A court has banned the high-profile group behind the redevelopment of the stricken Dunk Island resort, Mayfair 101, from advertising two of its investment products after the corporate regulator raised concerns about the group’s solvency.
On Thursday afternoon, federal court judge Stewart Anderson also ordered Mayfair 101 not to compare its products to bank term deposits and put a notice on its website alerting potential investors to the risk of placing money with it.
The Australian Securities and Investments Commission had sought a broader order banning Mayfair 101 from taking any fresh investment into two products from which it has frozen redemptions, M+ Fixed Income and M Core Fixed Income.
It accuses Mayfair 101 of misleading and deceptive conduct in advertising the products as similar to term deposits.
Tear up your term deposit? Asic fights to control ‘misleading’ websites touting riskier products
Mayfair 101 has raised about $140m through the two products but earlier this month froze redemptions from them.
Asic has been investigating Mayfair 101 for about two years and has previously said it wanted to warn consumers against the products.
Anderson made his orders ahead of a full trial of Asic’s allegations, which have not been tested in court.
Mayfair 101’s products are only available to so-called “wholesale” investors who meet a financial test.
But during a hearing held by teleconference on Thursday, counsel for Asic, Jonathon Moore, QC, said that people who met the test were not necessarily sophisticated investors.
He said investors attracted by Mayfair 101’s advertising in daily newspapers and on the internet could include recent retirees who had $500,000 available to invest.
“They’re enticed by the marketing to deposit those funds with Mayfair,” he said.
Testimonials on Mayfair 101’s own website showed that “they are new investors with little or no investment experience,” he said.
Asic sues investment fund Mayfair 101 for allegedly misleading advertising
Anderson repeatedly questioned the financial position of Mayfair 101.
He said Asic’s submissions “fairly and squarely” raised the issue.
Counsel for Mayfair 101, Sam Hay, SC, said Asic should not be allowed to shift from its allegations about misleading and deceptive conduct to “a much broader and deeper allegation to the effect that the group may be insolvent”.
However, Anderson said Asic had raised the issue of Mayfair 101’s financial stability because Mayfair 101 founder James Mawhinney dealt with it in an affidavit filed with the court.
In the affidavit, Mawhinney outlined what would happen if Mayfair 101 was banned from raising more money through the two products.
“As it would have less funds, the group would therefore need to find other sources of funding to meet its commitments, including its commitments in respect of the development of assets,” Mawhinney said in the affidavit.
Anderson asked: “Why does the fund need, and the group need, to have future new money coming in the door to meet the funding of its present commitments?”
“Mr Mawhinney’s telling the court, by the affidavit, that unless he has new money coming in, he can’t meet his present commitments.”
Anderson said Mayfair 101 had also failed to show the court any financial information about the investments it has made.
He asked Hay about a “liquidity prudency policy” put in place by Mayfair 101.
“It sounds like an expression that’s synonymous with a document retention policy,” Anderson said.
This appears to be a reference to long-running litigation over lung cancer against British American Tobacco, during which it emerged that the company had an Orwellian “document retention policy” that resulted in the systematic destruction of thousands of documents.
Hay denied any similarity.
Anderson said Mayfair’s website was updated to include the liquidity prudency policy on 27 March, “and then a short time later, on 2 April, it writes to its investors to say it has implemented this policy and they are unable to withdraw their funds at the end of the term”.
Hay said Mayfair 101 brought in the policy in response to the “unprecedented” economic effects of the coronavirus crisis.
“Asic has been conducting investigations into my client for over two years. During all of that time they have not asked any questions going to the underlying asset positions of the products.”
He said the regulator’s application for an injunction seemed to rely on the idea that there was “some ‘ginormous’ risk, an insolvency risk, about repayment”.
“In my respectful submission, Asic cannot contend, based on its material, that there is such a risk.”
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