The LM Emails (#7): New Sales Manager, Martin Venier, Implied that LM Was Operating Like a Ponzi Scheme

In 2009 and 2010, Martyn Terpilowski mainly interacted with LM via sales manager Heather McLeish. When she quit, Martin Venier became the new point of contact. The emails below represent the first engagement between the two men.

At the time the emails were sent, one of Martyn’s clients, “Client 1”, had been queuing to exit the Managed Performance Fund for about a year and a half. Venier’s first email is in response to a letter that Martyn addressed to Peter Drake, which Drake ultimately never replied to (see here).

One of Venier’s statements is highlighted in red. As Martyn pointed out, it seems to suggest that LM was using new investors’ money to pay back old investors—a key feature of a Ponzi scheme. Venier’s statement is very similar to a statement made by director Lisa Darcy in January 2009 (see here).

November 2011

Martin Venier

—–Original Message—–
From: Martin Venier [mvenier@lmaustralia.com]
Sent: Wednesday, November 02, 2011 11:40 AM
To: Martyn Terpilowski
Subject: Email follow up

Dear Martyn, a note to let you know that we will liaise with P Drake with respect to your email. I will be in Tokyo the week after next and could visit your office on the Friday if you are free. I will be back from leave this Friday, in transit at moment, and will get back by then, unless Shauna or PD revert beforehand. Kr, Martin Venier [Hong Kong Office]

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: Wednesday, November 02, 2011 11:50 AM
To: ‘Martin Venier’
Subject: RE: Email follow up

Hi martin

What is your role at LM? I will actually be in Singapore and then HK [Hong Kong] from now as I am relocating. Peter knows my view on this and I am sorry there is no excuse or explanation for LM’s actions. If this was a more regulated market, I am sure you could not sell it. I will be interested to see in HK if the regulator is happy with MPF [Managed Performance Fund] being sold as a 1 year term when it isn’t. I am not sure what else I can say – I just want [Client 1’s] money back. I am not interested in more lies that I have received for years from LM. No honest broker could sell this – sadly there are very few.

Martyn

Martyn Terpilowski

—–Original Message—–
From: Martyn Terpilowski
Sent: Friday, 4 November 2011 7:53 AM
To: Martin Venier
Subject: RE: Email follow up

Mate – can I have an update on [Client 1’s] money please? I also have another client in CPAIF [Currency Protected Australian Income Fund] who is locked up in that fund. What is happening there?

I am amazed no one at LM seems to understand what is wrong with marketing a closed fund to investors, but I realsed 2 yrs ago that was the case and the party line that all employees would stick to.

Martyn

Martin Venier

From: Martin Venier [mvenier@lmaustralia.com]
Sent: Monday, November 07, 2011 5:13 PM
To: Martyn Terpilowski
Subject: LM MPF & CPAIF Redemption

Dear Martyn,

I received the latest LM MPF redemption spread sheet a couple of hours ago and will be able to provide an estimate in a couple of hours with respect to [Client 1].

Attached is the latest communication with respect to the CPAIF with respect to the CPAIF unit price reduction to 77c (see below).

CPAIF Redemption Status

In summary,

A CPAIF investor cannot redeem right now and unfortunately it could prove to be misleading if we were to provide you with a time as to when it might happen, mainly because there are so many factors that are outside LM’s control.

LM is investigating a strategy to split the fund into two, one for investor who want exit asap, and one for investors that wish to remain, will accelerate redemptions.

We are investigating the legal process and viability of such a strategy.

At present the focus is on the stabilisation and restoration of the unit price by:

1.         Getting 2010 income distributions up to date (NB. [take notice] distributions have not been declared for 2011),

2.         Repayment of the Deutsche Bank loan as the interest expense is approximately 15% p.a,

3.         Commission payments, and

LM aims to make new loans and start redemptions as soon as market conditions permit.

We will get back to you as soon as new information becomes available. 

Unit Price Adjustment to 77c – CPAIF – due to some fund specific expenses

Our fees were only ever calculated after we had declared our monthly targeted distribution to the clients.

Due to the situation with the closed funds that LM has been dealing with over the past 3 years, last financial year was the very first time that LM needed to take its full entitlement (disclosed in the PDS [Product Disclosure Statement]) to management fees for the year.

