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, 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 two years and six months 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 superannuation 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 interventions with Trio since 2005, but had mainly focused on corporate 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 set up by promoters in earlier years.
The chair of the corporations and financial services committee, Bernie Ripoll, said: "If it is gross incompetence ... then there is something wrong in the system that allows that gross incompetence to take place."
The inquiry also heard calls for a last-resort fraud compensation scheme, after members of Trio fund ARP Growth found their $58 million invested through do-it-yourself super funds was 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 and continuing investigations into doubtful ARP Growth investments.
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 had never received the information it sought.
In October 2008 Trio wrote to APRA saying it had no available valuations for two Trio funds later found to be at the heart of the fraud, Astarra Strategic and the Exploration Fund.
Frequently Asked Questions about this Article…
What was the Trio Capital fraud and how much money was lost?
Trio Capital collapsed after a fraud in its Astarra Strategic fund that was later found to have defrauded investors of about $123 million. The collapse prompted a federal parliamentary inquiry into the conduct and oversight of the fund.
What role did APRA (the superannuation regulator) play in the Trio Capital case?
APRA was involved with Trio Capital as early as 2005 and asked for valuations of assets inside Astarra Strategic, but the inquiry heard APRA never received the information it sought. Senior APRA officers admitted they had focused mainly on corporate governance rather than the root cause of the fraud.
Why did APRA fail to detect the fraud at Trio Capital sooner?
APRA officials told the inquiry that later Trio directors displayed 'gross incompetence' and inherited a fraudulent structure set up by earlier promoters. The deputy chairman agreed APRA’s interventions since 2005 had not addressed the fraud’s root cause, and APRA also failed to follow up valuation requests.
How much compensation has been paid to superannuation members for frauds like Trio Capital?
APRA officials described a historical total of about $100 million in compensation paid for frauds from superannuation funds it regulates. That total included about $55 million related to Trio Capital.
Were members of the ARP Growth fund eligible for compensation after Trio’s collapse?
Members of Trio’s ARP Growth fund found their $58 million invested through do-it-yourself (DIY) super funds was ineligible for compensation, which led the inquiry to hear calls for a last-resort fraud compensation scheme.
What did the liquidator PPB find about Astarra Strategic’s investments?
The liquidator PPB described the fraud as involving Astarra Strategic investing in non-existent companies and said investigations were continuing into doubtful ARP Growth investments.
Who blew the whistle on Trio Capital and what happened to the investment manager?
Whistleblower John Hempton alerted regulators about problems at Trio Capital. The fund’s investment manager, Shawn Richard, was later jailed for two years and six months in relation to the case.
Did the parliamentary inquiry recommend any changes after the Trio Capital collapse?
The inquiry highlighted failures in oversight and governance, and heard calls for a last-resort fraud compensation scheme to protect members left without recourse—suggestions aimed at preventing similar outcomes for everyday superannuation investors.
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