The success of an LIC is determined by its ability to issue shares at inflated prices. The most successful longrunning listed investment scams are AFI, DJW and MIR. These are run by the same outfit, and have managed to keep their share prices ramped above asset backing for years while issuing shares. AFI, DJW and MIR traded at 24%, 30% and 32% above the value of their actual assets, respectively, in November 2013. These schemes are dependent on net sucker investor inflows and share manipulation.
On the other end of the spectrum, there are failing listed investment companies unable to find more sucker investors, that trade at below NTA since they are not ramped. Criminals that gain control of such entities, often using crossholdings to exercise control not matched by ownership, can freely loot the investment vehicles without ASIC lifting a finger. The criminals need but keep up the flimsiest pretense of propriety, while treating the investing companies as their de facto private property. One such fraud scheme supported by crossholdings is formed by Bentley Capital (BEL.AX), Orion Equities (OEQ.AX) and Queste Communication (QUE.AX). These LICs report total net assets of $40m, fraudulently inflating asset valuations in a variety of ways. QUE owns 54% of OEQ, which owns 28% of BEL.
Having built up extensive crossholdings, the directors can wield control disproportionate to their ownership. BEL/OEQ/QUE is now treated like the private fiefdom of these directors, with assets to dispose of as they wish, making a mockery of the concept of fiduciary duty. Even the Sydney Morning Herald thought the directors took the leeching too far.
The difference between (the oh so respectable sounding) Bentley Capital and Australian Foundation Investment Company is a matter of degree, not of kind.