South Australian financial advisers Anne-Marie and Peter Seagrim were doing everything they could to protect their clients from the global financial crisis when they turned to Shawn Richard, a financial guru, colleague and friend. The couple with 20 years' experience researched Richard’s product, the Astarra Strategic Fund, and decided it was perfect. Little did they know they were leading their conservative country clients into Australia’s biggest supperannuation fraud. CYDONEE MARDON reports.
When South Australian financial advisers Anne-Marie and Peter Seagrim realised the man they trusted with their client’s savings was a fraudster they were gutted.
‘‘You cannot imagine how we felt. We were betrayed by someone we knew, he was our colleague, our educator, a really nice guy and above all a person at the head of a company we had trusted with our precious clients’ lifetime savings,’’ Mrs Seagrim said.
She was referring to Shawn Richard, jailed over the Trio Capital fraud which robbed them and their 900-plus clients of thousands of dollars.
''How could this have happened? How could this fund, which the month before was audited by WHK and was all signed off, be a fraud?''
‘‘I hope to one day write a book called ‘Licensed to Steal’ because that is what has happened to us all.
‘‘We had our lives stolen, and then some.’’
The nightmare began five years ago when the Seagrims saw Richard’s photo on the front page of the Sydney Morning Herald.
‘‘We could barely believe what was unfolding right in front of our eyes,’’ Mrs Seagrim said.
The day before, the Seagrims were driving the 330km trip from Port Augusta to Adelaide to hold three seminars with Richard on the Astarra product when they learned he wouldn’t be joining them.
They ran the seminars themselves.
‘‘The next morning all hell broke loose as our staff had seen the front page and heard radio announcers discussing Astarra and Shawn Richard and referring to it as a Ponzi scheme. Our hearts sank.’’
The couple phoned Astarra CEO Rex Philpott for answers.
‘‘I remember asking him if it was a Ponzi scheme and he paused …. It was the longest sound of silence which I will never forget as long as I live,’’ Mrs Seagrim said.
‘‘He told me he couldn’t tell me anything and then the panic set in. What was about to unfold we were certainly not prepared for.’’
The couple had nearly 1000 clients invested in their ‘‘badged multi-fund product’’ who relied on them for their super and their pension payments.
‘‘How could this have happened? How could this fund, which the month before was audited by WHK and was all signed off, be a fraud?
‘‘We we were confident that everything had gone through ASIC and APRA’s scrutiny, they were the regulators and government gatekeepers, so how could this happen?
‘‘Our clients were scared to death and so were we.’’
The Seagrims were assured by Shawn Richard there was just a mistake in the product disclosure statement - all would be fixed by November 21, 2009.
Peter Seagrim flew to Sydney to meet with Richard. He wanted answers.
‘‘Shawn was baffled. He said he had been visited by the federal police and they took everything,’’ Mrs Seagrim said.
‘‘He had no clue what was happening. He had trusted Jack Flader. That was the first time we had heard this guy’s name. Who was Jack Flader?
‘‘He said that Jack had been his mentor and wouldn’t speak to him. He was far more than a mentor as he was involved in the fraudulent fund as well. Thankfully we were able to negotiate and our pensioners continued to receive their allocated pensions.
‘‘But our poor investors and super members were unable to draw out any money because the regulators froze the funds and it was nearly Christmas.’’
The couple received a call on Boxing Day from whistleblower John Hempton who informed them all their client’s money was gone - not just the five to 14 per cent held in their fund.
‘‘The whole lot. He said Shawn Richard was a high level fraudster. I kept telling him Shawn was a great guy and he was wrong. Luckily Mr Hempton was wrong and clients still held approx 90 per cent of their investments with Aussie fund managers and banks.
‘’You cannot imagine how we felt. No wonder people jump off cliffs. How many lives has Shawn Richard ruined?’’
The Seagrims made the mistake of their lives back in February 2008, after watching their clients funds continue to plummet from the effects of the Global Financial Crisis.
They wanted to help clients maintain steady capital with a regular income and so started discussion with Richard about using Astarra’s ‘‘conservative, balanced growth funds’’ for their clients.
The fraudulent fund was one of 15 different fund manager products.
They researched, sat in on committee meetings, travelled to NSW and spent several days meeting with the back office administrative team.
Seven months later they badged the product, deciding it was perfect for their conservative country clients.
‘‘We decided to put our good name on it,’’ Mrs Seagrim said.
Finally after 22 years in business the couple had their own fund - Seagrims Retirement Fund and the Seagrims Investment Fund.
‘‘We had some control and some input into this fund. We asked for a cash management trust in the super fund and the investment fund, which happened. ANZ who were the custodians of the funds.
