How to grow rich stealing super cash

How to grow rich stealing super cash
August 2, 2010

I propose a new push to educate industrious individuals looking at money-making opportunities in the $1.3 trillion Australian superannuation industry. I'm writing, of course, about organised criminals.

Given the rich range of opportunities available to rip-off superannuation money, I think it only fair the Australian Securities and Investments Commission provide a level playing field for the ne'er-do-wells by fully disclosing the loopholes.

Through a program of financial education, the commission can give these individuals what they want and indeed deserve from the current settings - a free ride with your superannuation cash.

As a handy guide for the commission, I propose any education program cover the following areas:

FINANCIAL SERVICES LICENCES

Criminal background? Dodgy past? Ownership of a financial services licensee is no problem.

How so? The commission does not apply a good-fame-and-character test to the owner of a company granted a financial services licence, but applies it to the directors.

BusinessDay exposed just such a situation this year when it reported on Jeffrey Revell-Reade who owned OzGroup, involved in managing super worth $600 million. Revell-Reade had been repeatedly named in relation to international penny stock scams.

All a person with a dubious past need do is own a company, appoint relatively clean-skin directors with some financial experience, and away you go - a financial services licence to play with.

Incidentally, even if the owner directly controls the financial services licensee, the commission doesn't say boo publicly. For example, companies controlled by a Hong Kong businessman Jack Flader, a central figure in the disappearance of $123 million in Trio Capital money, appointed two new directors to his financial planning business in June. The commission said this was not a problem.

PRODUCT DISCLOSURE STATEMENTS

If you are of a certain inclination you definitely do not want to tell investors exactly what you plan to do with their money.

Fortunately, the commission has, in my view, a track record of letting through misleading material that can be used to garner funds.

In the case of Trio Capital, the product disclosure statements for Astarra Strategic were revealed to be meaningless to the point of laughable.

In evidence to a liquidator's examination, the 24 years of investment experience referred to in Astarra Strategic's disclosure statement consisted of Shawn Richard, who described his qualifications as an office boy, and his less talented companion, Eugene Liu.

And away you go, harvesting $123 million in investments sent to an overseas company without another word.

Astarra is not an isolated case. I am aware of another product disclosure statement out there that does not name the investment manager.

Where is the money going? Who is placing it? The investor doesn't know. Neither does the commission. Pretty handy, hey?

CONFLICTS OF INTEREST

Fortunately for the criminally-minded, there are few legal obligations that effectively pick up conflicts of interest for those running superannuation funds.

Those patient enough can winkle their way into controlling all three elements within a superannuation fund: the administrator, the trustee and the investment manager.

In Trio Capital, all three became owned by the same enterprise, so the cash could be directed offshore without question.

Interestingly, large investment managers, such as AMP and Westpac, use exactly the same system.

Current practice means Bear Stearns could have set up in Australia in 2007 the You Beaut All You Can Eat CDO Superannuation Fund.

So this isn't just an education program for criminals; big corporations that act irresponsibly can get a leg up with this particular loophole.

FINANCIAL PLANNERS

Of course, your criminal enterprise needs a distribution network. And who better than a group of salespeople handsomely rewarded for selling your product?

Current settings allow all kinds of secret commissions to financial planning networks.

With Trio Capital, an $840,000 secret commission was paid by the investment manager to the Wollongong financial planner Tarrants that it happily called a "marketing allowance". These kinds of payments are due to be banned under the Bowen reforms. Fortunately for crims, there are still opportunities to use financial planners for their own ends. This rests in the ease with which planners and entire businesses can become "authorised representatives" of a financial services licensee.

The commission has no say about these "authorised representatives".

It does not check their credentials in any way. Instead it relies on financial services licensees to check the competence and integrity of their authorised reps.

Ahem. See point one.

BREAK THE LAW

Put a bit of spit and polish on the curriculum vitae. Even tell a few lies in your Australian Financial Services Licence application; the commission doesn't appear to look too hard.

And there you have it. Put in place the above steps and grab the money.

There is a lot of superannuation money. It has attracted a lot of interest of the wrong sort.

By rights the commission should be acting to fix these problems.

But until that time, the crims are free to use all the pointers outlined above.

In fact, they already have.

Source: The Sydney Morning Herald

http://www.brisbanetimes.com.au/business/how-to-grow-rich-stealing-super-cash-20100801-111ir.html