The LM Emails (#4): In 2009, Drake Threatened Martyn with Legal Action for Calling Him “a Liar and the Operator of a Ponzi Scheme”

In January 2009, four years and two months before LM collapsed, Martyn Terpilowski emailed Peter Drake and Lisa Darcy (a director) to inform them that he and his colleagues were deeply concerned about LM. Martyn wanted proof that everything was okay.

Darcy’s response did not fill Martyn with confidence. One of her statements suggested that LM was using new investors’ money to pay back old investors. Martyn pointed out that this was “what Bernie Madoff was doing“.

Darcy also claimed that the Managed Performance Fund had no liquidity problems, except for a minor issue related to margin calls on currency trades.

Nine months later, when Martyn learned that this was a lie, he was furious.

He sent an email to LM’s management demanding to have the address of their regulator, as he intended to file a complaint. He highlighted a number of LM’s actions which he found to be extremely dishonest, unethical, and possibly illegal. This included lies about redemption delays, attempts to cover up these delays by paying bonuses for rollovers, failure to stop taking in money during the delays, and operating like a quasi-Ponzi scheme.

Peter Drake fired back threatening to sue Martyn for making defamatory remarks. He denied that LM told any lies or that LM was a Ponzi scheme. He also invited Martyn and his clients to meet with him a few days later to openly discuss their concerns.

Martyn was not frightened by the legal threat. He pointed out that his assertions were supported by evidence documented in previous emails. He also accepted Drake’s invitation to meet up.

Martyn says that Drake admitted to lying in this meeting, and he justified himself by quoting Richard Nixon. According to Drake’s logic, his lies were for the “greater good”.

Drake never sued Martyn, but Martyn eventually filed a complaint with the Australian regulators. The regulators obviously did nothing, which means they are arguably as culpable as the greedy financial advisers and insurance companies who helped create Peter Drake’s disasterpiece.

January 2009

Martyn Terpilowski

From: Martyn Terpilowski
Sent: Friday, 16 January 2009 11:59 PM
To: Lisa Darcy
Cc: Peter Drake; [Martyn’s Colleague]; [Martyn’s Colleague];
Subject: Increased concern


I am sorry but I am looking at this seriously now. Clients get income 11 days late when they never did last year and investments in bonds which should automatically redeem do not as they did before – This is a serious concern of me and my team and suggest a fund with financial issues. I am trying my best to be positive but this is reality and we are talking an Australian property and mortgage related fund. We need some serious assurances now. I can easily give you the cases but things are being made pretty obvious.



Lisa Darcy

From: Lisa Darcy []
Sent: Tuesday, January 20, 2009 7:24 AM
To: Martyn Terpilowski
Subject: RE: Increased concern

Dear Martyn,

There is nothing to worry about with LM. We are managing the funds with caution in these difficult times.

LM is still currently accepting new business into the funds, however our investment inflows were very low this month – this is contributing to the liquidity issues we are facing with the LM CPAIF.

As you know we are currently seeing delays in relation to redemptions for the LM Currency Protected Australian Income Fund and any new applications we receive at the moment we are advising advisers/clients of these delays and are suggesting longer term investments (at least 12 months) or alternatively advisers can use our new product “The LM Australian Income Fund – Currency Protected” – this fund is brand new and not having any liquidity issues with mortgage assets.

The LM funds have had an issue this month with UBS our currency provider in relation to the FEX margin requirements – they have unexpectedly advised us of the increase to their margin requirements from 5% to 20%. (this was done across the board in Australia to all of UBS’s clients and was no reflection on LM)

This has caused a cashflow strain on the funds as we need to ensure that these requirements are met – we are in the process of changing providers and once this occurs the surplus cash will be released back to the funds.

The audited financials for the LM mortgage funds are almost complete and they will verify that the unit price remains at $1.00 (I will send through as soon as they are signed which will be during this week, Ernst Young are in our office today finalising the accounts).

The LM Managed Performance Fund has NOT been affected by the liquidity issues from borrowers – however has had to meet its FEX margin calls – we are currently paying redemptions from this fund (generally 30 days after maturity).

Peter Drake and I look forward to meeting with you and the team on the 6th Feb – if possible i was wondering if we could make the time now at 2pm???

We are doing all we can to minimise any disruptions to clients and will sending a broadcast update out shortly.

