Mayfair 101 has carefully skirted advertising restraints levied less than a week ago to launch a new offering aimed at ‘wholesale’ investors with more than $250,000 in ready cash.
The move has reignited concern about legacy investor definitions that put an increasing amount of punters in the crosshairs of product providers, with the corporate regulator seemingly intent on taking action.
On Wednesday Mayfair 101’s publicity team sent a press release advertising the launch of an ‘Australian Property Bond’ offering fixed rates of return for security over Mission Beach and Dunk Island properties in Queensland, which it plans to turn into a “tourism mecca”.
The offer comes after the Federal Court last Friday put the brakes on Mayfair’s advertising strategy, restraining them from using specific phrases to promote their existing debenture products including ‘term deposit’, ‘bank deposit’, ‘capital growth’, ‘certainty’, ‘fixed term’, and ‘term investment’.
The media release and website page for the new offering are both careful to avoid using these terms.
The Court’s ruling came after ASIC submitted an interim injunction against the group on April 3. The corporate regulator is conducting an ongoing investigation into Mayfair 101 and Mayfair Platinum, and has alleged the firm’s advertisements are “misleading and deceptive”.
ASIC failed in its bid to have the courts prevent Mayfair from receiving new investor funds, however, paving the way for the new product launch. The court did rule that Mayfair had to add a statement on its website and provide it to any future investors, but the latter only applied to its existing ‘M+ Fixed Income’ and ‘M Core Fixed Income’ debenture products.
Existing investors are already feeling the pinch; on March 11 Mayfair implemented a “liquidity prudence policy” in light of the COVID-19 global crisis and suspended redemption payments.
The group is advertising a monthly income payment rate of 4.25 per cent to 9.25 per cent on the new offer, with Mayfair’s managing director James Mawhinney riffing on the promise that the venture will be at the forefront of a hospitality and tourism renaissance after the COVID-19 crisis.
“With interest rates on traditional investment products at record lows, the Mayfair Australian Property Bonds provide investors the ability to invest in a region that will play a significant role in the revival of the Australian tourism industry,” Mawhinney stated in the release.
Dunk Island was ravaged by a tropical cyclone in 2011 and subsequently purchased by entrepreneur Peter Bond, who abandoned plans to refurbish the island when his company collapsed.
The island remains underdeveloped, with Mayfair’s property division setting up base at the nearby Mission Beach after the 2019 acquisition of the island.
Mayfair’s practice of targeting ‘wholesale’ investors for its products has caused consternation in several corners and brought outdated investor definitions into the spotlight.
Investor definitions are an area of regulation ASIC is understood to be keen to address, with its ongoing battle against Mayfair strengthening its resolve to clean up the area.
Under the Corporations Act anyone earning $250,000 for two years or holding $2,500,000 in net assets can be classified as a wholesale investor and accept securities offers without receiving a product disclosure statement or other basic protections afforded to retail investors.
According to UNSW professor Pamela Hanrahan, who advised at the Hayne royal commission, the regulation is fundamentally flawed for using a monetary threshold rather than a barrier linked to understanding and experience.
“As time has gone on it’s become less of a proxy for knowledge,” Hanrahan told Professional Planner in February.
More pointedly, the thresholds used in the relevant law were based on benchmark figures from 1991 and have never been indexed. As more people have qualified under the ‘wholesale’ banner, a class of cashed-up yet unsophisticated investors have sprung up.
“[The] definition needs to be revisited,” said Mark Bland, a financial services lawyer at Mills Oakley. “Not only to accommodate for the rise in asset values and incomes but to address the issues arising from your assets not being an accurate proxy of your level of sophistication.”