Former company director charged with fraud for dishonestly inducing SMSF investors

A former company director has been charged with eight counts of fraudulent misappropriation in a New South Wales Magistrates’ Court, following an investigation by the Australian Securities and Investments Commission.

ASIC is alleging Steven Hill, formerly of Hill Stephens and Associates and International Finance Consortium, dishonestly induced investors to pay more than $618,000 to a “house and land” property development in Queensland under the guise of it earning returns on a safe investment.

It claims the investors never received the promised returns and $431,000 of the invested funds were actually directed to company bank accounts and used as payments to Hill and other third parties.

The conduct is claimed to have taken place between January 5, 2006 and March 6, 2007.

ASIC’s investigations revealed Hill had told investors to set up a self-managed superannuation fund to invest in the development of a number of house and land packages throughout Queensland.

Hill Stephens and Associates has been deregistered and SmartCompany was unable to contact Hill.

Warfield and Associates chief executive Brett Warfield told SmartCompany the practice of property spruikers encouraging people to set up SMSFs has becoming increasingly prominent.

“Over the past five years there has been a boom in this type of activity, but the problem with this is many of the investors don’t actually manage their investments and don’t conduct their own due diligence,” he says.

A report released by ASIC in April warned of “concerning pockets of poor advice” within the SMSF sector and most of these “pockets” involved recommendations to investors to start a SMSF to invest in real estate.

“Unlicensed financial advice in the SMSF sector will be a focus for ASIC in 2013 and we will be taking regulatory action against unlicensed operators.

“In particular, we will be targeting property spruikers. We do not want to see SMSFs become the vehicle of choice for unscrupulous operators,” the report says.

Warfield says in general, investors will be enticed by the promise of high returns.

“Investors will often be induced into investing money into property where the promised returns are greater than the risk involved.

“When this occurs, it’s often by smaller organisations working in regional areas or suburban areas without a large national network and they’ll tap into the local community,” he says.

Warfield says in some schemes the brains behind it charges high management fees, which is commonly how they make large sums of money.

In cases like this, penalties are often in the form of fines, director bans, or sometimes a prison sentence.

Warfield says the best way to protect yourself against these schemes is to always question if something seems too good to be true.

“We talk to clients and they raise these types of investments and we ask them the due diligence questions they should be asking. Who are the people you are dealing with, what’s their background, and what are the market returns in the area you are investing in.

“Investors need to consider if the person has a track record behind them of providing investors with good, safe returns,” he says.

The matter has been adjourned in the Bathurst Magistrates’ Court until August 26, 2013 and Hill was granted bail, but prohibited from leaving the country.