Stuart Washington Trio/ Astarra articles

eliu

Typewriter

Factiva Search- Byline:Stuart Washington

eliu

Typewriter

eliu

Typewriter

Keyword: Trio Capital Duplicates: Identical Range: All ALL SOURCES

Software sends profits down the YouTube 4

Regulator concedes it fiddled while Trio burned 6

Scoundrels, and how to avoid them 8

Come and clear up this cornucopia of calumnies 10

Trio 's Richard jailed for 2½ years over stolen super 12

Andrews given nine-year ban, Richard facing time in the can 13

Andrews given nine-year ban, Richard facing time in the can 15

Burning questions remain over super theft 16

Words will not save Richard from jail time 19

Trio front man 'Shawny Cash' heads to prison 21

A company is made in its owner's image 23

Planners banned over Trio fiasco 25

How regulator missed chance in Trio debacle 26

Parliament to probe Trio Capital fraud claims 28

DIY funds need compensation too 29

Cold comfort for forgotten victims of Trio Capital fiasco 31

Super industry shouldn't fool itself: Trio Capital could happen again 32

Opportunity still knocks - be sure to read the fine print 34

Investors deserve a softer landing than concrete 36

Couple of clowns duped in super scam muddy waters for true victims 38

DIY super funds given cold shoulder in Trio payout 40

Fraud victims get $55m back, but some left empty-handed 42

Ombudsman's name and shame list a bold step forward 44

DIY super fund investors warned of no compensation from fraud 46

Astarra frontman pleads guilty 48

Self-managed super and the Trio trap 50

Trio Capital manager faces jail after guilty plea 52

Let's hope this time there is a difference 54

Investors deserve comfort of savings made for rainy days 57

Three pennies in the fountain of Trio Capital losses 59

Super thief caught up in US fraud 61

How to grow rich stealing super cash 63

Trio identity still controls financial planner 66

Murder and threats make for reluctant testimony 68

Revealed: Trio 's links with Michael McGurk 70

Cowboys watched as millions disappeared 72

How Trio scandal slipped under ASIC's radar 75

Pair plays it cool as court hunts for $400m 77

'Marketing allowance' paid to planner 79

Kickbacks kept coming as Trio manager sent investors' funds offshore 81

Funds manager admits lying 83

I am only a puppet, says Trio director 85

Trio Capital principal tries to stop public examination 87

Trio Capital - a long, slow car crash 89

List of alleged Trio offences sent to ASIC 91

Lack of independent trustees could hurt investors, critic warns 92

ARP Growth liquidator finds assets are worthless 93

ASIC probity inquiry puts Trio adviser in spotlight 95

You wouldn't read about it 97

Racecourse workers lose savings in super fraud 100

Judge says Trio fraud 102

Corporate regulator investigates former directors at Trio Capital 104

No safety net for self-managed super 106

Fictional resemblance to a heist 108

Astarra funds custodian got around legal barrier 110

Out of the shadows 111

Astarra hunt shifts to HK 116

Astarra to be wound up 118

ASIC refuses to release Trio details 119

Case being prepared for Trio government compensation 120

Astarra asset trail leads to Caribbean 122

Astarra fund millions sent to dodgy dealer 123

Pensioners caught in freeze of Trio funds 125

Trio 's failure could ensure Cooper's success in review of conflicted super industry 127

ASIC must move quickly on Trio fund 129

Fraud fear in Trio fund's lost $45m 131

Mystery deepens over missing Trio funds 133

Majority of Trio 's assets 'accounted for' 135

Murder, intrigue and missing millions 137

Astarra shares Hong Kong link to broking scandal 140

Trio Capital holding $1.5m 'risky' asset 142

Trio problems are a failure on the part of its gatekeepers 143

Blogger who blew the whistle 146

Trio : from the boiler room into the fire 148

Mystery deepens over Trio 's missing $118m 150

Details sketchy on Trio 's $118m 151

Trustees track Trio Capital 's offshore vehicle 153

APRA moves on super fund Trio Capital 's $426m 155

Warrants close, holders lose all 157

S o f t w a r e s e n d s p r o f i t s d o w n t h e Y o u T u b e

SE BusinessHD Software sends profits down the YouTube BY STUART WASHINGTONWC 922 wordsPD 5 September 2011SN The Sydney Morning HeraldSC SMHHGC CTGDJCED FirstPG 6LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

I have been showing my kids music film clips from YouTube on television. It's pretty easy. TheiPad downloads the stuff over the home Wi-Fi network. Then you use a cable to hook the iPadinto the back of the television. Then you listen to the music.

TDAnd in the background, if you listen closely, you can hear the sounds of the business modelscoming crashing down. There goes the profit margin for the record industry. My kids are listening to this stuff for free. And as the music plays there is another small incursion into the ad-driven profit margins ofcommercial free-to-air television. We're watching television all right, but we're not watchingcommercial television. And, while I'm at it, all forms of traditional commercial media are suffering as my kids watch YouTube on television. We aren't sitting around listening to the radio, watching movies or reading newspapers. Our timeis being diverted by free content downloaded from the internet. (We also aren't sitting around playing board games and enjoying more carefree pursuits, but I willleave the topic of poor parenting to another day.) In a recent article in the Wall Street Journal, the co-founder of pioneer internet browser Netscape,Marc Andreessen, went much further with this kind of analysis, boiling his argument down to thepithy one-liner: "Software is eating the world." Andreessen spells out a collapse in the costs of providing services over the internet. Such radicalreductions allow software challengers to emerge in all sorts of industries previously seen as thepreserve of traditional "real-world" companies. In the challenger camp - and companies Andreessen discloses he has invested in through hisventure capital firm Andreessen Horowitz - are online coupon business Groupon and online telcoSkype. Andreessen's argument is familiar because we have seen it happen before our eyes. He cites the by now familiar examples of Blockbuster's video hire business knocked over byonline order business Netflix, and bricks-and-mortar bookseller Borders knocked over by onlinebookseller Amazon. Andreessen also gives the almost obligatory nod to Joseph Schumpeter and his much-celebratedobservation about entrepreneurs and their penchant for creative destruction - old businessesmaking way for aggressive young start-ups. (Funny how the entrepreneurs always focus on that remark of Schumpeter. They never seem togive much weight to some of Schumpeter's other observations, such as his prediction about theend of capitalism, because the society produced by capitalism fosters values that do not allowcapitalism to be sustainable.)

Page 4 of 159 © 2011 Factiva, Inc. All rights reserved.

John Hempton, an indefatigable blogger, fund manager with Bronte Capital and fraud buster,agrees with Andreessen's argument, and raises the notion that the world is becoming "appified". I know, it's a terrible word, but it attempts to convey software doing jobs as an "application" thatused to be done by something in the real world. For example, using the map function in an iPhonerather than leafing through the Gregory's. In a recent post, Hempton inspects the case of hardware firm Cisco talking about 50 billiondevices in the world needing to be connected to the internet - but failing to convert that astonishingfigure into sales of the hardware routers it manufactures. The reason? Because software is "appifying" Cisco's hardware business - software is doing the jobthat its routers used to do. "If the output of your hardware is information or the manipulation of information then you are goingto get eaten. If the output is something else then you are not," Hempton writes. And that's also Cisco's business model you can hear crashing down in the background of the YouTub e music my kids and I are listening to. And just for the record, we were listening to Gotye's Heart's a Mess. I might buy the record fromiTunes. Not all business models are collapsing. - - - STAYING with John Hempton, Ross Jones, the deputy chairman at the Australian PrudentialRegulation Authority, should have a second look at a hedge fund called ARP Growth. Hempton famously blew the whistle with the regulators after examining the smooth returns ofAstarra Strategic, a hedge fund that was run by Trio Capital. Investors in that fund lost $123 million. A total of 74 investors in a sister fund called ARP Growthlost $58 million, in many cases the elderly investors' life savings. At a federal parliamentary inquiry last week, Jones made the incredible statement that ARPGrowth's losses were not due to fraud, but due to investment losses. Given what we now knowabout the masterminds behind Trio Capital and their criminal intent, the parliamentarians are indanger of being falsely reassured by Jones's statement. As this newspaper has established, there were two sets of accounts for ARP Growth. So at itsmost basic level, there has been a fraud committed of some sort. Further than that, the investments ARP Growth made through the British Virgin Islands havenever been found and are shrouded in a mysterious swap agreement with Bear Stearns (now JPMorgan). Did the money ever go where it was supposed to? Certainly Brett Manwaring, the PPB liquidator who has investigated ARP Growth, was much moreguarded about whether the losses could be investment losses. ARP Growth was a fraud - two sets of accounts show it was a fraud. And APRA should pull itscollective finger out and look at ARP Growth again.

CO yoinco : YouTube Inc. | goog : Google Inc. IN iint : Internet/Online Services | iport : Internet Portals NS gmovie : Movies | gcat : Political/General News | gent : Arts/Entertainment PUB Fairfax Media Management Pty Limited AN Document SMHH000020110904e7950001q


R e g u l a t o r c o n c e d e s i t f i d d l e d w h i l e T r i o b u r n e d

SE BusinessHD Regulator concedes it fiddled while Trio burned BY Stuart WashingtonWC 388 wordsPD 31 August 2011SN The Sydney Morning HeraldSC SMHHGC CTGDJCED FirstPG 5LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

INQUIRY THE superannuation regulator was grilled yesterday about failing to follow up its request for avaluation of a Trio Capital fund, a year before it was discovered the fund had been defrauded of$123 million.

TDSenior officers of the Australian Prudential Regulation Authority were called before a federalparliamentary inquiry in Sydney yesterday investigating the collapse of Trio Capital and a fraud inits fund, Astarra Strategic. Trio Capital collapsed in late 2009 after regulators were alerted by a whistleblower, JohnHempton. Its investment manager, Shawn Richard, was jailed for two years and six months earlierthis month. APRA officials portrayed a historical total of about $100 million in compensation paid for fraudfrom superannuation funds it regulates - including $55 million for Trio - as a "pretty good result" forthe size of the superannuation sector. But the deputy chairman of APRA, Ross Jones, agreed with committee member Paul Fletcher thatAPRA had not addressed the root cause of the fraud in its interventions with Trio since 2005, buthad mainly focused on corporate governance issues. Mr Jones blamed the failure to detect the fraud on the "gross incompetence" of later directors of Tri o Capital, who had inherited the structure of a fraud set up by promoters in earlier years. The chair of the corporations and financial services committee, Bernie Ripoll, said: "If it is grossincompetence ... then there is something wrong in the system that allows that gross incompetenceto take place." The inquiry also heard calls for a last-resort fraud compensation scheme, after members of Triofund ARP Growth found their $58 million invested through do-it-yourself super funds was ineligiblefor compensation after Trio's collapse. And the inquiry heard descriptions of the fraud from the liquidator, PPB, including AstarraStrategic investing in non-existent companies and continuing investigations into doubtful ARPGrowth investments. The committee heard APRA had been involved with Trio as early as 2005 and had asked for avaluation of assets inside Astarra Strategic, but had never received the information it sought. In October 2008 Trio wrote to APRA saying it had no available valuations for two Trio funds laterfound to be at the heart of the fraud, Astarra Strategic and the Exploration Fund.

NS c131 : Regulatory Bodies | c13 : Regulation/Government Policy | ccat : Corporate/Industrial News| ncat : Content Types | nfact : Factiva Filters | nfcpin : FC&E Industry News Filter

RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110830e78v00057 Page 6 of 159 © 2011 Factiva, Inc. All rights reserved.


S c o u n d r e l s , a n d h o w t o a v o i d t h e m

SE BusinessHD Scoundrels, and how to avoid them BY STUART WASHINGTONWC 921 wordsPD 22 August 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 7LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

Are people with criminal records allowed to own businesses in financial services? Answer A Are you joking? There's $1.3 trillion tied up in superannuation that's supposed to be forpeople's retirement. There's no way you would let anyone with even the whiff of criminalityanywhere near it. You would have to be bananas to think that someone with ill will wouldn't usetheir ownership to control the destiny of a financial services licensee.

TDAnswer B Ahem, well, yes, people with criminal records are in fact allowed to own a financialservices business which has a licence and (sound of throat clearing) they can exert whatevercontrol they wish to inside the company. The test for a financial services licence relies on thedirectors of the financial services business passing a test of good fame and character. The sametest is not applied to the owner of the license; in fact there is little evidence ownership of thebusiness is even considered. Answer Sadly, B is correct. How does a scoundrel financial planner find his or her way into the industry? Answer A There are no scoundrels in this industry - they are carefully weeded out by the holders offinancial services licences. These licensees have far too much skin in the game to put their ownlicence at risk. The vetting means that people (or whole businesses) that become "authorisedrepresentatives" of the licensed business behave in a thorough and ethical manner. Answer B A scoundrel finds a financial planning group that doesn't pay too much attention towhom it is authorising. Some financial services businesses act as little more than licences-for-hirewho are happy to clip the ticket, appointing practically anyone who knocks on the door as anauthorised representative. These businesses are shoddy enough and happy enough to take a punt that the people (or wholebusinesses) they authorise are behaving appropriately. The scoundrels (or scoundrels runningwhole businesses) then carry on with practically no other checks. Answer Sadly, B is correct. W hat is the corporate regulator doing about the issue of licences-for-hire in the financial planningindustry? Answer A A fair bit. The Australian Securities and Investments Commission is looking closely atthe issue and checking just how some financial planning groups have managed to accumulate awhole range of odds-and-sods financial planners, without any real evidence the group is holdingits authorised representatives to an appropriate professional standard. Answer B Not enough. ASIC has allowed a system to develop so that unsavoury planners canhop from one network to another, with seeming impunity for both planners and the holders of thelicence. Answer Sadly, answer A and B are the correct answers. Is my super safe? Answer A Australia's superannuation system and the national savings they represent are the envyof the developed world, and are closely regulated by the Australian Prudential Regulation


Authority. Answer B There have been notable thefts that have shown weaknesses in the currentsuperannuation system, including Trio Capital in 2009 (about $180 million missing) andCommercial Nominees in 2002 (about $25 million stolen). Answer C A weakness in the current system is a lack of control over conflicts of interest insuperannuation, so the financial planner, the trustee and the fund manager can all be owned bythe same person. It's not a good look at the best of times, but especially not a good look whenthat owner is also a criminal (see question one). Answer A, B and C are correct. I f I lose all my super because someone robs me of my life savings, do I get compensation? Answer A Of course. Answer B Yes, after more than a year, if you are in a super fund regulated by the AustralianPrudential Regulation Authority, and the fund has taken a big knock. Answer C No, if you are in a self-managed super fund. Answer D No, if you are in a super fund regulated by the Australian Prudential RegulationAuthority and the fund has not taken a big knock. Answer Sadly, answer A is not the correct answer. Answers B, C and D are the correct answers. H ow long do you go to jail for if you steal money as a financial services provider? Answer A Two years and six months for dishonestly helping to steal $26.6 million in super andmaking $1.3 million. Answer B Three years for insider trading and making $1.9 million. Answer C Two years for ripping off $4 million from your clients as a stockbroker. Answer A (Shawn Richard in Trio Capital), B (fund manager John Joseph Hartman) and C(stockbroker Robert Blanshard) are all correct. H ow do I make sure criminals keep their hands off my hard-earned super? Answer Be careful. Go to brand names you trust. Find a financial planner who listens to yourneeds. As a general principle if it looks too good to be true, it usually is. Look at the interest on aterm deposit (currently about 5.5 per cent a year). If anything is promising greater than that, youare taking more risk. If anything is promising greater than 10 per cent a year, it is quite risky. If it ispromising greater than 20 per cent, either do it with money you can afford to lose or forget aboutit.

CO aupra : Australian Prudential Regulation Authority RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110821e78m00022


C o m e a n d c l e a r u p t h i s c o r n u c o p i a o f c a l u m n i e s

SE Business - Opinion & AnalysisHD Come and clear up this cornucopia of calumnies BY STUART WASHINGTONWC 973 wordsPD 15 August 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 7LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

Bad luck, Jack W. Flader. What was that judge thinking on Friday when he all but called you anout-and-out thief? He said you were the mastermind of a superannuation fraud that has cost investors in the Alburyfund manager Trio Capital up to $180 million.

TDI know, I know. It's so outrageous you haven't been given a chance to defend yourself. I just can't believe how those judges and lawyers and regulators are badmouthing you around theplace. How did Justice Peter Garling put it in the NSW Supreme Court on Friday? He said: "I accept that... Mr Flader was the architect and ultimate controller of the scheme." Then he put your former employee Shawn Richard in the slammer for 2½ years. So I guess poor old Shawny Cash had a bit of bad luck after he put all that money into offshorehedge funds you controlled. But it's nothing compared to the indignities being committed against your good name. Last I heard from you I thought you were in Hong Kong. I'm surprised you haven't jumped on aplane and set these scurrilous rumours to rest. They schedule flights to Australia reasonably frequently these days, but I guess there must besome reason you haven't come down. It was bad enough when BusinessDay was having a go at you. What were you called? Somethingalong the lines of "super thief"? It's pretty intolerable to see your name coming up associated with Australia's largestsuperannuation fraud. So bad luck, sir, bad luck. And it's not as if it's the first bit of bad luck you've had either, is it Jack? I'm figuring it must be just a run of bad luck that your name crops up in association with a wholehost of separate scams. Bad luck, I say, that you were general counsel of Zetland Financial Group when it was owner ofthe British stockbroker Pacific Continental Securities. I'm sure you were as shocked as anyone that Pacific Continental turned out to be a shopfront forrogues selling worthless penny stocks before it collapsed in 2007. I'm sure you were acting appropriately as the US-trained lawyer that you undoubtedly are. I betyou were right in there, behind the scenes, working hard to change its ways. What was it that the Financial Services Authority called Pacific Continental Securities? Somethingabout inappropriate selling between 2005 and 2007, and the chief executive acting withoutintegrity.


And bad luck, too, that your name appears as a defendant in a mega court litigation about theDerivium scandal in the United States. You were named as a "RICO defendant" weren't you? You being a lawyer and all, you would wellknow that stands for the Racketeer Influenced Corrupt Organisation Act. They never took you to trial. So I suppose that's a bit of good luck. But in any case, it would have been nice for you to stand before 12 of your peers and clear yourname of the slur. In any case the courts found last November that investors were ripped off to the tune of $US1billion ($965 million), and promoters were paid $US100 million ($96.5 million). Again, I say: bad luck, sir, to have your name associated with such an outrage. And while I'm at it, I'm sorry about this newspaper's references to your 2005 trip to Pattaya for a"global meeting" of stockbrokers you organised. I'm pretty sure it was just bad luck that seven of the 25 who attended have had substantial run-inswith regulators. Many seemed proficient in the world of penny stock fraud, but I'm sure the presence of those ratsin the ranks at Pattaya would have come as a shock to you. Mind you, it didn't sound like the conference was all hard work. What were the wines yourecommended your guests bring with them to your house in Pattaya? Weren't they ChateauTalbot, Lynch Bages and Carruades De Lafite? When I last looked a bottle of the current vintagein these labels they cost $65, $170 and $413. Such a merry life you had. What was it you said about your time at the Bulgari resort in Bali andits $1500-a-night rooms? Wasn't it "10 hours of massages, excellent Italian and Indonesian food,an ocean of fine wines, great workouts and painful yoga". It's all now uprooted and unsettled by these importunate aspersions. Now you say you have sold your Global Consultants and Services Ltd business. At any rate yourold website doesn't work any more. I guess it's another bit of bad luck how both those men you sold your business to were foundguilty in the Derivium scandal. I also think it's a bit of bad luck, by the way, that a couple of your old business colleagues, JamesCampbell Sutherland and Jeffrey Revell-Reade, seem to still have financial services interests inAustralia. But most of all I think it's bad luck you ever turned your attention to Australia. I'm very sorry about that, Jack. The investors in Trio Capital who have been forced on topensions and have lost their homes are sorry about that, too. I think ASIC may have a few regretsas well. I tell you what. Why don't we meet up at Sydney Airport, just you, me and a few officers from thecorporate regulator, and we can start addressing some of the bad luck that seems to follow youaround? I mean, really, it's just not fair, is it?

IN i835 : Legal Services | i831 : Financial Investments | ibcs : Business/Consumer Services | iinv :Investing/Securities

NS nedc : Commentary/Opinion | ccat : Corporate/Industrial News | ncat : Content Types | nfact :

Factiva Filters | nfcpex : FC&E Executive News Filter RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110814e78f0001o Page 11 of 159 © 2011 Factiva, Inc. All rights reserved.

T r i o ' s R i c h a r d j a i l e d f o r 2 ½ y e a r s o v e r s t o l e n s u p e r

SE BusinessHD Trio's Richard jailed for 2½ years over stolen super BY Stuart WashingtonWC 382 wordsPD 13 August 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

COURTS A SMOOTH-TALKING Canadian patsy took the fall for Australia's largest superannuation theftyesterday, but the major beneficiary of the crime remains at large.

TDShawn Richard, known by his Facebook nickname Shawny Cash, was sentenced in the NSWSupreme Court to a minimum of two-and-a-half years in jail yesterday. The sentence immediately attracted the ire of investors in Trio Capital, which collapsed in late2009. Trio investors lost $180 million sent to offshore hedge funds through Astarra Strategic andARP Growth. "We will be paying for many more years," Beth Roffe, a Wollongong investor who lost $500,000and is living on the pension, said outside the court yesterday. John Hempton, a fund manager who first exposed the fraud, said: "This has caused a very largenumber of people a very large amount of pain. If he had mugged three of those people and tooktheir purses he would have probably got a longer sentence." Richard, 36, looked haggard and unshaven as Justice Peter Garling found he was "motivatedsimply by greed" when he directed $26.6 million into offshore funds, knowing the money wasbeing stolen. But Justice Garling's sentencing remarks show that a US citizen based in Hong Kong called JackFlader was the real mastermind and major beneficiary. Mr Flader remains at large. Justice Garling sentenced Richard to a maximum sentence of three years and nine months. He said he was prepared to accept Richard, described as "ripe for the picking" by his lawyer, hadbeen naive and gullible when he started working for Mr Flader. But he said benefits Richardreceived included secret payments of $1.3 million to personal bank accounts in Liechtenstein andCuracao and payments to his company of $5.3 million. "Mr Richard is guilty of serious crimes of a high order. They were carefully considered andplanned, they were concealed, they continued over a period of nearly four years and they led tosignificant financial losses," Justice Garling said. "Whilst he may not have been the ultimate controller, a role attributed to Mr Flader, he was thecentral figure in Australia, without whose participation these offences could not have occurred."

NS gtheft : Burglary/Theft | gcat : Political/General News | gcrim : Crime/Courts RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110812e78d0005i


A n d r e w s g i v e n n i n e - y e a r b a n , R i c h a r d f a c i n g t i m e i n t h e c a n

SE BusinessHD Andrews given nine-year ban, Richard facing time in the can BY Stuart WashingtonWC 379 wordsPD 12 August 2011SN The Sydney Morning HeraldSC SMHHED ThirdPG 6LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

FINANCE Then those pathetic putrid looters?

TDCame up behind me to bully, ambush and bash - Callous bulls in a fragile china shop/Plundering nothing less than someone else's cash THE bard of Trio Capital has written his last stanza in the saga of the theft of $180 million fromAustralian investors. Yesterday David Andrews, 59, a former chairman of Trio, was banned from financial services andbeing a director for nine years, the longest suspension yet handed to three Trio directors whofailed to protect investors. Today the investment manager of Trio, Shawn Richard, is due to be sentenced to up to 10 yearsin jail. More than $180 million has been lost in two offshore hedge funds run by Trio, Astarra Strategicand ARP Growth. The Herald revealed last year that Mr Andrews was the author of what appeared to be a lightlyfictionalised account of the Trio imbroglio under his pen name, David Morisset. The excerpt featured a shady Hong Kong businessman, high-octane hedge funds and a murder ina red light district - all elements of Australia's largest superannuation theft from the sleepy Alburyfund manager chaired by Mr Andrews. Mr Andrews's writings after the Trio collapse included the confessional poems Loser (quotedabove) and Fanfare for Failure. While silent on Mr Andrews's highly commended talent as a poet, the chairman of the AustralianSecurities and Investments Commission, Greg Medcraft, gave him a scathing review. "We believe Mr Andrews failed in his duties as officer of the responsible entity of the AstarraStrategic Fund and therefore it's inappropriate for him to be involved in the financial servicesindustry or act as director," Mr Medcraft said. Mr Andrews was an economist who worked for seven years with the Australian Anglican Church'sfunds management arm, Glebe Asset Management, before joining Trio in 2005. At Trio he chaired the board and also held roles as chairman of the investment committee andchairman of the risk and compliance committee. An enforceable undertaking shows how during Mr Andrews's time at Trio millions of dollars weredirected into the Astarra Strategic hedge fund without conducting proper valuations.

RE austr : Australia | nswals : New South Wales | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited Page 13 of 159 © 2011 Factiva, Inc. All rights reserved.

AN Document SMHH000020110812e78c00004


A n d r e w s g i v e n n i n e - y e a r b a n , R i c h a r d f a c i n g t i m e i n t h e c a n

SE BusinessHD Andrews given nine-year ban, Richard facing time in the can BY Stuart WashingtonWC 378 wordsPD 12 August 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

FINANCE Then those pathetic putrid looters/Came up behind me to bully, ambush and bash -

TDCallous bulls in a fragile china shop/Plundering nothing less than someone else's cash THE bard of Trio Capital has written his last stanza in the saga of the theft of $180 million fromAustralian investors. Yesterday David Andrews, 59, a former chairman of Trio, was banned from financial services andbeing a director for nine years, the longest suspension yet handed to three Trio directors whofailed to protect investors. Today the investment manager of Trio, Shawn Richard, is due to be sentenced to up to 10 yearsin jail. More than $180 million has been lost in two offshore hedge funds run by Trio, Astarra Strategicand ARP Growth. The Herald revealed last year Mr Andrews was the author of what appeared to be a lightlyfictionalised account of the Trio imbroglio under his pen name, David Morisset. The excerpt featured a shady Hong Kong businessman, high-octane hedge funds and a murder ina red light district - all elements of Australia's largest superannuation theft from the sleepy Alburyfund manager chaired by Mr Andrews. Mr Andrews's writings after the Trio collapse included the confessional poems Loser (quotedabove) and Fanfare for Failure. While silent on Mr Andrews's highly commended talent as a poet, the chair of the AustralianSecurities and Investments Commission, Greg Medcraft, gave him a scathing review. "We believe Mr Andrews failed in his duties as officer of the responsible entity of the AstarraStrategic Fund and therefore it's inappropriate for him to be involved in the financial servicesindustry or act as director," Mr Medcraft said. Mr Andrews was an economist who worked for seven years with the Australian Anglican Church'sfunds management arm, Glebe Asset Management, before joining Trio in 2005. At Trio he chaired the board and also held roles as chairman of the investment committee andchairman of the risk and compliance committee. An enforceable undertaking shows how during Mr Andrews's time at Trio millions of dollars weredirected into the Astarra Strategic hedge fund without conducting proper valuations.

RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110811e78c00040 Page 15 of 159 © 2011 Factiva, Inc. All rights reserved.

B u r n i n g q u e s t i o n s r e m a i n o v e r s u p e r t h e f t

SE BusinessHD Burning questions remain over super theft BY Stuart WashingtonWC 1,467 wordsPD 28 July 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 7LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

TRIO CAPITAL FRAUD How did 'Shawny Cash' manage to conceal his crimes for so long, asks Stuart Washington.

TDAn air of exasperated disbelief radiated from the bench on Friday as Justice Peter Garlingconsidered the fate of the man guilty of Australia's largest superannuation theft. Where were the auditors, Justice Garling asked under the lofty ceiling of courtroom one in the oldSupreme Court House. What was Trio Capital's investment committee doing? What about Trio Capital's board of directors? Implicit in Justice Garling's questions was the puzzle of how the mild looking man sitting beforehim, 36-year-old Shawn Richard, could have been allowed to get away with so much for so long. As we now know, the Albury-based fund manager Trio Capital spirited away $180 million into twohedge funds, Astarra Strategic and ARP Growth, from 2005 and probably earlier. Richard's "success" is at odds with his inauspicious background. The man dubbed "Shawny Cash" only had a high school education from the modest middle classneighbourhood of the largely French-speaking Dieppe in New Brunswick, Canada. He dropped out of his local Moncton University, later lying in Australia he had a bachelor's degreein finance from the same institution. Richard's lawyer, John Agius SC, argued last week that Richard had been naive andpsychologically vulnerable to the lure of the high-powered role in financial services offered by hisboss, Jack Flader. Richard was on an overseas trip looking for adventure, landing up in Taiwan, when he first metFlader in the late 1990s. "He [Richard] was someone going nowhere in particular and going there at no speed," Agius said. Richard last year described his role in Taiwan as "office boy" - not the grandiose "vice-president"he labelled himself in his online investment manager's biography. Flader, a US lawyer based in Hong Kong, is a noted bon vivant who enjoys what he calls "thenoble grape", particularly $250-odd bottles of Carruades de Lafite. It is of no comfort to Australian investors that they almost certainly funded Flader's jet-settinglifestyle, in which he crossed the globe to visit 80 destinations in three years as head of hisbusiness, Global Consultants and Services Ltd. Flader emerges in the statement of facts tendered before court on Friday as the mastermind ofthe whole scheme. Whether the source of the cash ever rested poorly with Flader as he sampled the "ocean of finewines" and enjoyed 10 hours of massages at the $1500-a-night Bulgari resort in 2007 has notbeen established.


He has not been available for interview. While offshore miscreants escape sanction, Richard was the man placed in jail on Friday awaitingsentence on August 12. In court, he was described as the frontman and pivotal to the whole scheme. Richard has pleaded guilty to two counts of dishonest conduct. The charges relate to seveninstances of dishonesty between November 2005 and September 2009. In short, the counts state he knew he was personally benefiting by placing investors' money infunds he was lying about. On Friday the Crown's case against Richard showed how he illegally enriched himself throughsecret payments of $1.3 million channelled through bank accounts in the tax havens ofLiechtenstein and Curacao. In 2009 Richard blew at least $250,000 on personal expenses, including $67,000 on rent. In total, Richard's company, Astarra Asset Management (AAM), would receive $6.55 million inillegal payments. But the jig was nearly up. In September 2009, Bronte Capital fund manager and blogger JohnHempton informed the corporate regulator of concerns about what has become Australia's largestsuperannuation fraud. In December 2009, 10,000 investors in Trio Capital had more than $400 million frozen as theregulator put in place liquidators and trustees to piece together just what happened. In April this year, investors in superannuation funds regulated by the Australian PrudentialRegulation Authority were awarded $55 million in compensation because they had beensubjected to fraud. In court on Friday, Justice Garling's puzzlement extended to the exclusion of self-managedsuperannuation investors from any compensation for fraud in Trio Capital. It is a puzzlement shared by self-managed super investors themselves, who now find themselveslocked out of any meaningful compensation. In a recent submission to a federal parliamentary inquiry into Trio Capital, a 68-year-old SouthCoast man, Philip Keeffe, wrote after losing $70,000: "That the Commonwealth has failed tocreate a secure environment for these investors, as well as failing to compensate them for losses... is simply shameful." Justice Garling's questions about the role of Trio Capital's gatekeepers extended to the supposedattractiveness of the offshore investments. "Excuse me, what is the fund you have put your money into?" Justice Garling said on Friday,adopting the voice of Trio's auditor. "Please prove the worth of those funds to me? That's what auditors are supposed to do, isn't it? "One can't avoid at least the observation and reflection when looking at this that there were anumber of other bodies that were asleep on duty here." The opaque nature of the offshore investment vehicles is amply demonstrated in the statement offacts before the court. One fund called the SBS Dynamic Opportunities Fund had a Liberian company as soleshareholder and director, an Anguillan company as investment manager, a Cayman Islands bankaccount and a Belize company as its administrator. But in a common thread with all four offshore funds that became destinations for Australianinvestors' money, the fund was actually administered by the company Flader founded in 2006,GCSL. The round robin of Australian investors' funds that were placed in exotic offshore investmentvehicles is documented at its simplest in the first case of dishonesty admitted by Shawn Richard. He was the investment manager for Trio Capital through his company AAM, with the


responsibility of placing investors' funds into the ultimate investment vehicles. In this role in November 2005 he arranged for $3 million invested in Astarra Strategic Fund (thenknown as the Alpha Strategic Fund) to be placed in the Exploration Fund, which was one of theoffshore funds administered by GCSL and controlled by Flader. The money was then used to "buy" $US1.75 million in shares in Yarraman Winery, a small wineryup a windy road in the Hunter Valley. The winery exists to this day, and is not implicated in the activities concerning its shares.However, its shares from its listing on the "over-the-counter" pink sheets market in the US werepractically worthless. In what was a leitmotif for the scheme, Australian money invested in a fund controlled by Fladerwould be used as cash to pay another controlled company by Flader for practically worthlessshares. From the considerable profits from this transaction, $US818,000 ended up in a bank account inthe tiny Caribbean island of Curacao, to the benefit of Richard. In summary, $3 million in Australian money controlled by Richard was placed in an offshore fundrun by Flader, used to buy $US1.75 million in worthless shares from Flader, then Richard wassecretly paid $US818,000. As Richard endures a lengthy prison sentence - the two counts carry a maximum sentence of 10years in total - he may have cause to think about his former mentor. Flader has purportedly sold his GCSL business to a boutique investment bank, Jeeves Group, runby a father and son found guilty in absentia of a major US investment fraud. Not coincidentally,Flader was named as being involved in the same fraud. The GCSL website is no longer operating. Others named in the court documents include Frank Richard Bell, the veteran British broker with adisgraceful track record who ran the Exploration Fund. Then there is Carl Meerveld, named in court documents as a director of the Exploration and SierraMulti-Strategy Funds, and Roman Lyniuk, named as the key investment professional of the PacificCapital Multi-Arbitrage Fund. Needless to say, no money has been recovered from these funds. In Australia, there have been more visible repercussions. Earlier this month Rex Phillpott, Trio's chief executive, was banned from financial services for 15years. Natasha Beck, a Trio director, was banned from financial services for five years. A South Australian financial planner, Seagrims, has been forced to give up its licence and itsowners have also been banned from financial services for three years. In the case of Trio's auditors, WHK, there has been no formal action to date. Action is likely to roll on for some time. And as for Richard he, alone, is going to jail.

