Bitter foes expect Kiwis to lose all cash

17:00, Aug 23 2014

Two bitter enemies who fought over a multimillion-dollar distressed Australian mortgage fund now agree on one thing: they expect New Zealand investors to lose all their money.

Just under 3000 New Zealanders had about $140 million in the LM First Mortgage Income Fund (FMIF) in 2009 when it was frozen.

Now, some 18 months after LM's directors called in administrators, both LM's Kiwi founder, Peter Drake, and David Jansen, from fund manager Trilogy, which tried and failed to take over FMIF, believe the return to investors could be zero.

Court-appointed receiver BDO's most recent forecast return on August 4 was that investors would get just A15c a unit.

Jansen had a more gloomy forecast.

"The recovery is going to be zero," he said. "The BDO guys are saying maybe 18 cents in the dollar, but that's not projecting forwards and does not reflect either their fees and the legal fees that will have to be paid."


Drake, whose role in massive losses in LM's property funds is being investigated by the Australian Securities and Investments Commission, said there was no hope if the receiver was down to A15c.

He wants investors to believe the assets FMIF held were sold at firesale prices by BDO when they could have been developed and ultimately returned more money to investors.

"There was nothing wrong with the assets. Nothing at all," Drake said.

On his blog, in which he blames the "accountants" of the insolvency industry for the much of the capital destruction, Drake has published angry comments from investors accusing him of being an "idiot", "an evil scumbag", "full of shit" and "a disgusting human being".

The LM collapse has a high profile across the Tasman. As well as the First Mortgage Fund, LM's stable of funds destroyed hundreds of millions of dollars from Australian and overseas investors.

Fairfax has reported in Australia how a lack of official action over the LM collapse is damaging Australia's international reputation, and prompted a Senate inquiry into ASIC, where it was described by one financial adviser as "probably the largest fund scandal in Australian history".

Much of the money lost was lent to property developments associated with Drake. Last year ASIC obtained a court order freezing Drake's assets and requiring him to surrender his passport as it investigated his affairs.

Financial statements for FMIF show that at the end of June 2012, before BDO was appointed receiver, the gross loans held were just over A$480m - of which A$457m was in default. LM said at the time $146m was impaired and it did not expect to be able to collect it.

Jansen said Drake could not blame investor losses on the administrators. "It takes a certain talent to take a first mortgage loan fund and turn it into zero," Jansen said.

Sunday Star Times