140 targeted by ASIC on Shield, First Guardian
The Australian Securities and Investments Commission (ASIC) has revealed it is investigating 140 individuals in relation to advice around the collapse of the Shield and First Guardian funds.
ASIC deputy chair, Sarah Court said of those, 20 had already been dealt with, 50 were current and 17 more were on the list.
“They are licensed financial advisers and it is important to make the point that they require resource intensive full investigations,” she said.
ASIC chair, Joe Longo noted that those being pursued by the regulator had made a lot of money – “they have a lot of money and they are all lawyered up”.
Court and Longo’s evidence to Parliamentary Joint Committee on Corporations and Financial Services was that there is a need for a significant tightening of Australia’s investment management eco-system pointing to the widespread outsourcing of blame around the collapse of Shield and First Guardian
The regulator left the committee in little doubt that barely any part of the investment eco-system would escape unscathed from managed investment schemes through to the investment platforms, ratings houses and financial advisers and licensees.
Court said one of the challenges confronting the regulator is “that everybody is point fingers at everyone else”.
“So, for example, the financial advisers are saying to us ‘you can’t hold us accountable for this because the ratings house had rated the Shield Master Fund as of investment grade’, while superannuation fund trustees are telling us the same – ‘well, we relied on the ratings houses’, or ‘we relied on the fact that these members had financial advice’,” Court said.
“So, one of the challenges here is pulling all this apart and work out where does liability lie,” she said.
“Our own view is that there are significant failures and likely contraventions of the law, certainly ones we are looking to take forward, in every link of this chain.”
Court told the committee that the regulator had first become aware of First Guardian in 2020/21 in relation to cold calling and cookie-cutter advice, but not in relation to the fund itself.
ASIC said that it had become aware of problems within the funds, including misappropriation, much, much later.
It seems clear there were a small number of very dodgy advisers involved in this scam.
However it also seems likely most of the advisers involved had limited awareness or power. The current licensing model makes non self licensed advisers beholden to their licensee and/or CAR employer. Those are the entities that have management and regulatory power to set the operating rules and compliance framework for the adviser. They have the power to report the adviser for contrived breaches, and withhold references if the adviser tries to go elsewhere. CAR employers also have the power to sack or demote the adviser if they don’t do things the way the practice owner wants.
These flaws in the licensing model allow dodgy characters to wield enormous power over honest well intentioned advisers who are just doing what they’re told by their powerful boss/licensee, without realising at the time their boss/licensee was dodgy. But when things go wrong, it’s these advisers who are persecuted and vilified.
There needs to be far more focus on punishing the dodgy perpetrators, and fixing the regulatory flaws that allow those perpetrators to exploit the system and escape with minimal punishment.
I’ll be honest I’ve never seen a detailed explanation of what actually happened just headlines.
What I have gleaned however is:
1. Licensed advisers are in the mix
2. Ratings houses approved these products
3. ‘Lot’s of money was made and they are lawyer’d up’.
4. Platforms are in the mix according ASIC
5. The promoters committed some kind of theft, fraud or deception allegedly
By simple quotations are:
1. I’m sure there are some dodgy operators at fund and adviser level. Throw the book at those who are truly guilty, why is it taking so long?
2. I still can’t quite understand. If a ratings firm misses a bad investment given THAT’s THE ONLY THING THEY DO, how are advisers held to a higher standard of product analysis? They’re still busy trying to get 9 hours of ethics and complete mountains of useless compliance paperwork let alone know about super, trusts, investments, estate planning, insurance, Centrelink, retirement planning……….
3. Commissions are illegal so I’m assuming the lots of money was made by ppl who are not AR’s. Who made all the money?
4. I can fathom super trustees being held accountable but platforms? They are an administration service FFS. How is it it’s now they have assess the character and possible criminal intent prior to the crime?
5. Under common law a person cannot be held accountable for another’s crime unless there was conspiracy etc. again I cannot fathom that someone would conspire in an alleged theft or fraud unless they were also stealing hence a thief themselves. Is this another case of regulators (like AFCA) overreaching legislation and becoming tin gods and inventing the law?
ASIC ‘knew about cold calling in 2021’. YET BLOODY AGAIN, like Dixon, like Storm etc etc they did nothing. We have smoke in the regulators eyes and noses literally YEARS before the fire finally erupts and yet these muppets sit on their bureaucratic arses for years and do nothing.
