ASIC sues self-managed super provider Dixon Advisory

The corporate watchdog’s Federal Court action alleges Dixon Advisory failed to act in clients’ best interests.

Evans Dixon is a major self managed super fund provider

Financial services firm Evans Dixon was rocked on Friday as the corporate regulator launched proceedings against it over the provision of advice that saw investors pour millions into its underperforming US property fund.

The action drove a plunge in Evans Dixon shares of more than 15 per cent, to 49c, on Friday as the company endures one of its toughest ever years.

The company, led by executive chairman David Evans, has been under siege in a tumultuous week in which highly active corporate raider Tony Pitt of funds manager 360 Capital confirmed his position as the largest shareholder.

360 Capital bought former chief executive Alan Dixon’s 16.7 per cent stake late last month and was topping up its holding on Friday, with market players suggesting it had still had eyes for the US Masters Residential Property Fund for which it lobbed a proposal for last year.

The actions of Evans Dixon in recommending the fund – which was conceived in the wake of the global financial crisis and built up one of the largest portfolios of townhouses in the New York area – are at the heart of the regulator’s allegations.

The US housing strategy failed to fire, with the fund overloaded with debt and hefty management fees driving its underperformance. It could now cost Evans Dixon in heavy civil penalties and it may also face a costly class action.

The Australian Securities and Investments Commission lodged the civil proceedings in the Federal Court against an Evans Dixon unit for allegedly failing to act in the best interest of its clients.

David Evans Founder and Executive Chairman, Evans Dixon. Picture: Stuart McEvoy for The Australian.

It follows similar actions launched against Westpac, NAB, and StatePlus in the wake of the financial services royal commission.

The corporate watchdog alleges Dixon Advisory failed to provide advice that was appropriate to the clients’ circumstances, and that in giving relevant advice, its representatives ought to have known there was a conflict between their clients’ interest and the interests of the company.

ASIC alleges that the representatives also failed to give priority to their clients interests in these circumstances. The action relates to financial advice given to eight sample clients, who were advised to invest in the US property funds and related products between September 2015 and last year May.

ASIC alleged 51 separate instances of financial advice were provided during the period, each resulting in contraventions of the “best interest’s duties” under the Corporations Act.

Dixon Projects provided architectural, design and construction services and between 2015 and 2018 alone made $68m from the project.

ASIC is seeking declarations of contraventions and pecuniary penalties, as well as orders that Dixon Advisory put in place appropriate systems and policies, and the costs could be crippling if the firm loses.

The maximum civil penalty for contraventions alleged against Dixon Advisory is $1m per contravention for contraventions prior to March 13, 2019, and $10.5m per contravention after that date, ASIC said.

Evans Dixon said it was reviewing ASIC’s statement and that it would be defending the proceedings. The company said it would file a comprehensive defence after it had reviewed ASIC’s statement of claim.

Evans Dixon last week revealed it crashed to a $30.5m loss in the 2020 financial year after recognising $38.7m non-cash impairments of goodwill, other intangibles and jointly controlled entities arising from past mergers, resulting from industry disruption and structuring changes in the funds management sector.

Evans Dixon said last month the US fund had been hit by the coronavirus crisis and it suffered heavy losses as a result of property write downs. But it says that it is getting back on track and its own business model has transformed.

However, Shine Lawyers head of class actions Jan Saddler said the firm’s investigation of a potential class action against Dixon Advisory was “well advanced and continuing”.

“The action taken by ASIC is consistent with our investigation as well as the information provided to our firm by Evans Dixon and Dixon Advisory clients,” Ms Saddler said.

“Our investigation indicates the weighting of client portfolios was heavily geared toward the ED funds reported on by ASIC,” she added. “This gives rise to concerns similar to those raised by ASIC that the advice given to Evans Dixon and Dixon Advisory clients may not have been in their best interests.”

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