She was almost elected to the WA Parliament, now finance broker campaigner Denise Brailey is really prodding the Howard government and ASIC into action as elderly investors could face losses exceeding $1 billion with dodgy finance brokers.

When the Court Government in Western Australia proved incapable of acting against the brokers and Fair Trading Minister Dodgy Doug Shave was not sacked, Denise decided to stand against Doug in his seat of Alfred Cove in the state election on February 10.

Well Dougie lost his seat to Liberals for Forests independent Janet Woollard but only after Denise got 21 per cent of the vote as an independent and then got Janet past Doug with her preferences.

This was a big wake up call to John Howard because these dodgy finance brokers operate all over Australia and Denise is taking her campaign national.

If you read the following letter from Denise to John Howard and then read the press release put out by ASIC two days later, you can see that Denise is really starting to have an impact. But still the powers that be refuse to provide Denise and RECA with any of the financial support she so deserves.

Anyway, let’s get into it:

Real Estate Consumer Association

Denise Brailey – President of RECA

Phone: (08) 9470 5690E-mail: [email protected]

Fax: (08) 9355 0806 Website:

Mobile: 0401 642 344 P O Box 2041, Carlisle WA 6101

Hon John Howard

Prime Minister of Australia

Parliament House

Canberra ACT

23rd February 2001

Re: Mortgage Broking Issue a National Crisis

Dear Mr Howard,

I am writing to express my disappointment at the way in which Mr Joe Hockey has addressed the matter of self-retiree funds which have been targeted by traders in “pooled mortgage investments,” previously defined as “prescribed interests.” The most important request of this letter is that its contents are personally brought to your own attention.

It is unfortunate that I am forced once again to bring to your attention, the inadequacies in policies adopted by the Australian Securities and Investment Commission (“ASIC”) and the horrendous effect such policies have had on our senior citizens. As a concerned and experienced campaigner, I have had several meetings with staff and indeed the regional directors during the past three years, however investigators are obviously leaving their command posts in disgust. We cannot afford to lose dedicated and experienced staff due to the incompetence of executive management, yet this is precisely what has happened in Western Australia, where only one investigator remains for a state reeling under the weight of $250 million disappearing during the past three years under the watchful eye of ASIC. In Queensland, it is expected that at least $500 million has gone missing. In South Australia, over $60 million has not been recovered and the other states have victims of these scams via investment with Queensland or NSW operators. In NSW there have been over $100 million in claims for defaulting loans processed and paid so far.

Instead of corporate and criminal charges being levelled at the key players, ASIC has indulged in a soft approach for two years, with “letters of undertakings,” asking those responsible for grossly dishonest practices to be honest for a few months. This lunatic strategy – condoned by Mr Hockey – has now collapsed to the absolute detriment of the retirees’ interests. Despite cries from RECA to fund legal challenges, little has been achieved. Amid blazing publicity daily, ASIC has watched the Court Government in WA, take the blame (deservedly so), leading to a legendary defeat in the recent state election. ASIC must now be brought to account for their own inaction and inability to grasp the magnitude of the problem on a National level.

In Queensland, the same scenario is unfolding, as pointed out by RECA some two years ago. Since my letters of warnings to you on 8th July 1999 and 30th September 1999, and Mr Perrin’s totally inadequate response of 23rd November 1999, I have been holding seminars around the state of Western Australia and more recently in Queensland. In addition, I have been gaining media attention for my efforts, which must have alerted your department to the escalation and magnitude of the problem facing retirees around the nation. If I may comment Sir, the amount of my own personal time, freely given in assisting those who are suffering, has taken its toll on my own health. RECA now boasts members in each state, which is not a record for the Federal Government to be proud of. We are not suggesting the Government is at fault for the commencement of such widespread practices, however, once alerted to the problem, we strongly suggest that responsibility be immediately taken for the continuation and proliferation of these schemes.

The Australian Securities and Investment Commission (“ASIC”) has known for some years the practice of over-valuing of properties on mortgage investments by untrustworthy operators who, by their actions, have demonstrated a complete disregard for the financial security of vulnerable retirees, dependent on safe investment income. ASIC has not only tolerated the existence of these schemes, but by its own inaction, allowed the proliferation of projects and the continuation of business by a number of law firms, already under suspicion. RECA has written to Hon. Joe Hockey on a number of occasions during the past two years, pleading for those persons responsible for running such schemes, to be closed down. RECA has actively encouraged all investors who are experiencing defaulting loans to report the instances to the Major Crime Squad in each state.

