La Trobe Financial to defend ASIC claims

Last Friday (18 December), the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings in the Federal Court against La Trobe Financial Asset Management Ltd (La Trobe), the responsible entity of the La Trobe Australian Credit Fund.

The fund invests in loans secured by first mortgages over residential and commercial real estate, as well as cash, deposits and other assets.

The allegations made

According to the financial services regulator, some of the products that were being marketed by the fund between 2017 and 2020 may have been “misleading or deceptive, or likely to mislead or deceive”.

Specifically, ASIC alleged that the marketing outlined that investors who invested funds in the 48 Hour Account or the 90 Day Account would be entitled to withdraw their funds within the given time period after giving a withdrawal notice to La Trobe (e.g. 40 and 90 days, respectively).

However, ASIC alleged that, in actuality, the right to withdraw ranged from having no rights to withdraw, to a right to request a withdrawal, which La Trobe had up to 12 months to satisfy.

ASIC also alleged that despite the fund reportedly suggesting that any capital would be stable (i.e. no risk of substantial loss of capital), there was such a risk.

It also alleged that an investment in the fund would provide a specified rate of return, but ASIC claims that none of the investment options in the fund were guaranteed to provide any particular rate of return.

The rebuttal

Following the announcement that the regulator had commenced proceedings in the Federal Court for alleged contraventions of the ASIC Act and the Corporations Act (seeking declarations, pecuniary penalties and corrective advertising orders against La Trobe), the company issued a statement outlining that it refuted the claims.

La Trobe Financial outlined that it had “engaged extensively with ASIC in the second half of 2017 in relation to many of the issues raised in ASIC’s claim, and implemented a range of resolution mechanics at that time”.

It said it disagreed with the substance of the concerns ASIC had raised.

“La Trobe Financial rejects the assertions made by ASIC,” it said.

“La Trobe Financial firmly believes that our credit fund is promoted and positioned as ‘true to label’, and is committed to ensuring that we comply with both the spirit and letter of our legal and regulatory requirements.

“La Trobe Financial also strongly supports the efforts of ASIC to ensure that Australia’s financial sector remains efficient, honest and fair. To that end, we have been responsive to ASIC’s evolving regulatory guidance in this space,” the statement reads.

The group went on to outline that it believed that, since inception in 1999, “no investor has ever suffered any loss of principal in any of the credit fund accounts referred to in ASIC’s claim”.

“Additionally, we have never withheld a monthly distribution and have met all redemption requests promptly and in full,” it said.

The date for the first case management hearing is yet to be scheduled by the court.

[Related: La Trobe Financial launches bushfire relief package]