Trio directors forced out of super industry

IT WAS the largest theft in Australian superannuation history, when tens of millions in investors' money disappeared into offshore hedge funds.

By InvestSMART · 9 Sep 2011

By InvestSMART ·
9 Sep 2011

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IT WAS the largest theft in Australian superannuation history, when tens of millions in investors' money disappeared into offshore hedge funds.

Yesterday the Australian Prudential Regulation Authority announced it had accepted enforceable undertakings from two directors of the trustee, Trio Capital, removing them from responsible positions within the superannuation industry.

Trio's chief executive Rex Philpott undertook not to act as a trustee, investment manager or custodian of an APRA-regulated superannuation entity for 15 years. Trio's chairman, David Andrews, is similarly restricted in his dealings with the super industry for 10 years.

The chief executive of the Australian Institute of Superannuation Trustees, Fiona Reynolds, said she was concerned the undertaking did not extend across the wider financial services sector. APRA had regulatory authority across the superannuation sector, but it was the Australian Securities and Investment Commission which regulated financial services licenses.

"APRA has only done what is within its powers. I think 10 to 15 years is the right outcome because anyone who is entrusted with the responsibility of looking after or managing other people's money is in a position of trust, and when they breach that trust the penalties need to follow.

"I would hope that ASIC is also taking action ... it should be broadened so they are not able to be directors of any organisation that holds an Australian Financial Services Licence."

Wollongong man John Telford, who lost his $600,000 injury compensation lump sum, told BusinessDay it was "good to see justice being done" but he was frustrated that no offshore people involved in the money's disappearance had been arrested.

In a statement, APRA said Mr Philpott and Mr Andrews accepted they had failed to properly carry out their duties as directors. APRA found the two had failed to redeem existing investments in the offshore hedge fund, Exploration Fund Ltd, and the managed investment scheme Astarra Strategic Fund, and had continued making investments which by September 2009 amounted to $62.2 million.

ACT Super, which replaced Trio as acting trustee of the superannuation funds, has been unable to redeem any of the investments in the Astarra Strategic Fund "and has determined that the funds have been lost due to fraud or theft", APRA said.

It said the directors failed to consider the risks of investing in the offshore funds, the investment structure of the funds, and the lack of an arms-length relationship with the Exploration Fund, which was a related party.

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Frequently Asked Questions about this Article…

What was the Trio Capital superannuation scandal about?

The Trio Capital scandal involved tens of millions of dollars of investors' superannuation money that disappeared into offshore hedge funds. APRA found the trustee’s directors failed to properly carry out their duties, including failing to redeem investments in offshore funds such as Exploration Fund Ltd and the Astarra Strategic Fund, and accepted enforceable undertakings removing the directors from responsible roles in the super industry.

Which Trio Capital directors were banned and for how long?

Trio’s chief executive Rex Philpott agreed not to act as a trustee, investment manager or custodian of an APRA‑regulated superannuation entity for 15 years. Trio’s chairman David Andrews is similarly restricted from dealings in the super industry for 10 years, under enforceable undertakings accepted by APRA.

What did APRA find the directors did wrong in managing Trio’s investments?

APRA found the directors failed to redeem existing investments in the offshore funds Exploration Fund Ltd and Astarra Strategic Fund, continued making investments that by September 2009 totalled $62.2 million, and did not properly consider the risks, the investment structure or the lack of an arm’s‑length relationship with the related Exploration Fund.

How much money was invested and possibly lost in the offshore funds?

APRA identified continued investments that amounted to $62.2 million by September 2009. ACT Super, which replaced Trio as acting trustee, has been unable to redeem investments in the Astarra Strategic Fund and has determined those funds have been lost due to fraud or theft.

Can affected super members get their money back from Astarra or Exploration Fund?

According to APRA, ACT Super has been unable to redeem any investments in the Astarra Strategic Fund and has determined those funds have been lost due to fraud or theft. The article does not report successful recoveries, so affected members should be prepared that those investments may not be recoverable.

What’s the difference between APRA and ASIC in relation to the Trio case?

APRA (Australian Prudential Regulation Authority) regulates the superannuation sector and accepted enforceable undertakings that removed the Trio directors from super roles. ASIC (Australian Securities and Investments Commission) regulates Australian Financial Services licences; critics in the article argued the bans should be broadened so the directors couldn’t hold roles in organisations with an AFSL regulated by ASIC.

Were any offshore people involved in the disappearance of funds arrested?

The article reports investor frustration—Wollongong man John Telford, who lost a $600,000 lump sum, said he was frustrated that no offshore people involved in the money’s disappearance had been arrested. The article does not report any arrests.

What practical lessons should everyday investors take from the Trio Capital case?

The Trio case highlights the importance of checking who manages your super, understanding where funds are invested (especially offshore hedge funds), and watching for conflicts or non‑arm’s‑length relationships. It also shows regulators can impose long bans on trustees who breach trust, but those remedies may not recover lost investor capital—so due diligence and diversification remain crucial.