Here we go again! How many times does it have to happen? Australian Capital Reserve, a finance company we highlighted only six weeks ago
in Eureka Report, has gone into administration owing $300 million and leaving 7000 retail investors facing losses.
The ACR collapse is bigger than Westpoint or Fincorp and it's worse because this time the warning bells were ringing loud and clear ... yet nobody shouted 'Stop!'
Today the chief regulator - Tony D'Aloisio, chairman of the Australian Securities & Investments Commission - tried to explain the restraints placed on the regulator as it faces up to $1 billion in investment losses in this sector.
But there are too many questions answered - and too much at stake. As Simon Ibbetson of ratings agency Standard & Poor's suggests in his interview with Michael Pascoe today, there are more disasters to come because, as Ibbetson says: "Every day we see adverts for very speculative type operations that are paying high commissions to financial planners and brokers, and we just wonder where those schemes are going to end up." What has happened?
Australian Capital Reserve was a heavily advertised investment scheme that used direct media contact through television and radio to target older investors. (Remember the advertisements with the oversize cricket ball promising to hit the other investment returns for six? That was Australian Capital Reserve.)
In common with Fincorp and Westpoint, the underlying assets of ACR were loans made to related parties for property construction.
In fact, ACR is so similar to the Westpoint and Fincorp collapses that it brings to mind the quote that "insanity is doing the same thing over and over again and expecting to get a different result". I think we can define investment insanity as investing in any scheme that offers related party investment loans to be used for property construction.
Keep in mind the context of this collapse, and the Fincorp and Westpoint collapses. Australia is in a period of relatively stable and low interest rates, low unemployment, strong consumer confidence, stable and consistent economic growth and well controlled inflation. Any group of investment schemes that collapse in this prosperous environment must be seriously flawed! And they are. The common thread
There are four key similarities between Westpoint and Fincorp.