Monday, May 21, 2012
Astarra Trio: report of the Parliamentary Inquiry
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.
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