Steve Navra on ABC 7:30 report

Discussion in 'Property Experts' started by Takestock, 14th Jul, 2016.

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  1. Guest

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    Compensated by who? Taxpayers? Certainly not in my view.

    Why should their situation be treated any differently to other types of fraud committed? What if someone pretending to be a licensed and insured real estate agent took a substantial deposit from the victims and ran off with it? What if they were conned by someone claiming to be the official Prince of Nigeria who just needed $50,000 in transaction fees to pay them the millions a long lost relative had left them?
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I agree.
     
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  3. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I remember when the fund was being promoted and I was tempted. I did a lot of investigation on the methodology (which was made quite public) which appeared to be quite sound, regardless of market direct. Paper trading the methodology using their own althorithms (which was also made available) yielded significant losses in many scenarios. I didn't invest.

    The properties being sold by the same people didn't stack up too well either at the time. Again the purchasing critera being promoted appeared to be quite sound, but the actual properties promoted weren't just didn't feel right.

    I can certainly appreciate why a lot of people decided to invest in all this. I was sold very, very well, it all sounded very reasonable and safe. Had some people done better due dilligence however, many wouldn't have invested.

    People being duped into parting with their money certainly have my sympathies, but that doesn't entitle anyone to tax-payer funded compensation. I doubt any of the creditors would be donating profits to a public compensation fund had things done well.
     
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  4. Simon Hampel

    Simon Hampel Founder Staff Member

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    I think the issue is less about the specific products that people were invested in and more about the overall strategy and structure used - and more specifically, about the amount of leverage.

    It's not that they invested in X fund or used Y warrant or bought Z property - it's that they borrowed money to invest in leveraged products and used cashflow from leveraged equity investments to fund it all - and then borrowed more money to invest in schemes to minimise the tax on the returns. Steve boasted in his seminars about "using a dollar six times" - and the strategy was very much about leverage on top of leverage. While the music kept playing in the boom market we experienced pre-GFC, everything was great - but as soon as the music stopped, the tide went out leaving a collapsed house of cards and a naked king.

    Almost all equity investments were hammered post GFC - it wouldn't have mattered what they were invested in - it was the amount (and type) of leverage used, together with an unwillingness to take decisive action until the market had already dropped further than they had predicted it would. To top it off, the whole Great Southern thing was a complete disaster - but I've made my thoughts on that topic clear elsewhere.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Is this any different to property investors being encouraged to invest into multiple properties in the hope that they will increase in value so that one or 2 could be sold to pay off the rest. Rates rise and/or the market moves and disaster strikes.

    And wasn't Great Southern a plantation scheme? It was well known back then that these were a risky investment with little benefits other than a tax deduction.
     
  6. Simon Hampel

    Simon Hampel Founder Staff Member

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    In the Navra case, the actual issue is that the loans given by Great Southern were supposedly non-recourse, so when they collapsed, there should have been no debt issues for the investors. However, it turns out that there didn't seem to be any documentation to support that - so when the loan book was sold (conveniently, immediately before Great Southern went bankrupt), the loans were upheld by the courts and investors were forced to pay something they were told all along they wouldn't have to pay.

    To make matters worse, they were then advised to stop making payments on the loans (because they were under the impression they shouldn't need to pay them) - which turned out to be the worst possible advice since it put them in a position where they were already in default and ended up in a worse negotiating position than they were in the first place.

    The fact that Steve Navra himself was one of the largest investors in Great Southern facing exactly the same situation as his clients (with I think around $5.5m worth of loans), doesn't really help anyone.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Surely there was a written loan contract with the borrowers and lenders and this would have had all the terms of that agreement.

    If I as a broker tell clients that a housing loan with CBA is a non-recourse loan doesn't mean it is a non-recourse loan. I am not a party to the agreement and it is up to the borrower to read the loan agreement and to seek their own legal advice (incidently I would never give legal advice in relation to the terms of a loan that I am writing as a broker).

    If a loan is assigned the same terms continue to apply unless the parties agree otherwise.

    Who advised people not to pay the loans? Navra? If so they could sue him, but that would not mean the lender could not take action directly against the borrower for breach of contract.
     
  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    You'd think so, wouldn't you? The way the whole thing was set up is very questionable to say the least.

    Don't forget that Navra Financial Services actually shared office space with Great Southern for quite some time before they (GS) collapsed!

    I believe it was lawyers engaged by Navra who advised them. Lots of people lined up to sue Steve Navra over various things, but with his $5.5m in outstanding debt - he simply declared personal bankruptcy and all those claims went away.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    In that case they may have a claim against those lawyers for being negligent.
     
  10. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    • + 1. Not only the financial planner, even an investor will turn speculator if the risk is public and profits private.
    • All these investors who want the tax payer to protect the losses, would they have shared their profits with the tax payer, if the scheme had ended up profitable ?
    • The same fundamental arguments that are being implemented by BASEL and APRA for insulating the tax payer / broader economy from banks/financial institutions risks, hold true for financial advise as well.
    • The insurance instead of being passed on to the tax payer can be confined to the advisor and the client. Mandatory product liability insurance can be individually linked to each financial product sold by the financial adviser, to overcome the problem of inadequate insurance. The insurer will then scrutinize the product to assess the premiums which should provide some independent evaluation of the risk profile of the product being sold as well as insurance.
     
    Last edited by a moderator: 10th Oct, 2021

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