My own story of how I became involved with Westpoint is the norm, rather than the exception.
In the main, Westpoint investors were retirees, or near retirees. We had all lived through a period of non-compulsory superannuation, so most of the meager retirement monies we had acquired came from our savings in own desire to provide for a more comfortable retirement. We found ourselves in a world of rapidly increasing prices where our money invested in superannuation funds was going backwards, Urged on by John Howard’s exhortations to look after ourselves, many of us decided we couldn’t do worse than the so called experts. These self-styled "experts" resided in glittering high cost towers of glass and concrete and charged exorbitant fees for losing our money.
Our first mistake was a belief that provided we invested in companies that had a public profile the law would protect us from the worst of the predatory financial wolves peddling magical schemes. Our second mistake was we did not research the record of those who we believed would protect us. Had we first examined ASIC’s past record, we would have become traumatised in the knowledge we were being ripped off by those currently looking after our money. Unknown to us, were swimming in a sea of hungry sharks. In our ignorance, we were ready for the plucking.
For several months prior to my first Westpoint investment in April 2003, I had heard Alan Jones on Sydney’s radio 2GB advertising a company called On Line Super. Alan Jones regularly won the breakfast ratings war, and portrayed himself as a champion of those on “struggle street”. It never entered my mind that neither he, nor Radio 2GB,had never carried out detailed research on the company they were advertising. Nor did I know that had the radio station rejected the advertisement that would open them to possible litigation. I rang Online Super and made a booking to attend their next free seminar.
Online Super offered membership for a fee of $1600. On payment of this fee the company set up an SMSF fund for the investor, and provided ongoing advice from one of their designated advisers. In addition, they promised free ongoing attendance at ongoing workshops. The workshops, held at the premises of well-known major hotels and clubs, consisted of four presenters offering their wares at each meeting. Online Super did not apply pressure to invest in any of the products offered, other than to say they had researched each and every product. At the time of offering, Online Super operated under the AFSL of a former owner. All in all, the scheme had much to offer.
Research showed Online Super had been operating for at least three years, and John Hewson had been a former director.
I would learn later from a Labor politician that Online Super had been mentioned in Parliament for advising on SMSF funds without the appropriate licence, but had “slipped through the cracks”. I was also to learn long after the event Online Super operated for long periods without the benefit of an AFSL holder.
The following, much of it in point form, outlines why I chose to invest in Westpoint products.
1. Leading Sydney broadcaster Alan Jones, who claims to represent the "battler’” on Sydney radio station 2GB, promoted a company called Online Super.
On the collapse of Westpoint, I found my planner didn't possess an AFSL, and contrary to Australian law sold products requiring the holding certain ASIC certifications. I expected Radio 2GB would have checked that they did before accepting the adverts. Alan Jones' is very strident about how he helps he the battler in Struggle Street. When members of the Westpoint Investors Group approached him with a flood of documentation, he expounded the disgrace of the Westpoint collapse for two days. At the end of the second day he indicted he would speak to the Prime Minister about the matter on the following day. No doubt he spoke to John Howard because he has never mentioned it again, and fobs off all queries on the matter off air. However, when the Fincorp, ACR collapses arose he became very hot under the collar, and for a couple of days vented anger at ASIC, which he termed useless. He stated how would have words with the PM next time he was on air with him. He failed on this promise. He ignores the Liberal Government created ASIC, and could have pulled it into line.
2. Neil Burnard, allegedly a director of Kebbel Investment Bank, gave very professional presentations, and answered all questions without hesitation.
Kebbel Investment Bank never existed. and in 2008 Burnard would be found of all eight charges ASIC Mounted against him.
3. Neil Burnard implied that the products were ASIC controlled by referring to Information Memoranda (IM's) as prospectuses. In addition, each IM carried an ASIC registration.
None of us realised Westpoint Mezzanine offerings were unregulated. How many people would suspect an investment bank of lying about such a matter? Nor did we know they were illegal Manage investment scheme - something ASIC should have aware of from the outset.
