Keystone pushes lifeline proposal in receivership fight ahead of ASIC court hearing

Embattled Keystone Asset Management is seeking a new responsible entity to be appointed as it prepares to go back to court.

Former Keystone Asset Management director and Melbourne-based property developer Paul Chiodo. Keystone is back in court on Tuesday, months after the corporate regulator took action against the asset manager.

Keystone Asset Management is still battling the corporate regulator’s bid for it to be placed into receivership, and is attempting to thrash out a deal that would see a new independent responsible entity appointed as the case heads back to court.

As late as last Thursday, the Australian Securities & Investments Commission argued for a receiver to be appointed, The Australian understands.

Representatives for the embattled Keystone are now believed to be seeking a potential lifeline through a responsible entity that would manage compliance and operations for its Shield Master Fund.

Keystone is under investigation by the regulator over the use of investor money from its Shield fund, with the matter due to return to court on Tuesday.

The Australian understands Keystone has put forward two potential responsible entity firms – one of which would take over its role for the fund – as it looks to assuage ASIC concerns over its management and the associated risks to investors.

The regulator in June won orders from the Federal Court preventing Keystone – the responsible entity for Shield – from selling, transferring or dealing with Shield’s assets, other than to make some payments that must first be approved by Deloitte.

Some of the regulator’s concerns about risks to investors include that Keystone failed to lodge audited financial statements for the 2023 financial year and that a large proportion of the funds held by Shield were directed to a fund that made loans to various companies associated with Paul Chiodo, a former director of Keystone, to fund property developments.

ASIC has also probed the source of money Mr Chiodo obtained to purchase a house in the name of his wife. He has previously denied that member funds were misused.

With Keystone hopeful of hammering out an agreement ahead of Tuesday’s hearing, Mr Chiodo separately hit out at Deloitte’s management of its under-fire investment fund, arguing it was not equipped to take on the role and was “doing more damage than good”.

Deloitte’s Jason Tracy and Luci Palaghia were appointed by the Federal Court in late June to verify payments and manage the bank accounts of Keystone’s Shield fund amid ASIC’s investigation.

Mr Chiodo, also under investigation by the regulator, told The Australian Deloitte was effectively acting as receiver and putting the fund’s assets at risk.

“What’s in place today, where you’ve got Deloitte as a manager for payments, that’s not fit for purpose. Deloitte are not fit for purpose. I thought it was a great idea at the time (when they were appointed) but it was always meant as a stopgap … an interim measure. No fund can operate like this,” he said.

A Deloitte spokesman said the firm strongly denied the claims made by Mr Chiodo and that it was acting in the best interests of investors and complying with the orders the court made on June 26. “Deloitte takes the undertakings it has provided to the court seriously,” the spokesman said.

Earlier this month, the Federal Court agreed with Deloitte’s plan to pay Keystone’s investment management fees to CF Capital, despite some dispute about how the fees are calculated and the possibility of future legal action from investors.

ASIC first approached Keystone in September 2023 with a series of questions around its operations and the Shield fund. In the year since, Keystone has kicked off a governance review that is still in progress but expected to be completed in the coming weeks. Keystone halted redemptions from Shield in February 2024.

An ASIC spokesperson, meanwhile, confirmed to The Australian that the regulator’s investigation into Shield is ongoing.

As ASIC’s investigation heated up late last year, Keystone was hit with a number of director resignations, kicked off by Ilya Frolov stepping down in December.

Mr Chiodo resigned on May 27. On the same day Keystone said another member, Brett Spork, who joined the board in early April, had resigned for health reasons. When contacted by The Australian, Mr Spork said he had never been appointed to the Keystone board. Lawyers acting for Mr Spork said he was approached to join in early 2024 “but withdrew his consent, as he understood it, before being appointed”.

Mr Chiodo said Keystone’s accountants had, in an oversight, failed to lodge the appropriate paperwork with ASIC after Mr Spork accepted the directorship in early April. With his resignation six weeks later, the documents were never filed to the regulator.

The property developer continues in his role as director of Chiodo Corporation, the development manager of the projects Shield has invested in through one of its underlying funds, the Advantage Diversified Property Fund.

His Fairmont Hotel project in Port Douglas is still in prospect, with a new development application submitted to Douglas Shire Council following the rejection of an earlier proposal for the site.

The council confirmed it had received the relevant application but that it was not complete. “Chiodo has until September 9 to make his development application properly otherwise it will lapse,” a spokesman said.