The investment group bought Dunk Island from millionaire Peter Bond and had planned a massive redevelopment funded through the use of debentures.
The development scheme also included properties in the mainland town of Mission Beach.
Grant Thornton was appointed to liquidate M101 Nominees Pty Ltd, which raised about $67m via secured debentures known as M Core Fixed Income Notes.
It also warned in September that M101 Nominees had been insolvent since it began in late 2019.
In a judgment
Tuesday, Justice Stewart Anderson said Mayfair had made claims that its debenture products were comparable to, and of similar risk profile to, bank term deposits, when Mayfair’s debenture products exposed investors to significantly higher risk than bank term deposits.
Mayfair had also said the principal investment would be repaid in full on maturity when investors might not receive capital repayments on maturity, or at all, as Mayfair could elect to extend the time for repayment for an indefinite period of time.
The court found that Mayfair’s debenture products were specifically designed for investors seeking certainty and confidence in their investments and therefore carried no risk of default, when there was a risk that investors could lose some, or all, of their principal investment.
The court also found Mayfair Platinum, Mayfair 101 and M101 Nominees engaged in misleading or deceptive conduct and made false or misleading representations by representing that the M Core Fixed Income Notes were fully secured financial products, when funds invested were lent to a related party and not secured by first-ranking, unencumbered asset security or on a dollar-for-dollar basis or at all.
The court said Mayfair funds used to pay deposits on properties prior to any security interest being registered; and used to purchase assets that were not secured by first-ranking, unencumbered asset security.
In his judgment, Justice Anderson found that claiming the notes were like bank deposits “was misleading or deceptive and created a false and misleading impression that the Mayfair Products were comparable to, and of similar risk profile to, bank term deposits… In light of the evidence relied on by ASIC, the Mayfair Products are not comparable to, or a proper alternative to, bank term deposits’’.
“I am satisfied that the Mayfair products have been, in fact, designed by the defendants to produce a result which is uncertain for investors and could not on any reasonable view be described as an investment with no risk of default,’’ Justice Anderson said.
ASIC deputy chair Karen Chester said ASIC’s success in court demonstrated that firms needed to do the right thing by their investors, even when they are wholesale investors. “They need to make sure they accurately describe their products when advertising. ‘’
ASIC is seeking pecuniary penalties, injunctions and corrective advertising. A penalty hearing is yet to be listed by the court.
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