‘Unachievable’ return targets led to Sterling collapse: ASIC

Sterling Group was setting ‘unachievable’ return targets of 10% to 15% which contributed to its collapse, according to the Australian Securities and Investments Commission (ASIC).

Sterling Income Trust, run by Sterling Group, was sold to investors as a “lease for life” as their long-term tenancy was linked to investment performance. Investors were told the returns from their initial lump sum would be sufficient to cover the rent on the lease and no other payments would be required towards rent. When it later collapsed, people were unable to pay their rent.

Appearing before the Senate Economics Committee to discuss the collapse, ASIC chair, Joe Longo, said the regulator believed the failure was a result of the firm’s ambitious targets, which were 10% to 15%, rather than anything underhand.

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“As far as we can tell, no tenant money went into the pockets of third parties, the money went where it was supposed to go,” Longo said.

“What went wrong was the business model was far too ambitious, was looking for returns that were unachievable and the cost of running the business was high, at its height it had 75 employees. That’s the gist of the matter.

“They had a very big rent roll, they bought a lot of properties and the returns they were looking for were ambitious – 10% to 15%.

“If we are in a constrained environment then they are very ambitious forecasts for returns and they weren’t achievable.”

Longo also disputed claims that the scheme was a Ponzi scheme as he said there were actual underlying properties involved whereas a Ponzi scheme was built on nothing tangible. However, he could understand why people viewed it in that way.

“This was a very distressing, catastrophic failure of a managed investment scheme that hurt a lot of people but it is not a Ponzi scheme,” Longo said.

“When this scheme started in 2012, there were real properties, real companies and real returns. I think it’s more how people feel about a corporate collapse.

“The revenue was coming into the company but it was being used to pay employees or to meet ongoing expenses rather than being ‘invested’ and that’s very common in distressed situations.”

Longo also admitted the regulator had received multiple misconduct complaints about the scheme back in 2016 but that it “did not trigger any particular concern” for ASIC. It first began investigating several months later in March 2017 when it was raised by the Consumer Affairs division.

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So if ASIC did a basic review of the Prospectus should it not have been very clear that returns were aimed very high ? And made them revise them down.
But no ASIC doesn’t do any such of a real look pre approving the Prospectus.
Did ASIC bother looking at the problems when first alerted ? No……… ASIC too busy killing Real Advisers for minor breaches.
Now Advisers get to pay for this ASIC investigation and Advisers will be forced to pay compensation to investors via CSLR because Advisers are being screwed yet again by Frydenberg & Hume.
Another great mess from ASIC, Frydenscum ODywer & Hume.
Clean the ASIC & LNP swamps now.

All under a Liberal Government. Bring on the election.

ASIC were too busy lobbying FASEA and paying academics to support their agenda to quash independent financial advice. They were preparing submissions to the Royal Commission, telling Hayne there is no value in having an ongoing relationship with a financial adviser (at least he was smart enough to reject that nonsense). While ASIC were distracted by their ideological pursuits, they were ignoring the early warning signs from Sterling and Caddick. ASIC are consumers worst nightmare. They are slow and ineffectual at preventing and quickly stamping out bad products and scammers, and at the same time, they are making it impossible for consumers to get access to sensible, mainstream financial advice. To top it off, ASIC are proposing a solution to the problem they created, which is to allow product providers to use fake financial advisers (ie. intra-fund sales people) to flog their products with less compliance requirements and consumer protections to give them an advantage over independent financial advisers. What a rotten, shameful disaster ASIC is!!!

It is great to see ASIC making excuses on behalf of the product manufacturers, instead of fining and jailing people whose actions lead to clients losing significant amounts of money. If this was an adviser ASIC would be falling over themselves in destroying them. In ASIC's eyes it will be the advisers fault if they used the fund, not those who created the mess in the first place. Ban the adviser, give the free pass to the product manufacturer who simply sets up another fund to repeat the same mistakes, and more investors will lose their money. ASIC is lazy, incompetent and corrupt.

Yes Sterling didn't do anything wrong according to them, just overestimated return, ran up costs mostly paid to the promoters, but hey that happens no problem, not our fault, nothing for us to do.

I had a prospective client bring me this PDS and I just about threw up.

Sold by real estate agents who got a 10% commission for the sale of units into a fund that was then used to buy real estate rental client lists as the investment. Terrible investment that was only ever designed to feather the promoters nest.

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