ASIC turns up heat on Venture Egg boss over $1.2bn fund collapse amid claims regulator was alerted earlier

Late on Friday afternoon, the Australian Securities and Investments Commission (ASIC) announced it had stepped up its enforcement efforts in relation to former Venture Egg boss Ferras Merhi.

The corporate regulator has been looking at Merhi for some time, taking its first action in February this year when it sought interim freezing orders over his property, which the Federal Court granted and subsequently extended until 12 December 2025.

ASIC then cancelled the Australian Financial Services Licence of Financial Services Group Australia (FSGA), which he also controlled, while also permanently banning its “on paper” responsible manager, Graham Holmes, before securing travel restraint orders against Merhi in July.

This regulator’s move on Friday included seeking approval from the Federal Court to “expand its existing proceeding” against the currently unlicensed Merhi to further allege that he “engaged in unconscionable conduct, failed to act in the best interests of clients, gave conflicted advice, and provided defective statements of advice whilst receiving millions of dollars”.

At the heart of the latest action is the former adviser’s role in the $1.2 billion collapse of the Shield and First Guardian master funds, including using marketing companies to push a stream of clients to both Venture Egg and a number of firms licensed through FSGA.

“Between 2020 and 2024, Mr Merhi and advisers working for him allegedly advised clients to invest around $296 million of their superannuation into the First Guardian Master Fund (First Guardian) and around $230 million into the Shield Master Fund (Shield),” ASIC said in its statement.

According to the regulator, this action netted Merhi almost $18 million in upfront advice fees and more than $19 million from “entities associated with First Guardian for marketing First Guardian to clients”.

“This type of conduct doesn’t just undermine the integrity of the financial advice and superannuation industries, it can have a devastating impact on people’s lives,” ASIC deputy chair Sarah Court said.

Appearing on Channel 7’s Spotlight on Sunday night, Merhi said his “truth” is that he too was misled by David Anderson and Simon Selima.

“I think that my version will help lead people to what’s actually happened and what’s gone wrong,” he said.

According to Merhi, he never actually received any of the $19 million paid to his marketing firm, claiming that “most of that money is with Google and Facebook”.

“I didn’t pocket this money. It’s not in my pocket. It’s money that was spent on these ads that were being put onto these platforms. They have most of that money, not me,” he said.

Under his version, he too is a victim and was misled into believing that Shield and First Guardian were sound investments and, as a result, is “losing everything” like his clients.

“At the time that I gave their recommendation, there was nothing to suggest that there was anything that the clients were getting anything but benefit, and that their retirement savings were going up. That’s what my intention was,” Merhi said.

He added: “I have a robust checking system that I’ve been using for the last 17 years and … relying on these auditors and research houses and billion-dollar platforms that have been around longer than I’ve been alive. If I’ve been misled then, then everybody’s been misled … I’m not the only person to blame here.”

The claims are reminiscent of those made by the head of Merhi’s former licensee, Sequoia’s chief executive Garry Crole, on a financial results webinar last week where he said “if you read the SQM Research and you look at the quality of auditor, in particular Shield having BDO, the high-quality platforms that approved those products, there was no reason for us to doubt that Shield and First Guardian were what they claimed to be”.

The question for Merhi is whether the courts will buy his explanations, because it’s clear that ASIC isn’t.

Calling the Venture Egg business model “unconscionable”, the raft of contraventions that the regulator is alleging include statements of advice containing false or misleading statements about the nature of the Shield Master Fund that implied it was “operated by Macquarie”.

“ASIC will also seek to allege Mr Merhi falsely represented that he had no vested interest in the recommended funds when, in reality, he was involved in marketing both schemes and received tens of millions of dollars for marketing First Guardian,” it said.

“Clients allegedly were led to believe they were receiving independent, tailored advice. Instead, they were allegedly channelled into pre-determined investment portfolios that were highly risky and served the financial interests of Mr Merhi and his businesses.”

What has ASIC been doing?

Recent months have seen the regulator take expanding action on a number of fronts, from banning advisers to suing a super fund trustee, but the question that keeps jumping out is: why has it taken so long?

Long-time ASIC critic and Liberal senator Andrew Bragg appeared on Spotlight, railing against the seeming lack of urgency from the regulator.

“They were warned back in October 2023 from a very reputable financial services company that there was massive malfeasance here,” Senator Bragg said.

“They took almost a year to announce a proper full investigation. There are large businesses that have made complaints and warnings about First Guardian and ASIC ignored them.”

The Financial Advice Association Australia had “facilitated reports” to ASIC as early as 2023, according to CEO Sarah Abood, after its members had seen some of the advice being provided.

Spotlight also presented several emails to ASIC’s deputy chair – one showing that Paul Chiodo, one of the directors of Shield responsible entity Keystone Asset Management, had alerted the regulator to suspicious activities inside First Guardian in March 2022.

First Guardian’s RE, Falcon Capital, was the trustee of the Chiodo Diversified Property Development Fund until June 2021, and a $94 million investment in the frozen fund is still on First Guardian’s books despite attempting to sell it off in March last year.

“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,” Court said in response, noting that she had not previously seen the email in question.

It’s sometimes a little too convenient to lay the blame on ASIC’s shoulders, however, it is ultimately the body entrusted with enforcing the laws that govern financial services in Australia.

If ASIC expects to hold other players in the system to account, particularly when they pay for the privilege of being regulated, then it’s fair to wonder how it took so long before investigations began in earnest.

Court herself admitted that how misconduct of this scale got past the corporate cop are “fair questions for investors to ask”, though she pointed to the extreme complexity involved in the conduct as slowing down progress.

“These matters that we are investigating are amongst the most complex and most resource-intensive matters we have ever undertaken, and it’s been a little bit like, you know, you pull a piece of string, and there is more and more misconduct, more and more entities, more and more individuals involved,” she said.

The deputy chair certainly isn’t wrong, though some may view the explanation as more akin to an excuse.

Court added that ASIC’s “North Star” is to recover as much investor funds as possible.

Hopefully the regulator can follow through on that goal.