The finger pointing by all those involved in the Westpoint Group debacle would almost be humorous if so much money was not at stake.
The finger pointing by all those involved in the Westpoint Group debacle would almost be humorous if so much money was not at stake.
The Australian Securities and Investments Commission started the ball rolling late last year when it launched an all out assault on the Westpoint empire, moving to bring in external administrators to several companies where it feared investors would lose money.
Fingers have been waggling everywhere ever since.
Some commentators have blamed the investors, investors have blamed the financial advisers and the financial advisers have wondered out aloud about the auditors.
I am waiting for the arguments to turn full circle back on the regulators, because I am sure someone one day will ask how a developer managed to raise $300 million with alleged poor practices without someone noticing and blowing the whistle before it was all too late.
Strangely enough, ASIC was doing quite a bit back in 2002-03 when it was tackling Westpoint over its attempt to shift equity investors in its central Perth Paragon Apartments development into becoming debt-based financiers of a Melbourne hotel project.
At the time the Paragon issue was reported widely – including news that ASIC was in discussions with Westpoint over the legal nature of the promissory notes that Westpoint was offering Paragon shareholders.
Such was the nature of that discussion that Westpoint even stated in a supplementary prospectus it issued that it disagreed with ASIC’s position.
In the end, investors voted to switch their funds.
It was not long after this that Westpoint embarked on its eastern expansion, where many of the investments over which it has run into trouble took place.
Clearly Westpoint was on ASIC’s watchlist, to such a position that the regulator had already taken steps to interfere in Westpoint’s operations.
In May 2004, ASIC took its interest in Westpoint further. It asked the Supreme Court of Western Australia to rule on whether certain promissory notes offered by Emu Brewery Mezzanine Ltd should have been offered as debentures or financial products under the Corporations Act.
It took till November of that year before a finding was handed down that certain promissory notes issued by Westpoint constituted a managed investments scheme, and that a prospectus should have been lodged with ASIC.
However, at the same time, the court rejected ASIC claims that promissory note information memoranda issued by Westpoint were false and misleading.
The next big public event was ASIC’s swoop on Westpoint in November last year.
One might question why people were investing in a promoter whose products had attracted the attention of the regulator in such a high-profile manner.
Another question worth asking is, why was Westpoint able to operate for three years, raising funds and developing new markets in the east coast, when ASIC clearly had concerns about its operations?
Is it that ASIC is under-resourced and simply couldn’t more effectively fight a well-funded property developer that had a lot gain in the midst of a massive property boom?
Or is that ASIC simply doesn’t have the teeth to do anything more than go to the courts?
I think it will be a shame if, after the Westpoint group is unwound and put through the wringer, we find out precisely what the regulators knew but were powerless to change before $300 million had gone down the gurgler.
Maybe this episode will help the federal government and ASIC reflect on their whole approach to financial services regulation.
The industry has been lumbered with onerous regulation courtesy of the Financial Services Reform (FSR) program, which forces every legitimate financial planner, stockbroker and superannuation fund to wade through a mountain of legalistic compliance requirements.
Perhaps the regulators should shift their focus and devote more resources to tracking and tackling the fringe players.
Of course, fringe players are very good at finding products or services that sit just outside the regulatory framework.
Surely the best response, given the limits of regulation, is a well resourced industry supervisor able to track the fringe players, with the freedom and flexibility to go hard when something is amiss.
