A research house has been caught up in a far-reaching superannuation investment scandal across the Tasman after the Australian Securities and Investments Commission (ASIC) filed a legal claim last week.
The case against boutique firm SQM Research marked the “first time the regulator had taken action against a research house”, ASIC deputy chair, Sarah Court, said in a release.
ASIC alleged SQM had delivered “misleading” favourable research ratings of the property-based Shield Master Fund, which attracted about A$480 million from about 5,800 superannuation investors before collapsing last year.
Founded by Louis Christopher as a specialist property researcher, the business has since expanded into other asset classes.
Among other charges, the Australian regulator accused SQM of misrepresenting “that it had a reasonable basis for giving Shield a ‘Favourable’ rating and had exercised reasonable care and skill in doing so”.
“We believe research houses are important gatekeepers and form part of a critical line of defence against poor quality investments or unsuitable products,” Court said in the release.
“Given the important role research houses play in rating funds and investments, the community is entitled to expect that their reports will be accurate and based on appropriate information and analysis.”
The Australian financial cop has already launched legal actions against Equity Trustees and Macquarie over their roles as ‘responsible entities’ for Shield funds.
More litigation is expected as regulators digest the impact of about A$1.2 billion of losses in the Shield and First Guardian funds, the latter property-linked product also folding last year with almost A$600 million at risk.
Last week, ASIC also sued two financial advisory firms – Interprac and MWL Financial Services – over their respective roles in spruiking both the Shield and/or First Guardian funds.
Court said in a release on the Interprac case that ASIC alleges “no competent financial adviser could have recommended Australians invest large amounts of their superannuation in these funds”.
In a speech last week, she said the regulator had commenced “10 separate Federal Court proceedings against 18 defendants, and we have more to come”.
“We will not rest until our work on these matters is complete and those responsible have been properly held to account,” Court said.
“One of our enforcement priorities for next year is therefore continuing our work to hold those responsible to account for the collapse of the Shield and First Guardian Master Funds.”
The debacle has also prompted calls by outgoing ASIC chair, Joe Longo, for wide-sweeping reforms to combat “industrial scale” fraud in the Australian superannuation sector.