AMMA Private Equity manipulated a man with Alzheimer’s in 80s into investing millions of dollars into Guvera shares which were “at all times worthless”, a court has found.
Gold Coast music streaming startup Guvera spectacularly collapsed in 2017 after a failed IPO attempt, leaving more than 3000 investors – and $185 million of their money – in limbo. It also owes up to 150 creditors around $15 million.
AMMA Private Equity, run by Guvera co-founder Darren Herft, was exclusively responsible for the capital raising for Guvera.
In a decision handed down last week, Justice Jennifer Davies of the Federal Court said AMMA acted unconscionably when it induced Keith Messer, a man in his 80s with dementia, to invest $6.6 million in a “speculative venture”.
Justice Davies said the shares in Guvera were “at all times worthless”, Mr Messer could never have sold them for any value and ordered AMMA to pay Mr Messer $6.6 million, being the whole amount he paid for the shares.
‘Exploitative and manipulative’
Justice Davies said it would have been obvious to AMMA he had a significant cognitive impairment.
The medical evidence showed he had advanced dementia by 2014, had difficulties with speech and couldn’t remember the name of his ex-wife and the mother of his children.
When his daughter became aware of Mr Messer’s investment in Guvera, she told an AMMA representative, James Forrestel, her father had already invested $1.5 million in Guvera and he should not invest any further.
But the AMMA representative ignored her advice, and instead accompanied Mr Messer to the local bank branch on two occasions and helped him break term deposits so Mr Messer can invest more in Guvera.
Justice Davies said Mr Forrestel “consciously and deliberately” put pressure on Mr Messer to invest more money and his behaviour was “exploitative and manipulative” of Mr Messer.
Justice Davies also said the AMMA representative failed to provide details of Guvera’s financial position, apart from stating Guvera was doing very well.
Shock in investor community
By the 2014 financial year, Guvera had recorded a loss of more than $9 million and the independent auditor had reported there was significant uncertainty about the company’s ability to continue as a going concern.
Justice Davies said as the exclusive capital raiser for Guvera and its active marketing of the company, it was reasonable to infer AMMA was aware of Guvera’s poor financial position.
According to his daughter, Mr Messer was a very conservative investor prior to developing dementia, with limited understanding of computers, iPads and mobile phones.
She also gave evidence Mr Messer could not tell what the company did, other than it was something to do with free music on the internet.
Like many of other Guvera investors, Mr Messer was introduced to AMMA by his accountant and purchased Guvera shares using both his savings and self-managed super fund.
Guvera’s collapse sent shockwaves through the startup community and triggered a debate about how Australia will fund high-risk technology companies.