The corporate regulator has taken LM Investment directors and its founder Peter Drake to court, seeking penalties and banning orders over the collapsed Gold Coast fund manager.
The Australian Securities and Investments Commission said it had started proceedings in the Federal Court against Mr Drake, as well as against directors Francene Mulder, Eghard van der Hoven, Simon Tickner and Lisa Darcy.
The regulator alleges Mr Drake used his position at the company to gain an advantage for himself.
It is alleging the directors breached their duties by failing to act with due diligence over transactions involving the LM Managed Performance Fund.
ASIC said its action would focus on the conduct of the directors in signing off on a series of loans in 2011 and 2012 to Maddison Estate, which Mr Drake owned and controlled.
ASIC Commissioner Greg Tanzer said investors should be able to have confidence that people managing their investments take a "diligent and intelligent interest in the affairs of the company, and apply an enquiring mind to the responsibilities placed upon them."
Mr Drake and the directors face a maximum penalty of $200,000. They are due to appear in court on November 25.
