LM Investment M’gmt directors ‘did not breach their directors’ duties’: Australia court

Peter Charles Drake and two of his fellow directors  “did not breach their duties as directors of LM Investment Management”, Australia’s Federal Court ruled on Friday, in response to a case brought by Australia’s financial services regulator. the Australian Securities & Investments Commission.

The ruling is likely to come as a disappointment to many thousands of out-of-pocket investors in the funds LM Investment Management (LMIM) marketed, mainly in Australia and Asia.

The defeat was described by The Australian newspaper as a “humiliating defeat for the Australian Securities & Investments Commission”, as well as one that was also “likely to further dent Australia’s reputation as a safe place to invest”, as it wiped out “nearly all of the A$800m (£467.3m)” investors had entrusted LMIM with.

ASIC will also be stuck with having to pay the court costs of the defendants, according to the publication.

As reported,  LMIM was a fund management company popular with many English-speaking, expat-focused financial advisers in such markets as Hong Kong, Thailand, Malaysia and the United Arab Emirates, which filed for administration at the end of March, 2013. At that point its popular Managed Performance Fund (MPF) was reported to hold assets under management of more than A$400m (£234.8m).

Investors have been told that they are likely to receive no more than 5p for every £1 invested in LMIM.

In a statement released on Friday,   ASIC said it was “reviewing the Court’s decision, and has no further comment at this time”.

In its court action, ASIC had alleged that LMIM founder Drake “had used his position to gain an advantage for himself, and that each of the former directors of LMIM had breached their director’s duties by failing to act with the proper degree of care and diligence regarding transactions involving the LM Managed Performance Fund (MPF), an unregistered managed investment scheme with about 4,500 investors”, ASIC said. The other two directors mentioned in ASIC’s case and also found not to have breached their directors’ duties by the Federal Court were and Francene Maree Mulder and Eghard van der Hoven.

As reported, ASIC’s claim against two other directors, Simon Ticker and Lisa Darcy, was dismissed in September.

LMIM was the responsible entity for seven registered managed investment schemes as well as the trustee for MPF.  According to ASIC,  LMIM was responsible for managing at least A$800m on behalf of approximately 12,000 investors in Australia and overseas.

Just before LMIM went into administration, it opened an office in London, and obtained authorisation from the Financial Services Authority and for a brief time, was authorised by the FSA’s successor, the Financial Conduct Authority.

‘Surprised, shocked and appalled’

Two Thailand-based LMIM investors contacted by International Investment expressed disappointment with the Australian Federal Court decision, with one saying he was “surprised, shocked and appalled”.

Another, who requested anonymity, said: “Honestly, this can only open the question that has been in all of our minds: Have ASIC really only sought a route to endorse their earlier in-action?

“We believe the LM MPF was heavily mis-sold, that its marketing documents led their readers vastly astray, and we can find no evidence that the promised returns to investors were paid from anything other than new investors’ monies for at least five years.

The danger is that the industry will see this result as condoning behavior in Australia that is unacceptable throughout developed nations across the world.”

This story was updated on 25 December 2016.

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is the editor of International Investment. A US-trained journalist, she has worked in Rome, New York City and London, covering everything from the fashion and retailing industries to the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

Read more from Helen Burggraf

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