In documents filed in the Federal Court in Queensland, ASIC solicitor Anne Gubbins said Linchpin had engaged in “misleading and deceptive conduct” by seeking investments in a managed investment scheme and subsequently using the funds “for its own purposes”.
The affidavit alleged the fund, called Endeavour, has entered into related party transactions in contravention of the Corporations Act.
“Monies invested in funds managed by Linchpin and Endeavour have been misapplied or misappropriated by Linchpin and Endeavour,” said the affidavit.
According to the affidavit, advisers licensed by Linchpin’s subsidiary dealer groups were promoting a registered managed investment scheme which, in turn, was solely invested in an unregistered fund also operated by Linchpin.
The registered scheme’s product disclosure statement (PDS) claims the fund will invest in “a diversified range of loans” including “commercial and corporate loans able to be secured by registered fixed and floating charges”.
The PDS also says the scheme will invest in non-residential mortgages “such as commercial and development loans” secured by registered mortgages or other “economic contractual interests”.
However, Ms Gubbins’ affidavit said $15,910,848 of the registered scheme’s $16,457,704 total assets were invested in units in Linchpin’s unregistered scheme.
Of the unregistered scheme’s $21,027,349 total assets, $20,734,416 was used to fund loans to 25 “entities and individuals”, with a further $590,602 held in cash.
The affidavit also included quotes from an examination conducted by Ms Gubbins of Linchpin executive director Paul Nielsen, who told Ms Gubbins the unregistered fund “has two main things it invests in”: financing advisers licensed by Linchpin subsidiary Beacon, and providing funding to Linchpin itself.
Beacon received a loan of $3 million from the unregistered fund on 10 February 2014, which was increased to $4 million on 20 April 2016 and then further increased to $5 million on 30 September 2016.
Linchpin itself was loaned $3 million by the unregistered fund on 1 August 2014, which was increased to $6 million on 1 July 2015.
A series of loans were also made to financial advisers within Linchpin’s dealer groups for “the borrowers to finance the acquisition of additional books of clients for the borrower”.
Ms Gubbins also noted that two Linchpin directors, Paul Raftery and Peter Daly (who also serves as one of the three members on the investment committee for both schemes, alongside Mr Nielsen and fellow Linchpin director Ian Williams), were also provided with loans of $30,000 and $125,000 respectively.
The affidavit said Mr Raftery was supplied with a loan to finance his divorce, secured by “a security interest and an equitable mortgage over all Linchpin shares” held by Mr Raftery.
Mr Daly’s shares in Linchpin were also used as security for the $125,000 loaned to him from the unregistered scheme.
Documentation regarding the loan supplied to Mr Daly said the purpose for the money was to assist Mr Daly through “financial difficulties” facing his family, however Mr Williams said during ASIC's investigation the “major” use of the funds was to finance Mr Daly’s daughter’s wedding.
“It strikes me as an expensive wedding, but that’s been the primary purpose of that balance,” Mr Williams said.
Mr Daly maintained under questioning from ASIC that there was no conflict of interest in him receiving a loan from the scheme, but acknowledged there was nothing preventing him from disposing of the shares used as security.
The affidavit also asserted that funds from the registered scheme “appear to have been used to pay interest payments owing by the unregistered fund to investors”.
“I have identified at least five occasions in which a transfer was made from the registered fund account … into the unregistered fund account immediately prior to payment of interest on investment by the unregistered fund for an amount identical or similar to that of the interest payment,” said Ms Gubbins.
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