ASIC takes Keystone directors to court over $530m Shield collapse

ASIC has commenced legal action against Paul Chiodo, Ilya Frolov, Mark Yorston and Jeremy Danon, the former directors and compliance committee members of Keystone Asset Management.  

Keystone managed more than $530 million in retirement savings via the Shield Master Fund. ASIC has alleged that around $305 million of that amount was diverted to the Advantage Diversified Property Fund (ADPF), for which Keystone was the trustee, before being transferred as “loans” to various entities and individuals associated with Chiodo and Frolov.  

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While Keystone presented some of these loans as being for the benefit of property development projects – presumably ones in which ADPF was invested – ASIC said there were also “substantial funds” transferred to unrelated parties.  

Per ASIC’s statement of claim, Chiodo, Frolov and Yorston breached their directorial duties as well as their duties as officers of Keystone, Shield’s responsible manager. Frolov, along with Danon, also breached their duties as members of Shield’s compliance committee.  

Further, ASIC said that Keystone’s directors contravened section 209 of the Corporations Act via their involvement in Keystone’s breaches of section 208 of the Act (which concerns transactions without member approval).  

“ASIC’s primary case on unauthorised related party transactions … is that the funds received by Chiodo Corporation, which came from the scheme property of [Shield], involved the giving of financial benefits to a related party,” ASIC said. 

The statement of claim continued: “Keystone failed to obtain the prior approval of [Shield members] and in the circumstances, contravened s 208 of the Corporations Act … ASIC further alleges that Chiodo, Frolov and Yorston knew of the circumstances of the payments out of scheme property, were involved in Keystone’s contraventions and therefore contravened s 209(2) of the Corporations Act.” 

ASIC is seeking pecuniary penalties from all four defendants and disqualification orders for Chiodo, Frolov and Yorston (for a period deemed appropriate by the court). The regulator is also pursuing costs.  

Commenting on the proceedings, ASIC chair Sarah Court said: “Investors in managed investment schemes are entitled to expect that their investments will be carefully managed on their behalf but, in this case, ASIC alleges investors were exposed to conflicted arrangements and poor oversight.” 

She continued: “We allege hundreds of millions of dollars of superannuation was transferred to related entities without basic safeguards, exposing thousands of Australians to significant financial risk. 

“These proceedings are about holding those we allege to be involved to account and sending a clear message that directors operating schemes of this kind must act in investors’ best interests.”