NS gdtcsh : Money Laundering | gcat : Political/General News | gcrim : Crime/Courts | gfinc : FinancialCrime | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter

RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110727e77s0005y


W o r d s w i l l n o t s a v e R i c h a r d f r o m j a i l t i m e

SE Business - Opinion & AnalysisHD Words will not save Richard from jail time BY STUART WASHINGTONWC 870 wordsPD 25 July 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 7LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

When Shawn Richard sought character references as he faced a lengthy jail sentence, there werea few people from his past he felt he could ask. Even the mention of Richard's name would be bad news to investors in the Albury-based fundmanager Trio Capital.

TDInvestors had more than $400 million in funds frozen in December 2009 when Australia's largestsuperannuation theft was first uncovered. So investors would not be among those likely to give the most glowing assessments of theCanadian-born investment manager. Richard, 36, faced a sentencing hearing on Friday for his part in the disappearance of $180 millionfrom two investment funds managed by Trio Capital: Astarra Strategic and ARP Growth. The court heard how Richard, now remanded in custody, had received $1.3 million in personalpayments for his part in the thefts. His company, Astarra Asset Management, had received further millions to keep sucking ininvestors' dollars. Instead of investors, Richard turned to some old mates, some professional contacts and somefinancial planners for some kind words. Including his dentist. Among those setting pen to paper were Peter Wood, Richard's old flatmate in Manly and the one-time Trio Capital marketing manager. Wood didn't reminisce about some rather wild-looking parties he and Richard enjoyed, but spoketo the qualities of Richard he had observed. Then there was a financial planner from the Wollongong financial planning business Dominion,Colin Warne, who was prepared to go on the record about Richard's strenuous help since thefraud had been uncovered. "I wish to confirm that Mr Richard has already assisted our clients, providing critical evidencewhich has assisted the process in recovering some investments," Warne wrote. This is the same Warne who was found by the NSW Supreme Court in 2004 to have breached theCorporations Act by operating an unregistered managed investment scheme. The failed investment scheme involved raising $4.6 million to buy the Queen Victoria Hospital inthe Blue Mountains and turn it into a retirement home. The case resulted in Warne receiving a lifetime ban from managing an investment scheme. Sadly for investors in Trio Capital, the ban did not stop Warne from operating as a financialplanner. So Warne met Richard through Trio Capital and promptly placed large amounts of investors'money into Astarra Strategic.


Another who put pen to paper for Richard was a second Wollongong financial planner, RonaldCaines. Caines was eloquent about the help Richard had given him. "He has shown honesty and integrity and his ongoing compassion and financial assistance duringan extremely difficult time for our family will forever be appreciated," Caines wrote. Caines said Richard "continued to provide loan funds" and credited Richard with "standing by andhelping your mates during difficult times". Stirring stuff. However, it is worth remembering somefacts about the Trio Capital "loan funds" - more than $500,000 - that Richard forwarded so generously to Caines. Back in 2008, the Australian Securities and Investments Commission grilled Richard about theloans to Caines under its section 19 powers to compulsorily interview people. ASIC went on to ban Caines from the financial planning industry for life, after he advised people toinvest in Trio Capital without disclosing the loans. In March, the Administrative Appeals Tribunal overturned the life ban, and replaced it with a three-year ban. Showing that the gods of financial services have a wry sense of humour, Caines can start work asa financial planner again on August 12 - the same day Richard is due to be sentenced to jail. Another referee sought out by Richard was Graham Kinder. Kinder made a brief appearance inthe Trio saga last year when he became a director of financial planner Wright Global Investments,alongside Wood. ASIC has told the Supreme Court that Wright Global Investments was one of the vehicles thatwas owned and controlled by the supposed mastermind of the Trio Capital fraud, the Hong Kongbusinessman Jack Flader. (There is no evidence Flader controlled the company at the time ofWood's and Kinder's involvement.) Another referee was Ron Phipps-Ellis, an employee with auditing firm BCS whose characterreference confirmed that the "company's employees had money invested in Astarra [Trio] and lost10 per cent". Richard's defence bundle, tendered in court on Friday, showed the sad truths facing a mandestined for jail time. It disclosed that Richard had sought a recent diagnosis from a neurologist. In a letter, his defenceteam articulated his symptoms as: "Double vision, headaches, muscle weakness, neck aches,numbness or tingling, most often on the face, poor co-ordination, sudden unco-ordinatedmovements and vertigo". The diagnosis was inconclusive. And an assessment by a forensic psychologist, W. John Taylor, spelled out the none-too-happyrealities of the prison system that Richard faced. He wrote: "Because of threats that have been made against Mr Richard, it is likely that anycustodial sentence given to him by the court will need to be served in protective custody. This isfar more difficult and restrictive than serving a custodial sentence."

IN i831 : Financial Investments | iinv : Investing/Securities NS gplan : Urban Planning/Development | nedc : Commentary/Opinion | ccat : Corporate/Industrial

News | gcat : Political/General News | gpir : Politics/International Relations | gpol : DomesticPolitics | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter

RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110724e77p0001v


T r i o f r o n t m a n ' S h a w n y C a s h ' h e a d s t o p r i s o n

SE BusinessHD Trio front man 'Shawny Cash' heads to prison BY Stuart WashingtonWC 465 wordsPD 23 July 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

FRAUD THE front man for Australia's largest superannuation heist, Shawn Richard, has spent his firstnight in prison.

TDThe long night with the Department of Corrective Services marks the final fall from grace for theformer investment manager and playboy, who dishonestly received $1.3 million in investors'money. The fall of the man known as "Shawny Cash" was witnessed by his one-time business partner,Eugene Liu, and a former Trio director, David Andrews, as they sat in the public gallery in theNSW Supreme Court. Yesterday Richard, 36, was formally convicted of two counts of dishonest conduct for his role inthe Trio Capital fraud, in which investors lost $180 million. Justice Peter Garling revoked Richard's bail and confirmed he would impose a prison sentence onthe counts, which carry a maximum term of 10 years. Richard is due to be sentenced on August12. Yesterday the court heard Richard had received $1.3 million in secret payments directed tooffshore bank accounts in the exotic tax havens of Liechtenstein, in Europe, and Curacao, anisland in the Caribbean Sea. Richard then splurged hundreds of thousands on his personal expenses. In one instance in 2009Richard received $250,000 in Australian investors' money for his personal expenses, including$67,800 spent on rent. In another example, in 2005 Richard received $US800,000 in a bankaccount in Curacao. The payments were on top of his annual salary of $113,000. The Crown showed Richard's secret payments were raked off from Australians' investments intocomplicated offshore funds in a system likened by Justice Garling to a Ponzi scheme. Richard's representative, John Agius, SC, said Richard had been naive, vulnerable and greedywhen he had teamed up with a US citizen based in Hong Kong, Jack Flader, who was referred toas a sophisticated fraudster. Mr Agius tendered a psychological report, arguing Richard had acted under the influence of MrFlader and was not responsible for the scheme itself. But Anthony Payne, SC, acting for theCommonwealth Director of Public Prosecutions, said Richard's behaviour showed criminality ofthe most serious kind. Justice Garling questioned the absence of investment committees, directors and auditors in thecase of Trio Capital. Justice Garling also said he did not understand the principle by which funds regulated by theAustralian Prudential Regulation Authority could receive federal government compensation butself-managed superannuation funds could not. In the case of Trio, the former have received $55 million and the latter have received nothing. "So the principle is if you are bigger and regulated you get compensation ... if you are smaller andvulnerable you don't?" Justice Garling said to Mr Payne.


RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110722e77n0004v


A c o m p a n y i s m a d e i n i t s o w n e r ' s i m a g e

SE Business - Opinion & AnalysisHD A company is made in its owner's image BY STUART WASHINGTONWC 907 wordsPD 11 July 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

One of my first jobs in journalism was to go to the art department and have a prominent frown-linespray painted out of the middle of Rupert Murdoch's forehead. As copy kids at News Ltd's Holt Street offices, one of our jobs was to take photographs to the artdepartment for any necessary retouching.

TDAt that time in the mid-'80s, photographs were really photographs, not bits and bytes whizzingaround. And the art department really was an art department: people with brushes and pens. Well before Photoshop and the like, an important part of the artists' retouching armoury was aseries of atomisers filled with various shades of grey paint. Of course, in those prehistoric times, photos for newspapers were only ever in black and white. The sprays were applied with skill and used to retouch photos and hide any imperfections.Beaches would suddenly become less visible behind the Mirror's ever-smiling but already fadingpage-three girls. Hands resting on shoulders, indeed whole people, would be whisked from thephotographic record. In more creative moments, a space helmet would be workshopped on to Joh Bjelke-Petersen'shead for a front-page splash on The Daily Mirror. The skills were particularly useful one evening when The Daily Telegraph published photos of twoantique snuff bottles in the first edition, held up by an enthusiastic collector. The collector's enthusiasm did not extend to warnings that the fine carving on the snuff bottlesfeatured somewhat out-of-proportion depictions of energetic couplings of a type not often seen ina daily newspaper. Blown up to four times life-size in the first edition, the depictions were rendered even moreenergetic and - if possible - even more out of proportion. The prospect of Sydney breakfasts widely interrupted by antique throbbing organs was avoided inthe second edition through some deft retouching. Which brings me back to Rupert Murdoch's forehead, the art department and spray painting. It was an unwritten rule that photographs of Murdoch be subject to retouching. Specifically, a rather deep vertical crease at the centre of Murdoch's forehead had to be spraypainted away. There was never any tangible direction from Murdoch that anyone could ever point to that orderedsuch artistic reimagings of News Ltd's chief executive. All I knew was that it was known, and known pretty widely, that only photographs sans creaseshould run. Then and now, I see this extension of an unseen hand through an organisation to its very lowest


levels - and believe me, I was at the lowest level at News Ltd - as a fascinating phenomenon. It showed me better than any management text I have ever read that the presence of thebusiness's founder or chief executive could be felt to the very furthest reaches of an organisation. Founder-chief executives leave particularly strong impressions. For example, Kerry Packer'spresence was extended in similarly surprising ways. In many ways, the reach of the founder or chief executive is perpetuated by choosing like-mindedpeople to carry out their orders. Unsurprisingly, these like-minded people choose other like-minded people. And so on, so that the(retouched and therefore unblemished) image of the leader lives on throughout the organisation. The flip side of this intense personalisation of a business around its founder - with the Sun Kingcontinuing to preside over News Corp even as it became a global media giant - is the difficultycreated by a scandal. When a scandal breaks, how do you disown the rogue elements when you are so closelyassociated with the whole structure? Indeed, as witnessed in the News of the World scandal, the rogue elements of the business haveflourished under the supervisors Murdoch has chosen and feted - such as the former News of theWorld editor Rebekah Brooks - or the supervisors chosen by those supervisors. In business terms, the News of the World debacle represents a monumental failure of governanceover many years. It also represents a monumental failure of ethics within a major business unit. The difficulty for Murdoch and his closest lieutenants is that for years they have impressed oneveryone time and again about how much they are part of the fabric of the organisation as awhole. The fabric of News Corporation was found to have been badly flawed at the News of the World. Murdoch and his top lieutenants have a battle to explain to the market, after years of messagingto the contrary, that they are not part of that fabric and that they should not share in the blame. TRIO TROUBLE It was significant last week that the Australian Prudential Regulation Authority (APRA) outed itselfas having crawled over Trio Capital more than a year before it collapsed. The disclosure in an enforceable undertaking stated that, in 2008, APRA raised significantquestions about the valuation methodology of two hedge funds run by Trio Capital. Trio Capital collapsed in late 2009, with losses from the two hedge funds of about $185 million. Guess what? There was no valuation methodology, because one fund was a fraud and the otheris likely to be proved to be the same. The actions - or lack thereof - by the regulators should be examined when the parliamentary inquiry kicks off its examinations into Trio Capital.

CO newsc : News Corporation | newsli : News Limited IN i475 : Printing/Publishing | i4751 : Newspaper Publishing | imed : Media | ipubl : Publishing NS nedc : Commentary/Opinion | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E

Executive News Filter RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110710e77b0000j


P l a n n e r s b a n n e d o v e r T r i o f i a s c o

SE BusinessHD Planners banned over Trio fiasco BY Stuart WashingtonWC 282 wordsPD 6 July 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

INVESTMENTS FINANCIAL planners who directed $105 million into the doomed Trio Capital funds managementbusiness were banned from providing financial services for three years yesterday after thecorporate regulator carpeted their behaviour.

TDThe Australian Securities and Investments Commission found Peter and Anne-Marie Seagrim, theowners of the Port Augusta planner Seagrims, had failed to properly disclose to clients they stoodto personally gain from directing business Trio's way. It also suspended the licence of the financial planner until November this year. ASIC said that between September 2008 and October 2009, a total of 972 clients with $105million in investments were directed into Trio Capital funds by Seagrims. Regulators froze $426 million invested in Trio Capital in December 2009. It was later found morethan $100 million invested in a Trio Capital fund, Astarra Strategic, had been stolen. The regulator found Seagrims had failed to ensure its advisers met legal requirements to checkwhether there was a reasonable basis for advising investors to switch into Trio Capital funds. The regulator found statements of advice given to clients by both Mr and Mrs Seagrim failed todisclose an "equity return agreement" between Seagrims and the Trio Capital funds managementbusiness. It also found both Mr and Mrs Seagrim failed to disclose advertising paid for by Trio Capital. Yesterday's bans followed enforceable undertakings for two Trio Capital directors announced onMonday and the guilty plea of Trio Capital's investment manager, Shawn Richard. Seagrims is a member of the Association of Independently Owned Financial Planners, a fiercecritic of aspects of the federal government's reforms to financial planning.

RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110705e77600050


H o w r e g u l a t o r m i s s e d c h a n c e i n T r i o d e b a c l e

SE BusinessHD How regulator missed chance in Trio debacle BY Stuart WashingtonWC 655 wordsPD 5 July 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

INVESTMENT A TEAM of regulators raised concerns about fraudulent hedge funds more than a year before thewhistle was blown on the biggest superannuation theft in Australia's history.

TDYesterday it was revealed the Australian Prudential Regulation Authority raised concerns aboutthe fund manager Trio Capital's valuation of its two hedge funds in August 2008. As a result of its "prudential review" of the Albury-based fund manager, the superannuationregulator even unsuccessfully sought further information about the valuation of the funds. In October 2008 APRA was told there was no "available valuations" of two offshore hedge fundsregistered in the Caribbean tax havens, St Lucia and the British Virgin Islands. APRA took noaction against Trio Capital until after the scam was exposed in a letter by Bronte Capital bloggerJohn Hempton in September 2009. In April this year the federal government awarded superannuation investors $55 million incompensation for their part in a theft totalling $125 million. A further $60 million in investors'money is missing, presumed stolen. The revelation of APRA's 2008 review of Trio Capital was contained in enforceable undertakingsmade by former directors of Trio with both APRA and the Australian Securities and InvestmentsCommission. The former chief executive of Trio Capital, Rex Phillpott, has been barred from a role in financialservices for 15 years. A former non-executive director of Trio, Natasha Beck, has been barred from a role insuperannuation for four years and financial services for two years. The actions against the directors of Trio Capital follow the charging of Trio's former investmentmanager, Shawn Richard, on two counts of dishonest conduct in relation to misappropriating $6.4million. The undertakings signed by the directors reveal ASIC's concerns that each director breachedseveral sections of the Corporations Act. The documents show Trio's board held concerns about its hedge fund investments as early as2006, including failures to honour requests for the return of investors' money and difficulties inobtaining accurate valuations. Mr Phillpott was revealed as being intimately involved in the investments into offshore hedgefunds, without being aware of the valuation methods used to value the funds. Mr Phillpott was also instrumental in the 2009 transfer of $50 million in one of Trio's hedge funds,the Exploration Fund, into its successor hedge fund, Astarra Strategic. He did this "notwithstanding that he was aware of liquidity problems with the Exploration Fund andconcerns about the lack of information being provided by the Exploration Fund". BusinessDay has previously revealed that the fund was run by a Philippines stockbroker with along history of stock fraud, Frank Richard Bell.


As the Trio saga unfolded, it became clear regulators had regular brushes with the fund. For example, in 2005 APRA forced Shawn Richard off the board of Trio Capital in 2005 becauseof conflict-of-interest concerns arising from his roles as both owner and investment manager forthe fund. In 2006 APRA had direct involvement with another Trio fund, ARP Growth, forcing it outside thesuperannuation entities it regulates. In 2008 ASIC interviewed Richard under its compulsory examination powers about a $500,000secret payment from Trio and Trio-related companies to a financial planner. APRA would make no comment on its investigations yesterday. ROAD TO COLLAPSE 2003 Trio Capital set up by Shawn Richard, pictured. 2006 Trio board documents concerns about valuations inside hedge fund. August 2008 APRA raises concerns about valuations of two hedge funds. October 2008 APRA told by Trio there were no "available valuations". September 2009 Bronte Capital blogger John Hempton writes to ASIC. October 2009 APRA and ASIC launch investigations into Trio. December 2009 All Trio funds frozen by the regulators. December 2010 Shawn Richard pleads guilty to dishonest conduct. July 2011 Directors Rex Phillpott and Natasha Beck receive bans from financial services.

IN ihedge : Hedge Funds | i831 : Financial Investments | i81502 : Trusts/Funds/Financial Vehicles |ialtinv : Alternative Investments | iinv : Investing/Securities

NS c131 : Regulatory Bodies | npag : Page-One Story | c13 : Regulation/Government Policy | ccat :

Corporate/Industrial News | ncat : Content Types | nfact : Factiva Filters | nfcpin : FC&E IndustryNews Filter | reqris : Editor's Choice - Investing/Securities | redit : Selection of TopStories/Trends/Analysis | reqr : Editor's Choice - Industry Trends/Analysis

RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110704e77500047


P a r l i a m e n t t o p r o b e T r i o C a p i t a l f r a u d c l a i m s

SE BusinessHD Parliament to probe Trio Capital fraud claims BY Stuart WashingtonWC 314 wordsPD 2 July 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

FUNDS THE loss of about $180 million invested in Trio Capital and the lack of compensation for self-managed superannuation investors will be investigated by a federal parliamentary inquiry.

TDThe inquiry into the Albury fund manager will examine losses from two Trio funds, AstarraStrategic and ARP Growth, with terms of reference that include inquiring into the implications ofinternational fraud. The chairman of the federal parliament's joint committee on corporations and financial services,Bernie Ripoll, said the inquiry would examine systemic issues arising from the collapse. "The collapse of Trio is quite significant and it's got some unique parts to it which I think need aseparate inquiry; particularly, we mention the self-managed super funds and international fraud,"Mr Ripoll said. More than 10,000 investors had $426 million in funds frozen after the Australian Securities andInvestments Commission was first alerted to a fraud affecting Astarra Strategic in 2009. It lateremerged that $125 million invested in Astarra Strategic had disappeared through a British VirginIslands company into a network of offshore funds controlled by a Hong Kong businessman, JackFlader. A further $60 million was invested through ARP Growth, with no money yet recovered. Earlier this year, investors in Astarra Strategic through superannuation funds regulated by theAustralian Prudential Regulation Authority received $55 million in compensation for fraud underpart 23 of the Superannuation Industry (Supervision) Act. However, self-managed superannuation investors in Astarra Strategic were not eligible for anycompensation. The inquiry will examine issues related to the collapse, including the lack of any compensation forinvestors in self-managed superannuation, where the investment products or advice had failedand the role of research houses who examined the products. Submissions are due by August 19 and the committee will report by November 24.

NS gfraud : Fraud | gcat : Political/General News | gcrim : Crime/Courts | gfinc : Financial Crime | ncat: Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter

RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110701e7720005u


D I Y f u n d s n e e d c o m p e n s a t i o n t o o

SE BusinessHD DIY funds need compensation too BY STUART WASHINGTONWC 895 wordsPD 6 June 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

Australia has a compensation system for investors that leaves many of them out in the cold whenthe worst happens. The situation may be about to change, which should be welcome news forself-managed super fund investors. Do-it-yourself super investors now account for about a third of Australia's superannuationinvestments, with more than $400 billion invested. Those DIY super investors should be wellaware of the worst case they face after the federal government's compensation for fraud within Trio Capital.

TDInvestors in Trio Capital through super funds regulated by the Australian Prudential RegulationAuthority received $55 million in compensation - or 100¢ in the dollar. Investors through DIY superfunds received nothing. The federal government will shortly receive a final report from Richard St John, who has beenasked to consider the need for a broader compensation scheme, and examine the costs andbenefits. In all likelihood, St John's report will recommend a broadly-based compensation fund for all retailinvestors. Such a recommendation will mark an historic step from an investor compensationregime largely reliant on professional indemnity insurance to one of a fund supported by industrycontributions. There will be a certain level of harrumphing about the moral hazard such a fund would create. Theterm "moral hazard" is used to describe a situation in which the introduction of a catch-all safetynet becomes an excuse for lax behaviour by either investors or financial services providers. Such arguments have merit. No one (except the recipient) wants a compensation fund thatrewards investors for stupidity and greed. However, as is the way of things, "moral hazard" arguments are likely to be advanced most loudlyby those who face the highest bill from introducing such a compensation fund. And with the Financial Ombudsman Service putting before St John a proposal for a broadly-basedcompensation fund, the costs are not small. The FOS estimates costs would be capped at 1 percent of revenues for participants across the financial services industry. Indeed, the harrumphing has started already. In the Stockbrokers Association's submission to StJohn, it recommends he take into account the broking industry's "excellent record in relation toclient complaints and award recovery". "To do otherwise would be to introduce the risk of moral hazard, and will encourage less ethicaloperators, putting consumers at risk," it says. Leaving aside the intricacies of introducing such a compensation fund - and there are many - it is worth emphasising the real need for change spelt out in the submissions. The FOS puts it in simple terms: there are many occasions when investors are left withoutanywhere to turn to, despite considerable wrongdoing. The FOS and the Australian Securities andInvestments Commission say professional indemnity insurance, taken out by financial servicesproviders to ensure they can meet compensation claims, does not serve its purpose. "Over an extended period, [the] FOS has witnessed examples of retail consumers who receive


[compensation] awards in their favour which have subsequently not been paid because of thedisappearance or insolvency of a licensee [and] fraud," the FOS says. "Losses have occurred when consumers have been induced to invest in financial instrumentswhich they don't understand and where the advice has been inappropriate for their needs." The consequences of the present situation are spelt out by the Association of ARP Unit Holders, asub-set of Trio Capital investors, in a submission to St John. These investors have foundthemselves outside any meaningful compensation mechanism from either their authorisedrepresentative (PST Management) or the financial services licensee (Wright Global Investments). "Professional indemnity insurance as a means to compensate complainants has failed the case ofARP Growth Fund members," the submission states. "For example, PST Management Pty Ltd[holds] professional indemnity cover of $5 million, which is less than 10 per cent of the assets'lost'. Wright Global Investments Pty Ltd holds a similar amount of professional indemnity cover. "Putting aside the difficulty and legal expense of recovering under such a policy, the quantumavailable means that no substantive level of compensation for loss is possible, even if a legalaction is successful. "This situation is made more difficult by the tendency of groups caught up in these situations to gointo liquidation, as has now happened not only with Trio Capital but also PST Management andWright Global." The submission further spells out the ridiculousness of relying on professional indemnityinsurance when all the main players fall over and the insurance contracts are cancelled. "In the case of ARP Growth Fund unit holders, great uncertainty as to what exactly washappening with unit holder funds existed for many months and was not clarified until well after theprofessional indemnity cover was no longer in place," the submission says. "There was noopportunity to even lodge claims at this point, should a unit holder have wished to do so." The predominantly elderly investors in ARP Growth have lost their superannuation savings andhave no recourse to any meaningful compensation. The existing system has comprehensivelyfailed them. Such a situation should not be allowed to happen again. Historic steps likely to be contained in St John's report should be embraced by the federalgovernment, no matter how much harrumphing comes from the financial services industry.

RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110605e7660001p


C o l d c o m f o r t f o r f o r g o t t e n v i c t i m s o f T r i o C a p i t a l f i a s c o

SE BusinessHD Cold comfort for forgotten victims of Trio Capital fiasco BY Stuart WashingtonWC 318 wordsPD 1 June 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 8LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

SUPERANNUATION THEY are generally broke, one in five have had to sell their homes as a result of their losses, andalmost two-thirds are older than 65. And yet they fight on.

TDYesterday more than 40 unitholders of ARP Growth, a practically forgotten fund in the TrioCapital collapse, met at the Norths Leagues Club. They have weathered many knocks since earlylast year, when it became clear their $54 million in investments may have vanished into acomplicated overseas structure. The investors were still coming to grips with the cruellest cut: their self-managed super fundinvestments are not eligible for any compensation, even if fraud is proven. Some Trio Capital superannuation investors are eligible for a shareof $55 million incompensation announced last month, because they were regulated by the Australian PrudentialRegulation Authority. The meeting heard it was no good taking action against Paul Gresham, the man who put investorsinto the fund in the first place. Mr Gresham's business, PST Management, is bust. There are still no clear answers about what happened to their money. Ron Thornton, president ofthe association formed by embattled investors, told of how the Australian Securities andInvestments Commission was not even investigating the matter until it was prodded late last year. Nor was the liquidator, PPB, of a mind to take action because there were no assets to liquidate topay for an investigation. "The thing was going to die on the vine," he said. "Nothing was going tohappen." The association hopes it will find out the truth about a JPMorgan swap, at present being liquidatedin the British Virgin Islands. The complicated financial product, initially signed with Bear Stearns,was the chief asset of sub funds dubbed Pythagoras and Archimedes. What lies behind thesefunds is a mystery.

PUB Fairfax Media Management Pty Limited AN Document SMHH000020110531e7610003z


S u p e r i n d u s t r y s h o u l d n ' t f o o l i t s e l f : T r i o C a p i t a l c o u l d h a p p e n a g a i n

SE BusinessHD Super industry shouldn't fool itself: Trio Capital could happen again BY STUART WASHINGTONWC 486 wordsPD 27 May 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

COMMENT In Michael Lewis's excellent book The Big Short, there is a Brooklyn-born fund manager with acolourful turn of phrase called Vinny. In the book Vinny is quoted as saying words to the effect:"every time I hear people talking about Chinese walls, I think to myself: you're a f---ing liar."

TDI use this example to represent the breach of trust that occurred between fund managers andinvestment banks in the global financial crisis. What I fear for the broader superannuation industry is if there were ever to be a similar broad-based breach of trust between superannuation investors and the super system we place so muchfaith in. The stories that I wrote about Trio Capital were an example of how such a breach of trust occurs. With all the present protections in place - administrators, custodians, trustees, responsible entities,investment managers and auditors - people with criminal intent were able to steal $125 million,about half of it superannuation money. Through dogged investigation, the Herald revealed the full extent of a criminal fraud that stretchedaround the globe, from the British Virgin Islands to Hong Kong and back to Albury. I also became unwittingly familiar with a lawyer based in Hong Kong, Jack W. Flader, whodistinguishes himself with the fact Trio Capital is now the third major international scam he hasbeen involved in. With his taste for $200 bottles of wine and an international jet-setting lifestyle, he, at least,appeared to enjoy his experience with Trio Capital. The Herald also fought in the courts - at a cost of tens of thousands of dollars - to make sure liquidators' hearings were kept public, so people could understand the extent of the issue. Returning to the supposed gatekeepers of Trio Capital, they were exposed as being, to useVinny's turn of phrase, f---ing liars. The breach of trust for those investors was profound. The challenge as I see it for the broader superannuation industry is to keep situations like TrioCapital at the fringe. The problem as I see it is that the financial services industry seems almost constitutionallyincapable of weaning itself off the kinds of commissions and secret payments that were anintegral part of the Trio Capital story. Government reforms notwithstanding, there seems to be some among the industry who appearhellbent on creating and fostering the situations in which Trio Capital flourished. The superannuation system is a great, shining victory for Australia. People in this room have tofight to keep it that way. BusinessDay's Stuart Washington yesterday won the $5000 Australian Council of SuperannuationInvestors media award for his coverage of the collapse of the Albury fund manager Trio Capital,in which investors lost $125 million. He gave this acceptance speech at the award ceremony.


IN i831 : Financial Investments | iinv : Investing/Securities RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110526e75r00047


O p p o r t u n i t y s t i l l k n o c k s - b e s u r e t o r e a d t h e f i n e p r i n t

SE Business - Opinion & AnalysisHD Opportunity still knocks - be sure to read the fine print BY STUART WASHINGTONWC 920 wordsPD 23 May 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

When you have made a superannuation investment, I bet you haven't paid too much attention tothe word "trustee" in the marketing material. Don't worry. You're hardly alone. But, rather belatedly, it now stands clear that the owner of theword "trustee" can be the difference between your investment being a success and a horriblefailure.

TDIt's with some force the broader superannuation and investment industry is digesting the fact thattrustees are gatekeepers, with real responsibilities and real duties. The word "real" here should be interpreted as meaning cold, hard cash payable to investors. Sure, there has been a lot of lip service about the importance of trustees and governance andblah, blah, blah. But a trustee being brought to book for the dud investment it happily sat by andwatched investors flock into? Such an event has been practically unheard of - until now. The fact of trustees' liability has been brought to the fore with the $29 million settlement achievedon Friday by the law firm Slater & Gordon for investors in Fincorp, which collapsed in March 2007. Slater & Gordon argued that Fincorp's trustee, Sandhurst, had stuffed up. Or, to put it moreelegantly, the class action lawyers argued Sandhurst needed to "exercise reasonable diligence" tomake sure investments of Fincorp would be sufficient to repay Fincorp note holders. Sandhurstdoesn't agree, but it's still coughing up the cash. The unusual nature of the gatekeeper argument is highlighted by the Sandhurst case being one ofthe few times trustees have been held to account for the failure of the underlying fund. The role of trustee has long been one of those mysterious functions that are paid for by "crumbs"from your investment. The trustee doesn't manage the money. That's done by fund managers.Nor does the trustee swear to the money being put where it is supposed to be put. That's done bythe custodian. Nor does the trustee run the investment on a day-to-day basis. That's done by theadministrator. (I know what you're thinking, and you are right: that's a lot of "crumbs" falling off your investment.) So what does the trustee do? Well, the trustee is responsible for the governance of thesuperannuation fund. The trustee's close relative, the responsible entity, has the same role over inmanaged funds. But what is a trustee's main skill? As Fincorp's investors have found, the main skill is to be bigenough to stick around and cop a $29 million bill - then pay it. Fortunately for the Fincorp investors, who stand to receive between 6¢ and 75¢, Sandhurst isowned by Bendigo Bank. And while Bendigo Bank won't be pleased, it's big enough to cop the bill.But what of our other trustees and responsible entities? Under current settings, there is only needfor $5 million in capital, an insurance policy, and away you go. Of course, this was found to be nowhere near enough when Trio Capital - acting as a trustee andresponsible entity - managed to ship $125 million offshore without blinking. All that money waslost, and as soon as the going got rough, the responsible entities went into liquidation and thetrustees had to be taken over.


Therefore Trio's inability to stick around has cost the industry more generally. The $55 million ingovernment compensation will be coming to bite the superannuation industry in the form of anindustry levy. Now excuse me while I express some surprise that Trio's doomed business model, advanced bythe Association of Independently Owned Financial Planners, is being rolled out again by exactlythe same industry organisation. The association's members were over-represented in the Trio Capital collapse, helped along inthe case of Tarrants in Wollongong by a $840,000 marketing payment. But those minor irritations are not about to stop the indefatigable head of the association, PeterJohnstonIn a recent letter to his members Johnston ranges widely. First, he offers some freeadvice about how to avoid some of the effects of the federal government's move to strip financialplanners of commissions. Johnston helpfully highlights the July 1, 2012, start date for the reforms, noting "a 14-monthwindow of opportunity". He says financial planning businesses will be divided into clients who sign up "pre" and "post" thestart date of the reforms, "with the pre clients representing the most valuable asset to sell and/ormanage". Now, skipping over the association's blatant attempt to game the federal government's move toban commissions, Johnston's message becomes even more chilling. He has a new investment platform offered through Asgard, and no problems there. It's owned bySt George. However, the Asgard model gives association members the opportunity "where the custodial,administration and trustee/RE role is either outsourced or performed in-house". Wow. Good work,Peter. Your guys did such a good job in finding a trustee with Trio Capital. I can't wait to see who you come up with this time. For the investor who is actually hoping to see their money at some stage in the future, however, itis worth remembering the following: read the fine print to find out whether the trustee has deeppockets. It could cost you dearly if it doesn't.

IN i835 : Legal Services | ibnk : Banking/Credit | ibcs : Business/Consumer Services NS nedc : Commentary/Opinion | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E

Executive News Filter RE austr : Australia | apacz : Asia Pacific | ausnz : Australia/Oceania PUB Fairfax Media Management Pty Limited AN Document SMHH000020110522e75n0001t


I n v e s t o r s d e s e r v e a s o f t e r l a n d i n g t h a n c o n c r e t e

SE Business - Opinion & AnalysisHD Investors deserve a softer landing than concrete BY STUART WASHINGTONWC 608 wordsPD 25 April 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

Investors who use misbehaving financial planners have a compensation safety net that is morelike landing on concrete. As a case in point, some investors have put their case to the FinancialOmbudsman Service and been found to have been wronged. But then nothing. No compensation because their financial planners have become insolvent.