‘‘We asked for our clients’ fees to be deducted from the fund for the Centrelink services we provided such as our pensioner management fee or our annual service fees.
‘‘We asked for a data feed into our client management system which was done. We were about to have direct shares and ETF’s added to the fund for more diversification.’’
‘‘We had organised to have a compliant statement of advice set up with Astarra’s legal team so we could move our clients into this cost-effective fund which used 15 of Australia’s largest fund managers.’’
Approximately 40 per cent of Seagrim clients elected to move to these funds.
For a year the couple promoted the fund which became ‘’Australia’s best performing super fund as at July 1, 2009’’.
‘‘We loved it as it had up to 60 per cent in cash at the time of the Global Financial Crisis.
‘‘Nearly all property had been removed prior to the GFC and barely any exposure to international funds, so the performance was better than most as it had avoided the effects of the GFC.
‘‘It was not out performance, it was just brilliance that the fund had become more conservative with high levels of cash before the GFC. We thought we were on a winner.’’
The Seagrims were thrilled, some 972 clients had all made a profit in a short time.
‘‘Not one existing client paid us a fee for us to move their funds to our product despite the enormous work load it created for us,’’ Mrs Seagrim said.
‘‘It probably cost us about $2million in staff wages and expenses to make this huge move, as we did nothing else for 14 months. Plus the ongoing fund fees were generally less than they were paying with the big fund managers.
‘‘We partnered with the manager to run a series of seminars all over South Australia and shared the advertising costs for the promotion.
‘‘The amount of advertising reimbursement we received from Astarra spread over 14 months was approximately $43,000 which was much less than half the advertising accounts we received ,’’ she said.
‘‘We did 18 seminars with Shawn Richard to promote our product. It was a busy year … we were very pleased with our efforts and felt our clients were in a good conservative place.’’
Mrs Seagrim said the horrors of the fraud hit home in late 2009 when they received notification ASIC wanted to investigate their business.
‘‘We had our own dealers licence, AFSL with an impeccable record for 20 years,’’ she said.
‘‘We co-operated fully having no reason to expect anything but a clean bill of health.
‘‘We didn’t feel there was any need to have a lawyer present as we knew that we had not done anything wrong.
‘‘ASIC wanted to look at everything from our agency agreements, to our bank accounts, compliance, we had a full-time compliance manager, and then looked at 972 clients files over the 18 months.
‘‘We were disappointed with the line of questioning ASIC took. In our opinion ASIC as the regulator would have gone through due process with APRA before approving the operators and they would have been monitoring them for five years.
In hindsight the Seagrims feel ASIC took such a ‘‘hard line’’ because of public pressure about protecting investors from this type of disaster.
On June 27, 2011 Peter and Anne-Marie Seagrim were banned from giving advice for three years, and immediately lodged an appeal with the Administrative Appeals Tribunal.
Unable to afford the estimated $200,000 to $300,000 needed to engage a legal team, they represented themselves.
On August 31 the following year the Administrative Appeals Tribunal reduced the ban to six months, backdated to time served.
The Seagrims got straight back to work ‘‘as competent advisers’’.
‘‘There were no serious contraventions only unintended misdemeanours which did not warrant lengthy bannings, that was the findings of the Deputy Registrar of the AAT,’’ Mr Seagrim said.
‘‘Had we have been able to afford barristers like ASIC we are sure we would have had the whole thing thrown out but we didn’t have any legal experience to debate legal arguments about sections of the corporations law,’’ he said.
‘‘Unfortunately for us the time it took to arrange and prepare for the appeal which was over a year allowed ASIC’s decisions to help create a number of inaccurate media stories and this was devastating for our business.’’
As a result their income dropped by 60 per cent with clients fees being frozen, clients leaving and administration fees cancelled altogether.
‘‘It makes it very hard to run a business and pay all the expenses when your income has been taken away,’’ Mr Seagrim said.
Five years on and the Seagrim superannuation clients - who on average had less than 10 per cent exposure to the problematic fund - are still in limbo.
While being fully compensated for their losses they say they are waiting on partial payments from the APRA-appointed Trustee ACT Super.
The Seagrims to this day are furious that politicians can make public statements that advisers really only chose the product because it offered ‘‘high commissions’’.
‘‘If they had asked they would have learned that Seagrims only charged fees, there were no commissions and in this particular case all our clients were not charged one cent for all the work we did at an enormous cost to us,’’ Mr Seagrim said.
‘‘These statements cost us and our business dearly.’’
SATURDAY: Banned Illawarra financial adviser Ross Tarrant has his say.