Park Trent unlawfully ran financial services SMSF advisory

Park Trent unlawfully ran financial services SMSF advisory
Park Trent unlawfully ran financial services SMSF advisory

The Supreme Court of NSW found Park Trent Properties Group Pty Ltd (Park Trent) had been unlawfully carrying on a financial services business for over five years by providing advice to clients to purchase investment properties through a SMSF.

Acting Justice Sackville said it was in the public interest that Park Trent be restrained from carrying on a financial services business.

"There is a clear public interest in the court expressing its disapproval of Park Trent’s behaviour," the judgement advised.

ASIC launched legal proceedings in November 2014 against Park Trent who, by the time of the trial in June 2015 had advised over 860 members of the public to establish and switch funds into an SMSF.

In handing down his judgment, his Honour observed that Park Trent's business model depended on "persuading relatively unsophisticated investors of the virtues of using their superannuation accounts to purchase investment properties and to establish SMSFs… Investors were influenced to make important decisions concerning their superannuation strategy with little or no genuine consideration of whether the decision took proper account of their individual financial circumstances. Some suffered financial loss as a consequence."

His Honour also referred to the role of Park Trent's CEO, Ronald Cross and referred to his "willingness to ignore legal advice as to the nature of Park Trent's statutory obligations."

Mr Cross was the person who made all significant decisions within the Park Trent Group and "who was the controlling mind of Park Trent."

The reporting structure within the Park Trent Group makes it clear that Mr Cross, as the CEO, directed the activities of all companies within the group and responsible for the strategies that were employed to persuade clients to purchase properties.

"On the approach devised by Mr Cross, where a purchase of an investment property was feasible only through an SMSF, the client was advised as to the merits of setting up an SMSF to facilitate the purchase.

"Mr Cross personally conducted many of the seminars and was responsible for determining the content of the PowerPoint presentations made at seminars

"Mr Cross’ role included training all new sales consultants, a process that took place at Park Trent’s head office in Wollongong over a period of four days.".

His Honour said that his decision "serves as a warning to others who conduct or propose to conduct businesses which seek to influence clients to establish SMSFs for investment purposes, without having the necessary licence to do so."

"I have found that the making of recommendations and stating opinions as to the desirability of purchasing investment properties was integral to Park Trent’s business.

"But that finding does not mean that an injunction would prevent other companies within Park Trent Group continuing to conduct the business of selling investment properties to clients on a commission basis. That is precisely what Park Trent’s submissions contend that the other companies (except Easy Plan) have been doing throughout the Relevant Period.

"In any event, if any companies within the Park Trent Group suffer any prejudice, it is not “unfair prejudice” within the meaning of s 1101B(1) of the Corporations Act.

"If they do sustain any prejudice, it will be because Park Trent’s business in which they have participated and from which they may have derived some benefit, can no longer be conducted unlawfully.

"It should be noted that the proposed order does not restrain Park Trent from facilitating the purchase of investment properties by means of an SMSF." 

ASIC Deputy Chairman Peter Kell said the decision demonstrates the courts, ASIC and the public will not tolerate this type of "unscrupulous" behaviour.

"Property spruikers who recommend people invest in property via SMSFs, or facilitate such an investment, and who do not have an Australian financial services licence are breaking the law.

"ASIC’s message is that anyone recommending or facilitating SMSFs as a way of investing in property will need to have a licence and provide appropriate advice that prioritises the client's interests.

‘It is important that advisers who deal with SMSFs are appropriately licenced because the important safeguards and standards that come with being licenced are in place for a sector which is of growing importance to more Australian investors."

The court was told Park Trent's business model to a considerable extent, "depends on persuading relatively unsophisticated investors of the virtues of using their superannuation accounts to purchase investment properties and to establish SMSFs (at considerable expense) to enable the purchase to proceed.

"Park Trent’s contraventions of s 911A(1) of the Corporations Act have influenced investors to purchase investment properties through SMSFs without receiving appropriate financial advice," the judgement noted.

"Investors have therefore been influenced to make decisions that expose the investors and their superannuation accounts to significant risks of financial loss (notwithstanding the optimistic projections presented to them)."

The parties have until October 29 to file submissions on the form of final orders. Subject to any submissions by the parties on costs, his honour's present view was that Park Trent should pay ASIC’s costs of the nine day trial proceedings.

ASIC established a SMSF taskforce in 2012 to focus on high-risks in this sector, including potentially inappropriate geared investment strategies and increasingly aggressive advertising for SMSFs.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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Smsfs Asic

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