Wednesday, 7 May 2014

Blue Sky Alternative Investments related party fraud

Blue Sky Alternative Investments Limited (BLA.AX) is a relatively new related party fraud masquerading as a fund manager. Operating a number of "alternative" funds with assets largely revalued at will, Blue Sky "co-invests" shareholder capital in these related parties, paying management fees to itself. Blue Sky and its funds perform internal sham transactions to generate fake profits and assets. The criminals then attract new victim investors using fraudulently manufactured performance metrics. The annual reports of Blue Sky are a maze of related party transactions and interests, with gross accounting fraud rendering them next to useless for an investor. Like other circular investment scams, Blue Sky's balance sheet is bloated by related party crossholdings, loans, intangibles and receivables. The company's net profit is inflated by sham transactions and revaluations that have become increasingly farcical.

In the 2012 financial year the company used accounting fraud to inflate its net profit by $4m, with fraud constituting more than four fifths of reported profit. According to its annual report, in June 2012 Blue Sky bought the Lightsview Re-water Infrastructure Network business for $1, creating a magical $2.1m "profit". Blue Sky also bought and revalued Blue Sky Water Partner Pty during the year, creating a $1.7m "profit" from the sham related party transaction.

In the 2013 financial year revaluations boosted the company's reported net profit by 0.9m. Blue Sky "sold" Lightsview to Water Utilities Australia (WUA), an entity set up by Blue Sky itself, for $1,375,000 in cash and $1,375,000 in WUA stapled securities. This resulted in a fake "profit" of $0.6m for Blue Sky and the creation of $4.1m in goodwill. Blue Sky then increased its holdings in WUA by $5m, and gouged the entity with fees paid in scrip.

In its half yearly report to December 2013, Blue Sky reported the "acquisition" of Blue Sky RAMS Management Income Fund, Willunga Basin Water Company and Water Utilities Australia Fund 2. Equity accounting and revaluation of these acquisitions created $12m goodwill and $10m other intangibles. Blue Sky reported half yearly "revenues" of $8.2m, mostly from related parties in which Blue Sky "invests", and a net loss of $1.2m. This loss-making fraudulent mess of a company was then ramped to a $135m market cap, creating unrealized profits for criminal fund associate and substantial holder Pie Funds Management Limited.

In its latest quarterly report to March 2014, Blue Sky reports "lending" $2.4m to a director related entity. The Blue Sky criminals are planning to expand the circular investment cartel, putting $5m in Blue Sky Water Fund and $1m in Blue Sky Apeiron Global Macro B Trust. Blue Sky is also launching a listed investment company, complete with "bonus options", in yet another attempt to fleece granny investors. The LIC structure offers unique advantages to criminals, since LICs are permitted to issue shares at above asset backing, but have no obligation to buy back shares at any price.

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