First Step losses get fresh look

The Commerce Commission has reopened its probe into Money Managers' disastrous First Step trusts, which have lost investors about $170 million.

The First Step trusts were sold by Money Managers (now called MMG Advisory Partners) as a fixed interest investment, often to older investors. At their peak they contained more than $500m but were frozen in November 2006 and since then there has been a drip-feed of bad debts revealed by First Step's related party trustee Calibre.

That's led a group of disaffected Money Managers clients to press for an official investigation into how First Step was sold and managed, and their arguments appear to have swayed the commission.

The commission told the Sunday Star-Times it was "in the process of assessing information to establish whether there is evidence of any prima facie breaches of the Fair Trading Act, and if so, what further action, if any, the commission should take."

While it had previously decided not to investigate First Step, it was "making this further assessment in light of new information."

It would not say what that information was.

Some of it, however, has come from the Money Managers Action Group, an investor organisation co-ordinated by Auckland businessman John Simmons.

Simmons said the group had assembled complaints of more than 50 Money Managers clients who despite having conservative risk profiles ended up with their money sunk into highly risky used car loans and a geothermal development project.

Among the allegations is that though investors in the lowest risk of the four First Step trusts, the Secured Mortgage Trust, started out with a fund that was limited to investing in mortgages, it was progressively allowed to extend into far riskier assets and Money Managers failed to tell investors about the changes – in breach of securities law.

Simmons said periodic changes to the prospectus did not qualify as informing investors because they were not told of them and were never shown the documents. They relied on their advisers to do that and keep them informed.

"If you are 70, you can't read a 20-page investment statement or a 200-page prospectus. That's why they have got to be able to trust advisers when they go to them," Simmons said.

- © Fairfax NZ News