Regulators Sue Financial Firms Over $677M Superannuation Collapse
ASIC launches landmark legal action against research house and financial planning licensee as thousands face retirement losses
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Australian regulators filed federal lawsuits Wednesday against two financial firms over a superannuation scandal that put $677 million in retirement savings at risk, marking the first time authorities have pursued legal action against an investment research house.
The Australian Securities and Investments Commission accused Interprac Financial Planning and SQM Research of separate failures that exposed thousands of Australians to collapsed investment funds. Around 6,843 clients invested their superannuation through Interprac into the Shield Master Fund and First Guardian Master Fund, both of which have since failed. Another 5,800 people invested in Shield following reports from SQM Research.
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The dual lawsuits signal an aggressive regulatory push to hold financial gatekeepers accountable for investment failures that have wiped out retirement accounts across the country.
ASIC alleges Interprac failed to ensure its authorized representatives acted in clients’ best interests when recommending the high-risk funds, while SQM Research published misleading reports that gave Shield a “Favourable” rating despite inadequate due diligence.
“We allege Interprac failed to ensure certain authorised representatives acted in their clients’ best interests, contributing to hundreds of millions of dollars of superannuation being invested in products that were unsuitable, high risk and costly,” ASIC Deputy Chair Sarah Court said.
The civil penalty proceedings filed in Federal Court represent ASIC’s first enforcement action against an investment research house, a move Court described as holding “important gatekeepers” accountable.
Interprac Faces Sweeping Allegations
ASIC alleges Interprac Financial Planning allowed two authorized representatives — corporate partnership Venture Egg and Rhys Reilly Pty Ltd — to funnel client money into the doomed funds despite multiple red flags.
The representatives advised clients to roll over existing superannuation balances into Shield and First Guardian. Both funds have collapsed, leaving retirement accounts frozen or depleted.
According to court documents, Interprac relied entirely on external research when adding Shield and First Guardian to its approved investment list. The company failed to conduct independent due diligence on the products it greenlit for client portfolios.
ASIC alleges Interprac ignored warning signs including payments made to companies controlled by adviser Ferras Merhi from entities linked to the funds. Merhi worked through Venture Egg as an authorized representative of Interprac until May 31.
The regulator claims Interprac’s managing director Garry Crole acknowledged serious problems with both funds but failed to enforce a hold on new investments. Client money continued flowing in despite identified risks.
Some clients saw their superannuation invested without explicit consent through a “negative consent” practice, ASIC alleges. Under this system, money moved into Shield or First Guardian unless clients actively objected.
When clients complained about advice to invest in the collapsed funds, Interprac responded with template letters that failed to properly assess whether the recommendations were appropriate, according to the lawsuit.
“We allege that no competent financial adviser could have recommended Australians invest large amounts of their superannuation in these funds, and that Interprac – as licensee – should have been alert and responsive to the significant risk this conduct posed to clients, but it failed on many levels,” Court said.
ASIC is seeking court declarations, civil penalties and orders preventing Interprac from operating a financial services business.
Research House Accused of Misleading Reports
SQM Research published three reports between October 2021 and October 2022 rating different classes of Shield as “3¾ stars, Favourable.” Financial advisers and superannuation trustees used these reports when recommending Shield to clients or adding it to investment platforms.
ASIC alleges SQM Research failed to gather information needed to properly assess Shield before issuing favorable ratings. The research house overlooked inconsistencies in data it received and misrepresented having a reasonable basis for its positive evaluation.
The reports understated the percentage of funds managed by parties related to Shield and inaccurately depicted Shield’s asset allocation, according to court filings.
“Research houses have a responsibility to ensure they obtain the information needed to prepare their reports, take real care and skill in assessing that information and to present that information accurately,” Court said.
SQM Research charged Keystone Asset Management Ltd, Shield’s responsible entity, fees for preparing the reports. Keystone is now in liquidation.
The lawsuit marks ASIC’s first enforcement action against a research house, despite the critical role these firms play in evaluating investment products for financial advisers.
“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.
ASIC alleges SQM Research violated financial services laws requiring licensees to provide services efficiently, honestly and fairly. The regulator claims the firm made false or misleading representations about having conducted proper analysis.
Mounting Legal Pressure
The two lawsuits add to expanding legal action surrounding the collapsed funds. ASIC previously filed separate proceedings against Ferras Merhi over his role promoting Shield and First Guardian. Federal Court interim orders now bar Merhi from working in financial services.
Rhys Reilly and his company ceased operating as Interprac authorized representatives on Aug. 15.
The simultaneous legal actions against multiple firms reflect ASIC’s strategy of pursuing responsibility across the investment chain — from research houses that rate products to licensees overseeing advisers to individual representatives steering clients into failed funds.
ASIC released a report on Nov. 5 highlighting the essential function research houses serve in the funds management sector. The report emphasized that research houses must conduct rigorous due diligence before issuing ratings.
ASIC’s Regulatory Guide 79 describes research providers as “important gatekeepers in the financial services industry” and requires their reports to be based on objective, verifiable facts and analysis.
“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,” Court said.
What Investors Should Know
ASIC issued a consumer alert warning Australians about schemes enticing people to invest retirement savings in complex, risky products. The regulator maintains dedicated webpages with updates on the Shield Master Fund and First Guardian Master Fund.
Clients who received advice from Merhi, Venture Egg, Reilly or any Interprac authorized representative regarding Shield or First Guardian can file complaints with the Australian Financial Complaints Authority. The service is free for consumers and operates independently.
AFCA handles financial complaints in Australia and can be reached at 1800 931 678 or through its website. Interprac’s AFCA member number is 10416.
Around 180,000 Australians invest in private credit funds, according to recent ASIC data. The Shield and First Guardian collapses have intensified scrutiny of how financial advisers vet alternative investment products before recommending them to retirement savers.
The lawsuits seek court declarations that both firms violated financial services laws and civil penalties. ASIC has not specified dollar amounts for potential fines, which will be determined by the Federal Court if violations are proven.
Many Shield investors moved their entire superannuation balances into the fund after financial advisers recommended rolling over existing retirement accounts. These advisers often suggested transferring money into choice superannuation funds available on platforms that had added Shield as an approved investment.
The cases highlight vulnerabilities in Australia’s financial advice system, where multiple layers of oversight — including licensees, research houses and platform providers — are meant to protect retirement savers from unsuitable investments. ASIC alleges those safeguards failed, allowing thousands of Australians to concentrate retirement savings in high-risk funds that ultimately collapsed.
Both lawsuits remain in early stages, with defendants yet to file responses in Federal Court. ASIC has not announced timelines for when the cases might proceed to trial.
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