The corporate watchdog has launched legal action accusing the high-profile investment fund behind the redevelopment of Queensland’s Dunk Island resort of misleading and deceptive advertising by saying its products could be compared to bank term deposits.

In documents filed with the federal court on Monday, the Australian Securities and Investments Commission also seeks to ban the fund, Mayfair 101, from promoting two products into which investors have poured more than $140m and from which it has frozen withdrawals.

Asic also wants the court to stop Mayfair 101 from continuing to make claims, including on its website termdepositguide.com, that its products are similar to bank term deposits.

In addition, the regulator has asked the court to order Mayfair 101 to pay fines of up to $10.5m per breach.

Mayfair 101, which is controlled by founder James Mawhinney, made a splash in September last year when it agreed to buy Dunk Island, which has lain derelict since Cyclone Yasi devastated it in 2011, for more than $30m.

At the time, consumer groups were already concerned by the group’s advertising. Even though its products are only available to so-called “wholesale” investors who who have assets of at least $2.5m or are able to tip $500,000 into a single investment, Mayfair 101 advertised heavily in mass circulation newspapers including Brisbane tabloid the Courier Mail.

Mawhinney again caused waves in October when, as well as throwing a lavish party on Dunk Island attended by Instagram influencers, MP Bob Katter and singer Ricki-Lee Coulter, he pledged to buy up more than 230 properties, worth $135m, in nearby Mission Beach.

The buying spree caused a rush for the exit among locals and divided the community between sceptics and people who bought into Mawhinney’s dream of revitalising the entire Mission Beach area.

Recently, the group has been advertising its products as a way to keep ahead during the coronavirus pandemic, but it has also delayed settlements on properties at Mission Beach.

A fortnight ago, the federal court banned Asic from issuing a public warning about Mayfair 101’s products without first giving it two days’ notice.

But Asic’s new legal action, which follows two years of investigations into the Mayfair 101 group, dramatically escalates the battle between the regulator and the fund.

The lawsuit centres on two Mayfair 101 products, M+ Fixed Income and M Core Fixed Income.

In a concise statement of claim, filed with the court, Asic objected to the use of phrases including “term deposit alternative”, “certainty” and “confidence” in promotions for the products.

It also objected to Mayfair 101 marketing the products using Google Adword keywords including “bank deposits” and “term deposits”, as well as meta-tags – keywords on pages that aren’t displayed but are used by search engines to categorise websites – including “term deposit rates – best term deposit options”.

The products “were marketed to wholesale but inexperienced investors, at least a substantial subset of whom were unlikely to understand the significant risk associated with” them, Asic alleged.

It also alleged Mayfair 101 “made representations to consumers that the Mayfair products were comparable to, and of similar risk profile to, bank term deposits” when they actually had far higher risk.

Mayfair froze redemptions of the two products on 11 March.

Asic said 185 investors tipped a total of $73m into M+ Fixed Income Notes while 96 investors poured $67.6m into M Core Fixed Income Notes.

Because of Mayfair’s freeze, 12 investors have been unable to redeem $4.4m from their M+ Fixed Income Notes, it said.

Mayfair 101 has been approached for comment.