Federal Court finds Mayfair 101 misled investors

Federal Court finds Mayfair 101 misled investors

Australia's corporate watchdog has been successful in a legal case against Mayfair 101 Group, with the Federal Court today finding the company's debenture product advertisements "false, misleading or deceptive".

The Australian Securities and Investment Commission (ASIC) brought its case against the  investment group back in April last year, alleging it represented two debenture products as being term deposits online.

The products, both unsecured promissory notes, were promoted online by a number of Mayfair 101 Group companies, including Mayfair Wealth Partners (trading as Mayfair Platinum), Online Investments (trading as Mayfair 101), M101 Nominees and M101 Holdings.

ASIC claimed when these debenture products were promoted, they would appear as sponsored links on Google AdWords and Bing Ads when a consumer would search for "bank term deposit" or "term deposit" online.

As such, Justice Anderson of the Federal Court found the Mayfair 101 Group misled customers by implying they were comparable and of a similar risk profile to bank term deposits. In actual fact, they were debenture products that exposed investors to significantly higher risk.

Further, the Court found the investment group misled customers by representing that the principal investment would be repaid in full on maturity. Rather, investors might not receive capital repayments on maturity, or at all, as Mayfair could elect to extend the time for repayment for an indefinite period of time.

Finally, Justice Anderson found Mayfair promoted the debentures as being specifically designed for investors seeking certainty and confidence in their investments, whereas there was a risk that investors could lose some, or all, of their principal investment.

In his judgment, Justice Anderson found that the Bank Term Deposit Representation "was misleading or deceptive and created a false and misleading impression that the Mayfair Products were comparable to, and of similar risk profile to, bank term deposits."

"In light of the evidence relied on by ASIC, the Mayfair Products are not comparable to, or a proper alternative to, bank term deposits," Justice Anderson said.

The Justice also noted, in relation to the use of sponsored link internet advertising, that "it is tolerably clear that the Defendants' marketing strategy was addressed to persons searching for a term deposit in order to divert them to the Defendants' websites."

"I am satisfied that the Mayfair Products have been, in fact, designed by the Defendants to produce a result which is uncertain for investors and could not on any reasonable view be described as an investment with no risk of default," the Justice said.

ASIC deputy chair Karen Chester said ASIC's success in court demonstrates firms need to do the right thing by their investors, even when they are wholesale investors.

"They need to make sure they accurately describe their products when advertising," Chester said.

"The Court has shown that Mayfair 101 engaged in misleading and deceptive conduct by claiming its products were comparable to bank term deposits, when they were not."

ASIC is seeking pecuniary penalties, injunctions and corrective advertising. A penalty hearing is yet to be listed by the Federal Court.

In separate proceedings commenced by ASIC against the Mayfair 101 Group and its director James Mawhinney, on 13 August 2020, the Federal Court appointed provisional liquidators to M101 Nominees and made interim injunctions against Mawhinney.

Following that, the Court ordered M101 Nominees be wound up. That action arose after M101 Nominees raised approximately $67 million from investors during 2019 and 2020 based on representations that funds from investors would be fully secured, when they were not.

M101 Nominees stopped repaying funds to investors in March 2020 and froze interest payments to investors from June 2020.

ASIC is also seeking orders that Mawhinney be permanently restrained from certain activities, including advertising any financial product and soliciting funds in connection with any financial product. Judgment is reserved on that matter.

In more legal trouble for a Mayfair 101 Group company, Slater and Gordon hit IPO Wealth Fund with a class action over allegedly misleading marketing back in December 2020.

The firm alleges IPO Wealth Fund pitched itself to consumers as a "term deposit alternative" when it was instead a "risky, liquid and speculative investment".

The Federal Court proceedings have been brought against the Trustee of the fund, Vasco Investment Managers, and DH Flinders, the Australian financial services licensee responsible for the conduct of its authorised representative IPO Wealth.

According to Slater and Gordon some $86 million in funds were raised from investors between April 2017 and March 2020.

The firm anticipates a substantial amount will not be able to be recouped by the liquidators.

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