At least four related entities of Charterhill Group entered insolvency in January.
The Adelaide-based group offered a range of services including mortgage broking, real estate marketing, property management, contract negotiation and SMSF advice.
Three of the Chaterhill companies owe creditors a combined $11.5 million but have only collected $25,000 in payments, according to their six-month presentation of accounts.
A lawyer acting on behalf of a number of Charterhill said it is “highly unlikely” that clients will receive any compensation.
“It is highly unlikely that the various insurance claims will meet the circumstances of this,” O’Loughlins Lawyers partner Kym Ryder said.
“That is almost solely and wholly by reason of the fraud by [Charterhill Group chief executive George] Nowak, and because Nowak was the director and certainly the moving mind in all of these companies, we think it is highly unlikely that a claim will be able to be met by an insurer,” Mr Ryder told Mortgage Business.
“More particularly, an insurer won’t be prepared to meet the claims,” he said.
Mr Ryder said George Nowak used SMSF marketing to lure clients into his web of fraudulent activities, under the pretence that SMSFs were safe and regulated.
“I can’t stress more highly the way he utilised the safety of SMSFs and what he stated to be the protections for SMSF trustees,” he said.
“He told them it was safe and protected, that the ATO monitors the area, and so he almost traded on the protections available in that industry at a government level.”
Mr Ryder said the case has negatively affected the SMSF industry in South Australia, where Charterhill was based.
“There are a fair few lessons to come out of this, not the least of which is the fact that there is no real regulation in this area and while the ATO will hold itself out as keeping an eye on the industry, this is a pretty clear example of something that has fallen between the cracks of the SMSF industry,” he said.
“I don’t want to paint the rest of the SMSF industry with this brush, because in many ways everything the sector seeks to do is very positive, but the danger is, like any industry, you get one bad egg and they stuff it up for everyone.
“Certainly in South Australia, that is what this Nowak character has done. He found a loophole; he preyed on people’s confidence and ran off with their money.”
ASIC is pursuing the matter and Mr Ryder is confident that Mr Nowak will be prosecuted.
What to take home from this article. It's important that you the company you're using to procure your finance is reputable and likely to stay in business otherwise you could be in trouble. Make sure the organisation is a member of an External Dispute Resolution Scheme, a member of a professional body and has all of their Professional Indemnity insurance up to date.