Spotlight turns to Shield and First Guardian auditors amid $1bn collapse

The Australian Securities and Investments Commission (ASIC) has pushed a consistent message that it is looking at the entire chain when investigating the potential failures that led to the collapse of both the Shield Master Fund and the First Guardian Master Fund.

With the funds representing around $1 billion in combined investor assets that are at risk, ASIC has put the lead generators, financial advisers, superannuation platforms, and research houses on notice.

Just last week, ASIC chair Joe Longo echoed the regulator’s recent messaging on these firm failures, stressing that while bad financial advice is “obviously a key part of this problem”, it’s far from the only one.

“There are a whole range of other entities that are involved in this process that we’re looking at – for example, the lead generators, the research houses, the superannuation trustees, and the managed investment schemes,” Longo said at an FSC event in Sydney.

“Because of the number of entities involved, it can be difficult even for experienced investors to spot the problems here and what’s really going on.”

He added: “When we look at these examples, we see that the various players across different sectors each represent just one aspect of the problem – a problem in my view that needs a holistic response from industry, regulators and from government.”

However, one sector that has so far avoided scrutiny is the auditors that signed off on Shield and First Guardian’s reports and compliance.

Keystone Asset Management, the responsible entity for Shield, has come under fire relating to allegations of related party loans to other entities that its directors controlled, however global accounting and audit firm BDO didn’t raise any issues with its compliance until 28 June 2024.

In its first compliance plan audit report, seen by ifa, covering the year to 30 June 2021, which it delivered on 27 October that year, BDO found Keystone had complied with its plan, though it had only registered Shield in May 2021.

Another report for the following financial year, which featured identical wording outside the dates, likewise found no concerns.

The 2023 financial year Shield compliance plan audit, however, raised myriad concerns over the directors’ actions, including a failure to provide BDO with “access to information that we require to form our opinion”.

This included the company’s books and records, as well as information on “related party transactions/balances, legal advice and corporate documentation”.

“The Responsible Entity have not met the requirements of their compliance plan in numerous instances during the year ended 30 June 2023, including, the financial reporting and lodgement obligations of itself as Responsible Entity or the Scheme it manages for the year ended 30 June 2023 (and half years ended 31 December 2022 and 2023 for the Scheme),” the report said.

BDO added that the directors had not been able to demonstrate they met disclosure requirements for product disclosure statements “as they relate to investment management and related parties disclosure, unit pricing errors, delays in the reporting of a breach and the remediation of a duplicate payment”.

It also lays out that the measures within the compliance plan are not adequate, though there is no mention of whether the plan had changed from that of prior years when BDO found it appropriate.

While this report was for the year ended 30 June 2023, BDO complete the report until 28 June 2024 – months after ASIC had issued interim stop orders, 10 days after the Federal Court froze Keystone's assets, and two days after it had appointed Deloitte to report on Keystone's financial position.

ifa approached BDO for comment, however the firm said it is unable to comment on client matters.

First Guardian was not without its own audit concerns, with Audit Services Plus listed as the auditor for the scheme as of 25 May 2020, however the firm was voluntarily deregistered on 13 June 2022.

Despite this, ASIC records appear to show that it may have lodged audit reports for First Guardian as recently as October 2024.

While the regulator was not able to confirm whether the deregistered firm had continued filing reports related to First Guardian, a spokesperson for ASIC said:

“The investigations in relation to First Guardian are complex and ongoing. They encompass numerous lines of inquiry into the conduct of a large number of entities and individuals which range from lead generators, platform providers, funds and individuals involved in those funds through to auditors.”