Australia’s corporate watchdog, the Australian Securities and Investments Commission (ASIC), has initiated legal proceedings against several entities and individuals linked to the financial collapses of the Shield and First Guardian schemes. These schemes have resulted in the loss of over $1 billion in retirement savings for thousands of Australians.
ASIC is targeting Interprac, a licensee responsible for overseeing financial planners, alleging critical compliance failures. The regulator is also suing ratings agency SQM Research for allegedly issuing misleading “favourable” ratings for the Shield Master Fund. Additionally, ASIC has taken action against MWL Financial Services, former director Nicholas Maikousis, and lead generator Imperial Capital Group Australia for their roles in the debacle.
Allegations Against Interprac
According to ASIC, Interprac’s oversight and compliance failures exposed thousands of Australians to poor financial advice and significant risks. The regulator has commenced civil penalty proceedings in the Federal Court against Interprac, accusing the licensee of failing to ensure its representatives complied with best interests obligations and maintained adequate risk management systems.
ASIC deputy chair Sarah Court stated, “We allege that no competent financial adviser could have recommended Australians invest large amounts of their superannuation in these funds, and that Interprac — as licensee — should have been alert and responsive to the significant risk this conduct posed to clients, but it failed on many levels.”
The watchdog alleges that Interprac representatives advised approximately 6,843 clients to invest around $677 million of their superannuation into Shield and First Guardian. Furthermore, ASIC claims Interprac failed to have an adequate process for approving financial products, relying solely on external research to add these funds to its approved investments list.
Compliance and Response Failures
ASIC also alleges that Interprac failed to respond appropriately to the use of lead generators and did not adequately address payments made to entities associated with Shield and First Guardian. The regulator claims that Interprac did not enforce a hold on new investments into these schemes despite acknowledging serious issues.
In an exclusive interview with ABC News, Interprac’s managing director, Garry Crole, admitted, “maybe we could have done more” to prevent the losses associated with First Guardian and Shield.
Moreover, ASIC accuses Interprac of employing a “negative consent” practice, leading to some clients’ superannuation being invested without their express consent. The corporate cop also alleges inadequate responses to client complaints and a reliance on “template” responses that often failed to consider the appropriateness of the advice given.
Legal Action Against SQM Research
In a separate legal action, ASIC is pursuing SQM Research for allegedly preparing reports with misleading representations and failing to meet expected standards when publishing “favourable” ratings for the Shield Master Fund. These reports, published between October 2021 and October 2022, rated Shield as “3¾ stars, Favourable” and were provided to financial advisers and superannuation trustees.
Approximately 5,800 individuals invested their superannuation savings into Shield, often following advice from financial advisers. ASIC alleges that SQM Research failed to obtain necessary information to assess Shield properly and did not adequately address inconsistencies in the information received.
ASIC deputy chair Sarah Court emphasized the significance of this case, stating, “We believe research houses are important gatekeepers and form part of a critical line of defence against poor quality investments or unsuitable products … the community is entitled to expect that their reports will be accurate and based on appropriate information and analysis.”
Implications and Future Steps
The legal actions initiated by ASIC underscore the regulator’s commitment to holding entities accountable for their roles in financial collapses that impact Australians’ retirement savings. The proceedings against Interprac and SQM Research highlight the importance of robust compliance and accurate financial reporting in safeguarding investors.
As the cases unfold, the outcomes could set significant precedents for the financial services industry, particularly regarding the responsibilities of licensees and research houses in ensuring the integrity of financial advice and ratings. The proceedings also serve as a stark reminder of the potential consequences of inadequate oversight and compliance failures.
Interprac has stated that it will defend its position vigorously, while SQM Research’s owner, Louis Christopher, noted that the company is assessing the claims and will communicate its stance in due course.
The unfolding legal battles will be closely watched by industry stakeholders, regulators, and affected investors, with potential ramifications for the broader financial services landscape in Australia.
