Mayfair Group’s IPO Wealth unit warns investors of shortfall

Mayfair’s IPO Wealth Fund investors facing substantial shortfall as provisional liquidator finds ties to Dunk Island scheme.

Mayfair 101 founder James Mawhinney emailed accountants the Pinnacle Group in early August 2019 ahead of buying Dunk Island for about $31.5m.

The provisional liquidators of Mayfair Group’s IPO Wealth unit have warned investors who poured $80m into a fund that backed its activities that they face substantial losses, and have called out links between the scheme and group’s fragile plans to transform Dunk Island into a $1.5bn tourism mecca.

The schemes are separate but have each run into strife, with different sets of provisional liquidators appointed, putting the entire Mayfair operation under pressure, and links have emerged between them.

The provisional liquidators of IPO Wealth, Dye & Co., raised a series of concerns about how the company had been run, with a report filed in the Victorian Supreme Court showing the dire state of its finances and the transfer of key assets away from unit holders into companies controlled by Mr Mawhinney.

The report said it was of “particular concern” that some investments, including shares in Indian software company Accloud PLC and shares in the entities which own an island off Venice, Isola San Spirito, had been transferred out of the IPO Wealth group to other entities in the broader Mayfair 101 group.

They disclosed their view that “there will be a substantial shortfall to the Trustee”, Vasco, which is acting for unit holders. There are currently 181 investors in the IPO Wealth Fund.

Dye & Co. said it was “extremely concerned” that Mr Mawhinney had advanced significant moneys to entities with which he was associated up until July 2019. The report also alleged he had caused IPO Wealth to advance significant funds to associated companies including 101 Investments Ltd and M101 Holdings Pty Ltd.

Other vehicles are backing the Dunk Island scheme and the report said there was “no benefit” to the IPO Wealth group from “future income streams which might be generated by those investments”.

Dye & Co identified links between the broader Mayfair group, which was undertaking Dunk Island, and IPO Wealth.

They said in total, M101 Holdings advanced a total of $6m to IPO Wealth, and raised the prospect of further transactions.

Mr Mawhinney said an internal email to his accountants that group should be finalising the Dunk Island purchase shortly.

“It’s basically $6m upfront and the balance over time. To fund this we are likely to raise money in M1 Notes, could then buy say $6m worth of investments out of the Holdings group, and then use the $6m cash to complete the Dunk purchase,” he mailed.

Dye & Co said the comment was “very concerning” as it appears to contemplate the use of funds to effectively acquire two assets for the price of one.

“In addition, it is not clear how Mr Mawhinney would assess the value of the investments held by IPO Wealth Holdings, and we have concerns that any such assessments would be inaccurate,” Dye & Co. said.

A Federal Court judgment in August showed the precarious state of the debenture-backed property empire, with the Australian Securities and Investments Commission saying the firm may have been running a Ponzi scheme and Mr Mawhinney restrained from leaving Australia as he may face criminal charges.

Mr Mawhinney has denied wrongdoing and appeared this week in the court case relating to IPO Wealth, representing himself, and arguing he had a right to advance his plans for a restructure of the company. He has previously claimed the Dunk Island scheme will go ahead with backing from a group of wealthy investors.

They said returns would be depend on the recoveries from realisation of 21.25 million shares in Accloud PLC, a loan of about $12.39m from an entity called 101 IL, a loan of $3.27m against M101 Holdings Ltd and a claim to the sale proceeds in the island of Venice.

Dye & Co. pointed to uncertainty about the ownership of the Italian island. An IPO Wealth entity, IPOW#10 entered into an agreement to acquire the entire capital of two Italian companies, Poveglia SRL and Retta SRL, which own the Venice Island “Isola San Spirito”.

But prior to settlement of the sale however, Okto Holdings Limited, a company registered in the United Kingdom and of which Mr Mawhinney is one of the directors, was substituted as purchaser of this capital. All funds for the purchase of the capital were provided by IPOW#10, but Okto Holdings Limited received the shares, Dye & Co. said.