Late on Friday, ASIC escalated its enforcement action against former Venture Egg boss Ferras Merhi, alleging he ran an “unconscionable” advice model that channelled investors into high-risk funds while raking in millions.
It’s the kind of action regulators like to trumpet. But for anyone watching the saga of Shield and First Guardian, the more pressing question is: why did it take so long?
Emails and reports obtained and publicised by 7’s Spotlight on Sunday show that warnings went to ASIC years before the regulator took meaningful action.
Paul Chiodo, a director of Shield’s responsible entity, flagged suspicious activity inside First Guardian as early as March 2022, while Financial Advice Association Australia says it facilitated reports to ASIC in 2023 after advisers saw cookie cutter advice steering clients towards these funds.
And yet, nothing significant happened for months.
Senator Andrew Bragg, long a critic of ASIC, didn’t mince words on Spotlight, saying: “They were warned back in October 2023 from a very reputable financial services company that there was massive malfeasance here. They took almost a year to announce a proper full investigation.”
Meanwhile, clients were allegedly funnelling hundreds of millions into First Guardian and Shield – $296 million and $230 million, respectively – based on advice that ASIC now says was conflicted, defective, and unconscionable.
ASIC’s defence: It’s complicated
Deputy chair Sarah Court told Spotlight that the matters are among the most complex ASIC has ever investigated.
She explained that as far as she is aware, when concerns were first raised, they were framed around cold-calling practices.
“It was very much coming to us in that context that these were cold callers, potentially unlicensed, and that there might be financial advising issues here,” she said. “The issues were about advisers giving perfunctory or cookie cutter advice … First Guardian may have been one of those funds.”
Court also cast doubt on Paul Chiodo’s credibility, saying: “I would be a little wary about allegations by Mr Chiodo, who was at the very heart, in our view, of a big portion of this misconduct.”
But Chiodo was not the only one to raise red flags.
Despite this, it was only after First Guardian announced a “restructure” last year that ASIC launched a formal investigation, at which point the scale of the misconduct began to emerge.
“These matters … you pull a piece of string, and there is more and more misconduct, more and more entities, more and more individuals involved,” she said.
Asked if ASIC’s response was “too little, too late”, a spokesperson insisted the regulator had to thoroughly investigate before taking action.
“ASIC has undertaken extensive work on these matters and has acted on the available information,” the spokesperson said.
“This is work is complex, and we need to carefully investigate the operation of managed investment schemes before we decide what action to take in a way that does not precipitate investor losses.”
That explanation will ring hollow for anyone who sees early warnings ignored. Complexity might slow investigations, but it doesn’t absolve the regulator of delay – especially when hundreds of millions of dollars are at stake.
ASIC may be moving now, but the delay leaves a stain. Investors want answers not just about Merhi, but about the regulator itself: why did warnings potentially sit on a desk for years while clients’ superannuation was at risk?
Court acknowledges the tension. “These are fair questions for investors to ask,” she said on Spotlight. But until ASIC explains how it filters warnings, acts on tips, and prioritises cases, the question won’t go away.
As the courts prepare to hear expanded proceedings against Merhi, one thing is clear: this isn’t just a story about bad advice. It’s a story about a regulator under pressure, and about millions of Australians wondering whether the corporate cop was asleep at the wheel.
Was Liquidation of First Guardian Master Fund and Sheild Master the right decision?
Did ASIC do the right thing to protect the Superannuation Trust Funds, which under the corporation’s act 2001 are second to last for pay out in a liquidation.
They would have known that they would greatly disadvantage all the Superannuation Trust fund holders.
Will our hard earnt Super, be paid to financial institutions and creditors
ASIC has given away super funds to ???
And FTI consulting will not answer.
What I’m hearing is: expect similar scams to happen over and over again
Asic should have to pay for the losses from their budget not the advisers that had nothing to do with it.
