Mayfair 101 founder James Mawhinney has accused ASIC of a witch hunt, saying a provisional liquidators' report proves M101 Nominees had no "smoking gun" - but the report actually refers to the company's business model as unsustainable.
A provisional liquidators' report filed with the court by Grant Thornton found that the business model of M101 Nominees was not sustainable on the basis that M Core noteholders were investing for periods of six or 12 months while the company's loan agreement (with Eleuthera, another company controlled by Mawhinney) had a term of 10 years.
"On this basis, the company would not have adequate funds to repay any contributions as they fell due and as such the company has been insolvent since inception and remains insolvent as at the date of this report," the liquidator said.
The report also contained findings that parts of Mayfair 101's business essentially operated as a Ponzi scheme.
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"It is my opinion that distributions and redemptions paid to M Core noteholders were funded out of funds raised from other M Core noteholders or to a lesser extent M+ noteholders," the liquidator said.
The M Core notes were marketed as extremely low risk fixed income debentures with dollar-for-dollar security. ASIC has continued to allege this marketing was misleading.
Despite all this, Mawhinney said the liquidators' report vindicates him.
"The provisional liquidators' report confirms yet again that there is no 'smoking gun'. All monies raised have been put toward tangible investments and utilised in line with our disclosure documents." Mawhinney said.
He went on to suggest that ASIC's investigations into Mayfair 101 and its underlying companies were a waste of taxpayer resources.
"An astounding amount of government resource has been poured into looking for technical flaws in our structure and business activities to support theories of misconduct, which are simply untrue," Mawhinney said.
He defended Mayfair 101 by saying that a depletion of value has naturally occurred in the pool of assets due to the project underpinning the structure only being partially funded and other financiers "taking steps to protect their own interests".
"This could have been avoided by taking a more consultative and less aggressive approach. All that matters now is that we deliver a positive outcome for our investors," Mawhinney said.
Mawhinney said Mayfair 101 would present a restructuring plan and would work with the liquidators to achieve a "positive outcome" for the M Core noteholders.
The liquidators report, meanwhile, seems to align with ASIC's suggestion that M Core notes were marketed in a misleading manner.
"Any claims the Director has made to investors or potential investors regarding M Core noteholder funds being secured may be deceptive and misleading on the basis that investor funds are not supported by first-ranking, unencumbered asset security or alternatively what security was granted, had negligible value," the liquidator found.
M101 had $5239 cash in the bank at 30 June 2020 and $66 million due from Eleuthera as well as $500,000 due from M101 Holdings and $1 million from Sunseeker Trust (another Mayfair 101 Group company). The liquidator expressed serious concerns about the ability of Eleuthera to repay that amount.
Eleuthera was found to have $14,403 in cash and $1.3 million in total current assets, tied up in entities also run by Mawhinney.
Eleutheria is a long, thin island in the Bahamas which has notoriously shallow waters and forms part of the Great Bahama Bank (a partially submerged archipelago, not a financial institution). The name comes from the Greek word for "free".