LM Investment Management today comprehensively won its legal stoush with David Tweed’s Direct Share Purchasing Corporation (DSPC) – setting a Federal Court precedent in the process.
Judge Michelle Gordon ruled that LM did not breach the Corporations Act when it refused to hand over the member register for its frozen LM First Mortgage Income Fund to Tweed last October.
It’s the second landmark Federal Court ruling this week for the Gold Coast funds manager.
The decision, which means notorious stock market pest Tweed must pay all his own court costs, comes after Tuesday’s successful Federal Court injunction blocking DSPC from accessing LM’s investor list.
Tweed has made significant profits by purchasing shares from inexperienced shareholders for well below market value, and LM’s courtroom triumph represents the first successful preventative action ever taken against him.
While Tweed cannot target the 7000-strong list of Australian investors in the $575 million fund, a loophole has meant DSPC can access the details of LM’s 560 New Zealand investors.
LM CEO Peter Drake (pictured) believes the condition that purchasing offers be at least 90c in the dollar, makes it unlikely Tweed will target the list.
“This is the best result that any Australian fund manager has ever had against a Tweed company,” he says.
“It is ruled that any offer made by DSPC to New Zealand investors must be for 90c per unit, and must be made within three months.
"These restrictions will prevent DSPC from making the typically low-ball offers it has previously made to investors in other funds. We do not expect that DSPC will in fact make any offers at all. We are delighted with our result in this court case. We’ve succeeded where others have not.”
LM’s First Mortgage Fund was frozen in 2009 to protect the capital value from environmental threats brought by the GFC. Drake says the company is working through a 12 month action plan that will bring liquidity back to the fund later this year.
The process involves the sale of around $200 million in assets. In successfully fighting Tweed’s application, Drake is adamant the company has acted in the best interests of both LM’s clients and the wider investment market.
“Regardless of legal technicalities and loopholes, our moral obligation and commitment has not wavered, and I’m proud that we exhausted every avenue to protect our investors’ privacy and interests against DSPC,” he says.
“Australian law was amended in December 2010, to prevent the use of member registers to make unsolicited offers to Australian investors. As a destination for international investment, Australia needs to comprehensively outlaw Tweed’s practices in order to protect all investors.
“This is a significant ruling that will likely affect DSPC’s ability to approach other managers for their registers in the future.”
LM Investment Management was represented by Surfers Paradise corporate lawyer David Monaghan, who says the result is a landmark outcome following the December amendments to the Corporations Act.
“To my knowledge no other company or fund manager has ever achieved such a result against DSPC or any other Tweed entity,” says the Monaghan Lawyers principal.
“Other companies and fund managers approached by DPSC or other Tweed entities can look to this result as a basis for seeking appropriate restrictions should they be approached for their registers.”
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