LifeTrack legal action gathers momentum

Aggrievedinvestors of AM Corporation’s LifeTrack Diversified Traded Policies (DTP) fund have formally appointed litigation funding firm IMF (Australia), as momentum for legal proceedings gathers pace against the group now owned byIOOF.

IMF (Australia) has taken control of the matter and has in turn appointed law firmEbsworth and Ebsworthto assess the validity of pursuing the matter for investors in relation to $140 million of investments.

But according to retired financial planner and former chair of AustWide Unitholders Action Group Alan Kernahan, who appointed IMF (Australia) and is facilitator to the proceedings, the figure is likely to rise as more advisers become aware of the action.

IMF (Australia) managing director Hugh McLernon says investors are seeking damages against AM Corp, LifeTrack, and AM Corp founder David Smith and director Alan Rich.

“We’ve agreed to investigate and fund the matter and issue proceedings if the lawyers agree it’s an appropriate case to pursue,” he says.

McLernon, however, believes IOOF, which bought AM Corp in March, will not be dragged into any proceedings launched against LifeTrack.

McLernon says the issue for investors is three-fold. First, the conflict of interest due to Smith and Rich being directors of PolicyLink — the intermediary between the policy issuers (MLC and AMP) and LifeTrack.

Secondly, traded policies accounted for 100 per cent of the DTP fund holdings, with no cash buffer in what was already a highly illiquid fund.

And thirdly, the policies were predominantly from one issuer, given that MLC policies accounted for 81 per cent of the fund with the remaining 19 per cent coming fromAMP.

Last week both Smith and Rich gave enforceable undertakings to the regulators, effectively shutting them out of the industry for 10 years.

However, McLernon questions the nature of the undertaking for Smith, given he announced his retirement from the industry at the time of AM Corp’s sale to IOOF.

“Smith announced six months ago that he was retiring and the penalty therefore is that he has to retire twice,” McLernon says.

“When LifeTrack had a run on policies, they couldn’t sell them as there wasn’t a market for them, so they took the 1,400 best policies and sold them into a securitised set up and started paying out redemptions,” he adds.

The owners of those 1,400 policies, according to McLernon, “lost 10 to 15 per cent, but those left behind will get an even sharper end of the pineapple”.