Defensive EQT acknowledges $300m Shield hit

Equity Trustees (EQT) managing director, Mick O’Brien, has made clear to the company’s shareholders that a distance existed between its superannuation subsidiary, Equity Trustees Superannuation Limited (ETSL) and the collapsed Shield and First Guardian funds.

O’Brien also made clear that, like Netwealth, it will be applying to the Minister for Financial Services, Daniel Mulino for activation of Part 23 of the Superannuation Industry (Supervision) Act.

Acknowledging that Australian Securities and Investments Commission (ASIC) action had impacted EQT’s market capitalisation by around $300 million, O’Brien told the company’s annual general meeting ETSL “was not the owner or operator of the platforms used by those funds, and importantly ETSL was neither the Responsible Entity nor trustee for either Shield of First Guardian”.

“ETSL did not have any relationship with the other parties involved – advisors, dealer groups, lead generators, Responsible Entities, fund managers or property developers,” he said.

“At the request of the platform promoters, ETSL instigated its process for listing of new managed investment schemes. It undertook due diligence to determine whether the schemes should be allowed on the platforms and available to members, which the schemes passed in both instances.”

“This contrasts with the approach taken by the industry when offering direct s securities to their members, which are less diversified than MISs but are nonetheless simply made available as part of an investable universe, in addition to all the Managed Investment Schemes. Of course, these types of direct investment choices are available on almost every platform, many retail funds and most major industry funds in Australia.

“Importantly, ETSL did not at any time recommend or direct member monies towards these schemes. The only monies that flowed to these schemes, came from members who directed the trustee to invest in that manner, based on advice the member received from their chosen financial adviser.

“The liquidator’s report indicated the Responsible Entity, Keystone, misled ETSL and members by misdirecting scheme assets to pay lead generators and second by investing the remaining scheme assets in a manner contrary to the Product Disclosure Statement.

“As has now become apparent, both schemes have suffered significant losses, and their funds have been frozen by court order.

“ASIC have indicated this was a case of a “significant industrial scale problem” perpetrated against members, including against ETSL. ASIC have acknowledged that the situation is deeply troubling and that platforms should have declined to host the schemes even without factoring in fraudulent activity.

“The misuse of scheme assets for purposes other than investment as disclosed to investors – as the liquidators report has revealed – is clearly fraud or theft causing loss to the superannuation funds and their members.

“There is no doubt that those members have been terribly let down by multiple parties in the value chain.

“In particular, we believe that the biggest single source of failure were the Responsible Entities of the two Managed Investment Schemes. The Responsible Entities were closely followed by the fund managers of the schemes, the lead generators, the financial advisers and the licensed dealer groups that authorised the financial advisers. I reiterate: ETSL did not have any relationship with these parties,” O’Brien said.