TDIf you think of a safety net, these people have bounced right off and landed on the concrete. The situation arises because the present system relies on financial planners taking out insuranceto cover them if they are subject to compensation claims. But at its worst the system leaves investors fighting an insurance company as they seekcompensation for wrongdoing by their financial planner. Sometimes a planner simply does not have the financial capacity to meet the claims that arebeing made, and the insurance does not provide a backup. For example, a planner's insurance generally does not cover fraud. Also, a planner's insurance scheme does not cover amounts above $20 million. Nor does it offervery effective cover when a financial planner becomes insolvent. If a financial planner goes bust, they generally have to notify their insurers. Often an insurer, onhearing this news, will cancel the planner's policy within 30 days. Of course, if there is no insurance policy it is pretty hard for the liquidator to lodge a claim againstthat insurance. And an insolvent financial planner, by definition, does not have much money tothrow around. About 70 investors with about $50 million invested in a fund called ARP Growth know these factsonly too well. These investors have no realistic recourse to compensation because the fund isinsolvent, as are the advisers. The problem is broader. Among 78 ombudsman claims where planners were insolvent, a total of$4.6 million in compensation was awarded but only $2.7 million was paid. These failings have been aired in a consultation paper on the issue of whether there should be aformal statutory compensation fund for retail investors by Richard St John. As St John notes in his paper, handed to the Assistant Treasurer, Bill Shorten, last week: "ASIC isalso of the view that there are inherent limitations on the effectiveness of professional indemnityinsurance as a compensation mechanism for retail investors who suffer loss." With St John's report, investors stand at a crossroads for this manifestly malfunctioningcompensation system. There is a real opportunity for the federal government to put in place a system that avoidsinvestors running the gamut of taking on an insurance company. It would also offer a neat patch for the problems facing self-managed super fund investors, whohave $400 billion of investments at stake but no workable compensation system. This problem


was exposed when mainstream fund investors received government compensation of $55 millionfor the fraud in Trio Capital, but self-managed super fund investors, including the ARP Growthinvestors, received nothing. The seeds of an effective system are contained in St John's paper, detailing a report made by theforerunner to the Companies and Markets Advisory Committee 10 years ago. It recommended a statutory compensation fund that was operated by an independentorganisation, covered mum-and-dad clients, and was funded by an industry levy. The alternative, adopted by the Coalition government in December 2003 and finally put in place in2008, was to rely on planners taking out insurance. It hasn't worked. Now there is a fresh opportunity for a safety net that performs better than landingon concrete.

CO ombud : Financial Ombudsman Service NS gplan : Urban Planning/Development | nedc : Commentary/Opinion | gcat : Political/General News

| gpir : Politics/International Relations | gpol : Domestic Politics | ncat : Content Types | nfact :Factiva Filters | nfcpex : FC&E Executive News Filter

RE austr : Australia | apacz : Asia Pacific Countries/Regions | ausnz : Australia and New Zealand PUB Fairfax Media Management Pty Limited AN Document SMHH000020110424e74p0001j


C o u p l e o f c l o w n s d u p e d i n s u p e r s c a m m u d d y w a t e r s f o r t r u e v i c t i m s

SE Business - Opinion & AnalysisHD Couple of clowns duped in super scam muddy waters for true victims BY STUART WASHINGTONWC 759 wordsPD 16 April 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 6LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

The clowns came out to play when the federal government shelled out $55 million incompensation for certain investors in Trio Capital. The clowns include the former Wollongong financial planner Ross Tarrant, on the front page of arival newspaper this week moaning about how DIY super investors should be paid compensation.

TDAnd that bloke Peter Johnston, the head of the Association of Independently Owned FinancialPlanners, was out there whingeing about the same thing. Really, who are these jokers? How anyone could quote them with a straight face is beyond me.They have zero credibility on the issue of Trio Capital. The fact they are presenting themselvesas part of the solution is staggering; they were part of the problem. Worse, they are muddying thewaters for DIY super investors who have what appear to be genuine claims for compensation. A quick recap: Trio Capital, a fund manager in Albury, was seized by regulators in December2009. It has now been revealed to have been operating a big fraud in two particular hedge funds itmanaged: Astarra Strategic and ARP Growth. On Wednesday the Assistant Treasurer, Bill Shorten, said government compensation would cover5000 members of super funds overseen by the Australian Prudential Regulation Authority withmoney in Astarra Strategic. All up, they will be paid $55 million. But 295 self-managed super fund investors in Astarra Strategic and 70 investors in ARP Growthwere essentially told to nick off. Collectively, along with some direct investors who are not beingcompensated, these investors lost up to $120 million. Now, this should be a big warning bell for the self-managed super investors that account for $420billion in Australia's booming $1.3 trillion superannuation industry. It's a bell these pages have been ringing for a while. As we wrote here last April, people beingushered into DIY super should receive documents with large red letters on the front reading: "Youcould lose the lot." My position is not a Ross Tarrant-style pitch for broad-based compensation for DIY super fundinvestors. For example, I wouldn't include him in any compensation scheme. Additionally, there are good reasons for the government's current position to let people in DIYsuper look after themselves. The current setting, as played out in Trio Capital, is that governmentcompensation looks after mainstream investors in funds regulated by the Australian PrudentialRegulation Authority. I am alive to arguments of moral hazard that a broad-based compensation scheme for DIY supercould create. I am also alive to the ridiculous situation of bailing out a DIY super husband in acase against a DIY super wife. The reason I am sympathetic to the Astarra Strategic and ARP Growth DIY super investors is theyfound themselves in a managed investment scheme where a fraud was perpetrated. They enteredthose schemes on the advice of a trusted adviser. That trusted adviser failed them, often with aflurry of associated fees. So, when Shorten considers the merits of broadly based compensation for investors, I believethere are grounds for a limited compensation scheme for DIY super investors.


At the same time, many problems will be addressed by forthcoming financial advice reforms thatremove conflicted remuneration received by planners. That brings me neatly back to Ross Tarrant. His business, Tarrants, received $840,000 from TrioCapital in commissions termed a "marketing allowance". That same "marketing allowance" waspaid as about 200 Tarrants clients set up DIY super funds that invested $20 million in AstarraStrategic. And Tarrant reckons he deserves compensation? It is beyond audacious. Then there's Peter Johnston. Johnston's members in the association, including Tarrants,Dominion and Seagrims, were wildly overrepresented in the fallout of Trio Capital. Johnston is the clown who squired around Shawn Richard - also known as Shawny Cash- proclaiming his innocence early last year. Shawny ended up being the front man for the HongKong mastermind of the scam, and now faces a lengthy jail term. I am uncomfortable about the large number of association members who found themselvesinvesting money in the Trio Capital scam. I am uncomfortable about the credulousness of theassociation's leader. Shorten's reforms promise to make it more difficult for Trio Capital to happen again, and keepsome of the clowns at bay. But there should also be consideration of compensation for DIY superinvestors sucked in by the clowns.

CO aupra : Australian Prudential Regulation Authority IN i831 : Financial Investments | iinv : Investing/Securities NS gdiy : DIY | nedc : Commentary/Opinion | ccat : Corporate/Industrial News | gcat :

Political/General News | ghimp : Home Improvements | glife : Living/Lifestyle | greest : RealEstate/Property | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive NewsFilter

RE austr : Australia | apacz : Asia Pacific Countries/Regions | ausnz : Australia and New Zealand PUB Fairfax Media Management Pty Limited AN Document SMHH000020110415e74g0006j


D I Y s u p e r f u n d s g i v e n c o l d s h o u l d e r i n T r i o p a y o u t

SE BusinessHD DIY super funds given cold shoulder in Trio payout BY Stuart WashingtonWC 537 wordsPD 13 April 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 8LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

SUPERANNUATION THE stark difference between regulated super funds and self-managed super funds in the case offraud was made clear yesterday when the first set received $55 million in governmentcompensation.

TDThe second set, suffering losses of about $120 million, will receive nothing. The Assistant Treasurer, Bill Shorten, signalled a forthcoming review of a compensation schemefor all investors yesterday, which is due by June 30. Yesterday's outcome highlights wildly different compensation regimes for people caught up in theimbroglio of Trio Capital, an out-of-control Albury fund manager that allowed two hedge funds torip off investors. In September 2009 the whistle was first blown on Trio Capital when the Bronte Capital bloggerJohn Hempton contacted authorities with suspicions prompted by magically even returns in a Triohedge fund called Astarra Strategic. By December both the Australian Securities and Investments Commission and the AustralianPrudential Regulation Authority had stepped in and the massive untangling job began. What eventually emerged was a tale of global fraud involving a bunch of international penny stockscammers. Using elaborate corporate structures in exotic Caribbean tax havens, Astarra Strategic spiritedaway about $125 million, with ASIC eventually finding a lawyer based in Hong Kong, Jack Flader,playing an instrumental role. As the digging continued, 70 investors in a second Trio hedge fund, ARP Growth, were found tohave suffered losses of more than $50 million. Mr Flader's local henchman, Shawn Richard, faces sentencing on May 13 after pleading to twocounts of dishonest conduct. The effect on investors has been devastating. First, whether it was good money or bad, regulatorslocked up all money - more than $400 million - that was locked inside Trio Capital. It was only gradually that funds were awarded to new managers and investors could startretrieving some money as ACT Super, for super fund investors, and the liquidator PPB, for regularinvestors, unpicked the mess. ACT Super made the application for compensation for super fund investors to Mr Shorten lastOctober. The compensation is available under part 23 of the Superannuation Industry(Supervision) Act, but only to those who invested in Trio through APRA-regulated funds. It leaves superannuation investors who had been tipped into Trio through DIY funds, including allthe investors in ARP Growth, without a cent. The theory is that trustees of DIY super funds shouldbe skilled enough to look after themselves. Mark McDonald of the lawyers Maguire & McInerney said 100 clients who went through thefinancial planning firm Tarrants were all in DIY funds that then invested in Astarra Strategic.


"I think it's incredibly exciting for the poor people who have suffered such a huge amount of lossthrough no fault of their own," he said. "The problem is, only some of them are getting sorted out." It is a view that resonates with John Telford, 62, a Wollongong pensioner who was a client ofTarrants and lost a $600,000 disability payout. "I'm one of those out in the cold because of the way the financial planner invested my money, thatI wasn't savvy to," he said.

IN i835 : Legal Services | ibcs : Business/Consumer Services NS gdiy : DIY | gcat : Political/General News | ghimp : Home Improvements | glife : Living/Lifestyle |

greest : Real Estate/Property RE austr : Australia | apacz : Asia Pacific Countries/Regions | ausnz : Australia and New Zealand PUB Fairfax Media Management Pty Limited AN Document SMHH000020110412e74d0004i


F r a u d v i c t i m s g e t $ 5 5 m b a c k , b u t s o m e l e f t e m p t y - h a n d e d

SE News and FeaturesHD Fraud victims get $55m back, but some left empty-handed BY Stuart WashingtonWC 543 wordsPD 13 April 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

AUSTRALIA'S largest payout for superannuation fraud was announced by the federal governmentyesterday, with $55 million set aside for investors who lost money in the Albury fund manager TrioCapital. The compensation will return 100 cents in the dollar to more than 5000 investors, many of themretirees who lost life savings.

TDThe move was portrayed by the assistant treasurer, Bill Shorten, as vital to bolster confidence inthe superannuation system. There would always be "crooks and thieves and charlatans", he said. "What we do know is theregulators seem to be catching some of the people who have done it; and we will compensatevictims who are victims through no fault of their own." The compensation marks the end of a tortuous path for some Trio investors after regulators tookover Trio Capital in December 2009 and froze more than $400 million in investments. It lifts the payout from 90 per cent when superannuation investors in Commercial Nominees werecompensated for losses of $30 million in 2002. But yesterday's measure is limited to 5385 investors in government-regulated superannuationfunds, including more than 2500 in NSW. The distinction means that do-it-yourself superannuationinvestors, among those who lost another $120 million in two Trio hedge funds, will not be paid. These investors include John Telford, 62, a Wollongong man diagnosed as an incompletequadriplegic who lost his disability payout of $600,000. Mr Telford is among more than 100 clients of a collapsed Wollongong financial planner, Tarrants,who will not receive a cent because they invested in DIY super funds. "It's a hit below the belt considering that nobody pointed out that there was such a thing as twosuper funds: one with a guarantee and one with nothing," Mr Telford said yesterday. Rosemary Walker, 73, and 250 other low-paid Tabcorp workers who had savings tiedup in theAstarra Superannuation Plan will now get their money back. Ms Walker said the uncertainty had taken its toll on her colleagues' health. "It's been a very arduous, traumatic and highly stressful time." About $170 million in Trio's losses were in two hedge funds, Astarra Strategic and ARP Growth. Mr Shorten said: "Money was directed into hedge funds in the Caribbean; there is little evidenceinvestments were made or, if they were, if they have any value." The former investment manager for Trio Capital, Shawn Richard, has pleaded guilty to twocounts of dishonest conduct in relation to Astarra Strategic and faces sentencing on May 13. Mr Shorten said no compensation was available for non-superannuation investors who placedtheir money directly into troubled funds. He also said investors in DIY super fundswere ineligiblefor compensation because they were taking responsibility for their own investments.


Asked whether DIY super investors, who account for a third of the $1.3 trillion in Australiansuperannuation savings, were aware of their lack of a safety net, Mr Shorten said: "I would saythey are going to become a lot more aware." He said a report on extending a fraud compensation scheme to all investors was due by June 30. BusinessDay — Page 8

IN i831 : Financial Investments | iinv : Investing/Securities NS gfraud : Fraud | npag : Page-One Story | ccat : Corporate/Industrial News | gcat : Political/General

News | gcrim : Crime/Courts | gfinc : Financial Crime | ncat : Content Types | nfact : Factiva Filters| nfcpex : FC&E Executive News Filter

RE austr : Australia | apacz : Asia Pacific Countries/Regions | ausnz : Australia and New Zealand PUB Fairfax Media Management Pty Limited AN Document SMHH000020110412e74d0003f


O m b u d s m a n ' s n a m e a n d s h a m e l i s t a b o l d s t e p f o r w a r d

SE Business - Opinion & AnalysisHD Ombudsman's name and shame list a bold step forward BY STUART WASHINGTONWC 905 wordsPD 7 March 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

Hooray for the name-and-shame list released by the Financial Ombudsman Service! Pleaseforgive the exclamation mark; I don't get to be jubilant very often in this column. It's usually written with a harried frown as I spell out some abuse visited upon investors.

TDLike those poor investors now waiting for an outcome from the mega-litigation surrounding the $3billion collapse of Storm Financial. Or those other poor people who had the misfortune to have theAlbury-based fund manager Trio Capital visited on them. Now where was I? That's right, I was jubilant. Easy to get sidetracked sometimes. My reason forjubilation (as I have said, an uncommon term for this column; I am using it in the dictionary senseof "a feeling of great happiness") is the FOS's first attempt at a name-and-shame list rankingcomplaints made against financial services companies. I would argue this is good for the industry, good for consumers and even good for companies whoare unwittingly caught out in the glare of the new level of disclosure. For the first time, FOS has attempted to publicly rank the complaints it has received aboutindividual institutions over the six months to June 30 last year. Following the dictum of sunshine being the best disinfectant, the lists give the industry and thehardy consumer a snapshot of who is being most complained about. I say hardy consumerbecause the FOS lists are definitely a work in progress. First, you are drowning in data. There are 20 different industry categories and within eachcategory companies are ranked on up to nine criteria. Also, on an initial scan some aspects aredownright confusing. For example, there is a valiant attempt made to rank each company on acomplaints-for-every-100,000-customers basis. Big banks like this approach because it puts into perspective large numbers of complaints thatlarge shops receive and ranks them on a like-for-like basis with smaller numbers of complaintsthat small shops receive. The system unfortunately breaks down when some of the companies that are the subject ofcomplaints do not disclose their market size to FOS, rendering like-for-like comparisonsimpossible. The lists then resort to disclosing the actual number of complaints these recalcitrant companiesreceive, while ranking the other companies on a complaints for every 100,000 customers basis. Apples and oranges, anyone? The lists also have the potential to raise more questions than answers. For example, I have no great insight into why the small Adelaide firm Mark Power Financial scoresthe highest complaints ranking in the derivatives and broking category on a complaints for every100,000 customers basis, at almost 10 times the median ranking. Nor do I know the reasons why QBE ranks second highest for complaints in sickness andaccident insurance when it is near or under the median ranking in most other categories. Then I see that Hollard Insurance Company is first in the rankings of complaints for home


contents insurance and second in home building insurance and I start to wonder why. It is the question of "why?" provoked by these rankings that is good for everyone with an interestin financial services. After all, the aim of an external disputes resolution provider like FOS is tohave no work: it wants disputes with customers to be solved internally. If firms ask themselves why they are appearing on this list, or they are regularly asked the samequestion by consumers, media and regulators, there is a strong impetus for better systems toaddress customer complaints. That is good for the industry, good for consumers and even good for the outed companies. So bravo again to FOS for a bold step in the right direction. Footnote one: The one result in the FOS rankings I don't ask myself "why" about is RHG, thesuccessor to RAMS Home Loans, being the highest ranked for complaints in housing finance. As this paper has reported previously, ever since borrowers got stuck with RHG after RAMScollapsed they have been charged one of the highest variable rates in the market. Then RHGcharges large fees to leave its embrace. Failures in dispute resolution are just another black mark.I would complain too. Footnote two: On the subject of Trio Capital, the Assistant Treasurer, Bill Shorten, is stillconsidering the Trio trustee's application for compensation for super investors dudded in Trio. The compensation is available, at Shorten's discretion, under fraud provisions of theSuperannuation Industry (Supervision) Act, with a potential payout of 90¢ in the dollar. Of course, Trio has turned out to be an impressively large fraud, with $120 million missing from afund called Astarra Strategic and another $59 million or so missing from a fund called ARPGrowth. The application for super investors in Astarra Strategic was made to Shorten months ago. When I inquired of his office in October an answer was expected in the delightfully imprecise"coming weeks". On Friday the expectation of an answer, after Shorten's office had flicked it to the AustralianPrudential Regulation Authority, was within four to six weeks. How long does it take the government to call a spade a spade? Or, in this case, a fraud a fraud?

CO ombud : Financial Ombudsman Service NS nedc : Commentary/Opinion | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E

Executive News Filter RE austr : Australia | apacz : Asia Pacific Countries/Regions | ausnz : Australia and New Zealand PUB Fairfax Media Management Pty Limited AN Document SMHH000020110306e7370001r


D I Y s u p e r f u n d i n v e s t o r s w a r n e d o f n o c o m p e n s a t i o n f r o m f r a u d

SE BusinessHD DIY super fund investors warned of no compensation from fraud BY Stuart WashingtonWC 429 wordsPD 14 February 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

PROPERTY- SUPERANNUATION MORE than $400 billion invested in "do-it-yourself" superannuation funds, representing a third ofAustralian super, has no compensation safety net in case of fraud, industry experts have warned.

TDThe chief executive of the Association of Super Funds of Australia, Pauline Vamos, said manyinvestors put money into self-managed super funds without fully appreciatingthe risks. Investors in work-based super schemes covering most Australians are eligible for compensationinthe case of fraud, at the discretion of the Assistant Treasurer, BillShorten. But there is no such compensation safety net for investors in the rapidly-growing DIY supersector. "The risks are you don't have a lot of those safety nets, and you have to understand that," MsVamos said. Jeff Bresnahan, the managing director of the super fund ratings firm SuperRatings, said DIY superhad been sold by financial advisers and accountants, leading to its rapid growth, but manyinvestors would not have been told of the lack of compensation when it comes to fraud. He said the size of the DIY super pool would lead to more problems, including questionableinvestments and catastrophic losses. "It's just going to attract more and more fraudulent activity," he said. Yet there are no plans by the federal government to extend the safety net available to mainstreamsuper funds to include DIY funds. Under the Superannuation Industry (Supervision) Act, a trustee of a mainstream super fundregulated by the Australian Prudential Regulation Authority can apply for compensation if lossesare due to fraud. The reason for excluding DIY funds from compensation is that DIY trustees, generally familymembers, take responsibility for their investment decisions and should not be bailed out by thegovernment. The lack of compensation is being challenged by 70 DIY super investors who lost $50 million inoverseas assets that were placed through a Trio Capital fund called ARP Growth Fund. Trio Capital has subsequently been accused of fraud in the case of two of its funds, ARP Growthand Astarra Strategic. Roy Larkin, 67, a retired furniture maker now living on the central coast, lost $700,000 in ARPGrowth. He says he is in a better position than many. "Many of the people in this thing are selling their homes," he said. Mr Larkin had been hoping to do things in his retirement for his four grandchildren, such ashelping them buy their first cars. Now he is on the pension, and ineligible for compensation.


NS gdiy : DIY | gcrim : Crime/Courts | gcat : Political/General News | ghimp : Home Improvements |glife : Living/Lifestyle | greest : Real Estate/Property News

RE austr : Australia | apacz : Asia Pacific Countries/Regions | ausnz : Australia and New Zealand PUB Fairfax Media Management Pty Limited AN Document SMHH000020110213e72e0001y


A s t a r r a f r o n t m a n p l e a d s g u i l t y

SE BusinessHD Astarra frontman pleads guilty BY Stuart WashingtonWC 347 wordsPD 5 February 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

COURTS SO IT HAS come to this for Shawn Richard, the French Canadian from humble origins whodishonestly aided the disappearance of $120 million in Australians' investments.

TDYesterday men facing charges of manslaughter and murder were brought upstairs from the cellsunder the NSW Supreme Court as Richard stood at the back of the courtroom awaiting hisappearance. After working in high finance as an investment manager of the hedge fund Astarra Strategic,Richard, known by his Facebook friends as Shawny Cash, has hit the big time. But not in the way he or his proud mother, Helene, would have perhaps once imagined. Dressed in a neat blue suit, Richard yesterday pleaded guilty for his role in siphoning cash fromthe hedge fund to offshore funds in exotic Caribbean locations. No money has been found, despite extensive investigations. Richard stood before the court saying "guilty" when asked by Justice Megan Latham to plead totwo counts of dishonest conduct while providing financial services between 2005 and 2009. He will be sentenced on May 13, with each count attracting a maximum of five years' jail. Earlier, as Richard waited in the court complex, a disgruntled financial planner, Kym Marriott, gavehim a serve. "You were in it from the start. You're a bloody crook," Mr Marriott told Richard. Richard responded politely: "It wasn't my intention." His guilty pleas tell a different story, admitting to dishonest conduct that has played a part in atheft that has left hundreds of elderly investors without life savings. Richard was the frontman foran extensive offshore operation, helping to cement closerelationships with financial planners including Tarrants in Wollongong for the placement ofinvestors' money. The balloon went up for Richard when the Australian Securities and Investments Commissionfroze $426 million managed by the Albury-based fund manager Trio Capital in December 2009. Now Richard, on bail, is declaring himself bankrupt and puts his title as "unemployed" at theManly flat he shares with a former Trio employee, Peter Wood.

IN ihedge : Hedge Funds | i81502 : Trusts/Funds/Financial Vehicles | ialtinv : Alternative Investments| iinv : Investing/Securities

NS gfraud : Fraud | c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | gcat :

Political/General News | gcrim : Crime/Courts | gfinc : Financial Crime | ncat : Content Types |nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News Filter


RE austr : Australia | nswals : New South Wales | apacz : Asia Pacific Countries/Regions | ausnz :Australia and New Zealand

PUB Fairfax Media Management Pty Limited AN Document SMHH000020110204e72500066


S e l f - m a n a g e d s u p e r a n d t h e T r i o t r a p

SE Business - Opinion & AnalysisHD Self-managed super and the Trio trap BY STUART WASHINGTONWC 929 wordsPD 17 January 2011SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2011 Copyright John Fairfax Holdings Limited. LP

If I were to tell you one third of Australia's superannuation savings is at risk I could be accused ofbeing alarmist. Well, here goes: one third of Australia's superannuation savings is at risk. And I think there isgood reason to be alarmed, because no one - regulators, the industry, government and certainlynot the investors - seems to have a full understanding of the extent of risk involved.

TDI'm writing about the self-managed super sector, and the thriving industry of advisers andaccountants who have profited from the rapid growth in what is now the destination of $408 billionof Australia's superannuation money. That's right. A third of Australia's superannuation money is now in self-managed super. In my viewthese funds are prey to risks that do not face regular work-based or retail superannuationschemes, for reasons I shall spell out. The loud grumbling you can hear at this point of the column is coming from disgruntled advisersand self-managed super investors. If you could magnify the grumblers, they would be rightlypointing out that the recent Cooper super review found no widespread issues threatening self-managed super. Sadly, however, I have witnessed a situation in which all the supposed protections surroundingself-managed super have come to nought. The collapse of those protections has left about 70 investors without any realistic chance ofrecompense for losses that could be anywhere up to $80 million. These predominantly elderlyinvestors have - to use a phrase we often employ without thinking about its real meaning - lost their life savings. The losses they experienced by investing in a little-known fund called ARP Growth exposeweaknesses of the self-managed super system that have been given little attention. ARP Growth is one of the investments within the Albury fund manager Trio Capital that wasfrozen by regulators early last year. Much of the attention on Trio Capital has focused on superannuation savings filched overseasthrough a hedge fund called Astarra Strategic. Trio's handsome front man, Shawn Richard, facessentencing on dishonest conduct charges. But the real tragedy within Trio may lie with ARP Growth. ARP Growth is not just a story of badinvestment; it's a story of fraud. I assert this so boldly because I have seen two sets of accounts that give very different pictures ofthe fund. On one set of accounts the investments into hedge funds through a complicated structure in theBritish Virgin Islands appeared to be going swimmingly. On another set the investments weredwindling to the point they ceased to exist in any meaningful way. Now where the fraud lies is not for me to say. Exactly who was cooking the books to create thiselaborate fiction is unclear. Given the pedigree of Trio there is a real question whether the accounts showing dwindling


assets are not themselves a fiction - that there is a third set of accounts and the money has endedup somewhere else entirely. Suffice to say there hasn't been any money coming back. And there isn't likely to be either. Now if the retirees who were invested in ARP Growth had invested in a superannuation fundregulated by the Australian Prudential Regulatory Authority, they would be likely to receivegovernment compensation that historically amounts to about 90¢ in the dollar. This is the compensation that other Trio superannuation investors are hoping for after receivingthe nod from the Assistant Treasurer, Bill Shorten. These Trio investors placed money into Astarra Strategic through regulated superannuationfunds. In the case of fraud - and at the discretion of the minister - investors in regulated schemes are eligible for compensation for fraud under part 23 of the Superannuation Industry(Supervision) Act. There is no such magic wand for the ARP Growth investors. The fund has no money. The fund's liquidator, PPB, is not being paid from the fund and - with littlerealistic chance of recoveries - its interest in the issue is waning. The government has no obligation to compensate, so don't imagine Shorten riding in on a whitecharger. The corporate regulator may nail a few local miscreants for the fraud, but that does notbring the money back. And the various professional indemnity insurances do not amount toanything much when the total sought is $80 million or so. Is this an argument that self-managed super should automatically have some type of governmentsafety net? Not at all. People should be free to make bad investments and suffer the consequences. Even in the case of fraud, there are good reasons the safety net for regulated superannuationinvestors should not be extended. A problem with self-managed super is that the trustees of self-managed super funds are oftenmembers of the same family. You would be shocked to learn that some family members accuseother family members of fraud. The government should not be forced into the ludicrous situation of offering compensation for ahusband-and-wife bust-up. But when self-managed super investors place all their money into what is, for all intents andpurposes, a superannuation fund, there is a blind spot in the current system. Investors can be ripped off and left with nothing. The investors in ARP Growth know this only too well. How many others pushing money into theself-managed third of the Australian super industry have to find this out before changes aremade?

IN i8150214 : Private Pension Funds | i81502 : Trusts/Funds/Financial Vehicles | iinv :Investing/Securities | ipension : Pension Funds

NS ncat : Content Types | nfact : Factiva Filters | c1521 : Analyst Comment/Recommendation | c15 :

Performance | c152 : Earnings Projections | ccat : Corporate/Industrial News | nfce : FC&EExclusion Filter | nfcpin : FC&E Industry News Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Media Management Pty Limited AN Document SMHH000020110116e71h0001x


T r i o C a p i t a l m a n a g e r f a c e s j a i l a f t e r g u i l t y p l e a

SE BusinessHD Trio Capital manager faces jail after guilty plea BY Stuart WashingtonWC 409 wordsPD 8 December 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

SUPERANNUATION A MAN who raked off $6.4 million in cash in Australia's largest superannuation fraud faces up to10 years' jail after he pleaded guilty to two charges of dishonest conduct yesterday.

TDShawn Richard, 35, who was the investment manager of Trio Capital, faces an additional life banfrom the financial services industry for his part in a fraud that led to more than $100 million beingsiphoned overseas. The guilty plea by Richard in Downing Centre Local Court marks the first scalp for the AustralianSecurities and Investments Commission since it froze $426 million in the Albury-based Trio inJanuary. Richard, who was known to his Facebook friends as Shawny Cash, was a central figure in adebacle that has led to more than 10,000 investors facing massive uncertainty about their $300million in superannuation investments. The guilty plea also marks ASIC's first formal recognition of the fraud perpetrated on Trio Capitalinvestors by documenting the worthlessness of the overseas investments Richard placed througha hedge fund called Astarra Strategic. More than $100 million placed into Astarra Strategic hasnever been recovered. Richard pleaded guilty to a charge that he dishonestly received undisclosed payments in his roleas the investment manager of Astarra Strategic. ASIC alleged Richard and his company received$6.4 million. He also pleaded guilty to making misleading statements about the value of the investments inAstarra Strategic, with the effect of encouraging further investments. Both offences carry jail terms of up to five years, and fines of $220,000, or both. Richard will besentenced next year. He admitted a third charge of making false statements in relation to financialproducts. A separate enforceable undertaking with ASIC that bans Richard from any role in financialservices detailed his role in sending money through Astarra Strategic to overseas companiescontrolled by a Hong Kong businessman, Jack Flader. ASIC outlined how investors' money was placed into five Flader-controlled overseas funds. Themoney was then swappedfor virtually worthless US shares Mr Flader owned. Much of the "profits"were then returned to Mr Flader's Australian businesses as "loans". "Richard knew, from at least April 10, 2007, that the statements he made about the value of theFlader controlled funds that were included in valuation statements to Trio, were materiallymisleading," ASIC said in its enforceable undertaking.

NS npag : Page-One Story | ncat : Content Types | gfinc : Financial Crime | gcat : Political/GeneralNews | gcrim : Crime/Courts

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020101207e6c80003aPage 52 of 159 © 2011 Factiva, Inc. All rights reserved.


L e t ' s h o p e t h i s t i m e t h e r e i s a d i f f e r e n c e

SE BusinessHD Let's hope this time there is a difference BY STUART WASHINGTONWC 941 wordsPD 20 September 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

OPINION & ANALYSIS If you took a leap of faith, you might think the corporate watchdog was doing something dramaticabout a risky financial product called contracts for difference.

TDThe leap is necessary because the track record of the Australian Securities and InvestmentsCommission is hardly that of the hard-charging defender of retail investors. Remember we are talking about a mob that has had nothing meaningful to say to comfort 3000investors who lost the lot when Storm Financial collapsed more than 20 months ago. Not one thing. And more than a year ago it first emerged that the Albury fund Trio Capital had been the scene ofa crime, with about $200 million spirited offshore. So far not a charge has been laid. Not one. So, on those matters alone, it is necessary to take the following argument with the obligatory grainof salt. First, a bit about contracts for difference. They have been peddled to "investors" with an emphasison the promise of big gains from small amounts of money. The big gains come about because of leverage, which has the effect of good old-fashioned debt. Indeed, when you put $5000 in, you can have the effect of $100,000 working for you in themarket. The gains come when, say, the value of your position in the market increases from $100,000 to$110,000. Guess what? You just tripled your initial investment (your $5000 plus the extra $10,000) with a 10per cent move in the market position. This is the good side of leverage. But look what happens when your market position moves against you by 10 per cent. Your$100,000 goes down to $90,000. Not a big deal, you might be inclined to think. But look at what has happened to your $5000 whenthe market position retreated by $10,000. You have not only lost the lot - your $5000 is the first bitto go - but you are actually on the hook for another $5000. The above maths are a relatively simple way of thinking about how risky contracts for differencecan be. And having spoken to people who have incurred debts of more than $100,000 to theircontracts-for-difference providers, the risks are very real. The even easier way to think about the products is that they look more like gambling than aninvestment. Now, to be fair, the regulator has jumped on contracts-for-difference providers in a reasonablymeaningful way.


ASIC has been slowly ratcheting up the pressure on the product providers of these derivatives,using what is seen as the current panacea for retail investors: more and more disclosure. Informed investors, so the argument goes, will be able to make the correct decision about thelevel of risk they wish to enter into. In July the regulator asked the product providers to disclose fully the levels of "counterparty risk"investors are signing up for when they deal with the product providers. It is in these moves towards greater disclosure that you might be inclined to see a granderscheme by the corporate regulator. Take, for example, a simple disclosure about counterparty risk. The bald fact is there is no simpledisclosure about counterparty risk. "Counterparty risk" is a rarefied financial term that has come into vogue during the financial crisis. At its simplest, the term means your risk of the company you are dealing with failing to honour theterms of the original agreement. In the financial world, counterparty risk suddenly became muchmore important when banks started failing. ASIC demanding contracts-for-difference providers to in effect disclose to investors their risk ofdealing with the firm is a bit of a laugh. What we have seen in the crisis is that many financialservices firms don't even know their own counterparty risks, let alone explain them to investors. Opes Prime didn't know, Chimaera didn't know, Lift Capital didn't know, Chartwell didn't know andSonray didn't know. If they did know, they probably wouldn't have collapsed quite sospectacularly. How a contracts-for-difference provider meaningfully explains the risks its customers face indealing with it becomes a set-up-to-fail conundrum. If the providers fail to effectively disclose those risks, they fall outside the "disclose, disclose,disclose" methodology that is supposed to protect investors. In effect, on an extremely positive view, ASIC is exhausting all its options before taking real actionabout contracts-for-difference providers. There is an argument ASIC has shown a precedent in action against a risky investment class. When risky property debentures such as Westpoint, Fincorp and Bridgecorp were burning retailinvestors, ASIC ratcheted up disclosure requirements to a point where hopefully even the mostnaive investor can assess that they are extremely risky. The campaign has included the need for debenture sellers to provide benchmark levels ofdisclosure, or explain why they are not meeting those benchmarks. It also clamped down on misleading advertisements for the sector. The market for debentures hasshrunk dramatically. Last year the ASIC chairman, Tony D'Aloisio, flirted with the idea that some investment productswere too risky for small retail investors, with the risks incapable of being accurately disclosed. If you were inclined to take a positive view of the regulator's actions on contracts for difference, itcould be seen to be building exactly this case. It is a leap of faith that is not warranted on ASIC's track record. But here's hoping.

