Wealth creator escapes regulator's eye
Australian Broadcasting Corporation
Reporter: Matt Wordsworth
An Australian businessman who promises to make millions for mum and dad investors faces allegations of criminal behaviour.
LEIGH SALES, PRESENTER: PETER SPANN CALLS HIMSELF AUSTRALIA'S MOST SUCCESSFUL WEALTH EDUCATOR, OFFERING TO TURN MUM AND DAD INVESTORS INTO MILLIONAIRES.
HE TELLS ROOMS FULL OF HOPEFULS THAT HE'S A RAGS TO RICHES STORY THAT THEY CAN FOLLOW.
BUT FORMER EMPLOYEES HAVE LIFTED THE LID ON HIDDEN CHARGES AMID A COURT ACTION THAT'S RAISED ALLEGATIONS OF CRIMINAL BEHAVIOUR.
THERE'S ALSO A TRAIL OF FAILED COMPANIES THAT'S LED TO QUESTIONS BEING ASKED OF CORPORATE WATCHDOG ASIC ABOUT WHY IT'S NOT TAKEN ANY ACTION.
MATT WORDSWORTH HAS THIS REPORT.
MATT WORDSWORTH, REPORTER: It's October 2007, and Peter Span is in full flight at a pack wealth education seminar. Just a month later, the Australian Stock Market would peak before heading into the steep decline of the Global Financial Crisis. But like many others, he didn't see it coming.
PETER SPANN: Nothing to be concerned about, very confident in the Australian market going forward, um and the Australian market is going to still perform very well for the next few years.
MATT WORDSWORTH: Still, Peter Span can command a hefty fee for his wisdom, a ticket to a 2011 seminar in Sydney cost almost 4000 dollars, although a second ticket was thrown in for free. Financial advice has rocketed Mister Spann from struggling supermarket employee to multi millionaire. He's boasted of being worth up to 70 million dollars, enjoying a lifestyle of cars, first class travel, even owning an island in The Whitsundays.
PETER GARLAND, CLIENT: He's very persuasive on his presentations.
MATT WORDSWORTH: A seminar was how Peter Garland and his wife Myrna Sharpland first came into contact with Peter Spann.
MYRNA SHARPLIN, CLIENT: You trusted him. You didn't even think that there could be any catch to it, or anything like that.
MATT WORDSWORTH: They invested 75 thousand dollars of their superannuation nest egg through his companies Freeman Fox and Excela, then The Global Financial Crisis hit. When the recovery came, it didn't help.
PETER GARLAND: Everything went down, but most things have all bounced back, these have just continued to go down, and I think there's something drastically wrong there.
MATT WORDSWORTH: Peter and Myrna don't know why their investments performed so poorly. 7.30 has spoken to other clients who together have seen millions of dollars wiped out.
FORMER EMPLOYEE (ANNONIMOUS): You know you're talking about mum and dad investors, they're you know really well convinced to pull money out of their, I guess, industry super fund and from their house to invest into a product which was, which was crap. And everyone in the organisation basically knew it was rubbish.
MATT WORDSWORTH: This man who wants to remain anonymous because he still works in the industry, left the company, Excela in disgust, and is critical of the company's sales practices.
FORMER EMPLOYEE: All the funds typically that were chosen were chosen because they had high fees so they'd charge clients in excess of three, four per cent just to invest. Then the investment manager would borrow money and so they'd turn ten grand into one hundred thousand dollars exposure. That was for a three or four year term. The client helps to pay the interest for three to four years, and then at the end of the term they've got nothing, so there's a lot of investments they've actually failed, and returned nothing.
MATT WORDSWORTH: Peter Spann declined 7.30's request for an interview, but in a statement strongly disputes the claim saying fees were in line with the industry, and there to see in the disclosure statements. He says client risk profiles were considered when risky products were recommended. The ABC has obtained the trading history for one of Excela biggest managed funds called Accelerator. A fund that pools client's money and invests it widely.
In July last year it was holding about twelve million dollars. What clients don't have to be told is how much money the company raises for itself in brokerage. In one year it amounted to almost 1.4 million dollars, a whopping eleven per cent of the fund's value. Meaning that Accelerator had to appreciate eleven per cent, just to break even. It ended up making a loss for the year of close to 17 per cent. Now a court case with former employees has raised much more serious allegations of corporate crime. Peter Span is suing five former stock brokers, alleging they stole clients. Defence documents for three of them, filed in Queensland's Supreme Court, says they left in part because they were being exposed to illegal behaviours such as churning.
FORMER EMPLOYEE: So Churning refers to buying and selling for the sake of generating revenue, in the sake of generating brokerage. And that is an expense that is warned by the client and erodes their value which again is a practice which is not only frowned upon in itself, is its illegal.
MATT WORDSWORTH: The court documents allege that in January last year Peter Spann asked stock brokers at the trading desk about Excela's revenue for the month.
VOICE OVER: Mister Span was informed by words to the effect "it was a quiet month" and said words to effect that "don't worry, the fund will be turning over so I have this month," being a reference to churning; and the Excela funds were, in fact churned.
MATT WORDSWORTH: Peter Spann said in his statement that he denied any allegation of churning and said the funds were managed according to their product disclosure statements. Neil Jenman made his fortune in property before switching sides to become a consumer advocate and has been watching Peter Spann's activities for years.
NEIL JENMAN, CONSUMER ADVOCATE: I'm critical of Peter Spann because he takes advantage of people that don't know a great deal about the financial markets themselves and when you invest in one of his schemes or invest through his stockbroking firms, there's a lot of fees that Peter Spann gouges. Peter Spann is what's known as a gouger.
MATT WORDSWORTH: Clients were not only encouraged to invest in managed funds, but also to buy shares in Excela Limited itself, the company in which Peter Spann was the majority shareholder and director. When he floated it in 2007 the share price was a dollar, but it hasn't made a profit in the last five years and with the share price collapsing to six cents, auditors declared in last year's annual report there was...
VOICE OVER: "significant doubt about the consolidated entity's ability to continuing as a going concern"
MATT WORDSWORTH: Less than a fortnight ago Peter Spann sold all his shares and quit as a director. With the share price now at two cents.
While new owners attempt to breathe life into Excela, it's too late for other companies run by Peter Spann. In the past 18 months three that he'd been a director of have gone bust leaving significant debts. Corporation law says that someone who has done that just twice could be banned for up to five years from being a director. But so far Peter Spann has escaped the attention of the watchdog ASIC.
Neil Jenman is angry that regulators have not taken any action.
NEIL JENMAN: Whether they say and they will make excuses like "we're overworked, we need more staff, we need more resources, we need more money," well how come I can follow these things up? How come you as journalists can find these things? If we can find these things you think ASIC would be able to find these problems and find these victims.
MATT WORDSWORTH: ASIC said in a statement that it doesn't comment on operational matters but generally directors involved in repeated corporate failures are in ASIC's sights. Peter Spann says the recent company failures were unfortunate and due to the downturn in the economy. He also noted Excela, where he remains Chief Investment Officer, still has more than 3,700 investors. For Peter Garland and Myrna Sharplin it's once bitten twice shy.
MYRNA SHARPLIN: I would say no, don't bother, don't do it. It's too risky.
PETER SPANN: May the gods of the market look after us all and may your God keep you safe until we see you again, good night, god bless.
LEIGH SALES: Matt Wordsworth with that report and you can read Peter Spann's full statement on the 7:30 website.
Read more: http://www.abc.net.au/7.30/content/2013/s3728325.htm