Money Managers passes up on industry scrutiny

By Campbell McIlroy

Friday 15th February 2002

DOUG SOMERS-EDGAR: Made jokes on his weekly paid-advertorial on Radio Pacific about NBR's attempts to contact him

Despite being entrusted with $2 billion of local investors' money, aggressive marketer Money Managers chooses not to be part of any independent industry body.

The company's controversial First Step scheme does not recognise the Insurance and Savings Ombudsman.

Money Managers is not a member of the Financial Planners and Insurance Advisers Association, or the Investment Savings and Insurance Association.

This leaves investors with no one to turn to should they have a problem with how their money is being handled.

The only supposedly independent oversight of the scheme is provided by the trustee which is based in Mauritius but is owned by Russell Tills and Gerald Siddall (who also own NZ Funds Management, are beneficiaries of the First Step trusts and own Securities Registry Ltd).

Over the past three years Money Managers has placed its clients into three junk bond issues which are still in default and has a number of contributory mortgages which are overdue for settlement.

Investors in the largest, Andrew Krukziener's $21 million Metropolis junk bond, are still waiting for a new prospectus to be issued almost one year after the bond defaulted.

Money Managers clients' were also placed in the failed $8 million Ballantyne and $7 million Park Terrace junk bond issues.

The National Business Review has attempted to contact Money Managers founder Doug Somers-Edgar for comment at the company's head office for the past four weeks.

Each week the receptionist has said Mr Somers-Edgar was unavailable for comment.

Mr Somers-Edgar has made jokes on his weekly paid-advertorial on Radio Pacific about NBR's attempts to contact him.

Last week Money Managers' PR consultant John Shattock asked to see an advance copy of any story which would be published so Money Managers could decide whether to respond or not Mr Shattock was asked about the company's disclosure regime and the level of related party lending.

Despite Money Managers' claim of leading the industry in terms of disclosure this topic could not be discussed.

"There are restrictions on them being able to do so imposed by other parties," Mr Shattock said.

When asked who the other parties were and what the restrictions were the answer was: "I can't say at this stage, we can't even say that."

This week Mr Somers-Edgar sent in a PR-vetted letter to the editor.

In it, he claims the level of related party lending is only 2.6%, despite First Step's own financial statements showing related party lending at 29.58%.

There is still no information on where the money finally ends up, what the rate of return is for those related parties, and the level of risk to which First Step investors are exposed.

Mr Somers-Edgar claims the related parties are required to provide the expertise needed to place the investments.

Among the questions Mr Somers-Edgar has refused to answer:

Could that expertise not be provided within First Step, thereby providing more transparent accounting for funds?
Are the returns in line with the level of risk investors are taking?
Why will Money Managers not open up to independent scrutiny?
What is the total "cost on funds" (how much money the investment is generating compared with how much investors are getting back)?
What are the total fees charged?

The National Business Review has revealed how the First Step structure puts walls between investors and their money, with no clear account of what happens behind the walls.

First Step has had a chequered disclosure history; the Securities Commission suspended its prospectus when it was first issued in February last year.

Online investor forums have also started to scrutinise Money Managers performance. Investor forum www.sharetrader.co.nz elicited four pages of responses to a single posting entitled "Are Money Managers dodgy?"

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