Former Liberal senator Julian McGauran sues Mayfair 101 over $1M investment
ASIC 2020-06-26 6:20 pm By Christine Caulfield | Melbourne

Already facing action by the corporate regulator for alleged misleading and deceptive conduct and a potential class action, investment firm Mayfair 101 must now defend a lawsuit by former Liberal senator Julian McGauran, who is demanding the return of his $1 million investment.

According to a statement of claim filed last month in the Federal Court, McGauran, now a teacher at Ivanhoe Girls Grammar in Melbourne, has one million secured promissory notes, known as the ‘M Core Fixed Income’, he cannot redeem.

The notes are one of two financial products at the centre of the Australian Securities and Investments Commission’s enforcement action.

Similar to allegations made by ASIC, McGauran’s lawyers at Holding Redlich say Melbourne-based Mayfair falsely held the notes out to be a secured investment product, “backed by dollar-for-dollar, first-ranking and unencumbered security over assets held by the members of the Mayfair 101 group of companies”. 

McGauran, who served as a senator for Victoria from 1987 to 2011, alleges he was misled into believing the M Core Fixed Income product was comparable to, and of similar risk profile to, bank term deposits, that an investor’s principal would be repaid in full on maturity and that the notes carried no risk of default.

On the strength of those representations, McGauran said, he transferred $1 million to M101 nominees on November 18 to purchase the notes for a term of six months and an interest rate of 4.95 per cent. But in late March McGauran submitted a withdrawal notice to Mayfair asking to redeem the notes on the maturity date of May 17 and was advised in emails that early and end term redemptions had been temporarily suspended under a “liquidity prudency policy” invoked in response to the coronavirus pandemic.

“Despite demand, the plaintiff did not receive his principal and interest (or any of it) on or after the maturity date,” says the lawsuit, which names as respondents M101 Nominees, the issuer of the product; and notes manager Mayfair Wealth Partners, trading as Mayfair Platinum.

Investors in Mayfair’s IPO Wealth fund have also had their redemptions frozen, and receivers were appointed last month by the trustee for the $80 million fund.

McGauran said on investing in the M Core Fixed Income notes he was not advised of a clause in a document entitled “Secured Promissory Note Deed Poll” that allowed M101 Nominees to extend the date for payment of notes beyond maturity if the firm considered that it did not have sufficient liquidity to fund redemptions or it had received multiple withdrawal notices.

“The content of cl 5.6 of the Deed Poll and its purported effect on the plaintiff’s entitlement to be paid principal plus interest in full in respect of the McGauran Notes upon the maturity date was a material matter which should have been brought to his attention prior to his acquisition of those notes on 18 November 2019,” the lawsuit says.

The defendants’ failure to draw the purported effect of clause 5.6 of the Deed Poll caused the  plaintiff to infer that there was no such qualification to his entitlement to be paid principal plus interest in full in respect of the McGauran Notes upon the maturity date.”

McGauran also alleges Mayfair is in breach of contract for failing to make good on his redemption request at the maturity date of the notes, and for failing to bring the deed poll clause “specifically or clearly” to his attention before he entered the contract. The lawsuit calls for compensation for loss and damage and the return of McGauran’s investment, plus the interest owed under the contract.

Lawyerly has reached out to Mayfair for comment on the case. The suit could be joined to ASIC’s action, according to an order by Justice Stewart Anderson on Thursday.

In its defence against ASIC’s case, Mayfair denies that it has engaged in misleading or deceptive advertising of its Platinum products, saying in a response to the regulator’s case the products were aimed at sophisticated investors who were told of the risks.

Mayfair says its unsecured promissory notes, known as the ‘M+ Fixed Income’ product, as well as the M Core Fixed Income notes were clearly marketed at wholesale or qualified investors, who had put in an average of $378,000 as at April 15.

Investors were required to provide the Mayfair Group with an accountant’s certificate to show that they qualified as wholesale clients under the Corporations Act and had a minimum of $100,000 to invest in the M+ Not Fixed Income
product or $250,000 to invest in the M Core Fixed Income product, the firm says.

“There was not a substantial subset of investors in the Mayfair products who were unlikely to understand the risks of investing in the Mayfair products, because they were wholesale clients, and because those risks were disclosed to prospective investors, before they could invest in the Mayfair products, in the impugned marketing materials,” Mayfair said.

In its case filed in early April, ASIC alleges that Mayfair’s advertising on its website and in online media falsely represented its financial products as equivalent in risk to bank term deposits, in breach of the Corporations Act. The regulator also accuses Mayfair of falsely claiming that investors could withdraw their funds at the end of a fixed term, noting the redemption suspension in April 9.

But Mayfair argues it alerted investors to the risks of its products, including in a FAQs page on its website, which lists the risks as including “general investment, lending, liquidity, interest rate, cyber, related party transactions and currency risk”.

Investors were also informed that the federal government’s Financial Claims Scheme did not cover investments made in the M+ Fixed Income products, and they were encouraged to obtain independent advice prior to investing in the products, Mayfair says.

The firm disputes ASIC’s claim that Mayfair’s advertising made the products out to be equivalent in risk to bank term deposits.

“To have described the Mayfair products as ‘alternatives’ to term deposits, or to describe them as suitable for those who are ‘tired of term deposits’ or were seeking to ‘make the switch’ from term deposits, was to have disclosed that the Mayfair products are different to bank term deposits, rather than represented them to be equivalent to – or possessing the same risk profile as – bank term deposits,” it said.

“The impugned marketing material repeatedly disclosed that the issuers of the Mayfair products were not banks, and thereby disclosed that the Mayfair products did not have the same risk profile as bank products.”

Mayfair also denies that it told investors they could withdraw their funds after a fixed term, saying investors were told that the principal would be repaid in full on maturity “subject to investment risks and applicable terms and conditions”.

Justice Anderson has issued a temporary injunction limiting how Mayfair can promote the two debenture products pending resolution of ASIC’s case, saying there were “serious questions to be tried”.

McGauran is represented by Robert Craig SC, instructed by Holding Redlich. ASIC is represented by Jonathon Moore QC and Caryn van Proctor, instructed by the regulator’s in-house legal team. Mayfair Wealth Partners, M101 Holdings, M101 Nominees and Online Investments are represented by Sam Hay SC and James Stoller, instructed by KHQ Lawyers.

McGauran’s case is Julian John McGauran v M101 Nominees Pty Ltd.

ASIC’s case is Australian and Securities Investments Commission v Mayfair Wealth Partners Pty Ltd & Ors.

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