Please see averages over the past five years for the various feeder funds – we will also provide FMIF [First Mortgage Income Fund] shortly – however the feeders may be where you receive questions due to the unit price changes here

LM First Mortgage Income – WHOLESALE FUND – average over five years 0.96% pa

LM Currency Protected Australian Income Fund – average over five years 1.31% pa

LM Currency Protected Institutional Fund – average over five years 0.31%

We have previously advised many of the reasons for this and I won’t dwell on this , however as we know the fund and LM was put under significant pressure over the course of the GFC [global financial crisis] as summarised below

1)      The awful situation with the CBA [Commonwealth Bank of Australia]

2)      Cost of refinancing with Deutsche Bank

3)      Borrowers facing difficulties resulting in LM having to step into their shoes and manage all the loans directly

4)      Increased staff in our PAM section [physical asset management section]

5)      LM deciding to retire ALL receivers and managers – thereby undertaking this work ourselves – at a significantly lower cost – however this has resulted in our management fees increasing

I will get to you with the MPF redemption estimate soon.

Kind regards,

Martin

Martyn Terpilowski

From: Martyn Terpilowski
Sent: Tuesday, 8 November 2011 10:36 AM
To: Martin Venier
Subject: RE: LM MPF & CPAIF Redemption

Thanks Martin

I am travelling right now – will take a look.

I look fwd to the update on [Client 1].

Martyn

Martin Venier

From: Martin Venier [mvenier@lmaustralia.com]
Sent: Tuesday, November 08, 2011 2:48 PM
To: ‘Martyn Terpilowski
Subject: [Client 1]

Dear Martyn,

Please note, the estimates are based on the best available information I have right now and are indicative only, any number of factors might cause a change.

The following two MPF investments for [Client 1], [#########] matured on the 2nd of July 2010 so they are easier to estimate.

Based on current levels of inflows we estimate the redemptions might take place In January or February 2012.

We will continue to monitor the investments.

Kind regards,

Martin

Martyn Terpilowski

From: Martyn Terpilowski
Sent: Wednesday, 9 November 2011 10:27 AM
To: Martin Venier
Subject: RE: [Client 1]

Thanks Martin

There seems to me a complete lack of understanding at LM why it is so wrong to take money in to a fund that has effectively a 2 yr delay to get your money out. It is obviously clients are not being told this when they put their money in and therefore it is dishonest. To hide behind semantics and ‘it is the responsibility of brokers to tell people’ lines is just plain wrong. I cannot believe I am the only person who thinks that. The fact you are now trying to tie people into longer terms tells a story also.

The fact that money coming out is as you say ‘based on inflows’ – is just shocking – I have never heard anything like this in my experience of dealing with many funds. Obviously there is the potential of looking like a Ponzi scheme by doing this and that is why all reputable funds that ‘closed’ (or had delayed redemptions) stopped taking money in at this stage. They opened again later once they had a clear plan on redemptions and hence won the respect of reputable brokers. The real worry I have is at LM no one even understands what could be wrong with this. We have heard the same arguments for yrs and nothing changes.

Sadly I was a large supporter of LM but have severely lost my trust in them and I really just want my client’s money back and quick. It really scares me actually.

Rgds

Martyn

Martin Venier

From: Martin Venier [mvenier@lmaustralia.com]
Sent: Wednesday, November 09, 2011 12:24 PM
To: ‘Martyn Terpilowski
Subject: RE: [Client 1]

Dear Martyn,

Your comments are appreciated and have been noted and I will bring them to the attention of management at head office in Australia.

We will keep you updated as news becomes available.

Kind regards,

Martin

Martyn Terpilowski

From: Martyn Terpilowski
Sent: Wednesday, November 09, 2011 12:28 PM
To: ‘Martin Venier’
Subject: RE: [Client 1]

Hi Martin

Peter knows my views and no one seems to understand (or at least acknowledge) how very wrong it is. It is actually questionably legal in many countries. I am sure the Board of LM are very aware of that, but choose to continue operating in this way. Very sad.

The quicker I can get my clients out – the better.

Rgds

Martyn

 

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