IN iinv : Investing/Securities NS ccat : Corporate/Industrial News | nanl : Analysis | nedc : Commentary/Opinion | ncat : Content

Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100919e69k0001l



I n v e s t o r s d e s e r v e c o m f o r t o f s a v i n g s m a d e f o r r a i n y d a y s

SE BusinessHD Investors deserve comfort of savings made for rainy days BY STUART WASHINGTONWC 858 wordsPD 13 September 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

OPINION & ANALYSIS A murmur is running through the broader funds management industry: you mean we need to putup some of our own money to look after other people's money?

TDStrange as it may sound, you can go into business as a responsible entity of a fund with $50,000and take in an unlimited amount of investors' money. That's right, for what passes as a deposit on a Sydney house these days, you can set up yourshingle and offer your services as a fund manager taking in hundreds of millions. On the superannuation side of the fence, there is a prudential framework. That is a fancy way ofsaying the Australian Prudential Regulation Authority (APRA) has a set of guidelines about theamount of money superannuation funds need to keep to one side. APRA has been pretty active on this front, republishing a set of guidelines last month that outlinewhat levels of capital superannuation funds have to set aside to address a range of issues: A buffer against risk; A commitment by the trustee to its superannuation business; and An incentive to manage the fund well. However, on the managed investment scheme side, which is regulated by the AustralianSecurities and Investments Commission (ASIC), there is no such prudential regulation. Therefore, there is no stated regulatory need to set aside extra money to address the abovepoints when you operate a managed investment scheme, except for the $50,000. (As a financial services licensee you do have some responsibilities; for example, you mustmaintain your fund's solvency, which is no small thing.) Most large-fund managers can meet the APRA-style operating capital requirements quite easily. But it doesn't mean everyone can. The low level of funding for responsible entities of managed investment schemes has causedsome disquiet among those familiar with the industry. The chairman of the Business Council of Australia, Graham Bradley, a former chief executive ofPerpetual when it was a trustee business, has wondered whether the system provides enoughreserves. It's a no-brainer for the broader managed funds industry to move to the same kind of capitalrequirements expected of superannuation funds. And fund managers will no doubt have picked up that this is exactly the line of thinking beingpursued by regulators. I will gladly take calls from fund managers who want to tell me that implementing operating or risk


requirements may impose an onerous burden on them. But I will give fair warning that the response is likely to be: "You must be bloody joking." After what we have seen with frozen funds, illiquidity and trapped investors, there is no argumentagainst having managed funds set aside adequate amounts of money for operating risk. If this knocks some participants out of the industry, that is a good thing not a bad thing. - - - STAYING with fund managers, there are likely to be some much-needed ructions amongsuperannuation funds as well. This is quite apart from the package of reforms that are now likely to go through under theMySuper banner. When APRA released four guides for superannuation funds in early August, the news was in theone it didn't release: guidelines on conflicts of interest. APRA has flagged that it will take into account the Cooper review's views on conflicts of interestwhen it finally releases the new guidelines. Cooper's views on conflicts of interest are much tougher than existing standards, which seem toallow a multiplicity of conflicts to exist with little real attempt to manage them. The classic example is that the trustee, the fund administrator and the investment manager of asuperannuation fund can all be owned by the same person. These pages have already complained long and loudly about how this ownership structureoccurred with the Albury fund manager Trio Capital, allowing at least $123 million to be siphonedoffshore. But the ownership structure occurs everywhere in the funds management game, posing similarrisks inside large organisations and raising real questions about whether gatekeepers are doingtheir jobs. (I'll tell the story about the trustee who is co-located with the administrator down in Melbourneanother day, except for this snippet: the trustee executed an Australia-wide search for anadministrator and found the administration business it was leasing its premises from.) Bradley was alive to conflict-of-interest problems, warning in a private briefing in March that "theresponsible entity is a creature of its promoter". The Cooper review stance is conveyed in its recommendation: "APRA should develop aprudential standard that sets out particular examples of conflicts of interest and conflicts of duty toillustrate behaviour that would not be allowed in relation to all APRA-regulated funds so as toensure that trustee-directors and trustees observe their duty of loyalty to members." Again, I'm prepared to take any calls about the heavy hand of government intervention. But given what happened in Trio Capital, tougher standards on conflicts can't come soonenough.

NS gpersf : Personal Finance | gcat : Political/General News RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100912e69d00027


T h r e e p e n n i e s i n t h e f o u n t a i n o f T r i o C a p i t a l l o s s e s

SE BusinessHD Three pennies in the fountain of Trio Capital losses BY STUART WASHINGTONWC 867 wordsPD 23 August 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

OPINION & ANALYSIS A virtually unknown Melbourne funds administration business called Super Managers Australia, orSMA, keeps reappearing like a bad penny in relation to Trio Capital.

TDAnd the appearances of SMA speak, in my view, to enduring links between three colourful figuresin the world of penny stock scams, Jeff, Jim and Jack. The Albury fund manager Trio Capital is shaping up as the worst case of superannuation theft inAustralian history, after $180 million in investors' money disappeared offshore. To borrow a stanza from Trio's last remaining director, David Andrews: "Then those patheticputrid looters/ Came up behind me to bully, ambush and bash -/ Callous bulls in a fragile chinashop/ Plundering nothing less than someone else's cash." First among the penny stock trio is Jeff, the dashing Jeffrey Revell-Reade, once believed toreside in Austria. BusinessDay later found him staying in the swish Sydney suburb of DarlingPoint getting around in a Mini Cooper S. Revell-Reade was the owner of the forerunner to SMA, the patriotically titled Oz Group, whichadministers $540 million in Australian superannuation money. Revell-Reade cuts quite a swath in London press reports, which name him as the controllingfigure identified by the British Financial Services Authority in a report into Pacific ContinentalSecurities. Pacific Continental was the rogue British broker that recklessly misled customers between 2005and 2007, flogging them penny stocks that turned out to be worthless. Revell-Reade is facing a court action by the British Serious Organised Crime Agency seekingorders to freeze £3 million ($5.2 million) from the sale of his house in Wimbledon, South London,under proceeds-of-crime laws. After BusinessDay reported on Revell-Reade's ownership of Oz Group, he sold his business tothe managing director, Nigel Westoby - and more on that transaction later. Then there is Jim, the Scottish accountant James Campbell Sutherland, whose former businessZetland Financial was listed as the owner of Pacific Continental. Sutherland, based in Hong Kong, is the owner of a foreign exchange trader in Australia called GoMarkets. Two Go Markets directors remain directors of an SMA-owned fund promoter called EndeavourSecurities. Sutherland's name appears in early organisational charts of ARP Growth, a Trio Capital fund alsoinvested offshore with $59 million now missing. Finally there is Jack. Jack Flader has come into focus in Trio Capital as the man who ended upwith every dollar sent to a Trio fund called Astarra Strategic in his pockets.


A NSW Supreme Court hearing was told Flader was the ultimate owner of Trio Capital. Before that, the Brooklyn-born Flader was a business partner with Sutherland in Zetland Financial,before falling out and setting up his own business around 2006. Flader was also heavily involved in Pacific Continental. Flader and Sutherland have been named as defendants in a huge US court case about a stocklending scam that raised $US1 billion ($1.1 billion) and dudded the Internal Revenue Service of$US234 million. Now, on previous form, when Jeff, Jim and Jack do business, it seems to be a reasonably safebet you should watch where your money goes. So imagine the surprise when the successor to Jeff's business, SMA, appeared at Trio Capital'sdeathbed to successfully bid for the administration business of four Trio Capital superannuationfunds. Double that surprise when Jack's existing financial planning business, Wright Global Investments,appointed a director called Graham Kinder in June. Kinder was at that time a director of the misleadingly named Industry Superannuation Australia (itis not an industry superannuation fund), which has a website registered by a Trio Capitalsubsidiary. And who administers Industry Superannuation Australia? Jeff's old business, SMA. I am in no way suggesting any nonsense on the part of Kinder, but his surprise appearanceillustrates ties between companies linked to Jack (Wright Global) and Jeff (SMA). I'm told by Nigel Westoby he is indisputably the new owner of the SMA business he bought fromJeff. Westoby says he was never a bankrupt but had a 1996 dispute with the Australian TaxationOffice, which is why there is a record of a two-month arrangement on the Insolvency and TrusteeService of Australia's register. The liquidation in 2000 of a Melbourne metal fabrication business he was a director of, ChipstarInternational, was due to an irreparable breakdown of relations within the company. And his previous experience in financial services, before meeting up with Jeff in about 2007, wasas secretary of the small Bentmore Credit Union in rural Victoria in the 1980s. He didn't have anyinvolvement in lending. On the face of it, Westoby's less-than-stellar track record has little to suggest why his business isclose to Jim's business and continues to bump into Jack's old businesses. Except, that is, hisprevious relationship with Jeff. It puzzles me how Jeff, Jack and Jim got Australian financial services licences in the first place.And it worries me that their current and former business interests appear to have links thatendure.

NS gdtcsh : Money Laundering | gcat : Political/General News | gcrim : Crime/Courts | gfinc : FinancialCrime | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter

RE austr : Australia | victor : Victoria | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100822e68n00037


S u p e r t h i e f c a u g h t u p i n U S f r a u d

SE BusinessHD Super thief caught up in US fraud BY Stuart WashingtonWC 456 wordsPD 11 August 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

FUND MANGER THE suspected super thief behind Australia's largest superannuation rip-off has been embroiled ina US court case alleging he profited handsomely from a $US234 million fraud against the UStaxpayer.

TDIn Australia, the businessman and lawyer Jack Flader has faced scrutiny amid mounting evidencethat $123 million invested through fund manager Trio Capital has been stolen. In July, Trio's investment manager, Shawn Richard, gave evidence in the NSW Supreme Courtthat every dollar sent overseas ended up in Mr Flader's pockets. Now BusinessDay can reveal Mr Flader and his former Hong Kong business partner, JamesCampbell Sutherland, were defendants within a jumbo civil litigation tried under the US RacketeerInfluenced and Corrupt Organisation Act. Both Mr Flader and Mr Sutherland own Australian financial services companies. Last November a US investor successfully proved a "90 per cent stock loan" program that took inmore than $US1 billion had been a Ponzi scheme that ripped off investors and paid $US100million to its promoters. In a case within the jumbo litigation brought by an investor, Mr Flader and Mr Sutherland werenamed among the "RICO defendants" in an action that never went to trial. "Flader, Sutherland and [their company] Zetland received substantial proceeds from the 90 percent Stock Loan program in compensation for their services," the complaint stated. The South Carolina District Court awarded the investor a $US483 million payout in the lead caseamong 11 cases within the jumbo litigation. Mr Flader and Mr Sutherland were not defendants inthe lead case. In a separate case launched by the US Government in 2007, the California Northern District Courtfound the same scheme had helped investors avoid $US234 million in tax. The scheme involved a former Citibank employee, Charles Cathcart, who offered a product knownas the "90 per cent loan" through a company called Derivium. In the tax fraud case, the US Government's uncontested complaint stated a Hong Kong company,Optech, started lending under the scheme in 2002 and "eventually became the sole purportedlender for the '90 per cent loan' transactions". In the investor's case, Mr Flader and Mr Sutherlandwere named as Optech directors between 2002 and 2005. The tax fraud case proved the scheme falsely told customers they could obtain a loan for 90 percent of the current value of their shares without triggering any capital gains tax obligations. Theinvestors' case successfully argued investors were ripped off because their pledged shares werenever held as collateral for the loans but sold immediately, with 90 per cent returned to theinvestor and 10 per cent paid to the scheme promoters.

NS gtheft : Burglary/Theft | gcat : Political/General News | gcrim : Crime/Courts RE usa : United States | austr : Australia | namz : North American Countries/Regions | ausnz :Page 61 of 159 © 2011 Factiva, Inc. All rights reserved.

Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100810e68b0005e


H o w t o g r o w r i c h s t e a l i n g s u p e r c a s h

SE BusinessHD How to grow rich stealing super cash BY STUART WASHINGTONWC 862 wordsPD 2 August 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

OPINION & ANALYSIS I propose a new push to educate industrious individuals looking at money-making opportunities inthe $1.3 trillion Australian superannuation industry. I'm writing, of course, about organisedcriminals.

TDGiven the rich range of opportunities available to rip-off superannuation money, I think it only fairthe Australian Securities and Investments Commission provide a level playing field for the ne'er-do-wells by fully disclosing the loopholes. Through a program of financial education, the commission can give these individuals what theywant and indeed deserve from the current settings - a free ride with your superannuation cash. As a handy guide for the commission, I propose any education program cover the following areas: FINANCIAL SERVICES LICENCES Criminal background? Dodgy past? Ownership of a financial services licensee is no problem. How so? The commission does not apply a good-fame-and-character test to the owner of acompany granted a financial services licence, but applies it to the directors. BusinessDay exposed just such a situation this year when it reported on Jeffrey Revell-Readewho owned OzGroup, involved in managing super worth $600 million. Revell-Reade had beenrepeatedly named in relation to international penny stock scams. All a person with a dubious past need do is own a company, appoint relatively clean-skin directorswith some financial experience, and away you go - a financial services licence to play with. Incidentally, even if the owner directly controls the financial services licensee, the commissiondoesn't say boo publicly. For example, companies controlled by a Hong Kong businessman JackFlader, a central figure in the disappearance of $123 million in Trio Capital money, appointed twonew directors to his financial planning business in June. The commission said this was not aproblem. PRODUCT DISCLOSURE STATEMENTS If you are of a certain inclination you definitely do not want to tell investors exactly what you planto do with their money. Fortunately, the commission has, in my view, a track record of letting through misleading materialthat can be used to garner funds. In the case of Trio Capital, the product disclosure statements for Astarra Strategic were revealedto be meaningless to the point of laughable. In evidence to a liquidator's examination, the 24 years of investment experience referred to inAstarra Strategic's disclosure statement consisted of Shawn Richard, who described hisqualifications as an office boy, and his less talented companion, Eugene Liu. And away you go, harvesting $123 million in investments sent to an overseas company without


another word. Astarra is not an isolated case. I am aware of another product disclosure statement out there thatdoes not name the investment manager. Where is the money going? Who is placing it? The investor doesn't know. Neither does thecommission. Pretty handy, hey? CONFLICTS OF INTEREST Fortunately for the criminally-minded, there are few legal obligations that effectively pick upconflicts of interest for those running superannuation funds. Those patient enough can winkle their way into controlling all three elements within asuperannuation fund: the administrator, the trustee and the investment manager. In Trio Capital, all three became owned by the same enterprise, so the cash could be directedoffshore without question. Interestingly, large investment managers, such as AMP and Westpac, use exactly the samesystem. Current practice means Bear Stearns could have set up in Australia in 2007 the You Beaut AllYou Can Eat CDO Superannuation Fund. So this isn't just an education program for criminals; big corporations that act irresponsibly can geta leg up with this particular loophole. FINANCIAL PLANNERS Of course, your criminal enterprise needs a distribution network. And who better than a group ofsalespeople handsomely rewarded for selling your product? Current settings allow all kinds of secret commissions to financial planning networks. With Trio Capital, an $840,000 secret commission was paid by the investment manager to theWollongong financial planner Tarrants that it happily called a "marketing allowance". These kindsof payments are due to be banned under the Bowen reforms. Fortunately for crims, there are stillopportunities to use financial planners for their own ends. This rests in the ease with whichplanners and entire businesses can become "authorised representatives" of a financial serviceslicensee. The commission has no say about these "authorised representatives". It does not check their credentials in any way. Instead it relies on financial services licensees tocheck the competence and integrity of their authorised reps. Ahem. See point one. BREAK THE LAW Put a bit of spit and polish on the curriculum vitae. Even tell a few lies in your Australian FinancialServices Licence application; the commission doesn't appear to look too hard. And there you have it. Put in place the above steps and grab the money. There is a lot of superannuation money. It has attracted a lot of interest of the wrong sort. By rights the commission should be acting to fix these problems. But until that time, the crims are free to use all the pointers outlined above. In fact, they already have.

NS nedc : Commentary/Opinion | gcrim : Crime/Courts | gcat : Political/General News | ncat : ContentTypes | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter

RE austr : Australia | ausnz : Australia and New Zealand Page 64 of 159 © 2011 Factiva, Inc. All rights reserved.

PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100801e6820002b


T r i o i d e n t i t y s t i l l c o n t r o l s f i n a n c i a l p l a n n e r

SE BusinessHD Trio identity still controls financial planner BY Stuart WashingtonWC 423 wordsPD 28 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

MISSING FUNDS THE Australian financial planning business of a Hong Kong businessman, Jack Flader, is aliveand kicking despite his central role in the disappearance of $123 million from Trio Capital.

TDMr Flader has been named in the Federal Court as owner and controller of Wright GlobalInvestments, which has a licence from the Australian Securities and Investments Commission toact as a financial planner . The business is run from a William Street office in Sydney and licenses about 60 planners asauthorised representatives in cities including Sydney, Melbourne and Perth. ASIC has raised no public concerns about Mr Flader's ownership, amid mounting evidencesuggesting the Albury-based Trio Capital represents Australia's largest theft of superannuationmoney. In a liquidator's examination Mr Flader was named by his former employee, Shawn Richard, asthe controller of offshore investment vehicles that received $123 million in Trio money throughAstarra Strategic, which was managed by Mr Richard. No money sent overseas has been recovered, and there is evidence of illegal kickbacks to MrRichard's company and secret commissions to financial planners. Mr Flader appears to have recently reinforced his control over Wright Global. A Hong Kong company said to be controlled by Mr Flader, Astral Investments, which is the soleshareholder of Wright Global, appointed two new directors on June 22, Peter Wood and GrahamKinder. When it was put to Mr Wood that Wright Global was owned and controlled by Mr Flader, hereplied: "It bloody well better not be." Mr Wood said the business was a financial planning outfit, and added: "There's a few warts on it,we're just trying to clean it up." Mr Wood is a former employee of Trio's investment manager and a close friend of his formerboss, Mr Richard. They share an address in Manly. Mr Flader's apparent manoeuvres come amid ructions facing financial planners linked to Trio Capital, including the entry into liquidation on Monday of the financial planning arm of theWollongong firm Tarrants. Tarrants received a $840,000 secret commission from Trio'sinvestment manager, although Ross Tarrant has defended the payment as a marketing allowancethat allowed his business to survive the financial crisis. ASIC has made no public statement about its investigations into Trio Capital since December. Under the current system a licensee can authorise representatives without ASIC approval. Thelicensed company is responsible for ensuring the competence and integrity of its representatives.

IN i831 : Financial Investments | iinv : Investing/Securities NS c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | ncat : Content Types |Page 66 of 159 © 2011 Factiva, Inc. All rights reserved.

nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100727e67s0003t


M u r d e r a n d t h r e a t s m a k e f o r r e l u c t a n t t e s t i m o n y

SE BusinessHD Murder and threats make for reluctant testimony BY Stuart WashingtonWC 424 wordsPD 27 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

TRIO CAPITAL AS HE sought to avoid public questioning, the investment manager for Trio Capital, ShawnRichard, outlined a litany of murder, attempted murder and threats relayed by three people.

TDEvidence in open court also gave rise to the suggestion Jack Flader, Mr Richard's Hong Kongbusiness partner, was one of those he named as making threats against him. The court heard of a murder, the attempted murder of a man and his family, and a blackmailattempt against Mr Richard in an affidavit he used to argue against appearing at a liquidator'spublic examination. Mr Richard says he knew of "police matters", including a current investigation into a "real andcontinuing serious risk" to a woman who is named in the affidavit. Mr Richard was eventually forced earlier this month to give evidence to the examination in public,detailing his relationship with Mr Flader as he explained the disappearance of $123 millioninvested by the Trio Capital, of Albury, through the Astarra Strategic fund. Last week the NSW Supreme Court granted access to Mr Richard's confidential affidavit after anapplication by John Fairfax Publications, publisher of the Herald, and Nationwide News. Yesterday Mr Richard won leave in the Court of Appeal to appeal against the earlier judgment. Hesought to keep the affidavit confidential because he fears for his safety if the contents arepublished in full. Mr Richard's representative, Simon White, said the affidavit showed several people had the"motive and capacity to carry out serious threats". In further details of the affidavit aired in court yesterday, Mr Richard cites a murder. BusinessDayhas previously reported on the murder of his former business partner, Matthew Littauer, stabbedto death in his office in Tokyo in December 2004. The affidavit reveals the attempted murder of a man and his family, and a blackmail attemptagainst Mr Richard based on unfavourable aspects of his past. Mr Richard also says that shortlybefore the public examination he received threats in two handwritten notes. They had beendestroyed. Sandy Dawson, for Fairfax, said Mr Richard gave evidence at the public examination that he wasa puppet of "certain people", including Mr Flader, and was satisfied by their explanations aboutwhy money was moving overseas. In the affidavit, however, "he says he has fears of his personal safety from some of those people". Mr Dawson said the public was entitled to know why Mr Richard was telling inconsistent stories.

NS gmurd : Murder/Manslaughter | gcat : Political/General News | gcrim : Crime/Courts RE nswals : New South Wales | ausnz : Australia and New Zealand | austr : Australia PUB Fairfax Digital Australia & New Zealand Limited Page 68 of 159 © 2011 Factiva, Inc. All rights reserved.

AN Document SMHH000020100726e67r0004s


R e v e a l e d : T r i o ' s l i n k s w i t h M i c h a e l M c G u r k

SE BusinessHD Revealed: Trio's links with Michael McGurk BY Stuart WashingtonWC 564 wordsPD 24 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

■ COLLAPSES FIGURES closely associated with Trio Capital had direct links to the Michael McGurk saga,including the notorious incident when goons armed with sledgehammers attacked a car driven byMaurice Terreiro.

TDIn one of several links, the yellow Mazda 626 was owned by Zoe Viellaris, a former marketingemployee of the forerunner of Trio Capital, and the partner of Mr Terreiro. Mr McGurk was murdered in the driveway of his Cremorne home on September 3 last year afteracting as a loan shark and standover man. Mr Terreiro, 45, is a two-times bankrupt who had built up close links to Trio Capital figuresthrough his financial planning business interests, although by early last year his business fortuneshad waned. The Herald has previously reported Mr McGurk was pursuing Mr Terreiro for alleged debts of$500,000. Men armed with sledgehammers acting on Mr McGurk's behalf attacked the car lastJune as Mr Terreiro drove across a Redfern park to escape. Mr McGurk's murder remains an open investigation. Trio Capital is the Albury fund manager at the centre of what evidence from a public examinationlast week suggested was the largest theft of superannuation money in Australian history. Prior to his bankruptcy Mr Terreiro had a majority interest in a company called Solutions WealthStrategies, which had several close links to Trio Capital figures. In the first link Solutions Wealth Strategies, when Mr Terreiro was a director, authorised ShawnRichard to act as a representative between 2006 and 2008. In the same period Mr Richard wasthe investment manager of Astarra Strategic, a Trio Capital fund now suspected of channelling$123 million in investors' money offshore. Ms Viellaris said yesterday Mr Richard was one of up to 50 financial planners authorised bySolutions Wealth Strategies over several years. "I think that the previous director [Mr Terreiro] hada business relationship with Shawn," she said. In a second link between Mr Terreiro's business interests and Trio Capital figures, Mr Richardgave evidence he had personally made loans of about $500,000 to another Solutions WealthStrategies representative, Ronald Jeffery Caines. Mr Caines, a representative between 2005 and2008, was banned by ASIC for life in 2008 for receiving separate undisclosed payments from anunnamed Trio Capital director. In a third link between Mr Terreiro's business interests and Trio Capital figures, a one-time friendand former business partner of Mr Terreiro, Mark Schroeder, was the chief executive of theforerunner of Trio Capital in 2005. Mr Schroeder's relation with the Trio Capital businesses continued until earlier this year, when hewas a director of the Trio-related Wright Global Investments. Mr Richard, 35, gave evidence last week he was a "mere puppet" of a Hong Kong businessman,Jack Flader, who owned Trio and several related companies, including Wright Global


Investments. Mr Schroeder and Mr Terreiro were involved in an unsuccessful push to market a financial productcalled Keys to other financial planners through a second financial planning business where theyboth served as directors, Financial Wealth. It has been reported debts in relation to Mr Terreiro's financial planning businesses were thesubject of a $150,000 covering loan with an exorbitant interest rate from Mr McGurk. Mr Terreirofiled for bankruptcy in March last year.

NS gcat : Political/General News RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100723e67o00033


C o w b o y s w a t c h e d a s m i l l i o n s d i s a p p e a r e d

SE BusinessHD Cowboys watched as millions disappeared BY STUART WASHINGTONWC 904 wordsPD 19 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. CX

An article in BusinessDay on Monday, "Cowboys watched as millions disappeared", incorrectlyreferred to a loan to RI Group. The payment was an investment.

LPOPINION & ANALYSIS Just how did a posse of cowboys penetrate weaknesses in regulations to allow what mountingevidence suggests is the largest theft of superannuation money in Australian history?

TDHearings on the Albury fund manager Trio Capital last week showed just how Australianinvestors were seduced into placing $123 million into one of its offshore funds, Astarra Strategic. All the investment money sent overseas is now missing. Understanding how this occurred should be the final word on just how perniciously commissionsand secret payments can create the perception, if not the reality, of influencing financial planners. The hearings also showed Trio Capital was subject to numerous interventions by Australia's twocorporate cops, the Australian Prudential Regulation Authority and the Australian Securities andInvestments Commission. The NSW Supreme Court heard last week that the authority intervened in effect to kick the fundmanager Shawn Richard off what became the Trio Capital board in 2005, and was again showing interest in a $60 milliontransfer of Trio funds into Astarra Strategic last year. In 2008 ASIC interviewed Richard under its compulsory examination powers about a $500,000secret payment from Trio and Trio-related companies that was regarded so seriously the financialplanner who received the loan was banned for life in August 2008. But none of these interventions led to further scrutiny of the essential problem, uncovered in its fullhorror in the public hearings mounted by the liquidator, PPB, last week. The court heard that all the money sent overseas ended up in the pockets of the mysterious HongKong lawyer Jack W. Flader. He is the ultimate owner of the Trio Capital funds management business and, while Richard is shown as having ownership, is said to be the ultimate owner of Astarra Asset Management, which was Astarra Strategic's investment manager. As the directors of the investment manager, Richard and his business partner, Eugene Liu,allegedly issued meaningless Astarra Strategic product disclosure statements which made claimsthat simply could not be supported.


It then marketed its product through financial planning groups rewarded with secret loans andsecret payments. How big were those rewards? Very, very big, it seems. The court heard that there was what wasdescribed as a $840,000 secret commission to a Wollongong financial planner, Tarrants; a $2million loan to a now-failed Melbourne financial planner, Professional Alliance; a smaller loan to aPort Augusta planner, Seagrims; and a $2 million loan to a private equity mob called RI Group, toobtain a controlling stake in financial planners that would direct even more money AstarraStrategic's way. Richard denied these payments came directly from investors, while Tarrants is arguing itspayments were "volume rebates" that were generally accepted in the industry. (Such payments would be banned under the Bowen financial planning reforms announced thisyear, and good riddance too). Evidence in the hearings indicated that when financial planners funnelled their investors' moneyinto Astarra Strategic, the process was both complex and extremely simple. At its simplest, itbecame Flader's money. The complex version is that Astarra Strategic sent the funds to a British Virgin Islands companyheaded by Marc Boudreau, an old mate of Richard's with no qualifications to handle the funds. This company, called EMA International, was controlled by Flader. EMA International placed the money into numerous funds with fancy names domiciled in exoticCaribbean tax havens. These funds were also controlled by Flader. The really sweet deal was that Flader then swapped assets he owned for the money placed into the funds. Robert Newlinds, SC, acting for the liquidator, picked up on this theme when he asked Richard:"Let me guess: it was Mr Flader that valued the assets?" Richard said: "It was either him or someone in his control." The compounding conflicts of interest in this series of transactions beggars belief, and you can betthese conflicts were not detailed in the product disclosure statements. The hearings took perhaps their only comical turn when Richard said: "The way Jack explained itto me was there was no specific conflict." How Richard and Liu and the coterie of offshore figures associated with Flader came to controlAustralian superannuation money does the regulators no credit. How the pair issued fantasticalproduct disclosure statements that provided little or no detail about what was going on with investors' money is another blackmark for ASIC. Richard lied about having a bachelor of finance and said he was better described in his Taiwandays as an office boy rather than the grandiose "senior portfolio manager" in his applications tobecome an Australian financial services licensee. Liu has no tertiary qualification. Richard is personable and engaging. He was sharp and clear when he gave his evidence over thefour days he appeared in the witness box. He no doubt used similar skills to persuade theregulators that he was good at his game. The whistle was blown on Trio Capital last September. More than $400 million in Trio Capital funds have been frozen since October. How long do we have to wait before the regulators take action to find out the full truth about what


Capital's game really was?

IN i831 : Financial Investments | iinv : Investing/Securities NS gplan : Urban Planning/Development | ncrx : Corrected Items | ccat : Corporate/Industrial News |

gcat : Political/General News | gpir : Politics/International Relations | gpol : Domestic Politics | ncat: Content Types

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100718e67j00029


H o w T r i o s c a n d a l s l i p p e d u n d e r A S I C ' s r a d a r

SE BusinessHD How Trio scandal slipped under ASIC's radar BY ■ EXAMINATION Stuart WashingtonWC 451 wordsPD 17 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

A DIRECTOR of Trio Capital and related companies were involved in a secret loan to aWollongong financial planner that got the planner booted out for life in 2008. But while the corporate regulator grilled the fund manager Shawn Richard that year about hisinvolvement in the loan, it failed to detect what mounting evidence now suggests is the largestsuperannuation theft in Australian history.

TDMr Richard said yesterday he did not hear from the Australian Securities and InvestmentsCommission about the loan again until fears about the fund he managed, Astarra Strategic, wereraised by a whistleblower last September. The interview adds to several occasions that regulators addressed issues within the Albury fundmanager Trio Capital dating back to 2005, but manifestly failed to stop Astarra Strategic's $123million disappearing offshore. Mr Richard faced the fourth and final day of a liquidator's public examination in the NSW SupremeCourt yesterday. Mr Richard, 35, nicknamed by Facebook friends "Shawny Cash", was asked about a series ofpayments to financial planning groups to help Astarra Strategic secure more investment funds. The payments included a $500,000 loan from an unknown Trio Capital director and related Triocompanies to the Wollongong financial planner Ronald Jeffrey Caines, which Mr Caines thenfailed to disclose to investors in Trio Capital products. The failure resulted in Mr Caines being banned by ASIC from the financial planning industry forlife. There was also a $2 million investment in a private equity group called RI Group, which MrRichard said was supposed to help purchase interests in financial planners that would direct fundsto Trio Capital. Yesterday's disclosures were on top of what Robert Newlinds, SC, acting for the liquidator, PPB,described as a $840,000 secret commission paid to a Wollongong financial planner, Tarrants, anda $2 million loan to a Melbourne planner, Professional Alliance. Also yesterday, Mr Richard's fellow investment manager, Eugene Liu, said he was not sure if thebusiness they operated as investment manager had a compliance plan. He also said that he did nothing more than accept at face value what a Hong Kong lawyer, JackFlader, had told him about the values of assets Australian investors were buying in offshore fundscontrolled by Mr Flader. The court has heard that Mr Liu was responsible for risk management and valuations within thefunds. Mr Richard said yesterday that Trio Capital's Albury managing director, Rex Philpott, had beenaware of the investment strategy employed by Mr Flader. That strategy involved Mr Fladerswapping Australian investors' money for assets which he had valued himself.

IN i831 : Financial Investments | iinv : Investing/Securities Page 75 of 159 © 2011 Factiva, Inc. All rights reserved.

NS gplan : Urban Planning/Development | ccat : Corporate/Industrial News | gcat : Political/GeneralNews | gpir : Politics/International Relations | gpol : Domestic Politics

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100716e67h00038


P a i r p l a y s i t c o o l a s c o u r t h u n t s f o r $ 4 0 0 m

SE News and FeaturesHD Pair plays it cool as court hunts for $400m BY Stuart WashingtonWC 427 wordsPD 16 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

THE fund manager Shawn Richard has been living a highly social life in Manly amid mountingevidence he is a central figure in the largest theft of superannuation money in Australian history. Facebook photographs of Mr Richard show him dressed as a hippie at an event dubbed "TarongaZoo goes Woodstock" earlier this year and enjoying a "party on the green" in April.

