'Raised concern' on hedge funds
A TEAM of regulators raised concerns about fraudulent hedge funds more than a year before the whistle was blown on the biggest superannuation theft in Australia's history.
A TEAM of regulators raised concerns about fraudulent hedge funds more than a year before the whistle was blown on the biggest superannuation theft in Australia's history.Yesterday it was revealed that the Australian Prudential Regulation Authority raised concerns about the fund manager Trio Capital's valuation of its two hedge funds in August 2008.As a result of its "prudential review" of the Albury-based fund manager, the superannuation regulator unsuccessfully sought further information about the valuation of the funds.In October 2008, APRA was told there were no "available valuations" of two offshore hedge funds registered in the obscure Caribbean tax havens, St Lucia and the British Virgin Islands.APRA took no action against Trio Capital until after the scam was exposed in a letter by Bronte Capital blogger John Hempton in September 2009.In April this year, the federal government awarded superannuation investors $55 million in compensation for their part in a theft totalling $125 million. A further $60 million in investors' money is missing, presumed stolen.The revelation of APRA's 2008 review of Trio Capital was contained in enforceable undertakings made by former directors of Trio with both APRA and the Australian Securities and Investments Commission.The former chief executive of Trio Capital, Rex Phillpott, has been barred from a role in financial services for 15 years.A former non-executive director of Trio, Natasha Beck, has been barred from a role in superannuation for four years and financial services for two years.The actions against the directors of Trio Capital follow the charging of Trio's former investment manager, Shawn Richard, on two counts of dishonest conduct in relation to misappropriating $6.4 million. The undertakings signed by the directors reveal ASIC's concerns that each director breached several sections of the Corporations Act.The documents show Trio's board held concerns about its hedge fund investments as early as 2006, including failures to honour requests for the return of investors' money and difficulties in obtaining accurate valuations.Mr Phillpott was revealed as being intimately involved in the investments into offshore hedge funds, without being aware of the valuation methods used to value the funds. Mr Phillpott was also instrumental in the 2009 transfer of $50 million in one of Trio's hedge funds, the Exploration Fund, into its successor hedge fund, Astarra Strategic. He did this "notwithstanding that he was aware of liquidity problems with the Exploration Fund and concerns about the lack of information being provided by the Exploration Fund".BusinessDay has previously revealed that the Exploration Fund was run by a Philippines stockbroker with a long history of stock fraud, Frank Richard Bell.As the Trio saga unfolded, it became clear regulators had regular brushes with the fund. For example, in 2005 APRA forced Richard off the board of Trio Capital in 2005 because of conflict-of-interest concerns arising from his roles as both owner and investment manager for the fund. In 2006, APRA had direct involvement with another Trio fund, ARP Growth, forcing it outside the superannuation entities it regulates.In 2008 ASIC interviewed Richard under its compulsory examination powers about a $500,000 secret payment from Trio and Trio-related companies to a financial planner.APRA would make no comment yesterday.