Mayfair scheme targeted ‘unsophisticated’ investors

With a court set to decide if findings of misleading conduct by Mayfair warrants a $12m fine, James Mawhinney’s lawyer dismisssed Ponzi references to the tropical island ‘debt scheme’.

Mayfair founder James Mawhinney. Picture: Ally Lombardo.

A Federal Court is set to decide whether to slap Mayfair 101 and its founder James Mawhinney with a $12m fine after a four-day penalty hearing wrapped up.

The corporate regulator had been seeking to fine Mr Mawhinney, arguing he misled investors in ads in national media and that he be restrained from using investment terms in future.

Mr Mawhinney has been seeking to cut the penalties down to nil.

The Australian Securities & Investments Commission had submitted the Mayfair 101 scheme, built around investments in the Far North Queensland town of Mission Beach and Dunk Island, was “a Ponzi-like scheme” that relied on new investors to pay out old.

Mayfair 101 first made headlines after snapping up the cyclone-ravaged Dunk Island resort on the back of $200m raised through the Mayfair Platinum and IPO Wealth brands run by Mr Mawhinney.

ASIC senior counsel Jonathan Moore QC had argued the Mayfair scheme had targeted “unsophisticated people” despite arguments advanced by Mayfair 101 that they did not pitch to “retail investors”.

“These defendants are incapable of advertising in a non-misleading way,” Mr Moore said.

“Even if it were theoretically possible for the defendants to use the terms in a non-misleading way, the evidence in this case warrants the defendants from any advertising using these terms.”

But Mr Mawhinney’s barrister, Michael Pearse SC, took aim at Mr Moore’s branding of Mayfair as “Ponzi-like”.

“This is litigation by smear and needs to stop. It’s dreadful and shocking that it should be allowed to conduct itself in this manner,” he said.

Mr Pearse said Mayfair had operated as a debt scheme, which saw existing debts refinanced by new borrowings.

“If that is a Ponzi scheme, there are Ponzi schemes running all over the country, every day of the week,” he said.

ASIC has already had several victories in the Federal Court against Mr Mawhinney, with judge Stewart Anderson finding he had engaged in misleading and deceptive conduct in relation to financial services in March this year.

In a separate matter, Justice Anderson also banned the Mayfair 101 founder from promoting financial services for 20 years, a matter which Mr Mawhinney has appealed.

The four-day case, originally set down for two days, saw Mr Pearse seek to challenge ­conclusions about Mayfair 101, arguing some of the facts relied upon in earlier hearings were ­incorrect.

Mr Pearse had argued court-appointed liquidators had misread the terms of the “Eleuthera facility”, incorrectly concluding the M Core notes to be insolvent.

Mr Pearse also took aim at ASIC’s claim that Mr Mawhinney had sent $19.46m to the British Virgin Islands to fund the purchase of 21.25 million shares in Accloud PLC.

Mr Pearse said ASIC has been unable to prove the funds transfers occurred.

In a statement issued by Mayfair 101, Mr Mawhinney said the company had been “unable to fund a legal defence until this penalty hearing” due to a range of factors.

“ASIC even challenged our ability to obtain funding to pay for legal representation,” he said.

“We are now fighting back against the limitless resources of this government department to ensure our assets are protected and noteholders can be made whole.”

Justice Anderson reserved his judgment.