The details of one of Australia’s most substantial cases of investment fraud have been laid bare.
Former Astarra Asset Management investment manager Shawn Richard yesterday pleaded guilty to dishonestly taking more than $6.4 million in undisclosed payments for his role in a scheme that saw Australian investors stripped of more than $100 million.
His admissions could see him spend up to 10 years in prison. An enforceable undertaking between Richard and the Australian Securities and Investments Commission (ASIC), banning him from financial services for life, outlines in intricate detail the steps Richard and his associate, US businessman Jack Flader, took in defrauding Australian investors – many of whom were retirees with large relative exposures to the fraudulent funds.
The document, signed by Richard, outlines how from July 2004 onwards he implemented a scheme, under instruction from Flader, that saw Australian investors’ monies transferred out of managed investments and super funds controlled by Trio Capital (then known as Astarra Capital), into four offshore funds controlled by Flader.
The majority of money invested in the Astarra Strategic Fund, the fund at the heart of the fraud, was channelled into funds controlled by Flader. Of the approximately $53 million invested by the Astarra Strategic Fund into underlying funds, around $45 million was put in Flader’s control.
Flader then used the funds to buy shares in US companies from foreign companies which he also controlled – netting the Hong Kong-based businessman significant profits. Flader also used the funds to buy derivatives, foreign exchange contracts and fixed interest investments through other companies he controlled.
Richard was fully aware of this arrangement, which saw Astarra Asset Management receive more than $5.3 million, and Richard personally receive more than $1.3 million for his role in facilitating it. Those undisclosed payments were in addition to the $113,000 salary paid to Richard from Astarra Funds Management, of which he was a director.
A large portion of the profits from the scheme were also used, via loan arrangements, to fund the businesses of Trio Capital, Wright Global Investments, Astarra Funds Management and Astarra Asset Management – all of which Richard was associated with, either as a director or an agent. Richard knew the loans issued to the companies by Flader were comprised, in part, of investors’ monies. Furthermore Richard said he, not Flader, was responsible for the companies issuing the loans. Richard had also presented himself as the controller of Trio Capital, Wright Global Investments and Astarra Asset Management when, in fact, Flader was the ultimate controller of the companies.
At no time during the operation of the scheme did Richard disclose to investors or to others involved with Trio Capital the nature of his relationship with Flader. When he was ordered by Trio’s investment committee in 2006 to cease investments in one Flader-controlled fund, Richard simply established three more, all also controlled by Flader – although Richard told the investment committee the funds were managed by different managers.
The ASIC document outlines how between 2007 and 2009 Richard knew the assets in the Flader-controlled funds were illiquid, and that new investments into the Astarra Strategic Fund were being used to fund redemption requests. He also knew the assets held in Flader’s funds had never been independently valued and that the funds’ auditors were under Flader’s control.
Nonetheless, from at least April 2007 onwards, Richard misled investors about the nature of the investments, which were supported by significant numbers of Australian retirees.
None of the money invested in the Flader-controlled funds has been recovered.
