Australia’s
corporate watchdog has launched legal action against Australian Unity Funds
Management, claiming the company issued investment products to retail
clients without properly checking if they were suitable candidates.
The
Australian Securities and Investments Commission (ASIC) filed
court papers in Melbourne’s Federal Court on Tuesday, alleging
Australian Unity violated design and distribution laws by failing to
review investor questionnaires for nearly two years while continuing to
sell interests in its Select Income Fund.
Court
documents show ASIC is seeking financial penalties and public
disclosure orders against the fund manager, which operates as part of
the broader Australian Unity group that reported revenue of $2.17 billion
in 2024.
The case
centers on Australian Unity’s handling of its Select Income Fund, a
mortgage investment scheme that pools investor money into first
mortgage loans. Between October 2021 and October 2023, the company
was required to ensure new investors matched specific criteria outlined in
target market determinations.
You may also like: Former Boss of Collapsed Stockbroking Firm Faces Fresh $192M Fraud Charges
Questionnaires Went
Unreviewed for Years
According
to ASIC’s court filing, Australian Unity created questionnaires
asking potential investors about their financial goals, risk tolerance,
and investment timeframes. The surveys were designed to
help determine whether applicants fit the fund’s target market
of income-seeking investors with medium to high risk profiles.
However,
the regulator alleges the company failed to review these
questionnaires from October 2021 until August 2023. During this
period, at least 307 retail investors submitted applications to join the
fund, with 220 completing questionnaires and up to 144
providing responses suggesting they fell outside the target market.
The
court documents reveal that 87 investors were accepted into the fund
without completing any questionnaire at all during the early months
of the relevant period.
ASIC Deputy Chairwoman, Sarah Court
“The
design and distribution obligations are there to help make sure consumers
get appropriate financial products aligned with their
objectives, financial situation and needs,” said ASIC
Deputy Chair Sarah Court. “Issuers do not meet these obligations
just by issuing a questionnaire. They need to actively review
investor responses.”
Two weeks
ago ASIC was also warning against significant compliance failures across the
managed investment sector. The responsible entities have overseen nearly $1
trillion in assets that have failed to maintain adequate oversight plans.
Investors Face Significant
Losses
The alleged
screening failures exposed investors to substantial financial losses when
some of the fund’s underlying mortgage investments soured. Court documents
detail three specific mortgage syndicates where investors lost money:
- The Studley Park Road syndicate saw 23 new investors contribute $1.75 million, only to lose approximately 35% of their capital when the underlying loan failed
- In the Cheng and Lok Company syndicate, 76 investors put in $8.67 million and are estimated to have lost 3.3% of their investment
- A third Glen Iris project involving 33 investors and $1.25 million has stopped making distributions entirely
The Select
Income Fund operates by taking investor money and lending it out as
first mortgages on property developments. Investors receive monthly
interest payments during the loan term, with their principal returned when
the borrower repays.
“Product
issuers must take reasonable steps to ensure that investors are within the
target market before they issue interests in a product,” Court added.
Australian Unity’s
wealth and capital markets division manages $18.7 billion in funds and
generated $232.5 million in revenue last year, according to the court
filing.
Related: “Millionaires’ Factory” Faces Reckoning Over 14-Year Short Sale Reporting Failures
Legal Action Seeks
Penalties
ASIC is
asking the Federal Court to declare that Australian Unity breached its
legal obligations on 307 separate occasions by issuing fund interests
without proper target market screening. The regulator wants financial
penalties imposed and is seeking orders requiring the company to publicly
disclose the contraventions.
The case
highlights ongoing regulatory scrutiny of Australia’s design and distribution
obligations, which came into effect in October 2021 to prevent
unsuitable financial products being sold to retail investors.
Australian
Unity has been served with the court papers and must file a
defense if it intends to contest the allegations.
Australia’s
corporate watchdog has launched legal action against Australian Unity Funds
Management, claiming the company issued investment products to retail
clients without properly checking if they were suitable candidates.
The
Australian Securities and Investments Commission (ASIC) filed
court papers in Melbourne’s Federal Court on Tuesday, alleging
Australian Unity violated design and distribution laws by failing to
review investor questionnaires for nearly two years while continuing to
sell interests in its Select Income Fund.
Court
documents show ASIC is seeking financial penalties and public
disclosure orders against the fund manager, which operates as part of
the broader Australian Unity group that reported revenue of $2.17 billion
in 2024.
The case
centers on Australian Unity’s handling of its Select Income Fund, a
mortgage investment scheme that pools investor money into first
mortgage loans. Between October 2021 and October 2023, the company
was required to ensure new investors matched specific criteria outlined in
target market determinations.
You may also like: Former Boss of Collapsed Stockbroking Firm Faces Fresh $192M Fraud Charges
Questionnaires Went
Unreviewed for Years
According
to ASIC’s court filing, Australian Unity created questionnaires
asking potential investors about their financial goals, risk tolerance,
and investment timeframes. The surveys were designed to
help determine whether applicants fit the fund’s target market
of income-seeking investors with medium to high risk profiles.
However,
the regulator alleges the company failed to review these
questionnaires from October 2021 until August 2023. During this
period, at least 307 retail investors submitted applications to join the
fund, with 220 completing questionnaires and up to 144
providing responses suggesting they fell outside the target market.
The
court documents reveal that 87 investors were accepted into the fund
without completing any questionnaire at all during the early months
of the relevant period.
ASIC Deputy Chairwoman, Sarah Court
“The
design and distribution obligations are there to help make sure consumers
get appropriate financial products aligned with their
objectives, financial situation and needs,” said ASIC
Deputy Chair Sarah Court. “Issuers do not meet these obligations
just by issuing a questionnaire. They need to actively review
investor responses.”
Two weeks
ago ASIC was also warning against significant compliance failures across the
managed investment sector. The responsible entities have overseen nearly $1
trillion in assets that have failed to maintain adequate oversight plans.
Investors Face Significant
Losses
The alleged
screening failures exposed investors to substantial financial losses when
some of the fund’s underlying mortgage investments soured. Court documents
detail three specific mortgage syndicates where investors lost money:
- The Studley Park Road syndicate saw 23 new investors contribute $1.75 million, only to lose approximately 35% of their capital when the underlying loan failed
- In the Cheng and Lok Company syndicate, 76 investors put in $8.67 million and are estimated to have lost 3.3% of their investment
- A third Glen Iris project involving 33 investors and $1.25 million has stopped making distributions entirely
The Select
Income Fund operates by taking investor money and lending it out as
first mortgages on property developments. Investors receive monthly
interest payments during the loan term, with their principal returned when
the borrower repays.
“Product
issuers must take reasonable steps to ensure that investors are within the
target market before they issue interests in a product,” Court added.
Australian Unity’s
wealth and capital markets division manages $18.7 billion in funds and
generated $232.5 million in revenue last year, according to the court
filing.
Related: “Millionaires’ Factory” Faces Reckoning Over 14-Year Short Sale Reporting Failures
Legal Action Seeks
Penalties
ASIC is
asking the Federal Court to declare that Australian Unity breached its
legal obligations on 307 separate occasions by issuing fund interests
without proper target market screening. The regulator wants financial
penalties imposed and is seeking orders requiring the company to publicly
disclose the contraventions.
The case
highlights ongoing regulatory scrutiny of Australia’s design and distribution
obligations, which came into effect in October 2021 to prevent
unsuitable financial products being sold to retail investors.
Australian
Unity has been served with the court papers and must file a
defense if it intends to contest the allegations.
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