An 11-month investigation into the collapse of Trio Capital has concluded with a Parliamentary Joint Committee recommending closer scrutiny of both planners and accountants.
The Parliamentary Joint Committee (PJC) on Corporations and Financial Services Inquiry tabled its report yesterday (Wednesday, May 16) with a total of 14 recommendations.
While acknowledging the Future of Financial Advice (FoFA) reforms, the committee recommends that ASIC conduct a specific and detailed investigation of both planners’ and accountants’ advice to SMSF investors in Trio Capital.
It further recommends that the government consider whether current processes are adequate when there is a change of ownership or control of a company which holds an Australian Financial Services licence, or whether there is a need for more detailed scrutiny of the new owner.
The PJC Inquiry was setup on June 23, 2011 and conducted seven public hearings, received 77 written submissions and recorded hundreds of pages of written and verbal evidence.
The final report makes a total of 14 recommendations relating to transparency issues within the superannuation-investment framework, improved financial literacy and the need for the appropriate authorities to pursue those responsible for the lost Trio funds as a matter of priority.
Trio Capital was the trustee of four superannuation funds – the Astarra Superannuation Plan, the Astarra Personal Pension Plan, the My Retirement Plan and the Employers Federation of NSW Superannuation Plan – and one pooled superannuation trust.
It invested some assets of the superannuation funds into a managed investment scheme, Astarra Strategic Fund (ASF). Most of its assets were directed into what were called hedge funds, located in the Caribbean.
Committee Chair, Deborah O’Neill MP, said the collapse of Trio Capital represents the largest superannuation fraud in Australian history.
“Over the duration of the inquiry, the committee has received evidence from many investors detailing their considerable financial losses and the toll these losses have had on their lives,” she said in a statement.
“It became apparent to the committee from very early on that people had been poorly advised. Self Managed Super Funds (SMSF) are not protected against fraud or theft and this was not understood.
“The recommendations of the committee are designed to make it crystal clear for investors exactly what they are signing up for when they select a SMSF-savings vehicle. SMSFs are very different from the Australian Prudential Regulation Authority (APRA)-regulated super funds.”
Committee member Paul Fletcher MP added that it must be an urgent priority for the relevant authorities to track down the perpetrators of the fraud.
“ASIC, APRA and the AFP need to pursue every avenue to seek redress for Trio investors and to bring to justice all involved in this scheme. The committee recommends these agencies pursue criminal investigations into the key figures responsible for this scheme as a matter of high priority,” he said.
The blame game
The PJC had a few thoughts on where blame could be apportioned with financial advisers squarely in the line of fire.
“Many investors put money into Trio vehicles based on advice from financial advisers,” the report found.
“There are clear ‘regional clusters’ of victims of Trio based on the locality of operations of particular financial advisers, including Tarrants in Wollongong, Seagrims in regional South Australia and Mr Paul Gresham on Sydney’s North Shore.
“The committee does not know with certainty why these advisers recommended their clients use Trio products, but the evidence suggests that their recommendations were influenced by the high commissions paid by Trio.”
The committee notes that an enforceable undertaking has been obtained from Gresham, who advised a large number of his clients to put money into the ARP Growth Fund.
“Gresham appears to have known and dealt with the principals of the fraud since at least 2003. If this is the only action which ASIC intends to take against Mr Gresham, the committee would be surprised and disappointed,” it continued.
However, the PJC concluded that the conduct and involvement of the Wollongong-based Ross Tarrant in advising 220 of his clients to invest in the ASF appears to have been in a different category to that of Gresham.
“Nonetheless, Mr Tarrant was paid hefty commissions by recommending Trio to his clients. The committee recommends that ASIC investigate financial planners’ and accountants’ advice to SMSF investors in Trio Capital.”
Reform no guarantee
More generally, the PJC cautioned that the imminent reform of the financial advice sector through the implementation of the FoFA legislation was no guarantee that future investment scheme implosions would be avoided.
“Some of the financial advice given to Trio clients may have been in contravention of the best-interests test and conflicted remuneration provisions of the FoFA legislation,” the report stated.
“However, these provisions would not protect against a circumstance where an adviser ‘turns bad’ and sets out to either defraud his clients or at the very least to concentrate on enriching himself while wilfully disregarding the evidence that the investment scheme into which he is putting his clients’ money was fraudulent.
“In the committee’s view, this is an accurate description of what occurred with Mr Gresham. In these cases, what is required is more effective enforcement of existing laws.”
The Coalition said the PJC inquiry has also exposed a failure of key checks and balances in the Australian regulatory system with regulators missing some key signals, failing to identify the fraud or act rapidly enough to shut it down and protect investors.
“The PJC report expresses strong concern at the apparent lack of follow-up by regulators such as ASIC and APRA and other criminal investigatory authorities such as the Australian Federal Police to recover outstanding moneys or to bring those who committed crimes to justice,” it said in a statement.
“The Labor government must not sweep this recommendation under the carpet but must provide a full and proper explanation to affected investors as to whether they will act on this recommendation and provide a date by which they will finalise any decision on such compensation.”
Interestingly, I know of an advisor that should have been thrown out of the industry years ago but having a system in place to report and actually get action and follow up has proven to be impossible. It seems that action will only occur after the ##^$* hits the fan!!!