"We had grave concerns in the past that many financial planning groups were either two-dollar companies, didn't have the assets to pay, or their insurance would not pay claims of this nature," IMF litigation manager Charlie Gollow said. "We believe PIS has the capacity to pay."
Described by the firm as the test case for other Westpoint investors, 22 clients of PIS, Australia's largest dealer group by adviser numbers, form the core of the prosecution. Slater and Gordon lawyer Ken Fowlie said in all cases the investor was given inappropriate advice. Advisers made misleading statements to clients about their investment, and in some cases even led them to believe it was guaranteed, Fowlie said.
However, PIS believes a class action is not the way to resolve the issue. "We're not going to walk away from our responsibility," PIS managing director Grahame Evans said. "But we do think a class action is not appropriate in these circumstances - every case is individual and as such, each case should be handled individually.
"We put together balanced portfolios for clients to ensure they are appropriately diversified, some investments go up, while others go down." Most of PIS' clients with Westpoint exposure had seen their portfolio value increase, Evans said. PIS admitted in May that $19.2 million of clients' money had been lost in Westpoint through 23 of its advisers.
Evans downplayed the amount in light of PIS' total funds under management (FUM). "We placed over $2 billion of new funds just in the last year," he said. "I'm not saying $19.2 million isn't a lot of money, but in terms of our total FUM, it's quite small." The 22 clients of the class action represent only $2.2 million of PIS' total Westpoint exposure.
All 22 were invested in the same Brisbanebased property investment, Ann Street. Each client is seeking to recover between $50,000 and $300,000, depending on the total amount invested through a PISlicensed adviser.
Over 500 investors have signed agreements for IMF to handle their complaint. This case was only the beginning of a likely string of class actions against dealer groups whose advisers recommended the failed mezzanine schemes, Gollow said. IMF has previously said the Financial Industry Complaints Service (FICS), which can only award claims up to $100,000, is not an appropriate vehicle to represent claims against Westpoint.
"We just don't think FICS can work for matters as large as Westpoint," Gollow said. FICS is currently seeking a Federal Court ruling to deal with Westpoint claims. It has received 240 complaints regarding Westpoint.
However, former dealer group Deakin Financial Services has opposed FICS' jurisdiction on this matter using a legal loophole that promissory notes are not financial products, meaning FICS cannot adjudicate on them.
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