Australia's own Madoff affair?

March 21, 2010 3:01 PM

An Australian Madoff? Trio Capital, an Australian fund manager, has been ordered to wind up its funds after being unable to account for $123 million in its Astarra fund since investigations began in October. The fund "has a total of $426 million under management - including superannuation savings of about 10,000 Australians." Some worry what this means for more potential frauds in Australia's "privatized social security."

The Syndey Morning Herald has more: the initial scrutiny, the whistleblower, the fears, hope fades.

John Hempton, blogger and hedge fund manager based in Australia, notified the Australian Securities and Investments Commission (ASIC) in September. He outlined his story of delving into the problems in a January post, explaining to non-Australians how the Superannuation system (privatized Social Security) makes this fraud a significantly bigger story.

Dominck McCormick, the fund manager who initially tipped Hempton, has written a fantastic summary of what red flags existed, the role of due diligence, and how the financial planning industry can move forward.

Hempton has an eye for frauds. He previously tussled with hedge fund Ponta Negra, whose manager recently plead guilty to defrauding investors. Ponta Negra shared an office and marketer with Paradigm Global, a fund of hedge funds owned by the son and brother of U.S. Vice President Joe Biden. Hempton had found connections between Paradigm and other questionable funds. This included several connections to eccentric Allen Stanford's Stanford Financial Group, which remains frozen and under investigation for fraud. Hempton first investigated Astarra because of its connections to Paradigm.

Other links at Hempton's blog discussing Astarra: Astarra Marketing, Submission to the Superannualtion review discussing industry structure and regulations, The Regulator's Culpability, Debating accusations of jealousy.

(Hempton was previously linked to on the blue for an interesting index proposal)

posted by FuManchu (10 comments total)

Thanks for the very detailed post. Calling super "privatized Social Security" is a bit misleading though. A better comparison would be 401K.
posted by GeckoDundee at 3:11 PM on March 21, 2010 [2 favorites]

Great stuff FuManchu, thanks.
posted by turgid dahlia at 3:26 PM on March 21, 2010

Is it possible to buy insurance against a fraudulent mutual fund?
posted by miyabo at 4:23 PM on March 21, 2010

Hempton is great. I really liked his recent post about Repo 105s and his suspicion that BAC was using similar methods a few years ago.
posted by mullacc at 4:39 PM on March 21, 2010

Yes, lovely post. Agreeing with Geckodundee that Australia does not have "privatized social security in any meaningful sense.
posted by smoke at 5:13 PM on March 21, 2010

Thanks guys.

Hempton actually got the same complaint about "privatized social security." But I'd understood it's pretty much the system that was proposed a few years back in the US by the Republicans -- a mandated contribution, but some percent of wages can be put into a 401(k)-like individual investment account. I'll look for where he addressed it.

miyabo, as an investor, I haven't heard of insurance like that. The advice in the McCormick article on avoiding frauds is the best you can do, probably.
posted by FuManchu at 6:55 PM on March 21, 2010

Sounds like it is safer, after all, to just carry $125,000 around with you in your bag.
posted by UbuRoivas at 7:36 PM on March 21, 2010

The Oz superannuation scheme is a compulsory 9% of your pay collected by the employer and sent to an investment fund of your choice. There are hundreds, or you can form your own.
The idea, like a 401k, is to deliver a retirement income to allow a good-ish lifestyle, with some tax benefits. You can optionally add extra funds in a tax effective manner.
In addition, there is also a welfare program old age pension funded by general taxation that pays a subsistence pension to elderly folk with minimal other income (although the limits were raised surprisingly high by John Howard).
If you have enough superannuation you will be too rich to qualify for the welfare pension. I anticipate that my generation, who have had the 9% levied throughout our adult working lives will see few welfare pensioners compared with today.
posted by bystander at 3:09 AM on March 22, 2010

bystander, that's the "privatized social security" proposed in the US. The eventual plan was to have smaller guaranteed payments, remove the large payments made to people who had high incomes, and allow people to put more into IRA/401k schemes. SS is now paying $24k/year to people who made over $100k/year. You'd think the Republicans would learn to point to the other SS plans around the world like the Democrats did with health proposals.

The Bronte post discussing this is here in the comments:
Z: Is it really right to place so much emphasis on super as "privatized" social security? ...
Hempton: ... I am also placing it in context for American readers. It is - by American standards - a privatised scheme.
posted by FuManchu at 8:30 AM on March 22, 2010

The Oz superannuation scheme is a compulsory 9% of your pay collected by the employer

Not exactly. Or else, true but misleading.

Whatever your pay is, your employer must throw in a minimum of 9% extra.

You can - if you choose - divert some of your pay as well, but the employer contribution doesn't technically come out of your pay.
posted by UbuRoivas at 1:50 AM on March 23, 2010