Were the Mayfair
101 investment schemes Ponzi schemes?
Were the Mayfair 101 schemes
only investment businesses that
failed or were they fraudulent
operations like a Ponzi scheme?
The Federal Court of Australia has answered this question
in a decision examined in this article.
But first, let us examine the characteristics of a Ponzi
A Ponzi scheme
A Ponzi scheme is fraudulent. This is the definition of a
Ponzi scheme in the Oxford Dictionary of Economics
(5th edition, 2017):
[A “Ponzi scheme” is a] fraudulent investment scheme that
pays a return to current investors using their own
investment or funds from subsequent investors. A Ponzi
scheme attracts investors by promising returns that are high
relative to alternative investments. The promised returns
can only be paid if the flow of new investment is
sufficiently great. Since this cannot be sustained in the
long run a Ponzi scheme must inevitably collapse …
These are three examples:
Charles Ponzi in Boston in the 1920s promised investors
that their funds were invested in international mail coupons
yielding 50% interest in 90 days.
Bernie Madoff in New York in the 1980s and 1990s promised
investors that their funds were invested in financial
instruments and securities which yielded a steady, reliable
return of 10% to 12%.
Melissa Caddick in Sydney in the 2010s promised
‘dazzling’ investment returns from financial instruments and
What happened to the funds? In all three examples,
investor funds were not invested. They were used to pay
returns to investors and were spent on lifestyle and
The Mayfair 101 investment
The Federal Court of Australia summarised the Mayfair 101
investment schemes in Australian Securities and
Investments Commission v Mayfair Wealth Partners Pty Ltd (No
2)  FCA 247 (23 March 2021) (Anderson J), as
- Mayfair 101 investment schemes raised $210 million
from investors until 16 April 2020 when the Court
ordered a stop to advertising.
Investors were promised that:
- The funds were to be invested in debenture products
paying a relatively high fixed rate of interest which
were ‘comparable to, and of similar risk profile to,
- he principal investment would be ‘repaid in full on
maturity’ and the investment ‘carried no risk of
- The funds were to be invested in a ‘fully secured,
asset backed investment product’ with ‘first-ranking,
unencumbered asset security’.
In fact, the investments were:
- Made in illiquid and/or for the most part,
non-income producing assets. For example, the funds
raised on the ‘Core Notes’ products were used to
purchase Dunk Island and a whole host of non-income
producing properties (vacant land) in the Mission Beach
region of Queensland; and
- Not fully secured because the security trustee of
the Core Notes had security which was encumbered by
prior first registered mortgages including mortgages to
Naplend Pty Ltd to secure a short-term loan at an
interest rate of 24% per annum.
In their report, the provisional liquidators of Mayfair
101 stated: “M101 has been insolvent since inception’ and
‘the realizable value of the assets are nil”.
For a detailed analysis, see my article
From Dunk to Junk: Mayfair 101
promised investors secure income, left them with worthless
Were the Mayfair 101
investment schemes Ponzi schemes?
The Federal Court of Australia recently considered this
question in the decision of Australian Securities and
Investments Commission v M101 Nominees Pty Ltd (No 3)
 FCA 354 (19 April 2021) (Anderson J).
ASIC’s submissions were that the activities of the
Mayfair 101 Group were “Ponzi-like”
ASIC submitted that the Mayfair 101 scheme contained the
usual Ponzi scheme factors: high investment returns with
little risk, the use of new investor funds to pay returns to
old investors, and the fraudulent diversion of investment
funds for personal use.
But to succeed, ASIC needed to convince the Court that it
was not an essential element of a Ponzi scheme that the
investments were fictitious, because in the case of Mayfair
101, substantial amounts of the funds were invested in real
ASIC cited a publication of the US Securities and
Exchange Commission, which discusses Ponzi schemes:
A Ponzi scheme is an investment fraud that pays
existing investors with funds collected from new
investors. Ponzi schemes are named after Charles Ponzi.
In the 1920s, Ponzi promised investors a 50% return
within a few months for what he claimed was an
investment in international mail coupons. Ponzi used
funds from new investors to pay fake “returns” to
Ponzi scheme organizers often promise high returns
with little or no risk. Instead, they use money from new
investors to pay earlier investors and may steal some of
the money for themselves.
With little or no legitimate earnings, Ponzi schemes
require a constant flow of new money to survive. When it
becomes hard to recruit new investors, or when large
numbers of existing investors cash out, these schemes
tend to collapse[.]
) [judgment, paragraph 282]
ASIC also referred to the definition of a Ponzi scheme in
the Oxford Dictionary of Economics (5th edition,
2017) – reproduced above. [judgment, paragraph 280]
ASIC submitted that ‘the fundamental problem with the
schemes implemented by Mr Mawhinney is that they relied upon
new investments to make payments due to existing investors’
which was ‘not disclosed to investors’. [judgment, paragraph
ASIC explained that this was the case because the
business model of the investment scheme did not have
adequate funds at hand with which to pay existing investors.
