Venture Egg fallout deepens as InterPrac cuts ties amid intricate licensee crossovers

Since the Australian Securities and Investments Commission (ASIC) halted new investment in Shield Master Fund – a registered managed fund promoted by Keystone Asset Management – and made interim stop orders on four product disclosure statements in February 2024, scrutiny has largely focused on Keystone Asset Management director Paul Chiodo.

The stories practically write themselves when the corporate regulator makes allegations that investor funds paid for lavish expenses like a penthouse in Chiodo’s wife’s name and an event with boxer Floyd Mayweather.

But while the media focused on Chiodo’s seemingly expensive lifestyle, ASIC shifted its focus to advice firms responsible for placing clients into his doomed fund.

This eventually led to a Federal Court order, freezing certain assets belonging to Ferras Merhi who controls Venture Egg Financial Services - both authorised representatives of InterPrac Financial Planning. Interestingly, he also controls Financial Services Group Australia, which is an AFSL holder.

However, Merhi is no longer under the Interprac banner, with the Financial Adviser Register now showing he ceased on 31 May.

Similarly, Ferras Merhi Pty Ltd & United Financial Advice Pty Ltd, which trades as Venture Egg, also ceased to be a corporate authorised representative of InterPrac on the same day.

In April, managing director of InterPrac’s parent company Sequoia, Garry Crole, told ifa that the firm is working with ASIC as it investigates Merhi and Venture Egg.

In an ASX release at the time, Sequoia acknowledged that “ASIC has commenced an investigation into suspected contraventions of the Corporations Act & ASIC Act 2001 by Interprac and/or its representatives”.

The ASX listing also confirmed that InterPrac was assisting the regulator to ensure that the “interim freezing orders have not been, and are not, breached by Mr Merhi and/or other of his associated entities”.

Moreover, it said it was reviewing the “obligations of the rating authorities with respect of the funds”, and its obligations related to the “advice provided compared to the performance of, and conduct engaged by, the funds”.

Sequoia added at the time that it would consider the obligations of trustees, auditors and custodians of the funds, the obligations of platform providers through which the investments into the funds were made, and review its operations and systems.

While Crole told ifa that he could not “provide any additional information at this point in time”, he noted that the Shield and First Guardian situation was “an extremely complex matter”.

According to Merhi’s previous media comments, Venture Egg has about 5,000 clients with $250 million in Shield, and 3,600 clients with $192 million invested in First Guardian, putting the total exposure for clients to over $440 million.

Evidently, the result of this investigation has been the ending of InterPrac’s relationship with Merhi.

The confluence of transactions

While the situation surrounding Merhi, Venture Egg, and Shield is particularly complex – as noted by both Crole and ASIC chair Joe Longo – the network of licensee 'substantial holders' is also growing increasingly tangled.

While not directly tied to the potential Venture Egg mess, over the span of just two days in late May there was a spate of transactions announced on the ASX connecting Sequoia and Centrepoint Alliance.

First, COG Financial Services got out of the Centrepoint business, offloading its roughly 20 per cent stake in the firm on 21 May, having originally nabbed this holding from ClearView in November 2023.

That news hit the ASX at 4:49pm and was followed at 9:09am the next morning by the announcement that Australian Wealth Advisors Group (AWAG) had taken a 15 per cent ownership in Centrepoint.

This is where things get convoluted - AWAG currently holds an 18 per cent stake in Sequoia following a February transaction.

At the time of that transaction, Sequoia held 6 per cent of Centrepoint through its wholly-owned subsidiary Sage Capital Group.

However, on the afternoon of 23 May, Sage announced to the ASX that it had increased its holding in Centrepoint to 16.5 per cent.

A few minutes later, Thorney Investment Group disclosed it had shed around 5 per cent of its holding, though it still retains almost 22 per cent of Centrepoint’s shares.

Despite the staggered disclosures, the ASX documents show all of these transactions took place on 21 May.

ifa does not in any way suggest that Centrepoint or AWAG played a role in Venture Egg, it simply wants to show how, what is considered a fragmented space, is actually closely intertwined.

AWAG in particular has been on a consolidation spree over the past 12 months under partnerships it refers to as equity partnership scheme (EPS) investments, with the firm earlier stating it is targeting six to eight by June 2025.

Whether this ongoing consolidation will lead to contagion risk - reputational damage naturally passed on by association - or regulatory complexity and therefore increased attention from the corporate regulator, is unknown.

But it’s worth remembering that just this year, ASIC commissioner Alan Kirkland said at an event that the interconnected nature of business models makes for a complex financial system, one in which consumer protection and financial advice become a “complex challenge”.