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Investors angry as LM founder Peter Drake not charged

INVESTORS who lost hundreds of millions of dollars after the collapse of LM Investment Management have hit out at the government and the corporate regulator after learning that company founder Peter Drake would not face any criminal charges.

LM Investment Management was placed into voluntary administration in March 2013, wiping out nearly all of the $800 million that had been invested in three of its funds by more than 12,000 investors in Australia and offshore.

Last month, the Australian Securities & Investments Commission took civil action against Mr Drake and LM’s directors over granting personal loans of $26m to Mr Drake ahead of the group’s collapse.

Mr Drake has denied any wrongdoing and will defend the civil action.

The lawsuit comes as Finance Minister and Acting Assistant Treasurer Mathias Cormann ruled out holding a separate inquiry into LM Investment Management and its funds in a letter to an investor obtained by The Australian.

On Friday, Senator Cormann told The Australian the LM collapse was the responsibility of the court and regulatory system and defended Australia’s “robust” ­financial system.

“We understand the disappointment of investors who lost money on their investments. However, in this particular case, specific issues are assessed appropriately through the official regulatory and court processes as appropriate, while any systemic policy issues have been considered through our Financial System Inquiry,” Senator Cormann said.

One Australian investor, who declined to be named for personal reasons, said she was “disgusted” ASIC was only bringing civil action against Mr Drake.

She and her husband lost $300,000 in LM’s First Mortgage Fund and are now having to rely on partial pension payments to get by.

“While I personally hold no hope of any kind of recompense from the Australian government, I had hoped that criminal proceedings would be taken against Drake and his cohorts,” she said.

“Considering that Drake has apparently walked away with $26m in the form of a ‘loan’ to himself from (another fund) the Managed Performance Fund, the possibility of only having to pay a fine of $200,000 is peanuts to him.

“What kind of a message is ASIC sending? It is one of encouragement to carry on, as the only punishment they will ever receive is a slap on the hand!”

Equally appalled are investors based offshore who had invested in the Managed Performance Fund.

Despite having originated in Australia, managed by an Australian company and invested in Australian property, oversight of that scheme by ASIC was limited because it was not sold to Australian investors.

“I am aghast and outraged at ASIC’s apparent decision to not pursue criminal charges against Peter Drake and his fellow LM ­directors,” said Graham J. Smith, a 61-year-old MPF investor based in Malaysia.

The former engineer estimates he lost two-thirds of his life savings in LM and has had to cancel plans to return home to England to be closer to his adult daughter and elderly parents.

“In my view the Australian government and related authorities should be ashamed of themselves, are an embarrassment to the G20 and a disgrace to the Commonwealth,” he said.

Thailand-based Briton Tony Burke, 51, criticised ASIC chairman Greg Medcraft, who earlier this year backed away from his description of Australia as a paradise for white-collar criminals, over the decision.

“What is he doing about it? Nothing,” Mr Burke said. “His calls for harsher jail sentences ring particularly ­hollow after ASIC failed to bring criminal charges against Peter Drake.”

It is understood that ASIC intervened ahead of LM’s collapse and began an investigation on the MPF that was still ongoing when the group entered administration. On Friday, ASIC confirmed it was not considering criminal charges due to a lack of evidence of criminal wrongdoing by Mr Drake.

“ASIC can confirm that we are not pursuing a criminal investigation at this time but as usual, would obviously reassess if other evidence became available,” a spokesman for ASIC said.

Senator Cormann said the government was reviewing recommendations in the FSI relating to ASIC’s regulation of managed investment schemes.