In 2013 Nant Whisky launched a nationwide marketing campaign using full-page advertisements in major newspapers. The offering was almost irresistible - 9.55 per cent a year capital guaranteed for a term of four years. The cream on the cake was an "endorsement" by cricketing icon Matthew Hayden.
All the investor had to do was buy as many barrels of Nant whisky as they wished at $25,000 a barrel. The company was offering a guaranteed buyback in four years at $36,000. It was touted as being the perfect investment for your self-managed super fund!
The moment I saw the advertisement, alarm bells started flashing. The deal sounded too good to be true, and an endorsement by a celebrity is always a major warning signal. It means the company is trying to move the attention of the would-be investors from its product to the celebrity.
My worst fears were confirmed about three weeks later when I was speaking to a friend of my son. He told me he was an ex-employee of Nant, and that the company was selling the same barrel more than once.
I now faced a huge dilemma. Nant was a high-profile company running a massive marketing campaign, and the information I had received was strictly not for publication. Immediately I made a phone call to ASIC, who told me they were uncertain if they had jurisdiction over whisky barrels and, in any event, it's hard to act on confidential information.
I did my best to warn potential investors by mentioning the product in a column with the following words: "Anybody going into this deal would need to satisfy themselves of the long-term financial strength of the company - any 'investment' that comes with a guarantee is only as good as the company giving the guarantee. Never forget the adage, 'the higher the return, the higher the risk'."
In 2016 Nant changed its name to Naw. The sprawling empire consisted of several related companies including Naw Estate, Naw Barrel Holdings, Naw Distillery, Naw Distilling Company, Naw Hospitality and Naw Asset Holdings. These are now under administration and some are in the process of being liquidated.
Earlier this year Australian Whisky Holdings Limited, a listed company, made a takeover offer for Nant/Naw. As part of their due diligence they attempted to audit the position with the whisky barrels. And guess what - they found big problems.
Australian Whisky chief executive Chris Malcolm wrote to Nant/Naw investors to tell them an audit of the distillery found "serious anomalies". The letter stated: "There are a large quantity of barrels which have been decanted, bottled and the proceeds sold, but the barrel investors have not been informed or paid. There are many barrels that are filled with approximately 45 per cent ABV [alcohol by volume] alcohol, new-make whisky, whereas the industry standard is usually 63.4 per cent ??? there was a significant quantity of barrels that had the owners' names and barrel numbers sanded off the barrels (we do not understand the reason for this)."
Malcolm tells me that Nant/Naw founder Keith Batt, now bankrupt, was a much better salesman than whisky producer. In fact, he was so good that he allegedly sold far more barrels than the company had the capacity to produce. And when the going got tough he allegedly tried to put a band-aid over the situation by filling some barrels with inferior whisky.
The position for the hapless investors is now unclear and might take months to sort out. But the likelihood is that many will lose their money. Tasmania Police launched a criminal investigation into Nant Barrel Holdings' whisky buy-back investment scheme in August, and told Fairfax Media on Friday the process would take several months.
Sadly, there is nothing particularly new in all this. I just wonder how many warnings need to be given before the penny drops.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: email@example.com