Planner repays $1m after fraud

AN ELDERLY woman who lost her life savings of $1 million in the Trio/Astarra fraud has succeeded in having most of her money returned following a court settlement with her financial planner.

By InvestSMART · 8 Jun 2012

By InvestSMART ·
8 Jun 2012

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AN ELDERLY woman who lost her life savings of $1 million in the Trio/Astarra fraud has succeeded in having most of her money returned following a court settlement with her financial planner.

The settlement is believed to be the first time that investors - who lost $176 million in an offshore hedge funds fraud - have been compensated by their adviser.

Lawyer Martin Culleton, for the Wollongong firm RMB Lawyers, said the woman and her husband had invested principally through a self managed super fund in a number of the Astarra funds.

Mr Culleton said the court action was launched 10 months ago in the NSW Supreme Court against six defendants.

It was claimed the adviser had engaged in misleading and deceptive conduct, negligence, breach of fiduciary duty and breaches of the Corporations Act.

Mr Culleton said it was important that people investigated both their financial planner and the companies they worked for during the time they provided advice.

"The difficulty for the law is trying to decide what was reasonable, as to what the financial advice was," Mr Culleton said.

He said the terms of the settlement were confidential, and declined to name the financial adviser but said it was not the high profile Wollongong planner Ross Tarrant, who is fighting a seven-year ban imposed on him by the corporate regulator.

Mr Culleton said as far as he knew, no disciplinary action had been taken against the adviser in this case.

The successful outcome gives some hope to thousands of investors who were left stranded because they had invested in Trio/Astarra through self-managed super funds.

The Minister for Financial Services and Superannuation, Bill Shorten, explained that these investors were "swimming outside the flags", and only mainstream superannuation funds supervised by the Australian Prudential Regulation Authority were eligible for government compensation after the fraud.

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Frequently Asked Questions about this Article…

What was the Trio/Astarra fraud and how did it affect everyday investors?

The Trio/Astarra fraud was an offshore hedge fund scandal that left many investors stranded — the article says investors lost about $176 million overall. One elderly woman lost her $1 million life savings after investing in Astarra funds, primarily through a self-managed super fund (SMSF).

How did an investor manage to get most of her money back after the Trio/Astarra fraud?

According to the article, the investor and her husband reached a court settlement with their financial planner in the NSW Supreme Court that returned most of her money. The settlement terms are confidential and the adviser was not named.

Can a financial planner be held legally responsible for losses from a fraudulent fund like Astarra?

Yes. The NSW Supreme Court action in this case alleged misleading and deceptive conduct, negligence, breach of fiduciary duty and breaches of the Corporations Act against advisers. The settlement in this matter suggests advisers can be held liable in some circumstances.

What should investors check about their financial planner to reduce fraud risk?

The article advises investors to investigate both the financial planner and the companies the planner worked for during the time advice was provided. That means checking an adviser’s history, the firms they represented and any regulatory or legal problems tied to that period.

Are self-managed super funds (SMSFs) riskier for investors when fund fraud occurs?

The article notes many people invested in Trio/Astarra through SMSFs and were left stranded, implying higher exposure for SMSF holders. It also cites the minister’s comment that SMSF investors were often ‘swimming outside the flags’ compared with mainstream, regulated funds.

Will the government compensate investors who lost money in the Trio/Astarra fraud?

No automatic government compensation for SMSF investors is indicated. The article quotes the Minister for Financial Services and Superannuation saying only mainstream super funds supervised by the Australian Prudential Regulation Authority (APRA) were eligible for government compensation after the fraud.

Was the financial adviser publicly disciplined in this Trio/Astarra settlement?

The lawyer in the case, Martin Culleton, said the settlement was confidential and, as far as he knew, no disciplinary action had been taken against the adviser involved in this particular case. He also clarified the adviser was not the well-known planner Ross Tarrant.

What legal claims were made in the NSW Supreme Court case connected to the Trio/Astarra losses?

The court action, launched about 10 months before the article, named six defendants and alleged misleading and deceptive conduct, negligence, breach of fiduciary duty and breaches of the Corporations Act in relation to advice that led to investments in Astarra funds.