ASIC To Pursue Compensatin For Westpoint Investors – Australian Securities & Investments Commission (ASIC)

LAWFUEL – Legal Jobs NZ, Legal News – The Australian Securities and Investments Commission (ASIC) today announced it would take legal action for the benefit of investors in the Westpoint Group seeking compensation for their failed investments.

This announcement follows ASIC’s statement to the Federal Court yesterday that the Commission had resolved to take over the running of liquidators’ proceedings commenced by the liquidator of Ann Street Mezzanine Pty Ltd and York Street Mezzanine Pty Ltd and to bring claims on behalf of other mezzanine companies.

The regulator believes the legal action, over a number of phases, if successful could provide benefits to as many as 3,600 out of some 4,300 investors in the failed property development group.

As there were several different investment products offered by the Westpoint Group, the extent of the potential benefits for investors will vary. ASIC believes that up to 85 per cent of investors who invested in Westpoint products where there were losses should benefit.

ASIC will use its power under section 50 the ASIC Act, which enables it to begin and carry on civil proceedings for damages for investors where it appears to ASIC that such proceedings are in the public interest.
ASIC Chairman, Mr Tony D’Aloisio said, ‘Westpoint is one of those cases where ASIC believes that the conduct of those involved fell short of what the law expects.

‘We consider that there is a clear public interest in using ASIC’s powers to pursue compensation for Westpoint investors,’ he said.
The first phase of the regulator’s legal action (see attached table) will seek to recover damages from various directors and officers of certain companies in the Westpoint Group and entities associated with one of the directors and from a number of licensees of financial planning firms that sold Westpoint investments.

The directors and officers involved are:
• Cedric Richard Palmer Beck
• John Norman Dixon
• Lynette Rochelle Schiftan
• Graeme John Rundle – (who it is alleged was a director as defined by the Corporations Act)
• Norman Carey – (who it is alleged was a director as defined by the Corporations Act)
It will be alleged that directors and officers are responsible for the misapplication of funds raised by the mezzanine companies, and that commission payments received by entities associated with one director should be returned. While ASIC is yet to fully formulate and quantify these claims, at this stage ASIC has identified potential claims of up to $245 million.

The availability of assets to satisfy any claims is enhanced as a result of the range of orders that ASIC sought after the Westpoint Group failed, freezing up to approximately $54 million in assets. In those proceedings ASIC had foreshadowed that it would make any decisions in relation to potential compensation claims by 31 October 2007.

As part of its action against directors and officers, ASIC has resolved to carry on the current actions by PricewaterhouseCoopers (PwC). As liquidator of the Ann and York Street mezzanine companies, PwC is currently suing various directors and officers of those companies (as well as entities associated with one of the directors) for $39.4 million.
The first phase of ASIC’s legal action also covers five Australian financial services licensees. Action against additional licensees is also being considered.

ASIC will allege that, in selling products with the risk and financial characteristics of Westpoint, the licensees did not comply with their obligations under the conditions of their Australian financial services licences and under the law.

The five licensees are:

• Bongiorno Financial Advisors Pty Ltd and Bongiorno Financial Advisors (Aust) Ltd
• Dukes Financial Services Pty Ltd and Dukes Financial Services Australia Pty Ltd
• Glenhurst Pty Ltd
• Masu Financial Management Pty Ltd
• Professional Investment Services Pty Ltd

ASIC will be seeking a total of approximately $63.2 million in damages from these licensees, based on the amounts which their clients invested in Westpoint products and subsequently lost when Westpoint collapsed.
The regulator expects the legal proceedings announced today against these licensees to be formally filed with the court by the end of the year.

In the interim, the regulator will liaise with investors who were clients of those licensees to confirm details of their investments.
Mr D’Aloisio said, ‘Financial advisers have played and continue to play an important and valuable role for retail investors in relation to many complex products beyond just property. These proposed actions should be viewed in the context of the particular facts of Westpoint and how those products were sold.’

ASIC is continuing to investigate matters arising from the Westpoint collapse, including possible further claims for compensation against other financial service licensees and the auditors.
ASIC expects to finalise its consideration of these additional claims by the end of the year.

