InterPrac tells AFCA to knock back Shield, First Guardian claims
InterPrac is trying to dodge blame for the Shield and First Guardian disasters, challenging complaints body AFCA’s jurisdiction and disputing that poor advice was given to clients.
InterPrac Financial Planning is fighting tooth and nail to wash its hands of the Shield and First Guardian scandals even as it feigns support for the thousands of victims its advisers put into the collapsed funds.
The licensee, which oversaw three of the financial advice firms that were responsible for tipping client super money into the now-collapsed funds, is challenging the Australian Financial Complaints Authority’s (AFCA) jurisdiction in these cases and disputing that poor advice was given to clients, multiple sources told The Australian.
The firm’s lawyers have told the complaints body, AFCA, to knock back the hundreds of claims submitted against InterPrac by victims of the fund collapses, arguing that the failures were due to a product issue and not poor financial advice, sources said.
At the same time, InterPrac has been cutting ties with the advice firms at the centre of the scandal.
The licensee severed its relationship with Ferras Merhi’s Venture Egg Financial Services at the end of May and is currently in the process of ridding itself of Reilly Financial, raising questions as to why it will no longer license these firms if the advice they gave was sound.
The Australian understands AFCA is currently not processing any of the complaints received against InterPrac as it awaits an outcome from the legal stoush.
Hundreds of claims naming InterPrac have been made so far, with thousands more likely in the coming months. The value of the complaints received so far totals $22m. InterPrac’s heavy-handed legal approach is in stark contrast to what its parent company, ASX-listed Sequoia, suggested in an update released late last week.
“InterPrac recognises members’ concerns and advises clients that have been affected by the failure of the Shield or First Guardian funds to contact InterPrac’s salaried advice team, which will assist them regarding their personal situation. The company will act in clients’ best interest to the best of its ability.”
While InterPrac cut ties with Venture Egg in late May, the firm actually suspended Venture Egg’s ability to write new business including any investment recommendations from December 2023.
This came after 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.
InterPrac previously 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. The hold on First Guardian was subsequently lifted, allowing advisers to again pump client money into the fund.
Both Shield and First Guardian are currently in liquidation and being investigated over alleged mishandling of investor money. About 12,000 investors stand to lose up to $1bn of super savings from the fund collapses and the corporate cop is investigating all parties involved, including InterPrac, the advisers, research house SQM, the super trustees and the funds themselves. Many of the victims were cold-called by lead generators offering a free superannuation health check. They would then transfer the prospective clients over to advisers.
Mr Merhi, who ran Venture Egg under InterPrac’s licence but who also operated as a licensee for a number of other advice firms, is the main adviser being investigated over Shield and First Guardian. Between 2021 and 2023, he and his team put up to 5000 of the total 12,000 investors into the funds, The Australian understands.
His clients have told The Australian they were invested in the funds, at times, without their knowledge or direct consent.
During this same period, Mr Merhi was also allegedly paid millions of dollars by First Guardian 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.
The Australian understands InterPrac was aware of the relationship between the cold-callers and the advisers but did not know payments were going from the funds to the lead generators.
As a licensee, InterPrac would have clipped the ticket on advice given to clients by Venture Egg and Reilly Financial advisers, typically between 5 and 10 per cent of the client fee.
InterPrac parent company Sequoia has also been directly caught up in the funds scandal.
An investigation by The Australian found more than 100 clients linked to Mr Merhi had their wealth directly invested in Sequoia shares over the space of two trading days in June and July last year.
More than 575,000 shares were purchased by advisers operating under Mr Merhi’s licensee firm Financial Services Group Australia (FSGA) on June 28 and July 1, 2024, for a total purchase price of $273,500, documents seen by The Australian show.
Sequoia chief executive (and InterPrac managing director) Garry Crole has denied any knowledge of FSGA client money being used to buy Sequoia shares.
The Australian also previously revealed that Shield investors unknowingly played a key role in ensuring Sequoia’s $40.5m sale of Morrison Securities succeeded after they were put into the stricken fund by advisers linked to Sequoia through InterPrac.
The Shield fund’s responsible entity handed $15m to Morrison buyer New Quantum as a loan in mid-2023, three months after New Quantum agreed to buy 80 per cent of the securities business.
This loan was crucial to keeping the Morrison deal alive, coming shortly before the August 31 deadline for the purchaser to make its final $15m payment to ASX-listed Sequoia.
This $15m was Shield investor money, according to sources close to Shield and its responsible entity, Keystone Asset Management.
New Quantum’s US backer, Beaconsfield Capital, put the wealth group into receivership last year when Keystone sought the return of its $15m. Shield liquidators have now written the loan off, meaning it expects nil return.
Originally published as InterPrac tells AFCA to knock back Shield, First Guardian claims