The biggest contributor to CSLR should be ASIC. ASIC isn’t suing themselves for their data breach but they are throwing the book at those that have one.
Happy to retract any of the above statements if they are incorrect but based on what I’ve seen this is how it appears.
What I don’t need to retract is ASIC has no credibility, no responsibility, no accountability and therefore is not deserving of respect. At least not mine.
Hmmn. I think most agree the reason why the funds failed was because of fraud. The fraud was the missapropriation of funds and the fictitious returns and fictious asset allocaitons being published by the investment manager/responsible entity. So let’s ask ourselves who is responsible for picking up such fraud? Is it the broader adviser space? God No. Except those particular advisers clipping the ticket by many millions of dollars. Now they would have known what they were doign was illegal, especially if all those millions were coming straight out of the fund.
But back to the question. Who is responsible for picking up this type of fraud? Is it the reserach houses as you have stated? No. Because research houses are not set up to catch this type of fraud. No research house goes down to the paper trail of transactions. So whose job is it to capture the fraud? Is it the Auditors job? Is it the Custoidians job? YES. YES it is. Because they both purport to get down to the paper trail.
It’s probably time to take choice away from most Australians and just turn the Future Fund into a nationwide compulsory account for everyone with the ability to opt out if you want to go it alone.
Unfortunately our fellow planners can’t be trusted and don’t deserve the right to look after other people’s retirement savings!
It does seem a solution, drastic but we are well past that option.
ALP, ISF’s will push harder for ONLY Industry Super Funds to be used.
Nah, then you’ll have old mate Chalmers and friends potentially changing the purpose of the fund to direct capital investment into politically and ideologically motivated projects.
Awful idea.
The responsibility lies with those that run shield and the trustees that accepted this into their platform. Advisers have no power in this situation and rely on the due diligence of trustees to look into who and what is on their platforms. Stop scapegoating advisers in areas they have no influence and power.
It’s the trustees job to make sure these funds have the appropriate protection to safeguard assets, not advisers.
So dodgy Venture Egg’s Ferras Merhi has no responsibility for backhand MIS fund payments received, dodgy cold call leads used and cookie cutter SoA’s from what seems into highly concentrated 1 or 2 paid for influence MIS.
Wake up sunshine, yes there are many other parts in the whole chain that need to be held to account, like the Super fund Trustees.
But Ferras and the same type of Advisers should be jailed for a long time.
It is not the platform trustee’s fault. That’s like blaming Commsec for providing access to an ASX share which goes bust.
The blame lies with the auditor of the product. They’re meant to ensure the assets exist.
Of great concern, is that the auditor is the one party which ASIC and Jo Longo didn’t mention in the article. They really are incompetent.
@Anon,
Your assertion is way off base.
If you as an adviser or any other adviser recommended a product at best was ‘investment grade’ by a research house that’s your first red flag and you are deficient in your responsibility to your clients.
I can’t think of any adviser who would recommend a product that at best was” investment grade!”.
It borders on not being even rated because the rating house has not put it at the very least as a recommended product.
And even so, in my opinion should never have been a recommended investment, because there are plenty of others that are in the mix with a track record.
You and everyone in the profession have a responsibility to do your own ‘due diligence’ which is a minimum that your clients should expect.
Not everything on an APL is appropriate for every client, if you know what you’re doing !
Applying investment recommendations is not something you apply like you’re going down a Chinese menu.
The first and basic basis for making any recommendation is, “know your client” and “know your product”.
Those that recommended Shield and First Guardian failed badly on both counts.
Don’t excuse incompetence and self-interest and blaming others as a plausible excuse for failing to look after clients’ money!
When is ASIC going to take some responsibility in this whole debacle?
They no longer supervise MIS, they wait for things to go horribly wrong. For “investors” to be taken to the cleaners by unscrupulous operators. Responsibility needs to be taken at the highest levels for these types of situations, and the perpetrators should already be disbarred and locked up!
I’m totally sick of legit advisers who operate in the best interests of their clients getting tarred with the same brush as those who have no scruples who have knowingly taken part in these vertically integrated BS investment schemes. What’s happened is straight out fraud.