A loophole means investors can't complain about 'Ponzi scheme'


Published on

Mayfair 101 investors who have had their life savings frozen amid ASIC's proceedings have been left to their own devices, partly due to Mayfair not being a member of the Australian Financial Complaints Authority (AFCA).

A spokesperson for AFCA says Mayfair is not a member and therefore the body cannot accept complaints directly about Mayfair itself.

AFCA says it aims to keep the lines of communication open with the individual complainants it works with, and that it does point complainants to other relevant avenues of information or assistance - such as the relevant regulator, or legal aid, or Lifeline - when appropriate.

mayfair 101 afca complaint

ASIC succeeded in winding up Mayfair 101 debenture issuer M101 in January after provisional liquidators concluded that M101 Nominees had been trading insolvent since it began in November 2019 and was paying M Core noteholders distributions and redemptions with money raised from other M Core noteholders.

During court proceedings, ASIC suggested this model was not far from a Ponzi scheme.

ASIC could not comment on this issue as its action against Mayfair is ongoing.

Consumer Action Law Centre chief executive Gerard Brody says AFCA could still hear some complaints about Mayfair, if investors were advised into Mayfair products through licensees that are AFCA members.

But he acknowledged there is still an access to justice problem for consumers - one that can probably only be solved by the compensation scheme of last resort coming into effect.

"AFCA should provide quicker access to justice but if the relevant licensees have gone under then you are relying on that compensation scheme of last resort - which hasn't been established yet. We're calling on the government to do that," Brody says.

"Community legal centres are limited to assisting around credit and insurance, they can't help with investments, so people have to go to AFCA."

Brody says the access to justice issue was exacerbated by the fact that many of the investors who have lost money with Mayfair fell into the "sophisticated investor" category. ASIC has acknowledged that Mayfair targeted these investors but that they did not necessarily have the investing experience or knowledge that might be expected of a sophisticated investor.

"There's a problem with our law as it applies to retail investors and sophisticated investors," Brody says.

"The law also doesn't prevent direct advertising to sophisticated investors. Mayfair was on Google and in mainstream newspapers with full page ads for a long time there. If it's aimed at sophisticated investors, why would it be advertised in a mainstream newspaper?"

A group of 30 Mayfair investors have been in touch with our reporters. One 70-year-old noteholder, identified as Allen, lost $900,000 of superannuation invested with Mayfair.

This money was to fund him and his wife in retirement. He is now being supported by family and, as the investment is not technically lost yet, the option of a pension is out of the question.

"There is no government system in place that can help people in our situation. Our financial future, after a lifetime of hard work, looks bleak," he says.

Another noteholder, Nickie, emigrated to Australia from New Zealand with her husband to travel the country in a caravan and enjoy their retirement.

The couple invested the entire proceeds of the sale of their house in New Zealand with Mayfair, believing it would provide passive income and was a safe investment.

"We have no home, no financial assets, no access to social security [as NZ citizens] and have no family to help us either... Does anyone care? Who is ASIC working for exactly?  We are the consumers it supposedly protects," she says.

Vic and Maria, aged 73 and 85, also lost their life savings after investing in M Core notes.

Another investor, Lorraine, lost $750,000 - her entire self-managed superannuation fund.

"[That money] was destined to buy me a mortgage-free retirement. Instead, I am now living in a share house arrangement on Centrelink, with no hope of realising the rewards of a frugal life and consistent employment," she says.

"I was confident and happy when I finally entered retirement. I am now embarrassed and secretive about my destitute circumstances."

This story first appeared on Financial Standard

Get stories like this in our newsletters.

Related Stories

Elizabeth McArthur was a journalist at Financial Standard from March 2019 to April 2022. She has a bachelor's degree in journalism from UTS and a master's in creative writing from Melbourne University.