On March 4th, 2013, the Australian Broadcasting Corporation (ABC) aired a shocking documentary about the poorly-regulated and “shadowy world of managed investment companies”. It featured interviews with families and retirees who had lost their life savings. It also featured a long segment about LM Investment Management.
At one point, LM’s London-based European sales manager, Simon Bottle, was shown in a YouTube clip telling a group of potential investors that LM was “highly regulated in Australia”, “regulated twice”, and “regulated as a private bank”. None of the claims were true.
Bottle allegedly made similar claims on his CV, which stated, “LM Investment operates in Australia as a conservative and highly rated private bank.”
Two weeks after the ABC documentary aired, LM went into voluntary administration, and all employees at LM’s London office lost their jobs, including Simon Bottle.
Three months later, Martyn Terpilowski received an email from Bottle, who was promoting a new company he had co-founded called Alpha Diversify, which provides fund distribution services to offshore advisers.
The subject line of the email was “LM Investment – the elephant in the room”. Bottle said he was working with a group of brokers who were well-organized and well-resourced (i.e., wealthy from sales commissions). Their objective was to “maximize adviser/investor outcomes” (i.e., try to help investors recover money while ensuring that negligent advisers wouldn’t have to pay for it). The name of the group of brokers was not mentioned, but it was probably the Advisers Committee for Investors (ACI).
Bottle said the rest of his email was going to be characterized by “brutal honesty”. He claimed that he was shocked when LM went into voluntary administration, and he described how he had personally suffered by losing weeks of salary (some investors had lost a lifetime of savings). Bottle also claimed that the ABC documentary had treated him unfairly by taking his quote out of context. He said, “I was in NO WAY pitching LM as a private bank in the sense of being a private client wealth manager.” (That’s apparently not what his CV said, but regardless, he still seems to have been pitching LM as regulated like a private bank.)
Bottle’s original Youtube video has since been removed from the internet. All that remains is the clip shown on ABC.
Below is Simon Bottle’s email to Martyn Terpilowski, followed by their subsequent exchange of words.
On 21 Jun, 2013, at 4:17 PM, “Simon Bottle” wrote:
Alpha Diversify is a fund distribution company Paddy Burtt and I have recently launched into the offshore space. Until March 2013 when the office closed, we were both working for LM Investment UK in London. In this email we confront this LM elephant in the room head on.
One of the main aims of this mail, as a constructive input to the latest LM situation, is to advise that a well organised/resourced and influential committee has been set up by a group of brokers. The group has been formulated to maximise adviser/investor outcomes through a number of means.
If you are not already engaged with the group, we urge you to please contact us and we will provide the details.
We are 100% committed to total transparency as the overriding principle Alpha Diversify is founded upon. The brutal honesty of the below email establishes we are entirely focused on our client relationships being grounded in total openness. This is not an email tirade against our former employer which would be neither professional nor of use.
The appointment of a voluntary administrator (VA) was a horrendous shock to both Paddy and me, as it was to the whole industry. The London team had the same information as advisers such as audited accounts and fund portfolio specifics that included validated valuations etc. We were aware that the Trilogy/media situation was having an impact on the business, but at no point was the likelihood of administration raised with us, even at the point where the LM CEO was in London days before the VA was appointed. Given how in the dark we were kept on the risk of the administration outcome, we await the findings of the current investigations to provide some objective transparency into the actions of those responsible.
Some of you will want to know how the LM scenario played out for us. On the day the voluntary VA was brought into the LM Head Office, we were informed of the news a few hours ahead of the adviser/investor notification. We were informally told to expect redundancy with virtual immediate effect. It rapidly became painfully apparent that the LM entity structure allowed the VA to immediately cut the international offices adrift. The London office was left with liabilities far in excess of any assets available to cover them. All invoices/bills/salaries historically were paid by LM HQ into the London office but that link had been severed. The London team collectively spent weeks managing the understandable deluge of adviser calls and liquidating the LM UK entity which was effectively unpaid. We will not receive any payment from LM Head Office or the VA for the outstanding salary owed and our notice period. As creditors, the little we can salvage from the
liquidation proceeds will take months to materialise. We are not looking for sympathy – we simply make the point that the LM earthquake struck unannounced at the centre of our lives too and we still are dealing with the major aftershocks.
