By Neil Jenman
Article originally published on APRIL 17, 2003 – Reviewed and approved.
The people and companies behind the property scam known as marketeering – or two-tier marketing – have good reason to be nervous.
A case unfolding before Justice Susan Kiefel in the Federal Court in Brisbane provides hope that those who organised marketeering stings will be punished – and victims will be compensated.
The wheels of justice move slowly – marketeering has been a blot on the property landscape for 10 years but only now is action being taken. The Australian Competition and Consumer Commission (ACCC) has instigated the Federal Court case, charging 13 companies or individuals with misleading, deceptive, and unconscionable conduct.
The case includes sworn statements from 26 investor victims.
Those charged include the Commonwealth Bank, which is accused of misleading conduct under the Trade Practices Act. The ACCC alleges the bank lent money to a Cairns couple to buy a Gold Coast unit, knowing that their client was paying $65,000 too much for the unit.
The court has heard the bank had a valuation of $100,000 on the property and knew the Cairns couple was paying $165,000 – an amount that (unknown to the buyers) included $30,000 in marketing fees to various parties involved in the marketeering racket.
Others charged include developers, lawyers, and marketers, among them notorious names in the two-tier business.
Two-tier marketing involves selling properties to distant investors at inflated prices. The name recognises that these scams have created a two-tier market – one for locals who know true prices and the other for interstate and overseas buyers who are charged inflated prices.
The marketeers use telemarketing, seminars, in-house consultations and cheap or free flights to the target destination, where teams of highly-paid real estate agents, marketers, lawyers, financial planners and valuers are set up to induce investors to buy properties at inflated prices.
The scams are most closely identified with Gold Coast property, but they have been – and still are being – used to sell real estate investments in Melbourne, Sydney, Brisbane and elsewhere.
The method has been widespread in the real estate industry: it’s believed that 70% of those flown to the Gold Coast ended up buying over-priced properties.
Various estimates suggest that between 1,000 and 3,000 buyers have been duped every year for the past decade on Gold Coast property alone – paying prices that included hidden marketing fees (typically $35,000).
Lawyers have admitted in the Federal Court that they knew about the marketing fees but did not inform their clients, the buyers, about them. Evidence showed instances where references in property settlement documents to the huge marketing fees were “blocked out” to avoid alerting the buyers.
The big banks are heavily implicated in the deals. Not only is the Commonwealth Bank charged in the ACCC action, but the involvement of Westpac and the ANZ Bank is well-documented. ANZ subsidiary Origin has been previously embarrassed by media exposure of their dealings and now Westpac has been subjected to the glare of unwelcome publicity.
As the Federal Court proceeded in March, it was revealed that Westpac was paying victims to ensure their silence. One elderly woman who lost over $50,000 after being stung in a deal involving Westpac was paid $22,500 on the grounds that she would not take action against the bank or speak publicly about the situation.
Westpac has denied that secret compensation payments to her and others are an admission of liability.
Investigative reporter Hedley Thomas wrote in The Courier-Mail: “For a decade, Westpac and, later, banks led by the ANZ, approved thousands of loans to customers for properties the banks knew were grossly over-priced.”
If the Federal Court case succeeds, the banks and others could face a flood of litigation from victims.
Despite claims by the Queensland Government that marketeering has been stamped out, consumers continue to be caught. The Australian Financial Review on 5 March 2003 reported “a massive resurgence of two-tier selling” and said: “Property scams in Queensland are running rampant once again. The level of two-tier marketing is approaching the heights witnessed three years ago and is spilling into non-residential sectors.”
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