THE WESTPOINT DISASTER

Financial predators not planners.

UPDATE - May 8, 2006. The ABC's Four Corners has produced a program about Westpoint. Click here for details.

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by Neil Jenman

It's being called the biggest corporate collapse since HIH – and whether or not that's accurate, it's probably the most predictable property disaster since Henry Kaye collapsed.

Depending on which report you read, as many as six thousands investors may lose as much as $1 billion after investing their savings with Perth based Westpoint Corporation.

Whatever the final numbers, it's going to be very big and very tragic.

But, worst of all, it was all so predictable and avoidable.

Anyone could have seen it coming. Anyone, that is, who wasn't playing with the predators surrounding Westpoint.

Westpoint is (soon to be 'was') a property development company. It needs to find two types of investors – financiers to fund its apartment projects and then buyers to buy the apartments.

To fund the building of its projects, financial predators (who call themselves financial planners) advised their trusting clients that Westpoint Corporation's projects were safe and secure.

The investors effectively loaned their money to Westpoint in schemes known as Mezzanine Lending. Thanks to these financial planners, Westpoint raised hundreds of millions of dollars.

And this is where anyone who has completed basic primary school maths (and done some basic research) should have known that Mezzanine Finance is high-risk and that Westpoint Corporation was, well, at the very least, highly 'sus'.

In March 2003, on ABC 720 Perth, broadcaster Eoin Cameron made the following comment on the risks of Mezzanine Finance, "If the worst comes to the worst, the banks, I suppose grab their money out of it and the smaller investors are left holding the baby, is that right?"

Cameron surely saved several of his listeners from investing in Westpoint that day.

So why did many financial planners recommend Westpoint to their clients?

Because they're more predators than planners.

When Westpoint offered extra big commissions, they knew it would attract the most predatory of the planners. Hundreds of millions of investors' money went into Westpoint's Mezzanine Finance schemes because of the financial planners.

The second type of investors that Westpoint needed were buyers for its apartments. In order to pay big interest rates and big commissions, Westpoint needed a big price for its apartments, well above the true market price. Enter more predators.

In 2002 and 2003, Henry Kaye was pushing Westpoint apartments. So, too, was a spiv called Paul Murphy who, along with Westpoint (and Kaye), was exposed by the ABC's Four Corners in April 2003.

But, hey, back then the country was drunk on property. Investigative reporters such as the ABC's Stephen McDonell were just party-poopers.

With the exposure of Murphy and the collapse of Kaye, Westpoint embarked on an old property flogging scheme – it set up what another investigative reporter (Hedley Thomas from Queensland's The Courier Mail) dubbed "a food chain of deceit".

In the late 1990s and the early 2000s thousands of investors were lured to Queensland to purchase over-priced apartments in what became known as two-tier marketing scams. In the Queensland Parliament, a fellow called Dudley Quinlivan was named as the King Con of the property scams.

After Thomas wrote a series of articles in The Courier Mail in 2001, the Quinlivan gang split in all directions. Guess where several showed up? Westpoint Corporation.

Australian Securities and Investments Commission chief, Jeff Lucy, said of the financial planners who steered their clients into Westpoint, "They should have known better."

Yes, indeed, it was all so predictable. Now, it's all so tragic.

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And finally, a suggestion for Westpoint investors.

Do not feel stupid or embarrassed. [Even the New South Wales branch of the ALP reportedly invested $100,000.]

Feel angry that people who should have known better, people you trusted to protect your interests, sold you out for the sake of big commissions.

It's a big scandal and you should make some big noise.

Don't let financial predators get away with your money without a fight.