The Australian Securities and Investments Commission (ASIC) has acted to stop a number of investment clubs based in the Republic of Vanuatu from operating in Australia.
ASIC announced last week that it has also obtained orders banning the directors of the group from providing financial product advice, dealing in a financial product or operating a registered managed investment scheme in the country. The orders were made, by consent, in the Federal Court against Gramax Investment Club Limited (Gramax), Biri Limited (Biri), ClubInvest Limited (ClubInvest), all incorporated in the Republic of Vanuatu, and their directors, Mr Graham Laughlin, Mr Philip Northam and Mr Allan Veivers.
ASIC commenced proceedings due to concerns that Gramax, Biri and ClubInvest were offering financial services to Australian investors without holding an Australian Financial Services Licence (AFSL) or being appropriately authorised by an AFSL holder. In particular, ASIC was concerned that in promoting the investment club to Australian investors, Gramax and Biri were operating and promoting a managed investment scheme, and that ClubInvest was offering securities without a current disclosure document, in breach of the requirements of the Corporations Act.
The Court agreed with ASIC’s claim that the companies had contravened various sections of the Corporations Act and ASIC Act in relation to their operation of the investment clubs. The Court also made banning orders against the directors, restraining them from either directly or indirectly providing financial product advice, dealing in a financial product or operating a registered scheme.
ASIC’s investigations found that investors in the schemes were recruited from referrals from other Club members attending club meetings in Australia and via the clubs' websites. Over $15 million was raised collectively by the investment clubs from more than 500 Australian investors.
The investment clubs promoted average annual returns of 28.5 per cent to 31 per cent. The Gramax and ClubInvest websites also promoted a referral system whereby existing investors who referred new investors received a benefit for the referral.
In response to the action, Gramax, Biri and ClubInvest have made undertakings to both ASIC and the Court to: notify all investors of the outcome of the proceedings within 14 days; offer full redemption of an investment to any investor within 60 days of a request; and no longer pay referral fees with respect to any investor referred to Gramax, Biri or Clubinvest on or after 29 September 2005.
Commenting on the action, ASIC Deputy Executive Director of Enforcement, Mr Allen Turton, urged Australian investors to ensure that they deal only with investment funds licensed in Australia, warning that they stand little chance of recompense once their money is moved offshore.
"ASIC will take action against individuals or companies that seek to operate within Australia without holding the appropriate license or authorisation," stated Mr Turton.
"ASIC recommends that investors check that they are dealing with an entity that is licensed in Australia, as there may be limited prospects to get your money back once the funds are sent offshore," he added.
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