AM Corp directors exiled for a decade
TheAustralian Prudential Regulation Authority(APRA) and theAustralian Securities and Investments Commission(ASIC) have accepted enforceable undertakings from AM Corporation founder David Smith and former director Alan Rich, effectively freezing them out of the industry for 10 years.
While neither APRA or ASIC found any instances of dishonesty by Smith or Rich an undertaking was agreed to pay APRA $1 million in settlement of any potential civil penalty actions against it.
The moves come a year after APRA launched an investigation into the conduct of LifeTrack after concerns over the group’s Diversified Traded Policies (DTP) fund, of which LifeTrack was the approved trustee.
It found the group, under the Superannuation Industry (Supervision) Act 1993, had failed to implement a formal liquidity management plan for various traded policy funds, continued to purchase traded policies when the traded policy funds were experiencing low and negative liquidity, and caused other diversified funds under its trusteeship to purchase traded policies.
Smith and Rich have agreed not to act as directors or officers of a company holding an Australian Financial Services Licence (AFSL) for 10 years, or of a listed investment company for five years.
They will also be unable to hold the role of a responsible officer for any superannuation entity regulated by APRA or an investment manager or custodian for 10 years.
The DTP fund offered investments in predominantly illiquid traded life insurance policies, and was temporarily closed after the events of September 11 devalued the fund by 6-8 per cent.
The freeze was to prevent an onslaught on the fund by investors seeking to exit the DTP fund. However once the fund was re-opened it continued its downward spiral by a further 4 per cent in December 2001, followed by subsequent falls in April, June and July of 2002 by 2.7, 2.4 and 4 per cent respectively.
The freefall in policy valuations, largely due to declining equity markets and life insurance companies restructuring their payments to investors, prompted an AM Corp decision to wind down the DTP fund over a five year timeframe.
At the time AM Corp’s then managing director Trevor Howell said the frequent revaluation of insurance policies was a complete change to the way life insurance companies had previously operated and had “changed fundamentally the nature of traded policies as an asset class”.
APRA had been closely supervising LifeTrack prior to September 11 2001, over concerns about the DTP fund’s heavy exposure to relatively illiquid traded life insurance policies and subsequently intervened to prevent LifeTrack increasing its exposure to those policies.
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