Friday, March 19, 2010

My tipper on Astarra

Tipping the authorities off about Astarra required – as I said – no special genius on my part.  I was tipped by a blog reader who noticed that the Astarra investment committee claimed Charles Provini as a member whilst Provini was the CEO of Paradigm Asset Management.  I have written extensively on Paradigm Asset Management (see here for a decent summary). 

Anyway my tipper has now revealed himself.  He is Dominic McCormick – the chief investment officer of Select Asset Management.  Dominic insists his team deserves any credit.

Dominic (and presumably his team) had many of the issues with Astarra nailed by the time he tipped me off.  I worked out a few more.   

I reported the story to the Sydney Morning Herald who did not think they had enough evidence to run the story.  [They printed nothing until much later.]

Later I worked a few more things out and using connections ensured that the whole story landed directly on the desk of Tony D’Aloisio (the head of our securities regulator). 

Dominic found about half a dozen red flags with Astarra.  He has since listed them in this article without revealing that he was my original tipper.  Dominic’s article shows clearly that there were plenty of reasons not to invest in Astarra – and these reasons are valid reasons to be wary even if you have no strong basis to allege fraud.

The problems are wider than either Dominic or I anticipated.  For instance we knew nothing of ARP Growth – and that may be the most seriously impaired fund of the lot.  It is also the only fund on which I am willing to determine – absolutely – involved fraud.  (I have two wildly different sets of accounts for ARP Growth - at least one of those accounts must be fraudulent.)

The rest of the issues with Astarra I will leave in the capable hands of our regulator and perhaps the class action lawyers.  I want to get back to making money for our clients.

 

 

John

3 comments:

Keith - Hermosa said...

Very nice work, again! Would you please take over the Fed? Or at least the SEC?

Ken Taylor said...

You're an influential guy. It was your relationship with Ken Henry that made your letter to ASIC sufficiently credible to get them interested. ASIC asking questions gave enough credibility for the Herald to publish, which further encouraged ASIC to take it seriously. A letter or press article from Joe Blow would be ignored. At least some people who have had there funds frozen aren't likely to be happy about ASICS actions. Like you say in your submission to the Cooper Review, an Australian super ponzi could go on for years before it collapses. The people collecting pensions now were winners until ASIC stepped in.

Could unallocated gold in the London Bullion Market Association (LBMA) be a fractional reserve system unbeknown to most account holders as suggested by Paul Mylchreest http://www.gata.org/files/ThunderRoadReport-10-15-2009.pdf. The argument goes that in 2008 the total quantity of unallocated gold is estimated to be 15,000 tonnes which supports the 2,134 tonnes on average of spot gold trade through London every day representing 14.2% of the pool. This compares to average daily turnover in UK equities of between 0.34% and 0.63% for the 12 months ending September 2009. While members of the LBMA provide no information on the backing for unallocated gold the improbably high turnover is suggestive they are operating a fractional reserve system where unallocated accounts are only partially backed by physical gold. This makes LBMA unallocated gold accounts susceptible to a run and gold is not like a fiat currency where the government can make more.

If it is true, unlike the Astarra revelations, your fund could exploit this opportunity.

Alison said...

Well done to Dominic and his team for seeing the red flags and John for getting the regulators to review Astarra. It certainly has triggered some momentum down in Wollongong which may improve the quality of the local financial planning profession.

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