Top 5 bad apples: 2010

A joint move by ASIC and APRA to suspend Trio Capital (formerly Astarra Capital) as trustee of four superannuation funds and a pooled super trust generated significant concern in the financial services sector. 

1. Astarra/Trio

The joint move by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) last December to suspend Trio Capital Limited (formerly Astarra Capital Limited) as trustee of four superannuation funds and a pooled superannuation trust caused ripples of interest throughout the industry.

Having had its assets frozen in October, the firm was banned for numerous breaches of its licence conditions and its failure to satisfy APRA’s concerns regarding the valuation of superannuation assets.

Following the ban, it emerged that $118 million invested in Trio’s Alpha Strategic Fund through offshore hedge fund managers could not be located.

Further intrigue surrounded the firm when the Association of Independently Owned Financial Planners (AIOFP) joined the debate and announced it was hiring a private investigator in Hong Kong to pursue the people and companies associated with the missing money.

Subsequently, it emerged that AIOFP members accounted for a large portion of the money invested with Astarra, and brought to the fore a rather unconventional relationship between the association and the fund – with the AIOFP’s chair of investment research committee, Rob McGregor, having acted as an asset consultant to Astarra Asset Management.

In July 2010 it emerged that former Trio Capital director Shawn Richard received secret illegal commissions for sending investors’ money offshore, while director Eugene Liu said he thought ‘company director’ was an ‘honorary position’ with no duties.

2. Commonwealth Financial Planning

Earlier this year, investors moved to sue Commonwealth Bank’s financial planning arm in the NSW Supreme Court following allegations of negligent advice.

Law firm Maurice Blackburn, acting on behalf of seven clients, claimed bad advice received from Don Nguyen, a financial planner at Commonwealth Financial Planning (CFP), resulted in a total loss of $4.3 million.

In November this year, Commonwealth Financial Planning entered into a client compensation program

following an investigation by ASIC. CFP agreed to identify those affected and assess liability and appropriate compensation, and ASIC said CFP had adopted a cooperative and consultative approach to the problem and was reviewing relevant client files.

It was also announced that an independent expert would review the implementation of the program and compensation offers.

3. InFocus Securities Australia

Tarnishing the name of the financial planning industry further, David Radovan, a Perth-based financial planner with InFocus Securities Australia, was banned by ASIC for five years over concerns about the appropriateness of advice given to retail clients.

Radovan worked for InFocus Securities Australia between 25 July 2006 and 16 October 2008.

An investigation into Radovan’s conduct found he had engaged in misleading and deceptive conduct and had failed to provide clients with documents required under the Corporations Act.

These included Statements of Advice and Product Disclosure Statements. Radovan was also found to have overexposed client portfolios to higher risk niche products in breach of InFocus’ policies, and recommended that clients invest by utilising investment loans, including margin loans.

ASIC said these actions meant his clients were overexposed to risk and overgeared, and that Radovan was likely to continue to fail to comply with financial services laws in the future.

4. Sonray Capital Markets

Despite establishing itself just seven years ago in 2003, Melbourne-based Sonray Capital Markets entered voluntary administration in June this year, owing $46 million.

The advisory and investment company’s former chief executive and co-founder Scott Murray and director and co-founder Russell Johnson were subsequently grounded and instructed not to leave Australia while investigations into the advice firm’s collapse were carried out.

Voluntary administrators Ferrier Hodgson froze investor funds, while law firm Slater & Gordon contacted 100 former Sonray clients offering them a ‘no win, no fee’ opportunity to pursue legal action against the firm.

The administrators have since stated Murray and Johnson could be charged with misusing client funds.

5. Emmanuel Cassimatis

With the fallout from Storm Financial’s collapse still rippling through the sector, 2010 saw the Financial Planning Association (FPA) close its doors to one of the groups founders.

Former Storm director Emmanuel Cassimatis was found guilty of multiple breaches of the FPA’s code of conduct including making misleading representations about investment rates of return in order to influence clients to invest in Storm-branded index funds, as well as making recommendations to clients that were not based on a suitable strategy.

Cassimatis was also found to have discredited the financial planning profession as a whole and was fined $20,000.