ASX-listed Equity Trustees is hoping to rely on an obscure legal mechanism that saw victims of the Trio Capital fraud remediated back in the early 2010s via a government levy.
The group, which is being sued by ASIC for its due diligence role in hosting the Shield Master Fund, has remained firm in its stance that it committed no wrongdoing.
A source close to the trustee told Professional Planner that Part 23 of the Superannuation Industry (Supervision) Act – which allows a trustee to petition the Minister for Financial Services to apply for financial assistance in the case of theft or fraud – could be used.
ASIC has amended its court proceeding against Equity Trustees to seek compensation for losses incurred by members of the AMG Super and DASH’s Super Simplifier platforms, in addition to its initial claim for civil penalties and legal costs.
Equity Trustees is the trustee for both platforms; the First Guardian Master Fund was held on NQ Super but proceedings on that matter are yet to commence.
The trustee had previously flagged it believes there are other methods of compensating victims – particularly with the Compensation Scheme of Last Resort – rather than making a similar to deal with Macquarie who agreed with ASIC to purchase investors’ holdings in Shield, recoup what it can from liquidators and “absorb” the difference in its balance sheet.
This mechanism was used to compensate victims from the collapse of Trio Capital. The government then recouped its costs via a levy on the superannuation industry.
Furthermore, Equity Trustees believes there are other parties with greater culpability in the collapse – particularly advisers – which should be sorted through the Australian Financial Complaints Authority.
However, with all licensees that have been named by ASIC except for the ASX-listed Seqouia-owned InterPrac, any claim in favour of consumers would go to the CSLR.
There are also concerns from victims of the collapsed funds that Seqouia may transition advisers and assets out of InterPrac and enter the licensee into voluntary administration, which the company has denied it intends to do.
Sequoia has called on trustees to remediate clients by using their fund’s operational risk reserves, despite the application of the law in this context being legally untested.
Equity Trustees managing director Mick O’Brien said ASIC’s amended claim draws attention to the cause of members’ losses, which the group “maintains was not due” to its own actions.
“[Equity Trustees] maintains that it has acted in accordance with its fiduciary duties and obligations under the Corporations Act and the Superannuation Industry (Supervision) Act,” O’Brien said in a statement to the ASX on Monday.
“[Equity Trustees] therefore intends to continue to defend the proceeding, including potentially by seeking court orders that other parties pay compensation to members.”
Equity Trustees disclosed that the total investment in Shield in both platforms totalled $151 million, which has since been re-valued to $78 million.
“The revaluation was based on the midpoint of the valuation range set out in the financial position report prepared by the liquidators of Shield by order of the federal court,” O’Brien said.
“This indicates that the liquidators expect a material recovery of funds on behalf of members invested in the Shield Master Fund.”
Despite the trustee’s insistence that it committed wrongdoing, APRA has warned platform trustees to lift their governance standards or face tougher regulatory oversight after a review showed trustees were over-reliant on external parties for due diligence.
The collapse of the funds has left $1.2 billion of retirement savings of 11,000 in Australians in limbo.
ASIC is investigating the responsible entities of the funds for misuse of investor money, as well as other concerns over the management of the fund.
The regulator is also investigating the role financial advisers played, with allegations of conflicts of interest that saw tens of millions given to advisers by the fund to pay for marketing and lead generation, as well as advice given that failed to factor in client best interests.
Some 140 advisers are being examined for their role in the collapse, with 20 of those advisers have already faced court action, 50 are currently under investigation and 70 more are on a “list”, ASIC told Parliament last month.
