Financial adviser Ferras Merhi’s claims he is a victim of the failed Shield and First Guardian master funds alongside his clients, countering new allegations brought against him by ASIC.
On Friday ASIC sought leave from the Federal Court to expand its existing proceedings against Merhi, whom ASIC alleges pushed clients into the Shield and First Guardian master funds, the collapse of which has resulted investor losses worth $1.2 billion.
ASIC said it will allege Merhi engaged in unconscionable conduct, failed to act in the best interests of clients, gave conflicted advice, and provided defective Statements of Advice whilst receiving millions of dollars.
The expansion of the case announced late on Friday afternoon came ahead of a pre-recorded interview televised on Channel 7 News’ Spotlight program on Sunday, in which Merhi denied he had any involvement in misconduct related to the schemes.
But even as Merhi attempts to distance himself from the funds, ASIC said it will allege he used marketing companies to push potential clients to his financial advice businesses, InterPrac-licensed Venture Egg and self-licensed FSGA, while receiving nearly $18 million in upfront advice fees and $19 million from entities associated with First Guardian to market the fund.
However, Merhi told Spotlight he didn’t “pocket” any of the marketing dollars, which he said went directly to Google and Facebook.
ASIC’s application to expand proceedings against Merhi is subject to the approval of the court and if successful, the regulator said it will seek injunctions prohibiting Merhi from being involved in financial services businesses and will seek the appointment of a receiver to Merhi’s personal property and of liquidators to Venture Egg and FSGA.
ASIC said it will seek to allege that between 2020 and 2024 Merhi and advisers working for his companies advised clients to invest around $296 million of their superannuation into First Guardian and around $230 million into Shield.
The regulator will also seek to allege Merhi, Venture Egg and FSGA breached numerous financial adviser obligations and that their conduct and business model were unconscionable.
ASIC will further seek to allege Merhi of providing clients with SOAs which contained false or misleading statements about the nature of the Shield fund by implying it was operated by Macquarie.
ASIC will also seek to allege that Merhi falsely represented he had no vested interest in recommending the funds despite the fact he was involved in marketing both schemes and received millions to do so.
An InterPrac spokesperson previously confirmed to Professional Planner it had ceased authorising Merhi in May and ASIC cancelled the license of FSGA in June. The adviser told Spotlight he doesn’t have anywhere to work and has been “shunned”.
The court recently extended travel restraints and frozen the assets of Merhi, as well as Osama Saad who led the telemarketing services that generated leads for the advice firms.
ASIC halted new investments into Shield and First Guardian due to concerns the products were higher risk than labelled, as well as concerns over conflicts of interest and fraudulent activity with member funds.
ASIC announced last week it would sue Equity Trustees over its due diligence in hosting Shield on a pair of platforms it was a trustee for, but the regulator has yet to launch proceedings against other trustees including those hosting First Guardian.
The Shield and First Guardian failures have led to the loss of around $1.2 billion in the retirement savings of 11,000 investors after they were convinced, through the use of high-pressure sales tactics, to roll over their super into the Shield or First Guardian funds.
The regulator has pointed to conflicts of interest between the responsible entities of the Shield and First Guardian funds and the advisers who recommended them, but Merhi used his appearance on Spotlight to blame “independent parties” for their roles.
“If there was a bias, the process I went through by having independent parties verify the appropriateness of the product, ensure that any bias that did exist were mitigated,” Merhi told the program.
“I have a robust checking system that I’ve been using for the last 17 years and relying these on auditors and research houses and billion-dollar platforms that have been around longer than I’ve been alive.”
The Spotlight program also presented a claim from property developer Paul Chiodo that ASIC was made aware of issues with Shield and First Guardian on 24 March 2022, although ASIC deputy chair Sarah Court said she is “wary” about allegations made by Chiodo, who is part of the regulator’s investigation.
ASIC has alleged companies run by Chiodo received funding via the master funds while also being a director of Keystone Asset Management, the responsible entity for Shield.
