Hammer falls on Wattle scheme

Before falling foul of the law and losing $165 million on behalf of it inves-tors, the Wattle scheme had lured about 3000 investors and at least 10 financial advisers into its complex web. Jason Spits looks at the story so far and the mop up operation being performed by the Australian Securities and Investment Commis-sion (ASIC).

Before falling foul of the law and losing $165 million on behalf of it inves-tors, the Wattle scheme had lured about 3000 investors and at least 10 financial advisers into its complex web. Jason Spits looks at the story so far and the mop up operation being performed by the Australian Securities and Investment Commis-sion (ASIC).

A number of irate clients hassling a handful of financial planners was all it took to close down the "multi-level" investment scheme known as the Wattle Group.

The clients had approached the advisers seeking to invest in a pyramid-style scheme which promised sky high returns with minimum risk. The advisers were sus-picious.

Some were unhappy with its structure and recommended their clients refrain from investing in the scheme. The clients weren't happy and let their feelings known to the advisers.

At the same time, these advisers approached ASIC to express concerns about the scheme. So began an investigation into an investment structure which has already dragged out a couple of years and is set to continue well into next year.

ASIC's Jan Speirs says the advisers approached the investment watchdog after clients complained the investments recommended by the advisers didn't match those promised by Wattle.

"We actually received complaints from some financial advisers who were told by clients they wanted funds placed in the scheme. The reason for their interest was because the investments recommended by the advisers could not compete with those coming out of the Wattle setup," says Speirs, the director of registry projects in ASIC's Queensland regional office.

Investment and sales schemes based on multi-level designs have been in existence since the depression era when investors were fleeced by one of the first of its kind named Ponzi, a name which has applied to similar schemes ever since.

Speirs says the Wattle scheme was akin to a pyramid system in its intent and also in its makeup. In fact, it was this lack of structure which caused it to breach the law.

"The Wattle Group was a registered business name to Geoffrey Dexter, one of the promoters and while there was an actual physical location from which it oper-ated, there was no real business entity," Spiers says.

"It fell foul of the law as a multi-level marketing scheme and also through the scheme's offering of prescribed interest. There is a tight definition of these products which can only be offered through a registered public company."

The structure of the company comprised different levels of agents splitting lev-els of commission from the top down with a further layer of administrators below that, according to Speirs.

However the size of the scheme has meant that ASIC had to limit the scope of the investigation and concentrate on dealing with those responsible for the scheme.

"The amount of money involved was significant but it was a matter of resources and time. We have so far conducted an extensive 12 month investigation and agreed the line would be drawn here since without these people the scheme would never have worked," Speirs says.

"However if there were people outside the immediate scope of the investigation but held a proper authority or license in some way then banning action was taken."

Given the publicity the scheme has generated and the amount of advisers who have been implicated the majority of commission takers fell outside ASIC's jurisdic-tion.

According to Spiers it wasn't difficult to work out who was involved as exten-sive lists had been made which ASIC used to put together a database of people and funds.

Those who were not covered by ASIC's investigation were normally outside the fi-nancial and investment services industry and are best described as being the av-erage man in the street.

"It shows the size of the scheme when most people involved are not covered by the industry and also why it wasn't reported earlier," Speirs says.

According to David Clout and Associates, the trustees examining the final fig-ures involved and seeking to recover some of the funds, about $165 million has already been uncovered.

Until the release of a final report however, neither ASIC or the trustees are willing to reveal a final figure for the total amount of funds involved.

Clout and Associates says the recoverable dividend will be very low, between one and thirteen cents in the dollar. Speirs says the chief promoter of the scheme, Geoffrey Dexter, has been declared bankrupt and companies associated with him are under examination by liquidators.

Dexter faces 40 charges and is slated to appear in court early next year on charges relating to breaches of Section 1000 of the Corporations Law. ASIC al-leges Dexter induced people to invest in securities on the basis of promises that he knew to be misleading, false or deceptive and/or dishonestly concealed pertinent facts from investors.

The promoters involved face a variety of charges with the regulator alleging they offered the opportunity to invest in the Wattle Group in contravention of the Corporations Law.

ASIC also claims they were involved in the conduct of a securities business without holding a securities licence. Speirs says ASIC hopes to finalise court dates for later this year.

"All the people charged are on bail, dependent on conditions and with obliga-tions and are no longer involved in the financial services industry as a li-censed or authorised adviser," Speirs says.

So far ASIC has also banned four advisers for various periods of time from one to three years. A further two are appealing a ban while another adviser has ac-cepted an enforceable undertaking to not work within the industry for a limited time.

The advisers banned include former Financial Wisdom adviser Ross Michael Car-dillo and former Taxinvest adviser Marshall John Cobb.

Former MLC adviser Steven Henare Taiapa agreed not to act as representative of a securities dealer or investment adviser for two years.

And while the settling of the Wattle Group scheme has a long way to go, ASIC and Speirs are still amazed at its size and extent.

"This shows that a number of license holders were not that good at doing their job and shows licensees need to supervise license holders so there is no promo-tion outside the authority or licence," Speirs says.

"It really shows the level of ignorance in the some areas of the investment and investing community. People did not ask questions or seek credible advice which should be part of the educative process involved when looking to invest.

"Investors relied on later entrants to fund earlier ones, which is what ASIC will allege, and schemes like this will always fail."

Those picked up by ASIC so far

Adviser location Licensee at time of action length of ban

Ross Michael Cardillo Mareeba, Qld Financial Wisdom 15 months

James Gerard Callahan Cairns 1 year

Marshall John Cobb Canberra Taxinvest 1 year

Dallas Whatson Brisbane 3 years

Steven Henare Taiapa Brisbane MLC accepted enforceable undertaking to not act as an adviser for 2 years

Promoters location firm associated with at time of action.

Kevin Thomas Browne Brisbane Australasian Management Consultants

Robert Murray Cooper Brisbane Australasian Management Consultants

Lloyd Reginald Ross Brisbane Australasian Management Consultants

Brian Michael Wood Brisbane Australasian Management Consultants

John Andrew Allen Brisbane McKay & Allen

Rodney James McKay Brisbane McKay & Allen

William Ross Jackson Brisbane Spectrum Fund Administration

David Christopher Smith Brisbane The Fund Administrators

Graeme Charles Coote Brisbane The Fund Administrators

Bruce Raymond Walden Brisbane Australian Secured Mortgages

Geoffrey Robert Dexter Brisbane The Wattle Group