Sequoia facing increasing scrutiny amid Shield and First Guardian fallout

Over the weekend, The Australian reported that investors in Keystone Asset Management’s Shield Master Fund had potentially funded New Quantum Holding’s acquisition of 80 per cent of Morrison Securities from Sequoia Financial Group.

Sequoia, which is the parent company of InterPrac Financial Planning, sold the majority of its stake in the trading platform to New Quantum in March 2023 for $40.5 million.

The deal was structured into four stages, with New Quantum paying an initial deposit of $1.5 million at signing, $9 million later that month, then two $15 million instalments at the end of May and August that year.

Beaconsfield Capital had been New Quantum’s main financial backer; however Keystone had provided a $15 million unsecured loan to the firm in mid-2023, with The Australian reporting that the injection of cash was key to keeping the deal alive ahead of the final payment date of 31 August.

The Australian Financial Review reported last year that Keystone calling in the loan sent New Quantum into receivership, with Beaconsfield being the only secured creditor.

According to the Keystone administrators’ report from November last year, the money for the loan to New Quantum came from a smaller fund under the Shield Master Fund called the Quantum PE Fund.

Keystone was also the trustee of this fund, and its only investments identified in the administrator’s report are the $15 million loan and an investment in Tickled Pink International – the parent of four café businesses owned by Rashid Alshakshir, who ran a number of marketing firms that conducted lead generation services for Shield and First Guardian.

Given the result of Keystone calling in the loan, the liquidators do not expect any return from the investment.

While InterPrac authorised both Ferras Merhi and Venture Egg, which had directed client investments into the Shield Master Fund, Sequoia told ifa in a statement that it was “not involved in the loan arrangement between Keystone and New Quantum”.

“Sequoia sold Morrisons Securities to New Quantum on standard commercial terms. How New Quantum funded the acquisition was its own responsibility, and not something Sequoia had visibility over,” the company said.

“It is important to clarify that the owner of New Quantum – who facilitated the Keystone loan – is the same entity that operated the superannuation platform which accepted member funds into the Shield Fund.

“The relevant connection to the Shield Fund lies with that platform and its trustees, not with Sequoia. Sequoia and InterPrac were not involved in the Keystone loan arrangement, product approvals or investment decisions within the New Quantum superannuation platform.”

In May, InterPrac cut ties with both Merhi and Venture Egg, with the licensee ceasing its authorisation of both parties as of 31 May.

Investors exiting Sequoia

The details of the loan funding are not the only heat facing Sequoia, with a pair of substantial holders reducing their stake in the firm.

Acorn Capital was the first to significantly reduce its holding, disclosing on 13 June that it was no longer a substantial holder following a series of trades since April.

The second was the Australian Wealth Advisors Group, which had only bought a significant chunk of Sequoia in February this year.

On 15 July, AWAG disclosed that it had reduced its ownership stake in Sequoia from 18 per cent to slightly above 15 per cent.

While AWAG did not wish to comment on its individual trading decisions, a spokesperson for the firm told ifa that there are “challenges ahead” for Sequoia.

AWAG is no stranger to investing in firms related to major collapses, having held an 8.3 per cent stake in Dixon Advisory parent company E&P Financial before it delisted from the ASX late last year.

The firm’s executive chairman, Lee Iafrate, told ifa sister publication Money Management in November 2024 that he was disappointed AWAG would not benefit from the turnaround in the firm’s position.

“E&P was emotional and had a history of failure. It was one of Australia’s worst financial scandals. It was a nightmare, and pretty horrendous how it happened. But buying the shares was a profitable exercise in the end. We got a 23 per cent return,” he said at the time.

“It was not the bonanza we hoped for as we had internal valuations of 60–65 cents per share which would have been a 40 per cent return, but 23 per cent is still a respectable achievement.”

However, the firm’s purchase of E&P shares was towards the tail end of its woes, rather than what appears to be the early stages for Sequoia, which could be on the hook for any advice failures related to the Shield and First Guardian failures for firms that it authorised.

At the time of publication, Sequoia’s shares were trading at a three-month low of $0.30.