Wednesday, 20 November 2013

GFL, FSI and the crossholding buyback scam

Associated investment companies Global Masters Fund (GFL.AX) and Flagship Investments (FSI.AX) are part of a cartel engaged in revaluation fraud, in the form of the crossholding buyback scam. Like all investment companies, GFL and FSI pay exceedingly real fees to management based on unrealized profits, "profits" that in most cases are never subsequently realized. By using crossholdings and buybacks, related parties can artificially inflate assets, "profits" and fees.
A director's private company owns 56% of GFL and 28% of FSI. GFL has reported net assets of $10m, 28% of which was diverted to buy shares in FSI, distorting reported NTA and allowing directors to doubledip fees. After this "investment" by GFL, FSI ramped its illiquid share price with buybacks, creating illusory profits on GFLs holding. By funneling funds from GFL into FSI, in order to benefit themselves at the expense of small investors, the directors have breached their fiduciary duty. By deliberately misrepresenting their funds' assets and profits they have committed securities fraud.

FSI receives $1.5m dividends annually from its assets annually, with costs anywhere between 28% and 100% of cash inflow, mainly due to rapacious management fees. GFL has expenses in excess of revenues. The share prices of these companies have nevertheless been manipulated to par with NTA, far above fair value, with ASIC's blessing.

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