4. Neil Burnard stressed the prime lenders were Australian Banks.
Westpoint used a number of prime lenders, not all of which were Australian Banks.
5. Neal Burnard gave the assurance Westpoint set up each project as an independent proprietary limited company, with separate accounting systems and bank accounts. This would ensure the loss of one project would not impact on the others.
The standalone proprietary limited companies did not have separate bank accounts, but operated through a central treasury operated by Westpoint Corporation who held hidden controlling shares in each of the companies).
6. During presentations, the question of finance arose. The scheme was Westpoint and the Investors would each put in 20% of the capital for a project, and the bank would provide the other 60% when the pre-sales reached a figure of 60%. The latter would be drawn on an as needed basis, reducing the overall interest paid by the time of settlement to the investors.
Among other lies, Westpoint stated the capital raising for each project on the relevant ASIC approved Information Memorandum, which they altered the amount of Mezzanine funding upwards with each new batch of investors.
7. Because of the pre-sales rider on the prime lender loan, I never invested in a scheme with less than an 70% of pre-sales achieved.
The stated sales figure were figments of the imagination.
8. The investor monies would be used to buy the land, and investor monies would be protected by a second mortgage over the entire property.
The land was bought on credit, and the no second mortgage was taken out on behalf of the investors.
9. Westpoint Corporation guaranteed to make good any loss on a mezzanine project from its substantial res erves.
That was the one point I discarded as being positive. If Westpoint suffered a financial crisis then this promise could not be kept. My judgment on this point proved to be correct.
10. The appointment of Lynnette Schiftan (the first woman appointed as a judge in Victoria) as an independent director to look after investor’s money was a major factor in my investing in the product.
When Ms. Schiftan learned of problems within Westpoint, she did not go to ASIC because it leaked like a sieve.
11. There were no black marks against any of the directors, and one of them, Richard Beck, had served on Australian Government committees. In addition, he had spent three years in corporate governance with KPMG.
12. KPMG audited the books.
ASIC Chairman, Jeff Lucy, said ASIC would sue KPMG on behalf of investors if Westpoint's liquidators and receivers did not do so first. He never did.
13. Westpoint had been in business for twenty years without any major recorded problems.
14. The buildings were in prime positions.
15. From checks with people I knew in the building industry, the projected cost of the buildings was around the right figure.
16. From the internet I learned the gross profit in building before the cost of money was around 45%. I did the sums, and there was very good profit in the projects.
My calculations would have been quite different if I knew the undeclared high rates of sales commission to Richard Beck and the sellers of the products.
17. PIS and Norton Capital, both ASIC licenced research houses, rated Westpoint Mezzanine products as a "buy".
ASIC was as slack in monitoring "approved" research houses as it was in protecting investors.
18. I realised building projects can easily over run their projected construction time with the associated costs quickly resulting in a negative profit. Although Westpoint guaranteed my loan, I did not rely on that factor in my calculations. I assumed that two of the multiple projects I had invested might overrun costs, and assumed a 60% return of capital in the event of this eventuality. In such a circumstance, I would not suffer a loss.
My analysis contained two major flaws.
a). The sales presentation claim each project was a "stand alone" proprietary company was untrue.
b). My calculations were based on a figure of no more than 6% sales commission. Neil Burnard never tols us in his sales presentations Richard Beck took 10% and the sales agents received anything up to 10%.
Had I known the truth about any of the above I would never have invested. I believe the presentations contained a deliberate lie, and a deliberate concealment.cealment.
I was not only investors who did their homework that fell into the trap. Those who sought advice went to dealt with two very different types of financial advisers. There were those who were relatively honest, and not driven by greed who though they were doing the right thing by the client. The other class was driven by no more than the investment that paid them the highest commission. The end result was the same. The honest ones did not have correct data to work with, and the others didn't care what happened to the client.
In a later chapter, I will explain how ASIC failed Westpoint Investors on numerous occasions.