ASIC embarrassed as judge rejects evidence in $800m collapse
The Australian12:00AM December 24, 2016
Ben Butler
No one will be held accountable for the collapse of the Gold Coast’s LM Investment Management, wiping out nearly all of the $800m investors had trusted it with, after a judge entirely rejected the corporate regulator’s civil case against founder Peter Drake and two other directors. The humiliating defeat for the Australian Securities & Investments Commission — its second in a week — came after Federal Court judge James Edelman rejected evidence of its key witness as “incredible”.
It is also likely to further dent Australia’s reputation as a safe place to invest.
The resounding defeat, which will see ASIC bear the costs of the defendants, follows its shellacking last week in the Victorian Supreme Court, which threw out most of its case against former AWB chairman Trevor Flugge and executive Peter Geary over the oil-for-food scandal.
ASIC had earlier dropped breach of duties cases against two other LM directors, Simon Tickner and Lisa Darcy, but continued to press its case against Mr Drake, portfolio manager Eghard Van Der Hoven and general manager of distribution Francene Mulder.
Justice Edelman found ASIC’s expert witness, veteran funds manager Hugh Woolley, “had paid scant attention to the key documents” and gave “preposterous” answers. “He displayed the worst characteristics of partisanship and could not, in any respect, be described as an independent expert,” Justice Edelman said. ASIC’s case revolved around a $280m loan to Maddison Estate, a residential development in the Gold Coast hinterland controlled by Mr Drake.
The loan gradually increased over time from $40m in November 2007 to $280m in August 2012, the year before LM collapsed. Much of the money came from LM’s Managed Performance Fund, which was not regulated under Australian law because it was offered to offshore investors.
ASIC alleged Mr Drake, Mr Van Der Hoven and Ms Mulder breached their directors’ duties by approving a $100m increase in the loan in August 2012.
However, Justice Edelman said ASIC needed to explain what a prudent investment manager would do.