Inquiry grills APRA chiefs

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.

By InvestSMART · 31 Aug 2011

By InvestSMART ·
31 Aug 2011

Comments

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 everyday investors?

Trio Capital collapsed in late 2009 after a whistleblower alerted regulators. One of its funds, Astarra Strategic, was later discovered to have been defrauded (reported at about $123 million). APRA said around $55 million in compensation was paid related to Trio, and members of some Trio funds lost money; for example, $58 million invested through DIY super funds in the ARP Growth product was found to be ineligible for compensation.

What did the federal inquiry reveal about APRA’s handling of Trio Capital and Astarra Strategic?

The parliamentary inquiry heard APRA had been involved with Trio as early as 2005 and had asked for a valuation of assets inside Astarra Strategic but never received the information. APRA officials admitted their early interventions focused mainly on governance rather than the root cause of the fraud, and senior APRA figures agreed the root cause was not addressed.

Who first raised concerns about Trio Capital and what investigations followed?

Whistleblower John Hempton alerted regulators to concerns about Trio Capital. The collapse led to a federal parliamentary inquiry in Sydney, liquidation work by PPB (which described Astarra investing in non-existent companies), and criminal action — the investment manager Shawn Richard was jailed earlier in the month the article reports.

How much compensation has been paid for superannuation fraud linked to Trio and other cases?

APRA officials described a historical total of about $100 million in compensation paid for fraud across the superannuation sector they regulate, and said that about $55 million of that related to Trio Capital specifically.

Why were some Trio fund members, such as those in ARP Growth, not eligible for compensation?

The inquiry heard that members of the Trio fund called ARP Growth who had $58 million invested through do-it-yourself (DIY) super funds were ineligible for compensation. The article does not detail legal reasons, but it highlights differences in eligibility between compensation schemes and fund structures.

What did the liquidator say about the nature of the Astarra Strategic fraud?

The liquidator PPB told the inquiry that Astarra Strategic had invested in non-existent companies, which was part of the description of how the fraud operated within the Trio structure.

Did APRA request valuations of Trio’s fund assets, and what happened to those requests?

Yes — the inquiry heard APRA asked for a valuation of assets inside Astarra Strategic and had been involved with Trio since 2005. APRA never received the valuation information it sought, and in October 2008 Trio wrote to APRA saying it had no available valuations for Astarra Strategic and the Exploration Fund.

What policy changes did the inquiry discuss to protect investors from similar frauds in future?

The hearing heard calls for a last‑resort fraud compensation scheme after some Trio investors were ineligible for compensation. The inquiry also highlighted criticism that early regulatory interventions focused on governance rather than root causes, suggesting a need for stronger approaches to detect and address fraud.