In support, ASIC submitted these findings in the
Provisional Liquidators’ Report:
[T]he business model of [M101 Nominees] was not
sustainable. This is on the basis that [Core Notes]
noteholders were investing predominantly for periods of
6 or 12 months, however the loan agreement with
Eleuthera had a term of 10 years. On this basis, [M101
Nominees] would not have adequate funds to repay any
contributions as they fell due and as such [M101
Nominees] has been insolvent since inception and remains
insolvent as at the date of this report.
[D]istributions and redemptions paid to [Core Notes]
noteholders were funded out of funds raised from other
[Core Notes] noteholders or to a lesser extent M+
[Notes] noteholders. There was a high level of frequency
of fund transfers between [M101 Nominees] and Eleuthera
which has masked the extent of this issue. [judgment,
James Mawhinney’s submissions that Mayfair 101 schemes
were not a Ponzi scheme
James Mawhinney was the ‘directing mind and will’ of
Mayfair 101 / M101 Nominees (and its ultimate beneficiary).
He submitted that ASIC’s description of Mayfair 101 as a
Ponzi scheme was ‘fundamentally wrong’ because it is
‘crucial to the definition of a Ponzi scheme ... that it is
a fraudulent investment operation which has zero chance of
He submitted that Mayfair 101 had made investments. He
pointed to the fact that the Mayfair 101 Group had purchased
and settled 119 real property assets in and around Mission
Beach and Dunk Island in Queensland and had paid deposits on
a further 111 properties.
He further submitted that ‘whilst interest payments were
made to investors in part using funds deposited by new
investors, the ability of M101 Nominees to do so’ was
adequately and properly disclosed to investors as permitted
for ‘capital management purposes’ in the brochures.
[judgment, paragraphs 249 to 254]
Finally his counsel submitted that ‘Mr Mawhinney set up
an investment business that failed because it bought too
many assets quickly and then took on a bad loan to meet
settlement obligations’, and was not a Ponzi scheme.
[judgment, paragraph 362]
The Court decides
The Court needed to find that “Mr Mawhinney personally
benefitted or stands to personally benefit” from the Mayfair
101 investment schemes. [judgment, paragraph 55]
If so, and if he was the author of the misleading and
deceptive conducts of Mayfair 101, the conduct being ‘Ponzi-like’,
then the Court would restrain Mr Mawhinney from engaging in
similar activities in relation to financial products.
The Court agreed with ASIC that the Mayfair 101
investment schemes were Ponzi-like schemes for these
“I find [Mr Mawhinney’s] submissions unpersuasive for
First, again, these matters were never disclosed to
Core Notes investors. Core Notes investors were never
told that the Core Notes investment proposal was to
acquire “property at the rate of knots, bringing in
money at a very fast rate, but acquiring properties even
faster” and that, as a result, a loan with a very large
rate of interest would be, or might be, entered. That
loan was described as “one of the worst loans you could
Second, there is no evidence which could provide an
adequate answer to the critical question posed by Mr
Mawhinney’s Counsel, namely: how could any business
that has no or very little income hope to satisfy the
interest obligations owed to Naplend Pty Limited and
Core Notes investors unless it acquired funds from new
investors putting money in? Separately, why was that
position not explained to Core Notes investors?
Mr Mawhinney has tendered no evidence about those
issues. They are critical issues that Mr Mawhinney
failed to adequately address.
As ASIC submitted, there is no evidence as to why Mr
Mawhinney permitted the Naplend Pty Limited loan to be
entered into, or how and why he had placed the relevant
companies in such a desperate financial situation that
they were reliant on lenders such as Naplend Pty
Limited. In these circumstances, ASIC’s submission that
the Core Notes scheme was inherently problematic and
fatally flawed must be accepted. In this respect, ASIC’s
submission is relevantly supported by both Mr Tracy’s
Expert Opinion and the Provisional Liquidators’ Report.”
[judgment, paragraphs 363 & 364]
The Court came to the conclusion that the Mayfair 101
schemes were Ponzi schemes, even though some investor funds
were invested in real assets. The Court observed that such
investments were not disclosed to investors, were not
appropriate because they were illiquid, and became worthless
because the high interest rate on the short-term funding
‘absorbed’ all the funds invested.
The Court considered that the crucial element of a Ponzi
scheme that was satisfied was the use of money from new
investors to satisfy obligations to early investors and
lenders, resulting from an unsustainable business model.
As a consequence, the Court ordered that Mr Mawhinney be
restrained from being engaged in soliciting funds, receiving
funds, advertising, promoting or marketing any Financial
Product of the kind that Mayfair 101 promoted for a period
of 20 years.
ASIC did not make application for penal orders against Mr