A Melbourne man has been charged with defrauding 14 investors of more than $1 million over a three-year period.
Barry John Patrick of Sunbury appeared in the Melbourne Magistrates’ Court last week on 15 fraud charges, with the Australian Securities and Investments Commission alleging he persuaded investors to refinance their home and self-managed super funds to fund his non-existent property developments.
The charges come just days after ASIC Commission Greg Tanzer warned trustees of self-managed super funds about the legal implications of accepting advice from real estate agents when investing their funds in property.
ASIC said in a statement Patrick has been charged with eight counts of obtaining property by deception, five counts of obtaining financial advantage by deception, one count of theft and one count of running a financial services business without an Australian financial services (AFS) licence.
The charges relate to the three-year period between 2007 and 2010, in which ASIC alleges Patrick formed companies to purchase properties for development and consequently persuaded investors to refinance their homes or self-managed super funds, or take out additional loans or credit cards.
“ASIC allege the funds raised by Mr Patrick were not used to develop the properties, instead, they were used to pay interest payments to past and existing investors and to meet repayments on loans as well as for personal use,” said the regulator.
But this is not the first time Patrick has fallen on the wrong side of the law.
In 2010, Patrick received a four-month suspended jail sentence and a five-year good behaviour bond after pleading guilty to one charge of carrying on a financial services business without holding an AFS license and three charges of managing a corporation while disqualified.
According to ASIC, during August 2003 and December 2006, Patrick persuaded 40 investors to invest in three companies: E.K.B Properties, Sandgrove Specialised Securities and Cardinia Specialised Securities.
During the time, E.K.B Properties raised approximately $4 million, Sandgrove Specialised Services raised approximately $1.5 million and Cardinia Specialised Services raised approximately $1 million.
According to Money Management, ASIC alleged Patrick and his associate Karl Heinz Veljkovic were pushing investors to roll over their superannuation into self-managed funds and then invest those funds into the three companies.
However, the companies, which were controlled and managed by Patrick and Veljkovic, were placed into liquidation by the Federal Court in 2007 following investigations by ASIC. As of December 2010, ASIC said none of the investors had been repaid.
In 2007, both men consented to Federal Court orders banning them from carrying on a financial services business; parting with any funds that have come into their possession by issuing, selling or offering a financial product; and managing corporations for a period of 20 years.
Graeme Colley, director of technical and professional standards at the SMSF Professionals’ Association of Australia, told SmartCompany these kinds of cases arise from time to time, and are the result of a “failure of the independence between initial advice given to individuals and where the money ends up”.
Colley says cases like this don’t preclude investing your self-managed super fund in property, but says “the hotter it gets, the closer you are getting to the fire”.
As a general rule, Colley says investors should only consider advice from advisers with AFS licenses. This way, if something goes wrong, the investor potentially has some recourse against the licensee and can use formal complaints arrangements.
Colley says it is also important to do your own research and be as thorough as possible. “Make some investigations into who owns the business, the relationship between the adviser and the organisation, and if there are any other real investors,” says Colley.
Patrick is next due to appear in court on September 16. He faces a maximum 10 years in jail for each of the deception and theft charges, and a maximum jail sentence of two years if found guilty of operating a financial services business without an AFS license.