Perth based advisory group WealthSure has replaced its chief executive officer Darren Pawski and terminated 90 authorised representatives, replacing Pawski with former Plan B advisory services group executive David Newman. Pawski has retained his role as managing director with the group.
Wealthsure is currently engaged in court case with two former clients who have sued the group, and former authorised representative David Bertram, for $1.7 million relating to losses as a result of investing in Neovest and Norton Capital, which have since gone into liquidation. Neovest was a Brisbane-based property development group and Norton Capital was a Western Australian investment house.
The case had been decided against Wealthsure and an appeal was rejected however it is still currently before the Federal Court under a stay of execution.
In documents presented to the Federal Court in South Australia detailing Wealthsure’s financial position Newman is named in an affidavit as chief executive officer and stated the case has the potential to close the planning group if it is forced to pay damages and court costs from its own pockets.
The document was summarised by Judge J Besanko in his judgement (WealthSure Pty Limited v Selig [2013] FCA 628) and states that WealthSure’s professional indemnity (PI) insurance with QBE Insurance was limited to $3 million for any one claim inclusive of costs and expenses.
The $1.7 million claim against WealthSure, by Ronald and Janna Selig, is covered by the policy but at the same time costs and expenses related to the case were $1.35 million. According to the judgement Newman stated that if WealthSure’s appeal was unsuccessful it would have to pay some of the claim and associated costs from its own funds.
Earlier in the same document Newman is reported as stating that WealthSure had already faced a number of claims from its clients and since July 2012 had paid more than $679,000 in claims and a further $172,000 in legal fees. It would also make further payments of $130,000 to more claimants in the next two months with these payments drawn from its own funds as QBE had not fully indemnified Wealthsure for all the claims made against it.
As a result of these payments Newman also stated that if its PI policy had been paid over then Wealthsure would be forced to carry the cost of the claim and was unlikely to be able to so. In a direct quote from the affidavit included in the judgement Newman said “if a stay is not granted, and the statutory demand is not set aside or alternatively the time for compliance with it extended, there is a real risk that WealthSure will be wound up on the basis of the deemed insolvency which may lead to WealthSure being unable, or its liquidator being unwilling to prosecute the appeal”.
In the judgement WealthSure stated that it was working with clients and the Australian Securities and Investments Commission on claims and with the latter on its business structures and systems, terminating approximately 90 authorised representatives since Newman took on the chief executive role.
The case is currently on hold after a stay of execution was applied in late June after WealthSure paid $500,000 to the Federal Court.
However in a further development Bertram has declared himself bankrupt and is no longer appealing against the judgment entered against him since the trustee of his estate, the Official Trustee, has elected to abandon his appeal.
WealthSure also recently lost an appeal against a ruling by the Financial Ombudsman Service that a claim against it should not be split into three parts, each worth $150,000, instead of a single claim for the same amount.
