United States tax fraud. (2007)

ASIC failed to remain informed about significant international fraud events particularly when the people involved in the US tax fraud had come to the attention of ASIC over a similar tax fraud against the Australian Commonwealth. The same people already had their details in ASIC’s database because they owned the companies that operated the Trio Capital scheme.

ASIC had a chance in 2007 to learn that Flader & Sutherland were before the courts in the United States on tax fraud charges. Had ASIC acted in 2007 the Astarra / Trio fraud could have been closed down and tens of millions of dollars saved from disappearing. However, the Astarra fraud was discovered by someone working in the financial industry and they informed ASIC, the United States tax fraud was discovered by a newspaper journalist. Stuart Washington’s article in 2010 informed ASIC that,

‘Flader and Sutherland have been named as defendants in a huge US court case about a stock lending scam that raised $US1 billion ($1.1 billion) and dudded the Internal Revenue Service of $US234 million’(1)

1. Washington, Stuart 'Three pennies in the fountain of Trio Capital losses' August 23, 2010 http://www.smh.com.au/business/three-pennies-in-the-fountain-of-trio-capital-losses-20100822-13aul.html

It is incumbent on ASIC to be aware of a quarter of billion dollar tax fraud. It is incumbent on ASIC to remember the CDPP v. Hart that led ASIC to Hong Kong to collect 100,000 documents from the Zetland office. It is incumbent that ASIC note names and addresses listed in the United States Campbell v. Cathcart trial and check them with the names and addresses it holds on its own database. The recurrence of the same names and addresses and if ASIC had carried out backgrounds checks, would find the people are linked to other significant suspensions and fines that occur around the world. Basic governance of the financial system should be good house keeping especially when the names already exist on ASIC’s register.

AFS Licence:

After September 2009 a number of concerns were raised concerning the Trio fraud and how an unqualified Shawn Richard was able to operate under an AFS Licence. Despite the attention on the AFS Licence issue, ASIC were no more cautions when they provided Jeffrey Revell-Reade with ‘three financial services licences’. 2

2. http://www.theage.com.au/business/asic-clears-duo-for-finance-licences-20100207-nkth.htmlStuart Washington 'ASIC clears duo for finance licences' February 8, 2010

At the time Revell-Reade obtained the licences he was under investigation (involving USA, Hong Kong and New Zealand) by the United Kingdom’s Serious Fraud Office (SFO) over a boiler room scan based in Spain. While the investigation was in progress the media had been advised not to carry damning pictures or stories about the alleged crime that may influence the outcome of any potential trial that may occur in the future. 3

3. Hetherington, Tony ‘Jail for £70million boiler room share fraudsters we exposed’ 9 June 2014 http://www.thisismoney.co.uk/money/experts/article-2651479/Tony-Hetherington-Jail-70m-fraudsters-exposed- Mail-Sunday.html

In 2014 Revell-Reade was jailed for eight and a half years, his scams cost British investors about 70 million pounds ($124m).(4) After Revell-Reade had been in prison for nearly twelve months (May 2015) ASIC announce that Revell-Reade’s crime demonstrates a clear lack of integrity and banned him from ever working in financial services in Australia again. ASIC say the ban protects Australian consumers. (5)

4. Ibid.
5. 15-119MR ASIC permanently bans Australian mastermind of UK fraud, 21 May 2015. http://www.asic.gov.au/about-asic/media-centre/find-a-media-release/2015-releases/15-119mr-asic-permanently-bans-australian-mastermind-of-uk-fraud/

ASIC and APRA refuse to release information that would show the processes they used in the governance of the market while the Trio fraud was active. Much of the information surrounding Australia’s largest superannuation fraud is exempt and the public are denied the opportunity to learn from the event.

The Australian Prudential and Regulatory Authority (APRA) missed opportunities where they could have discovered vital information. Such as questioning why they found the Trio directors to be a “bunch of incompetence”. APRA could have also checked the documentation it held about the people who operated Trio.

Issue 1.

APRA’s 5 Prudential Reviews. (2004 – 2009)

APRA took no enforcement action as a consequence of any of the reviews with the Trio Capital directors: April 2004; November 2005; November 2006 and December 2006; August 2008 and June 2009.’ (6) & (7)

6. Brunner, Greg APRA General Manager, Actuarial Market and Insurance Risk Services, Official Committee Hansard, Parliamentary Joint Committee On Corporations And Financial Services, Collapse of Trio Capital, 4 April 2012 Sydney, Page 9.

7. Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the collapse of Trio Capital May 2012 (PJC Report) page xx.

APRA's Ross Jones said APRA reached the conclusion in 2006 that the directors of Trio Capital were a "bunch of incompetence". When pressed as to why APRA did not inform the market of this, Jones said APRA had no obligation to inform the market or warn investors. (8) Jones also informed the PJC hearing of the Trio director's "gross incompetence". (9)

8. July 5, 2012 VOFF delegation attended a meeting APRA's office in Market St. attended by the then Superannuation Minister, Bill Shorten, APRA's Ross Jones and ASIC's Greg Medcraft.

9. Hansard, Parliamentary Joint Committee on Corporations and Financial Services, Collapse of Trio Capital. (30.8.2011) - Sydney p 38

ASIC could have discovered, The incompetence and the conflict of interest APRA found should have been investigated to find out why professional businessmen were making ongoing mistakes. The regulators overlooked the blunders and simply gave the Trio principals permission to handle superannuation monies.

Issue 2.

APRA & ASIC Poor communication. (2004 – 2009)

'It seems that APRA had not communicated to ASIC its requests for Trio to provide information. As a result, when ASIC commenced its active surveillance of hedge funds in June 2009, it was unaware that Trio was not providing the prudential regulator with basic facts about the existence of assets and their value. This information should have been communicated.' (10) By communicating APRA & ASIC would have discovered the scam much sooner.

10. Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the collapse of Trio Capital Report May 2012 page xx