James Mawhinney banned for 20 years for ‘fatally flawed’ instrument schemes in Australia

The Federal Court in Australia has banned Mayfair 101 director James Mawhinney from promoting and raising funds through financial products for 20 years.

The court decision follows ASIC’s proceedings after an investigation into the firm and its director’s ‘multiple contraventions’, according to Justice Anderson, who characterized his conduct as ‘serious, incompetent and reckless and displaying a propensity for conduct in disregard of the requirements of financial services laws.’

Mr. Mawhinney’s ‘inherently problematic, risky and fatally flawed’ investment schemes in relation to the IPO Capital, Core Notes, as well as the lack of signs of ‘contrition or remorse for the very significant loss of investors’ funds’, made the court’s job easier.

The Mayfair 101 Group erratically offered investments in multiple financial products. ASIC found that about $211 $million is currently owed to investors.

In addition to the 20-year ban from financial services, Mr. Mawhinney is also prohibited from removing from Australia any assets acquired with funds received from the public for investments in financial products for 20 years, without a court order.

ASIC Deputy Chair Karen Chester said: ‘ASIC has succeeded in its cases against both Mayfair 101 and Mr. Mawhinney, after a successful outcome in the Federal Court in March this year on misleading and deceptive advertising.

‘These are large investor losses, approximately $211 million, on the back of multiple product failures across the Mayfair 101 Group. This action is one of several under ASIC’s ‘True to Label’ project targeting investment managers and issuers of other financial products who have lured unsophisticated investors into high-risk products via misleading marketing.

‘This case demonstrates that ASIC’s true-to-label expectations are enforceable. It also demonstrates ASIC is both willing and able to take action not only against the companies involved but also their senior executives. Justice Anderson’s decision makes clear why ASIC brought this action and that the business models for these products were flawed from the outset. The responsibility for the losses and the egregious harm to investors is, as the judgment makes clear, all down to the contumelious actions of Mr. Mawhinney’, ASIC’s Chester added.

‘In Justice Anderson’s decision, we hear loud and clear the voices of eight Australian investors who’ve lost hundreds of thousands of hard-earned savings. The average age of those eight voices is a retirement age of 67 years, beginning with the voice of one young 29-year-old investor through to the voice of an 84-year-old gentleman. Banning Mr. Mawhinney from offering financial products for two decades matters for the many other investors that Mr. Mawhinney may otherwise have lured into these risky investment products’.

Following proceedings brought by ASIC in April 2020, the Federal Court concurred with the charges and found that companies in the Mayfair 101 Group made “false, misleading, or deceptive” statements in their ads.

The Court found that Mayfair’s debenture products were comparable to bank term deposits when Mayfair’s debenture products exposed investors to significantly higher risk than bank term deposits.

The terms empowered Mayfair to extend the time for repayment for an indefinite period of time, which could result in investors not receiving capital repayments on maturity or at all.

Designed for investors seeking certainty and confidence in their investments, the debenture products supposedly carried no risk of default, but there was a risk that investors could lose some, or all, of their principal investment.

In April 2020, only days after ASIC’s injunction, the Federal Court issued interim orders restraining Mayfair Platinum and Mayfair 101 from promoting their debenture products and prohibiting the use of specific words and phrases in their advertising.