In a letter to unitholders of the Shield Master Fund, Jason Tracy of Alvarez & Marsal said that he and fellow liquidator Glen Kanevsky have applied to the Federal Court for a direction that “we are justified in causing the SMF to make, and that the SMF is justified in making, the interim distribution under the Interim Distribution Proposal”.
A case management hearing to consider the application is set for 11 December, and could see the liquidators approved to sell off 75 per cent of the Bell Potter Securities holdings liquidated and funds returned to unitholders.
The equities are valued at around $181 million, which means investors could see as much as $136 million returned to them in the short term while further liquidation is underway.
“The Interim Distribution Proposal involves the sale of a significant proportion of the listed equities owned by Keystone as responsible entity of the SMF, being securities held through a custodian in an account with Bell Potter Securities Limited (the Bell Potter Securities),” Tracy wrote.
“The five (5) investment classes of the SMF hold differing proportions of Bell Potter Securities relative to each investment class’s total assets. The Interim Distribution Proposal will, therefore, involve unitholders in some classes receiving more than unitholders in other classes.”
However, the Advantage Diversified Property Class (ADPC) does not hold any Bell Potter Securities, meaning that any unitholders in the ADPC will not receive any distributions from the sale of these equities.
“We consider that the structure of the investment classes within the SMF, and the legal arrangements governing the rights of unitholders in each class, do not permit any alternative to this outcome,” the liquidator said.
“We are working to recover other property for distribution to unitholders in the ADPC, but the timing of a future distribution to the ADPC class (if any) is unknown.”
The proposal also seeks to avoid paying a dividend to any Keystone creditors as part of the liquidation.
“We propose to set aside sufficient assets to pay the claims of non-investor creditors of Keystone who have lodged proofs of debt that we have accepted in our capacity as liquidators of Keystone,” Tracy added.
“Our position in relation to any unitholders or indirect investors who may assert a claim against SMF assets as creditors is outlined below.”
According to the liquidators, the distributions could impact the ability for investors in Shield to receive compensation through other methods, such as taking action against Keystone directly.
“A consequence of the Receivers proceeding in this way is that, if some investors later assert compensation claims against Keystone, the making of an interim distribution under the Interim Distribution Proposal could conceivably mean that there are not sufficient remaining assets to pay those compensations claims,” the liquidator said.
“However, the Receivers’ view is that it is in the best interests of investors to pursue the Interim Distribution Proposal despite the above potential tension in investors’ interests because: the Interim Distribution Proposal will result in eligible investors receiving funds from the SMF as soon as possible; compensation claims made by investors are more time-consuming and complex and, for technical legal reasons, the property of the SMF (including the Bell Potter Securities) may not be available to pay those claims in any event.”
Any claims against other parties, such as the financial advisers involved in directing investments into Shield, would likely only be impacted in terms of the amount of compensation they can be awarded.
The filing follows a stoush between the liquidators and former Keystone director Paul Chiodo, who sought the release of $110 million of frozen funds in City Built accounts and the sale of exchange-traded funds (ETF) potentially worth $210 million in October.
The result of the sell off would go direct to the investors, bypassing the liquidators and Macquarie, which has bought out its members’ holdings in Shield.
“The judge has urged us to mediate this matter, and the only settlement that makes sense is to make the Shield unit holders whole,” Chiodo said in the media statement.
“Shield is a unique case because even though it was wound up by ASIC in 2024, and placed into liquidation, it still has considerable assets which must be used in the best interests of the investors.
“The rules of liquidation hold that creditors are paid ahead of equity-holders, however my deal will direct the frozen $110 million and the $210 million in ETFs, to the unit holders first.”
However, Tracy and Kanevsky contested Chiodo’s claim that he has put forward a “unit holder-first” deal that would make investors whole before Christmas – or that mediation was even occurring.
“There is currently no mediation scheduled in the proceeding with the builder, City Built, and Chiodo Corporation,” they said at the time.
“Mr Chiodo proposes $110 million be released from bank accounts belonging to City Built and associated individuals. Mr Chiodo has no power to offer the release of these funds.
“The Keystone receivers have been informed by City Built that it was unaware and did not authorise the proposal or offer to release the funds.”
This is one of many ways in which the affected consumers will be progressively reimbursed much, if not all, of their frozen superannuation.
While this situation never should have happened, it was always a blatant and deliberate lie to suggest “thousands of people had lost all their super”.
That is definitrly the case with first guardian.
It’s hard to see how this is fair for investors in the Shield Master High Growth class, who are now facing a significantly lower estimated recovery than the Growth, Balanced, and Conservative classes — with no clear explanation from the liquidators despite repeated requests. If the Bell Potter equities were allocated unevenly across classes, investors deserve transparent, itemised reasoning for the disparity.
And let’s not forget the root cause: SQM Research’s reports misrepresented the composition of the Shield Master Fund from day one. Their favourable rating and incorrect asset-allocation reporting gave the whole structure legitimacy and directly shaped investor expectations. That misinformation has flowed all the way through to outcomes like this.
Transparency is the minimum investors should get at this stage.
SQM the root cause? Sure, SQM contributed to the problem. As did ASIC, Interprac, and the various platforms, trustees, and REs. But they were all failures to do their job properly. Not deliberate illegality.
The root cause was deliberate illegality by a few dodgy fund managers and advisers, who conspired to rip people off.
Gee whiz SQM the root cause? Its the dodgy fund managers, advisers and Interprac who are to blame
What utter rubbish. The ratings were not for investors at all. The ratings, which were not high, were only for advisers who knew what they were doing and sadly, the only advisers who got into this were the crooked ones being paid under the table. The misrepresenting that’s going on here is you hiding behind a rating. Let me tell you something – people like you maybe on notice..I know SQM are looking forward to their day in court with ASIC and I hope SQM are keeping a record of your trash talk.
There is no credible evidence showing that advisers, at scale, were taking money “under the table.”
If anything, it would be far easier for a product manufacturer to influence a single ratings agency than hundreds of individual advisers whose work is monitored closely.
Financial advisers already work under strict monitoring. Our bank accounts and transactions are routinely screened for unusual activity, and being an adviser triggers an even higher level of monitoring, especially with the major banks.
Since 2019, the scrutiny on advisers has only increased, yet many other parts of the industry—lawyers, educators, compliance businesses—have benefited from portraying advisers as the primary problem.
Public commentary often targets advisers because it is easier and politically convenient. But this doesn’t help Australian consumers. Most of the issues lie with product manufacturers, not advisers. If improvements are genuinely the goal, then attention needs to shift toward those product manufacturers and the conflicts that exist at that level. Addressing that would have a far greater impact on outcomes for consumers.
Not sure anyone commenting on this site ever suggested this was being done “at scale” by hundreds of advisers. However there does seem to be pretty compelling evidence a very small number of crooked advisers were taking conflicted payments, and this was the underlying driver of the whole scam.
Sure ASIC, union super (Misha Schubert), scumbag politicians (Deborah O’Neill), and the usual suspects in the media, are trying to misrepresent bad behaviour by a tiny minority as a profession wide scandal. Thankfully this doesn’t seem to be happening in IFA though.