In ordering the $80 million IPO Wealth fund’s companies be wound up, a judge ruled Mayfair 101’s James Mawhinney put investor funds at risk to make a potential ‘windfall gain for himself’.

Finance experts had raised concerns about the risks associated with the IPO Wealth fund and two other key investment products launched under the Mayfair Platinum brand. Tremors emerged by May this year, with Mayfair suspending contracted purchases of properties in North Queenslands Mission Beach.
Investor funds in IPO Wealth and the Mayfair Platinum products were frozen too. People backing the fund included retirees who put their superannuation savings into the products.
Justice Robson was overseeing a case about winding up companies in the fund. In his ruling, he referred to the sad and tragic circumstances for investors.
One could only hold out the hope that a stop must be put to Mr Mawhinneys activities, he said.
He took aim at the investments in some fund assets, with investors paid a set percentage return but a large upside going to other Mayfair entities if the investments were successful.
The investments were long term and illiquid and in some cases highly speculative. They were not the kind to produce an income stream for investors, Justice Robson said.
One can only draw the conclusion that it was run for the personal benefit of Mr Mawhinney who was willing to and did put investor funds at risk in the hope of making a windfall gain for himself, Justice Robson said.
He also criticised an accounting policy of the fund of adding the cost of expenses to the value of expenses, including the groups significant marketing spend. This gave a false and misleading value to the fund, he said.
The accounting policies he said were born out of complete ignorance or a means of falsely inflating shareholder funds. The court had heard one example was $100 spent on flowers.
‘Cavalier’ investments
Justice Robson also criticised one fund investment in an island off Venice. One special purpose entity of IPO Wealth purchased shares in Italian companies that owned the property, and the shares were then transferred to a UK company run by Mr Mawhinney, in exchange for a loan. All the IPO Wealth company received for financing the purchase of the shares was an unsecured debt not repayable for 12 years, he said.
This episode epitomises in my view the cavalier way Mr Mawhinney has administered investor funds, he said.
The “books and records of the fund” Justice Robson said, “were not properly kept and were misleading”.
Mr Mawhinney had garnered a large amount of support earlier for an effort to restructure the fund and avoid liquidation.
But contradictor lawyers, appointed by the court to represent investors, twice rejected proposals by Mr Mawhinney.
The latest proposal sent on Wednesday night would lower the success fees payable to his investment management company, and reduce the amount of money taken out of a $2.3 million reserve that had been stored to help protect investors in any calamity.
One of the contradictor lawyers, Stewart Maiden, told the court on Thursday that they remained steadfast that liquidation was a better deal for investors.
He said problems lay with governance concerns and the smaller amount of assets available to investors in the new proposal.
He also questioned the actual returns achievable under Mr Mawhinneys proposal, which had projected returns of up to $77 million to flow back to investors in three years from offloading assets.
There are no independent valuations, Mr Maiden told the court. There appears to be no ready market [for the assets].
Governance issues
He also said problems lay with governance. While a new company with independent directors would be established to hold assets, Mr Maiden said the directors could be dismissed on the wishes of Mayfair 101.
He also flagged that issues raised by provisional liquidators of Mr Mawhinneys oversight of investments raised grave concerns.
Mr Maiden said that restructuring the fund under Mr Mawhinneys proposal would also take away the possibility of liquidator recovery actions against the entrepreneur himself adding they had not formed a view as to the veracity of any such actions.
The funds trustees, Vasco, also avoided potential scrutiny. Justice Robson had asked the contradictor lawyers to consider the role of the trustee in overseeing the activities of Mr Mawhinney.
But Mr Maiden declined to provide a view, saying it was too far removed from their initial brief and would incur extra costs. Vasco has previously rejected any suggestion of a lack of diligence.