Ponzi Scheme and Mortgage Fraud

2023-11-03-13_36_26-Ponzi

"In my opinion there must be Managed Investment Schemes operating in Australia today heavily at risk to slowing developments ... at risk of [having] Ponzi-like practices at this very moment. I hope ASIC is watching closely.
For those who operate with open and inclusive reporting to investors, and who pulled out of development funding years ago because of foreseeable risks, such as Semper, we can’t wait for these changes to come."

ponzi scheme & mortgage fraud

Anybody reading the news today will find the disturbing account of yet another alleged Ponzi scheme, this time by the Partner of a long-standing law firm in Victoria. The ABC quotes “Some estimates have put the scale of losses in the scheme run by suburban Melbourne lawyer John Adams at $100 million – more than four times the amount high-profile Sydney con woman Melissa Caddick stole from her victims before disappearing in 2020” [source].

If this proves to be the case, it will be another sad indictment of failed regulatory oversight.

For licensed investment managers under an Australian Financial Services License, or those that operate as a Corporate Authorised Representative of an AFS Licensee, the process of regulatory conformity is complex and arduous. But as far as I am concerned, these oversights are not only necessary as key disciplines for managing the Semper business, but they are also vital for ensuring investors’ interests.

How is it then, that a Lawyer could run a Ponzi-mortgage scheme over an alleged 40-year period?

The alleged deception was that the Partner raised investor capital to put into mortgages which, when later repaid, were not discharged from the asset register. This then showed a far higher volume of property security values versus investor capital and allowed investment funds to be misappropriated. We are not aware if the fund required an independent Trustee who would have had oversight, but we can find no record of such on ASICs Registers.

If this case is proven, it will likely be Australia’s largest Ponzi fraud, so far. It will send shockwaves through the Managed Investment Scheme (MIS) industry and particularly in the Mortgage Scheme market. It will remain in the minds of investors and cause untold damage to legitimate operators Australia-wide.

But good could come of this if ASIC are of a mind to be proactive in change, as they were following losses by fraud in the Debenture issuance sector after the GFC.

People may not remember the failures of Bridgecorp, Fincorp, and Australian Capital Reserve (ACR) which occurred in 2007, precipitated by investments by them in Collateralised Debt Obligations (“CDOs”). It was only these losses that unearthed deeper issues with these companies at ASIC.

When the first of these collapses occurred with Bridgecorp, it went under owing more than 14,000 investors greater than $450 million. ASIC never saw any of these failures coming, despite an overly awkward Regulatory regime which was looking in all the wrong places for proof of performance satisfaction.

Following investigations into the operations of these companies, ASIC found grave holes in the oversight process for Debenture issuers at large. But what came out of this situation proved to be good for investors: a total review and implementation of changes under Regulatory Guide (“RG”) 69 “Debentures and notes: Improving disclosure for retail investors”.

This included bank-like reporting benchmarks for bank-like lending businesses funded by anyone raising investment capital by the issuance of Debt Securities. I was one of the contributors to the industry body during the Industry Consultation period which led to ASIC’s Consultation Paper (“CP”), and then to the implementation of RG 69. I have long been an advocate of change in the non-bank lending space and continue to be so.

My questions right now are: if this Law Partner operated an unlicensed Investment Scheme of $100s millions for 40-years, why was it not discovered? What can be done to root these out if they exist elsewhere? And, if it was a licensed scheme, what changes are required (like RG 69) to give ASIC the information they need to act before things go wrong?

RG 69 was and is good for investors. There has not been a single Debenture-funded Mortgage Scheme since the advent of RG 69 that failed as a result of poor reporting standards.

In my opinion there must be Managed Investment Schemes operating in Australia today heavily at risk to slowing developments and whose cash-flows are so tight they can only meet future obligations in progress payments to developers by the inflow of new investors. If so, their scheme are at risk of being Ponzi-like practices at this very moment. I hope ASIC is watching closely.

For those who operate with open and inclusive reporting to investors, and who pulled out of development funding years ago because of foreseeable risks, such as Semper, we can’t wait for these changes to come.

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