More unhappy chapters are being added to the sorry saga that is ASIC, arriving late, avoiding the hard targets, bayonetting the wounded. Michael Pascoe with the latest.
Those with memories of the regulator’s gross failure in dealing with the rash of dud agricultural management investment schemes back in the day could only grimace over ASIC chairman Joe Longo’s speech last month that boasted of having more than 40 investigators picking over the carcass of the Shield and First Guardian scams that have blown more than a billion dollars of individuals’ superannuation funds.
Question, ASIC: Where were the investigators years ago when good financial planners started warning you about the unfolding racket?
It looks like nothing has changed since the Storm Financial scandal in 2009. ASIC was told and told again that the Storm operation was dodgy, but did nothing until it collapsed, resulting in years of litigation and multiple compensation actions, helped by the deep pockets of three banks that had enabled the over-gearing of vulnerable victims.
Like Storm, after the Shield and First Guardian horse bolted, there is a flurry of ASIC activity.
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So very complex!?
“The investigations we have been undertaking in this area are among the most complex and resource-intensive investigations we’ve conducted,” said Chairman Longo. “It is one of ASIC’s priorities to investigate what has happened and to preserve as much of investors’ funds as possible while our investigations are continuing.”
It’s a bit of a worry that Shield and First Guardian qualify as being among ASIC’s “most complex and resource-intensive investigations”. That would reinforce the impression that ASIC has form in preferring easy wins rather than tackling the toughest targets.
Exhibit A for the prosecution: ASIC’s failed investigation and prosecution of the massive Australian coal fraud covered on these pages by Stephanie Tran.
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ASIC’s preferred prosecutions are those when a company makes a mistake, realises it, puts its hand up, and the regulator acts all hairy-chested in kicking heads.
ASIC also favours outsourcing enforcement to the ambulance-chasing brigade of litigation funders and class action lawyers who specialise in allegations of continuous disclosure failure. Problem is, the ambulance chasers only chase the easy cases where they spy deep pockets.
There was an encouraging aspect to Longo’s latest speech, albeit that there have been plenty of big claims made by various ASIC chiefs over the decades. The promising part was his attempt to spread the responsibility net wider than financial advisers, given that the present system threatens to decimate the legitimate advice and planning industry when the need for it is greatest.
Last resort
In prospect following the regulator’s failure and the Shield and First Guardian perpetrators’ bastardry are payouts from the Compensation Scheme of Last Resort. When it’s a matter of a failed management investment scheme, a levy on financial advisers coughs up cash. Hilariously, the supposedly “responsible entities” who operate such schemes aren’t being levied.
The Stockbrokers and Investment Advisers Association CEO, Judith Fox, has warned that the scheme is unsustainable, the ballooning levies a factor in curtailing the availability of advice, a barrier to attracting people to the industry.
The Financial Advice Association Australia’s CEO, Sarah Abood, says the CSLR makes no attempt to attribute blame to any particular player, adding,
We already know that the advisers who paid a levy are not the ones who did the wrong thing.
Longo said ASIC was “investigating the conduct of the lead generators, the financial advisers, the superannuation trustees, the managed investment schemes, and the research houses” involved in Shield and First Guardian, pretty much the whole food chain.
There are degrees of potential culpability at all those levels, ranging from the simply fraudulent use of a fake “comparison” site that was a straight marketing gateway to the old problem of a research house being paid for checking the product and subsequently awarding an investment grading that allows the dud to be listed on investment platforms.
Missing the signals
The house that ticked First Guardian was SQM Research.
The graveyard of poor, bad and outright scam-managed investment schemes over the years is littered with research house ratings.
As for “comparison” sites, it’s another field awaiting the arrival of a proactive regulator instead of a coroner. The Shield and First Guardian example was a straight scam, but there are shades of grey about all the commercial comparison outfits.
No, Virginia, they don’t actually provide an objective comparison of all the insurance/banking/whatever offerings. They often exclude the best product because they are paid by lesser outfits to market their wares and provide leads.
Choice, which doesn’t take payment for its comparisons, tries to blow the whistle on the obvious conflict from time to time, but that changes nothing.
It’s wrong, and it continues.
Somewhere down the track, there will be a major scandal of a comparison site being paid for tipping people into a dud product, and a regulator will harumph. It might even feature in a speech.
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Michael Pascoe is an independent journalist and commentator with five decades of experience here and abroad in print, broadcast and online journalism. His book, The Summertime of Our Dreams, is published by Ultimo Press.