TDFriends have tagged photographs of Mr Richard with the nickname "Shawny Cash". Mr Richard's partying and guitar-playing antics with a former Trio Capital colleague, Peter Wood,contrast with the fate of Trio investors. More than $400 million invested in the Albury fund manager was frozen last October after fearswere raised about a hedge fund managed by Mr Richard called Astarra Strategic. The appearance of a carefree Mr Richard also contrasts with his argument earlier this week thathe feared for his physical safety as he attempted to avoid a liquidator's public examination about Capital's collapse. For the past three days Mr Richard has given evidence at a NSW Supreme Court examination asthe liquidator PPB tries to find $123 million invested in obscure Caribbean tax havens throughAstarra Strategic. Not a cent invested by Trio Capital into Astarra Strategic has been returned toAustralian investors. In his appearance before the public examination Mr Richard has agreed he regularly receivedillegal secret commissions from his Jack Flader, a Hong Kong lawyer. He has also been unable to explain $265,000 shown as personal withdrawals from his companyaccount in four months during 2008. And he has detailed several million dollars he has received ina secret Liechtenstein bank account. Mr Richard has described a corporate structure in which Mr Flader owned all Trio Capitalbusinesses that channelled money through Astarra Strategic to a British Virgin Islands company,which Mr Flader also controlled. The British Virgin Islands company then placed the money into offshore funds, also controlled byMr Flader. Yesterday Mr Richard said when the Australian money was received by these funds Mr Fladerwould swap assets to the same value and pay himself the Australian money. Robert Newlinds, SC, acting for PPB, said: "Let me guess, it was Mr Flader that valued theassets?" Mr Richard replied: "It was either him or someone in his control." Mr Richard has deniedcontentions that he knew he was acting illegally. No charges have been laid against Mr Richard. Inside BusinessDay, Page 2

NS gtheft : Burglary/Theft | gcat : Political/General News | gcrim : Crime/CourtsPage 77 of 159 © 2011 Factiva, Inc. All rights reserved.

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100715e67g0003h


' M a r k e t i n g a l l o w a n c e ' p a i d t o p l a n n e r

SE BusinessHD 'Marketing allowance' paid to planner BY Stuart WashingtonWC 431 wordsPD 16 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 2LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTIGATION A FINANCIAL planner received more than $840,000 in secret commissions last year as anincentive to invest money into Astarra Strategic, a public examination heard yesterday.

TDSecret commissions paid by product manufacturers to financial planners are illegal. Liquidators are trying to establish how $123 million in money invested by the fund manager TrioCapital of Albury disappeared after being sent offshore by Astarra Strategic. The investment manager for Astarra Strategic, Shawn Richard, told the NSW Supreme Courtexamination yesterday the payments to the the financial planne Tarrants, of Wollongong, were a"marketing allowance". Mr Richard did not contest that the payments were kept secret frominvestors who were introduced to the Astarra Strategic hedge fund by Tarrants. Robert Newlinds, SC, acting for the liquidator PPB, said: "It could be defined as a kickback,couldn't it?" Mr Richard replied: "It was defined to me as a marketing allowance." Mr Newlinds said Mr Richard should not "beat around the bush. These were secret commissions,weren't they?" Mr Richard replied that the broader funds management group, Trio Capital, knew about thepayments and it was up to financial planners to disclose them to investors. He said Tarrants had asked for the marketing allowance because it was "something they receivedin the past and something that they asked for". Mr Richard said he was not responsible for Astarra Strategic product disclosure statements thatdid not make disclosures about money being paid from his company Astarra Asset Managementto financial planners. He also agreed Astarra Asset Management had made loans to two other financial planners, $1million to Professional Alliance of Melbourne and a much smaller sum to the Seagrims of PortAugusta . Mr Richard agreed it was easier to gain investments for Astarra Strategic from financialplanners who were receiving the "marketing allowance" payments. Yesterday Mr Richard also described in detail how his Hong Kong boss, Jack Flader, in effect paidhimself Australian investors' money from the overseas funds he controlled. Mr Richard said MrFlader controlled the funds, and swapped the money for assets he either valued himself or causedto be valued by people he controlled. The funds included the SBS Dynamic Opportunities Fund and the Exploration Fund, domiciled inthe tax enclave of St Lucia. No assets have been found by liquidators. Mr Newlinds asked Mr Richard whether Mr Flader was "hopelessly compromised" by conflicts ofinterest. "The way Jack explained it to me was there was no specific conflict," Mr Richard said. The examination continues.

IN i831 : Financial Investments | iinv : Investing/Securities NS c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | ncat : Content Types |Page 79 of 159 © 2011 Factiva, Inc. All rights reserved.

nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100715e67g0002u


K i c k b a c k s k e p t c o m i n g a s T r i o m a n a g e r s e n t i n v e s t o r s ' f u n d s o f f s h o r e

SE BusinessHD Kickbacks kept coming as Trio manager sent investors' funds offshore BY Stuart WashingtonWC 467 wordsPD 15 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

EXAMINATION AN INVESTMENT manager was shown making personal withdrawals totalling $265,000 over fourmonths in 2008 from a company account, but yesterday could not explain what the money hadbeen used for.

TDShawn Richard also agreed yesterday his business had received regular illegal secretcommissions or kickbacks from his offshore boss, the Hong Kong lawyer Jack Flader. Mr Richard, 35, is the first witness in a liquidators' public examination attempting to find thewhereabouts of $123 million missing from an offshore Trio Capital fund called Astarra Strategic. Mr Richard said he could not explain the seven withdrawals of between $20,000 and $50,000 hiscompany accounts showed him making between March and June in 2008. Mr Richard also revealed he had stood down as a director of Trio Capital in November 2005 as aresult of an Australian Prudential Regulation Authority review of the fund manager - with no furtheraction taken. Mr Richard, who was responsible for placing Trio Capital investors' money into Astarra Strategic,also detailed a system in which every dollar sent offshore ended up as cash with Mr Flader. In reference to one portion of investors' money, Robert Newlinds, SC, acting for the liquidatorsPPB, said: "The $300,000 cold hard cash that was leaving Australia, by a very quick round-robinsystem, found its way into Mr Flader's pocket?" Mr Richard replied: "Privilege, yes." He said he noticed, in late 2007 or early 2008, a relationship between money being sent offshoreby Australian investors and money being paid by Mr Flader to his Australian business, AstarraAsset Management. Mr Newlinds asked: "What you suspected was that perhaps those moneys that were supposedlybeing invested were not being invested, because you seemed to be getting a great slab of themcoming back?" Mr Richard replied: "Privilege, I did not ever think that." Mr Richard was asked about six investments in Astarra Strategic of up to $1.5 million in 2007 and2008, which were forwarded to a British Virgin Islands company, EMA International. Each time, within 10 days, Mr Richard's business had received payments from Mr Flader's HongKong company of up to $150,000. Mr Richard said Mr Flader controlled Astarra Strategic, EMA International and the funds that werethe ultimate destination of the Australian money. He said had been completely satisfied with MrFlader's explanation of how he was obtaining the Australian money from the funds. "You knew what you and Mr Flader were cooking up together was illegal, didn't you?" MrNewlinds said.


Mr Richard replied: "Privilege. Jack was very good at convincing me that it wasn't illegal." The examination in the NSW Supreme Court continues.

IN iinv : Investing/Securities NS c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100714e67f0003i


F u n d s m a n a g e r a d m i t s l y i n g

SE News and FeaturesHD Funds manager admits lying BY Stuart WashingtonWC 377 wordsPD 14 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

HE WAS the clean-cut fund manager who, on paper, was perfectly qualified to take control of$123 million in superannuation investments. Now Shawn Richard's elaborate fiction has come crashing down. His financial qualifications areexposed as lies and he has admitted to a secret Liechtenstein bank account in which he receivedseveral million dollars.

TDThe Canadian-born Mr Richard, 35, is the first witness called in public examinations held in theNSW Supreme Court by the liquidator of the Albury-based fund manager Trio Capital. The collapse has affected 10,000 superannuation investors, who have had $400 million ininvestments frozen since October when regulators first acted. Not one cent has been recovered of the Trio money invested in the exotic offshore investmentvehicle Astarra Strategic, which Mr Richard was paid $170,000 to manage. This was on top of commissions paid to him from a Hong Kong businessman, Jack Flader. It was a lot of money for a role that, on Mr Richard's account, was to act on the orders of two men,first Matthew Littauer until he was murdered in Tokyo in 2004, then Mr Flader. Yes, Mr Richard agreed, he acted as a puppet of the two men. Yes, he said, he had lied toregulators because the men had told him to. The demolition yesterday of Mr Richard's reputation as a highly fancied fund manager continuedinto the fine detail. No, Mr Richard told Robert Newlinds, SC, acting for the liquidator PPB, he does not have abachelor of finance from the University of Moncton in Canada. Yes, he had used that credentialwhen applying for financial services licences in Australia. No, Mr Richard said, he should not have been described as a senior portfolio manager when heworked in Taiwan between 1996 and 2000 with a stockbroker called Pacific ContinentalSecurities. Yes, he said, his duties and roles could be described as those of an office boy. Until recently Mr Richard had been publicly assuring investors he was aware of the location ofsome of the Astarra Strategic money and he was working to recover it. Mr Richard's examination continues today. BusinessDay — Page 1

IN iinv : Investing/Securities | i81502 : Trusts/Funds/Financial Vehicles NS npag : Page-One Story | ccat : Corporate/Industrial News | ncat : Content Types | c12 : Corporate

Crime/Legal/Judicial | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&EIndustry News Filter


PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100713e67e00039


I a m o n l y a p u p p e t , s a y s T r i o d i r e c t o r

SE BusinessHD I am only a puppet, says Trio director BY Stuart WashingtonWC 456 wordsPD 14 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

EXAMINATION THE former investment manager who took legal responsibility for placing $123 million missingfrom the Astarra Strategic Fund said he was only a puppet of his overseas bosses.

TDOn the first day of a liquidators' examination into the collapse of the Albury-based fund manager Tri o Capital, Shawn Richard said he had misled regulators and investors in documents that statedhe was responsible for placing money. Instead, he told the examination in the NSW Supreme Court, ultimate responsibility for decisionsabout investments in Astarra Strategic rested with Matthew Littauer, until his murder in Tokyo in2004, and thereafter with the Hong Kong-based Jack Flader. The disappearance of the money Trio placed into Astarra Strategic has been the subject of aglobal hunt by the liquidator PPB. Regulators froze more than $400 million in investments in TrioCapital in October. Robert Newlinds, SC, acting for PPB, asked: "You are trying to suggest you are nothing morethan a mere puppet of Mr Flader?" Mr Richard replied: "Privilege. Yes." Mr Richard, 35, said he had lied about his former experience, including a claimed bachelor offinance from the University of Moncton in Canada, on the direction of Mr Littauer and Mr Flader. Asked why he had lied, Mr Richard said because they had told him to, and had he not done so hewould have lost his job. Mr Richard's lies included describing himself in applications for financial service licences as"senior portfolio manager" for Pacific Continental Securities in Taiwan, when he agreed theaccurate description was "office boy". Mr Richard said he was a puppet despite agreeing he and afellow director, Eugene Liu, appeared in product disclosure statements as investment managersof Astarra Strategic. Mr Richard also agreed he was involved in drawing up a contractual arrangement with a BritishVirgin Islands company, EMA International, which became the recipient of the Astarra Strategicmoney. EMA International had one director, Marc Boudreau, whom Mr Richard described as "simply amate I grew up with who resides in Canada". Asked what skills and abilities Mr Boudreau had to direct money placed into EMA International, MrRichard said: "He had none." The public examination, in which Mr Richard used the word "privilege" so his answers may not beused in court proceedings, continues. SHAWN RICHARD Official description: Bachelor of finance, University of Moncton, Canada. Revised description: Nodegree qualifications.


1996-2000 Official description: ‘‘Senior portfolio manager’’ with Pacific Continental Securities inTaiwan. Revised description: ‘‘Office boy.’’ 2004-10 Official description: Investment manager for what became $123 million placed in AstarraStrategic as a director of Astarra Asset Management. Revised description: ‘‘Puppet.’’

IN i81502 : Trusts/Funds/Financial Vehicles | iinv : Investing/Securities NS npag : Page-One Story | ncat : Content Types | c12 : Corporate Crime/Legal/Judicial | ccat :

Corporate/Industrial News | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin :FC&E Industry News Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100713e67e0002t


T r i o C a p i t a l p r i n c i p a l t r i e s t o s t o p p u b l i c e x a m i n a t i o n

SE BusinessHD Trio Capital principal tries to stop public examination BY Stuart WashingtonWC 470 wordsPD 13 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

FUND MANAGER A CENTRAL figure in the saga of Trio Capital, Shawn Richard, has reported threats to his safetyand "work-associated stress" in an unsuccessful bid to stop a liquidator publicly examining his rolein the fund manager's collapse.

TDThe Canadian-born Mr Richard, 35, has previously expressed his willingness to help theliquidator, PPB, discover the whereabouts of $123 million missing from a Trio hedge fund calledAstarra Strategic. More than $400 million in investments in the Albury-based Trio Capital, affecting 10,000superannuation investors, were frozen last October after regulators were first alerted to fearsabout Astarra Strategic. Yesterday Mr Richard argued in the NSW Supreme Court his appearance before a publicexamination by the liquidator, which is due to start today, should be conducted in private. Simon White, acting for Mr Richard, told the court there was "clear evidence that my client'sphysical safety is at risk and he has a medical condition", giving the court a confidential affidavit tosupport Mr Richard's argument. The move to close the hearings to the public was contested by John Fairfax Publications,publisher of this newspaper. Robert Newlinds, SC, acting for PPB, said threats detailed by Mr Richard came from people whocould be regarded as "co-conspirators" - a former employee of one of the Trio companies, andformer Trio investors. Mr Newlinds questioned the reality of the threats, saying of investors: "Of course they would beupset. They lost their life savings. They might say those sorts of things." He also said the claim about the medical condition appeared "hopeless", consisting of a report onMr Richard's blood pressure and "work-associated stress". Sandy Dawson, acting for John Fairfax Publications, also raised questions about how details oftwo written threats detailed by Mr Richard had been destroyed. Mr Newlinds said it was possible that Trio Capital was a case of serious criminal fraud andemphasised Mr Richard's central role in its operations. "There is certainly a theory in thecommunity that what has gone on has been wholesale fraud," Mr Newlinds said. He said Mr Richard appeared to be the ultimate owner of Trio Capital through a company calledBelladonna, registered in St Vincent in the Caribbean. The court heard that Mr Richard had been a former director of Trio companies and a currentdirector of its investment manager, Astarra Asset Management, which was responsible for placingmoney into Astarra Strategic. Justice Reg Barrett denied Mr Richard’s bid to close the hearings to the public, agreeing hisevidence held little weight. He agreed to an application by PPB to hear certain evidence from Mr Richard, relating to


confidential documents obtained from Hong Kong regulators, in private.

IN i831 : Financial Investments | iinv : Investing/Securities NS npag : Page-One Story | ncat : Content Types | c16 : Bankruptcy | cactio : Corporate Actions |

ccat : Corporate/Industrial News | nfact : Factiva Filters | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100712e67d0003i


T r i o C a p i t a l - a l o n g , s l o w c a r c r a s h

SE BusinessHD Trio Capital - a long, slow car crash BY STUART WASHINGTONWC 959 wordsPD 12 July 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 9LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

OPINION & ANALYSIS Sometimes bad things happen in front of you, and you see it. It's a bag-snatch, there's a yell,someone's fallen over, and someone else is running off into the distance.

TDSometimes bad things happen in front of you, and you don't see it. It happens over a long time,silently, like rust. When you finally see it, you realise it's been bad for years. It is a fair bet that investors in the fund manager Trio Capital, based in Albury, will be found tobelong in the second category. This week the administrators start a public examination that asksjust how an estimated $123 million in Trio money found its way offshore in a hedge fund calledAstarra Strategic. To date, not one cent of money placed offshore has been returned. We now know the bulk of the money in Astarra Strategic was channelled through a British VirginIslands company into underlying investments that are at best dubious and at worst fictional. We also know some of the main players to be examined this week have had a long, unhealthytrack record with so-called "boiler-rooms", unlicensed cold-callers who flog dodgy stocks to oftenelderly investors. Those with the unhealthy links include Shawn Richard, the plausible Canadian-born frontman whoestablished what became known as Trio Capital from 2003. BusinessDay has previously revealed Richard was named in 2001 by regulators as an associateof an unlicensed stockbroker operating out of Manila. Before that he worked with a dodgy brokercalled Pacific Continental. The ties that bind Richard to this world are worth examining. BusinessDay has also previously reported that Richard was slated to attend a conference inPattaya in 2005, where three of the men named alongside him in the scam in 2001 were on thelist of attendees. Another four at the same conference have figured in the elaborate network of offshore companiesthat have taken care of Astarra Strategic money. One of those is Frank Richard Bell, a British stockbroker with a lengthy record of fines by the USself-regulatory body, who is looking after $75 million of Astarra Strategic money placed into theExploration Fund. Incidentally, Bell won't be helping out with the inquiry. He is in Cebu in thePhilippines. The sheer wonder of it all is that the bad thing happened in front of so many people for so long,without even a murmur of suspicion until regulators were tipped off by Bronte Capital's fundmanager, John Hempton. The checks and balances in a system that is supposed to protect people's investments fromwrong-doing appear to have failed every step of the way. Take, as one example, the compliance plan auditor, KPMG. On September 28 last year, just threeweeks before regulators froze all of Trio's managed investment schemes, KPMG signed an audit


of Trio Capital's compliance plan for Astarra Strategic. KPMG stated Trio had "complied with thecompliance plans for each of the schemes". Given what was going on inside Astarra Strategic, this is pretty ordinary. But there are reasons for even more scrutiny of just how effective KPMG's compliance plan auditswere. On June 30 last year, Astarra Strategic's investments grew by $47 million, apparently tippedin by related-party Trio funds. It now appears this was not fresh cash. It was money that was being leeched offshore from otherfunds that were put together into the Astarra Strategic bucket. But leaving aside whether fresh cash was involved, it was a major related party transaction thatappeared in the audited accounts of Astarra Strategic. Under the Trio compliance plan, relatedparty dealings are supposed to comply with the law and not prejudice the interests of other unitholders. The managing director of Trio is supposed to monitor these non-standard transactions andensure compliance. Did KPMG check these points in its compliance plan audit, shortly after $47 million was shuffledfrom one hand to the other inside Trio Capital? I don't know. But suffice to say it was not KPMGthat blew the whistle on Trio Capital. Nor was it the custodian, the National Australia Bank subsidiary, National Australia Trustees,charged with ensuring each dollar invested in Astarra Strategic arrived where it was supposed toarrive. Nor was it any of the financial planners, who were gaily recommending their clients' money betipped into Trio Capital. In the case of the financial planner Seagrims, in Port Augusta, about $100 million was switched toTrio in very short order. How Astarra Strategic became such a problem is pretty simple. There are three entities within amanaged investment scheme (or a superannuation fund): a responsible entity (or trustee), anadministrator and an investment manager. In Trio Capital's case, over the years they all became owned by the same people. And theinvestments in Astarra Strategic grew and grew. So while there is a host of gatekeepers that failed, Trio failed at the first hurdle, by not havingsome independence between the different elements of the structure. (Not that Trio Capital is an isolated case with this structure. The big shops - AMP, for example- sometimes act as all three. Perhaps a warning for us all.) The end result was that Trio Capital was a bad thing. A scheduled four days of hearings into Trio Capital start tomorrow. There will be pleas ofignorance from people intimately involved in Trio that they had no idea what was going on. The bad thing happened in front of them, and they will say they didn't see it. For a long time.

NS gtacc : Transport Accidents | gcat : Political/General News | gdis : Disasters/Accidents | gmmdis :Accidents/Man-made Disasters | grisk : Risk News

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100711e67c00025


L i s t o f a l l e g e d T r i o o f f e n c e s s e n t t o A S I C

SE BusinessHD List of alleged Trio offences sent to ASIC BY Stuart WashingtonWC 193 wordsPD 23 June 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

LIQUIDATION A LIST of suspected offences by Trio Capital's officers was sent to the Australian Securities andInvestments Commission yesterday as the Albury-based fund manager was pushed intoliquidation.

TDInvestigations into Trio Capital have not established the existence of more than $180 million inassets, with the Supreme Court judge George Palmer saying it had all the signs of a scam. Administrators are required to send ASIC details if officers of Trio Capital were suspected ofbreaching the Corporations Act or if officers "may have been guilty of negligence, default, breachof duty or breach of trust". The hour-long meeting attended by six creditors to Trio Capital formally placed the fund managerinto liquidation yesterday. The report to ASIC covers possible breaches of the Corporations Act revealed in PPB'sinvestigations into Trio Capital since it was appointed as administrator in late December. PPB has been unsuccessful in locating $123 million invested through the British Virgin Islandscompanies in a Trio hedge fund called Astarra Strategic and another $51 million investedoverseas through ARP Growth.

IN i831 : Financial Investments | iinv : Investing/Securities NS c13 : Regulation/Government Policy | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpin : FC&E Industry News Filter | c12 : Corporate Crime/Legal/Judicial |nfcpex : FC&E Executive News Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100622e66n0003z


L a c k o f i n d e p e n d e n t t r u s t e e s c o u l d h u r t i n v e s t o r s , c r i t i c w a r n s

SE BusinessHD Lack of independent trustees could hurt investors, critic warns BY Stuart WashingtonWC 312 wordsPD 24 May 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTMENT THE absence of independent trustees in Australia's managed investment schemes may haveincreased investor losses in recent collapses such as Great Southern, a long-time critic of thedismantling of the trustee system has warned.

TDGraham Bradley, a former chief executive of Perpetual when it was the largest trustee business inAustralia and the present president of the Business Council of Australia, aired his private views ina closed briefing in Sydney to mark the 10th anniversary of reforms to managed investmentschemes. The structure of managed investment schemes has been brought into focus after collapses suchas Great Southern and Timbercorp, and suspected fraud in the case of Trio Capital. Reforms passed in 2000 removed the role of independent trustee from managed investmentschemes and replaced it with a "responsible entity". In Mr Bradley's speech in March, obtained by the Herald, he outlined the requirements for aresponsible entity, including the need for a separate compliance committee, an AustralianFinancial Services Licence and a compliance auditor. But he argued the changes had failed to address the need for genuinely independent oversightand had not established an entity investors could rely on for restitution if things went awry. "The responsible entity is a creature of its promoter," Mr Bradley said on the question ofindependence. "The promoter appoints the directors." Noting the move to independent oversight in superannuation trusts regulated by the AustralianPrudential Regulation Authority, he said of investment schemes: "I have no doubt that one day thesame call will go up: where were the independent trustees?" He said a responsible entity needed to have $5 million in capital, regardless of its size, or acustodian that had at least $5 million in net tangible assets, and maintain adequate insurancecover.

IN iinv : Investing/Securities NS c13 : Regulation/Government Policy | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand | nswals : New South Wales PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100523e65o0001z


A R P G r o w t h l i q u i d a t o r f i n d s a s s e t s a r e w o r t h l e s s

SE BusinessHD ARP Growth liquidator finds assets are worthless BY Stuart WashingtonWC 362 wordsPD 19 May 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

TRIO CAPITAL LOSSES from Albury fund manager Trio Capital are likely to exceed $180 million after investorsin its ARP Growth fund formally received a no-cents-in-the-dollar valuation on their investmentsyesterday.

TDAdministrator Neil Singleton of liquidators PPB delivered the news to about 40 elderly investors ina meeting in Sydney yesterday. Mr Singleton revealed PPB had been unable to value ARP Growth's main asset, a British VirginIslands company called PPARP with investments of about $53 million. The nil valuation of PPARP adds to the disappearance of $123 million invested by Trio Capitalthrough another of its funds, Astarra Strategic, bringing likely losses from Trio Capital to morethan $180 million. BusinessDay has previously revealed two sets of accounts for PPARP, raising fears of fraud inARP Growth. Yesterday's report to unit holders revealed ARP Growth held other worthless assets including a$2 million property loan, a $1.5 million loan to Trio Capital's former investment manager and a $1million loan to Secare Health Centre and the Advanced Medical Institute founder Jack Vaisman. The administrators are awaiting the appointment of a liquidator in British Virgin Islands, PricewaterhouseCoopers, to attempt to recover some value from the PPARP investment. Theinvestment is held through a complicated structure, including using a Hong Kong company,Empyreal, as funds manager. A unit holder, Mr Terry Gammell, said the delay in finding any value in PPARP meant thecorporate regulator, the Australian Securities and Investments Commission, should examine thedisappearance of the money. "PPB should be getting on to ASIC on our behalf," Mr Gammell said. Yesterday's meeting follows NSW Supreme Court judge George Palmer's order to wind up five Trio Ca pit al funds, including ARP Growth and Astarra Strategic. He found Astarra Strategic hadsigns of a "fraudulent scam" and he found there were "inherent vices" in Trio Capital's businessmodel. Most ARP Growth investors had established self-managed super funds, meaning they are noteligible for federal government compensation for fraud available to investors in mainstream retailsuper funds. Comment — Page 8

IN i831 : Financial Investments | iinv : Investing/Securities NS c151 : Earnings | c15 : Performance | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited Page 93 of 159 © 2011 Factiva, Inc. All rights reserved.

AN Document SMHH000020100518e65j0004p


A S I C p r o b i t y i n q u i r y p u t s T r i o a d v i s e r i n s p o t l i g h t

SE BusinessHD ASIC probity inquiry puts Trio adviser in spotlight BY Stuart WashingtonWC 339 wordsPD 11 May 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTMENTS AN INVESTMENT manager who advised Trio Capital, Shawn Richard, and the Hong Kong-based business he dealt through are being investigated on suspicion of dishonest conduct by theAustralian corporate regulator.

TDAbout 10,000 superannuation investors have been affected after the Australian Securities andInvestments Commission seized control of the Albury-based fund manager and $426 million ininvestments in December. Justice George Palmer ruled last month there were strong reasons to believe about $123 million Tri o invested through a hedge fund called Astarra Strategic had been fraudulently invested. The nature of the corporate regulator's investigation into Mr Richard and Global Consultants andServices Ltd was revealed for the first time in a NSW Supreme Court hearing yesterday. GCSL, its chief executive, Jack Flader, and a staff member, Marty Cohen, tried to stop Trio'sadministrators, PPB, from obtaining documents ASIC had received from its Hong Kongcounterpart, the Securities and Futures Commission. GCSL's counsel, Ian Lloyd, QC, said the SFC had issued a notice to produce to GCSL datedDecember 1 last year. In the document the SFC said it was acting at the request of ASIC, which was investigatingsuspicion of dishonest conduct by Mr Richard, GCSL and a British Virgin Islands company used toplace the investments, EMA. Mr Lloyd said that ASIC should not make public the documents received from SFC because theywere provided under SFC's secrecy provisions. He also said the documents should not be made public because they were covered by publicinterest immunity. Guy Parker, SC, representing PPB, said the documents could be subpoenaed from ASIC, andpublic interest immunity only applied to matters of state. ASIC did not resist the release of documents to PPB. Justice Julie Ward reserved her decision. Earlier, Justice Palmer withdrew from the case after an application by Mr Lloyd that there could bea reasonable apprehension of bias about Justice Palmer's Trio judgment last month.

IN i814 : Banking | ibnk : Banking/Credit NS c13 : Regulation/Government Policy | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited Page 95 of 159 © 2011 Factiva, Inc. All rights reserved.

AN Document SMHH000020100510e65b00048


Y o u w o u l d n ' t r e a d a b o u t i t

SE News and Features - News ReviewHD You wouldn't read about it BY Stuart WashingtonWC 1,323 wordsPD 24 April 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

The collapse of Trio Capital was barely believable. Now it has taken a novel twist, writes StuartWashington. A high-octane investment fund established in Hong Kong. A murder in a red light district. A cast ofcharacters of dubious merit. And what looks to be a tale of skullduggery involving a heist ofAustralian superannuation money. Fact or fiction?

TDIn one of the strangest twists to date in the case of the Albury fund manager Trio Capital and itsliterary mirror, Triadica Securities, all of the above elements appear to be both fact and fiction. The facts about Trio Capital are scarcely believable. Investors look like they have beendefrauded of at least $123 million, according to a recent court judgment. The fiction about Triadica Securities, which might be based on Trio Capital, is also astonishing,largely due to its source. The account has been penned under a nom de plume of David Andrews,a director of Trio. In the annals of corporate intrigue, it would be unusual for those whose job it is to look afterinvestors' money to pen thinly disguised details of what might have happened well ahead of thealmost inevitable courtroom brawl. Unfortunately for 10,000 superannuation investors, the likely heist of their $123 million placedthrough Trio Capital into offshore hedge funds is all too real. On the most optimistic take, Trio Capital's directors were unwitting dupes as large amounts were channelled to miscreantsoffshore. The probability of outright theft was highlighted in a judgment this month in the NSW SupremeCourt by Justice George Palmer, who labelled Trio Capital's investments in its offshore hedgefund, Astarra Strategic, as having every sign of a "fraudulent scam". If the money has been stolen, it is biggest theft of superannuation in Australia. Only Alan Bond'sthefts during his time at Bond Corporation would trump it. The real-life impact of these losses is severe. The Herald reported this week that 250 low-paidracecourse workers had invested in a Trio Capital-managed superannuation fund exposed to thelosses, putting their life savings at risk. So much for the hard facts, which have been unfolding since financial regulators stepped in lastOctober. In his working life, David Andrews, 57, was regarded as a talented economist and companydirector, joining Trio Capital in 2006 after an unblemished seven years at a fund manageroperated by the Anglican Church, Glebe Asset Management. Rodney Dredge, who chaired that fund and was a director with Andrews, said: "David was yourclassic economist, and from what I gathered he was a pretty good economist." Few of Andrews's former colleagues know about his alter ego, David Morisset, a blogger andnovelist and his "plan to spend the rest of my life writing fiction and the occasional poem".Andrews the novelist quotes Rumi, and both Heathcliff and Cathy from Emily Bronte's WutheringHeights as he publishes snippets of novels inspired by his varied career.


Dredge is astonished at the writing hopes of Andrews. "I can't imagine him doing it, or having theskills to do it. He's an economist. I love them dearly, but they are as boring as batshit." Andrews is, however, no slouch. He was commended for his poem Persian Princess in theNational Literary Awards in March. A novel excerpt titled Crown Jewels is from "a draft of David Morisset's novel set in Iran in the late1970s", presumably drawing on Andrews's time as a diplomat in the Middle East. Another novel excerpt titled Barrington Avenue appears as "early drafts of David Morisset's novelabout life in Sydney's western districts at the time of the Vietnam War", again presumably drawingon his experiences. But it is the excerpt of Lockhart Road posted in March that will be of most interest to Trio Capitalinvestors. On his blog it is described as "an excerpt from the opening pages of David Morisset'searly drafts of a crime fiction novel set against the background of Australia's trillion-dollarsuperannuation industry". The snippet offers what might be an account of the genesis of Trio Capital, including the openingline: Michael Macasero had apparently found out the hard way that the noise and traffic on Wanchai'sLockhart Road in the early morning hours was ample cover for casually committing murder in arubbish-strewn alley. In the fictional account, Michael Macasero is a Filipino-American attracted to Hong Kong tomanage a hedge fund. The novel excerpt opens with Macasero's body found in Hong Kong's redlight district, murdered in his mid 30s. In real life, Matthew Nguyen Littauer was a Vietnamese American who was working to establish Tri o C a pi ta l and appeared on the board of its Australian owner in 2003. He was stabbed todeath in the Tokyo red light district of Roppongi, aged 34. The Herald has established that Littauer was a central figure in a network of unlicensedstockbrokers that left a trail of burnt investors from the brokers' operations across Asia. A chatroom epitaph from someone who knew him well stated: "Matthew was a penny-stockfraudster who tricked 'clients', partners and employees and many times dealt with mafia types.This is not surprising at all." Still in his 30s when he was killed, he had set up supposedly sophisticated vehicles in various taxshelters to provide services for his clients in Hong Kong and was expanding into Australia. Investigations into Trio Capital reveal Astarra Strategic was at the pinnacle of supposedlysophisticated vehicles in various tax shelters, and had tapped a willing audience through Trio Capital. Indeed, companies involved in the Astarra Strategic investments have been registered in such far-flung Caribbean enclaves as Belize, Anguilla, Nevis and St Lucia. Palmer used the proliferation of tax shelters as a basis for his decision to wind up AstarraStrategic and four other funds. His young English colleague, Joel Rogers, had an Australian mother and he had already set up asmall Sydney office. Rogers was ready to move there permanently as soon as Macasero madethe call. Perhaps the most intriguing question is whether any other characters are based upon real-lifeidentities. There is Rodney Hawker, a rumpled 50-something Briton with a questionable bankingtrack record and interesting sex life. Then there is Rogers, something of an apprentice toMacasero. The head of Trio Capital's investment manager, responsible for placing the investments made byTrio Capital, was a clean-cut Canadian called Shawn Richard, who moved to Australia toestablish the business. Richard has said he met Littauer in a bar in 1996, when he was about 21. It has been established that Richard worked with Littauer in Taiwan in the early 2000s, beforeLittauer funded Richard in the purchase of what became Trio Capital in 2003.


Is Macasero a fictional proxy for Littauer? Is Rogers a fictional proxy for Richard? These are validquestions, but Andrews is not talking about his literary creation. Another question is what Andrews, a director of a company looking after investors' funds, is doingpublishing a fictional version of a heist with all too many links to the real world. Amanda Ferguson, a psychologist and author who specialises in the effect of organisationalstructures on people at work, says such a fictional work by a person under stress could be seenas a cathartic attempt to deal with the events that had occurred. "It's a form of trying to process what has happened," she says. But she also cautions taking risks through the appearance of a published work, withoutconsidering the effects on others, could demonstrate blindness to its effects or even delusion. The Australian Securities and Investments Commission is scrutinising criminal action againstdirectors of Trio Capital and associated companies.

NS nedc : Commentary/Opinion | gmurd : Murder/Manslaughter | gcat : Political/General News | gcrim: Crime/Courts | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive NewsFilter

RE austr : Australia | hkong : Hong Kong | asiaz : Asian Countries/Regions | ausnz : Australia and

New Zealand | china : China | chinaz : Greater China | devgcoz : Emerging MarketCountries/Regions | dvpcoz : Developing Economies | easiaz : Eastern Asian Countries/Regions

PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100423e64o00069


R a c e c o u r s e w o r k e r s l o s e s a v i n g s i n s u p e r f r a u d

SE News and FeaturesHD Racecourse workers lose savings in super fraud BY Stuart WashingtonWC 509 wordsPD 19 April 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 2LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

LIFE SAVINGS of 250 low-paid racecourse workers have been caught up in a $123 million fraudcase that could become the biggest superannuation theft in Australian history. Tabcorp's NSW casual racecourse wagering staff say they have not been told how much moneythey have lost after their Astarra Superannuation Fund was frozen by financial regulators lastOctober.

