ASIC embarrassed as judge rejects evidence in $800m collapse

Ben Butler, Business Reporter, Melbourne.

The Australian. 24th December 2016.

No one will be held accountable for the collapse of the Gold Coast’s LM Investment Management, wiping out nearly all of the $800m investors had trusted it with, after a judge entirely rejected the corporate regulator’s civil case against founder Peter Drake and two other directors. The humiliating defeat for the Australian Securities & Investments Commis­sion — its second in a week — came after Federal Court judge James Edelman rejected evidence of its key witness as “incredible”.

It is also likely to further dent Australia’s reputation as a safe place to invest.

The resounding defeat, which will see ASIC bear the costs of the defendants, follows its shellacking last week in the Victorian Supreme Court, which threw out most of its case against former AWB chairman Trevor Flugge and executive Peter Geary over the oil-for-food scandal.

ASIC had earlier dropped breach of duties cases against two other LM directors, Simon Tickner and Lisa Darcy, but continued to press its case against Mr Drake, portfolio manager Eghard Van Der Hoven and general manager of distribution Francene Mulder.

Justice Edelman found ASIC’s expert witness, veteran funds manager Hugh Woolley, “had paid scant attention to the key documents” and gave “preposterous” answers. “He displayed the worst characteristics of partisanship and could not, in any respect, be described as an independent expert,” Justice Edelman said. ASIC’s case revolved around a $280m loan to Maddison Estate, a residential development in the Gold Coast hinterland controlled by Mr Drake.

The loan gradually increased over time from $40m in November 2007 to $280m in August 2012, the year before LM collapsed. Much of the money came from LM’s Managed Performance Fund, which was not regulated under Australian law because it was offered to offshore investors.

ASIC alleged Mr Drake, Mr Van Der Hoven and Ms Mulder breached their directors’ duties by approving a $100m increase in the loan in August 2012.

However, Justice Edelman said ASIC needed to explain what a prudent investment manager would do.

Comment from Mike, an Australian..

Our support of corrupt practices in the financial sector knows no bounds...

If you want to be royally screwed over and lose your life's savings, then invest in Australia, as criminals can have a heyday with you money, loan it to themselves and never pay it back...

And nothing will ever happen to them.

No convictions.

No jail.

No paying back.

No accountability.

Our laws in this regard remind me of the proverbial wet paper bag...

Meanwhile people in Australia are threatened with jail for not paying a parking fine.