The Trio Capital Collapse

The collapse of Trio Capital is the largest public disclosed superannuation fraud in Australian history (there is an even larger fraud that APRA and ASIC are concealing from the Australian Public). Approximately $176 million in superannuation funds has been lost or is missing from two fraudulent managed investment schemes; $123 million from the Astarra Strategic Fund and $53 million from the ARP Growth Fund.  Trio Capital was the “responsible entity” for both schemes.

Trio Capital Limited (Admin App) v ACT Superannuation Management Pty Ltd [2010] NSWSC 286

Only those who invested through Government Regulated Superannuation Funds were able to recover their money. The Government provided a grant of around $55 Million to the victims of fraud who invested through Government Regulated Superannuation Funds. The Members of Small Self-Managed Superannuation Funds received no compensation.

A Joint Parliamentary Committee was set up to investigate the Trio Capital Fraud.

A key finding of the Committee was that the “checks and balances in the Australian financial and superannuation system did not work to identify the existence of fraudulent conduct and to shut it down rapidly”.

The Trio Capital fraud was uncovered by an alert industry participant. In September 2009, Mr John Hempton, Chief Executive Officer at Bronte Capital Management and a former Treasury official, wrote a letter to ASIC Chairman Mr Tony D’Aloisio.

Mr Hempton had become suspicious about smooth returns achieved by on of the Capital Trio funds in a turbulent financial environment, just like Harry Markopolos had become suspicious of similar smooth returns reported by Bernie Madoff.

In this case the former Chairman of ASIC, Mr D’Aloisio decided to use his “discretion”  investigate Mr Hempton’s claims.

Mr Hempton was a former Treasury official and had political connections and the Superannuation Funds that were the subject of Mr Hempton’s complaint were not associated with a Wine Company and so did not give rise to a real or apparent  Conflict of Interests with the Chairman’s direct but undisclosed pecuniary interest in Oakridge Wines Pty Ltd.

On 23 November 2009 another industry participant notified the Chairman of ASIC about fraudulent conduct concerning another large superannuation fund, however in this case there was a connection with the Chairman’s undisclosed direct pecuniary interest in Oakrideg Wines Pty Ltd so naturally in this case the former Chairman decided to use his “discretionary” power not to investigate the Trustee involved, but instead instigated a sham investigation for the purpose of fabricating evidence to limit further inquiry into a fraud larger than the Trio Capital fraud.

In the second case evidence was provided to ASIC of criminal conduct by Responsible Officers of this fund (not just suspicious financial return data), yet ASIC undertook no investigation of this criminal conduct or appropriate enforcement action to protect the Members of this Government Regulated Superannuation Fund.

The Parliamentary Committee was very critical of the Regulators – APRA and ASIC.

APRA conducted five prudential reviews between 2004 and 2009, yet took no enforcement action as a consequence of any of these reviews.

ASIC only began its investigation in October 2009 after Mr Hempton’s tip-off.

From late 2008 to mid 2009, APRA was unable to obtain from Trio a valuation of certain Trio funds’ assets. The committee questioned how a trustee can be subject to what APRA describes as “active supervision” over a period of six years and yet, when essential information was not forthcoming at the end of this period, APRA did not act quickly. For a risk based supervisor, as APRA is, the inability of a trustee to provide basic valuation information should have raised strong concerns.

The Parliamentary Committee also had strong concerns at the length of time it took for ASIC to detect the fraudulent activity. The Committee was particularly concerned that communication between ASIC and APRA was lacking in the months from late 2008 to mid-2009. It seems that APRA had not communicated to ASIC its request for Trio to provide information.As a result, when ASIC commenced its active surveillance of hedge funds in June 2009, it did not seem aware that Trio was not providing the Prudential Regulator with basic facts about the existence of assets and their value. This information should have been communicated.

The Committee was also surprised that there appears to have been very little follow up activity by APRA, ASIC and the Australian Federal Police, to seek to recover outstanding moneys or to bring to justice those who have committed crimes which have led to great suffering on the part of Australian investors.

The committee has been unable to obtain clear answers or evidence from ASIC, APRA or the Australian Federal Police as to whether any attempts have been made to bring charges against those who orchestrated this fraud involving over 6000 Australian investors.

The committee strongly believes there need to be a renewed focus and energy on the part of ASIC, APRA and the Australian Federal Police into pursuing every avenue to seek redress for Trio investors and bring to justice all involved in this scheme.

In the committee’s opinion, the Trio case exposes the significant vulnerability of the Australian superannuation savings system to targeting by criminals. Australia has one of the largest such saving pools in the world. Many Australians are disengaged from their superannuation savings. This is a product of the compulsory superannuation system, of many young people having low balances, and investors’ inability to access their funds until they retire. The result is that many people will not pay close attention to how their funds are performing. In the case of Trio Capital, fictitious account statements “Member Benefit Statements” were produced for several years. Account holders had no reason to seek to withdraw their money and as a result, the fraud continued undiscovered for some time.

Does the Trio Capital fraud give you any confidence that your Super is Safe.

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