InterPrac was alarmed by First Guardian, Shield money flowing in but it didn’t alert ASIC

Financial planning group InterPrac was so concerned about the huge sums of client money flowing into First Guardian and Shield it issued a halt, but advisers kept pouring money in and ASIC was never told.

Ferras Merhi, left, playing football for Roxburgh Park in the Essendon District Football League. Picture: Hamish Blair

Financial planning group InterPrac was so alarmed by how much client money was flowing into First Guardian and Shield that it put a halt on the funds in mid 2023 – but it never warned the regulator and its advisers kept pouring money in, inquiries by The Australian have established.

A month after InterPrac told advisers to stop putting clients into First Guardian and Shield, its long-running national compliance manager, Michael Butler, relocated to Queensland to take on another role with the firm and stayed in adviser Ferras Merhi’s holiday home for four months while his own house was under construction.

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As many as 12,000 investors are now facing the loss of up to $1bn in superannuation savings due to the collapse of Shield and First Guardian, which are both under investigation by ASIC over allegations the fund managers misused investor money.

Many of the investors were clients of InterPrac-authorised representatives Venture Egg and Reilly Financial. SQM Research, the only research house to rate First Guardian and Shield, was also an authorised representative of InterPrac at the time.

Between 2021 and 2023, up to 5000 of the 12000 investors affected were put into the funds by Mr Mehri, a director of Venture Egg, and his team, The Australian understands.

During this same period, Mr Merhi was also allegedly paid millions of dollars by the funds in marketing fees through another of his businesses.

Payments included at least $12m from First Guardian to Mr Merhi’s marketing firm Cornerstone between early 2021 and mid-2023.

InterPrac confirmed to The Australian that it had ordered its advisers to stop putting clients into the funds in mid-2023 but saw no need to alert ASIC.

“Once unusual volumes were observed being invested into the Shield Master Fund and First Guardian Master Fund circa June 2023, InterPrac issued instructions to cease new business in these investment options which was well before any concerns as to the integrity of the management and reporting of the said funds,” a statement from the firm said.

“There was no reason to alert ASIC at that point in time as there was no evidence of any inappropriate management of the said funds.”

The Australian has spoken with a number of alleged victims and seen statements of advice that show investors were placed into the funds well after this date – including NSW-based Melinda Kee, who was contacted by Aus Super Compare in October 2023 and put in touch with advice group Reilly Financial.

She didn’t know it at the time, but Aus Super Compare director Osama Saad was also the director of another company, Atlas Marketing.

Atlas was allegedly paid $21m by First Guardian between May 2023 and February 2024, according to documents filed by ASIC in Federal Court.

At least $12m of this was sourced directly from one of the First Guardian funds, essentially investor money, ASIC alleges.

Mr Saad was introduced to the First Guardian founders by Mr Merhi, according to the regulator.

In a statement of advice bearing Rhys Reilly’s name that was issued in November 2023, seen by The Australian, Ms Kee was recommended to put all of her $320,000 super savings into First Guardian. Following this recommendation, she moved all of her funds into super fund AusPrac Super, where her savings were put into First Guardian.

AusPrac, like Interpac, is part of the ASX-listed Sequoia Financial Group.

Mr Reilly, who runs Reilly Financial, has recently been contacting clients to say he ceased recommending First Guardian as an investment option in mid-2023 and that his name was used on later advice documents without his authorisation. He told clients he has sought legal advice on this.

An investigation by The Australian found financial advisers, in some cases, tipped clients into the Shield and First Guardian funds without their knowledge, listing one set of the investments on statements of advice before switching investor money into the two funds – which have since collapsed.

Mr Merhi told The Australian he operated a negative-consent model, meaning if clients didn’t reply to investment change recommendations, they were assumed to give consent.

“Basically, if you’ve emailed and you’ve given a significant amount of time for the client to respond, and then the client doesn’t respond, then consent by acquiescence, where basically you get to make the changes that you see fit for the client,” Mr Merhi said.

InterPrac said it “does not support the negative-consent process referred to as adopted by Venture Egg and implemented by the trustees” but a former high-ranking staff member at the firm told The Australian that the negative-consent model was appropriate in certain cases.

InterPrac said it suspended Venture Egg’s ability to write new business, including any investment recommendations, in December 2023.

Mr Merhi and Venture egg continued to be authorised representatives of InterPrac until May 31 this year.

“InterPrac are naturally concerned for the outcome of the clients’ superannuation and remains committed to working with ASIC,” InterPrac said.

Originally published as InterPrac was alarmed by First Guardian, Shield money flowing in but it didn’t alert ASIC