Best Regards


Martyn Terpilowski

From: Martyn Terpilowski
Sent: 21 January 2009 07:56
To: ‘Lisa Darcy’
Cc: [Martyn’s Colleague]; [Martyn’s Colleague]; Peter Drake (
Subject: RE: Increased concern


The main issues I see are simple – I recently talked to a very senior player at Real Estate at Macquarie in Australia who expects property prices in Australia to collapse. This is a view shared by many economists. It is obvious inflows would be low. I have AUD350,000, I am trying to find a short term (1-2yr) home for and just do not feel comfortable with this right now.

You should not really admit that slower inflows in turn affect outflows as that is the issue with lots of funds and is actually what Bernie Madoff was doing – as long as it kept going up, people put more money in and he could therefore give it to the few people who wanted to redeem. This works fine until inflows stop – we all know how this works and it is very worrying. The truth is though that the property/mortgage sector is the worst sector in a terrible world right now and risk is certainly increased in this sector. Maybe even higher than equities.

We know redemptions are slower, but I would not tell people that you are waiting for more money to come in before you can give theirs back. It is worrying. The bigger issue is that income is now late etc – clients realise that in these market conditions, with this type of fund, this could be cause for concern.

I know the unit price remains at $1 but it does not stop the worry as any sensible person looking at this would be concerned, not because LM – but because the sector. The issue is that this does not matter if the fund suddenly hits trouble and has to right down the price suddenly (as many such funds have) due to huge drops in underlying asset classes.

Thanks for the info on the MPF – I guess I am concerned like I was with Brandeaux – for mths they just denied they could be dragged into this and look what has happened. I fear a FIRST EVER right down of unit price there as people will not be rushing to invest in the fund when it reopens and sensible brokers will probably look to lessen their exposure.

Moving to 2pm on the 6th is fine. I look forward to meeting you both then. I am not meaning to be troublesome but this is very important to me.

Best Regards


October 2009

Martyn Terpilowski

—– Original Message —–
From: Martyn Terpilowski
To: Heather C. McLeish; Lisa Darcy
Cc: [Martyn’s Colleague]; [Martyn’s Colleague]; [Martyn’s Colleague]
Sent: Fri Oct 30 13:56:48 2009
Subject: Now very, very worried

Heather and Lisa

We have just discovered something we never knew before and I am very worried and also now know for a fact that LM have directly lied to us, time and time again. That after the support we have given them over the years is very upsetting indeed. Obviously I have already made my concerns clear, but now economical with the truth has become lying. This is no longer ‘candor’ and I am pretty upset at the situation as are all other advisers here.

We have just talked to a client who put a redemption request in January this year, for a May redemption. He gave the 3 months notice as requested by LM. In May he was told no redemptions and as of today he has still had no redemption proceeds.

I have it in black and white from LM well after the above dates ‘there are no issues with redemptions on the MPF’. This is clearly a lie.

During this time you have taken money in (and lied repeatedly) and it is obvious now the offer for the rollover getting an extra 3% if done in June this year, was to give you more time to deal with this and keep it quiet. This is truly disgraceful.

All other companies with redemption freezes, stop taking money in and at least write to clients and brokers to explain this. LM just say that ‘the fund is in good shape’ which is clearly not true. Having made a call this morning to LM we have been told that because ‘little money is coming in’ right now, ‘no money can be paid out’. This is called a Ponze scheme. Please Google it, to see a description.

LM have had many, many chances to tell the truth here and chose not to. The seminar at the Conrad, Peter’s trip here etc. I have asked the question many times and been directly lied to. Unfortunately that gives me no confidence whatsoever in LM.

To be honest at this stage I need the details of the regulator of LM, so please forward as I believe it is your duty to do so. This is wholly unacceptable and direct lies can be proved as are in writing in black and white in these emails. I have asked time and time again when I have been told lies. That does not sit well with me at all.

I don’t want to be told the fund is in ‘good shape’ or be told by Peter he will ‘take clients to see the buildings’ or that the ‘unit price has been steady forever’. It does not matter if you cannot get your money out and LM lie to people.

It amazes me that people think I ask too many questions, well I certainly did not get the right answers did I and now feel compelled to make a formal complaint.

I look forward to hearing from you very soon.