Answers are needed as a matter of urgency and the key questions to be asked are:

1. When did the Federal Government first become aware of the mortgage investment scams?

2. When did ASIC first receive knowledge of these practices?

3. In which State did the first defaults occur?

4. What steps were taken to ensure the public were warned and fully informed?

5. Why has ASIC appeared to have adopted a “go slow” approach in each state?

6. What steps did ASIC take to remedy the situation? And When?

7. How many operators have been closed down by ASIC since 1992?

8. Why are Rogue Traders who are responsible for mass defaulting loans permitted by ASIC to continue trading?

9. What immediate relief can be given to the retirees?

In order for your own staff to be fully informed of the main issues I have sub-headed the following points:

ASIC Credibility

One Queensland solicitor – (name withheld) – has blatantly used an ASIC logo “lookalike” on his current “prospectus.” Retirees are unaware that ASIC simply rubber-stamp an investment prospectus, giving the unsuspecting investor a false impression of ASIC’s endorsement or accreditation, even though disclaimers exist. It is obvious that the average investor is unaware of the significance of these disclaimers. Furthermore, the “Part I of the prospectus, which contains “generic” information – widely and justifiably described as propaganda – is the only requirement under the new legislation (Managed Investments Act 1998). Part II of the prospectus contains the intimate details of the particular project, inviting investment. As a matter of policy, these vital details are not pursued by ASIC, until defaults occur.

The policy is that if a complaint is lodged, then there are “safeguards” and action can be taken. This is a preposterous notion. The obscenely paid government watchdog is saying to vulnerable retirees and other investors – give it a go and if there is fraud, involving millions of dollars, we may look into it – if we have the staff. May I boldly claim it is an “ostrich policy.”

RECA Funding

RECA has proven to be the greatest avenue of intelligence to ASIC and the Police, yet we receive no funding for our efforts. Our survival depends on my time and effort – during the past six years of community service – and a dedicated membership who pay a small but manageable fee to become part of a growing association, they would sincerely prefer not to belong to. The small income for RECA provides for a phone, fax, email, stationary and two Updates per annum. The media has stated on many occasions that “support groups do not spring up unless the community is bleeding.” I can assure you that is precisely the case.

Straw Borrowers

There appears to be a history of “straw borrowers,” and each investor we have spoken to, reveal at least six out of seven mortgages now in default. The average “loan book” of solicitors/brokers (“Traders”) exposed by RECA’s efforts appears to be around $60 million. Unsuspecting new investors would be unable to understand the significance of practices known as “trade swaps” and refinancing. Loans are still currently being offered nationally where borrowers have defaulted on previous loans.

Blame The Victim

The previous West Australian Government indulged in the “blame the victim” policy. Propaganda became rife: that retirees were “greedy,” chasing after 10% returns on capital. To set the record straight, I feel obliged to bring your attention to the following facts, in order to dispel the myths. Many retirees had received superannuation payouts ten to twenty years ago, which meant their income approached borderline in qualifying for the pension. Their determination to stay “self-funded” rather than be a burden on the Federal Government – without entitlements – placed retirees across Australia, in even greater jeopardy. The market downturn in interest rates has been a boost for the economy, but a decided and obvious disaster for those attempting to chase “ordinary” income levels. The rogues of the mortgage industry –financial planners, solicitors, accountants, brokers and other shady characters, earned their living by preying on vulnerable older persons. Those gangsters deserve the title of “greed,” not the victims who were maliciously targeted, as the domino effect commenced.

The “Deal” and the importance of the “LVR” component

Retirees were promised safe, secure investment on mortgages set at a 65% Loan to Value Ratio (“LVR”). Investors were coaxed into these schemes on the basis that investment in mortgages was “safe as houses” (Four Corners ran a story on this in May 2000). The ideology that if in a fire sale the property was forced to be sold at say 80% of “value” – then 65% became an accepted safety margin. At least the assurance was there that their capital was SAFE. The LVR became the major selling point. Yet RECA investigations revealed in WA State Parliament in 1998 and Federal Parliament in early 1999, that the LVR was being used by traders as a scam. With grossly inflated valuations the LVR, instead of a “safe” 65% became a 120% – 300% high risk loan, contrary to the propaganda issued on handing over life-savings to credible licensed or certified practitioners.

