The day Peter Drake's empire came crashing down
As his $3 billion property fund empire was cratering, Drake was enticing financial advisers with three years of commissions upfront. If they placed $1 million of their clients' savings with LM Investment Management funds, they would get $100,000 cash.
The end came quickly, though. Directors of Peter Drake's LM pulled the pin this week, calling in administrators to sort through a labyrinthine clutter of interlocking companies and trusts from here to Hong Kong.
It is estimated that up to $15 billion in savings has been blown up in mortgage funds in Australia, much of it by Gold Coast entrepreneurs such as Drake.
Not only were the financial advisers still being paid "trailing fees" on the client funds they had already placed in LM - frozen or not - but the banks were making off with penalty interest payments, and LM was ratcheting up its management fees while forking out money on expensive lawyers to muzzle the press.
Fairfax Media, publisher of the Herald, is presently defending a defamation claim brought against the company and the author of this story for a report last May exposing LM's high fees and questionable performance.
While LM's investors now face the prospect of a costly battle for control of the funds - lawyers and insolvency practitioners don't come cheap - Drake himself is unlikely to face even a moment of financial hardship.
Besides his mansion on the Gold Coast, he has property in Fiji and London that can be identified publicly, and there are likely to be many assets from the years of LM fees. For example, there is a $16 million loan from one of Peter Drake's funds to Drake himself. You can find this disclosed in the notes to the 2011 accounts for the LM Managed Performance Fund.
This loan is secured by a personal guarantee from Peter Charles Drake and a fixed and floating charge over the assets of Century Star Investments Pty Ltd.
Notwithstanding that it is an absurdity for the loan to be guaranteed by the borrower, Drake himself, but CSI is neither a resident nor registered in Australia. It is a Hong Kong company. According to sources close to LM, this mysterious CSI has limited assets apart from a shareholding in LM itself.
For its part, LM has two shareholders: one being CSI - which holds 17 ordinary shares - and the other being Oceanboard Pty Ltd as trustee for the Drake Management Trust (with 18 ordinary shares).
Peter Drake is the sole director of Oceanboard and it is likely that Drake Management Trust may be the only shareholder of CSI, say sources.
A detailed list of questions was put to Peter Drake and LM executives and the group's external advisers. They declined to respond. And that is the story of just one interesting LM transaction.
Frequently Asked Questions about this Article…
Peter Drake is a Gold Coast financier who ran LM Investment Management. According to the article, his roughly $3 billion property and mortgage fund empire crumbled, with directors calling in administrators to untangle a network of interlocking companies and trusts.
The article estimates that up to $15 billion in savings has been wiped out in Australian mortgage funds. Many ordinary investors faced frozen life savings in LM funds and the prospect of lengthy, costly battles over control of those funds.
Directors of LM called in administrators to sort through a complex labyrinth of interlocking companies and trusts — including links as far away as Hong Kong — after the business started cratering and investor funds were frozen.
LM was reportedly enticing financial advisers with upfront incentives, including offers of three years of commissions paid up front. The article gives an example: $100,000 cash for advisers who placed $1 million of clients' savings into LM funds. Separately, advisers were still receiving trailing fees on client funds even when those funds were frozen.
Yes. The article says banks were receiving penalty interest payments and LM was increasing management fees while continuing to pay trailing fees to advisers, even as investor funds were frozen.
The article suggests Drake is unlikely to face immediate financial hardship: he publicly owns a Gold Coast mansion and properties in Fiji and London, and one LM fund disclosed a $16 million loan to Drake in the 2011 LM Managed Performance Fund accounts. That loan was reportedly secured by a personal guarantee from Drake and a charge over the assets of Century Star Investments.
Century Star Investments (CSI) is described in the article as a Hong Kong company with limited assets apart from a shareholding in LM. The $16 million loan from one of Drake's funds was said to be secured by a personal guarantee from Drake and a fixed and floating charge over CSI's assets.
Yes. The article notes that Fairfax Media (publisher of the Herald) is defending a defamation claim related to a May report that exposed LM's high fees and questionable performance. The piece also says LM spent on expensive lawyers, reportedly to try to muzzle press coverage.
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