The Supreme Court of New South Wales has ordered the promoters of illegal property financing schemes to pay compensation and penalties following the collapse of their company.
In addition to the compensation order, Justice Brereton also banned Donald Maxwell from ever running a company again and from providing financial services.
Maxwell and seven other company officers were part of the failed ProCorp Investments and Central Development of companies, which were involved in the promotion of illegal mezzanine funding schemes.
The Australian Investments Commission first took action in relation to the illegal fundraising in October 2003, obtaining orders freezing the assets of the companies promoting the scheme, and the personal assets of the schemes’ promoters, Maxwell and Malcolm Fortune.
In addition to the freezing orders, the Court made various orders restraining the parties from continuing to conduct the fundraising in breach of the law.
Maxwell, who was an unlicensed financial adviser, and had received a 10% commission on the investments placed, continued to promote the schemes in contravention of court orders obtained by ASIC at this time.
The development companies defaulted on payments due to secured institutional lenders leading to mortgagee sales of the development properties and the liquidation of the ProCorp and Central Development groups.
Meanwhile, Malcolm Fortune of the Gold Coast, Queensland, a director of one of the failed Procorp Investments group of companies, was banned for 12 years and ordered to pay penalties and costs of $250,000.
The disqualification orders were made after the Court found that:
• the schemes had been promoted without the required disclosure documents
• representations made to investors were found to be misleading and deceptive, and
• company officers had failed in their duties as directors.
The schemes promoted by ProCorp Investments and Central Development groups sought seed capital from investors for property development projects throughout New South Wales, including Five Dock, Liverpool, Gosford and Waitara.
The investments, which were advertised in suburban newspapers, promised returns of approximately 30% per annum, and were described as ‘secured and guaranteed’.
In fact, most of the investments were simply unsecured loans.
The ProCorp Investments group subsequently collapsed in 2004 with debts of $10.8 million owing to 120 seed capital investors.
The Central Developments group also failed, leaving 32 investors facing losses of $3.3 million.
In addition to the disqualification orders against Messrs Maxwell and Fortune, the Court made orders disqualifying the directors of both the ProCorp and Central Development groups of companies.
Troy Fortune and John Bennett, who were directors of the ProCorp group of companies, were disqualified from managing corporations for seven years and five years respectively. The Court will hear further submissions on a third director, George Nahed on 17 October 2006.
Jim Kolios, Roy Skaf and Jaul Jammal, the directors of the Central Developments group of companies, were disqualified from managing corporations for eight years, five years and three years respectively.
Lloyd Antony Coakley, an accountant and financial planner from Enmore in Sydney, who was involved in promoting the schemes, was found to have engaged in deceptive conduct and breaches of the fundraising provisions. He was disqualified from managing corporations for two years.
The Court has also made permanent restraining orders against each of the eight banned persons.
ASIC’s executive director of enforcement Jan Redfern said this case represents an example of scheme promoters and company directors acting in their own interests without any regard for the law and their obligations to investors.
“They have failed in their fundamental duties to provide investors with the relevant information to help them make an informed decision about the merits of the investments, and in some instances, made false claiabout the investment.
“The orders against the schemes’ promoters and directors of the ProCorp and Central Developments groups of companies sends a clear message that ASIC will act to remove unscrupulous advisers and incompetent company directors from the investment market,” she added.
Redfern said the unfortunate experiences of the investors in these schemes should also serve as a warning to others who may be tempted to invest in schemes offering high returns.
“Time and time again, ASIC sees people losing their hard-earned money by investing in illegal schemes. Our message to would-be investors is to always check that the people operating the schemes are licensed and that the investment schemes themselves are registered with ASIC,” she concluded.
By Kathryn O’Meara
