Monday, May 21, 2012

Astarra Trio: report of the Parliamentary Inquiry

This post is a victory lap on Astarra-Trio. If you are not interested in fraud in the Australian superannuation industry you might skip it.

Long-time readers of the blog will know that I am responsible for reporting to authorities the largest fraud ever conducted in the Australian Superannuation system.

For non-Australians I should note this is important. Australia has a privatised compulsory social security system where individuals are compelled to invest money in funds to fund their own retirement. Choice of fund is important (because returns are dependent on choice) but the investing population is usually unsophisticated in finance and often uninterested. Large pools of unsophisticated investors are - in my experience - always a magnet for scammers.

The fraud I reported was in a fund called Absolute Alpha - but it was only part of a larger network of fraudulent funds.

Spotting it required no genius on my part: I was tipped by a blog reader.

The regulators acted very promptly (within weeks) to my tip and closed the fund. I have described their behaviour as exemplary.

Several prominent people in the funds management market denied fraud - and one publicly argued that I was motivated by (a) greed* and (b) publicity for my fund.

Later one of the main perpetrators admitted guilt and is serving what I thought was as surprisingly short prison sentence.

Eventually there was a Parliamentary inquiry by the Joint Committee** on Corporations and Financial Services. The inquiry reported last week.

It is amusing to find this blog post written into the Hansard (permanent record) or the Australian Parliament. The inquiry was quite nice to me. They essentially accept all my propositions about how the fraud worked and described me as "persistent". I can't complain at any of the comments about me or this blog.

After reading the report (from Parliamentarians who had more resources and more time than me) I  conclude I knew most - but not all - of what was going on. I don't find anything in the recommendations I strongly disagree with - but I can't see why the clients of ARP Growth should be treated any differently to the clients of (say) Tarrants - both were in self-managed super funds established in cookie-cutter fashion by their financial planners.

And I thank the Joint Committee for their observation that whilst the response to my letter was exemplary the persistence with which the regulators followed leads after an admission of guilt leaves a bit to be desired. In particular I have been surprised and disappointed that so little has been done to examine the ARP Growth Fund. The Committee expressed the same surprise.

Astarra-Trio may be a one-off. But somehow I doubt it. There is over a trillion dollars invested in superannuation schemes and almost all of the end-clients are way less sophisticated than the readers of this blog. I hope the Parliamentary Inquiry leads to a closer regulatory focus on ways of preventing theft in Superannuation. A honey-pot like the Aussie Super Pool is too attractive to fraudsters to leave so lightly guarded.


*I responded that it was hardly an insult to claim a hedge fund manager is motivated by greed. My clients expect nothing less. Controlled greed is what my clients pay me for.

**Joint Committee simply means that members come from both the Senate and the Lower House.


David said...

Small grammatical point: I think the investors are uninterested; they're certainly not disinterested.

But well done as to the substance.

John Hempton said...

Grammatical point fixed.


Anonymous said...

Yet 2 of the advisers who have been banned still get to be directors of their own FP practice,

Anonymous said...

Great work John - as always.

What I don't understand is why Jack Flader, the Hong Kong-based 'lawyer' behind this whole scam is still walking free.

Are the Australian authorities making ANY attempt whatsover to extradite and prosecute this guy for one of the biggest frauds in Australian history?

Carl HT said...

Great update John. Personally I think they are all a scam, I had re-allocated all of mine in australian government bonds in three different funds at almost the same time, yet the returns were so disparate.

Additionally, for a uni student sized account these guys will charge you $50-100 fees on $1000 accounts. I think an overhaul is required!

Absalon said...

So maybe there is an opportunity there for you to build a really big (albeit low margin) fund in the superannuation business. Having a parliamentary committee praising your insight and integrity has to be a good place to start the marketing.

Bruschettaboy said...

A great call and one you can be proud of. While you're clearing a space on the office shelf for the tombstone on this one, maybe it might be time to make your peace with Icelandic women though ...?

Tim Davidson said...

Great job you do dear. It'll be helpful to aware from the deceitful. Keep it up!
Australian Super Funds

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.