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Loan scam

Adam wanted a large loan to finance a property development. Adam asked a merchant banker to help him find finance.

The merchant banker introduced Adam to an overseas lender who was willing to finance the development. Adam’s business paid a fee of nearly $24,000 to the lender’s nominated account. Adam understood the fee was for the loan to be transferred to his business, and that a lawyer in the United States had guaranteed the fee would be refunded if the loan did not proceed.

Adam said the merchant banker assured him that this was normal procedure for deals through the United States, and that the lender was legitimate.

After Adam’s business had transferred the funds, Adam became concerned about the legitimacy of the lender. He asked for the funds to be returned but they were not.

Adam concluded that the loan was a scam. He complained to the merchant banking company that the merchant banker had been contracted to. The merchant banking company were not prepared to compensate Adam’s business.

Adam asked FSCL to investigate his complaint. We started an investigation about the merchant banking company. We could not and did not start an investigation into the merchant banker’s actions. He was no longer contracted to the merchant banking company, and he was not, in his own name, a FSCL scheme member.


Adam complained that the merchant banker had not exercised an appropriate level of due diligence before introducing the lender to Adam. He believed the merchant banking company should be responsible for the merchant banker’s conduct.

The merchant banking company said the merchant banker had warned Adam there was a risk the transaction may be a scam.

In any event, the merchant banking company believed they were not liable for what had happened. The merchant banker was an independent contractor, the merchant banking company was not involved in the transaction, and Adam had released the merchant banking company from liability before he proceeded with the transaction.


We were not able to determine with certainty whether the loan was a scam, but it seemed very likely that it was. The fee Adam’s business had paid was not refunded and he did not receive the loan. Further, the loan documents were poorly drafted, and the loan did not seem to make commercial sense because it was not going to be secured against the land being developed or other assets.

We started an investigation but subsequently decided to exercise a discretion not to further investigate the complaint. We concluded that the courts were the more appropriate place to deal with the subject matter of the complaint. Under our rules, known as our terms of reference, we can decide not to further investigate a complaint if we consider this course of action appropriate.

We concluded that the courts were the better place to determine the facts of the case. We reached this conclusion when we established that there was no written contract between Adam’s business and the merchant banker or the merchant banking company. Written terms would have been important to establish whether the merchant banking company may have been liable to Adam’s business for the work the merchant banker had performed.

In the absence of a written agreement, Adam’s and the merchant banker’s recollections of events were going to be essential to determine the terms on which the merchant banker had performed work for Adam’s business. Our investigation was going to be prejudiced by the fact we could not speak to or communicate with the merchant banker who had been directly involved in the transaction. If the matter was before the courts, it seemed likely that the merchant banker would be able or could be compelled to give evidence to the court.

It also seemed that Adam’s business may have been able to take proceedings against both the merchant banker and the merchant banking company through the courts. If there was liability in this case, the courts could determine whether it lay with the merchant banker, the merchant banking company, or both parties.


Adam accepted our view that we should not further investigate the complaint.

Insights for consumers and participants

It is rare that FSCL will decide during an investigation that we should not further investigate the complaint. We will occasionally do this if, for example, we conclude there is a better place to consider the matter.

The courts are sometimes the better place to consider the subject matter of a complaint if a third party is involved or their evidence is important to the outcome of the complaint. FSCL cannot compel third parties to give us evidence.