Commission shows why disclosure rules need changing

Andrew Morison and Michael Guildford of Morison Guildford in Masterton copped the flak from the commission after promoting an illegal investment scheme in New Zealand in the period between March 1996 and March 2000.

The scheme in question, Gideon Investments Pty, was a "scam", Securities Commission executive chairman Jane Diplock says.

It was run out of Sydney by New Zealand-born Michael Bastion, who died in early 2000. According to the Securities Commission report Bastion was "a heavy user of drugs, particularly cocaine in the 12 months prior to his death."

The 'fund' was claiming returns of up to 51.5% annually, and was said to have invested in horses, funds management, dealing, investments gaming and entertainment.

In reality there was no Gideon horse fund and no Gideon gaming and entertainment fund.

"Bastion treated investors' funds, once banked into the Gideon bank account, as his own. The liquidator said there was some evidence of share trading, but in the main funds were used to acquire interests in property, thoroughbred racehorses in various countries and to pay for Bastions' lifestyle," the Securities Commission report says.

The fund, although considered a unit trust, failed to meet most legal requirements and it did not have either an investment statement or a prospectus.

The commission is highly critical of Morison Guildford's actions in regard to the fund. It says they did not do the necessary research on the fund before recommending it to their clients.

However, the commission came to the view that Morison Guildford were unaware of Bastion's fraud.

"Morison and Guildford were, on their evidence, taken in by Mr Bastion and they didn't realise (the fund) was a scam," Diplock says.

On the basis of the information that has been made available to us we consider that Morison Guildford's conduct was incompetent and irresponsible," the commission says.

The commission also questioned whether Morison Guildford had broken the Crimes Act by withdrawing money from an account that held investors' money on behalf of the Gideon fund.

The commission says in one instance an investment was made in a firm called Telfer Properties Martinborough Ltd, which Morison, along with his wife and Anthony Ractliffe were promoters of.

The commission also says that Ractliffe was an investor in Gideon.

Diplock says the enquiry also raises questions about advisers 'churning' insurance policies.

The commission's report says Morison Guildford encouraged people to cash up their life insurance polices and invest that money in the Gideon fund. Then they would sell clients new insurance polices.

Diplock says that the practices of Morison Guildford support the case the commission recently put to the Government with regards to strengthening disclosure laws.

"There were certain aspects of the practices of Morison and Guildford that really were lacking in relation to good practice of financial advisers," she says.

"In reality investment advisers have to be very careful about what sort of investments they put their investors into and in this case they didn't take enough care."

The commission says it has referred the matter of using investors' money for the benefit of other people to the Serious Fraud Office. It says there is insufficient evidence to take any action. Likewise it says there is insufficient evidence to support the proposition that Morison Guildford may be liable as promoters of the Gideon fund.

It says there are questions about possible breach of fiduciary duty and questions of liability arise with regards to the firm's possible role as an investment broker. This matter will be forwarded to the Registrar of Companies for further investigation.

Morison and Guildford do not appear to be members of the Financial Planners and Insurance Advisers Association. However they still operate an advisory business out of Masterton.

Good Returns was unable to make contact with either of the men.

Commenting is closed