Wednesday 11 October 2006 LAWFUEL – Law News Network – A promoter of illegal property financing schemes has been ordered to pay more than $1 million in compensation and penalties and banned from ever running a company again. Ms Jan Redfern, Executive Director of Enforcement at the Australian Securities & Investments Commission (ASIC) welcomed orders from Justice Brereton of the Supreme Court of New South Wales banning Mr Donald Richard Maxwell and seven other company officers of the failed ProCorp Investments and Central Development groups of companies, which were involved in the promotion of illegal mezzanine funding schemes.
The Court ordered that Mr Maxwell, the principal promoter for the two groups, be permanently disqualified from managing corporations. He was also permanently disqualified from providing financial services and ordered to pay $1.122 million in compensation, penalties and costs. Mr Malcolm John Fortune of the Gold Coast, Queensland, a director of one of the failed Procorp Investments group of companies, was banned for 12 years and ordered to pay penalties and costs of $250,000.
The disqualification orders were made after the Court found that: • the schemes had been promoted without the required disclosure documents • representations made to investors were found to be misleading and deceptive, and • company officers had failed in their duties as directors. The schemes promoted by ProCorp Investments and Central Development groups sought seed capital from investors for property development projects throughout New South Wales, including Five Dock, Liverpool, Gosford and Waitara. The investments, which were advertised in suburban newspapers, promised returns of approximately 30 per cent per annum, and were described as ‘secured and guaranteed’.
In fact, most of the investments were simply unsecured loans. The ProCorp Investments group subsequently collapsed in 2004 with debts of $10.8 million owing to 120 seed capital investors. The Central Developments group also failed, leaving 32 investors facing losses of $3.3 million. In addition to the disqualification orders against Messrs Maxwell and Fortune, the Court made orders disqualifying the directors of both the ProCorp and Central Development groups of companies. Mr Troy Fortune and Mr John William Bennett, who were directors of the ProCorp group of companies, were disqualified from managing corporations for seven years and five years respectively. The Court will hear further submissions on a third director, Mr George Nahed on 17 October 2006.
Mr Jim Kolios, Mr Roy Skaf and Mr Jaul Jammal, the directors of the Central Developments group of companies, were disqualified from managing corporations for eight years, five years and three years respectively. Mr Lloyd Antony Coakley, an accountant and financial planner from Enmore in Sydney, who was involved in promoting the schemes, was found to have engaged in deceptive conduct and breaches of the fundraising provisions. He was disqualified from managing corporations for two years. The Court has also made permanent restraining orders against each of the eight banned persons.
‘This case represents an example of scheme promoters and company directors acting in their own interests without any regard for the law and their obligations to investors’, Ms Redfern said. ‘They have failed in their fundamental duties to provide investors with the relevant information to help them make an informed decision about the merits of the investments, and in some instances, made false claims about the investment.
‘The orders against the schemes’ promoters and directors of the ProCorp and Central Developments groups of companies sends a clear message that ASIC will act to remove unscrupulous advisers and incompetent company directors from the investment market. ‘The unfortunate experiences of the investors in these schemes should also serve as a warning to others who may be tempted to invest in schemes offering high returns. Time and time again, ASIC sees people losing their hard-earned money by investing in illegal schemes.
Our message to would-be investors is to always check that the people operating the schemes are licensed and that the investment schemes themselves are registered with ASIC’, Ms Redfern said. A summary of findings against each of the men is provided as an attachment to this media release. Background ASIC first took action in relation to the illegal fundraising in October 2003, obtaining orders freezing the assets of the companies promoting the scheme, and the personal assets of the schemes’ promoters, Mr Maxwell and Mr Malcolm Fortune.
In addition to the freezing orders, the Court made various orders restraining the parties from continuing to conduct the fundraising in breach of the law. Mr Maxwell, who was an unlicensed financial adviser, and had received a 10 per cent commission on the investments placed, continued to promote the schemes in contravention of court orders obtained by ASIC at this time. The development companies defaulted on payments due to secured institutional lenders leading to mortgagee sales of the development properties and the liquidation of the ProCorp and Central Development groups.
