An Update on the Trio Collapse

Thursday 5 April 2012

For over a year I have been pursuing the issue of the collapse of a funds manager named Trio – an unhappy story which has left a number of Australians very much worse off.

A number of my constituents approached me after having invested substantial amounts of money, typically via self managed superannuation funds, with Trio Capital and its products, including particularly the ARP Growth Fund.  On average such investors have lost around $700,000 each.

Trio collapsed in 2009 after complaints were made to the regulators ASIC and APRA and it became clear that there was substantial evidence of fraudulent conduct. It appears that over $100 million has been lost by investors in two principal categories: self-managed super funds, and those who invested via APRA regulated superannuation funds.

Last year then Assistant Treasurer Bill Shorten announced that there would be compensation for those victims of the Trio Capital collapse who had invested in APRA regulated funds. However, this compensation did not extend to people who had invested by means of self managed superannuation funds.

Also last year, I was able to arrange for the Parliamentary Joint Committee on Corporations and Financial Services, on which I serve, to conduct an inquiry into the collapse of Trio. We have now held seven public hearings and received numerous submissions, and what we have learned is very troubling.

Trio operated a complicated web of products and funds. It was the trustee for several APRA regulated superannuation funds. It was also the responsible entity for a range of funds and products, including the ARP Growth Fund and the Astarra Strategic Fund. Much of the money that was invested in these funds was sent offshore, going via jurisdictions like the British Virgin Islands before ultimately disappearing.

The starting point was in 2004 when a reputable funds management business based in Albury was taken over by what now appears to be a criminal organisation. A key figure involved, Shawn Richard, has already gone to jail as a result. However, no action has been taken against the man who is alleged to have been the mastermind, a Hong Kong-based former US lawyer, Mr Jack Flader. 

Earlier this year the Committee tabled an interim report of the inquiry.  The interim report notes the view of ASIC chair, Mr Greg Medcraft, that a key problem here is gatekeeper failure - in particular financial advisers who did not identify the risks that their clients faced and other parties such as auditors.

In my view this is at best a partial explanation; it is not the complete explanation.

The evidence in my view suggests that Trio is a case in which the Australian superannuation savings system has been the target of a sophisticated criminal scheme. I am not satisfied that this possibility has been adequately explored by ASIC and APRA. Nor am I satisfied that there is sufficient protection against criminality in Australia’s retirement savings system. Further, I am not satisfied that sufficient efforts have been made by the Australian regulators to pursue Jack Flader, the alleged mastermind of this scheme.

The loss suffered by my constituents relates particularly to the conduct of a financial adviser with a practice in the northern suburbs of Sydney, formerly known as Paul Gresham, who has now changed his name to Tony Maher. This man has recently given an enforceable undertaking permanently preventing him from working in the Australian financial services industry. ASIC’s media release announcing the enforceable undertaking note that Mr Maher received undisclosed payments of more than $2 million arising from investments he recommended.

While ASIC is to be commended for securing this enforceable undertaking, I hope this is not the only sanction Mr Maher will suffer. I would like to see ASIC pursue criminal charges against him.  While he is entitled to the presumption of innocence, I would like to see his conduct considered by a court.   

The Committee held its final public hearing this week, at which we heard from APRA (for a second time) and a number of other witnesses. The final report of the Committee is due to be tabled in Parliament on 16 May 2012 (recently extended by a week from the previously announced date of 9 May 2012.)

Work is well advanced on the Committee’s Final Report.  I hope it will be an authoritative factual description of the Trio collapse, its causes and its consequences.   More importantly, while I cannot foreshadow (and indeed do not yet know) what its recommendations will be, I hope it will be a trigger for additional action. In my view, that is what the victims of the Trio collapse deserve.