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Thursday, 24 November 2011
Page: 13879

Australian Securities Investments Commission: Managed Investment Schemes

(Question No. 355)

Mr Fletcher asked the Assistant Treasurer, in writing, on 10 May 2011:

In respect of investigations by the Australian Securities Investments Commission (ASIC) into (a) Trio Capital Ltd and its associated managed investment schemes, (b) Storm Financial Ltd, and (c) the Westpoint Group of companies, (i) approximately what total sum of money was lost by investors in each fund/scheme, (ii) what series of actions were taken by ASIC against parties, including third parties, for loss recovery purposes, including compensating investors, (iii) what criteria were used by ASIC in taking such actions, particularly in determining whether the public interest was served, (iv) how were the facts of each case assessed against the criteria, (v) what weight was given to situations where investors had been placed into very risky investments, versus those where money was lost through fraud, and (vi) what was the outcome of the series of actions taken by ASIC.

Mr Shorten: The answer to the honourable member's question is as follows:

General overview of civil recovery proceedings by ASIC

ASIC plans to publish a document by the end of this year that sets out factors that may be relevant in choosing particular enforcement remedies. One such remedy is to take action to recover damages or property on a person’s behalf, including as part of other court actions we take. However, ASIC must form the view that it is in the public interest to commence such litigation..

In considering whether it is in the public interest to take civil recovery action on behalf of an aggrieved investor ASIC will take into account a range of considerations including the following:

A viable cause of action being identified (that is, establishing misconduct by the defendant that gives rise to the basis for a compensation action);

The availability of evidence to prove the cause of action;

The regulatory effect of bringing the action;

The extent of impact or quantum of loss arising from the misconduct;

The costs of bringing the action and the potential liability for costs if not successful;

The existence of other parties able to commence proceedings seeking compensation for aggrieved investors (such as an external administrator or the investors themselves);

The availability of funds to satisfy a judgement against a defendant to the proceedings;

The prospects of the action being successfully litigated by ASIC;

ASIC's regulatory priorities at the time; and

Availability of alternative forms of dispute resolution.

Trio Capital Ltd

Trio Capital Limited ('Trio') was the trustee of five superannuation entities, the responsible entity for twenty five managed investment schemes and trustee of three unregistered managed investment schemes.

ASIC’s investigations have focused on:

the conduct of the directors and officers of Trio, the investment managers of the Astarra Strategic Fund ('ASF') and ARP Growth Fund ('ARP'), managed investments schemes of which Trio was the responsible entity;

The conduct of the officers and directors of the investments managers of ASF and ARP respectively;

ASIC is also looking at the conduct of a number of financial advisers who advised their clients to invest in ASF

These investigations are continuing.

When Trio was placed into administration the reported value of the ASF was around $125 million. These figures include the capitalisation of questionable returns reported by Trio for a number of years. The reported value of ARP was around $58 million. Both these funds are in the process of being wound up. To date the liquidator of Trio has been unable to realise any value from most of the investments made by the ASF and ARP.

ASIC has not commenced any actions against any third parties for loss recovery purposes. As ASIC's former Chairman indicated to the Joint Standing Committee for Corporations and Financial Services on 24 November 2010, ASIC is unlikely to commence such an action in relation to ARP.

Approximately 5000 investors who invested in APRA regulated superannuation funds with an exposure to the ASF will be compensated through the Part 23 SIS Act compensation decision announced by the Assistant Treasurer on 13 April 2011. The amount of the compensation is in the order of $55 million.


ASIC commenced its investigation into the collapse of Storm on 12 December 2008. On 19 March 2010, ASIC announced that it would enter into confidential discussions with the individuals and entities which had been the subject of its investigations, to see if a commercial resolution could be reached which would be acceptable to ASIC and which ASIC would be prepared to recommend to investors. Those negotiations proved to be unsuccessful.

In December 2010, in addition to civil penalty proceedings against Emmanuel and Julie Cassimatis, ASIC commenced 2 compensation proceedings. The first proceedings seek compensation and claim damages on behalf of 2 investors, Barry and Deanna Doyle, and are against Bank of Queensland Limited (BoQ), Senrac Pty Limited, the franchisee of BoQ’s North Ward branch, and Macquarie Bank Limited (MBL). ASIC alleges in these proceedings that the banks acted unconscionably in lending to the Doyles, breached the Banking Code of Practice and were linked to credit providers with Storm under s73 of the Trade Practices Act 1974 (Cth) (re-enacted as the Competition and Consumer Act 2010 (Cth)) and are jointly and severally liable for any loss suffered by the Doyles as a result of any breach by Storm in relation to the services they supplied.

The second proceedings, against Storm, Commonwealth Bank of Australia, BoQ and MBL, seek declarations that Storm operated an unregistered managed investment scheme and that the banks were knowingly involved in the operation of that scheme, as well as injunctions. A successful outcome in these proceedings lays a foundation for subsequent claims for compensation against the banks on behalf of those who have suffered loss.

ASIC’s proceedings above are ongoing.


When the Westpoint Group collapsed in early 2006, investors in Westpoint-issued financial products had an outstanding total capital invested of approximately $388 million. The estimated losses to investors totalled approximately $310 million.

In 2007 and 2008 a number of compensation actions were commenced by ASIC under section 50 of the ASIC Act. The actions were in four categories: (a) a claim brought against KPMG, the former auditors of the Westpoint Group, (b) a claim brought against the directors of certain companies in the Westpoint Group, (c) representative proceedings on behalf of investors against financial planners who recommended investments in Westpoint Group financial products (seven separate actions) and (d) representative proceedings on behalf of investors against State Trustees Limited, the trustee of mezzanine finance notes issued by one of the mezzanine finance companies in the Westpoint Group.

ASIC's actions against State Trustees Limited and a number of financial planners produced settlements in excess of $25.5 million. On 1 February 2011 ASIC settled the actions against KPMG and the Westpoint directors. The settlement of the proceedings against KPMG and the Westpoint directors means the total amount recovered as a result of ASIC's compensation litigation will be up to $92.95 million.

Another $49.2 million obtained through the liquidation process has also been distributed, a figure that is expected to reach $56 million. Returns from Westpoint companies not in liquidation are expected to reach $22.5 million. In all, investors are expected to see a return of around $160 to $170 million of the $388 million in losses.

ASIC's class action against two financial planners and a cross-claim brought by a former Westpoint director against ASIC remain on foot.

In addition to its compensation actions, ASIC has banned 23 licensed advisers, four unlicensed advisers and one corporate entity in relation to advice concerning Westpoint-related products for periods between 3 years and permanently. ASIC has also accepted enforceable undertakings from three KPMG partners preventing them from practising as auditors for periods between nine months and two years. A number of criminal convictions have also been secured and criminal proceedings against former Westpoint directors and officers are ongoing.