For further information contact: Jan Redfern Executive Director of Enforcement Telephone: 02 9911 2191 Mobile: 0411 119 210 Angela Friend ASIC Media Unit Telephone: 03 9280 3338 Mobile: 0412 058 800
Attachment to ASIC Media Release 06/364: Summary of findings in relation to Australian Securities & Investments Commission v Maxwell & ors  NSWSC 1052 Donald Richard Maxwell Mr Maxwell promoted both the ProCorp and Central Developments schemes. He placed the newspaper advertisements and had a major role in preparing misleading promotional material, which he gave to prospective investors.
The Court found that Mr Maxwell had failed in his duties as an officer; improperly used his position to gain a financial advantage; failed to comply with fundraising provisions of the Corporations Act, and made misleading and deceptive statements. He has been permanently disqualified from managing corporations and also from providing financial services. Mr Maxwell was ordered to pay $936,500 in compensation, a pecuniary penalty of $110,000 and $55,500 costs. In a separate action, ASIC brought charges against Mr Maxwell for carrying on a financial services business without an Australian Financial Services Licence (AFSL). He was sentenced to 12 months imprisonment, to serve eight months by way of periodic detention, in July this year.
Malcolm John Fortune Mr Fortune was recorded as a director of only one of the companies within the ProCorp group, but played a dominant role within the group. He was responsible for raising $1,605,000 from investors. The Court found that Mr Fortune had failed in his duties as an officer and that this contributed to the failure of the group companies. Further, Mr Fortune did not take proper steps to ensure that fundraising provisions were complied with; that promotional material was truthful; or that Mr Maxwell was properly supervised. The Court disqualified Malcolm Fortune from managing corporations for 12 years and ordered him to pay a pecuniary penalty of $200,000 and costs of $50,000. Troy Fortune Mr Troy Fortune, Mr Malcolm Fortune’s son, was a director of most of the ProCorp companies, and was disqualified from managing corporations for seven years.
Troy Fortune was found to have failed in his director’s duties, as well as failing to take proper steps to ensure that fundraising provisions were complied with; that promotional material was truthful or that Mr Maxwell was properly supervised. John William Bennett Mr Bennett, a self-employed accountant from Miranda in New South Wales, was a non-executive director of several of the ProCorp companies. The Court found that Mr Bennett had not complied with his duties as a director and disqualified him from managing corporations for five years.
Lloyd Antony Coakley Mr Coakley, a financial planner from Enmore in Sydney, was involved in the preparation and issue of the ProCorp offer documents. These offer documents were styled as an excluded offer restricted to experienced investors. Although Mr Coakley only introduced a handful of investors, he signed declarations for other investors who he had never met, certifying that they were experienced and could properly evaluate the risks of the investment. The Court found that Mr Coakley, through his company Coakley Associates Pty Ltd, had engaged in misleading and deceptive conduct and breaches of the fundraising provisions. Mr Coakley has been disqualified from managing corporations for two years. In April 2004 ASIC also banned Mr Coakley from providing financial services for four years.
Mr Coakley appealed to the Administrative Appeals Tribunal, which has stayed the banning order pending the finalisation of these proceedings. Jim Kolios Mr Kolios, of Roselands in New South Wales, was found to have failed in his duties as an officer of the Central Development companies by failing to ensure that the fundraising provisions were complied with and that promotional documents were not false or misleading. Mr Kolios has been disqualified from managing corporations for eight years. Roy Skaf Mr Skaf, of Mount Lewis in New South Wales, was found to have failed to properly discharge his duties as an officer of the Central Development companies by failing to ensure that the fundraising provisions were complied with and that promotional documents were not false or misleading. Mr Skaf has been disqualified from managing corporations for five years.
Jaul Jammal Mr Jammal, of Telopea in New South Wales, was also found to have failed to properly discharge his duties as an officer of the Central Development companies by failing to ensure that the fundraising provisions were complied with and that promotional documents were not false or misleading. Mr Jammal had less involvement in the financial affairs of the Central Development companies and has been disqualified from managing corporations for three years.