The report of the Parliamentary inquiry into the collapse of Trio Capital, the largest superannuation fraud in Australian history, has found that key checks and balances in the Australian financial and superannuation system failed to identify the fraud.

 

The report found that both the Australian Prudential Regulation Authority (APRA) and the Australian Securities Investment Commission (ASIC) failed to recognize key events in setting up the fraud, failed to detect the fraud, and were slow to communicate the evidence of fraud and to take action.

 

The report stated that although APRA had conducted five prudential reviews between 2004 and 2009, it took no enforcement action as a consequence of any of these reviews. Further ASIC only began its investigation into Trio in October 2009 after it had been tipped off by ‘an alert industry participant’.

 

The report noted that from late 2008 to mid 2009, APRA was unable to obtain from Trio a valuation of certain Trio funds' assets.

 

“The committee questions how a trustee can be subject of what APRA describes as 'active supervision' over a period of six years and yet, when essential information was not forthcoming at the end of this period, APRA did not act quickly. For a risk based supervisor, as APRA is, the inability of a trustee to provide basic valuation information should have raised strong concerns.”

 

Further, APRA did not communicate to ASIC its requests for Trio to provide information from late 2008 to mid-2009, failing to alert the Commission about Trio when it began active surveillance of hedge funds in June 2009.

 

The report also questioned the validity of evidence given by ASIC and APRA about the existence of the principal underlying asset of the ARP Growth Fund, and suggested the two agencies “failed to fully investigate the alternative possibility: there may have never been a contract and the ARP Growth Fund was a fraudulent venture.”

 

The Parliamentary Committee also expressed surprise that “there appears to have been very little follow up activity by APRA, ASIC and other authorities such as the AFP, to seek to recover outstanding moneys or to bring to justice those who have committed crimes which have led to great suffering on the part of Australian investors.”

 

The report also highlighted the role of financial advisers in the losses suffered by investors. Two particular advisers operating in Wollongong and Sydney’s North Shore were identified in connection with Trio, and the report suggested that “their recommendations were influenced by the high commissions paid by Trio”.

 

The report made 14 recommendations in relation to the Trio fraud and to improve detection and public awareness of superannuation fraud.

 

The full report into the collapse of Trio Capital, tabled by the Joint Committee on Corporations and Financial Services,  is available here.