- Trio exposed: Inside Australia's biggest superannuation fraud
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Millions of dollars from Illawarra Trio investors was illegally used to pay pensions of North Shore retirees to prop up a Ponzi scheme run by a convicted fraudster, documents never before published reveal.
Shawn Richard, one of only two people jailed over the country’s biggest superannuation fraud, devised a scheme whereby money was moved from Trio funds, mainly the Astarra Strategic Fund (ASF), to cover commitments of the ARP Growth Fund.
Without these illegal transfers, Richard’s fraudulent scheme would have been exposed much earlier as the ARP Growth Fund could not have met its commitments.
ANZ bank statements for Astarra Capital, the responsible entity for ARP Growth Fund, confirm direct transfers from ASF bank accounts to the ARP Growth fund bank account.
Most of ASF’s investors were from the Illawarra.
The ARP Growth Fund had invested its funds in worthless assets that could not be cashed out, leaving it unable to meet its monthly commitments to retirees, who were mostly based on Sydney’s North Shore.
Richard used money from ASF to buy the worthless assets from the ARP Growth Fund, allowing the ARP Growth Fund to honour its pension payments.
The bank statements show that in September and October 2008, four transfers worth more than $1.2 million went from ASF directly to the ARP Growth Fund.
Richard confessed to ASIC that a total of $4.43 million was sent directly from ASF to ARP Growth Fund between August 2008 and March 2009.
He had previously sent another $2.3 million from ASF to ARP Growth Fund by less direct means.
Richard also confessed to using $3.1 million in ASF funds to meet other commitments in Australia.
Nevertheless, the Australian Securities and Investments Commission (ASIC) told a federal Parliamentary Joint Committee (PJC) inquiry in 2011 that the Trio fraud was a ‘‘transnational fraud committed offshore’’ and that advisers were to blame for recommending a ‘‘high risk’’ investment.
Richard’s convictions were based on a 32-page Statement of Facts in which he and ASIC agreed on the details of his offences.
This Statement of Facts has only recently been made available under Freedom of Information laws.
In part, the statement describes how ASF money was invested overseas but then illegally returned to Australia to keep ARP Growth Fund liquid. However, ASIC also had this evidence of illegal transfers directly from ASF to ARP Growth Fund.
ASIC and the Australian Prudential Regulatory Authority (APRA) have always maintained the Trio fraud occurred overseas, beyond their purview.
But these illegal, direct transactions occurred right here in Australia, right under ASIC’s nose and certainly within its jurisdiction.
The transactions prove that ASF was part of a criminal enterprise designed to hoodwink authorities, financial experts and investors.
Astarra is said to have used Deferred Purchase Agreements (DPA) to invest in hedge funds in locations such as the Caribbean and British Virgin Islands, although ASIC produced little evidence that the investments were actually made.
According to ASIC, Richard used these DPAs as a cover to transfer money from Australian investors to Exploration Fund offshore, whose assets were worthless.
ASIC says the Exploration Fund was administered by a shady American called Jack Flader, who was then based in Hong Kong.
According to the statement Richard was ‘‘aware that the assets held by the Flader Controlled Funds, in particulary the Exploration Fund, were illiquid, of questionable value and that it was necessary for new monies from ASF to be made available in order for the Exploration Fund to meet redemption requests’’.
In May 2008 Richard arranged for Astarra to enter into three DPAs to the value of $2.3 million.
Out of the $2.3 million of Astarra money, payments totalling $2,157,900 were received by the ARP Growth Fund between May 22 and June 18, 2008, in payment for its Exploration Fund shares.
ASIC says Richard acted dishonestly, knowing part of the ASF money transferred was ‘‘to be used to make redemption payments to the ARP Growth Fund in respect to shares it held in the Exploration Fund, which shares were not otherwise convertible to cash’’.
He paid ‘‘reckless disregard’’ to whether the transactions were in the best interest of Astarra investors, the statement said.
At the time Paul Gresham was a representative for the ARP Growth Fund, which had more than $6 million invested in the Exploration Fund.
The statement says Gresham, from February 2008, made a number of requests to Richard on behalf of ARP to redeem shares in the Exploration Fund.
Gresham, who changed his name to Tony Maher, was jailed this year for 25 months for misleading conduct, including gaining financial benefits from various deals.
The Statement of Facts also shows Richard entered into two DPAs to the value of $3.7 million for dealings with the Australian Conference Association Superannuation Trust (ACAST), which became Mercer Super Trust in 2006.
From the Astarra money, two separate payments totalling $3,149,679 were received by Mercer Investment Nominees Ltd in redemption of an investment made by ACAST in the Exploration Fund.
Richard ‘‘acted dishonestly’’, knowing most of the ASF money was to be used to meet that redemption request, which had been outstanding since April 10, 2006, the statement said.
The shares were not convertible to cash ‘‘if not for the ASF monies’’.
Again ASIC said Richard did not disclose his actions, or the conflict of interest, to Trio or Astarra and showed ‘‘reckless disregard’’ as to whether the transactions were in the best interests of ASF.
Richard was jailed for three years and nine months on two charges of dishonest conduct while providing financial services.
Both ACAST and ARP Growth fund were Australian superannuation schemes.
The ARP Growth Fund was made up of retirees largely from Sydney’s North Shore who needed monthly pension payments from their retirement savings to live.
In evidence to the 2011 PJC inquiry into the collapse of Capital Trio, Ron Thornton, president of the Association of ARP Unitholders, said 74 members incurred losses of about $58 million.
‘‘All of the unitholders have self-managed superannuation funds and their loss represents the majority of their superannuation savings,’’ he said.
‘‘This represents a financial wipe-out in their later years when they are unable to return to the workforce to fund their retirement, as 91 per cent are over 60 years of age and 68 per cent are over 65 years of age.’’
While compensation was recommended for other victims of the fraud, including the ARP Growth Fund members, then Minister for Financial Services Bill Shorten decided Illawarra investors were not eligible for compensation.
Mr Shorten ruled that Illawarra investors had swum “outside the flags”: that because they invested in ASF through self-managed super funds, they were responsible for their own due diligence.
The PJC recommended compensation to the North Sydney ARP Growth fund investors, but not to the Illawarra investors who funded the ARP Growth fund.