Dunk Island developer receives $30 million penalty for misleading advertising

Mayfair 101 Group, the company behind ambitious plans to transform Mission Beach and Dunk Island in Far North Queensland, has been ordered to pay a combined penalty of $30 million by the Federal Court for misleading advertising of debenture products.

Mayfair 101, founded by financier James Mawhinney, purchased a resort on Dunk Island in 2019, as well as 200 properties in the adjacent town of Mission Beach, with plans to turn them into a major tourism precinct.

The company launched an extensive promotional campaign promising - investors high returns - advertising on websites and giant billboards while staging lavish events attended by hired celebrities.

However, plans unravelled when the cyclone-damaged island was repossessed and several legal challenges were launched by some of the 281 investors - many of them local residents, who lost their life savings.

Following action by the Australian Securities and Investment Commission (ASIC), Mayfair 101 has been ordered to pay a combined penalty of $30 million for misleading advertising of debenture products - more than double sought by that sought by ASIC.

In handing down the decision in the Federal Court on Wednesday, Justice Anderson said the increased penalties were appropriate, noting those sought by the ASIC were insufficient.

Justice Anderson advised "the Defendants deliberately mislead investors into investing in the Mayfair Products under the belief that they would be of low risk when in fact the Mayfair Products were highly speculative and carried very substantial risk.”

Justice Anderson also found that Mawhinney had shown no remorse “for the loss and harm caused to investors in the Mayfair Products”.

The Court also permanently restrained the companies from using certain words and phrases (such as ‘term deposit’ and ‘certainty’) in any future advertising.

It comes after ASIC was successful in Court against Mayfair 101 back in March, with Justice Anderson finding the company’s debenture product advertisements “false, misleading or deceptive”.

ASIC brought its case against the investment group back in April last year, alleging it represented two debenture products as being term deposits online.

The products, both unsecured promissory notes, were promoted online by a number of Mayfair 101 Group companies, including Mayfair Wealth Partners (trading as Mayfair Platinum), Online Investments (trading as Mayfair 101), M101 Nominees and M101 Holdings.

ASIC claimed when these debenture products were promoted, they would appear as sponsored links on Google AdWords and Bing Ads when a consumer would search for "bank term deposit" or "term deposit" online.

As such, Justice Anderson of the Federal Court found the Mayfair 101 Group misled customers by implying they were comparable and of a similar risk profile to bank term deposits. In actual fact, they were debenture products that exposed investors to significantly higher risk.

Further, the Court found the investment group misled customers by representing that the principal investment would be repaid in full on maturity. Rather, investors might not receive capital repayments on maturity, or at all, as Mayfair could elect to extend the time for repayment for an indefinite period of time.

On Wednesday, the Court imposed the following penalties against Mayfair 101 companies:

• Mayfair Wealth Partners: $10 million

• M101 Holdings: $8 million

• M101 Nominees: $8 million

• Online Investments: $4 million

Mawhinney is the Director of each of the Mayfair companies. In April 2021, the Federal Court restrained him from advertising and raising funds through financial products for 20 years.

Welcoming the findings, ASIC Deputy Chair, Sarah Court noted “this penalty makes clear that firms must do the right thing by their investors, irrespective of whether they are wholesale or retail investors.

“Failing to accurately advertise financial products can result in significant penalties for firms.”

In November, ASIC also sought an order punishing Mawhinney for contempt after he continued to raise funds through financial products, despite April's restraint order.

Mawhinney is reported to be planning to appeal the Court’s decision on penalties.

Images: Dunk Island (top), Mission Beach (middle) and James Mawhinney (below).