The Australian Securities and Investments Commission (ASIC) has filed Federal Court proceedings against three former directors of Keystone Asset Management and two former compliance committee members over alleged failures connected to the Shield Master Fund, which took in more than $530 million in retirement savings from about 5,800 investors.
ASIC alleges around $305 million of the funds invested through Shield was transferred to a related property development fund controlled by Keystone Asset Management and then to entities linked to former directors Paul Chiodo and Ilya Frolov without basic safeguards including proper security, valuations, oversight or conflict management.
The regulator is pursuing former directors Chiodo, Frolov and Mark Yorston for alleged breaches of their director and officer duties, and former compliance committee members Jeremy Danon and Frolov for allegedly failing to meet their obligations.
ASIC chair Sarah Court says the case reflects alleged failures in how hundreds of millions of dollars of Australians’ super savings were handled and protected.
"Investors in managed investment schemes are entitled to expect that their investments will be carefully managed on their behalf but, in this case, ASIC alleges investors were exposed to conflicted arrangements and poor oversight," she says.
"We allege hundreds of millions of dollars of superannuation was transferred to related entities without basic safeguards, exposing thousands of Australians to significant financial risk.
"These proceedings are about holding those we allege to be involved to account and sending a clear message that directors operating schemes of this kind must act in investors’ best interests."
ASIC is seeking civil penalties, disqualification orders and costs against all defendants.
The proceedings represent the latest escalation in a sprawling enforcement effort by ASIC that has already resulted in a Federal Court declaration that Macquarie Investment Management Limited contravened the Corporations Act in its role as trustee of the Shield Master Fund.
The court earlier this year declined to impose a penalty on Macquarie due to what it described as exceptional circumstances, including the full repayment of about $321 million to around 3,000 Macquarie Wrap investors under a court enforceable undertaking.
Keystone Asset Management was the investment manager and promoter of the Shield Master Fund, a registered managed investment scheme.
ASIC alleges the former directors allowed investor funds to flow into related entities without the protections that investors and the scheme's governing documents required.
Liquidators appointed to Keystone Asset Management have preserved nearly $200 million from share sales in interest-bearing accounts and are seeking to preserve up to $158 million in additional assets.
An application for an interim distribution to investors has been heard by the Federal Court but not yet determined, with the matter adjourned pending further evidence.
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