Article published in Money Management today FYI Prime target By Lucinda Beaman on 16 December 2010
Hundreds of advisers and investors burnt by the collapse of the Prime Retirement and Aged Care Property Trust are preparing a case against the company and its management, which they hope will result in a class action as they seek to recover up to $500 million in losses.
Around 10,000 investors are exposed to the collapse. More than 750 investors, who hold more than 25 per cent of the units in the trust, are now part of the Prime Trust Action Group, according to independent investor Steve O?Reilly. A large number of advisers are involved in the action, including Perth-based financial adviser Roger Pratt.
O?Reilly, Pratt and investor Don Steel claim they have identified a number of potentially illegal actions that led to the company?s entry into receivership and administration in October.
The trust was founded and managed at both the investment and responsible entity (RE) level by William (Bill) Lewski ? a man who, in the early 2000s, promoted and operated an unregistered managed investment scheme, which was later shut down by the Australian Securities and Investments Commission (ASIC). The former chairman, Cedric Richard Palmer Beck, was one of the directors of Westpoint Group, through which investors were defrauded of more than $300 million.
A formal letter of complaint sent to the Prime Trust?s current chairman, former Coalition health minister Dr Michael Wooldridge, outlines some of the allegations.
The investors claim the trust?s constitution was ?routinely? changed to the detriment of unit holders without consultation, in contravention of the Corporations Act. The most concerning example, according to O?Reilly, was the 2006 amendment of the trust?s constitution granting the RE a listing fee of 2.55 per cent of trust?s assets, were it to be listed. That listing then occurred also allegedly without the approval of shareholders in August 2007, with $33 million transferred to the RE. The constitution was also changed, without unit holder approval, to allow the RE to issue more than 21 million options to the management team of the RE.
Furthermore, O?Reilly said over the short life of the trust, the number of retirement villages managed by interests associated with Lewski grew from two to 12, with Lewski receiving the management rights for free and with no commercial consideration given to the trust. In September 2007 Lewski then personally sold the management rights to those villages to Babcock & Brown Communities for $60 million, again with no commercial consideration given to the trust?s unit holders.
Other complaints outlined by the investors include the charging of an undisclosed custodian fee of 0.15 per cent, compared to fees charged by other property trusts of less than 0.01 per cent, a blowout in fees over four years to more than 15 times the level disclosed in the Product Disclosure Statement, and a blowout in gearing levels from 29 per cent in 2005 to 79 per cent in 2009.
The investors are also alleging the manager paid distributions from unrealised capital gains, in contravention with its policy, and in doing so, ?deliberately and deceivingly? concealed the trust?s financial position.
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