The corporate watchdog is investigating one of Australia's biggest mortgage fund operators for potentially false and misleading statements in the wake of a Four Corners investigation.
The Gold Coast-based fund manager LM Investment, which operates in 70 countries and boasts of managing $3 billion of realisable assets, has made claims that one of its key funds is a "bank-like" facility and that it operates in Australia as a "conservative and highly-rated private bank".
LM Investment is in fact a fund manager without any bank safeguards that operates mortgage funds subject to no prudential regulation.
Investors in its First Mortgage Income Fund and various other funds have lost hundreds of millions of dollars of capital, in some cases money that represented most of their retirement savings.
After the closure of failed funds in Australia, LM Investment has turned overseas and is heavily promoting the LM Managed Performance Fund in Asia, Europe and the Middle East.
At a recent seminar in Israel, the European development manager for LM Investment, former Goldman Sachs banker Simon Bottle, told investors and financial planners: "We are highly regulated in Australia.
We are regulated twice.
We are regulated as a private bank, and regulated as a fund manager." Mr Bottle's CV says LM Investment operates in Australia as a conservative and highly rated private bank lender.
LM Investment has also sold its Managed Performance Fund to institutional investors overseas as a "bank-like facility".
It says that claim was withdrawn as soon as it realised the potential for confusion.
LM is promoting its investment funds overseas on the strength of Australia's economy, best practice financial regulation, and world-class banking system.
Told of the claims by , the chairman of the Australian Securities and Investments Commission (ASIC), Greg Medcraft said: "I think that that is quite interesting ...
thank you for the information.
That is something that I wasn't aware of it and it's something that we will have a closer look at." The ABC understands that a team of investigators from ASIC is looking into LM's statements, disclosures and the valuations it has placed on a key asset in one of its funds.
LM Investment denies it has misled investors.
In a written statement, LM Investment told Four Corners: "Material we circulated to a small group of some 40 financial advisors only contained a reference to "bank-like".
"That was in the context of an offer being made to class holders with minimum investments of $500,000 as an alternative to the fund taking a 'bank-like' facility.
It was not referred to as an 'investment'.
"The confusion regarding context was identified almost immediately and it was removed from circulation with an amended document forwarded to those who received the first, to eliminate any possibility that reference may be taken out of the context originally intended." The business's owner and chairman Peter Drake reportedly told The Courier-Mail last week: "I suppose on a global basis we are a small Macquarie Bank where we sell Australian products to the world." LM Investment is marketing its managed performance fund as having a diverse portfolio of assets.
Yet a mortgage over one site - the 118-hectare Maddison Estate at Pimpama in the Gold Coast hinterland - makes up 62.5 per cent of the assets in the fund.
The land was purchased for $89 million between 2007 and 2009 by interests associated with Peter Drake.
Property values in the area have slumped since and independent valuers have told Four Corners the unimproved land would be worth, at best, at about half the purchase price.
Before any work commenced at the site, the borrowings over the land stood at about $250,000 â with a small first mortgage to the bank Suncorp and a very large second mortgage in the name of companies ultimately controlled by LM Investment.
The main asset in the LM Managed Performance Fund is the second mortgage over the Maddison Estate, established via a complex web of corporate structures, which has been growing as unpaid interest is capitalised into the loan.
The mortgage currently stands at more than $240 million.
A network of financial planners overseas are being paid very high commissions to place their clients in LM Investment's Managed Performance Fund; LM says the indicative financial advice fee taken out of the investors' money is 4.4 per cent in the first year, then an ongoing trailing commission of 3.3 per cent a year.
LM Investment is charging a management fee of 5 per cent a year, though this can rise as high as 10 per cent.
Despite the high fees huge sums of money are flowing into the fund from offshore.
It is offering returns of 3 to 5 per cent above the Reserve Bank cash rate, although no land has yet been sold at Maddison and this key asset is at yet delivering no revenue.
"If I was an investor in that fund I would have concerns as to so much of my investment being exposed to one asset when the fund is marketed as a multi asset fund," says Danny Maher of Fiducia Wealth Management.
"I'd also have major concern where my income's being derived when that estate, Maddison Estate, is very much in its infancy." A former special investigator and senior lawyer at ASIC, Niall Coburn, was contracted to investigate the LM Managed Performance Fund by a rival fund manager that is fighting to take over some LM schemes on behalf of disgruntled investors.
"Based on my professional experience investigating complex financial structures I would say that if you allow more investors to get involved, ultimately they will lose their money." LM Investment maintains that the Maddison Estate will eventually be worth between $1 billion and $1.6 billion.
Stephen Long's report airs on ABC1 at 8.30pm tonight.