Retirees come from all walks of life, many of whom were experienced in a wide variety of professions, yet needed “experienced experts” to rely on for safe handling of their once in a lifetime funds. These people were inexperienced and not generally speaking – “risk” takers. Investors were looking for very ordinary levels of income, some of which fell below pension levels when banks reduced interest rates. They were targeted by opportunists who greedily exploited the retirees’ own personal dilemma. The credibility and expertise offered by solicitors and others is compelling confidence for the inexperienced. Yet even experienced bank managers, retired detectives, shire presidents, managing directors of multinational companies have all been taken in by the expectation of legislative protection, heavy compliance criteria, determined regulatory authorities, innocent LVRs and the charm of the trader. The police in WA have asked retirees one simple benchmark question: “if you were told the LVR was 120% plus, would you have considered the investment further?” The answers were a resounding “NO – we are not stupid!” Due to their expertise in fields other than current financial markets and financial planning, retirees turned to “advisors” for expertise, competence and “trustworthy” advice.

“The Deal” relied upon straw borrowers who were willing to agree to outrageous fees and commission structures or hidden legal fees to disguise the true nature of the transaction. The trader became a “lender of last resort” – consistent with most financial scams across the world. Quite simply traders have told me “if we don’t dress up the deal, there is no profitability in it for us!!” In many cases which RECA has investigated to date, across all states of Australia, the unsuspecting retirees were simply receiving their own money back again – in instalments – for which they had already paid tax!!!!

Crystalising the Loss

Consistent with the mortgage scam known as “the deal,” the sale of a property would crystalise the “loss” for investors, but could also reveal fraudulent activity with regard to the valuations. This is precisely why the Federal Government must immediately take charge of the situation. There is no incentive for the trader to encourage the sale of the properties, in order to recover even 50% of the investors’ money. Fraud has been proven on numerous occasions in several states as properties are finally being sold. Despite the delaying tactics used by traders to frustrate the process by installing their own real estate agents mates who regularly report back “no sale” due to lack of interest at the originally inflated price. Using this method the trader can keep $20 million of defaulting loans under cover for at least twelve months. Meanwhile the retiree is left without income. The property is doomed to sell at far below the original mortgage raised, and the practice of creating false hopes only delays the inevitable and predictable outcome, forcing the retiree/investors to be liable for all rates and taxes! Investors are currently suffering losses of 50% – 100% of capital and no income from even 50% of capital for at least two years. Whose advantage is ASIC working in, by playing along with the traders’ hair-brained recovery schemes? The number of promised “failed rescue packages” is legendary yet such proposals effectively delay retirees for a further 18 months, preventing them from finding legal remedies.

Grossly Overvalued Properties

One of the worst examples of an overvalued property was in South Australia in 1999 where a property sold for $187,000 with a mortgage raised close to $2 million. There have been hundreds of examples supplied to ASIC during the past four years. Another outrageous example became apparent when the Western Australia’s ex-Premier’s brother Ken Court, appeared on National TV in November 1999, and boldly claimed the property valuation was accurate due to “additional work and rezoning” – all of which proved to be false later on. The manager has since been arrested and charged with fraud and Mr Court may have to appear before the Royal Commission into finance broking in WA. [The property was valued at $3.3 million in 1998 and recently sold for its true value of $720,000 at public auction. The previous owners had attempted to sell the property for 12 months in 1998 for $800,000 with no success, until the “buyer” came along via the broker and its lawyers. A scurrilous mortgage was placed on the property for $2.3million at the same time the contracts were exchanged for the outrageous sum of $1.52 million).

The Queensland Law Society (“QLS”)

The QLS has recently taken over the signatory responsibility on Triscott’s trust accounts, but has failed to bring about the closure of his business. In a general sense, the QLS has known for a number of years of the “defaulting loans” problem with Queensland solicitors and has used state legislation to frustrate the process of recovery, rather than lobby for the rights of the investor/victims. The NSW Law Society paid out over $100 million during the past decade, in claims for defaulting loans and at least attempted to stamp out such practices amongst their own colleagues. It is obvious from the lack of serious action, that the QLS has a vested interest in remaining a “boys club” or as one investor has claimed: a “solicitors’ protection society.” Without doubt action taken by the QLS to date has advantaged the solicitors involved, and thrown a cloud of doubt in credibility over other innocent practitioners. Investors are currently receiving little or no relief from this dastardly situation. Retirees have been frustratingly left to their own initiatives whilst they fall through the cracks of state and federal buck-passing.

Communication with Other Investors

RECA has asked ASIC on numerous occasions to assist investors with copies of LISTS of co-investors in the various mortgages. Solicitors or Brokers (“Traders”) are notorious for their uncooperative attitude when dealing with ASIC, whether agreements exist or not. It is not in the trader’s interest to hand over these lists to worried investor/victims. ASIC has assured me in the past that a direction for the trader to hand over these lists falls within ASIC’s power. Courageous retirees in recent times have been forced to go public with their story, carrying the added burden of foolishness and, at times, acute embarrassment. Each one has spoken of the frustration experienced by their inability to even contact other investors in their project groups, nor assist each other or exchange information simply because the lists continue to be “unavailable.” ASIC must demonstrate a proactive approach in this particular area, immediately.

