ASIC has launched Federal Court proceedings against Auditeo Australia and two of its auditors over allegations it failed to do proper due diligence of the First Guardian Master Fund.
ASIC announced on Friday several allegations, including that unqualified audit reports on First Guardian and its compliance plan for the 2020 to 2024 financial years issued by Auditeo were false or misleading.
The regulator said the reports were signed by either lead auditor Ajm Didarul Islam Khan or, in some instances, by Brian Robert Taylor.
Khan is the sole director and shareholder of Auditeo and was the lead auditor for the First Guardian financial audits, according to ASIC, and that Taylor was engaged by Auditeo as the lead auditor in relation to most of the First Guardian compliance plan audits.
ASIC alleged Auditeo’s audit files do not demonstrate that any financial audit was conducted for FY21, despite Auditeo and Khan issuing a report for that year.
ASIC chair Sarah Court said the alleged failures in this matter occurred before the collapse of the First Guardian Master Fund, with a devastating impact on investors.
“Just six months after Auditeo issued unqualified audit reports in relation to First Guardian, liquidators were appointed.”
It’s also alleged that in FY22, approximately $137 million of reported assets were entirely untested by Auditeo and Khan which increased to $170 million the following year.
The regulator further alleged that Auditeo and Taylor failed to consider the correct compliance plan that applied for part of the FY22 and the entirety of FY23.
ASIC alleged that Auditeo, Khan and Taylor failed to comply with accounting and assurance standards that applied to the conduct of the audits, did not obtain sufficient and appropriate audit evidence and did not perform the First Guardian audits with due care and skill.
Declarations of contravention, financial penalties, injunctions and other orders from the court have been sought from the regulator.
More than 6000 Australians were exposed to the First Guardian collapse, with liquidators warning losses could be as high as $446 million with little hope of recovering funds.
David Anderson, the director of First Guardian responsible entity Falcon Capital, and the fund’s chief investment officer and director Simon Selimaj have fronted court, with lawyers for the latter asking the court to release some assets for sale to settle legal bills and the court approving the sale of Anderson’s Melbourne residence.
Investments in First Guardian, along with the Shield Master Fund, grew due to a sophisticated network of lead generators that contacted people who used online “superannuation health check” advertisements and applied high-pressure sales tactics to refer them to financial advisers.
ASIC acted against the funds over concerns investor money was being misused on high-risk investments, pet projects of directors and personal expenses, and court proceedings against both funds are ongoing.
The regulator has also acted against lead generators, advisers and licensees allegedly responsible for distributing the funds, as well as “gatekeepers” including the four trustees that onboarded the funds and SQM Research for research reports ASIC has alleged are inadequate.
Macquarie and Netwealth have settled with the regulator to remediate investors to their original starting investment position for a combined $421 million.
Diversa Trustees and Equity Trustees, each the trustee for multiple platforms holding the fund, are fighting allegations of wrongdoing and due diligence failures in court.
Diversa has applied to the government for a $239 million bailout of First Guardian investors, and Equity Trustees is expected to follow suit.
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