In an ASX listing on Monday, Netwealth Group revealed that Netwealth Superannuation Services (NSS) has submitted an application to Financial Services Minister Daniel Mulino seeking financial assistance under Part 23 of the Superannuation Industry (Supervision) Act.
According to the statement, a total of 1,088 Netwealth members have a combined exposure to the First Guardian collapse of $101 million.
“Any financial assistance granted will be applied to restore the fund and to compensate impacted members,” Netwealth said.
“The application seeks to restore members to their position prior to the fraud occurring.”
According to Netwealth, the $101 million exposure reflects “total member investments less redemptions” that were made before First Guardian responsible entity Falcon Capital suspended redemptions on 28 May 2024.
“Falcon recorded the investment value at approximately $128 million as at that date; however, Netwealth considers the performance returns and valuations unreliable,” it said.
Last month, Macquarie Investment Management Limited (MIML) committed to paying $321 million to cover the losses of thousands of Australians that invested in Shield through its platform.
ASIC commenced proceedings in the Federal Court against MIML following admissions that it did not act “efficiently, honestly and fairly by failing to place Shield on a watchlist for heightened monitoring”.
The regulator also accepted a court-enforceable undertaking from Macquarie to ensure it pays members 100 per cent of the amounts they invested in Shield less any amounts withdrawn.
As superannuation trustee, MIML oversaw approximately $321 million in super investments into Shield by around 3,000 of its members between 2022 and 2023.
Macquarie has admitted the allegations in the proceeding, with the regulator noting it is a “matter for the court to determine whether the declarations are appropriate”.
Unlike Macquarie, Netwealth doesn’t have an $85 billion market cap to absorb the hit, leading it to seek the government’s help.
The minister can approve a Part 23 application if a number of criteria are met:
- The fund suffered loss from fraudulent conduct or theft.
- The loss substantially reduced the fund, causing difficulties paying benefits.
- Approval is in the public interest.
Netwealth said it believes the First Guardian failure meets this criteria as “Falcon Capital Limited engaged in fraudulent conduct resulting in losses to the Netwealth Superannuation Master Fund”.
“Netwealth believes fraudulent conduct by other entities and individuals has also contributed to these losses,” it said.
“While acknowledging that work by liquidators and ASIC is ongoing, Netwealth believes sufficient evidence exists to establish that losses arose from fraud and that Part 23 requirements have been met.”
Netwealth added that, due to the considerable complexity surrounding the collapse, any ministerial consideration may “take some time”.
“It is premature to provide assurances regarding timing or outcomes. Any financial assistance granted may only partially compensate members for losses incurred,” Netwealth said.
While it is seeking government support, the firm told the ASX it “has the resources to honour any resulting legal or monetary obligations” should ASIC make a claim against it.
Netwealth maintained that it complied with all relevant laws in making First Guardian available on its platform
“We are continuing to work co-operatively with all relevant stakeholders including the government, the regulators and the liquidators to pursue the best possible financial outcomes for Netwealth members, whilst also supporting members’ wellbeing as the relevant legal and regulatory processes take their course,” it added.
I looked at First Guardian and told the client “Yikes” and to move. By the time I got to put that in writing it was closed. Not sure how a trustee could let that rubbish onto their platform, if myself a solo backyard adviser can look at it and say it’s rubbish. But then again I don’t drive a Porsche I guess. Maybe the investors could look down the back of Matt Heine’s couch for some loose change and recover there millions that way?
The platforms received SQM Research reports that rated the fund as favourable and was 3.75/5.
I wonder what the government will do about SQM Research now
The government should be paying something towards this considering the dismal lack of action by ASIC when this was first reported to them.
What??????
The taxpayer is left to fund the investors who lost hundreds of millions of dollars based on a lack of oversight, forensic research or appropriate level of in depth assessment ?????
This is NOT a taxpayer issue.
This is a Trustee and investment platform issue.
Netwealth seem to be creating another level of CSLR based around the Govt and therefore the taxpayer being interested parties in compensating investors due to fraudulent behaviour.
Maybe the Directors of Netwealth need to consider whether a contribution toward compensating the investors would be appropriate rather than calling on taxpayers to bail them out.
The level of finger pointing and obfuscation of responsibility in relation to this whole process is unfathomable.
The government has already done something similar when Trio collapsed though in 2011. Because Trio was fraud within an APRA regulated super fund. So it wouldn’t actually be the first use of the rule.
ASIC and APRA’s performance during the trio scandal was also similarly abysmal and somethings haven’t changed. They’re still asleep at the wheel. It is crazy how many warnings ASIC got about First Guardian whilst simultaneously receiving audit reports for the fund from a deregistered audit firm. If I were ASIC and got a warning, I’d probably start by looking at the audit report already uploaded to the internal ASIC system.
But seriously there was warnings about Falcon Capital more than 5 years ago and when David Anderson applied for a financial services license he lied about having university qualifications and ASIC waved him on through with zero verification.
ASIC themselves admit to numerous prior inquiries to the fund and marketing engine and they did nothing.
It is sadly trio capital all over again.
Must be nice to stand on a high horse?
I agree it may look good but under SIS the trustee has to act in the members best interest.
If Netweath did not pursue a LEGAL and VALID claim for loss via the appropriate channel, surely they are failing in their obligations under SIS?
Also it is an application – the compensation fund will determine if the claim is successful.
I do NOT work for NetWealth but find it hard to stomachache when a quick comment is made without a foundation in understanding the obligations of a trustee.
No is the simple answer. First Guardian did not appear on the Netwealth platform by magic. Whilst the end result is the result of fraud, there were plenty of warning signs and the potential lack of the liquidity in the investment should have been a big enough red flag. Poor due diligence by the trustee.
100% agree..Why is it that tax payers are expected to bear the cost of poor administration by the trustees?
Tax payers or financial advisers to foot the bill?
Why is it that innocent advisers are expected (via CSLR) to bear the cost of:
– poor administration by trustees?
– incompetence by research houses?
– conflict and incompetence by licensees?
– incompetence and wilful neglect by ASIC?