Investors with questions about ASIC’s compensation proceedings should call 1300 300 630.

ASIC has also posted a FAQ page on its website at
On 30 May 2007, Mr D’Aloisio outlined a 3-Point Plan for reforms to these types of investments to the Senate Standing Committee on Economics. The Plan covered advertising, the use of credit rating agencies, stress testing business models and investor education. Last week ASIC released regulatory guidance to improve disclosure for existing and future debenture issues. As well ASIC is developing initiatives to improve advertising of these products and investor education.

In relation to past collapses, in addition to its work on Westpoint, ASIC has also commenced investigations into Fincorp Investments Ltd and Australian Capital Reserve Limited both property and development financiers that raised money from retail investors.

The Westpoint Group promoted investments in a number of property development projects, including 10 projects using unsecured mezzanine finance (a form of fund raising that covers the difference between what banks are prepared to lend and the actual cost of the project). The Westpoint Group created mezzanine companies for each of these projects and raised funds for the projects through the issue of mezzanine investment products such as promissory notes.

These proposed actions relate to eight of those projects. There were some 4300 investors who invested in Westpoint products where there were losses. Some investors invested in more than one Westpoint product and some of the investments were in products that were regulated.
At this stage, these proposed actions will not cover approximately 15 per cent of Westpoint investors who made losses. Approximately $29 million in losses (10 per cent of investors) are in the regulated investment products of North Sydney Financial and Paragon Apartments (issued through prospectuses) and the Westpoint Income Fund (a registered scheme). The balance is in relation to unregulated investment products (Paragon Commercial Syndicate, part of Paragon Apartments, Renaissance Mezzanine and Warwick Cinema Syndicate). ASIC is reviewing the position in relation to those products.

To date ASIC has banned five financial advisers who were involved in promoting Westpoint products with 13 further banning briefs under consideration.

ASIC has used its section 50 powers on 21 occasions since they were created in 1991, most notably when $100 million was recovered in 1997 from Permanent Trustee Australia. ASIC alleged Permanent, failed in it its duty to investors in a property trust when it allowed the trust to invest in a speculative and hazardous transaction.

For further information contact:
Danielle Huck
ASIC Media Unit
Telephone: 03 9280 3407
Mobile: 0417 540 769
Page 3 of 4
Proposed ASIC compensation action on behalf of Westpoint investors
Summary of Phase 1 potential claims
Potential claims in relation to mezzanine entities
Westpoint mezzanine entity

Total investor losses
Number of investors

Potential amount of damages claim against certain directors and officers and associated entities

Potential amount of damages claim against licensees4
Ann Street Mezzanine Pty Ltd
Up to $67m
Bayshore Mezzanine Pty Ltd
Up to $36m
Bayview Heritage Mezzanine Pty Ltd
Up to $14m
Cinema City Mezzanine Pty Ltd
Up to $1m
Market Street Mezzanine Limited
Up to $22m
Market Street Mezzanine No 2 Pty Ltd
Up to $10m
Mount Street Mezzanine Limited
Up to $40m
York Street Mezzanine Pty Limited
Up to $55m
Up to $245m
Notes to table
1. Sourced from reports from liquidators and updated—see ASIC’s Updated Statement on the Westpoint Group of Companies dated 23 August 2007.
2. Sourced from liquidators on 26 October 2007.
3. These claims are yet to be fully formulated and quantified.
4. These claims are yet to be fully formulated and quantified.
Claims against Australian financial service licensees
Approx no of investors
Potential amount of damages claim1
Bongiorno Financial Advisors Pty Ltd and Bongiorno Financial Advisors (Aust) Ltd
Dukes Financial Services Pty Ltd and Dukes Financial Services Australia Pty Ltd
Glenhurst Pty Ltd
Masu Financial Management Pty Ltd
Professional Investment Services Pty Ltd
Note to table
1. These claims are yet to be fully formulated and quantified. This amount does not include amounts totalling approximately $1.5m invested in regulated products such as North Sydney Finance Ltd (amounts raised through a prospectus) and Westpoint Income Fund (a managed investment scheme).

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