ASIC will target innocent financial advisers and completely avoid these types of matters to make themselves look good and divert attention. They can’t even thoroughly/properly investigate the financial planner they crucified for alleged insurance churning. The financial planner had to do own investigation for the truth to be revealed and represent alone at the AAT for 2days to show manipulated and incomplete evidence, which later on revealed “monitor and re-training was a better option considering the truth revealed”. ASIC Report 2024, needs to be implemented.
Hold up a minute! Paul Chiodo wasn’t even under investigation back in March 2022, so maybe — just maybe — his evidence should’ve been treated as credible and worth digging into. Crazy idea, right?
From the Spotlight episode, his tip-off wasn’t exactly cryptic: “These activities show a strong intent of this illegal activity, and this activity is now systematic with the makeup of Falcon/FGC. This is the same fund and players that I made the original complaint to report these activities including stating that Falcon/FGC is the key enabler and beneficiary of these illegal strategies”.
Meanwhile, ASIC Chair Joe Longo reminds us all how simple it is to launch a managed investment scheme:
‘The bar is so low to register one, it basically serves no barrier to entry at all.’
Translation: alpacas, meme coins, or magic beans — as long as the paperwork looks pretty, ASIC has to say yes.
And who pays the price when it all unravels? Thousands of financial advisers — armed with nothing more than compliance manuals and a prayer — while ASIC, auditors, trustees, research houses, and licensee investment and compliance committees enjoy the luxury of pointing fingers.
Because when the proverbial hits the fan, the blame always lands on the softest target. And in the corporate chorus of denial, the big end of town belts out their favourite track — just like Shaggy: ‘It wasn’t me!’
For how many years did the super trustees observe abnormal inflows into these investment options? Is this type of data collected by ASIC too? Why wasnt this flagged to ASIC, and why wasnt ASIC acting on their tip-offs? Many questions can be raised about the performance of all those involved yet one who has lacked any accountability is ASIC. Who is reviewing the performance of ASIC in this debacle?
Simple answer, ASIC is lazy and incompetent. They go after easy targets, advisers who don’t have the resources to engage lawyers to fight them. ASIC is more interested in publishing press releases announcing a banning of an adviser than taking time to chase the parties more likely to causes significant consumer harm, normally product providers like Shield / Guardian. Despite 1.2 billion in losses ASIC is focused on an adviser. Yes Mr Merhi should be investigated but there seems to be no urgency to find where all the money is gone, and it’s clear to everyone it is sitting in someone else’s bank account, not just Mr Mehri’s.
I suggest that all affected investors in both Shield and First Guardian consider a class action against the regulator for failing to act in a timely and effective manner, thereby greatly exacerbating the resulting losses to those investors.
I’m certain the litigation funders are already assessing the financial potential and return on investment of a full blown legal challenge against ASIC’s inability to protect those investors when relevant information was provided in advance.
Just because ASIC’s processes are slow, laborious and bogged down in procedural anchors doesn’t excuse or absolve the regulator from their responsibilities.
They were too slow and as a result, thousands of innocent investors have suffered immeasurable financial harm.
And then there are the Licensees, the advice providers, the individuals in control of the funds which all have played a significant role in this monumental failure.
ASIC should be dismantled and re-done completely. Too many issues and they have no idea what is going on. They are based on receiving bonuses on shutting the small licencees and financial planners, and not for the right reasons. Instead, this is what they need to investigate, and forget about the small and tiny issues that do not affect clients – provide education for that instead. In my view, if every planner donates $1k to a fund and allows a lawyer to do a class action against ASIC, more will come out, and the CSLR would not occur. It will end up being an ASIC issue and not one that a financial planner has to front up.
We can’t expect ASIC to have oversight on every questionable transaction, but when they’re warned and still do nothing until it’s too late, questions need to be answered. Meanwhile, as always, advisers who had nothing to do with this farce will be asked to foot the bill for compensation. Talk about a broken model!