ASIC probes Equity Trustees, Netwealth, Diversa over First Guardian failure

The corporate regulator has broadened its investigation to the superannuation fund trustees as part of its probe into Falcon Capital and the wound-up First Guardian.

Falcon Capital director David Anderson is alleged to have invested First Guardian investor money into companies he had a financial interest in.

The corporate regulator is investigating Equity Trustees, Netwealth Investments and Diversa Trustees as part of its probe into Falcon Capital and the First Guardian Master Fund.

The First Guardian Master Fund, which is currently in the process of being wound up amid allegations it mishandled up to $580m of investor funds, was available to investors on superannuation platforms hosted by Equity Trustees, Netwealth and Diversa.

First Guardian suspended redemptions for its 6000 investors a year ago under the guise of a short-term restructure but never reopened. And the Australian Securities and Investments Commission last year launched an investigation into Falcon, First Guardian and the fund’s former managing director David Anderson.

The regulator has since made a series of allegations against the fund and Mr Anderson, including that at least $274m of First Guardian’s value relates to receivables (money owed to the fund), that $45m was handed to marketers and lead generators to promote the fund, and that Mr Anderson had ties or financial interests in a number of investments made by the fund.

The regulator’s investigation has broadened to Equity Trustees, Netwealth and Diversa, according to documents sighted by The Australian. ASIC is understood to be probing the three companies over their due diligence of the fund and its investments in their roles as trustees for the superannuation platforms.

A spokesperson for Equity Trustees said: “Equity Trustees fully supports ASIC in its investigation into the First Guardian Master Fund and any steps necessary to protect investor interests.”

ASIC declined to comment. Diversa declined to comment and Netwealth was contacted for comment.

Diversa is the trustee for Australian Practical Superannuation, a subsidiary of ASX-listed Sequoia Financial. Another Sequoia subsidiary, Interprac Financial Planning, is also being investigated by the corporate cop as part of the Falcon and First Guardian probe. Interprac authorised representatives Venture Egg and Ferras Merhi advised thousands of clients to invest into the First Guardian funds over a three-year period.

Mr Merhi told The Australian his advisers recommended First Guardian to 3600 clients between 2021 and 2024, with these advisers alone accounting for $192m of money flowing into the fund.

While advising clients to invest in First Guardian, Mr Merhi was also allegedly being paid millions of dollars to market the fund.

According to ASIC, Falcon lobbed at least $13m to Mr Merhi’s Cornerstone Strategic Management marketing firm and lent the firm a further $6.3m. The loan is yet to be repaid, ASIC said in legal documents filed in Federal Court.

While Mr Merhi’s assets have been frozen by the Federal Court, he and his authorised representatives are still listed as registered financial advisers, with ASIC yet to issue banning orders. Mr Merhi told The Australian he expects banning orders from ASIC to come through in the near future as he put the blame on the platforms and trustees.

“As with Shield, (with First Guardian) I relied on the due diligence of the platforms, in this case EQT, Netwealth and Diversa, and its trustees. I further relied on SQM, which rated First Guardian at 3.75 as favourable investment grade,” he said.

SQM Research provides ratings on thousands of managed funds.

Mr Merhi said he was always assured marketing funds were sourced from associated business revenues and profits, and not from member funds. He also said he was recommending First Guardian to clients well before he commenced any marketing services for the fund.

The Federal Court last month appointed liquidators to wind up the fund and its responsible entity, Falcon Capital, after ASIC froze its assets in February. Falcon directors Simon Selimaj and Mr Anderson are also the co-founders of First Guardian.

In a letter sent to investors in mid-April, liquidators Ross Blakeley and Paul Harlond of FTI Consulting said it was too early at that time to advise the potential amount or timing of any funds being repaid.

Originally published as ASIC probes Equity Trustees, Netwealth, Diversa over First Guardian failure