Main Committee: Corporations and Financial Services Committee Report.

Mr FLETCHER (Bradfield) (17:37): I am pleased to have the opportunity to speak about the ongoing progress of the inquiry of the Corporations and Financial Services Committee into the collapse of Trio and the consequences for investors, as shown in this interim report.

The collapse of Trio is a very unhappy story which has left a number of Australians materially worse off. A number of my constituents approached me after having invested substantial amounts of money, typically via self-managed superannuation funds, with Trio Capital and its products, including particularly the ARP growth fund. Trio collapsed in 2009 and investigations began on the part of ASIC, APRA, a liquidator and other players, and it became clear that there was substantial evidence of fraudulent conduct. It appears that over $100 million has been lost by investors in two principal categories: self-managed super funds, as I have mentioned, and also those who have invested via APRA regulated superannuation funds.

Last year then Assistant Treasurer Bill Shorten, prior to taking another step on his glittering ascendancy to inevitable total world domination, announced that there would be compensation for those Australians who had lost money as a result of the Trio Capital collapse who had invested in APRA regulated funds. However, this compensation did not extend to people who had invested by means of self-managed superannuation funds. In my view, what has happened here is a real tragedy, as I have argued previously in this place. These are people who have sought to provide for their own retirement. I speak of my constituents who have invested via self-managed superannuation funds and many other investors who have invested in that fashion. They are in the main quite financially sophisticated people. They are people who have accumulated substantial balances designed to provide for them in their retirement. In other words, they have been seeking to take responsibility for their own financial position in retirement. Yet the balances in those funds have been entirely lost. The average balance in the self-managed superannuation fund component of the Trio collapse is some $700,000, so these are very substantial amounts of money that have been lost. It was therefore pleasing to me that the Parliamentary Joint Committee on Corporations and Financial Services commenced an inquiry into the collapse of Trio and what we have learned through that inquiry is quite troubling. Trio operated a complicated web of products and funds. It was the trustee for several APRA regulated superannuation funds. It was also the responsible entity for a range of funds and products, including the ARP Growth Fund that I mentioned and the Astarra Strategic Fund. These funds attracted significant investments from typically self-managed superannuation funds.

Now much of this money went offshore and quite a lot of it ended up in jurisdictions like the British Virgin Islands and was last seen having been invested into swap deals with parties like Bear Stearns as the counterparty. None of this is very encouraging news for those who discovered that this is where their money had gone. The root cause of this very unhappy story appears to have been that in approximately in 2005 a well-established funds management business based in Albury was taken over by what now appears to be a criminal organisation. That is a very serious thing to say, but the evidence suggests it is an entirely valid thing to say. One key figure in this saga, Shawn Richard, has already gone to gaol as a result. Other key figures are considered to include a Hong Kong-based former US lawyer, Mr Jack Flader, who has a long-term record of involvement in what are called boiler shops or securities fraud in a number of jurisdictions.

The interim report of this inquiry notes the view of ASIC chair, Mr Greg Medcraft, that a key problem here is gatekeeper failure, that is to say in particular financial advisers who did not identify the risks that their clients faced and other players such as auditors. I do not dismiss that as being at least a partial explanation, although I am not persuaded it is the complete explanation. I have been surprised to find that a common pattern, as I mentioned earlier, was that the entire balance of a client's self-managed superannuation fund, often built up over many years, was put into a product like the ARP Growth Fund and, in turn, went into very risky offshore investments.

I would like to make three observations about the report and the observations that might be drawn at this stage of the inquiry. Firstly, consistent with what I have said before, it appears that a significant element of what occurred here was criminal conduct. It was put to the inquiry by one witness, who appeared on a confidential, in camera basis, that if you were looking for the perfect financial crime, what you might well do was attract money from a range of investors, put it into risky products such as swaps and then say to the investors, 'Look, I'm so sorry. As we all knew this was a risky investment. The risky outcome has occurred and you won't be getting any money back.' That might well be a very effective cover for what is in fact a criminal venture.

I want to record that I am not yet satisfied that that possibility has been adequately explored by ASIC and APRA, nor am I yet satisfied that these regulators have in place, or that there is in our regime, sufficient protection against criminality in the retirement-saving system in Australia—that is to say the threat of Australians retirement savings being misappropriated by criminal elements. Let us not forget that the Australian retirement savings pool at $1.3 trillion, one of the largest such pools in the world, is obviously therefore a very attractive target to those interested engaging in fraudulent conduct. The same witness I mentioned earlier made the point that one of the other reasons why the retirement income system in Australia is very attractive for those wanting to carry out financial fraud is that because the individual member of a fund does not claim on the fund until they reach retirement age, it may well be 10, 20 or 30 years before a fraud or a crime is discovered. The second observation I would like to make is that I am not satisfied that sufficient efforts have been made to pursue Jack Flader, the gentleman who is alleged—I repeat, alleged—to have been a mastermind of this scheme, and who is certainly reported to have been involved in fraud, boiler room operations and the like, in a number of jurisdictions. I have asked questions in the committee process about the options open to Australian regulators to pursue international fraudsters preying upon Australian investors, and I have been given answers in general terms as to the availability of treaties, extradition arrangements and so on. But my own view is that there has not been persuasive evidence provided to the committee that Australian regulatory authorities have pursued Jack Flader with maximum possible vigour with a view to determining whether he is in fact responsible—as the evidence allows an inference to be drawn—for defrauding many thousands of Australians of their retirement savings.

The third observation I would like to make comes back to the point which was made by ASIC Chairman Mr Greg Medcraft about gatekeeper conduct. I want to speak particularly about a gentleman formerly known as Paul Gresham, who has now changed his name to Tony Maher. It might be said that the mere act of changing your name raises a suspicion, but of course there may be a reasonable basis to change your name. What we do know is that Paul Gresham has recently granted to ASIC an enforceable undertaking permanently preventing him from working in the Australian financial services industry. We also know that he was a financial planner who was responsible for putting a number of his clients, including constituents of mine, into the ARP Growth Fund. Certainly ASIC is to be commended for having required him to provide this enforceable undertaking. They note, in their media release announcing it, that Mr Gresham, as he was then known, received undisclosed payments of more than $2 million arising from investments he recommended for ARP and its predecessor called Professional Pensions Pooled Superannuation Trust.

As I have indicated, when you look at the kinds of investments that the contents of these self-managed superannuation funds went into, it is very hard to see how they were appropriate investments or an appropriate mix and spread of investments of different risk classes to provide for the retirement incomes of the members of those self-managed superannuation funds.

I do, however, want to make the observation that it would be, in my view, unsatisfactory if the only sanction that were visited on Mr Maher, formerly Mr Gresham, is that he is prevented in the future from working in the financial services industry. Of course he is entitled, like anybody else, and like anybody I have spoken about today, to the presumption of innocence. But should inquiries find that the actions that ASIC have taken are based on factual circumstances that could be proved to a criminal standard then, in my view, it would be entirely appropriate to pursue action against him, and I would certainly encourage ASIC and other appropriate regulators not to cease their engagement with this matter with the obtaining of an enforceable undertaking.