Self-managed super funds are on their own when it comes to accepting advice from scammers or fraudsters who promise returns that are too good to be true.
A new ruling makes it plain that when a self-managed super fund suffers fraud or theft, the members are on their own. While industry and retail super fund members are eligible for the government compensation scheme, the only recourse for self-managed super fund trustees is civil action in the courts.
Trustees of self-managed super funds tried to claim compensation after losing money in the Trio Capital collapse. ASIC acted on a tip-off from a blogger and fund manager, John Hempton, who questioned Trio Capital’s high rates of return.
Investigators are focused on the fate of $118 million in Trio’s Astarra Strategic Fund, which is supposed to be invested in international hedge funds through a British Virgin Islands company. Hempton focused on the improbability 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 hedge funds 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 reputation since the exposure of Bernie Madoff.”
‘The simple test for ASIC was if they [Trio] could actually prove the existence of the assets, then ASIC could ignore my letter,” Mr Hempton said. ”For a reputable fund, it should not take more than 20 minutes to prove the existence of the assets.”
The money invested into Trio Capital had not gone into assets, but rather the pockets of those associated with Tri.
The compensation scheme that operates under the Superannuation Industry Supervision Act covers members of super funds regulated by the Australian Prudential Regulation Authority where the trustee of their super fund commits fraud or theft. It also covers the losses due to fraud or theft of an investment made by a superannuation fund, whether the investment is regulated or not.
People who invested with Trio through large super funds have been compensated.
However, self-managed super fund investors and others who invested in Trio-managed investments have been pushing to be compensated by the government. But the government has found the financial regulators had carried out their roles and responsibilities appropriately and there were no grounds for compensation.
The players in the Trio Capital scandal.
It puts beyond doubt that self-managed super fund trustees are on their own, with the legal process their only alternative.
It underlines how careful DIY fund investors have to be in selecting investments. The trouble for investors is that fraud is very difficult to detect if someone is really intent on deception.
Nevertheless, self-managed super fund trustees need to know what they are investing in. They need to understand how the investment produces its investment returns and be very suspicious of investments and their promoters promising out-sized returns.
The Sydney Morning Herald’s finance editor writes: “Trio was not a mainstream investment. Trio’s investments included a series of hedge funds. These invest in higher-risk strategies, usually in tax havens and with little transparency.”
The obligations placed on self-managed super fund trustees cannot be overstated. The recent ruling makes it clear that there will be no recourse for trustees who are scammed or make mistakes.
We always recommend that you seek the advice of an investment professional. We understand when something looks too good to be true, and will ensure you are invested appropriately for your personal circumstances.
Contact us today to talk to one of our financial planners.