Alvarez & Marsal’s Jason Tracy and Glen Kanevsky, the receivers and liquidators, have contested former Keystone director Paul Chiodo’s claim that he has put forward a “unit holder-first” deal that would make investors whole before Christmas – or that mediation is even occurring.
The result of the sell off would go direct to the investors, bypassing the liquidators and Macquarie, which has bought out its members’ holdings in Shield.
“The judge has urged us to mediate this matter, and the only settlement that makes sense is to make the Shield unit holders whole,” Chiodo said in the media statement.
“Shield is a unique case because even though it was wound up by ASIC in 2024, and placed into liquidation, it still has considerable assets which must be used in the best interests of the investors.
“The rules of liquidation hold that creditors are paid ahead of equity-holders, however my deal will direct the frozen $110 million and the $210 million in ETFs, to the unit holders first.”
While Macquarie has committed to remediating its members, part of that deal was taking over their unit holdings in Shield.
However, according to a statement from Tracy and Kanevsky, neither Chiodo nor Chiodo Corporation have issued a proposal to the Keystone receivers.
“There is currently no mediation scheduled in the proceeding with the builder, City Built, and Chiodo Corporation,” they added.
“Mr Chiodo proposes $110 million be released from bank accounts belonging to City Built and associated individuals. Mr Chiodo has no power to offer the release of these funds.
“The Keystone receivers have been informed by City Built that it was unaware and did not authorise the proposal or offer to release the funds.”
The liquidators also argued that there is no legal ability to exclude a specific class of unit holder.
“The alleged proposal appears to suggest funds being distributed to Equity Trustees to the exclusion of other unit holders (of which there are many),” Tracy and Kanevski said.
“The constitution and Corporations Act requires the Keystone receivers to distribute according to unit holders’ rights – this means distributing based on the units held by each unit holder. They do not have the power to do otherwise.”
The liquidators added that mediation is “likely to take place early next year”.
In a statement, Chiodo disputed this timeline, arguing that the Federal Court had ordered mediation take place “no later than 31 October”.
“We can push that out by a month – if all parties agree – but we need the liquidator to focus on returning known funds to the Shield unit holders rather than relying on litigation strategies which could leave the unit holders with nothing,” he said.
Chiodo added that the mediation process was not being run by the liquidator and therefore he was not required present proposals in advance of the mediation.
“The court ordered that we mediate. I am proposing a plan that is good for the unit holders and will see them made whole before Christmas. We consider our proposal to be a better use of Shield unit holder funds, than an extended and uncertain litigation strategy as articulated by the liquidator,” Chiodo said.
“The liquidator’s response to our plan is that there is no mediation scheduled, which is clearly incorrect. We will agree to extend the mediation deadline to 28 November, to accommodate the liquidator, however we will be focused on a deal that puts unit holders first.”
Arguing that the case against Keystone is “high-risk”, he said the funds could potentially be locked up for an extended period of time.
“Keystone has no direct relationship with City Built and therefore [the liquidator] has a very hard case to recover the claimed money, whereas Chiodo Corporation can recover these funds from City Built,” he said.
“This is a high-risk strategy and losing the case will cost the unit holders significantly, including potentially exposing the unit holders to costs orders. The liquidators are gambling with unit holders’ money in a litigation casino with a ‘hope for the best’ approach.
“The court wants this mediated and we are proposing a deal that’s good for the Shield unit holders.”
However, the liquidators remain confident in their ability to recover funds for investors, including an initial $100 million distribution that is expected to be presented to the court in the next two weeks.
“The Keystone receivers intend to make an interim distribution to unit holders as soon as possible. The total distribution to be made is expected to exceed $100 million. Federal Court approval is required before the distribution can be made. The Keystone receivers anticipate filing the court application within two weeks and will seek a hearing date as soon as reasonably possible,” Tracy and Kanevsky said.
“Preliminary work was required before the application could be made, including considering proofs of debt lodged by creditors. Notably, Chiodo Corporation has lodged a proof of debt claiming it is owed about $9 million.”
They added that, given the proposal would end the liquidation process, it would also bring to an end a number of enforcement activities that could lead to a better return to the investors.
“The full value of the claim against City Built and Chiodo Corporation is at least $158 million. The Keystone receivers would therefore be foregoing at least $48 million of their claim under Chiodo’s proposal,” the liquidators said.
“Mr Chiodo does not appear to be contributing any funds of his own. The Keystone receivers have identified assets belonging to Mr Chiodo, his wife and related entities, that may be recoverable.
“As such, even if the proposal were to be made, the Keystone receivers do not consider the proposal is in the best interests of unit holders as it could lead to a worse return than their current estimates.
“In any event, it is not capable of being accepted because the Keystone receivers must distribute proceeds based on the units held by each unit holder, among other reasons.”
What exactly is the point of licensee’s when their liabilities are just passed back to adviser to pay in the form of the CSLR? Get rid of them!
Chiodo is a grub. Plain and simple.
Nonsensical to think that this bottom feeder should have control over the process.
Throw the book at him.
The games continue…in what is meant to be a tightly regulated industry, widespread failures by regulators, auditors, trustees, and licensees have again eroded public trust. Early warning signs were largely ignored, oversight was superficial, and directors benefited from undisclosed conflicts while advisers were left to shoulder the blame.
The advisers who recommended Shield and First Guardian did so in strict accordance with their employers’ approved business processes, including investment committee frameworks and model portfolios designed to ensure compliance and manage professional indemnity risk. Many of these advisers raised concerns about the business processes and structures but were repeatedly assured that all processes had been reviewed and approved by legal, compliance, and independent external parties.
Despite acting in good faith and within the mandated framework, these advisers now face unwarranted reputational and professional consequences. The so-called “armchair experts” continue to criticise without ever having read the relevant TMDs or PDSs, passing judgement from a position of ignorance while failing to understand the operational and compliance constraints salaried advisers face.
As is too often the case in this industry, the misleading and deceptive conduct originated from those at the top—individuals who designed, approved, and profited from these arrangements—while the advisers who followed approved procedures have been unjustly left to bear the consequences.
A dark and manipulative game of chess, blame and avoidance of responsibility is occurring amongst just about every party involved with this absolute debacle.
The s*#t has hit the fan, but nobody wants to stand in the wind.
The liquidators may be doing battle over fees that they may miss out on if the cash bypasses them. Are they acting in the interests of investors or are they simply another wolf at te feeding trough?
Please. There is a process. Nobody works for free. It’s not the same as stealing.