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Tuesday, 2 June 1987
Page: 3841

Mr CLEELAND(10.54) —Tonight I want to draw the attention of the House to the activities of a group known as D. F. Johnson Syndicate Corporation Ltd whose office is situated in Chandos Street, St Leonards in New South Wales. I suppose that the modus operandi of this investment group is best exemplified by referring to one of its typical prospectuses which was issued in 1981. The prospectus referred to Winston Gardens townhouses and resulted in trust No. 126 being formed. The modus operandi was very simple. The company issued prospectuses which were very promising on capital growth in private trusts. It encouraged people to invest in unit trusts and guaranteed quite considerable returns. For example, for trust No. 126 the groups promised a $221,000 capital growth in a five-year period. It was suggested that, for a $385,000 capital investment, there would be a growth rate of 75 per cent in a five-year period which was, of course, tax free. It is fascinating to note that in the first year of operation this group took $66,500 out of a $385,000 investment for manager expenses, trust formation fees, formation costs, legal fees and stamp duty. I repeat: The group took $66,500 out of a total public investment of $385,000.

The group made a great number of promises to people who trusted it to do what the prospectuses said it would do. It promised that in trust No. 126 they would receive a percentage increase on their equity of 74 per cent over a five-year period. This was estimated as a capital appreciation of $221,000. In a letter to all members of unit trust No. 126, the group stated that the trust had been `seriously affected, partly by the downturn in the market over the first four years but mainly by regulations introduced by the New South Wales Corporate Affairs Commission in July 1982'. It went on to say that regulations were imposed on private trusts to stop the uncontrolled sale of units and that the abolition of negative gearing had affected that particular trust.

I wrote to the firm and asked how that affected capital growth on a block of flats. Of course, it cannot answer that question. It is now telling investors whose money it has had since 1981 that they will not receive any capital return on their money. The group has already taken $66,000 out of the trust and it is now saying to the investors: `We are sorry. You will not get your 74 per cent capital growth. What we want you to do is to let your unit become a shareholding in a public company which we will manage'. The group, having made all the promises in the world and having told people that they will not make their big profits because of the abolition of negative gearing, is now saying: `Trust us again'. That is like the Opposition when it says: `Trust us again at the next election. We will not make as much of a mess as we did last time'. We know that that is a lot of baloney.

What the group has told investors about the effects of the abolition of negative gearing is a straight-out untruth. That is the best way one could describe it. The group has told an untruth to the aged, widows and other investors who have put their life savings into these trusts by suggesting that capital growth has not been achieved because of the abolition of negative gearing. The abolition of negative gearing has not affected the ability of any of those unit trusts, private or public, to gain capital growth. I intend to issue a Press release tomorrow and I hope that the matter will be picked up by the national media so that everyone involved with this darned group will find out the truth-that it has failed. It was not very accurate in its original forecasts. It has pocketed the $66,500 and now, five years down the track, when the unit trusts do not have the capital growth, it says: `Okay, we will now form a public company and transfer your unit into a share in the public company. Then you might be able to sell it'.

When I wrote to the group I asked it whether it had made a valuation of trust No. 126. I asked it whether it could inform the investors of trust No. 126 of the capital growth. The group wrote back and said that it could not do so. It cannot even tell the investors, despite asking them to go into a public company, whether their individual trust has achieved a capital growth. When I return to this House after 11 July I will pursue the matter further. I give notice to D. F. Johnson Syndicate Corp. Ltd that I intend to pursue its activities.

Mr DEPUTY SPEAKER (Mr Leo McLeay) -Order! The honourable member's time has expired.