Australia’s corporate watchdog is suing Interprac — the licensee that oversaw financial planners — over alleged failures that led to the collapses of the Shield and First Guardian schemes.
The Australian Securities and Investments Commission (ASIC) is also suing ratings agency SQM Research, saying its “processes fell short of expected standards when it published ‘favourable’ ratings for the Shield Master Fund”.
ASIC is also taking action against MWL Financial Services, former director Nicholas Maikousis, and lead generator Imperial Capital Group Australia over alleged Shield advice failures.
On the day ASIC unveiled its hit list for the year ahead, it said a key focus was prosecuting people involved in the collapses of the First Guardian and Shield schemes, which led to people losing over $1 billion of their retirement savings.
ASIC said thousands of Australians were exposed to poor financial advice and significant risks from the Shield and First Guardian schemes through critical oversight and compliance failures by Interprac.
ASIC alleges Interprac representatives gave ‘poor advice’
ASIC has commenced civil penalty proceedings in the Federal Court against Interprac, saying that the licensee failed to ensure its former authorised representatives — Ferras Merhi’s Venture Egg and former financial adviser Rhys Reilly — who gave thousands of people financial advice, complied with the best interests obligations and had adequate risk management systems.
ASIC said together, the Interprac representatives advised about 6,843 clients to invest about $677 million of their superannuation into Shield and First Guardian.
ASIC has commenced separate proceedings against Mr Merhi over Shield and First Guardian, recently securing Federal Court interim orders restraining Mr Merhi from operating within the financial services industry.
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 Interprac failed to ensure certain authorised representatives acted in their clients’ best interests, contributing to hundreds of millions of dollars of superannuation being invested in products that were unsuitable, high risk and costly,” Ms Court said.
“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.”
ASIC alleges Interprac failed to have in place an adequate process for approving financial products it allowed onto its approved product list, including Shield and First Guardian, and relied entirely on external research to add those funds to its approved investments list for advisers.
It also alleges the license failed to respond appropriately to the use of lead generators Imperial Capital Group Australia and AGAT Business, and alleges it failed to respond adequately to news that payments had been made to Mr Merhi’s companies by entities associated with First Guardian and Shield.
It also alleges Interprac failed to enforce or maintain a hold on new investments into Shield and First Guardian after Interprac’s managing director and responsible manager, Garry Crole, acknowledged serious issues with both funds.
In a recent exclusive interview with ABC News, Mr Crole admitted that “maybe we could have done more” to prevent First Guardian and Shield losses.
ASIC also alleges Interprac failed to prevent the use of a “negative consent” practice, which led to some clients’ superannuation being invested in Shield and/or First Guardian without express consent from those clients.
It alleges the licensee failed to respond adequately to significant inflows of investment into Shield and First Guardian.
The corporate cop also alleges it failed to provide adequate responses to client complaints about advice from its representatives to invest in Shield or First Guardian and instead relied on a “template” response which often failed to consider the appropriateness of the advice.
It alleges that Interpac failed to respond adequately or impose meaningful consequences in response to serious compliance issues, including failings repeatedly identified in audits.
ASIC is seeking declarations, civil penalties, and orders to restrain Interprac from carrying on a financial services business.
InterPrac said it had received notification from ASIC.
“InterPrac is unable to provide further information at this time and will defend its position on such allegations vigorously,” a spokesman said.
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