Angry investors line up to sue financial planners over LMIM collapse

A “steady stream” of investors are adding their names to what could become a Slater & Gordon class action against financial planners who recommended they invest in mortgage funds issued by collapsed Gold Coast-based fund manager and developer LM Investment Management (LMIM).

Slater & Gordon had already issued legal proceedings against financial advisors on behalf of a number of those investors and says more proceedings will be issued in coming weeks.

LMIM was placed into voluntary administration last month with initial reports suggesting there may be irregularities in how some of the funds operated.

Administrators John Park and Ginette Muller from FTI Consulting have applied to become the receivers of the $400 million LM Managed Performance Fund, which has the $1 billion Maddison Estate on the Gold Coast as its primary investment asset. The application has the backing of ASIC, The Australian Financial Review reported.

Another Gold Coast residential development backed by the same LMIM fund, the 271-unit Rhodes apartment development (pictured below) on Mount Cotton Road at Capalaba is caught up in the collapse of LMIM.

Last week administrators revealed the business loaned $17 million to its founder, Peter Drake.

Slater & Gordon commercial litigation lawyer Mark Walter has told Property Observer the firm continues to field inquiries from investors and is confident of commencing proceedings in the “near future”.

The exact form they will take has not been decided but it could a class action with Slater & Gordon specialists in this area.

Previous class actions have included litigation on behalf of investors against financial planners who recommended investments in Basis Capital Funds; a fund linked to the US sub-prime market, Premium Income Fund and collapsed Gold Coast property and financial services group MFS.

Walter says some investors have up to $1 million invested in LMIM mortgage funds, but have little prospect of getting any of their money back.

Instead investors will seek to reclaim their money from financial advisers – LMIM used as many as 250 different financial advisory firms.

“Any advisor needs to have a reasonable basis for their recommendations,” says Walter.

He says the timing and the circumstances of these recommendations have been called into question with queries about the appropriate of recommending these product types for investors.

“Planners are required under the corporations act to be able to match up their recommendations with their clients’ objectives,” he says.

Walter warns that a six-year time limit generally applied for anyone wanting to sue, meaning anyone who invested in 2007 during the pre-GFC boom period needed to obtain immediate legal advice.

“We believe there is a large number of viable claims against financial advisors who recommended this and other high-risk products that will be affected by the time limit,” Walter says.

“It’s important that people exercise their right to hold their advisors to account and seek legal advice before it is too late.

“We have found that funds like LM were particularly popular among financial planners in communities where there are large populations of retirees with money to invest.

“The people we are talking about are typically risk averse and conservative and have relied on the professional advice of financial advisors to invest in these funds. It is debatable whether these funds were appropriate for them given their conservative needs.”

Another law firm, Piper Alderman, has also been assisting unit holders who invested in the LM First Mortgage Fund in respect of a class action.

Piper Alderman partner Amanda Banton and her team are investigating claims against the responsible entity of the Fund, LM Investment Management Limited, its directors and other third parties, including advisors, associated with the fund’s demise with a view to bringing a class action or any other appropriate action.

“Those actions will seek to recover the losses sustained by unit holders, many of whom are elderly persons who invested their life savings,” says Piper Alderman.

This article first appeared on Property Observer.