Oz watchdog sues ex-pat Kiwi businessman

Receivers said last month that investors in the LM First Mortgage Income Fund should expect between 12c and 17c in the dollar back.

Ex-pat Kiwi businessman Peter Drake has been sued by Australian regulators in the wake of a Gold Coast fund manager's collapse.

New Zealand investors had $120 million in a fund controlled by LM Investment Management (LMIM) when this was frozen around the time of the global financial crisis.

Receivers last month said that investors in this fund should expect between 12c and 17c in the dollar back.

The Australian Securities and Investments Commission (ASIC) said today it wants Drake fined and banned from managing companies and providing financial services. Drake, an ex-pat New Zealander, founded LMIM in 1993.

The regulator is also chasing other LM directors and has lodged civil action in the Federal Court of Australia against Drake, Francene Maree Mulder, Eghard van der Hoven, Simon Jeremy Tickner, and Lisa Maree Darcy.

ASIC alleges Drake used his position to gain an advantage for himself and the former directors for failing to act with the proper degree of care on transactions involving the
LM Managed Performance Fund (MPF).

ASIC said that MPF loaned funds to Maddison Estate Pty - a company Drake directed - for property development on the Gold Coast known as 'Maddison Estate'.

According to ASIC:

* Between 2008 and 2012, through numerous loans using MPF funds, Maddison's loan limit was increased from $40 million to $280 million. By the time LMIM entered into administration, and although a development approval had been procured and some preliminary land clearing had taken place, no construction work had commenced on the development, no plans of subdivision had been registered and none of the proposed housing lots had been sold.

* Loan extensions in 2011 and 2012 were approved by the directors in the absence of independent valuations or feasibility studies. ASIC alleges decisions taken by Drake and the former directors to vary and extend Maddison's loan from $115 million to $180 million in September 2011, and from $180 million to $280 million in August 2012, were not decisions which the directors of a trustee in the position of LMIM should have taken.

* ASIC also alleges that a $9.8 million 'loan re-establishment fee', payable to LMIM as trustee of MPF, which was extended to Maddison Estate Pty as part of the 2012 loan extension, was levied to ensure that the LM group of companies (principally controlled or owned by Drake) could book a financial year profit.