Consumer advocate Neil Jenman has joined a rare group who have been sued for endeavoring to help consumers. An organisation which calls itself the “Investors Club” has launched legal action under the Trade Practices Act for misleading and deceptive conduct against Jenman after the consumer advocate made several accusations against the group on his website. The Investors Club is run by Kevin and Kathy Young and based on the Gold Coast. The club’s website proudly boasts that Kevin owns a portfolio of more than 200 properties.

In June this year, Jenman noted that while the Investors Club claimed that its services are free, it receives “a six per cent commission from the sellers of properties (often property developers).” Jenman also observed that most of the Club’s so called “members” are merely “lists of names and contact details.” Jenman appeared to legitimately question whether the Club can refer to names on a mailing list as a “members”.

The Investors Club this week issued legal proceedings on the Federal Court, noting in its Statement of Claim that it was not “involved in the sale of properties that…it knew to be overpriced [are not] paid by developers to sell overpriced property… [and do not] charge an excessive commission.”

The club’s Statement of Claim did little to dispel many of Jenman’s warnings. In fact, it actually served to reinforce Jenman’s allegations. The Statement of Claim appears to have conceded that the Investors Club are paid by property developers and charge commissions. (Kevin Young told a Perth radio station that the Club is a “totally…free service. On our website we warn people of the sharks in the industry and the traps in property. We have a very simple education system that slots people in, they can follow it if they wish to or not. There is never a fee and never a charge at any time.” While this may be accurate, if the Club is paid by property developers or vendors, one may question where its true loyalties really lie).

Jenman is a former real estate agent who has for the past decade been a consumer advocate. Unlike property spruikers, Jenman’s advice has generally warned consumers of the dangers of real estate schemes, rather than trying to profit from the sale of property. Jenman, along with Denise Brailey, were instrumental in warning consumers of the dangers of investing in schemes run by Henry Kaye. Kaye’s business would later slip into adminstration, but not before he had reaped millions for himself. (Kaye was charged with fraud after allegedly duped St George Bank into proving an $18 million loan, but the charges were dropped last year after a witness provided conflicting evidence).

There are few things that an investor can do that are more likely to result in loss than joining a “club” of any sort, be it a stock market club, a property club or any other loose association (when the club is run by an alleged former bankrupt who has changed his name, even more alarm bells should ring). Any organised investment structure is bound to involve leakage in the form of fees — even worse, by advertising as a ‘club’ or ‘group’, the organisation is intentionally targeting unsophisticated investors.

That the Investors Club’s sales pitch on its website claims that its “service is still totally free and average people are now becoming millionaires (using this formula) at the rate of more than one per day!” should be even more worrying.

Perhaps it is a coincidence, but many of those who take action for defamation (or misleading conduct now that defamation laws have been changed) end up the losers. Last year, ASX listed property company City Pacific and its colourful former CEO, Phil O’Sullivan, sued leading Fairfax columnist Michael West after he questioned the company’s future.

West was of course dead right — City Pacific is in administration now and was almost certainly broke at the time. In 2008, former bankrupt and convicted criminal, Alan Bond, was unsuccessful in his defamation action against Paul Barry after a judge found that Bond’s claim “no reasonable prospects of success” (Bond however did successfully sue the Sydney Morning Herald in the 1980s).

That is not to say the Investor’s Club is itself dubious (it could, unlikely as it seems, be an entirely legitimate and lucrative for investors and its website does provide some valuable advice for property buyers). However, the motives of any organisation which calls itself a ‘club’, targets unsophisticated investors, receives commissions from property developers and is owned by an alleged former name-changing bankrupt who once accused the Reserve Bank of “ruin[ing] our lives” should be very strongly questioned.

Whatever the result of the impending legal action, it reasonable to suggest that the world needs more Neil Jenmans and less organisations peddling commission-based property investments.