Astarra’s trail of fraud emerges

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 last week pleaded guilty to 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.

Many of those investors are retirees with large relative exposures to the fraudulent funds, and many who entered the funds did so following the advice of a relatively small group of financial planners. Here’s how the saga unfolded.

2004

Astarra Funds Management is born. Formerly known as Tolhurst Funds Management, the company is acquired by Wright Global Asset Management in late 2003 and rebranded to Astarra in 2004. Astarra Capital is the trustee and responsible entity for Astarra Funds Management.

The group says it will add absolute return, private equity and residential property funds to its investment suite, which includes a superannuation master trust. Based in Albury, New South Wales, the manager lays claim to more than $200 million in funds under management.

2004

While at the investment helm of the funds management company, 29-year-old Shawn Richard begins to implement a scheme, under instruction from Hong-Kong based US businessman Jack Flader, which sees money invested in Astarra Capital sent offshore into a number of funds controlled by Flader.

Flader uses Australian investors’ money to buy shares in US companies from foreign companies that he also controls – netting him significant profits. Flader also uses the Astarra Capital money to buy derivatives, foreign exchange contracts and fixed interest investments through other companies he controls.

Unbeknown to investors, a large portion of the profits Flader receives are used, via loan arrangements, to fund the businesses of Astarra Capital, Astarra Funds Management, Astarra Asset Management and Wright Global Investments – all of which Richard is associated with, either as a director or an agent. In Australia, Richard presents himself as the controller of Astarra Capital, Wright Global Investments and Astarra Asset Management, despite the fact that Flader is the ultimate controller of the companies.

2006

Richard is ordered by Astarra Capital’s investment committee to cease investments in one Flader-controlled fund. In return, Richard establishes three more, all also controlled by Flader – although Richard tells the investment committee the funds are managed by different managers.

2008

In the midst of the market turbulence of 2008 many fund managers are delivering negative returns of more than 20 per cent – but performance in one of Astarra’s sub-funds, the Astarra Strategic Fund, is reportedly holding up well.

Observing the group, one fund manager notes Astarra’s performance commentaries have become increasingly inconsistent and vague, failing to outline the types of hedge fund strategies supposedly being employed or the names of individuals managing the funds – something a boutique outfit can rarely get away with.

2007-09

During this period Richard is well aware the assets in the Flader-controlled funds are illiquid, and that new investments into the Astarra Strategic Fund are being used to fund redemption requests. Richard also knows the funds’ auditors are under Flader’s control.

2009

Astarra Asset Management and Astarra Capital offer planning groups substantial ‘loans’ in return for setting up white label, Astarra-backed superannuation funds.

Astarra offers to provide a  regional-NSW planning firm a loan of up to $1.5 million in return for setting up an Astarra superannuation fund. NSW-based planning group Seagrims is one group that does have a white label Astarra super fund – the Seagrims Personal Retirement Plan.

Other advice groups, including NSW-based Tarrants, receive substantial ‘marketing allowances’ for advising clients to invest in the Astarra Strategic Fund. Tarrants received a payment of 3.3 per cent of all client monies placed in the Astarra Strategic Fund.

2009

Richard and Astarra distribution head Peter Wood are on the attendees list for the Association of Independently Owned Financial Planners (AIOFP) conference on the Goald Coast. 

The relationship between the AIOFP and Astarra goes back some time – the association acted as a “consolidated distribution network” for Astarra products and took rebates from the manager.

Mid-2009

Sydney-based hedge fund manager and blogger John Hempton receives a tip-off from a reader who has concerns about Astarra. Hempton looks further into the matter and, using his connections, ensures “the whole story [lands] directly on the desk of [Australian Securities and Investments Commission commissioner] Tony D’Aloisio”.

July 2009

Boutique research company McGregor Asset Consulting is appointed as asset consultant to Astarra’s suite of diversified funds. Researcher Rob McGregor is a key figure in the AIOFP’s Filtered Research Committee, which provides research and constructs Approved Product Lists for AIOFP-affiliated advisers.

September 2009

Richard says that Astarra Asset Management has reached $1 billion in funds under management, pointing to recent growth “generated by growing interest from financial planners in its flagship multi-sector funds”.

October 2009

Rob McGregor continues to endorse Astarra to advisers at industry conferences.

October 2009

ASIC and the Australian Prudential Regulation Authority (APRA) issue stop orders on Astarra’s superannuation funds and managed investment schemes, and freeze the assets of the super funds. APRA and ASIC continue to work on separate investigations into Astarra.

December 2009

APRA suspends Astarra Capital (now known as Trio Capital) as trustee of its super funds, and appoints ACT Super Management as acting trustee.

The four main funds – the Astarra Superannuation Plan, Astarra Personal Pension Plan, My Retirement Plan and the Employers Federation of NSW Superannuation Plan – have approximately 10,000 members, and the super entities have significant investments in the Astarra Strategic Fund.

ASIC also suspends Trio Capital’s AFSL, and the company is placed into external administration under PPB Advisory.

2004 – 2009

Astarra Asset Management has now received more than $5.3 million, and Richard has personally received more than $1.3 million in undisclosed payments for his role in the scheme.

January 2010

The AIOFP, under chief executive Peter Johnston, begins ramping up its involvement in the issue, with around six of its members and their clients heavily exposed to the collapse. The exposed firms include New South Wales-based firms Seagrims, Dominion and Tarrants.

Johnston is in close contact with Richard and defends him to Astarra’s administrators and others, saying he believes Richard is “innocent of any fraudulent behaviour with Astarra”, and can only be accused of having “sloppy paperwork”.

“I will back my 30 years of being in business and dealing with all sorts of characters with my assessment. He can no doubt be accused of sloppy paperwork but that is a far cry from the hell he has been through.”

Johnston accuses the media of conducting a witch-hunt against Richard. The AIOFP hires a private investigator to pursue people and companies associated with the $118 million missing from the Astarra Strategic Fund – which has emerged as being the fund at the heart of the fraud.

January 2010

Astarra’s administrators confirm the funds held in Australian share and cash investments managed by Astarra are in order, but there is no sight of the $118 million in the Astarra Strategic Fund.

Johnston uses the administrators’ statements to comfort clients, saying he hopes it won’t be long before the rest of the money is accounted for.

Johnston describes Flader as a “well credentialed businessman” and one who has “not demonstrated the behaviour of a ‘crook’ running away with the cash”.

February 2010

Johnston confirms AIOFP members received volume rebates from Astarra and that Astarra had been a ‘gold sponsor’ of a past AIOFP conference, but will not confirm how much the association was paid by the manager.

9 February 2010

PPB completes its initial investigation into the Trio managed investment schemes. The administrator says the Astarra Strategic Fund is illiquid, and recommends six of the Trio funds be wound up.

11 February 2010

Johnston emails parties including ASIC, APRA, PPB and then-Financial Services Minister Chris Bowen to say Richard has shown him “convincing evidence” proving the location of various tranches of the missing investor funds, including Astarra assets held by the Flader-controlled Exploration Hedge Fund – one of the funds in question – and others.

December 2010

Richard appears in a New South Wales court and pleads guilty to dishonest conduct and misleading investors. His admissions could see him spend up to 10 years in prison. Richard also enters into an enforceable undertaking with ASIC, banning him from financial services for life.

None of the money invested in the Flader-controlled funds has been recovered.