More than 18 months after the collapse of MFS/Octaviar, former directors of the failed fund manager continue provide financial advice to clients of financial planning firm Avenue Capital Management.
Those directors and financial planners not only oversaw the billion-dollar collapse of MFS, but also recommended clients invest in the MFS Premium Income fund. PIF has frozen investor redemptions since January last year, leaving many investors to rely on social-security payments. Octaviar itself is being wound up, with liquidators of the failed group seeking to reclaim $150 million in alleged unfair preference payments, loans and investments.
Despite the collapse of MFS, Paul Manka, former chairman of MFS (Manka replaced Andrew Peacock as chairman, after serving as a director of the failed entity) and Michael Hiscock (also a former director of MFS) still appear to be employed by Avenue Capital Management as financial planners.
Hiscock had multiple links with MFS, serving as a director of MFS Living and Leisure (whose share price has subsequently dropped by almost 98%) and chairman of MFS Diversified (now GEO Property Group) which has seen its share price drop 85% and recently saw the value of its property portfolio slump by $15.3 million to $67.9 million. Manka also served as a director of MFS Diversified, MFS Living and Leisure and MFS itself.
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Avenue’s website notes that the company was “built on a core philosophy of respect, honesty, integrity and professionalism, Avenue Capital Management provides quality investment and financial planning advice to a broad range of clients”.
One suspects clients of Manka and Hiscock who were advised to invest in the Premium Income Fund would dispute that description. As the Financial Review revealed in April last year, clients of Avenue Capital Management invested $51 million either directly or indirectly in PIF.
Investigations by Crikey revealed that while $51 million represented a reasonably small proportion of Avenue’s funds-under-management, it was a very sizeable proportion of the $754 million invested in PIF.
It remains remarkable that two financial planners who recommended that their clients invest in a company in which they had a clear personal interest and that subsequently collapsed (or in the case of MFS PIF, froze redemptions) are still able to provide financial advice.
It was reported in the Financial Review that 10,000 PIF investors (many of whom were clients of Avenue’s financial planning business) have “not received a cent since Wellington Capital [an advisory firm run by Jenny Hutson, a close associate of former MFS CEO, Chris Scott] took over last year”. PIF lost $39.3 million in 2008 when it was under the control of MFS, of which Manka and Hiscock were directors.
ASIC has not publicly announced whether it is pursing criminal or civil actions the directors of MFS/Octaviar or former executives, including, Michael King and Phillip Adams. An ASIC spokesperson told Crikey that it could not confirm or deny the existence of an investigation and would not comment on operational matter.
It is understood that litigation funder, IMF, is currently pursuing a class action against MFS regarding misleading representations.