By Ben Butler From THE AUSTRALIAN

The corporate watchdog has accused management of Gold Coast funds management group Avestra of diverting investors’ money to unregulated entities in tax haven the Cayman Islands and using fund money to prop up a timber tycoon’s controversial takeover bid for a Malaysian company.

In a blockbuster 200-page Federal Court affidavit, Australian Securities & Investments Com­mission senior investigator Glenn Childs details the regulator’s concerns about failures to disclose related party transactions, potential breaches of takeover laws and the plummeting value of Avestra’s investments.

Mr Childs said he was concerned that Avestra Asset Management executives Paul Rowles and Clay Dempsey “may not be fit to act as the responsible managers” of the company and “investor funds may be at risk”. The company controls about $18.5 million of investors’ money.

Earlier this month, ASIC asked the court to appoint Simon Wallace-Smith and Robert Woods of Deloitte as provisional liquidators of Avestra with a mandate to take control of the 13 funds run by the group.

Justice Jonathan Beach on Thursday ordered the application be heard on October 27.

Avestra has yet to file a defence and its solicitor, Angela Yates of Moray Agnew, declined to comment because the case is before the court.

Mr Childs’s affidavit reveals that Avestra has been the subject of a full-scale ASIC investigation since December 2014.

He alleges Avestra began moving money to the Cayman Islands funds in May last year after ASIC began inquiring into management of its Australian wholesale funds.

Avestra allegedly closed the Australian wholesale funds — Canton, Worberg and Safecrest — and opened equivalents in the tax haven, Bridge Global CMC and Hanhong High Yield.

However, the underlying investments, allegedly dominated by risky punts on Malaysian second-bourse stocks, did not change.

Mr Childs alleges that one of the funds into which investor money was channelled, the Avestra Credit Fund, failed to disclose a series of investments that involved conflicts of interest.

The largest was $US5.4m, about three quarters of the fund’s assets, loaned in May last year to Zenith City Investments, a company registered in tax haven Seychelles and run by Malaysian businessman Eddie Chai.

“The circumstances in which the loan to Zenith was made suggest that it may have been used for an attempt by Zenith and its director (Mr Chai) … for an attempt to take over the board of Harvest Court Industries … a company listed on the main market of the Malaysia Bursa,” Mr Childs said.

At the same time, Avestra “itself acquired a significant holding in Harvest Court Industries on behalf of its various schemes”, he added.

Under examination by ASIC, Mr Rowles denied knowing Mr Chai wanted the money to buy more stock in Harvest Court.

Mr Chai succeeded in his takeover bid but it was controversial, sparking a Malaysian High Court case.

IMAGE: Seven Mile Beach, Cayman Islands. Picture: Thinkstock Source: Supplied

For more on this story go to: http://www.theaustralian.com.au/news/asic-avestra-diverted-cash-to-tax-haven/story-e6frg6n6-1227537657961