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20-333MR ASIC commences civil penalty proceedings against La Trobe Financial Asset Management Ltd
ASIC has today commenced civil penalty proceedings in the Federal Court against La Trobe Financial Asset Management Ltd (La Trobe) in its capacity as the responsible entity of the La Trobe Australian Credit Fund (the Fund).
The Fund invests in loans secured by first mortgages over residential and commercial real estate, as well as cash, deposits and other assets.
La Trobe offers several different investment options to members of the Fund, including:
- an option previously known as the ‘48 hour Account’ or the ‘Classic 48 hour Account’ (48 Hour Account), and
- the ‘90 Day Notice Account’ (90 Day Account).
ASIC alleges La Trobe marketed the Fund throughout Australia in ways that were misleading or deceptive, or likely to mislead or deceive. This marketing included advertising in newspapers and magazines, on television and radio, and on its website (www.latrobefinancial.com.au). Specifically, ASIC alleges La Trobe represented that:
- consumers who invested funds in the 48 Hour Account would be entitled to withdraw their funds within 48 hours of giving a withdrawal notice to La Trobe; and
- consumers who invested funds in the 90 Day Account would be entitled to withdraw their funds within 90 days of giving a withdrawal notice to La Trobe.
ASIC alleges the actual rights of members to withdraw from the Fund ranged from no right to withdraw through to a right to request a withdrawal that La Trobe had up to 12 months to satisfy.
ASIC also alleges La Trobe represented that:
- any capital invested in the Fund would be ‘stable’, in the sense there was no risk of substantial loss of capital, when in fact there was a risk of substantial loss of capital; and
- an investment in the Fund would provide a specified rate of return when in fact none of the investment options in the Fund were guaranteed to provide any particular rate of return.
ASIC is seeking declarations, pecuniary penalties and corrective advertising orders against La Trobe.
The date for the first case management hearing is yet to be scheduled by the Court.
La Trobe holds an Australian financial services licence under which it is authorised, among other things, to operate registered managed investment schemes.
The Fund’s Product Disclosure Statement says that it is authorised to hold a mixture of mortgage assets, cash, notes and other assets. The Fund is an unlisted registered managed investment scheme with over $5.15 billion in Assets under Management and over 45,000 investors.
A person may acquire an interest in the Fund (and thus become a member of the Fund) by making an investment in the Fund. The minimum investment is currently $10.
The constitution of the Fund dated 24 December 2004 set out the rights of members to withdraw from the Fund. Before 3 August 2020, members of the Fund could only withdraw from the 48 Hour Account and the 90 Day Account:
- (when the Fund was liquid) by giving a withdrawal notice to La Trobe, which La Trobe was required to satisfy within 12 months after receiving the notice; or
- (when the Fund was not liquid) if La Trobe made a current withdrawal offer, in which case, members had a right to withdraw a proportion in accordance with the terms of that withdrawal offer. Otherwise, a member may have no right to withdraw funds invested in either investment option.
In certain circumstances, whether the Fund was liquid or not, La Trobe was entitled under the constitution dated 24 December 2004, to only satisfy withdrawals proportionately according to a formula based on the amount of cash available in the Fund to satisfy withdrawals.
Editor's note 1:
The first case management hearing is listed on 23 February 2021.
Editor's note 2:
The case management hearing on 23 February was vacated. A case management hearing has been listed on 28 May 2021.