Allegations of misleading conduct and mismanagement are behind a class action launched yesterday by 737 investors against AM Corporation founder David Smith and a former director of the group’s Lifetrack superannuation fund, Alan Rich.
According to the investors’ lawyer, Goldman Partners senior associate David Goldman, the investors are seeking compensation running into tens of millions of dollars through the class action, filed in the NSW Supreme Court. He said the figure sought would depend on the final number of investors who joined the class action, which has been planned since 2003 and brought against Smith, Rich, AM Corporation and Lifetrack Management.
Goldman said the investors claim the management of AM Corporation made misleading representations to induce them to enter or continue their investments in Lifetrack’s traded policies funds, and also mismanaged the funds themselves.
“In general they advertised the funds as being low risk funds…We would say that as a result of the way they managed [the funds], those statements became untrue and they didn’t do enough to tell people that those circumstances had changed,” Goldman said.
Goldman said the investors allege that from around 2000, AM Corporation’s management knew the traded policies funds, which used life insurance policies as their underlying investment, were in trouble. But it wasn’t until around 2002 that investors were told there were problems. Further they are claiming that when they were told, the information provided was inadequate, Goldman said.
The investors’ allegations of mismanagement stem from their view that AM Corporation kept insufficient liquidity for running the fund and failed to adequately diversify investments, the lawyer said.
Goldman claimed AM Corp has spent too much money buying life insurance policies through a related party. He also claimed the funds were inadequately diversified because most of the polices it acquired were issued by MLC and AMP.
“We would say that a reasonably managed fund would have invested in a range of traded policies from different insurers,” Goldman said.
In August 2003, David Smith and Alan Rich were banned by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission from being directors or officers of companies holding an Australian financial services licence for ten years. LifeTrack was also ordered to pay $1 million to APRA in settlement of any potential civil penalty actions.
Rich did not comment on the allegations when contacted by Money Management today.
