The Culpability Debate

Advisers are well known to position themselves where expatriates with skills in demand by a developing country are often paid a comparatively handsome salary. Expatriates with the opportunity to build capital and looking to leverage a probable tax advantage.

Exactly the money that LM sought. Advisors were paid an undisclosed amount by LMIM for attracting investors into the fund.

When LMIM called in the administrators it was soon discovered that the MPF was illiquid. As further information was made available it became clear the fund was operated as a 'Mark to Model' investment scheme. In fact LMIM's complete portfolio of funds were operated against what appears to be a 'Mark to Model' template, as opposed to 'Mark to Market'. 'Mark to Model' schemes are, in general, NOT LOW RISK. 'Mark to Model' schemes are characterised by particular operating aspects that include - Unquantifiable Assets (e.g. future property prices), Valuation Gaps (resulting in major corrections and / or suspension often to disguise a major correction). 'Mark to Model' schemes are frequently audited by major audit organisations against the internal model, which, after the implosion of a failed scheme will undoubtedly be hailed as a foul by aggrieved investors.

Whilst investors, generally accept that investments rise and fall, for investors to be told that they are likely to receive in the order of 5 cents in the dollar before expenses by the present trustee of the LM MPF suggests something much more extreme than a valuation gap.

Where does culpability lie for the looming loss of LMIM investors money?

Investors have at least three bodies against which they may have legitimate cause for pursuing compensation. Their advisor, the investment management company's regulator (ASIC) and the investment management company itself (LMIM). Investor victims should not be reluctant to come forward as claimants. All three bodies have received investors money and their combined failure has resulted in the loss of our money as investors.

Your advisor holds a great deal of culpability for your losses. You would not have been invested with LM but for your adviser! (At least in the case of the MPF). Investment risk assessment and subsequent investment advice and direction aligned with your risk perspective is a fundamental advisor responsibility. Advisor records of such are evidence of a disciplined operation. Suspicion exists in many quarters that LMIM paid advisors well above the industry norm for attracting investors to the funds. LMIM clouded this practise by moving a portion of investors monies to a 'management' fund or account from which they paid advisors. Advisor responses to clients questions around this subject are often responded to with 'your monies were a 100% invested with the LMIM Fund'.

Areas of responsibility you may want to explore in establishing your advisor culpability are:

• 1. Due diligence, content, alignment (to internationally recognised practises / standards), records.

  2. Client risk perspective, process, results, records.

  3. Objective investment risk assessment, initial, ongoing (frequency), records.

  4. Fees - how did the reward for placing investors into LMIM compare to the reward for placing investors elsewhere.

However most of us are not experts in these areas ((hence the reason we go to an advisor in the first place!) and we need to rely on the regulating authorities for ensuring fair play. Here in lies a problem for many of us as advisors are often established in areas with weak regulatory authorities and standards. As the numbers of aggrieved investors build we have the opportunity via this site to shame, at the very least, those that have played a part in creating this misery.

The Australian Securities and Investments Commission (ASIC) is the financial regulating authority of Australia. Amongst other things, ASIC holds the responsibility for ensuring fair play in organisations like LMIM. The body itself is the object of much criticism from the consumer population of Australia for what appears to be a tardy approach to many issues of concern in the finance industry of the country. One has only to visit the web site of the Banking and Finance Consumer Support Association (BFCSA) to see the extent and magnitude of concern and criticism levelled at ASIC. The concern and criticism had risen to such a crescendo that the Australian government deemed it necessary to open it's own enquiry into 'The performance of the Australian Securities and Investments Commission (ASIC)'. Submissions to the Senate Economics Committee closed during the third week of October 2013. The submissions list is accessible here . The BFCSA submission is no.156.

ASIC's under-performance has most definitely been a major contribution to the situation and the losses that LM Investors now face. The BFCSA have indicated that ASIC were informed the LMIM model was not sustainable as long ago as 2002. More recently an item at the Mister Morris site called 'April 2012' illustrates how ASIC were informed during 2012 that 'LM was a major fraud on investors'. If ASIC had acted more thoroughly and more quickly it's very likely the current situation could have been avoided.

After much concern about the non / slow reaction by ASIC to the collapse of LMIM it does appear now, during October 2013, that ASIC investigations are progressing. The founder and most public director, Peter Drake, is reported to have had his passport seized and assets frozen during the October month. There isn't a lot being released into the public domain but against a backdrop of suggested wrong-doings including, trading whilst insolvent, breaches of trust and questionable personal loans to Drake, we have good reason to believe that the authorities are taking the allegations seriously with indication suspicious activities are being uncovered. Currently and curiously we are hearing little of investigations into other LMIM Directors activities.. (in fact this site is still not able to bring names of other LMIM directors to this debate. If visitors are able to offer information relating to other LMIM directors names and positions please make your input at the comments and feedback page. Response received. Thank you 'Aggrieved'.) Information in the referenced MPF Financial Report shows that between June and September of 2012 four MPF directors resigned. Clearly there was discomfort in the board. Was this a revolt against the behavior of others, and if so, why?

Each investor will have their own assessment of their advisor performance but we are all subject to the same ASIC and LMIM issues. If advisors and ASIC were deemed guilty of negligence and it were determined that senior LMIM personnel acted outside of the law, a broad brush culpability allotment could be 15:35:50 for Advisor, ASIC, LMIM respectively.

Affording a simple translation to that, innocent investors are very justified in thinking toward a claim of 15 cents in the dollar from Advisors, 35 from ASIC and 50 from LMIM in order to recover what is theirs.