Falcon handed $45m to marketers of First Guardian funds

ASIC has alleged Falcon Capital gave $45m to three marketing firms to promote First Guardian funds over two years, with at least half coming directly from fund assets.

Ferras Merhi and Falcon Capital had an unwritten agreement for Merhi’s Cornerstone firm to market First Guardian funds. He received at least $13m in less than two years for these services. Pictured is Mr Merhi, a former VFL ruckman. Picture: Stuart Milligan

Falcon Capital handed in excess of $45m to three marketing and lead generation companies between 2021 and 2023, with more than half of the money siphoned directly from First Guardian fund assets, according to the corporate regulator.

Falcon, now suspended and under investigation by the Australian Securities & Investments Commission over its management of $575m in First Guardian funds, lobbed at least $13m to former VFL ruckman Ferras Merhi’s Cornerstone Strategic Management firm, $21m to Osama Saad’s Atlas Marketing — over just nine months — and $5.7m to Rashid Alshakshir’s Indigo Group.

There was no contract in place for the payment of monies to Mr Merhi’s Cornerstone, rather an “unwritten agreement” that the firm would run marketing campaigns to increase public awareness of the availability of financial product advice, according to legal documents filed by ASIC.

Across the payments to the three funds, $20m was sourced directly from the First Guardian Global Income Fund, while a further $2.2m paid to Cornerstone was sourced from another underlying fund, the Trade Finance Fund. Close to $700,000 was taken from other First Guardian funds to make the payments.

On top of the $13m paid to Mr Merhi’s firm, ASIC identified a further $6.5m received by Cornerstone with descriptions relating to First Guardian.

First Guardian loaned Cornerstone at least $6.3m for it to purchase shares in advice firm Financial Services Group Australia, now run by Mr Merhi. The money for this loan, which ASIC says may have been since written off, was taken directly from the Trade Finance Fund.

Mr Merhi, Mr Saad and Mr Alshakshir have all had their assets frozen by the Federal Court in connection with ASIC’s investigations concerning the Shield Master Fund and the First Guardian Master Fund.

Melbourne-based financial adviser Mr Merhi also operates Venture Egg Financial Services, an advice shop that put thousands of clients into the Shield and First Guardian funds. According to ASIC, Mr Merhi is linked to at least 2440 clients who invested $179m in First Guardian funds.

Mr Merhi’s own figures are that 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. More than 1100 of these investors were also directed into the Shield Master Fund by the same adviser, he told The Australian.

Through a spokesman, 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.

As revealed exclusively by The Australian, Falcon invested hundreds of millions of dollars in companies associated with director David Anderson, including celebrity chef Scott Pickett’s restaurant empire, a Tasmanian craft brewery and an Indonesian property finance firm.

The Indonesian property finance firm, Briix, is run by First Guardian’s former head of private equity who, according to the regulator, was never actually a paid employee at the fund.

Falcon Capital director David Anderson.

First Guardian’s 6000 investors have been locked out of their funds since May, but Falcon, the responsible entity, kept pumping money into illiquid investments even after suspending the fund last year, according to ASIC.

Fund updates to investors over the past 10 months have described cash receivables (or money owed) from a string of asset sales. But, the purported source of funding for all of these sales and a series of rolled-up loans — totalling $274m — is a single US-based investment fund set up a year ago yet to ­receive SEC approvals.

According to the prospectus of this fund, the Sphinx Opportunities Fund II, it intends to invest in private funds managed by Maleo Asset Management. Mr Anderson is listed as a portfolio manager of Maleo. A related entity, Maleo Singapore, is also the source of most of the money owed to First Guardian.

Some of First Guardian’s investors have their life savings tied up in the fund, with one member telling the regulator $677,000, or 95 per cent of their nest egg, was invested. The investor, who is near retirement, said financial services firm AusPrac Super lodged their money into the fund and alleged the financial services firm contacted them to explain their “investment may not be covered by the Australian Superannuation Guarantee and that there is a risk that I may lose my entire investment in the fund”.

“This is incredibly distressing to me as I only have 5½ years till retirement,” the investor said.

Originally published as Falcon handed $45m to marketers of First Guardian funds