The credibility of WHK Group’s (WHK) evidence to the Trio Capital (Trio) inquiry has been questioned by the committee responsible for examining the fund manager’s collapse.
WHK chief executive director John Lombard fronted a public hearing with the Parliamentary Joint Committee (PJC) on Corporations and Financial Services on 4 November.
As part of his evidence, Lombard told the committee he would respond to questions in the public domain but would also provide evidence regarding the auditor’s involvement as the auditor of a Trio linked fund, ARP Growth Fund, on a confidential basis.
While the committee had no objection with Lombard providing evidence confidentially, members of the committee, in particular PJC chair Bernie Ripoll, raised concerns over the level of public evidence WHK provided.
Ripoll took particular issue with Lombard and fellow WHK employee, Crowe Horwath audit and assurance principal, John Gavens’ response to questions regarding a company review WHK undertook following Trio’s collapse.
“I want to ask you a very simple question: Have you reviewed the case – the Trio, Astarra Strategic Fund and ARP Growth Fund – which you were paid to audit over a number of years? Have you reviewed that case?” Ripoll asked Lombard.
In response, Lombard said: “I am advised that a review has been done – and I am advised that a review has been done with the support of our legal counsel.”
“There are aspects of your question that I believe will be answered as part of the in camera [confidential] component, as it infringes on the rights and privacy of individuals.”
Not satisfied with Lombard’s response, Ripoll pressed the WHK chief further.
He asked Lombard if he or other WHK representatives had been contacted by either the Australian Prudential Regulation Authority (APRA) or ASIC in relation to WHK’s auditor activity of Trio.
Lombard said he had not.
“Has WHK? It is hard to believe that you would not know; it really is. It makes it very difficult for us to take your evidence seriously,” Ripoll said.
In response, Lombard said: “Mr Chairman, I do know, but it is-“.
Ripoll interjected with: “It is just a simple, ‘Yes, we have been contacted,’ or, ‘No, we have not.’
To which Lombard said: “Yes, individuals in our organisation have been contacted”.
Still not satisfied with the response, Ripoll said: “No, WHK is an organisation. I do not suspect people are just having private cups of coffee.”
“They have done it in the capacity of either APRA or ASIC as the two regulators in relation to WHK in their role as auditors.”
After conferring with other WHK representatives Lombard said: “Mr Chairman, we have had a document of notice from ASIC. That is the only information that we have received from them.”
After further questions from Ripoll and other PJC committee members, Lombard said he would be in a better position to respond to questions on a confidential basis.
He said WHK’s involvement with Trio was through its Albury audit practice, which WHK bought from KPMG in 2008.
“The loss of moneys by investors is deeply regrettable, and in our view was directly caused by the conduct of [former Trio director] Shawn Richard and other parties with whom he was associated and the apparent failures of Trio Capital to oversee his conduct as their agent,” Lombard said.
“Mr Richard has acknowledged he misled the auditor, and the Trio Capital directors have acknowledged that they failed to properly discharge their responsibilities. The rest of my comments regarding Trio Capital will be made in private session.”
The major investment of the ARP growth fund was in a company called Professional Pensions ARP Ltd, and in turn Professional Pensions ARP Ltd entered into a derivative contract with Bear Stearns.
Professional Pensions ARP Ltd was based in the British Virgin Islands.