ASIC’s Role in the Community

ASIC needs to be reminded of their “raison d’etre.” Whilst Corporation Law is state based, the overall responsibility of policing rogue traders, particularly those who are moving hundreds of millions of dollars across state boundaries, falls within the scope of ASIC’s powers. Please advise RECA if this statement is believed to be untrue and based on which part of the Act. Taxpayers fund the services of ASIC as watchdog to protect the nation’s economy and the overall financial well being of citizens who purchase financial products. Whilst RECA acknowledges the fact that some action has been taken, we are clearly pointing out the counter- argument rests with the proliferation of schemes which highlight the inadequacy of policies implemented by ASIC during the past two year crisis. ASIC’s role in the Australian community is to ensure the enforcement of regulations already in place. Full-page ads in every newspaper (city, country and community), and properly prepared TV and Radio commercials should be commenced ASAP to warn all sectors of the financial market that these scams must be outlawed and the public to be placed on warning alert. Rural communities have been hardest hit and the new model involves “unit trusts,” “syndicates” and “joint venture trusts.” Where are the Federal Police in all of this? When were they notified as a result of RECA’s warnings to ASIC, and how far advanced are the police, in their investigations?

Across State Boundaries

Another worrying feature of these type of business activities is the “GI” factor – “geographically impossible.” Traders appear to prefer the “divide and conquer” rule when dealing with clients. RECA has uncovered borrowers in NSW, lenders in Tasmania, properties in Victoria, all being arranged by Queensland law firms, who are hiding an unacceptable number of defaulting loans. Apart from the frustration and suffering of retirees, whose incomes have ceased and the likelihood of return of capital diminishing, there is the reality of facing complex legal issues which could run across several jurisdictions. Are the legal remedies to be found in state or federal legislation? Traders know only too well that it is not in their own interest to encourage group therapy classes, let alone provide the lists to permit retirees to communicate with each other. Traders are constantly acting in a manner notably adversarial to consumer interests by refusing to cooperate and hand over the lists. Calling a meeting of investor/creditors is useless if most retirees are interstate and financially unable to attend. Forums in each state are the answer.

National Taskforce

Two years ago, RECA called for a National Task Force, in order to exchange information and promptly deal with all those traders who promoted such schemes. Around Australia, ASIC appears to be unable or unwilling to stop this financially crippling juggernaut. In Western Australia ASIC has reduced their investigative team to one, and the member of the national committee in each state see no need “at this stage” to communicate with the support group RECA. I have met with the WA representative of this committee and found him to be less than encouraging as per our conversations during the past two years.

Centrelink Issues

Many of the retirees have been unable to seek even the basic pension. Senator Newman consistently ignored their cries for help by lifting the deeming rule from the income test but not the asset test. Since both asset and income are included in the testing equation, the Senator’s actions alleviated nothing, but caused many retirees to reapply, only to have their hopes dashed once again. They have cruelly been told to “sell the family car” and live off the proceeds. RECA is about to approach Senator Bishop on this on going issue.

Impact on Pensions and the Economy

As pointed out in my July 1999 correspondence to the Premier’s office and according to our RECA surveys, over 30% of all affected retirees will be seeking Centrelink assistance for an income in the immediate future. With loss of income, and due to the unsaleability of some properties and the unliklihood of return of capital, the Federal Government will be totally responsible for providing additional millions of dollars in pension funds. During the next ten years a projected conservative figure of $2 Billion will be needed to provide pensions and health services to those retirees who would not have otherwise ever contemplated becoming a burden on society. I have warned Canberra in the past of a looming budget blowout. The Federal Government and their analysts have often referred to “baby-boomer” fears in terms of the social security issues. The Australian Mortgage Broking Scandal has not even begun to show the long-term ramifications to the Australian economy and all Australian citizens.


1. The Prime Minister and Minister Hockey and ASIC Chief Mr Knott, immediately issue a press statement on the true position of these defaulting loans in each state and name the Traders involved.

2. ASIC take immediate steps to ensure those Traders are suspended until further information substantiates their capability to continue looking after their clients.

3. Legal Remedies for investors be publicised as a Government initiative in order for self-funded retirees’ interests to be clearly represented, rather than hundreds of different “legal interpretations” being given to further complicate the process of a “clean-up” operation.

