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The corporate watchdog has upped the ante in its pursuit of those involved in the $1 billion collapse of the Shield and First Guardian master funds, filing three separate lawsuits against various groups involved.
The avalanche of court actions ramps up the regulator’s pursuit of people involved in a superannuation switching scheme that paid large commissions to people who enticed more than 12,000 ordinary Australians into moving their entire retirement savings into the complex and risky funds.
First Guardian Fund manager David Anderson (left) and Shield Master Fund manager Paul Chiodo were long-time business partners. Credit: Marija Ercegovac
Leading financial planning advisory house Interprac was one of the groups targeted by the Australian Securities and Investment Commission in its legal actions on Wednesday.
ASIC hit the group with a Federal Court claim for declarations and fines, alleging it did not properly supervise two groups using its financial services licence, including allegedly rogue financial planning house Venture Egg, which was responsible for driving $524 million worth of super savings of 6000 people into the two funds.
Shares in Interprac’s parent, ASX-listed group Sequoia, dived 12 per cent after the action was lodged before the market operator paused trading in its shares. It is yet to put out a statement to the market. Sequoia and Interprac were contacted for comment.
ASIC has already taken action in the Federal Court against Venture Egg and its founder Ferras Merhi, who was operating under Interprac’s licence, alleging he received more than $37 million in kickbacks for driving people into the schemes. Merhi denies any wrongdoing. He has long said he relied on the recommendations of ratings agency and market research firm SQM Research and thought the funds were high quality because they were offered by Macquarie and other respected large money managers.
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Earlier this year, Macquarie agreed to pay $321 million to fully compensate Shield investors.
Unlike other investment scandals seen in the past in Australia, the customers lured into Shield and First Guardian were not chasing sky-high returns. Instead, ASIC alleges, investors were promised a slightly better return – as much as 1 per cent more per year – or told that their existing super fund was fudging its numbers.
In reality, Shield and First Guardian charged higher than usual fees and instead of investing like other super funds in shares and real property, used the $1 billion invested with them to fund the extravagant pet projects of the operators of the schemes, who are also under investigation by ASIC.
ASIC Deputy Chair Sarah Court said Interprac’s alleged oversight and compliance failures exposed thousands of Australians to poor advice and significant financial risk.
“We allege that no competent financial adviser could have recommended Australians invest large amounts of their superannuation in these funds, and that Interprac – as licensee – should have been alert and responsive to the significant risk this conduct posed to clients, but it failed on many levels,” Court said.
SQM Research, led by respected property commentator Louis Christopher, is being sued by the watchdog in a separate case announced on Wednesday.
ASIC alleges SQM breached its obligations when it provided a positive rating for the Shield Master Fund as part of a commercial arrangement. The research firm did this while failing to obtain information it needed to make the assessment, failing to properly consider inconsistencies in the information it did receive and misrepresenting other information, the regulator alleges.
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SQM said in a statement: “We are currently assessing ASIC’s claim and will be making our position known in due course.”
Court said the civil penalty proceedings against SQM marked the first time the regulator had taken action against a research house.
“We believe research houses are important gatekeepers and form part of a critical line of defence against poor quality investments or unsuitable products,” Court said.
A third action announced by ASIC on Wednesday targeted Melbourne financial planning group MWL Financial and its director Nicholas Maikousis – who in September stepped down as the president of respected National Premier League team South Melbourne Football Club.
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A company related to the Shield Master Fund was a main sponsor of South Melbourne until 2024 and a senior staff member at MWL Financial was a board member of the fund.
MWL is accused of advising 556 clients to put about $114 million of their superannuation into Shield while failing to ensure the advice was appropriate and that conflicts of interest were managed.
MWL appointed administrators in late September and as a result ASIC is seeking permission from the court to file the case, Court said.
Lead generator Imperial Capital Group, which worked with MWL to drum up clients for the two funds, is also being sued by ASIC as part of the MWL case.
ASIC alleges the Gold Coast-based group received nearly $13 million in commissions from the fund for assisting in the referrals. MWL was contacted for comment; this masthead was unable to make contact with Imperial which shut down its website in March 2024.
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