The judge who sent former Astarra Asset Management (AAM) director Shawn Richard to jail has questioned the fairness of compensation for investors caught up in frauds such as the Trio Capital collapse.
New South Wales Supreme Court Justice Peter Garling said he could not understand the principle by which Australian Prudential Regulation Authority (APRA)-regulated products were eligible for government compensation, but self-managed superannuation funds (SMSF) and direct investors were not.
Financial Services and Superannuation Minister Bill Shorten has already announced the government will assist more than 5000 investors caught up in four Trio Capital super funds by giving them access to $55 million.
However, SMSFs and direct investors are not entitled to receive compensation.
"So the principle is if you are bigger and regulated, you get compensation and if you are smaller and vulnerable, you don't?" Garling said during Richard's trial.
"It is notorious that most SMSFs are small and less able to absorb investment losses, when compared with large funds of the kind regulated by APRA, which are more likely to have access to high-quality advice, to have a portfolio of diversified investments and to have sophisticated oversight from APRA.
"Hence, large regulated funds are more likely to be able to more readily resist and to recover from lost investments."
There were around 690 direct investors in the Astarra Strategic Fund not eligible for the government's financial assistance, of which about 285 were SMSFs and the balance either individuals, corporations or trusts, according to ASIC.
The Self-Managed Super Fund Professionals' Association of Australia (SPAA) has forwarded a submission to a parliamentary inquiry into the collapse of Trio Capital proposing all product providers be charged a levy to establish a last resort compensation scheme to protect investors from loss as a result of fraudulent activities.
"We have taken a position whereby SMSFs should be treated the same as any other investor in the market, and are quite different from members of an APRA super fund, so we have aligned SMSF investors with the rest of the market," SPAA chief executive Andrea Slattery said.
"We believe any investor in the market should be able to receive compensation for theft and fraud if it has inadvertently happened to them and they have done everything possible to be compliant."
The Australian SMSF Members' Association labelled the government's compensation package offered to four super funds that lost money in the collapse of Trio Capital as an appalling case of unfair discrimination because it did not include SMSFs.
On 12 August, Garling sentenced Richard on two counts of dishonest conduct, sending him behind bars for a minimum of two years and six months and an additional 15 months' good behaviour bond.
Between 2005 and 2009, as a director of AAM and other companies in the Trio Capital Group, Richard dishonestly diverted $26.6 million from Australian super funds into overseas funds located in tax havens in the Caribbean, he said.
