ASIC sought declarations that the defendants had contravened the Corporations Act by operating an unregistered managed investment scheme called “MyWealth Manager”.

In a statement released by ASIC last year, ASIC alleged that the scheme should have been registered and that the defendants operated the scheme without holding an Australian financial services (AFS) licence. 

It also alleged that the funds were misappropriated by the defendants and used for their own purposes.

The corporate regulator also alleged that the scheme raised approximately $7 million from more than 55 investors where investors were encouraged to roll over their externally managed superannuation into newly created SMSF and then invest the SMSF money, by way of a loan, in MyWealth Manager.

The Federal Court has now handed down its decision in Australian Securities and Investments Commission v MyWealth Manager Financial Services Pty Ltd (No 3), concluding that the managed investment scheme, MyWealth Manager, was operated without being registered and that the scheme should be wound up.

In her decision, Justice Sarah Derrington stated the evidence made it clear that both MyWealth Manager and Mcube/3M Financial were parties to the operation of the “unlawful managed investment scheme and, in that capacity, caused substantial amount of investor funds to be misappropriated to themselves and to related entities in disregard of the obligations owed to the investors”.

“Importantly, the transfers occurred without any supporting documentation and, in the absence of any elucidation by the defendants, it can be inferred that no innocent explanation for the transfers exist. As has been discussed above, the payments to Mustafa, Mahek and Mubashir were substantial and unjustifiable in any commercial sense,” Justice Derrington said.

“The money was received from the investors for the purpose of investing in development or building projects. Rather than undertaking those tasks, the money was dissipated by the defendants soon after it was received and neither ASIC nor the receivers and managers have been able to discover any genuine attempt to engage in any investments.”

The submission by ASIC that this gives rise to a prima facie breach of section 1041G of the act, which prohibits engaging in dishonest conduct in relation to a financial product in the course of carrying out a financial services business, should be accepted, she said.

“In the absence of evidence as to the purpose of the transfers from MyWealth Manager to Mustafa and Mubashir, the transfers of funds could properly be treated as unreasonable director-related transactions pursuant to section 588FDA of the act,” she stated.

Justice Derrington said the appointment of liquidators would be necessary to allow any appropriate investigation to be undertaken to ascertain the reasons for the transfer of more than $3 million to those persons and their immediate family.

“A liquidator would then be able to reach an informed decision as to whether the transactions were voidable under the act. This also is a strong reason for winding up each company,” she said.

“As a matter of reality, the evidence strongly suggests that many millions of the investors’ money has been lost. The only process by which the true circumstances can be revealed is by the appointment of liquidators who can investigate the transfers and, if possible, pursue recovery proceedings.”