Inquiry grills APRA chiefs

Senior officers called to explain failure to follow up valuation request of Trio Capital fund.

By InvestSMART · 31 Aug 2011

By InvestSMART ·
31 Aug 2011

Comments

Senior officers called to explain failure to follow up valuation request of Trio Capital fund.

THE superannuation regulator was grilled yesterday about failing to follow up its request for a valuation of a Trio Capital fund, a year before it was discovered the fund had been defrauded of $123 million.

Senior officers of the Australian Prudential Regulation Authority were called before a federal parliamentary inquiry in Sydney yesterday investigating the collapse of Trio Capital and a fraud in its fund called Astarra Strategic.

Trio Capital collapsed in late 2009 after regulators were alerted by a whistleblower, John Hempton. Its investment manager, Shawn Richard, was jailed for 2? years earlier this month.

APRA officials portrayed a historical total of about $100 million in compensation paid for fraud from superannuation funds it regulates - including $55 million for Trio - as a ''pretty good result'' for the size of the super sector.

But the deputy chairman of APRA, Ross Jones, agreed with committee member Paul Fletcher that APRA had not addressed the root cause of the fraud in its early interventions with Trio since 2005, but had mainly focused on governance issues.

Mr Jones blamed the failure to detect the fraud on the ''gross incompetence'' of later directors of Trio Capital, who had inherited the structure of a fraud.

The inquiry also heard calls for a last-resort fraud compensation scheme, after members of a Trio fund called ARP Growth found their $58 million invested through do-it-yourself super funds were ineligible for compensation after Trio's collapse. And the inquiry heard descriptions of the fraud from the liquidator, PPB, including Astarra Strategic investing in non-existent companies.

The committee heard APRA had been involved with Trio as early as 2005 and had asked for a valuation of assets inside Astarra Strategic, but it never received the information it sought.

In October 2008, Trio wrote to APRA saying it had no available valuations for two Trio funds that were later found to be at the heart of the fraud, Astarra Strategic and the Exploration Fund.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What was the Trio Capital collapse and how did it affect investors?

The Trio Capital collapse occurred in late 2009 after a whistleblower alerted regulators. One of Trio’s funds, Astarra Strategic, was at the centre of a fraud discovery that left the fund reportedly defrauded of about $123 million, prompting investigations, liquidations and losses for some investors.

What did the APRA inquiry look into regarding Trio Capital and Astarra Strategic?

A federal parliamentary inquiry questioned senior APRA officers about why APRA failed to follow up a request for valuations of assets inside Astarra Strategic (a request first made as early as 2005) and about APRA’s role in supervising Trio Capital before the 2009 collapse.

Why did APRA fail to detect the fraud in the Trio funds earlier?

According to testimony at the inquiry, APRA focused on governance issues rather than the root cause of the fraud in early interventions. APRA officials said they had asked for valuations but never received the information, and the deputy chairman blamed later Trio directors’ ‘gross incompetence’ for inheriting a fraudulent structure.

What kind of fraud was uncovered in Astarra Strategic?

The liquidator PPB described Astarra Strategic as having invested in non‑existent companies. The fund’s asset valuations were missing or not provided to regulators, which was central to the fraud allegations.

How much compensation has been paid to victims of superannuation fraud, and what was paid for Trio?

APRA officials told the inquiry the historical total of compensation paid for fraud across the superannuation sector they regulate is about $100 million, and that roughly $55 million of that related to the Trio matter.

Were members who held Trio investments through DIY (self-managed) super funds eligible for compensation?

The inquiry heard that members of a Trio fund called ARP Growth who held about $58 million through do‑it‑yourself (DIY) or self‑managed super funds were found to be ineligible for compensation after the Trio collapse.

Did the inquiry recommend any solutions such as a fraud compensation scheme for superannuation members?

The inquiry heard calls for a last‑resort fraud compensation scheme after it emerged some affected members—particularly those using DIY super funds—were ineligible for compensation, though the article reports the calls rather than a formal adoption of a scheme.

What lessons for everyday investors does the Trio/Astarra case highlight about superannuation fraud and oversight?

The case underlines the importance of independent asset valuations, clear governance and understanding how your superannuation investments are protected. It also shows that regulators may not always detect fraud early and that eligibility for compensation can vary depending on how investments are held.