Best regards


Lisa Darcy

—–Original Message—–
From: Lisa Darcy []
Sent: Friday, October 30, 2009 1:21 PM
To: [Martyn’s Colleague]; Heather C. McLeish
Cc: Peter Drake
Subject: Re: Now very, very worried

Martyn, thanks for your email – we will come back to you shortly with a formal response. The MPF is not frozen, we have paid and are continuing to pay redemptions throughout the course of this year – from time to time payment periods have been extended due to market conditions and the
type of fund investments. Most recently the strength of the AUD has caused additional demands on liquidity. The fund is not a ponzi scheme, it invests in real assets and has independant accounts prepared annually. We will be in further contact with you. Lisa

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: Friday, 30 October 2009 1:39 PM
To: Lisa Darcy; Heather C. McLeish
Cc: Peter Drake; [Martyn’s Colleague]; [Martyn’s Colleague]; [Martyn’s Colleague]
Subject: RE: Now very, very worried


We have a client who has not been able to redeem since January. That is 9 mths.

If you can only pay out when money comes in it has the hallmarks of such a scheme.

We have repeatedly been told and have it in writing that there are no issues with redemptions on MPF (as per the previous email). This was particularly when you were trying to raise more money from our clients and we were told there were no such issues. We were only told this after a
redemption request was denied.

Money should not be taken in, when redemptions are not being paid.

I look forward to receiving the regulators details.

Sorry – but something is very wrong here. What you are telling me is contrary to what clients are telling me and they are not best pleased that we did not tell them first.


Peter Drake

—–Original Message—–
From: Heather C. McLeish []
Sent: Friday, October 30, 2009 4:05 PM
To: Martyn Terpilowski; Lisa Darcy
Cc: Peter Drake; [Martyn’s Colleague]; [Martyn’s Colleague]; [Martyn’s Colleague]
Subject: RE: Now very, very worried

Hi Martyn, Peter Drake here.

I am in Tokyo right now and until Tuesday midday.

Whilst I can appreciate your concern over the delays in redemptions, I am taking a strong objection to being called a liar and the operator of a Ponzi scheme.

I have forwarded all to your “copied” correspondences to our lawyers here in Tokyo and we will be considering our position with regards to your defamation and malicious statements on Monday.

We have repeatedly explained the true position of the funds as they have traversed the global financial crisis and the presiding elements. You are choosing to be unreasonable and deliberately damaging to our reputation. You have been offered the opportunity to meet with me but
you have declined.

I would like to extend to you and any client the opportunity to meet Monday or Tuesday to discuss openly the issues of concern to you.

Peter Drake

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: 30 October 2009 16:29
To: ‘Heather C. McLeish’; ‘Lisa Darcy’
Cc: ‘Peter Drake’; [Martyn’s Colleague]; [Martyn’s Colleague]
Subject: RE: Now very, very worried

Hi Peter

How about 2pm on Monday then? Tuesday is a bank holiday here.

Ok maybe a Ponzi scheme is going a bit too far, but I can show emails saying there were no redemption issues with MPF. I am 100% sure of that, so I am unsure why it is at all defamation or malicious. Furthermore the question was asked repeatedly due to worries we had and repeatedly we received the same answer. It was also not brought up at meetings with yourself and
others, despite the question being raised. We only found out when Mr. [XXXX] could not get his money out when he asked to redeem. I know I was given false information, so I am not quite sure how that could be considered malicious, but maybe your lawyer views it differently.

The information on MPF has certainly not been explained truthfully and I am certainly not going to agree with you on that point.

Being told that ‘we can only pay out money, when money comes in’ – well I will let you make your own opinion of that, but it is not a thing you should have people at your company telling people, as obviously it is concerning. I reiterate that most funds with redemption freezes (or whatever you choose to call this) notify clients and brokers by letter and take no further money in.

This is unreasonable in no way Peter.

I have asked for information on the Regulator of your fund and yet to receive it.

I declined the meeting originally, because for most of this year I have asked questions and LM try to smooth things over, but I want to know the reality, not what I have been told so far and as I said I have it in black and white.

I feel let down as a big supporter of LM and I am sorry if that does not sit well with you. This situation does not sit well with me at all, hence I am now making a formal complaint, that you seem to think is unreasonable.


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