Continuing in the vein of ‘warts and all’ honesty, I bring to your attention the piece of LM media coverage I was quoted in. A journalist took one snippet from a lengthy videoed presentation I gave in late 2012 where in isolation I said – “We are regulated as a private bank, and regulated as a
fund manager.” It was a clumsy use of words in which I was trying to communicate that, in addition to the ASIC regulation of LM as an investment manager, the AIF as a fund lent to property developers and was also ASIC regulated. I was in NO WAY pitching LM as a private bank in the sense of being a private client wealth manager. My entire presentation made it abundantly clear to a room of market professional intermediaries that LM was an asset manager. This fact is then also reiterated over and over again in the materials required to make an investment including factsheets, fund memorandums and application forms.
The LM experience has been brutal for us all. We at Alpha Diversify have learnt a number of painful lessons. Our priority number 1 is to never be exposed to anything similar EVER again. So what does that mean Alpha Diversify stands for? We demand onshore quality for the offshore market
through nuts and bolts due diligence into simple propositions that can be easily understood. We need to see straightforward structuring without any opaque layers. We will be ruthless in seeking out quality products where the portfolio does NOT rely on valuations of what assets might be worth in the future after additional investment/development. Equally we will not touch any solutions where an investor’s capital value is tied up with the sustainability of the provider’s business unless there is an irrefutably robust balance sheet. We are interested in non-correlation but not at all
All the above has defined the choice of structured product and fund management providers we will work with. We are currently for example working on an offshore share class with a UK FCA regulated manager who is to launch a non-correlated fund that invests in only 100% liquid investments with clearly specified and managed risk parameters laid out in the prospectus.
If you have the same aims going forward in product selection, then you now know what we stand for and why we will be OBSESSIVE in avoiding the pitfalls going forward.
Thank you for your time in reading this mail.
Alpha Diversify Ltd
From: Martyn Terpilowski
Sent: 21 June 2013 08:38
To: Simon Bottle
Subject: Re: LM Investment – the elephant in the room
LM have been dodgy for the last few years and obviously so. Anyone who put new business with them with 9pc commissions and then in a bond in the last few years, should go to prison. I am not sure how much u know much about me but I have been fighting with LM for years to get money out and predicted this. It was no surprise to anyone with half a brain. I don’t want any connection with anyone who was selling this rubbish and I am not surprised at all. 9pc soft commissions means clients gets screwed and I am sure you all knew that. My clients invested in 2005 when commissions were 3pc and u could not wrap in a bond. They have been in redemption queues for years whilst all the idiots were putting money into what was obviously a flawed fund.
I am working directly with KordaMentha and I am aiming to separate myself from all the people who invested in this fund after 2008. I find it disgusting so there is my answer.
Sent from my iPhone
From: Simon Bottle
Sent: Friday, June 21, 2013 4:55 PM
To: ‘Martyn Terpilowski’
Subject: RE: LM Investment – the elephant in the room
I appreciate your candour.
I’ll make sure you don’t receive any more contact from Alpha Diversify.
Alpha Diversify Limited is authorised and regulated by The Financial Conduct Authority (FCA ref 490781)
From: Martyn Terpilowski
Sent: 22 June 2013 12:08
To: ‘Simon Bottle’
Subject: RE: LM Investment – the elephant in the room
Candour? It makes my blood boil.. Is Martin Venier involved in this also? Horrible little man that he was… You are either corrupt or stupid and the brokers also. You do not need to explain to brokers that you are sorry as they are responsible also – they knew. As I said 9% soft coms when no money
coming out is worse than a ponze scheme.. Drake was a meglamaniac who surrounded himself by yes people, or people equally as corrupt. To come out and say u are all shocked just shows how disgusting the offshore industry is. Lots of brokers were doing 100% LM in a bond, so getting 16% com – so you were surprised when this fund went bad? Come on… u all lined your pockets and are now trying to cover up for yourself. This mail should go to the Sydney Morning Herald, it is such a joke… When this fund paid only 3% and could not be be put in portfolio bonds, it was a small fund. Why do you think it suddenly started to grow so much during the GFC??… er.. commissions.. No honest broker would have touched it at that.. It never made sense and I have been saying this for 4 yrs.. so please.. I have heard all these idiots acting shocked and it is laughable… You all made a lot of money out of it. The only thing I agree with you on is that the Auditor and Regulator should be in big trouble also, but seriously the rest… a joke.
Hope you can sleep at nights.