4. Consumer support groups be given equal consultation with government representatives rather than industry-based representatives preparing biased and unbalanced points of view.

5. An immediate Federal Inquiry be established to commence ASAP into the “Australian Mortgage Broking Scandal.”

6. ASIC assist retirees to obtain the LISTS of all other investors in their various projects, regardless of state boundaries.

7. A consensus of three local real estate companies issue “appraisals” of the property worth in each location prior to a “valuation” of each property, due to the unacceptable practices of some licensed valuers in each state. RECA believes this is the only fair approach which can identify the most accurate interpretation of the property’s worth – ending speculation and delay tactics on the part of traders.

8. Forum’s be held in each state – and funds provided – to enable retirees to charter their own course with independent information and analysis of the overall situation.

9. Adequate warnings on mortgage broking scams to be compiled by the Federal Government and to be sent to all media outlets – city country and community.

In Conclusion

RECA is once again calling on the Federal Government to take charge of this national disgrace and for the cabinet to demand that Mr Hockey play a serious role in directing ASIC to adequately provide a government interpretation of legal remedies for all retirees caught up in the Australian Mortgage Broking Scandal.

The most critical questions remain unanswered and RECA is now officially asking for answers to all questions referred to on page 2 of this letter. We also call for a detailed response to the recommendations listed above.

Retirees are experiencing a profound sense of frustration, of helplessness and desperation. The sheer wanting to know. “what do we do next.” They have turned to RECA because no-one else was prepared to assist consumers. Our country is in danger of being labelled the nation, which abandoned its senior citizens to the perils of deceitful operators. Significantly, the magnitude of collapsed schemes became obvious during 1999 – the International Year of the Older Person.

Following on from its mid 1999 correspondence with the Prime Minister’s Office, RECA is once again calling on the Federal Government to take charge of this national disgrace. We urge that the Federal Cabinet place immediate demands on Mr Hockey, that he play a serious role in directing ASIC to assist all retirees caught up in the Australian Mortgage Broking Scandal. We trust we can expect a more comprehensive response and attention from the Prime Minister’s office than in previous years.

Denise Brailey


Cc: Various media outlets and interested parties in the name of open and accountable performance


Lo and behold this is part of the press release that ASIC chairman David Knott put out just two days after Denise sent her letter and some two weeks after the shock WA election result.



Mr David Knott, Chairman of the Australian Securities and Investments Commission (ASIC), today announced a major investigation into the financial status of Australia’s unlisted solicitors mortgage investment schemes.

The initial focus of ASIC’s investigation is on runout mortgage schemes which are being managed by solicitors and finance brokers throughout Australia.

Runout schemes are those which did not make the transition to ASIC’s tougher managed investments regulatory regime in 1999. ASIC allowed them until 31 October 2001 to wind up their affairs in an orderly manner under the continuing supervision of the Law Societies (in Queensland, NSW, Victoria and Tasmania) and the Finance Brokers Institute of South Australia Inc. In Western Australia a small number of runout schemes have been extended the same deadline for winding up.

Under ASIC’s guidelines these runout schemes are prohibited from accepting new mortgage investors during the two-year wind-up period.

Mr Knott explained that:

‘Since late last year we have been building up a picture about the financial status of these schemes.

‘It is clear that a number of them have serious default rates. We expect those defaults to become worse as the wind-up deadline approaches.

‘We are therefore launching the biggest enquiry of this type ever undertaken by ASIC. To assist with that task, we have retained the services of Mr Tony Hodgson, one of Australia’s leading insolvency experts. Mr Hodgson will work with us in addressing how best to protect the interests of investors in these funds’, he said.

ASIC has written to all of the State law societies, which administer the schemes, seeking information about the schemes within their jurisdiction. ASIC has also written to all scheme operators requesting information about their loan books.

‘Our first priority is to obtain a better national database on the health status of these funds; and to target our investigations to those schemes where investors face the greatest risk’, Mr Knott said.

While ASIC’s investigations are primarily designed to identify the best steps available to minimise investor loss, issues of negligence and misconduct will also be considered.

‘We will be examining in conjunction with Mr Hodgson whether circumstances justify commencement of civil or criminal proceedings against scheme operators’, Mr Knott said.

ASIC expects to complete the first phase of its work by 30 June 2001 but believes that the project will extend through the second half of the year.

‘This will not be a quick or an easy project for ASIC. It is not realistic to expect that investor losses will be recovered, but our intervention should provide opportunity to minimise these losses and maximise consumer redress’, Mr Knott said.