TDA staff member for 33 years, Rosemary Walker, 72, who works at Randwick Racecourse,questioned how Tabcorp could have approved Astarra as a suitable destination for her super. "I'm puzzled as to why we started off in a reputable fund when we were with [former employer]AWA and ultimately we finished up in Astarra," she said. The staff put a human face on losses faced by 10,000 superannuation investors after theirinvestments were placed with Albury-based fund manager Trio Capital. Trio Capital managed more than $400 million in investments including the AstarraSuperannuation Fund before regulators removed the previous managers. On Friday a NSW Supreme Court justice, George Palmer, ruled that a separate offshore hedgefund managed by Trio Capital had all the signs of a "fraudulent scam" as he detailed "inherentvices" in Trio Capital's business model. The hedge fund called Astarra Strategic channelled $123 million in investments through the BritishVirgin Islands using companies based in obscure Caribbean tax havens including Belize, Nevis,St Lucia and Anguilla. In a finding ordering Astarra Strategic be wound up in the public interest, Justice Palmer wrote: "Ifone wants to conduct financial operations dishonestly or illegally - then it is to these jurisdictionsthat one goes to incorporate puppet companies with puppet directors in order to operatefraudulent schemes and to move money around the world in secrecy." Regulators have been unable to find any money. No charges have been laid. Astarra Superannuation Fund is not the corporate superannuation fund used by Tabcorp staff. Tabcorp's contributions to Astarra Superannuation are a legacy of the original fund the on-coursestaff were switched to when NSW TAB bought their previous employer AWA in 2000. Ms Walker has $21,000 at risk and the life savings of other staff members are under threat. 'Wedon't know if we're ever going to get our money," she said. A Tabcorp spokesman, Bruce Tobin, said the company had written to all affected employees andwas working with the union. In his ruling, Justice Palmer said Astarra Strategic's use of tax havens should have soundeddeafening warning bells "that there was a very high prospect that the funds would simplydisappear into the ether - as has almost certainly happened in this case". But he said the use of the tax havens had not been disclosed in Trio Capital's statements toinvestors.


Superannuation losses from Astarra Strategic would represent the largest superannuation fraud ortheft since current superannuation laws were enacted in 1993. $1.5 billion bonanza reaped by financial advisers — BusinessDay, Page 1

CO tabcor : TABCORP Holdings Ltd IN i97912 : Gambling Industries | ilea : Leisure/Arts NS gfraud : Fraud | c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | gcat :


RE austr : Australia | nswals : New South Wales | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100418e64j00009


J u d g e s a y s T r i o f r a u d

SE BusinessHD Judge says Trio fraud BY Stuart WashingtonWC 396 wordsPD 17 April 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

COURTS INVESTORS with $123 million in an offshore fund managed by Trio Capital have almost certainlybeen victims of a "fraudulent scam", a NSW Supreme Court judge ruled yesterday.

TDJustice George Palmer detailed "vices" in Trio's business and ruled it was in the public interest towind up five schemes that it managed, including the controversial fund Astarra Strategic. He was scathing about Astarra's use of tax havens in the British Virgin Islands, Anguilla, St Lucia,the Cayman Islands, Belize, the Cook Islands and Nevis. "If one wants to conduct financial operations dishonestly or illegally, then it is to these jurisdictionsthat one goes to incorporate puppet companies with puppet directors in order to operatefraudulent schemes and to move money around the world in secrecy," he wrote. More than $400 million invested in Trio has been frozen since October, when fears were raisedthat the $123 million invested in Astarra was the subject of a Ponzi scheme. Justice Palmer blasted Trio Capital's disclosure about the Astarra Strategic Fund as "nothingmore than gibberish" and the structure of the fund as "inherently improvident". Justice Palmer said Astarra's product statements did not disclose that it relied on a contract calleda deferred purchase agreement with a company called EMA International, with a post office boxaddress in the British Virgin Islands. EMA is supposed to have invested in five underlying funds - the Exploration, Tailwind, SBSDynamic Opportunities, Pacific Capital Markets and Atlantis Capital Markets funds - butadministrators have been unable to find any any assets. "The administrators' investigations strongly suggest that EMA's 'investment' in the underlyingfunds is a fraudulent scam," Justice Palmer wrote. He wrote Trio's disclosures about Astarra meant "no more or less than that the fund can beinvested in anything at all, no matter how foolish and risky". The fund structure was "an invitation to dishonesty by its promoters". Justice Palmer said it was in the public interest that the funds be wound up, concluding that "thereare strong reasons to believe that a substantial part of the funds of [Astarra] were investedfraudulently and have been lost". The judgement yesterday formalises Justice Palmer's earlier order to wind up Astarra Strategic,Asttar Wholesale Portfolio Service, Asttar Portfolio Service, Astarra Overseas Equities Pool andARP Growth.

NS gcrim : Crime/Courts | gcat : Political/General News RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100416e64h0000hPage 102 of 159 © 2011 Factiva, Inc. All rights reserved.


C o r p o r a t e r e g u l a t o r i n v e s t i g a t e s f o r m e r d i r e c t o r s a t T r i o C a p i t a l

SE BusinessHD Corporate regulator investigates former directors at Trio Capital BY Stuart WashingtonWC 389 wordsPD 13 April 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTMENT TRIO CAPITAL'S directors are being investigated for suspected criminal offences amid newallegations they may have acted improperly.

TDFormer Trio directors have been questioned by the Australian Securities and InvestmentsCommission in private examinations under the oppressive provisions of section 19 of the ASICAct. Under the act, it is an offence not to attend the examination or to make details of the examinationpublic. Elements of ASIC's investigation have been revealed in a report to Trio Capital's creditors, whichalso shows the administrator of Trio estimates up to $195 million in invested funds may bemissing. The administrator, PPB, was appointed in December after fears were raised about $123 millioninvested in a hedge fund called Astarra Strategic and managed by the Albury-based Trio Capital.A global search is yet to establish the whereabouts of the assets. In its report, PPB says it has also been unable to establish the existence or value of $51 millioninvested in ARP Growth and $17 million invested in Ualan Property Trust and Millhouse PrivateEquity Trusts. BusinessDay has previously revealed the existence of two sets of accounts in ARP Growth,raising the possibility of fraud. PPB's report says ASIC is investigating Trio Capital for suspected breaches of the CorporationsAct under a provision that imposes criminal penalties for directors that are reckless or intentionallydishonest and do not act in good faith. It also notes the Australian Prudential Regulation Authority had found Trio Capital in breach ofsections of the Superannuation Industry (Supervision) Act. For the first time, PPB said its investigation showed some officers of Trio may not have acted withadequate care and diligence, nor acted for a proper purpose, which may be civil offences underthe Corporations Act. The creditors' report shows that 36 creditors owed $1.2 million by Trio Capital are unlikely toreceive any money unless there is successful action against company directors. It also reveals different outcomes among the 28 investment schemes for which Trio Capital actedas a responsible entity. Eleven funds have minimal exposure to the "problematic" assets. Anotherfive are illiquid and being wound up, seven are dormant, and five are in the process of ending theirrelationship with Trio.

CO ausic : Australian Securities and Investments Commission IN ihedge : Hedge Funds | i81502 : Trusts/Funds/Financial Vehicles | ialtinv : Alternative Investments

| iinv : Investing/Securities NS c12 : Corporate Crime/Legal/Judicial | c41 : Management Issues | ccat : Corporate/IndustrialPage 104 of 159 © 2011 Factiva, Inc. All rights reserved.

News | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin: FC&E Industry News Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100412e64d0003e


N o s a f e t y n e t f o r s e l f - m a n a g e d s u p e r

SE BusinessHD No safety net for self-managed super BY STUART WASHINGTONWC 783 wordsPD 10 April 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

Opinion & Analysis More than 770,000 Australians with $380 billion in savings are ineligible for compensation in theworst case of a theft or fraud occurring in their superannuation funds.

TDIn effect, a self-managed super fund member can see his or her retirement savings wiped out bytheft. Investors in all other forms of super, experiencing exactly the same theft, can expectcompensation from the federal government of about 90¢ in the dollar. Self-managed super has been the superannuation growth story of the past decade, growing at 20per cent a year for the past five years and now the single-largest home for Australians' supersavings. It covers about 32.1 per cent of the $1230 billion in Australian super investments. Self-managed super's rapid rise means about a third of Australia's super savings are excludedfrom a formal government compensation mechanism in the case of fraud or theft. Whether theexclusion should stand is being examined in the Cooper inquiry's review of superannuation. But recent events have exposed the gulf between compensation avenues for different classes ofsuperannuation investors. Investors in funds regulated by the Australian Prudential RegulationAuthority are covered by part 23 of the Superannuation Industry (Supervision) Act. Part 23 offerscompensation for all forms of super, barring self-managed super, including the other two majorhomes for Australians' superannuation savings, industry funds and retail funds. A trustee of asuper fund can apply for compensation if it is satisfied there has been "fraudulent conduct ortheft". Reasons for self-managed super fund members being excluded from formal compensation lie withthe apparently well-off nature of many self-managed super fund members. Such fund membersrepresent about 7 per cent of overall super membership but control 32.1 per cent of allsuperannuation investments. The average size of a self-managed super fund is $860,000, although about a quarter have$200,000 or less invested. The average wage for self-managed super investors aged between 35and 60 is about $106,000. Self-managed funds are limited to four members who all act as trustees of the fund. About 40 percent of members are self-employed or derive their income from a business or partnership. One appeal of self-managed super is that it allows investors to control their own retirementsavings, and gives them greater flexibility in where their money is invested. Investors can chooseto invest directly in, say, property or shares, which is difficult to achieve in other forms of super. The apparently sophisticated nature of self-managed super members has led to a view frompolicymakers that they are big enough to look after themselves. Regulators are wary of creating amoral hazard, in which self-managed super fund members make reckless decisions under theinfluence of a compensation mechanism. The good news from the Cooper inquiry to date is there is no widespread signs of fraud or theft inself-managed superannuation accounts and overall the system is seen as being in good shape.The bad news is that compensation for super members is not just speculation.


ACT Super, the recently appointed trustee of super funds offered through Albury fund manager Trio Capital, is preparing an application for compensation under part 23 of the SuperannuationIndustry (Supervision) Act. It follows the disappearance of $123 million in a hedge fund managedby Trio called Astarra Strategic. The path to a successful part 23 application is far from clear, and relies on the approval of theMinister for Superannuation, Chris Bowen. But the upshot is that if there has been a fraud or theft related to Astarra, super investors in thefund stand to receive about 90¢ in the dollar under the Superannuation Industry (Supervision) Act. But 50 members of another Trio Capital fund, ARP Growth, face another outcome. Their self-managed super totalling $58.5 million has also been invested into a British Virgin Islands vehicle.BusinessDay has revealed two sets of accounts for this vehicle, raising a strong possibility offraud. The predominantly elderly self-managed super investors in ARP Growth are facing the loss oftheir retirement savings, without any safety net. It is a matter for Cooper to weigh the pros and cons of compensation for self-managed superinvestors. But service providers who have cropped up to establish self-managed super funds at aclip of about 3000 a month should consider putting a warning in large red letters on the front oftheir shiny self-managed super proposals. The warning should read: "You could lose the lot."

IN i8150214 : Private Pension Funds | i81502 : Trusts/Funds/Financial Vehicles | iinv :Investing/Securities

NS gcat : Political/General News | cexpro : Existing Products/Services | gfinc : Financial Crime | nanl :

Analysis | ccat : Corporate/Industrial News | gcrim : Crime/Courts | ncat : Content Types RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100409e64a00059


F i c t i o n a l r e s e m b l a n c e t o a h e i s t

SE BusinessHD Fictional resemblance to a heist BY Stuart WashingtonWC 378 wordsPD 8 April 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

SUPERANNUATION Michael Macasero had apparently found out the hard way that the noise and traffic on Wanchai'sLockhart Road in the early morning hours was ample cover for discretely [sic] committing murderin a rubbish-strewn alley.

TDExcerpt from Lockhart Road by David Morisset BILLED as a "crime fiction novel set against the background of Australia's trillion-dollarsuperannuation industry", the self-published author David Morisset sets up a racy story. An excerpt of the planned novel on Morisset's blog opens with a thirtysomething Filipino-Americancalled Michael Macasero found dead in the red light district of Hong Kong after establishing ahedge fund called Triadica. The Australian Securities and Investment Commission's interest in a fictional account of asuperannuation heist may be heightened, given Morisset's alter ego is David Andrews, a formerdirector of Trio Capital. Real-life regulators are now investigating the disappearance of $123 million that was invested inthe exotic hedge fund Astarra Strategic through Trio Capital. Andrews's fragment of a novel posted on March 17 details "investment regulators puzzled byapparent irregularities in a Sydney-based superannuation fund". Indeed similarities between Andrews's fictional account and the genesis of Trio Capital arestriking. Matthew Nguyen Littauer, a 34-year-old Vietnamese-American, was found dead in Tokyo's redlight district in 2004 after helping establish the nascent Trio Capital funds management businessin Australia. In the novel excerpt Macasero "had set up supposedly sophisticated vehicles in various taxshelters to provide services for his clients in Hong Kong and was expanding into Australia". In real life, Littauer appears to have been a central figure in establishing a network of offshorehedge funds in tax havens that eventually received $123 million in investments through Trio. Regulators are yet to find the money. Andrews's use of Morisset as a pen name is established by their likeness in website photographsand similar online career biographies, including a stint as a diplomat in the Middle East. Andrews is an economist and has previously worked as head of the Anglican Church's investmentarm, Glebe Asset Management. Calls to his western Sydney business were not being answered yesterday.

NS nrvw : Review | gbook : Books | gcat : Political/General News | gent : Arts/Entertainment | ncat :Page 108 of 159 © 2011 Factiva, Inc. All rights reserved.

Content Types | nfact : Factiva Filters | nfce : FC&E Exclusion Filter RE austr : Australia | nswals : New South Wales | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100407e6480004p


A s t a r r a f u n d s c u s t o d i a n g o t a r o u n d l e g a l b a r r i e r

SE BusinessHD Astarra funds custodian got around legal barrier BY Stuart WashingtonWC 358 wordsPD 6 April 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTMENT A HONG KONG business central to investigations into the disappearance of $123 million inAustralian investments has previously accepted a client who could not pass a regulator's "fit andproper person" test.

TDGlobal Consultants and Services has also published a description of how it used structuring tosidestep regulatory requirements for disclosure of an owner's interest in an investment fund. Entities of GCSL, run by its chief executive, Jack Flader, have been named as custodian of threeof five offshore hedge funds in which the bulk of the money from the ill-fated Australian fundAstarra Strategic was eventually placed. Regulators took over Astarra Strategic and its fund manager, Trio Capital, in December afterfears were raised Astarra was a Ponzi scheme. Regulators are still searching for the whereabouts of $123 million invested in Astarra Strategic. GCSL was established in Hong Kong in 2006, opening offices in Belize, Anguilla, Singapore,Cook Islands, Samoa and Shanghai. It states its business is "legitimate offshore asset protectionplanning", setting up company, trust and fund structures for investors. The head of GCSL's Anguilla office, Carlyle Rogers, described in a 2007 GCSL newsletter howone of his clients could not meet the Anguilla regulator's "fit and proper person" test. GCSL wenton to give a family member control of shares in a company, using a trust over the shares to vestbeneficial ownership in the client's hands. Mr Rogers also described how it took on a client seeking ownership and control of a fund structurewithout his name showing his role on any public documents, although Anguilla's regulationsrequire full disclosure. He told how the client's identity had been masked by a company while meeting the letter of thelaw. Mr Flader has been compulsorily examined twice by the Hong Kong Securities and FuturesCommission, with a legal requirement to keep details of the investigation secret. He has told the Herald: "GCSL has complied with every requirement of it made by the Hong KongSFC in relation to the ASIC investigation."


NS c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100405e6460004p Page 110 of 159 © 2011 Factiva, Inc. All rights reserved.

O u t o f t h e s h a d o w s

SE BusinessHD Out of the shadows BY Stuart WashingtonWC 2,117 wordsPD 27 March 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

HERALD EXCLUSIVE Millions of dollars in Australians' superannuation savings have vanished into exotic tax havens.Stuart Washington investigates the sharp characters behind a seemingly sleepy fundmanagement operation from Albury.

TDSince last October, the savings of at least 10,000 superannuation investors have been frozen asregulators pick through $426 million invested in Trio Capital. At least $123 million is missing in what has been seen as an exotic investment in a fund of hedgefunds offered by Trio called Astarra Strategic. Administrators hold little hope for meaningful recoveries, and in fact hold fears for $58 millioninvested in another Trio fund. The truth behind Astarra Strategic and Trio is likely to give both investors and the regulatorstasked with guarding the sanctity of Australia's superannuation industry cause for grave concerns. Trio and its role in the superannuation industry became hostage to elements with long-lasting tiesto questionable stock operators. Through interviews, the database of the US broking industry's self-regulation body, securitiesregulators' warnings and a guest list to an exclusive conference in the Thai beach resort ofPattaya, Weekend Business has pieced together close ties between key figures in AstarraStrategic and people with a history in the shadowy world of unlicensed stockbroking. The discomforting thing for Australian investors remains: they are seeing superannuation money,put into a regulated fund, now missing for six months and little sign regulators are any furtherahead. Shawn Richard could have been excused a little nostalgia as he scanned down the guest list forthe "global meeting" of stockbrokers planned for Pattaya in 2005. After all, he knew some of the names among the 25 intimately. He had worked with at least threeof them when they got into that fix in Manila back in 2001. Indeed back in 2005, at least five of the 25 men at the meeting already had a history of run-inswith securities regulators. The Herald can reveal today Richard's long-standing relationships with a cadre of stockbrokersand hangers-on associated with unlicensed stockbroking firms in the south of Spain, Manila,Taiwan and Hong Kong. The Herald can also reveal for the first time Richard was named in 2001 by securities regulatorsas an associate of an unlicensed stockbroker in what is known as a boiler room scam. Richard, now 35, and his Hong Kong business partner for the past 11 years, Jack Flader, 47,have come into sharp focus in Australia in a continuing hunt for $123 million in missing moneyinvested in a fund of hedge funds called Astarra Strategic. In ties that appear to bind, several figures from the 2005 conference are now playing central rolesin the Astarra drama.


Among the men contemplating the dinners and bar tours provided as part of the Pattayaconference - the daily schedule was "subject to change based on the health of delegates" - nine were or would be associated with brokers censured by regulators. Seven of the men have either been personally named by securities regulators or have been thesubject of damning findings from industry self-regulation bodies. And a further four seem to have been associated with the shadowy hinterland of reputable law,accounting and broking firms that regularly grease the wheels of a disreputable industry. A boiler room is slang for the unlicensed broking firms that slip from country to country, changingtheir names as they sell virtually worthless penny stocks by cold-calling investors. The boiler room term arises from persuasive young "stockbrokers" hunched over the phones andpersuading people to part with their hard-earned. Richard appears to have played a part in this "industry". He was named in 2001 by the NewZealand Securities Commission as being an associate of the unlicensed broker MilleniumFinancial operating in the Philippines in 2001. The warning was subsequently removed from the NZ Securities Commission website. TheSecurities Commission could not provide a reason for its removal. Weekend Business unsuccessfully sought comment about the warning and the conference inPattaya from Richard through his lawyer. Fast forward to 2010 and Richard is in hot water again. Astarra Strategic and its fund manager, Trio Capital, were taken over by regulators in December after Astarra Strategic was labelled aPonzi scheme by a whistleblower, John Hempton. Richard was the investment manager for the broader funds management business of Trio Capital. His partner, the New Jersey-born, Brooklyn-raised Flader, appears to have been the owner ofboth Trio Capital and Richard's business. Regulators hunting for the $123 million are being taken on a merry chase by companiesregistered in obscure Caribbean enclaves including St Lucia, Anguilla, Nevis and Belize. What has been less well understood has been the background of many of the people who are partof Richard's long-established business network. The anonymous provider of an email about the 2005 conference remarked: "The attendees readslike a laundry list of who's who for boiler room enterprises." And Richard, who appears fifth on a list apparently drawn up with some form of seniority ranking,already knew many personally. Greg Rullo, Gary Artzt and Jon Lopresti were all coming to the conference. They had been namedby regulators alongside Richard when they got into the fix in Manila with Millenium Financial. Then Richard had gone on to work at Pacific Continental Securities in the early 2000s with Rulloin Taiwan alongside Richard's good friend, Matthew Littauer. Littauer wouldn't be making it to Pattaya - he was stabbed to death in his office in the Tokyo redlight district of Roppongi in the previous year. A former colleague of Littauer's has said Littauer was a central figure in unlicensed brokingoperations. On a happier note, the noted bon vivant Flader was playing host at his Pattaya home, alongsidehis Hong Kong offsider, the Scottish-born accountant James Campbell Sutherland. Flader's email about the conference contained an exhortation for what he refers to as the NobleGrape, suggesting to the guest list his favourite labels of reasonable cost included Chateau Talbot(1990, 1985 and 1989), Lynch Bages or Carruades De Lafite. As a reflection on the lifestyle Flader enjoys, a current vintage of Carruades De Lafite will set youback about $246.


The high life would no doubt continue at the conference's two "Gregory S. Rullo Bar Tours". Indeed, the high life continued for Flader after July 2006, when he established Global Consultantsand Services Ltd (GCSL) in Hong Kong, which has emerged as playing a central role inchannelling Australian money from the Astarra Strategic Funds. On paper, the business describes itself as "legitimate offshore asset protection planning", forminglegal structures in offshore locations. It has opened offices in Belize, Anguilla, Singapore, CookIslands, Samoa and Shanghai. In a dizzying whirlwind of offshore junkets in the past 3½ years, Flader is able to tick off more than80 destinations including to his offshore offices, the Eastern European cities of Tallin (twice), Rigaand Prague (three times), Central America and Asia. Over the same period he has managed to squeeze in some rest and relaxation. At Bulgari's Baliresort - which publishes prices of about $US1400 ($1537) a night - he wrote on his website of "10 hours of massages, excellent Italian and Indonesian food, an ocean of fine wines, greatworkouts and painful yoga". Then there were his two visits for a charity to Hugh Hefner's Playboy Mansion in Los Angeles."Jack & Friends attended and were both proud and privileged to have some fun while helping outsome good causes," he wrote. Whether his travels have been curtailed after recent compulsory examinations about AstarraStrategic by Hong Kong's Securities and Futures Commission, with no right to silence, is unclear. At any rate Flader's jaunty website updates of his travels came to an end in October last year. Noteven his customary Christmas trip to Miami to visit his mother rated a mention. HOW some of the men enjoying this particular conference came to be managing Australiansuperannuation money is something of a mystery. While Richard was obviously familiar with Frank Richard Bell through the Pattaya conference,Bell's name and his Exploration Fund have never been disclosed to Australian investors in AstarraStrategic. This is somewhat surprising, given Richard has said he has been investing money in Bell's fundfor at least four years. The fund is now supposed to hold about $75 million of investors' money. Bell has a long and unfortunate stockbroking track record (see graphic). He was last the subject of press reporting when he was involved in a tragic car accident that killedtwo Filipino teenagers in February on his return to his home at the Philippine city of Cebu. Contacted by Weekend Business, Bell said: "I'm in the middle of a personal thing at the momentso I can't talk to you, at any rate." Administrators have found no sign of money invested in the Exploration Fund. But the links to boiler room scams seem pervasive. Weekend Business has revealed that someExploration Fund money is invested in an illiquid over-the-counter bulletin board stock calledAdvanced Medical Institute (AMI). It is perhaps little surprise AMI has been regularly named in chatrooms as stock being sold byboiler room operators. Other attendees at the 2005 conference have subsequently had important roles in managing themissing Astarra Strategic money. Carl Meerveld, ninth on the list of attendees, is supposed to be managing Astarra Strategic moneyplaced into the SBS Dynamic Opportunities Fund and Pacific Capital Markets. And Marty Cohen, eighth on the list, was revealed in court last week as the former operationsmanager of Flader's company, GCSL. Neither Meerveld nor Cohen has been the subject of any adverse regulatory findings.


GCSL's central role in husbanding the missing $123 million includes being the custodian of threeof the funds where the money was placed. It also appears to have operated the company thatplaced the $123 million, a British Virgin Islands company called EMA International. TONY HETHERINGTON has a full-time role as a journalist exposing boiler room scams in acolumn called Readers' Champion for Britain's Mail on Sunday. In a part-time role he sits on a consumer advisory panel for Britain's Financial Services Authority,which acts as an oversight body of its enforcement measures. Hetherington claims credit for prompting the FSA's investigation into a British broker, PacificContinental Securities, after stuffing more than 100 complaints into a sports bag and presenting itto FSA headquarters. The broker, which eventually collapsed in 2007, was found to have either deliberately orrecklessly misled its customers as it used improper selling techniques, and would have been fined£2 million ($3.3 million) if it had survived. In short, it was a boiler room. No fewer than six attendees of the 2005 conference in Pattaya have worked with variousoffshoots of Pacific Continental Securities, including Richard in Taiwan. "Speaking in principle, the way that people who work in [fraudulent] investment companies movefrom country to country, confuses jurisdictions [and] confuses regulators," Hetherington said. "The classic stock scam boiler rooms change their name, move on somewhere else." What was different in the case of Pacific Continental Securities in Britain was its bold move to setup in the city of London. Hetherington experienced the consequences of this newfound respectability when PacificContinental Securities mounted an unsuccessful Press Complaints Commission challenge againstHetherington's reporting. "It fought and it fought very hard and it hired very expensive lawyers to come after me,"Hetherington says. He adds: "The only message I drew from their willingness to fight was that they were very keen tostay in business - the subtext there was they were making a lot of money." The history of Astarra Strategic is yet to be written. But there are clear signs Australia's trillion-dollar superannuation industry has attracted some less-than-desirable elements through aplausible onshore base. Hempton has written in a submission to the Cooper review, which is examining the regulatorysettings surrounding the Australian superannuation industry: "Superannuation however risks verylarge and long-lasting Ponzis because withdrawal is legally restricted." The Mail on Sunday's Hetherington asks whether Australia's defences around its superannuationindustry were high enough to defend Australia from Astarra Strategic-style problems. "I'm surprised to see some familiar names that have cropped up in Astarrra Strategic that I'mvirtually certain would never get a licence or ability to operate from the Financial ServicesAuthority of Britain," he says.


NS npag : Page-One Story | ncat : Content Types | c13 : Regulation/Government Policy | gfinc :

Financial Crime | ccat : Corporate/Industrial News | gcat : Political/General News | gcrim :Crime/Courts | nfact : Factiva Filters | nfcpin : FC&E Industry News Filter

RE austr : Australia | uk : United Kingdom | ausnz : Australia and New Zealand | eecz : European

Union Countries | eurz : European Countries/Regions | weurz : Western EuropeanCountries/Regions

PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100326e63r00036Page 114 of 159 © 2011 Factiva, Inc. All rights reserved.


A s t a r r a h u n t s h i f t s t o H K

SE BusinessHD Astarra hunt shifts to HK BY Stuart WashingtonWC 432 wordsPD 22 March 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTIGATION A CENTRAL figure in a global hunt for $123 million in missing cash has been compulsorilyexamined twice by the Hong Kong securities regulator at the request of the Australian Securitiesand Investments Commission.

TDExaminations of Jack Flader, the chief executive of Global Consultants and Services Ltd, came tolight as he sought to block access to ASIC documents about the hunt for $123 million missingfrom the Astarra Strategic Fund. The whereabouts of money in the investment scheme has been the focus of investigators sinceSeptember, when a fund manager and blogger, John Hempton, raised fears the fund might be aPonzi scheme. Mr Flader and another GSCL employee examined in Hong Kong, Marty Cohen,are challenging a subpoena for access to ASIC documents issued by the fund's newadministrator, the insolvency firm PPB. Regulators appointed PPB in December amid their concerns about the handling of $426 million ininvestments by the former manager Trio Capital. Astarra Strategic and four other former Triofunds were placed into liquidation on Friday. Mr Flader's company GCSL acted as the administrator of a British Virgin Islands company, EMAInternational, which was responsible for placing Astarra's investments into five offshore funds. A company linked to GCSL is also believed to have provided services to three of these offshorefunds: The Exploration Fund, the SBS Dynamic Opportunities Fund and the Pacific CapitalMarkets Fund. Mr Flader is arguing that secrecy provisions attached to the Hong Kong investigation mean ASICdocuments sourced from the examinations should not be passed to PPB. Mr Flader's barrister, Ian Lloyd QC, said he and perhaps the court were bound by secrecyprovisions imposed by the Hong Kong's Securities and Futures Commission. The court was told in an affidavit that Mr Flader "attended two compulsory and very lengthyinterviews of the SFC ... where he was required in law to answer all questions; there is no right ofsilence in these interviews." The affidavit says that the secrecy provisions of a SFC investigationmean it is a criminal offence to reveal any information aboutthe investigation. Justice George Palmer asked: "Am I bound by the Hong Kong Act?" Mr Lloyd replied: "It depends if your honour would like a holiday in Hong Kong in the future." Mr Flader's challenge of the subpoena will be heard in May. Documents made public on Friday also showed that cash in Astarra Strategic was distributed tocompanies in exotic tax havens, prompting a warning to investors from Justice Palmer.

NS npag : Page-One Story | ncat : Content Types | gcrim : Crime/Courts | gcat : Political/GeneralNews

RE hkong : Hong Kong | asiaz : Asian Countries/Regions | china : China | chinaz : Greater China |

devgcoz : Emerging Market Countries/Regions | dvpcoz : Developing Economies | easiaz :Page 116 of 159 © 2011 Factiva, Inc. All rights reserved.

Eastern Asian Countries/Regions PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100321e63m0001e


A s t a r r a t o b e w o u n d u p

SE BusinessHD Astarra to be wound up BY ■ COURTS Stuart WashingtonWC 431 wordsPD 20 March 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

A NSW Supreme Court judge has ordered the winding up of Astarra Strategic Fund and four otherTrio Capital funds, criticising their former managers and the use of offshore tax havens. Justice George Palmer accepted an application by the administrator PPB to wind up AstarraStrategic, ARP Growth, Astarra Overseas Equities Pool, Astarr Wholesale Portfolio Services andAstarr Portfolio Services.

TDIn other developments, Global Consultants and Services Ltd (GCSL), its chief executive, JackFlader, and its former operations manager Marty Cohen, sought this week to block a subpoena byPPB to view documents held by the Australian Securities and Investments Commission. Astarra Strategic Fund has been the subject of investigations after it emerged $123 million hadbeen invested through tax havens, with the Hong Kong-based GCSL acting as custodian. Justice Palmer said he would publish reasons for his orders to wind up the funds, to warn thepublic of "the danger of investing in schemes which are not utterly transparent and utterlytransparently managed by reputable and reliable responsible entities". BusinessDay has reported fraud fears over $58.6 million invested in ARP Growth after revealingtwo sets of accounts for the fund's major investment. AOEP has about $9 million in reported assets and APS has about $4.1 million, almost all of whichis invested in AWPS, which has about $63.4 million in reported assets. PPB submitted to the courtthat the funds were illiquid and that it was difficult to recover the reported values. Justice Palmer has ordered the funds be wound up after finding some funds were apparentlyinsolvent, that there were cross investments between the funds and because of the insolvency of as the responsible entity for the funds. "I'm disturbed to read In the summary of facts that so much of the funds have been channeledthrough entities registered in the British Virgin Islands, Cayman Islands, St Lucia, Belize; allhallmarks of an endeavour to avoid scrutiny in the plain light of day," he said. He also appeared to criticise regulatory action on the funds: "That [warning] really has to beemphasised by the courts if no one else is going to do it." Yesterday, BusinessDay incorrectly reported that ASIC sought to block PPB's access todocuments. Instead, Mr Flader and Mr Cohen are arguing it is not in the public interest to allowPPB to access evidence that the men provided to Hong Kong regulators, which was passed on toASIC, because it could undermine investigations.

CO ausic : Australian Securities and Investments Commission NS gcrim : Crime/Courts | gcat : Political/General News RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100319e63k0003q


A S I C r e f u s e s t o r e l e a s e T r i o d e t a i l s

SE BusinessHD ASIC refuses to release Trio details BY Stuart WashingtonWC 293 wordsPD 19 March 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

MISSING MILLIONS THE Australian Securities and Investments Commission is resisting a subpoena for documentssupposedly central to establishing the whereabouts of $123 million in missing Trio Capital funds.

TDThe refusal to hand over documents subpoenaed by Trio Capital's administrators, PPB, hasresulted in PPB's public examination of Trio's investment managers, Shawn Richard and EugeneLiu, being postponed from next week until mid-July. "In the circumstances, we have delayed the examinations until we are able to access this furtherinformation," the administrator, Neil Singleton, said yesterday. PPB had subpoenaed documentsfrom ASIC in the hope it would help establish the whereabouts and value of $125 million in assetsinvested through Astarra Strategic Fund. PPB has previously stated that it has been unable to establish the existence of $123 million inassets invested in the fund and channelled through the British Virgin Islands. Mr Richard has claimed he has documents that prove the existence of the assets, but he providedcopies only to ASIC. In the NSW Supreme Court on Wednesday ASIC refused to release the documents to PPB. AnASIC spokeswoman was unable to comment about the reasons for the refusal. In an unrelated development, PPB has said it is hopeful of announcing a replacement responsibleentity for several Trio Capital funds within seven days. The switch gives investors in more liquid funds, including the Astarra balanced, conservative andgrowth funds, the hope of recouping some investments, less the money in impaired assets. Any move to replace Trio as the responsible entity would require a public meeting with 28 days'notice. Trio Capital funds with major impairments, including ARP Growth and Astarra Strategic, arebeing wound up.

