.

2008 - September: ASIC introduce RG45 setting out ASIC standards for Responsible Entities in their promotional and management activities. ASIC requires disclosure reports from LMIM.

The ASIC Regulation Guidelines 45 2008 document introduces 8 benchmark elements. The document requests a minimum reporting period of 6 months (bi-annually).

• • • 1. Liquidity

      2. Scheme Borrowing

      3. Portfolio Diversification

      4. Related Party Transactions

      5. Valuation Policy

      6. Lending Principles

      7. Distribution Practices

      8. Withdrawal Arrangements

2009 -

FMIF crashes ceasing interest payments and halting redemptions.

March - the ASIC regulated LM FMIF is closed to new investors.

Mid year - FMIF redemption requests suspended.

In a later communication from LM, Document 10 below, it is made clear that liquidity was an obstacle to investor returns. Quote

'We have now determined that the Fund is not “liquid” for the purposes of the withdrawal provisions under the Corporations Act 2001.'

Unquote.

Was it ASIC's RG45 requirements and in particular the Liquidity guidelines that pushed LMIM's management of FMIF into a corner? Here is an extract from the RG45 Liquidity guidelines:

Quote

RG 45.38 The responsible entity of an unlisted mortgage scheme (other than a contributory mortgage scheme) should:

(a) have cash flow estimates for the scheme for the next 3 months; and

(b) ensure that at all times the scheme has cash or cash equivalents (but not including undrawn amounts under bank overdraft or lending facilities) sufficient to meet its projected cash needs over the next 3 months.

Unquote

What would ASIC's required, six monthly, RG45 submissions have revealed about LM FMIF Liquidity and Distribution practises?LMIVC would like to establish exactly what RG45 submissions were made by LM for the FMIF between September 2008 and March 2013. Corroborated input, where possible please, welcome to lmivc.nod@gmail.com

Was LMIM's only option to crash the FMIF as a result of ASIC's RG45 introduction?

Why wasn't ASIC all over this like a rash?

Why did ASIC allow LMIM to replicate the FMIF model under the MPF guise, predicated on higher risk 2nd mortgage positions and sell it to the world through a network of often un-licensed advisors?

This was clearly a massive break point in the drama that has played out here. The fact that LMIM is not extensively overhauled by ASIC at this point is stellarly incredulous. ASIC negligence is so heavily pronounced here that suspicion of corruption is and will be a near thought and concern of many. Absence of ASIC action at this point allowed LMIM to continue operating the heavily fraudulent MPF which ultimately led to losses of AU$350m and the destruction of 4500 MPF investors personal wealth.

May - Mr. Adrian Page, a Shanghai based advisor complained in writing to ASIC over FMIF performance and reference to Ponzi status. No known action taken. LMIVC would like to record the content of this communication but have been unable to secure that content at present. Corroborated input, where possible, welcome to lmivc.nod@gmail.com

During this period LM were busy allocating MPF funds to second mortgage positions against FMIF assets already proved to have failed as FMIF assets capable of providing required returns to investors under LM management. This alarming behaviour, a vigorously waving

red flag for any on going scrutiny by a regulator that should have been on high alert after the FMIF crash, is raised in the Trilogy report in Document 3 below at which point it had reached A$60m of cross funding. Report 11 below indicates that MPF had 19 loan facilities secured against property developments, the majority of which were second ranking mortgages.

2010 -

LMIM make their, apparently first, FMIF RG45 submission.

September - In the only FMIF RG45 submission document LMIVC are able to uncover, three benchmark elements are declared as not met. For further detail see Document 2 below.

• • • 1. Liquidity

      2. Valuation Policy

      3. Lending Principles

The ASIC Valuation Policy criteria is not met. However in their explanation LMIM pathetically proffer that some aspects are met stating 'The ASIC benchmark also requires that no one valuer conducts more than 1/3 of the valuation work for the Fund. The Fund complies with this requirement. Valuers selected to perform relevant valuations on the security property are chosen based on independence, specialist industry expertise and geographic location.'

ASIC Valuation Policy criteria states:

Quote

RG 45.65 The responsible entity should also include information about the valuation of a particular property for an unlisted mortgage scheme where a loan secured against the property accounts for 5% of more of the total value of scheme’s loan book.

Unquote

LMIM decline to provide this citing privacy reasons and commercial sensitivity. (This is noted as an area of significant concern in the Trilogy report, Document 3 below).

There is further suggestion that LMIM

failed to provide FMIF RG45 submissions at the prescribed six monthly intervals in reports from investors who were writing publicly on the Aussie Stock Forums site. See the detail in Report 2 below. However content in that report indicates there was a FMIF RG45 submission to ASIC in August 2011. LMIVC believe it beneficial to understand that RG45 content. Corroborated input, where possible, welcome to lmivc.nod@gmail.com

2012 - May ASIC introduce Version 2 of the RG45 for listed and unlisted mortgage schemes offered to retail investors. Document 5 below.

May LM was asking investors approve major changes to the FMIF Constitution (with profound implications for their investments) without the benefit of updated/current information ie no RG45 declaration since August 2011. See Report 2 below. LMIVC believe it important to record the major changes LM were asking investors to approve. Corroborated input, where possible, welcome to lmivc.nod@gmail.com

Nov FMIF auditors Ernst & Young signed off accounts for the fund in Nov 2012 with a note that the $29m Deutsche facility was due for repayment on June 30th 2013 (See Document 12 below).

