Go With The (Cash) Flow
Investors may be particularly interested to read the attached article by Trevor Sykes ("Pierpont") published in the Australian Financial Review today.
As investors will recall, several years ago, the Prime Trust Action Group (PTAG) identified that Prime Trust was not generating sufficient cash to be able to pay distributions, and that the distributions that were paid were justified by writing up the value of the retirement villages. Despite there being insufficient cash (or even no cash) to pay distributions, Prime Trust continued to be marketed as a trust with a strong track record for paying distributions. Investors were not notified that the distributions were not sourced from operating cash flows but were instead being financed by capital as suggested by the article. PTAG also believes that the use of the written-up values of the retirement villages to justify distributions represented a breach of the Trust's own accounting policy, as disclosed in each of the Trust's annual financial statements, and notes that it is highly likely that investors would have been reluctant to invest in the first place had the Trust been unable to pay distributions.
The attached article makes the point very clearly that Prime Trust had characteristics of a Ponzi scheme and carefully dissects the Trust's accounts to reveal the true underlying position of the Trust.
Over the last few years, PTAG has regularly raised the issues discussed in this article with ASIC and we await to see what action, if any, ASIC will take in relation to this matter.