TheAustralian Securities and Investments Commission(ASIC) has released the final report of its investigation into solicitors mortgage schemes, calling for a beefed up regulatory approach towards the few schemes that have survived its year long campaign against mortgage scheme promoters.
The report, prepared by insolvency expert Tony Hodgson, found that mortgage schemes were typified by a chronic lack of management expertise, as well as poor default management practices, non-existent or exaggerated property valuations and misleading disclosure to investors of information material to their investment in the schemes.
As a result, the report, released by ASIC chairman David Knott last week, has recommended tougher legislative requirements, forcing scheme promoters to obtain an independent valuation of their schemes, introducing maximum loan valuation ratios and requiring promoters to advise investors of loan defaults.
The recommendations come after the ASIC investigation, launched in February of 2001, found there were some 6000 solicitors mortgage schemes operating across the country, with approximately half of them in default.
The default rates ranged from 80 per cent in Queensland to 15 per cent in Victoria, Knott says.
ASIC’s response over the last 12 months has been to force scheme operators, and in some case investors, to recognise the plight of their schemes and wind them up.
“These findings provided all the incentive we needed to take a hard line about closing these schemes down. We have instituted proceedings against a number of scheme operators, including criminal proceedings, and have either initiated or intervened in a substantial number of winding up applications,” Knott says.
Since the start of ASIC’s inquiry into the schemes, it has reduced the number of schemes from 6000 to 376, cut the number of promoters from 186 to 32 and reduced the number of affected investors from 20,000 to under 3,000.
ASIC has also taken action against some 20 scheme operators, including the jailing for seven years of a Queensland based promoter, Andrew Kenneth Nuske, and forcing Tasmanian based planning group, Garrisons, to return some $2.5 million to investors it had introduced to the schemes.
Knott says ASIC will be conducting investigations into a further 13 schemes over the next few months.
He says ASIC will be consulting with relevant State Governments, who have regulatory responsibility over some areas of the law relating to the mortgage schemes, about its regulatory response stemming from the Hodgson report.