Quote

Without qualifying our opinion, we draw attention to Note 2(a) in the financial report which indicates that the Scheme has financing facilities that expire on 30 June 2013. As a result there is significant uncertainty whether the Scheme will continue as a going concern, and therefore whether it will realise its assets and extinguish it's liabilities in the normal course of business and at the amounts stated in the financial report.

Unquote

Dec Williams auditors signed off the MPF accounts for year ending 30th June 2012 (See Document 13 below) bereft of any 'Going Concern' notes, comments or warnings, despite

• 1. the Suncorp Mortgage over the Maddison Estate being due on 31st March 2013 (two months earlier than closure of the Deutsche facility)

  2. $60m of second mortgage loans against assets with FMIF first mortgages raised as a questionable going concern by Ernst and Young

  3. the burden of related loans to Capalabra, Century Star Investments Pty Ltd (Hong Kong), Peter Drake & Ekard Trust.

Reg Williams audited the MPF to an ASIC format.

LMIVC acknowledge that these two items in a stand alone sense may not have triggered increased scrutiny and or action by ASIC, However if earlier serious red flags had been properly reacted to, ASIC should have, at a minimum, escalated scrutiny to investigation and uncovered the tremendous relevance of MPF omissions that contribute enormously to the fraudulent mis-informing of investors.

Dec Niall Coburn's report on MPF concerns (Seemingly commissioned by Trilogy) is submitted to ASIC. Report 3 below. No known re-action from ASICDec Suspicious sale of FMIF Asset Cairns Student Accommodation at AU$3.85m against a FMIF book value of AU$12m.. example of the seriously questionable valuation policy. Readers attention is directed to Document 14 below. No known re-action from ASIC who may not even have had awareness of this sale due to their apparent dis-interest in the worsening disaster destined to destroy thousands of mature private investors with huge 'pension' sums invested.

General

LMIM's operation of the FMIF displayed a seriously questionable valuations policy, horrific 'red lining' of Loan / Value (against already dubious valuations) that, from 2008 - 2012, moved explosively from 82% to 100% whilst FMIF loans in default went from $42m in 2007 to $516m in 2010. Items that were being reported in either requested RG45 submissions or audited accounts submissions. ASIC appeared to be unconcerned.

From 2009 LMIM promoted the MPF worldwide with brochure after brochure of the projected success ahead, demonstrating deliberate suppression of the FMIF disaster. Fraud at it's ugliest with ASIC the unwitting accomplice.

LMIM were in massive trouble. ASIC wasn't interested. LM Adminstration fee's went from $1.4m in 2011 to $11.4m in 2012. A 700% increase. LMIM making the most of ASIC's myopic approach in advance of a calculated collapse?

This is a twelve year story that shouldn't exist. A twelve year story of regulatory neglect exploited by LMIM at the immense expense of private investors and now the embarrassment of a nation.

Summary

It is completely inconceivable that the assigned financial regulatory body of the developed nation, Australia, can behave and be allowed to behave with such persistent dis-interest and dis-regard for private investors positions that one must suspect other much less visible and much less desirable factors at work here.

Generic Reference Documents and Reports

• 1. Document 1 - Supreme Court of Queensland Affidavit Document dated 10 April 2013 in which Bruce requests replacement of the LMIM with Trilogy as the FMIF Responsible Entity. Pages 3 - 9 are a copy of an ASIC extract for the FMIF and pages 10 - 36 are a copy of an ASIC extract for LMIM.

  2. Document 2 - LM FMIF September 2010 RG45 Benchmark Disclosure to ASIC. Demonstrating non compliance of three (3) out of eight (8) items from the ASIC defined list.

  3. Document 3 - Trilogy note to investors dated February 2013 highlighting serious FMIF concerns including $60m cross fundings and indication of a previously written alert to ASIC.

  4. Document 4 - ASIC RG45 September 2008 setting out standards ASIC expect Responsible Entities to meet.

  5. Document 5 - ASIC RG45 May 2012 update.

  6. Document 6 - LM MPF Summary Flyer July 2008

  7. Document 7 - LM MPF Summary Flyer September 2010

  8. Document 8 - LM MPF Summary Flyer September 2011

  9. Document 9 - LM MPF Update December 2012

  10. Document 10 - LM FMIF Update to Bond / Platform / Wholesalers 21st December 2012.

  11. Document 11 - KordaMentha 7th Update to Investors

  12. Document 12 - FMIF audited accounts for year ending 30th June 2012.

  13. Document 13 - MPF audited accounts for year ending 30th June 2012.

  14. Document 14 - Queensland Supreme Court FMIF related affidavit containing Cairns Student Accommodation sale concerns voiced in a Trilogy letter to investors written by Rodger Bacon, Executive Deputy Chairman.

  15. Report 1 - LMIM prospectus criticised for 'undue prominence given to proposed returns for the investment, without them being adequately linked to the detailed forecasts and underlying assumptions.' The concern caused ASIC to place an interim stop order on their original prospectus on 24 July 2001.

1. Report 2 - LMIM failed to provide FMIF RG45 disclosures every 6 months as required by the regulations.

2. Report 3 - Niall Coburn's 18th December 2012 MPF concerns report commissioned by Trilogy and submitted to ASIC.

3. Report 4 - Niall Coburn's submission to the Senate Inquiry into the performance of ASIC. Submissions were received until the 10th January 2014.

4. Report 5 - Canberra Times picture and report of the status of Aalto Apartments on the 1st May 2013. FMIF held a 1st mortgage and MPF held a second mortgage over the apartments.

5. Report 6 - Denis Brailey's warning of managed investment ponzi schemes in the property sector 2000 / 2001.