investments watch-puppy, the Australian Securities and Investments
Commission, has an unhappy history of swinging on the gate long after
the equines have departed, so a fine story in the Weekend Australian
should have us all checking to see if there are any stray horses
trampling the vegetable patch. Paddy Manning tackled the always-dodgy
area of property valuations – the root of just about every property
investment scandal from Estate Mortgage to the crop-in-waiting among
mezzanine finance houses. If you’ve ever wondered about those nice ads
in the finance pages offering high interest rates, please first read this story.
most scandals in the making, ASIC tends to wait until plenty of damage
has been done. The property spruikers who boosted the residential real
estate bubble an extra couple of degrees were a case in point – the
game was just about over before Henry Kaye was hit.
As Manning reports:
ASIC has finally zoomed in on the issue … the
organisation fired its first shot in February, when it said
surveillance of 11 companies issuing high-yield debentures – including
ACR and Fincorp Investments – revealed aggressive or misleading
advertising, poor disclosure about developments, related-party
transactions and bad and doubtful debts.
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Two weeks ago ASIC
put a stop order on a prospectus for the Sovereign Prudential Fund
issued by Gold Coast financier Sovereign Capital Limited. Sovereign
on-lent investor funds to finance property developments. After
receiving complaints from investors, ASIC found over 50 per cent of the
fund’s loan book was in default. Yet according to ASIC, the
representations in the prospectus were “aimed at conveying a level of
security and reliability of income that did not exist.”
says Sovereign’s website boasted “Your Funds Fully Secured” but this
was misleading because the loans were not fully secured and investors
could suffer significant capital losses on a number of loans. There
were also misleading statements implying that the fund invested only in
first mortgages, which was not the case.
that those first “shots” (make that “a small decorative firework”) were
fired back in February but the issue seems to have progressed no
further than pulling a prospectus. One thing for sure, the doctrine of
pre-emptive action hasn’t reached ASIC.