CO ausic : Australian Securities and Investments Commission IN i81502 : Trusts/Funds/Financial Vehicles | iinv : Investing/Securities NS c13 : Regulation/Government Policy | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100318e63j0004w


C a s e b e i n g p r e p a r e d f o r T r i o g o v e r n m e n t c o m p e n s a t i o n

SE BusinessHD Case being prepared for Trio government compensation BY Stuart WashingtonWC 380 wordsPD 8 March 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 2LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTIGATION THE trustee for superannuation funds operated by Trio Capital has started collecting evidence ofpossible fraud, in a step towards a compensation claim for investor losses from the federalgovernment.

TDAny claims for compensation for two Trio Capital funds, with $125 million invested in AstarraStrategic and $55 million invested in ARP Growth, would be the largest claims made under afederal scheme for superannuation compensation. Until 2007 the government paid $44 million in compensation in 802 claims since 1993. Undersection 23 of the Superannuation Industry (Supervision) Act 1993, a trustee can apply forcompensation if it is satisfied there has been “fraudulent conduct or theft”. The Minister for Superannuation, Chris Bowen, would rule on any request, after asking for advicefrom the Australian Prudential Regulatory Authority. Under the legislation, any payments arecapped at 90c in the dollar. Compensation under section 23 covers investors in superannuationfunds, but not investors in managed investment schemes. BusinessDay has been told by two sources that Mike Hill, the employee of the accounting firmMcGrathNicol appointed as trustee to Trio Capital’s superannuation funds, has discussedpreparations for a section 23 application during regular meetings with APRA about Trio Capital. Mr Hill, as a director of ACT Super Management, was appointed by APRA as trustee of the TrioCapital funds in December after concerns were raised that Astarra Strategic was a Ponzischeme. BusinessDay has since revealed extensive links between the fund manager controlling $75 millionin investments, Frank Richard Bell, and so-called boiler-room scams. A boiler-room scam is when unlicensed brokers sell nearly worthless over-the-counter stocks bycold-calling unsuspecting investors. In another Trio Capital fund invested through the British Virgin Islands, ARP Growth,BusinessDay has revealed there are two setsof accounts, raising the possibility of fraud. Mr Hill was unavailable for comment on Friday. Difficulties in claiming compensation include uncertainties about where the money in AstarraStrategic has been invested. The former investment manager Shawn Richard has refused to co-operate fully withadministrators in the hunt for the cash, but says there was no fraud in placing the money. Inquiries by the Australian Securities and Investments Commission are continuing.

NS gfraud : Fraud | greg : Regional Politics | gcat : Political/General News | gcrim : Crime/Courts |gfinc : Financial Crime | gpir : Politics/International Relations | gpol : Domestic Politics | ncat :Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter

RE nswals : New South Wales | ausnz : Australia and New Zealand | austr : Australia Page 120 of 159 © 2011 Factiva, Inc. All rights reserved.

PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100307e63800018


A s t a r r a a s s e t t r a i l l e a d s t o C a r i b b e a n

SE BusinessHD Astarra asset trail leads to Caribbean BY FINANCE Stuart WashingtonWC 385 wordsPD 6 March 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

THE global hunt for Astarra Strategic's assets could take a surprising turn: some cash may havefound its way into a loss-making winery in the backroads of the Hunter Valley. Investigators have been searching for $125 million in Astarra Strategic since last October, whenregulators froze all funds in Trio Capital.

TDIt has emerged that Astarra Strategic's money was invested in the Exploration Fund, which isregistered in the Caribbean tax haven of St Lucia and managed by Frank Richard Bell. Mr Bell was named by Hong Kong regulators in last July for selling an unlicensed investment fundcalled the Strategic Opportunity Fund to Hungarian investors. He has also been associated with abroking house reported by regulators as a boiler room, in which unlicensed brokers cold-callunwary investors to sell them infrequently traded and often worthless stocks. Astarra Strategic has placed about $75 million into Mr Bell's Exploration Fund. The former namesof the Exploration Fund are the Huntleigh Investment Fund and the Strategic Opportunity Fund. The Huntleigh Investment Fund has appeared on the share register of two over-the-counterstocks registered with the US Securities and Exchange Commission: Yarraman Winery andAdvanced Medical Institute. The shareholding in AMI, the controversial erectile dysfunction company founded by its chiefexecutive, Jack Vaisman, appears to have been sold. But BusinessDay has confirmed with the chief executive of Yarraman Winery, Ian Long, that hisUpper Hunter winery is still owned by the US over-the-counter company and Huntleigh remains onthe share register. In its most recent annual report Huntleigh has 3.5 million shares, worth about $US1.7 million onpaper at the current share price of 50c. The shares were bought in 2006. Yarraman, which reported a loss of $958,000 for the nine months to March 31 last year, wasinvolved in an unsuccessful takeover bid for Evans & Tate in 2007. On Thursday the investment manager of Astarra Strategic, Shawn Richard, produced a letter fromthe Los Angeles accounting firm Lichter, Yu and Associates to support the existence ofinvestments made by Astarra Strategic. Mr Lichter is the company secretary of Yarraman Winery and his firm has previously been auditorto AMI.

IN i81502 : Trusts/Funds/Financial Vehicles | iinv : Investing/Securities NS c13 : Regulation/Government Policy | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpin : FC&E Industry News Filter RE namz : North American Countries/Regions | usa : United States PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100305e63600038 Page 122 of 159 © 2011 Factiva, Inc. All rights reserved.

A s t a r r a f u n d m i l l i o n s s e n t t o d o d g y d e a l e r

SE BusinessHD Astarra fund millions sent to dodgy dealer BY Stuart Washington and John GarnautWC 850 wordsPD 2 March 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

SUPERANNUATION THE bulk of $125 million in Australian money invested in five offshore hedge funds has been sentto a known spiv, in what could become the largest case about missing cash in Australian history.

TDFrank Richard Bell, a British broker with a history of dubious deals, has been named as themanager of an offshore fund that received $75 million invested in Astarra Strategic. Money sent to Mr Bell's Exploration Fund provides the latest twist in an international hunt for morethan $120 million invested in Astarra Strategic. And those close to the investigation admit it islikely no funds will be recovered. The hunt was launched last October when fears were first raised that Astarra Strategic may havebeen a Ponzi scheme. The money in Astarra Strategic was invested through the Albury fund manager Trio Capital, in aninternational transfer of funds that reveals weaknesses in Australia's superannuation regulation. The colourful record of Mr Bell's appearances before the US broking industry's independentregulatory body raises the likelihood investors may have been fleeced, despite continuinguncertainty about where the funds have ended up. The fund's appointed administrator, PPB, issued a letter last week that telegraphs the likely fate ofthe $125 million, which is mostly held in a complicated contractual relationship known as a"deferred purchase agreement". The administrator wrote succinctly: "The value of the deferred purchase agreements is uncertain." The administrator, Neil Singleton, said the funds had been placed into five hedge funds:Exploration, Tailwind, SBS Dynamic Opportunities, Pacific Capital Markets Cayman and Atlantis Markets Cayman. Mr Bell operates the Exploration Fund, which administrators say is the destination for most ofAstarra's $125 million in investments. To date PPB has only found rats and mice from Astarra Strategic's investments: $US100,000 outof a bank account in Hong Kong and evidence about $1.2 million may sit in Tailwind. Then there is $1.4 million in a bank account of the custodian, National Australia Trustee, and$550,000 in application money submitted by investors. Astarra Strategic was supposed to have entered a contract with a British Virgin Islands company,EMA International, which then invested the money in five hedge funds. The placement of the money was supposed to have been checked by a Hong Kong company,Global Consultants and Services Ltd (GCSL), in its formal role as company secretary of EMA andas custodian for four of the hedge funds. The chief executive of GCSL, Jack Flader, is a subject ofinvestigators' inquiries because of his company's central role in placing Astarra Strategic's moneyin the offshore hedge funds. When BusinessDay met Mr Flader in Hong Kong recently, it encountered a middle-aged man wholooked very stressed.


BusinessDay sought an explanation for the missing money, but was politely refused. "I can't talkabout this. It's a shame, I would love to talk about this ... there is probably another side to thestory but I can't talk about it," he said. The former investment manager of Astarra Strategic, Shawn Richard, has said he is confident themoney still exists, and he has documentary evidence to support this assertion. But he said Mr Flader, his former business partner, is no longer returning his calls. BusinessDay is making no suggestions of involvement in money becoming missing by Mr Richardor his offsider, Eugene Liu, who acted as investment managers for the fund. Nor is there anysuggestion of such involvement by Trio Capital. Problems in the recovery of any money are illustrated by an examination of Mr Bell's brokingrecord. He has an extensive record of being fined by the US broking industry's self-regulation body,originally known as the National Association of Securities Dealers but now called the FinancialIndustry Regulatory Authority (FINRA). Mr Bell was suspended in 2008 after failing to pay two arbitration payouts awarded against him. In a 2008 ruling, New World Financial and several staff, including Mr Bell, were ordered to pay$378,000 for breaches of fiduciary duties and securities laws. In a 2004 ruling, Mr Bell, acting for World Financial Capital Markets, and Pacific ContinentalSecurities, were ordered to pay $US67,000. And in a separate finding in November 2003, he was ordered to pay $US40,000 and barred foreight months for World Financial issuing research reports that exaggerated companyperformances in return for issues of their shares. His previous employment history includes a stint as compliance officer with Pacific ContinentalSecurities, which appears to be a common former employer among those close to AstarraStrategic. Mr Richard and Mr Liu were both employed by Pacific Continental Securities. Mr Flader waspreviously general counsel for its Hong Kong owner, Zetland Financial Group. Pacific ContinentalSecurities UK failed in 2007 after operating as a boiler room, selling nearly worthless US shares tounsuspecting investors. Mr Bell also worked for broker New World Financial, which has been the subject of regulators'warnings.


NS npag : Page-One Story | ncat : Content Types | c17 : Funding/Capital | ccat : Corporate/Industrial

News | nfact : Factiva Filters | nfcpin : FC&E Industry News Filter RE hkong : Hong Kong | austr : Australia | asiaz : Asian Countries/Regions | ausnz : Australia and

New Zealand | china : China | chinaz : Greater China | devgcoz : Emerging MarketCountries/Regions | dvpcoz : Developing Economies | easiaz : Eastern Asian Countries/Regions

PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100301e63200033


P e n s i o n e r s c a u g h t i n f r e e z e o f T r i o f u n d s

SE BusinessHD Pensioners caught in freeze of Trio funds BY Stuart WashingtonWC 475 wordsPD 18 February 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 2LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

FINANCE A CENTRAL Coast retiree faces the forced sale of her modest fibro house after regulators froze$426 million in superannuation and investments in Albury-based fund manager Trio Capital.

TDJude Nicholson, 65, said she would have to borrow money for food if her monthly pensionpayment of $630 remained frozen, after regulators took over the management of the Trio Capitalfunds in December. Ms Nicholson is surviving in Tumbi Umbi on a part-pension payment from Centrelink, whichcannot be increased because of uncertainty about the state of her investments. "Each time my pension comes in I pay the bills; this fortnight there's not going to be anything left,"Ms Nicholson said. Her fate is shared by many among the 10,000 who invested in Trio Capital's superannuationproducts, which are now largely frozen. Their plight will be clearer after a hearing tomorrow in which the NSW Supreme Court has beenasked to approve payments from some of the frozen funds. The Australian Securities and Investments Commission froze Trio Capital's funds in October aftera whistleblower, John Hempton, tipped off regulators about unlikely returns from Trio's AstarraStrategic Fund. In recent developments, the Herald has learnt that about $75 million that was placed in the $118million fund has been invested in small, poorly performing offshore companies that offer almost nochance of a return to investors. Ms Nicholson has been unable to discover the full impact on her life savings of about $172,000she invested in Trio Capital on the advice of a Wollongong-based financial planner, Colin Warne. In making her investment, Mr Warne, who is a director of financial planner Dominion WFS, gaveMs Nicholson documentation showing an unrealistic investment performance of the AstarraStrategic Fund. The fund Ms Nicholson invested in charges about 3 per cent annually, high when compared to theaverage of 2 per cent in for-profit retail superannuation products. Non-profit superannuation products have average annual charges of just above 1 per cent. Mr Warne was named in an ASIC press release in 2004 after $4.6 million was raised from hisclients, mainly retirees from Wollongong, for an unregistered managed investment scheme. The courts made no findings against Mr Warne, who could not be contacted for this story. Garry Weaven, the chairman of Industry Funds Management and an advocate of non-profitsuperannuation, said the incentives for financial planners in recommending investments such as Tr i o needed to be examined. "For too long accountants and financial planners have been able to hold themselves out as


professional advisers while actually acting in their own interests," he said. "The system of paying commissions to advise people to take your product pervades all levels ofthe retail [for-profit] industry."

CO ausic : Australian Securities and Investments Commission IN i831 : Financial Investments | iinv : Investing/Securities | i8150214 : Private Pension Funds |

i81502 : Trusts/Funds/Financial Vehicles NS c16 : Bankruptcy | cexpro : Existing Products/Services | cactio : Corporate Actions | ccat :

Corporate/Industrial News | ncat : Content Types | nfact : Factiva Filters | nfcpin : FC&E IndustryNews Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100217e62i0004t


T r i o ' s f a i l u r e c o u l d e n s u r e C o o p e r ' s s u c c e s s i n r e v i e w o f c o n f l i c t e d s u p e r i n d u s t r y

SE BusinessHD Trio's failure could ensure Cooper's success in review of conflicted super industry BY STUART WASHINGTONWC 768 wordsPD 17 February 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 8LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

OPINION & ANALYSIS There are sharp lessons Jeremy Cooper can draw from the Trio Capital imbroglio in his review ofAustralia's superannuation industry.

TDMake no mistake, Trio's mismanagement of investments shows system failure of a magnitudeCooper cannot afford to ignore. Put bluntly, the superannuation savings of several thousand Australians has been exposed to themysterious disappearance of $118 million in Trio's Astarra Strategic Fund and what may be fraud,evidenced by two sets of accounts, in Trio's ARP Growth Fund. How this could happen in a closely regulated system should send a shiver down the spines ofAustralians depending on superannuation for their retirement. More particularly, it should concernthose Australians relying on financial planners to provide them with advice. What Trio has come to demonstrate, yet again, is self-interested financial plannersrecommending products investors should never have gone near. BusinessDay has seen promotional material provided to investors by the Wollongong-basedfinancial planner Dominion Group showing Astarra Strategic Fund having higher returns than theUS-based S&P 500 stockmarket index but lower risk than a government bond index. Too good to be true? Such representations were simply not credible and should not have beendistributed by any licensed financial planner. Starting from the basics, it is worth thinking about how a little-known Albury-based fund managersuch as Trio came to hold an estimated $426 million in investments. Well, the number of investments grew in the last 18 months through about $100 million sourcedfrom a Port Augusta-based financial planner, Seagrims. A fund manager establishing this kind of relationship with a financial planner is what is known as"distribution": harvesting the bucks from investors. Seagrims and Trio came to what was effectively a joint venture in which Trio provided the fundsand Seagrims labelled them. The usual payments financial planners receive from recommending investments are known astrailing commissions, paid annually. But the financial benefits for Seagrims went beyond its trailing commission of up to 1.1 per cent ininvested funds annually. (Investors in the Seagrims-badged funds paid total annual fees of up to2.65 per cent, high when compared to Rice Warner's most recent figure of 2 per cent for theaverage retail fund.) Those additional financial benefits were twofold: Seagrims discloses in its financial services guide that it received 50 per cent of the money Triowas paid to manage the Seagrim-badged investment funds.


Seagrims also discloses it could receive 50 per cent of the equity from the business of running theSeagrims-labelled funds. So the path looks something like this: a financial planner, Seagrims, is financially rewarded forinvesting funds in Trio, in three different ways. And, with almost unseemly haste, a large proportion of investors' money suddenly appears inside Trio. The Trio-Seagrims relationship also shows how merely turning off commissions may not removeall incentives for financial planners to recommend certain investments. Is there anything that stops a financial planner engaging in commercial relationships withinvestments they recommend? No. Under existing Australian laws, if the commercial relationships are openly disclosed to investors ina financial services guide and a product disclosure statement, then almost anything, includingcommon ownership of a planner and a fund, is OK. Other planners that are over-represented in Trio funds seem to be fellow members alongsideSeagrims in the Association of Independently Owned Financial Planners. And the above average trailing commissions Trio offered are likely to have been attractive tosome of those planners. One of these "independent" members is the fully licensed financial planner Wright GlobalInvestments. BusinessDay has discovered Wright Global Investments is owned by the samemysterious Hong Kong figures that own Trio Capital and Trio Capital's investment manager,Astarra Asset Management. In this case, Trio Capital's logo of a triangle is appropriate. Trio Capital was part of an iron triangle of self-interest: a planner whose owners had an incentiveto recommend the funds that it also owned. The funds had a commercial incentive to use theinvestment manager owned by the same people. And it was the investment manager who recommended $118 million be placed into mysteriousBritish Virgin Islands funds; it is yet to be recovered. This was an iron triangle of self-interest that flourished under existing regulations. Take note, MrCooper. And remember it was pensioners who invested their savings in Australian superannuationproducts whose interests were not looked after.

NS gplan : Urban Planning/Development | gcat : Political/General News | gpir : Politics/InternationalRelations | gpol : Domestic Politics

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100216e62h00033


A S I C m u s t m o v e q u i c k l y o n T r i o f u n d

SE BusinessHD ASIC must move quickly on Trio fund BY Stuart WashingtonWC 689 wordsPD 16 February 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 6LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

OPINION & ANALYSIS When there are two sets of accounts with widely varying outcomes it is hard to avoid an uglypossibility: some form of fraud has been afoot. This is the proposition investigators of Trio Capitalare now examining when it comes to one fund managed by Trio, the ARP Growth fund.

TDTrio Capital is the Albury-based fund manager that shot to unwanted prominence when its controlover a series of managed investment schemes and superannuation trusts was seized byregulators in December. A total of $426 million in investments is frozen as administrators and investigators pick throughaccounts to piece together where the money has ended up. Regulators acted on a tip-off from a Bronte Capital fund manager, John Hempton, that one of itsmanaged funds, Astarra Strategic Fund, was posting extremely unlikely returns. To date attention has focused on the missing $118 million placed through Astarra Strategic Fund,which was supposed to be invested through the British Virgin Islands. BusinessDay has reportedextensively on the links between Astarra Strategic Fund's former managers Shawn Richard andEugene Liu and their former employer Pacific Continental Securities. Pacific Continental Securities (UK) was a disreputable broker that sold nearly worthless pennystocks to unsuspecting investors, falling into administration in 2007 before the Financial ServicesAuthority could fine it £2 million. But the ARP Growth Fund is a completely separate fund, with itsown substantial problems. Those problems are clearly shown by two separate sets of accounts forits main investment, also made through the British Virgin Islands, in a fund called ProfessionalPensions ARP. One set of accounts provided to ARP Growth investors was a meticulous list of about 15 exotichedge funds that make up the underlying investments of $50 million placed into the fund back in2005 or so. Accounts in Australian dollars show a remarkable story. Through the most volatileperiod in global markets in decades, the investment dipped about 10 per cent in the three monthsafter December 2007 then slowly clawed back those losses. Even more extraordinarily, these steady returns occurred over a period of wild yo-yoing in thevalue of the Australian dollar versus the US dollar. In short, the returns are extremely unlikely. The additional problem is that a closer examination of the funds reveals significant credibilityproblems. Investments were reported last August for hedge-fund managers, such as Centrix andCornell Capital, that did not exist at the time of the report. Public information shows Eden RockFinance Fund more than halved in value since December 2007. But in the accounts supplied toARP Growth investors it only fell 4 per cent in the first period. And other funds including the Denholm Hall Russia Arbitrage Fund and the Fairfield Ludgate HillAsian Arbitrage fund are equally exotic and unlikely to have fared fantastically in volatile times. So one set of accounts looks difficult to rely on. On the other hand, BusinessDay has receiveddocuments titled Fortis Prime Fund Solutions (Asia) that are supposed to represent the true stateof affairs of the British Virgin Islands fund. They show that in December 2007 there was only $36.4 million in capital left in the fund. By May2008 there was only $26.5 million left. This is a far cry from the $50 million in hedge-fundinvestments gamely hanging in there in the list of hedge-fund accounts received by ARP Growth's


Australian investors. BusinessDay has been told by the investment manager that only $7 million is left now.Somewhere between the two sets of accounts there is the possibility of fraud. Regulators have some finely balanced considerations when they pursue these issues, not leastthe fate of the money invested through the British Virgin Islands. In June 2008, in accounts audited by the listed auditor WHK, ARP Growth showed assets heldthrough PPARP of $61 million. On the face of it, investors have been lied to in statutory accounts. The Australian Securities and Investments Commission should not hold back on the perpetrators.

NS gfraud : Fraud | nanl : Analysis | nedc : Commentary/Opinion | gcat : Political/General News |gcrim : Crime/Courts | gfinc : Financial Crime | ncat : Content Types | nfact : Factiva Filters |nfcpex : FC&E Executive News Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100215e62g0006r


F r a u d f e a r i n T r i o f u n d ' s l o s t $ 4 5 m

SE BusinessHD Fraud fear in Trio fund's lost $45m BY Stuart WashingtonWC 507 wordsPD 16 February 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

FINANCE TWO sets of accounts have emerged for $50 million invested in a fund managed by Trio Capital,raising the possibility of outright fraud.

TDInvestors in the Australian fund, ARP Growth, have been told the fund's main investment - a seriesof exotic hedge funds owned through a British Virgin Islands fund - was valued at $52.5 million lastAugust. But Philip York, a director of Empyreal Holdings and the investment manager of the offshore fundcalled Professional Pensions ARP, said the value of investments were now worth about $7 million. Mr York said there was a "discrepancy" between accounts issued from investments in the BritishVirgin Islands and what has been reported to Australian investors. "I can confirm there are serious discrepancies," he said. "It does not agree with what we have gotand what we have reported to other [international] investors." Australian investors have received reports showing the fund swinging between $54.7 million inDecember 2007 and $52.5 million last August. But BusinessDay has obtained statements thatappear to be from Fortis Prime Fund Solutions (Asia), the offshore fund's administrator. Thesestatements show assets in the fund plummeting from $36.4 million in December 2007 to $26.5million in May 2008. ARP Growth's audited annual report put a value of $61 million on the same assets in June 2008 -a clear mismatch with the Fortis documents. "Fortis provided those figures ... those figures agreewith my figures but they are different to what has been reported to ASIC," Mr York said. Paul Gresham, an investor in the ARP Growth fund and its investment manager up until June2007, said of investment losses in the fund: "It's news to me." He said the documents he had seen updating investors had come from the offshore fund. "I was under the impression that it was information that came from Empyreal," Mr Gresham said. Mr York said the information received by Australian investors had not been provided by Empyreal. "This issue is not an issue of Empyreal's, it is not an issue of PPARP's," Mr York said. If the Fortis documents prove to be correct, Australian investors in ARP Growth have beensupplied incorrect information about the performance of their funds since at least December 2007. Documents provided to Australian investors have included reports on holdings in hedge funds. Butat least some of those hedge funds appear to have closed or gone out of business - while stillreporting stable capital positions to ARP Growth investors. Regulators took control of Trio Capital's funds last December, seizing control of almost $426million invested through the funds including $118 million invested through the British Virgin Islandsin the Astarra Strategic Fund. The whereabouts of the $118 million has not yet been established.


Administrators from PPB are continuing to examine the accounts of the Trio Capital funds, whichhave been frozen for almost all redemptions since October last year.

IN i81502 : Trusts/Funds/Financial Vehicles | ihedge : Hedge Funds | ialtinv : Alternative Investments| iinv : Investing/Securities

NS npag : Page-One Story | gcat : Political/General News | ncat : Content Types | c12 : Corporate

Crime/Legal/Judicial | gfraud : Fraud | ccat : Corporate/Industrial News | gcrim : Crime/Courts |gfinc : Financial Crime | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin :FC&E Industry News Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100215e62g00060


M y s t e r y d e e p e n s o v e r m i s s i n g T r i o f u n d s

SE BusinessHD Mystery deepens over missing Trio funds BY Stuart WashingtonWC 451 wordsPD 9 February 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 4LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

FINANCE ADMINISTRATORS have so far been unable to satisfy themselves about the value of another $52million invested in a Trio Capital-managed fund.

TDThe ARP Growth Fund has as its major investment $52 million invested through the British VirginIslands in a fund of hedge funds. The investment vehicle, Professional Pensions ARP Ltd, alsobased in the islands, uses a Hong Kong company, Empyreal Holdings, as its investment manager. "We have not been able to, atthis point, establish the value," a PPB partner, Neil Singleton, saidyesterday. PPB was appointed administrator of the ARP Growth Fund after regulators swoopedon Trio Capital on December 17 and removed it as the responsible entity or trustee from $426million in investments. Continuing uncertainty about ARP Growth follows difficulty by administrators and regulators intracing $118 million invested through another Trio Capital managed fund, Astarra Strategic. Establishing the existence of ARP Growth's major asset has been slow because of negotiationson a confidentiality agreement requested by the British Virgin Islands-based ProfessionalPensions on January 20. Another PPB partner, Mark Robinson, said documents had been delivered later to show that theinvestments and the documents were being examined. Even once assets have been established,valuing investments in hedge funds ranging from the Denholm Hall Russia Arbitrage Fund ClassA, the Alpstar Secured Bank Loan Fund and the Fairfield Ludgate Hill Asian Arbitrage Fundremains extremely difficult. Professional Pensions has asked the British Virgin Islands for approval to wind up the fund,raising the prospect of hard-to-sell hedge fund assets being sold at discount. Philip York, a director of Empyreal Holdings, said he had answered all the administrators'questions and provided details of transfers of moneys by a custodian, Fortis. Mr York said the investment by Professional Pensions, which about 70 people rely on for theirsuperannuation savings, was an agreement known as a "total return swap" entered into with BearStearns in 2005. He said the money, which was invested in a series of hedge funds, was now heldby JPMorgan due to JPMorgan's takeover of Bear Stearns. Under the total return swap theinvestors benefit from a "synthetic" exposure to a basket of hedge funds, while JPMorgan holdsthe assets. Mr York said he had provided evidence of Empyreal's contractual relationship with JPMorgan toASIC. "We have provided ASIC with information supporting the existence of those assets. Wehave provided PPB [with] all the documents we have in relation to the valuations andshareholdings." A former investment manager of ARP Growth Fund, Paul Gresham, said: "I have seen the swapagreements; so has ASIC."

IN i81502 : Trusts/Funds/Financial Vehicles | iinv : Investing/Securities NS c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News FilterPage 133 of 159 © 2011 Factiva, Inc. All rights reserved.

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100208e6290004u


M a j o r i t y o f T r i o ' s a s s e t s ' a c c o u n t e d f o r '

SE BusinessHD Majority of Trio's assets 'accounted for' BY Stuart WashingtonWC 391 wordsPD 5 February 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTMENT A FINANCIAL planner that contributed more than $100 million to the now-frozen fund manager Trio Ca pit al has reported about 90 per cent of its clients' investments are held by brand-namemanagers.

TDIn a letter to clients this week, the head of the Port Augusta-based Seagrims Accountants andFinancial Planners, Peter Seagrim, said Trio's administrator, PPB, had accounted for about 90per cent of his clients' assets. He said the assets were held by the National Australia Bank as custodian on behalf of investors infunds managed by brand-name fund managers including BT, Vanguard, Fidelity and Ausbil. He said the outstanding uncertainty related to Astarra Strategic Fund, which has $118 million inassets invested through the British Virgin Islands, was yet to be satisfactorily accounted for byadministrators or regulators. "The Astarra Strategic Fund's audit process is yet to be finalised as most of the investmentmanagers within this fund are domiciled overseas and are creating some difficulty," Mr Seagrimwrote. One of Trio's administrators, Neil Singleton, said yesterday $320 million in Trio assets were heldthrough National Australia Bank as custodian. Regulators put the total of Trio investments at $426million. Mr Singleton said because of many cross-investments between Trio funds, any fund holdingAstarra Strategic was facing the prospect of impairments. Seagrims started directing investments to the Trio Capital funds about 16 months ago. Seagrims' funds make up a sub-set of a broad range of managed investment schemes andsuperannuation schemes run by Trio Capital. Funds remain frozen after regulators swooped on the funds management business in December,in effect pushing Trio into administration and appointing a new trustee to its superannuationfunds. Mr Seagrim also detailed attempts to unfreeze its Trio funds, including the possibility of replacing as the fund's responsible entity by a vote of members under the Corporations Act. "If we aresuccessful, we should be in a position to just allow the 'freeze' to exist on the Astarra StrategicFund," he wrote. Mr Seagrim's financial planning firm belongs to the Association of Independently Owned FinancialPlanners. Its chief executive, Peter Johnston, has previously claimed a Hong Kong privateinvestigator had established the whereabouts of Astarra Strategic's $118 million.

CO ncbnk : National Australia Bank Ltd IN i814 : Banking | i81402 : Commercial Banking | ibnk : Banking/Credit NS c151 : Earnings | c15 : Performance | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpin : FC&E Industry News FilterPage 135 of 159 © 2011 Factiva, Inc. All rights reserved.

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100204e6250002t


M u r d e r , i n t r i g u e a n d m i s s i n g m i l l i o n s

SE BusinessHD Murder, intrigue and missing millions BY Stuart WashingtonWC 1,062 wordsPD 11 January 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 17LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

Trio Capital has mixed with a starry cast of companies, writes Stuart Washington. It reads like an airport spy novel: an unsolved murder in a Tokyo red-light district, exotic taxhavens around the world, and thousands of defrauded investors in Britain.

TDAdd to that some $118 million tipped in to Astarra Strategic Fund by Australian investors which,almost three months after authorities blew the whistle, is still not properly accounted for. The investigation by regulators is understood to include every possibility - from the $118 millionbeing "misplaced" to misappropriation. Unfortunately for investors in Trio Capital, the Albury funds manager did not read the first part ofthe book when it began its relationship with Astarra Strategic, a hedge fund managed by AbsoluteAlpha. Absolute Alpha and its associated cast of characters have links with one of Britain's biggeststockbroking scandals, Pacific Continental Securities UK, with estimated losses of up to £300million ($520 million). One of the characters, Matthew Littauer, can be seen with his fingerprints on stockbroking cheatsand swindles dating back to the internet boom of the late 1990s. Many of the same characters, through companies registered in Belize and the Federation of StChristopher and Nevis, appear to be outright owners of companies that came to control $426million in Australian investors' money, including $300 million in superannuation money. By August last year, Absolute Alpha had rebadged itself Astarra Asset Management and hadbeen appointed as investment manager to all of Trio's big funds, responsible for investing moneyon behalf of Trio. Authorities were alerted in September in a letter from the Bronte Capital blogger, John Hempton,about the improbably smooth returns achieved by Astarra Strategic, which advertised itself as aninvestor in hedge funds. Administrators appointed to all of Trio's managed investment schemes before Christmas are stilltrying to establish the existence of Astarra Strategic's $118 million that was invested through acompany in the British Virgin Islands. A Canadian, Shawn Richard, 34, and New Jersey-born Eugene Liu, 33, have been the soledirectors of Astarra Asset Management and its predecessor, Absolute Alpha, since it wasestablished in April 2005. They are clean-cut and plausible - and Richard has been a confident media performer. But theextent of their links to the disgraced British broker Pacific Continental Securities has not been fullyunderstood. Until recently, Liu's online biography showed he worked for PCS. Richard's showed he workedwith the firm in Taiwan from 1996 to 2000; but in October 2007 he dropped all online mention of it. Well he might: in June that year, PCS UK collapsed with estimated investor losses of £300 millionfrom dodgy stocks the broker had flogged. The business was castigated by the Financial Services


Authority, which found it had acted without integrity between 2005 and 2007. Accesspoint, AccuPoll and eSat were among 40 high-risk, "over-the-counter" shares that couldnot be sold to US investors but were marketed by PCS to unwary investors in Britain, often usinghigh-pressure selling tactics. Richard and Liu have more than a passing employment record with PCS UK and its offshoreowners. Company filings show multiple links exist to this day. In one link, Astarra Asset Management is wholly-owned by a Hong Kong company called CenturyInvestments Holdings. No such company exists on the Hong Kong companies register, but it givesits address as Level 13 Silver Fortune Plaza, 1 Wellington Street, Central Hong Kong. Until late 2008 the address was also used by Zetland Financial Group, a company that wasreported in the British press as the ultimate owner of PCS. James Sutherland is named asZetland's owner. The emblem of Zetland Financial Group, a British Virgin Islands company, is now being used byZetland Fiduciary Group, a company registered in Belize, Central America, in June 2008. The website of Zetland Fiduciary Group describes it as "working with a select group of individualsand corporations to achieve their objectives in a cost-effective, private and conservative manner". Since 2003 Richard, and later Liu, have served as directors of Wright Global Asset Management,which has a formal business relationship with Astarra Asset Management. In 2004, Wright Global also had as a director a Vietnamese-American, Matthew Nguyen Littauer.A 1998 Securities and Exchange Commission document shows Littauer was president of PCS. In December 2004, Littauer, 34, was stabbed to death in the Tokyo red-light district of Roppongi.Police were reported to have been unable to solve the case. An anonymous July 2005 posting on a Japanese expat chat site about his death said: "Matthewwas a penny stock fraudster who tricked 'clients', partners and employees and many times dealtwith mafia types. This is not surprising at all." Until August 2005 a Hong Kong resident, Jack W. Flader, also served as a director of WrightGlobal. Until at least December 2005, Flader was managing director and general counsel ofZetland. His personal address given in Wright Global's company filing is the same address as thatof Zetland until late 2008. Wright Global is owned 100 per cent by a company called Bella Donna Ltd. No such companyexists in Australian or Hong Kong company registers, but Flader appears as the authorisedsignatory of Belladonna in a 2001 stock purchase agreement with the US company AccesspointCorporation (one of companies flogged by PCS UK). Another company that had Liu, Richard and Littauer as directors, Wright Global Investments, hasas its ultimate owner a Hong Kong company, Astral Investments, and its sole director is acompany, GCSL Ltd, or Global Consultants and Services Ltd. Global Consultants and Services Ltd says on its website it "was established in Hong Kong in 2006by a group of like-minded fiduciary services professionals who possess a wealth of experience inservicing the simplest to the most complex needs of our global clientele". A director of the GCSL Group of Companies Ltd, registered in the Federation of St Christopherand Nevis, is Jack W. Flader. Boiler-room operators and PCS have previously used threats of legal action to silence critics. TheHerald has been threatened by Richard on the grounds of defamation since following the story inOctober last year. The hunt for the money goes on.

