Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Hansard source

The collapse of Westpoint is something that concerns all Australians who are genuinely worried about the impact of these financial collapses on ordinary investors. It is true that a number of the property development projects operated by Westpoint have run into financial difficulties, and a number of retail investors who lent money to the projects are at risk of losing their investments.

From the federal government’s point of view, I can confirm that ASIC, the relevant authority, started considering Westpoint’s fundraising activities as far back as 2002 and first took regulatory action in 2003. ASIC’s action against Westpoint is still before the courts, and a further ruling is expected very shortly. At the same time, ASIC started an investigation into the promotion of high-risk debt investments, offering higher than normal yields to retail investors. As part of that action, ASIC issued a number of warnings to the public on the dangers of entering into such investments. The first such warning was released as long ago as May 2003. ASIC’s ongoing investigations are extensive and may result in regulatory action against the individuals and firms targeted. Because the matter is subject to vigorous ongoing action by ASIC, it would be inappropriate for a member of the government to speculate on possible outcomes just yet.

The question of how these investments were promoted to retail investors, and the potential liability of financial advisers for misleading or negligent advice, has emerged as one of the key issues in this case. The law requires that all the risks associated with a particular investment must be disclosed to retail clients. Financial advisers promoting Westpoint investments were also paid higher than normal commissions of 10 per cent or more. The law again requires that any commission payments must be disclosed to clients. It appears likely that certain financial advisers did not follow the legal requirements as to the disclosure, investment risks and commission payments in promoting these Westpoint Investments.

ASIC has announced that it will be investigating the activities of a large number of licensed and unlicensed individuals in this regard and that disciplinary action will be taken where breaches of the law are found. It has been reported that a class action on behalf of investors against certain financial planners, and possibly the directors of the Westpoint entities involved, will be started soon, based on breaches of the Corporations Law relating to disclosure and ‘know your client’ requirements. I think this does show that the investor protection mechanisms in the law are working as they were designed to do.