Criminal charge risk is no barrier to Keystone liquidator’s suit against duo, says judge

Robert Filippini arriving at court last year. Picture: Nadir Kinani

The screws are tightening on Paul Chiodo and Robert Filippini as ASIC closes in on criminal charges against the pair over the $480m Keystone Asset Management boondoggle. Even they know it.

But, in a win for commonsense, that won’t stop the group’s liquidators from pursuing $158m allegedly disappeared by the pair from Keystone group’s books.

Liquidators from Alvarez and Marsal are pursuing the cash in the federal court, alleging the $158m was transferred from Keystone’s Advantage Diversified Property Fund (ADPF) – a property fund into which a large proportion of investor cash was held – to Filippini’s City Built construction group.

That’s despite no formal contracts existing, according to the liquidators, and Filippini not even holding a building licence at the time.

The liquidators think that Filippini’s construction business only did about $8m worth of work on property projects, and want the rest of the cash returned – an accusation that Filippini’s lawyers say he will challenge.

At the same time, ASIC has been painfully inching towards criminal charges against the pair over the affair. The Australian Federal Police raided the homes of Chiodo, and those of Filippini and family members, in pursuit of evidence in February.

As recently as mid-June, ASIC was issuing compulsory interview notices to Chiodo, ordering the would-be property developer to answer questions about his role in the $480m collapse of the group. There’s no real sense that criminal charges are imminent, despite the hopes of the 5800 or so poor souls who lost money in Keystone and related businesses.

But that didn’t stop Chiodo and Filippini from trying to use ASIC’s investigation to halt Alvarez and Marsal’s pursuit of the missing cash.

The pair went to the federal court to argue that the A&M case should be halted in face of ASIC’s criminal investigation, in case any evidence they give in the civil case is useful to the corporate watchdog.

Paul Chiodo has sought to halt the pursuit by liquidators from Alvarez and Marsal.

Lawyers for both men told the federal court a criminal prosecution was “on the cards”, or at least a reasonable possibility, in asking for the liquidator’s case to be halted, as each would “suffer prejudice to his fundamental rights arising under the accusatorial system”.

It’s a legitimate legal argument, though cynics might also suggest that playing one case off against the other was an easy way to postpone a reckoning in both.

Given a choice, it’s hard to guess whether investors in Keystone would prefer part of their money back, or the prospect of jail time for the alleged architects of the scheme.

In any case, it’s not a decision they’ll have to make after judge Mark Moshinsky rejected the argument, at least for the moment.

Even though the judge accepted that criminal charges were a reasonable possibility, Justice Moshinsky said the prejudice to investors if the liquidator’s case was halted was a “weighty factor”.

A win for all, then.

That may change, however, if and when ASIC finally brings charges.

 

Pure hits trouble

Investors are getting restless over at Pure Asset Management’s $108m Income and Growth Fund, if a flurry of outraged emails pointed in Margin Call’s direction are anything to go by.

Private credit funds might be the bete noire of the day for regulators, but there are plenty of more traditional funds that have their own problems.

One of them appears to be Pure’s I&G fund, which specialises in lending money to small-cap industrial and healthcare companies, taking both interest and share warrants (which convert to equity stakes) in return.

Pure told investors late on December 20 – that would be the Friday before last year’s Christmas holiday break – that it was halting redemptions and distributions from the fund.

The news was buried on the last page of a monthly fund update, saying the fund’s trustees had “resolved to suspend redemption requests until 30 June 2025”.

Fair enough, perhaps. It’s been a horrible few years for small-cap companies, amid a capital strike and volatile capital markets. And debt funds are notoriously illiquid, given calling in a loan early is the easiest way to tip a small company into real financial strife. And Pure Asset Management also runs a second, resources-focused fund which has no such troubles.

But concern turned to outrage this week, when investors got a fresh email – this time from Apex Group, Pure’s investor registry provider – saying the fund would now be gated until the end of ­August, when $5m would be ­available for distribution and ­redemptions.

“Several initiatives are underway, which if realised will increase the cash available,” the email said.

Get your applications in now, however.

Suffice to say, this has not been met with much applause from I&G investors. Now, to be fair, when contacted by Margin Call, fund manager Mike Henshaw told us he was absolutely confident that the fund would be able to return investors’ cash, along with a decent return on investment.

It’s a temporary issue, he said. The issue is a “timing mismatch” over when debts are due to be repaid and redemption demands.

“In the previous six years we’ve never had to gate the fund,” he said.

And the fund had a few wins last year. It held equity in Decmil and Tesserant, both taken over by bigger players.

But there have also been a few disasters, most notably would-be Covid-19 testing company Ellume Health, which went bust in 2022, taking $10m of Pure money with it.

Over the journey, Altus Renewables also collapsed, along with Kleos Space, and brewer Mighty Craft – though Henshaw bills that as a success, as Pure took the company out of administration, and he says it is now performing well.

And of Pure’s equity positions, only a few are performing well – most notably ASX-listed Locate Technologies, primarily a delivery driver routing company, but whose shares have surged after it began keeping its treasury funds in bitcoin.

But others – Swift Networks, Wellnex Life, LawFinance – have had a torrid couple of years, to the point where at least a couple of investors, Margin Call hears, are on the verge of not just demanding a path to getting their money back, but a full accounting of the fund’s asset position and valuation – never a good sign for a small investment firm.