Regulator concedes it fiddled while Trio burned

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.