LM boss ploughs a loan furrow

It's business as usual for Peter Drake. The Gold Coast entrepreneur, whose LM funds management empire bit the dust in May, is back in the insurance game.

The moral of the story is that you can lend yourself $46 million from your funds business, appoint some insolvency practitioners, then set up shop again down the road. Breezy as you like.

Drake is now turning up for work with Australian Global Insurance Services (AGIS) at Beach Road, Surfers Paradise. It is this company that operates his old Drake Insurance and Investment Services. Documents obtained by Weekend Business show it also meets his expenses and provides income to his girlfriend, Maria Magi.

The sole shareholder of AGIS, Kelvin Fair, is a long time associate of Drake, and its sole director, Caroline Hodge, used to be the compliance officer at his $3 billion LM Investment group.

While tending to her compliance duties, Hodge had oversight of a $16 million loan straight from one of LM's funds to a company controlled by Drake in Hong Kong. The security for this loan was a personal guarantee from none other than Drake himself.

Hodge also had stewardship of the painstaking compliance work for another $30 million in loans made to Drake from another LM entity, LM Administration.

This entity even received about $14 million in "pre-paid income" from six of LM's "investment" funds. We are talking fees in advance that is, before any service was ever provided, and while Drake's funds were frozen like the Arctic tundra.

While his investors were iced-in like Eskimos in a blizzard during 2010 and 2011, the income to Drake's LMA shot up 118 per cent, from $9.5 million to $20.8 million, thanks to a 200 per cent lift in management fees. Much of this found its way personally to Drake via the loans, for which there is no evidence of repayment.

Meanwhile, as the insolvency vultures scavenge over the LM carcass - and investors despair at their vanishing savings - there is the inspiration of new income streams. Drake's latest venture, AGIS, offers "trauma insurance". So, if you have lost your life savings in LM, it may be a tad late to sign up for Drake's new income-protection product. You could however purchase some of his excellent trauma cover, or one of his exciting life insurance products perchance. At least with this life cover, you will never have the trauma of wondering whether you can collect.

Disclaimer: Peter Drake is suing this reporter and this publication, claiming he was defamed by a report which, inter alia, criticised him for being greedy and charging too much.

Qantas got all tetchy this week about our vile imputation that it had dressed up its profits a little too ... how shall we put it ... raunchily.

We had pointed out that, were it not for some accounting chipmunkery, the Roo would have reported a loss rather than a $192 million "underlying profit" last year. And if off balance sheet debts were to be brought back on balance sheet, it was possible to conjure up a debt to-equity ratio of 170 per cent.

Qantas is by no means alone in preferring its own "underlying" numbers to the legally-binding, internationally recognised statutory numbers.

It is easier to pay executive bonuses from an "underlying" profit than a statutory loss. Last year, half the bonus was based on the underlying measure. It was 65 per cent of bonuses the year before. Mind you, chief executive Alan Joyce did hand back his bonus last year. Underlying profits may be a feature of debate this annual meeting season.

It was October 2009 when we walked into the office of Astarra Strategic Fund on the 53rd floor of Sydney's MLC Centre: sweeping views out to the Heads, John Howard's government-funded office just down the hallway on the same floor.

Astarra would soon change its name to Trio, and Trio turned out to be the biggest fraud in Australian superannuation history - a Ponzi scheme that siphoned off $124 million via the British Virgin Islands.

But that sunny day, we emerged from the lift, found the Astarra office and asked a friendly face if we could speak with fund manager Shawn Richard.

"Who shall I say is asking for Shawn?" inquired the friendly face.

We responded with our name and occupation.

"Shawn's not in right now. But I can take your number and get him to call you," this delightfully helpful character said.

It later dawned upon us, when seeing a photograph, this was in fact Shawn himself who had kindly offered to put us in contact with himself when he became available.

Shawn was later sentenced to two years and six months in jail for dishonesty, including secretly receiving $1.3 million paid into offshore bank accounts in Liechtenstein and Curaçao.

Jack Flader, the mastermind behind the Trio scam, remains at large. But Shawn's colleague and Astarra co-founder, Eugene Liu, sued this publication for defamation. He claimed, ahem, that he did not know about the fraud.

As he worked side by side with Shawn in the same office, Fairfax lawyers and management deemed this to be a rather grand claim and relished in its defence.

This week, Justice Peter Hall dismissed the case and ordered Liu to pay costs.