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Burning questions remain over super theft

How did 'Shawny Cash' manage to conceal his crimes for so long, asks Stuart Washington.

How did 'Shawny Cash' manage to conceal his crimes for so long, asks Stuart Washington.

An air of exasperated disbelief radiated from the bench on Friday as Justice Peter Garling considered the fate of the man guilty of Australia's largest superannuation theft.

Where were the auditors, Justice Garling asked under the lofty ceiling of courtroom one in the old Supreme Court House. What was Trio Capital's investment committee doing? What about Trio Capital's board of directors?

Implicit in Justice Garling's questions was the puzzle of how the mild looking man sitting before him, 36-year-old Shawn Richard, could have been allowed to get away with so much for so long.

As we now know, the Albury-based fund manager Trio Capital spirited away $180 million into two hedge funds, Astarra Strategic and ARP Growth, from 2005 and probably earlier.

Richard's "success" is at odds with his inauspicious background.

The man dubbed "Shawny Cash" only had a high school education from the modest middle class neighbourhood of the largely French-speaking Dieppe in New Brunswick, Canada.

He dropped out of his local Moncton University, later lying in Australia he had a bachelor's degree in finance from the same institution.

Richard's lawyer, John Agius SC, argued last week that Richard had been naive and psychologically vulnerable to the lure of the high-powered role in financial services offered by his boss, Jack Flader.

Richard was on an overseas trip looking for adventure, landing up in Taiwan, when he first met Flader in the late 1990s.

"He [Richard] was someone going nowhere in particular and going there at no speed," Agius said.

Richard last year described his role in Taiwan as "office boy" - not the grandiose "vice-president" he labelled himself in his online investment manager's biography.

Flader, a US lawyer based in Hong Kong, is a noted bon vivant who enjoys what he calls "the noble grape", particularly $250-odd bottles of Carruades de Lafite.

It is of no comfort to Australian investors that they almost certainly funded Flader's jet-setting lifestyle, in which he crossed the globe to visit 80 destinations in three years as head of his business, Global Consultants and Services Ltd.

Flader emerges in the statement of facts tendered before court on Friday as the mastermind of the whole scheme.

Whether the source of the cash ever rested poorly with Flader as he sampled the "ocean of fine wines" and enjoyed 10 hours of massages at the $1500-a-night Bulgari resort in 2007 has not been established.

He has not been available for interview.

While offshore miscreants escape sanction, Richard was the man placed in jail on Friday awaiting sentence on August 12.

In court, he was described as the frontman and pivotal to the whole scheme.

Richard has pleaded guilty to two counts of dishonest conduct. The charges relate to seven instances of dishonesty between November 2005 and September 2009.

In short, the counts state he knew he was personally benefiting by placing investors' money in funds he was lying about.

On Friday the Crown's case against Richard showed how he illegally enriched himself through secret payments of $1.3 million channelled through bank accounts in the tax havens of Liechtenstein and Curacao.

In 2009 Richard blew at least $250,000 on personal expenses, including $67,000 on rent.

In total, Richard's company, Astarra Asset Management (AAM), would receive $6.55 million in illegal payments.

But the jig was nearly up. In September 2009, Bronte Capital fund manager and blogger John Hempton informed the corporate regulator of concerns about what has become Australia's largest superannuation fraud.

In December 2009, 10,000 investors in Trio Capital had more than $400 million frozen as the regulator put in place liquidators and trustees to piece together just what happened.

In April this year, investors in superannuation funds regulated by the Australian Prudential Regulation Authority were awarded $55 million in compensation because they had been subjected to fraud.

In court on Friday, Justice Garling's puzzlement extended to the exclusion of self-managed superannuation investors from any compensation for fraud in Trio Capital.

It is a puzzlement shared by self-managed super investors themselves, who now find themselves locked out of any meaningful compensation.

In a recent submission to a federal parliamentary inquiry into Trio Capital, a 68-year-old South Coast man, Philip Keeffe, wrote after losing $70,000: "That the Commonwealth has failed to create a secure environment for these investors, as well as failing to compensate them for losses ... is simply shameful."

Justice Garling's questions about the role of Trio Capital's gatekeepers extended to the supposed attractiveness of the offshore investments.

"Excuse me, what is the fund you have put your money into?" Justice Garling said on Friday, adopting the voice of Trio's auditor.

"Please prove the worth of those funds to me? That's what auditors are supposed to do, isn't it?

"One can't avoid at least the observation and reflection when looking at this that there were a number of other bodies that were asleep on duty here."

The opaque nature of the offshore investment vehicles is amply demonstrated in the statement of facts before the court.

One fund called the SBS Dynamic Opportunities Fund had a Liberian company as sole shareholder and director, an Anguillan company as investment manager, a Cayman Islands bank account and a Belize company as its administrator.

But in a common thread with all four offshore funds that became destinations for Australian investors' money, the fund was actually administered by the company Flader founded in 2006, GCSL.

The round robin of Australian investors' funds that were placed in exotic offshore investment vehicles is documented at its simplest in the first case of dishonesty admitted by Shawn Richard.

He was the investment manager for Trio Capital through his company AAM, with the responsibility of placing investors' funds into the ultimate investment vehicles.

In this role in November 2005 he arranged for $3 million invested in Astarra Strategic Fund (then known as the Alpha Strategic Fund) to be placed in the Exploration Fund, which was one of the offshore funds administered by GCSL and controlled by Flader.

The money was then used to "buy" $US1.75 million in shares in Yarraman Winery, a small winery up a windy road in the Hunter Valley.

The winery exists to this day, and is not implicated in the activities concerning its shares. However, its shares from its listing on the "over-the-counter" pink sheets market in the US were practically worthless.

In what was a leitmotif for the scheme, Australian money invested in a fund controlled by Flader would be used as cash to pay another controlled company by Flader for practically worthless shares.

From the considerable profits from this transaction, $US818,000 ended up in a bank account in the tiny Caribbean island of Curacao, to the benefit of Richard.

In summary, $3 million in Australian money controlled by Richard was placed in an offshore fund run by Flader, used to buy $US1.75 million in worthless shares from Flader, then Richard was secretly paid $US818,000.

As Richard endures a lengthy prison sentence - the two counts carry a maximum sentence of 10 years in total - he may have cause to think about his former mentor.

Flader has purportedly sold his GCSL business to a boutique investment bank, Jeeves Group, run by a father and son found guilty in absentia of a major US investment fraud. Not coincidentally, Flader was named as being involved in the same fraud. The GCSL website is no longer operating.

Others named in the court documents include Frank Richard Bell, the veteran British broker with a disgraceful track record who ran the Exploration Fund.

Then there is Carl Meerveld, named in court documents as a director of the Exploration and Sierra Multi-Strategy Funds, and Roman Lyniuk, named as the key investment professional of the Pacific Capital Multi-Arbitrage Fund.

Needless to say, no money has been recovered from these funds.

In Australia, there have been more visible repercussions.

Earlier this month Rex Phillpott, Trio's chief executive, was banned from financial services for 15 years. Natasha Beck, a Trio director, was banned from financial services for five years.

A South Australian financial planner, Seagrims, has been forced to give up its licence and its owners have also been banned from financial services for three years.

In the case of Trio's auditors, WHK, there has been no formal action

to date.

Action is likely to roll on for some time.

And as for Richard he, alone, is going to jail.

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