NS gmurd : Murder/Manslaughter | gcat : Political/General News | gcrim : Crime/Courts RE uk : United Kingdom | hkong : Hong Kong | austr : Australia | asiaz : Asian Countries/Regions |

ausnz : Australia and New Zealand | china : China | chinaz : Greater China | devgcoz : EmergingMarket Countries/Regions | dvpcoz : Developing Economies | easiaz : Eastern AsianCountries/Regions | eecz : European Union Countries | eurz : European Countries/Regions |weurz : Western European Countries/Regions


PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100110e61b0001r


A s t a r r a s h a r e s H o n g K o n g l i n k t o b r o k i n g s c a n d a l

SE BusinessHD Astarra shares Hong Kong link to broking scandal BY Stuart WashingtonWC 459 wordsPD 5 January 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 19LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTMENTS A COMPANY under investigation over the whereabouts of $118 million in funds channelledthrough the British Virgin Islands shared a Hong Kong address with a firm linked to one of Britain'sbiggest stockbroking scandals.

TDThe address given for Astarra Asset Management's Hong Kong-based owner, CenturyInvestments Holdings, matches the address given by Zetland Financial Services Group until late2008. Zetland and its chief executive, James Sutherland, were named in the British press as the HongKong-based owners of Pacific Continental Securities, a British broker that used high-pressure,"boiler room" tactics to sell risky and sometimes worthless US shares to British investors. BusinessDay has reported that two Astarra Asset Management directors, Shawn Richard, 34, andEugene Liu, 33, had previously worked at Pacific Continental Securities, which has been identifiedas a seller of risky shares in the US and Britain since the late 1990s. BusinessDay has no evidence Zetland controls Century Investments. The address used byZetland, Level 13 or 13/F Silver Fortune Plaza at 1 Wellington Street, is also shared by a numberof other businesses, suggesting it may be a serviced office. Calls to Mr Sutherland and Astarra Asset Management's administrator, Ian Purchas, were notreturned yesterday. Astarra Asset Management was investment manager for $426 million in funds of the fundmanager Trio Capital of Albury, including its flagship fund Astarra Strategic, which had $118million invested in international hedge funds. Authorities froze the funds in mid-October and took effective control shortly before Christmas. On another front, the Bronte Capital blogger John Hempton, who blew the whistle on concernsrelated to Astarra Strategic, said he first looked at Astarra because of its purported links to a UShedge fund, Paradigm Global. Paradigm Global, an investor in funds of hedge funds, is owned by Hunter Biden, the son of theUS Vice-President, Joe Biden, and James Biden, the Vice-President's brother. The link to Astarra was made through the appearance of Charles Provini's biography on anAstarra website, saying he was chief executive of Paradigm Global and Astarra's US assetconsultant. Mr Provini was not chief executive of Paradigm at the time the online biographyappeared. The British arm of Pacific Continental Securities collapsed in June 2007, with potentialcompensation claims against it of £300 million ($530 million). The Financial Services Authority later censured the broker for recklessly or deliberatelymisleading its customers and allowing its advisers to use inappropriate selling tactics between2005 and 2007. Last January its chief executive, Steven Griggs, was fined £80,000 and its financedirector, Charles Weston, £95,000. They were described as "without integrity".

IN i831 : Financial Investments | iinv : Investing/SecuritiesPage 140 of 159 © 2011 Factiva, Inc. All rights reserved.

NS c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News Filter RE hkong : Hong Kong | asiaz : Asian Countries/Regions | chinaz : Greater China | devgcoz :

Emerging Market Countries/Regions | dvpcoz : Developing Economies | easiaz : Eastern AsianCountries/Regions | china : China

PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100104e6150001p


T r i o C a p i t a l h o l d i n g $ 1 . 5 m ' r i s k y ' a s s e t

SE BusinessHD Trio Capital holding $1.5m 'risky' asset BY Stuart WashingtonWC 319 wordsPD 4 January 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 19LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

INVESTMENTS A $1.5 MILLION debenture owed by Astarra Asset Management is listed in the books of one of Trio Capital's managed funds as an asset.

TDBut the investors in ARP Growth Fund should not hold high hopes for its prospects: Astarra AssetManagement was placed into administration shortly before Christmas. And the only security on offer for its investment is "the shares owned by [Astarra AssetManagement] in SpecOpsLab, a listed Nasdaq entity to the total value of $1,500,000". SpecOpsLab, which used to promise a technology called David that would allow Windowsapplications to work under the Linux operating system, is defunct. The appearance of a risky debenture within ARP raises further questions about the quality ofassets that have been placed into Trio's funds. The whereabouts of $118 million in investments through Astarra Strategic Fund, which wasmanaged by Astarra Asset Management, has led to $426 million in funds being frozen. Theadministrator of the fund is now seeking to establish the existence of those assets, while alsodetermining the extent of assets held in all funds. Astarra Asset Management's two directors, Shawn Richard, 34, and Eugene Liu, 33, wereappointed as investment managers to the whole of Trio's funds management business in themiddle of last year. Last February Astarra Asset Management took over responsibility for paying the $1.5 milliondebenture from a company called Silverhall Holdings, a company associated with Trio's formerinvestment managers, Michael Anderson and Cameron Anderson. The debenture was first established in 2006 with a maturity of two years, although this wasextended in 2008 for another four years, or a maturity of April 2012. The ARP Growth Fund also invested alongside other Trio funds in Astarra Strategic Fund,increasing its exposure from nothing to $4.3 million last year.

IN i81502 : Trusts/Funds/Financial Vehicles | iinv : Investing/Securities NS c17 : Funding/Capital | ccat : Corporate/Industrial News | ncat : Content Types | nfact : Factiva

Filters | nfcpin : FC&E Industry News Filter RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100103e6140001b


T r i o p r o b l e m s a r e a f a i l u r e o n t h e p a r t o f i t s g a t e k e e p e r s

SE BusinessHD Trio problems are a failure on the part of its gatekeepers BY STUART WASHINGTONWC 1,097 wordsPD 2 January 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 5LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

As the time lengthens between regulators freezing Trio Capital's funds and an "I found it"moment for its $118 million apparently invested in international hedge funds, it is reasonable toassess what safeguards exist for investors. Fund managers have a series of "gatekeepers" who are there to make sure they are doing whatthey say they are doing with their invested funds.

TDBut in the case of Trio, there is reason to question whether those gatekeepers have failed in theirroles. Regulators froze Trio's superannuation and managed investment schemes in mid-Octoberbecause the funds were apparently not able to answer relatively simple questions about what theywere invested in. Or, as the Australian Prudential Regulation Authority noted when it seizedcontrol of the superannuation funds before Christmas: "APRA has concerns about the valuation ofassets in the superannuation entities, including the Astarra Strategic Fund, a managed investmentscheme for which Trio is the responsible entity." Astarra Strategic Fund was set up to invest in hedge funds through a British Virgin Islandscompany, EMA International. The fund eventually came to house $118 million in assets, most ofwhich have been invested through EMA International. The investment manager for Astarra Strategic Fund was Astarra Asset Management, which hadas its sole directors Shawn Richard, 34, and Eugene Liu, 33. It is now in administration. Since at least August, Astarra Asset Management had been given the role of investment managerfor all of Trio Capital's investments. Under the system currently in place, there are a series of responsibilities for gatekeepers. Firstand foremost, Trio Capital is - as the very title suggests - "the responsible entity". It appoints an investment manager but it is responsible for supervising the investment manager's work. To assist it in assessing the work performed by its investment managers, a responsible entity haslegal obligations to employ a series of third-party gatekeepers, such as the auditor. AstarraStrategic Fund's most recent annual report shows WHK, a listed accounting business, was paid$16,520 to audit the scheme's books. Apart from the now-demonstrated opacity of the relationship with EMA International, there isanother striking thing about the audited accounts. The fund grew by a staggering $75 million over the year. But $47 million of that was tipped in onJune 30, apparently stripped from related-party funds. There is only one mention of thistransaction in the whole annual report, and no mention of it under the section in the annual reportdevoted to related-party transactions. This transaction had the effect of almost doubling the size of the fund. Yet the auditor was stillable to sign its letter saying the accounts gave a true and fair view of the scheme's financialposition as at June 30, 2009. Where did the $47 million come from? Who moved it? Why the rush on June 30? Which brings us to another gatekeeper. KPMG was paid to perform another gatekeeping role for as its responsible entity, an audit of the compliance plan for 24 schemes to test whether Trio was


doing what it said it was doing. Each scheme has a compliance plan based on what the fund can and cannot do with itsinvestments. On September 28 - less than three weeks before regulators froze all of Trio'smanagement investment schemes - KPMG signed an audit of the compliance plans stating Triohad "complied with the compliance plans for each of the schemes". The external auditor is responsible for examining the plan, carrying out an audit of compliancewith the plan and submitting a report to the responsible entity. Among a long list of "desired outcomes" within Astarra's compliance plans is that any related partydealings comply with the act and do not prejudice the interests of other unit holders. The method of monitoring this in the plan was the managing director's responsibility for approvingall non-standard transactions and ensuring compliance. It remains unclear whether KPMG's audit asked questions of Trio. But a large June 30 movementof $47 million into one Trio fund investing offshore affecting several other Trio funds was notsomething that was noted in particular. KPMG signed off on all the affected funds' complianceplans. Another desired outcome in the compliance plan was the responsible entity's obligation to appointa suitably qualified custodian. KPMG's audit does not seem to have picked up a degree ofconfusion about who was ultimately responsible as custodian for the cash invested in AstarraStrategic Fund. And that brings us to the final gatekeeper, the custodian. In the Trio saga, there have been fewwho deserve less glory than National Australia Trustees, which is listed as custodian to AstarraStrategic Fund in its most recent product disclosure statement. The custodian is the party that is responsible for checking that money has been placed where it issupposed to be placed. When the Herald was following this story last year, asking questionsabout Astarra Strategic Fund's assets, the National Australia Trustee provided it with a statementthat put to rest concerns. NAT confirmed to BusinessDay it was custodian and vouched for the existence of the assets. But it later turned out NAT had simply passed on information that had been provided to them by Tri o or Astarra. Hardly a textbook case of being an independent gatekeeper. And the whereabouts and the position of Standard Chartered, which is supposed to be thecustodian of funds invested through Hong Kong in EMA International? It neither confirms nordenies its role. What can investors learn from all this? In the case of the Trio funds, investors with their superannuation money tied up are right to benervous about the fate of money invested in Astarra Strategic Fund. Trio Capital is yet to furnish answers about the existence of the $118 million that have given anyassurances to the scheme's administrators, PPB. If the money is not found, it will be a failure of Trio. But it will also be a failure of its gatekeepers.Hopefully the problem is ringfenced to the Astarra Strategic Fund. But if the gatekeepers failed inone instance, how many more instances of failure are there within Trio? Or indeed, in the broaderfunds management industry? ❏ In a column earlier this week I incorrectly stated Sydney Airport had been sold into Macquarie Airports. Macquarie Airports invested in the airport directly alongside other Macquarie-managedfunds.

IN i81502 : Trusts/Funds/Financial Vehicles | iinv : Investing/Securities NS c12 : Corporate Crime/Legal/Judicial | nedi : Editorial | ccat : Corporate/Industrial News | ncat :

Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&EIndustry News Filter


PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100101e6120002n


B l o g g e r w h o b l e w t h e w h i s t l e

SE News and FeaturesHD Blogger who blew the whistle BY Stuart WashingtonWC 528 wordsPD 2 January 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

WHEN John Hempton started a blog as he recovered from pneumonia, he did not expect to sendshockwaves through the finance industry. But that is exactly what the 42-year-old fund manager did through his Bronte Capital blog. Hisexpose of an unrelated US hedge fund would eventually lead to $426 million in investments beingfrozen and authorities seizing control of the Albury fund manager Trio Capital shortly beforeChristmas.

TDInvestigators are focused on the fate of $118 million in Trio's Astarra Strategic Fund, which issupposed to be invested in international hedge funds through a British Virgin Islands company. After receiving information through his blog, Mr Hempton blew the whistle on Trio in a letter to thechairman of the Australian Securities and Investments Commission, Tony D'Aloisio, onSeptember 16. "You should take this seriously," he wrote at a time when Trio was spruiking nearly $1 billion ininvestments. Mr Hempton was first told about Trio Capital and its link to a US hedge fund after his blog postsexposing US hedge funds were publicised in the Herald. His anonymous letter to ASIC was sent through a former employer, the Treasury secretary KenHenry, with Mr Henry's consent. Like (spurned) whistleblowers in the Bernie Madoff fraud in the US, Mr Hempton focused on theimprobability of smooth investment returns recorded by the Astarra Strategic Fund. "I thought the returns were not consistent with any known hedge fund index or grouping of hedgefunds that I knew of," Mr Hempton said this week. In the letter, Mr Hempton wrote: "These are the sort of results that have had a bad reputationsince the exposure of Bernie Madoff." He also criticised Trio for recently awarding responsibility for its entire portfolio to the investmentmanagers of the Astarra Strategic Fund, Astarra Asset Management. The regulator acted promptly. By mid-October all Trio funds had been frozen. And on December17, Trio Capital was removed as manager from all its investment roles. No charges have beenlaid and ASIC investigations are continuing. "The simple test for ASIC was if they [Trio] could actually prove the existence of the assets, thenASIC could ignore my letter," Mr Hempton said. "For a reputable fund, it should not take morethan 20 minutes to prove the existence of the assets." Mr Hempton, who has since become the chief investment officer of his part-owned fundsmanagement business, also called Bronte Capital, says he is a "creature of the globalised world".The finance specialist has predicted the collapse of Latvia's banking system in the racily titled blogpost "Hookers that cost too much, flash German cars and insolvent banks". And he said his approach in his blog and his investment philosophy was simple. "I find something interesting: you pull on the piece of string and mostly you find a piece of string.


But sometimes you find something attached," he said. "[There was] nothing that led to theuncovering of Astarra you could not find on the internet. This was not hard, I just did the work."

CO ausic : Australian Securities and Investments Commission IN i831 : Financial Investments | iinv : Investing/Securities NS npag : Page-One Story | ncat : Content Types | cmisco : Gross Misconduct/Malpractice | c42 :

Labor/Personnel Issues | ccat : Corporate/Industrial News | nfact : Factiva Filters | nfcpin : FC&EIndustry News Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100101e61200005


T r i o : f r o m t h e b o i l e r r o o m i n t o t h e f i r e

SE BusinessHD Trio: from the boiler room into the fire BY Stuart WashingtonWC 588 wordsPD 2 January 2010SN The Sydney Morning HeraldSC SMHHED FirstPG 1LA EnglishCY © 2010 Copyright John Fairfax Holdings Limited. LP

■ INVESTMENTS INVESTMENT managers appointed to oversee $400 million in Trio Capital funds had previouslyworked at Pacific Continental Securities, a "boiler room" stockbroker censured in the US andBritain for pressuring investors to buy dodgy stocks.

TDThe allegation was contained in a letter sent to the Australian Securities and InvestmentsCommission chairman, Tony D'Aloisio, that blew the whistle on Trio Capital's Astarra StrategicFund. Within a month of receiving the letter, ASIC had frozen Trio's 24 managed investment schemes.Shortly afterwards the Australian Prudential Regulation Authority had frozen Trio's fivesuperannuation funds. Astarra Strategic Fund is under scrutiny over the whereabouts of $118 million supposedlyinvested in international hedge funds througha company in the BritishVirgin Islands called EMAInternational. This week the Herald revealed that about $47 million had been tipped into the fund on June 30 bymanagers acting for Trio Capital. Shortly before Christmas regulators in effect seized control of all Trio's investments, revoking itslicence to operate managed investment schemes and placing a trustee over its superannuationfunds. The whistleblower letter was sent by the chief investment officer of the fund manager Bronte Capital, John Hempton, who was alerted to Trio's flagship investment fund, Astarra StrategicFund, after he had blogged about US hedge funds. In his letter to ASIC, Mr Hempton focused on the smooth returns achieved by Astarra StrategicFund over the past five years, similar to how whistleblowers focused on the returns of BernardMadoff's fund. "It reported a few negative months (typically about -1 to -2 per cent) during the height of the crisis- but it has never reported anything that looks like a bad result," Mr Hempton wrote. "These are thesort of results that have had a bad reputation since the exposure of Bernie Madoff." Mr Hempton said this week: "The point is, all ASIC needed to do to dismiss my letter was to checkwhether the assets were there. That is the one thing that has not yet been able to be done." Mr Hempton also focused on the career histories of the investment managers of Astarra StrategicFund - Shawn Richard, 34, and Eugene Liu, 33 - and voiced his alarm that Trio had appointed themen as investment managers to all of its funds. He said both men had worked previously withPacific Continental Securities. Pacific Continental Securities has been associated with "boiler room" or pressure tactics since thelate 1990s, as it sold microcap companies to investors. It has been mentioned in academic papers examining the sale of practically worthless UScompanies to offshore investors. Its British arm, established in 2001, collapsed in June 2007, andlast year its chief executive was banned and fined £80,000 ($145,000).


The Times described its tactics last year, saying "the company was notorious for its cold-calling ofinexperienced investors and for using high-pressure techniques to sell them shares of companieslisted on AIM [the Alternative Investment Market] and high-risk shares listed on America's over-the-counter market". Mr Liu refers to his time with Pacific Continental Securities in the US, and World Financial CapitalMarkets in the US and Asia, in his biography on Astarra Asset Management's website. Earlier online versions of Mr Richard's biography say he held the position of general manager forPacific Continental Securities' Taiwan branch from 1996 to accepting the vice-presidency in 2000. Comment— Page 5

CO aupra : Australian Prudential Regulation Authority | ausic : Australian Securities and InvestmentsCommission

IN i831 : Financial Investments | iinv : Investing/Securities NS cmgent : Management Entering | cmmm : Middle Management Moves | npag : Page-One Story |

c41 : Management Issues | c411 : Management Moves | ccat : Corporate/Industrial News | ncat :Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&EIndustry News Filter

RE austr : Australia | bvi : British Virgin Islands | usa : United States | ausnz : Australia and New

Zealand | caribz : Caribbean Countries/Regions | namz : North American Countries/Regions PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020100101e61200026


M y s t e r y d e e p e n s o v e r T r i o ' s m i s s i n g $ 1 1 8 m

SE BusinessHD Mystery deepens over Trio's missing $118m BY Stuart WashingtonWC 369 wordsPD 30 December 2009SN The Sydney Morning HeraldSC SMHHED FirstPG 15LA EnglishCY © 2009 Copyright John Fairfax Holdings Limited. LP

FINANCE On June 30, managers acting for Trio Capital poured $47 million of their investments into a fundthat is now being investigated for the whereabouts of $118 million in hedge fund investments.

TDAdministrators called in before Christmas to oversee Trio Capital say they are unable todetermine what assets have been bought with $118 million invested through the Astarra StrategicFund. Inquiries have focused on a company registered in the British Virgin Islands, EMA International,which has provided statements but no proof of investments in hedge funds. The annual report of Astarra Strategic Fund, one of 24 Trio Capital managed investmentschemes now under administration, reveals that on June 30 its assets were topped up with a $47million transfer of assets. The bulk of those assets apparently came from nine related Trio Capital funds that are investorsin Astarra Strategic Fund, including Astarra Conservative Fund and Astarra Balanced Fund. Investments in Astarra Strategic Fund grew from a reported $43 million on June 30 last year to$118 million, taking into account $24 million in net cash received for new units and the $47 millionin transferred assets. Trio is the responsible entity for its managed investment schemes but it had handed responsibilityas investment manager for many of its funds to Astarra Asset Management. On December 22, Astarra Asset Management was placed into voluntary administration at therequest of creditors. Its sole directors are Shawn Richard, 34, and Eugene Liu, 33. The annual report noted a "counter party risk" in what it termed an "exposure agreement" withEMA International. "The risk includes the possibility of EMA failing to perform its duties under thedeferred purchase agreement," it said. "The responsible entity [Trio] monitors this risk via itsappointed investment manager [Astarra Asset Management] who monitors EMA, ensuring EMAdoes not enter into other transactions or business outside the deferred purchase agreement." On December 17, regulators put Trio Capital's five main superannuation funds in the hands of atrustee and withdrew its licence for its managed investment schemes. A creditors' meetingyesterday heard the administrator, PPB, was continuing its investigation of the assets.

IN i81502 : Trusts/Funds/Financial Vehicles | iinv : Investing/Securities NS gfraud : Fraud | c12 : Corporate Crime/Legal/Judicial | ccat : Corporate/Industrial News | gcat :


RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020091229e5cu0004b


D e t a i l s s k e t c h y o n T r i o ' s $ 1 1 8 m

SE BusinessHD Details sketchy on Trio's $118m BY Stuart WashingtonWC 375 wordsPD 29 December 2009SN The Sydney Morning HeraldSC SMHHED FirstPG 19LA EnglishCY © 2009 Copyright John Fairfax Holdings Limited. LP

FINANCE TRIO CAPITAL has been unable to give administrators detailed information about almost $118million that its managed investment scheme placed through a British Virgin Islands company.

TDThe Albury-based company's Astarra Strategic Fund made its investments through Astarra AssetManagement Pty Ltd as investment manager and then through EMA International, which isregistered in the British Virgin Islands. "The majority of the assets were repatriated ultimately to overseas hedge funds," Neil Singleton,an executive with the administrator PPB, said last week. "From the information I have seen it's quite devoid of any detail of the investments. "What I have seen is a letter from EMA International, which I'm advised was a monthly letter that'confirms the value of your holdings'. There is no visibility around the underlying assets." Mr Singleton said the lack of information about EMA's assets did not automatically suggest therewere no assets at all. Creditors are to meet tomorrow. Trio's directors appointed PPB after regulators effectively froze its business on two fronts. The Australian Prudential Regulation Authority appointed a trustee to manage the $300 million thecompany holds in its super funds and stopped it receiving further cash inflows. The AustralianSecurities and Investments Commission revoked Trio's licence to operate its 24 managedinvestment schemes. PPB's preliminary investigations included an interview with the Trio Capital chief executive, RexPhilpott. Figures supplied by Trio indicate that more than $233 million in net investors' money is sittingwithin the managed investment schemes, more than $100 million in excess of ASIC's initialestimates of $126 million. PPB's investigations have also revealed a high level of inter-related investments between themanaged investment schemes. When adding all inter-related investments between the schemes, in which one Trio fund invests inanother, leading to double counting of assets, investments in the schemes stood at $713 million inSeptember. Astarra Asset Management played the role of investment manager to Astarra Strategic Fund. ASIC documents show its directors are Sydney men Shawn Richard, 34, and Eugene Liu, 33. Thecompany is wholly owned by Century Investments Holdings in Hong Kong. [email protected]



NS c17 : Funding/Capital | ccat : Corporate/Industrial News | ncat : Content Types | nfact : FactivaFilters | nfcpin : FC&E Industry News Filter

RE bvi : British Virgin Islands | caribz : Caribbean Countries/Regions PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020091228e5ct0004n


T r u s t e e s t r a c k T r i o C a p i t a l ' s o f f s h o r e v e h i c l e

SE BusinessHD Trustees track Trio Capital's offshore vehicle BY Stuart WashingtonWC 389 wordsPD 19 December 2009SN The Sydney Morning HeraldSC SMHHED FirstPG 3LA EnglishCY © 2009 Copyright John Fairfax Holdings Limited. LP

■INVESTMENT MORE than 10,000 superannuation investors with $300 million placed through Trio Capital havebeen told more than 20 per cent of their assets went into a fund that invested chiefly in amysterious British Virgin Islands special purpose vehicle.

TDRegulators moved on Trio Capital in Albury on Thursday, replacing the previous trustees on itssuperannuation funds and revoking its licences to operate 24 managed investment schemes,among them its main vehicle, Astarra Strategic Funds. Following the appointment of the new trustee, the directors of Trio Capital placed the firm intoadministration, making the forensic accounting group PPB responsible for investigating themanaged investment schemes. In a "significant event" notice posted on Trio Capital's website, the new trustee, Mike Hill, fromACT Super Management, said up to $70 million of Trio's total superannuation assets of $300million had been invested in ASF. "However, members should be aware that this figure may be revised following the work of Trio'sadministrators," Mr Hill said. The Herald has previously reported that ASF invested almost all of its $118 million in fundsthrough EMA International Ltd, a special purpose vehicle in the British Virgin Islands. The valuation of Trio's superannuation funds' assets was central to the regulator's concerns whenit appointed a subsidiary of the accounting firm McGrathNicol as trustee. It cited as a reason for its move "Trio not being able to satisfy APRA's concerns regarding thevaluation of superannuation assets". The former investment managers of ASF are Shawn Richard and Eugene Liu. Earlier regulatory action included stop orders on superannuation funds receiving furthercontributions and bans on managed investment schemes issuing further product disclosurestatements. Previous inquiries by the Herald drew confusing responses from the fund's custodian, NationalAustralia Bank's National Australia Trustees. Neither National Australia Trustees nor Trio could confirm whether the funds ultimately sent to theBritish Virgin Islands were invested properly in line with the product disclosure statement. National Australia Trustees was custodian of all the Astarra managed investment schemes. ButASF also said it used Standard Chartered in Hong Kong as custodian for EMA, even though thatwas not in the product disclosure statement. Standard Chartered declined to confirm its role,claiming client confidentiality.


NS c13 : Regulation/Government Policy | ccat : Corporate/Industrial News | ncat : Content Types |

nfact : Factiva Filters | nfcpin : FC&E Industry News FilterPage 153 of 159 © 2011 Factiva, Inc. All rights reserved.

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020091218e5cj0003w


A P R A m o v e s o n s u p e r f u n d T r i o C a p i t a l ' s $ 4 2 6 m

SE BusinessHD APRA moves on super fund Trio Capital's $426m BY Stuart WashingtonWC 411 wordsPD 18 December 2009SN The Sydney Morning HeraldSC SMHHED FirstPG 2LA EnglishCY © 2009 Copyright John Fairfax Holdings Limited. LP

■INVESTMENTS THE fate of $426 million in investments, including $300 million in superannuation, has beenthrown into doubt after regulators effectively took over fund manager Trio Capital's funds andplaced it into administration.

TDRegulators have removed the managers of Trio Capital investments covering assets of morethan $426 million, accusing them of numerous breaches of licence conditions. The Australian Prudential Regulation Authority moved on Trio, citing concerns the fund managerhad been unable to satisfy it about the value of its superannuation assets. Investors are being advised to check Trio Capital's website for a "significant event"announcement, although no such announcement existed early last night. Trio, which was formerly known as Astarra, manages four main superannuation funds with assetsof $300 million and more than 10,000 investors. The funds are called Astarra Superannuation Plan, Astarra Personal Pension Plan, My RetirementPlan and the Employers Federation of NSW Superannuation Plan. Trio Capital covers a total of $426 million through the superannuation funds and other managedinvestment schemes, with a further 726 non-superann-uation investors. APRA said a trustee had been appointed to provide a report "setting out among other things aplan of its proposed course of action in respect of the ongoing and future management of thesuperannuation entities". In a related move, the Australian Securities and Investments Commission has suspended Trio Capital's licences to operate its managed investment schemes. APRA has appointed a subsidiary of the accounting firm McGrathNicol as trustee after removing Tri o as managers of the superannuation funds. The business of Trio Capital has also been placed into administration, with the appointment ofPPB to sort out the affairs of the group. The trustee's role is to protect the interests of the superannuation investors. The administrator'srole is to protect the interests of investments in managed investment schemes. Trio operated 24 managed investment schemes, including $118 million in assets in its mainmanaged investment scheme, the Astarra Strategic Fund, which housed significant investmentsfrom Trio's superannuation funds. ASIC started investigating Astarra on October 2. It placed stop orders on three of Astarra's main funds on October 21, preventing them from takingin new money. APRA also froze the assets of the four main funds on the same day. Noredemptions have been allowed from the funds except, on a limited basis, pension payments.

IN i831 : Financial Investments | iinv : Investing/SecuritiesPage 155 of 159 © 2011 Factiva, Inc. All rights reserved.

NS c13 : Regulation/Government Policy | c16 : Bankruptcy | cactio : Corporate Actions | ccat :

Corporate/Industrial News | ncat : Content Types | nfact : Factiva Filters | nfcpin : FC&E IndustryNews Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020091217e5ci00043


W a r r a n t s c l o s e , h o l d e r s l o s e a l l

SE Business - Trading RoomHD Warrants close, holders lose all BY Stuart Washington [email protected] 945 wordsPD 17 August 2007SN The Sydney Morning HeraldSC SMHHED FirstPG 22LA EnglishCY © 2007 Copyright John Fairfax Holdings Limited. LP

XCHANGE INVESTORS in highly leveraged warrant products are facing the loss of 100 per cent of theirinvestments, investment banks said yesterday.

TDBecause of the sharp movement in the index and share prices over the past two days, investmentbanks were out in droves, announcing warrants had reached barrier limits, with the net effect thatanyone holding open positions would lose all their capital. Warrants, listed on the ASX, are sold as highly leveraged and liquid positions, with the investmentbanks providing buy-and-sell quotes in line with the underlying stock or index. Unless, of course, those underlying shares go into free fall and trigger what must be some form ofstop loss on the bank's part - and an entire loss on the investor's part. The warrants are known as one-touch: once the warrant series reaches a certain price point theyare terminated. Citibank announced that warrants issued over shares in Commonwealth Bank, BHP, ANZWestpac and QBE had been terminated, with no returns made to investors. UBS announced warrants over RIO, National Australia Bank, Woodside and Commonwealth hadbeen knocked out, with no payment made. Macquarie Bank announced that two series of index warrants, XJOXML and XJOXMK, breachedwhat are known as barrier triggers because the underlying index touched 5625, or the barrierlevel. A spokeswoman said the announcement was formal only, and there were no open positions in thewarrants. Macquarie Bank, on its website, says: "The significant additional risk is that if the barrier level istriggered and the turbo warrant is terminated, the investor will not be able to sell the turbo warrantand will not be entitled to any payment. The investor will therefore need to monitor carefully therelevant market price of the underlying share or index." WhackBank Investment banks were whacked again by the market yesterday, reflecting deep and unassuagedconcern about exposures to the subprime mortgage meltdown and its knock-on effect in thebroader debt markets. Macquarie Bank closed down another $2.68, or 4 per cent, at $64, Allco Finance Group fell 55c to$7.14 and Babcock & Brown fell $1.49 to $19.51. Both Allco Finance Group and Babcock & Brown Power put out "don't panic" statements to thestock exchange yesterday. Allco again said its exposure to the US subprime market was minimal (it said the same thing onAugust 2, and nobody listened then either). Babcock & Brown Power outlined the fundingarrangements it had entered into to fund its purchase of Alinta.


The trio of big investment banks seem to be under siege from three disparate directions. One,there is obviously an increasingly denied view that there are subprime exposures in theinvestment banks. The second, more credible, fear - but again it seems to be largely confined to the fringes - is that the banks have dabbled in complex collateralised debt obligations, which have had their valuescut by up to 80 per cent in the ensuing market meltdown. The third, and probably most credible, fear is that an era of cheap debt is coming to an end, with abig question mark about how financially engineered structures surrounding highly gearedinfrastructure projects will last in an era when risk has been repriced. In the meantime, we expect plenty more reassuring announcements. Time will tell whether or not investors have acted irrationally about investment banks, butinvestors certainly have not tarred the big banks with the same brush, which survived yesterday'stumble relatively unscathed. K2 assault put off The K2 Asset Management co-founders Campbell Neal and Mark Newman were just weeks awayfrom catapulting their combined net wealth to almost $300 million. But it has all been put on ice, thanks to the market slump. It is only three weeks since they lodged a prospectus to float 8 per cent of the $340 millionbusiness at $1.60 a share. Luckily clause 2.1 of the prospectus says they can withdraw the offer at any time before the offerexpires. "This is not a decision we have taken lightly, but we feel that launching the offer during the midstof serious market correction would be poor timing for investors," they said in a statement. "I am happy to report that the float would have closed oversubscribed," said Mr Neal, thechairman of K2. The asset manager would reconsider listing later "when the timing was right", he said. Not to worry, Mr Neal still has his $574,500 salary and Mr Newman has $539,500. You was warned RAMS home-loan borrowers can happily solace themselves with these gems from the prospectus: "Over the last five years the business model of RAMS has been refined to continue to drivesustainable long-term growth." Whether investors in the float can be cheered by the words of the chairman, John Kinghorn, lessthan three weeks after its July 31 listing and seeing two-thirds of their cash go up in smoke,seems extremely doubtful. It might have paid more to read this under the headline "A major liquidity event in the capitalmarkets": "In the event of a major liquidity disruption in the capital markets, it may be necessaryor appropriate for RAMS to replace some or allof its short-term fundingwith longer term funding,most likely via the issue of RMBS. Depending on the liquidity event, the cost of term funds may behigher than the present cost of RAMS short-term funding." In other words, our business model could be stuffed by a credit crisis.

NS m11 : Equity Markets | mcat : Commodity/Financial Market News | ncat : Content Types | nfact :Factiva Filters | nfce : FC&E Exclusion Filter

RE austr : Australia | ausnz : Australia and New Zealand PUB Fairfax Digital Australia & New Zealand Limited AN Document SMHH000020070816e38h0003q Page 158 of 159 © 2011 Factiva, Inc. All rights reserved.
