ASIC launches legal blitz against Interprac, SQM, MWL Financial in First Guardian, Shield Superannuation fallout

Australia’s corporate watchdog has launched a fresh legal attack against three companies it claims misled Australians ahead of the collapse of investment funds First Guardian and Shield.

Thousands of Australians have poured hundreds of millions of dollars of superannuation funds into two managed investment plans; The savings are now at risk of being wiped out after administrators took control of Shield in June 2024 and First Guardian collapsed earlier this year.

In a new civil lawsuit filed in the Federal Court on Thursday, the Australian Securities and Investments Commission alleged that financial services firms Interprac, SQM Research and MWL Financial Services failed to adequately protect their customers from improper and high-risk investments in funds.

In its action against Interprac, ASIC alleges that the firm “failed to take reasonable steps to ensure that its authorized representatives complied with their best interests obligations (in the Corporations Act 2001), failing to provide financial advice to retail customers to invest their superannuation in the Shield Master Fund and First Guardian Master Fund”.

ASIC also alleges Interprac failed to put in place “adequate risk management systems”.

Interprac holds a license that allows financial advisors to offer products to clients.

Its authorized representatives included Ferras Merhi and Rhys Reilly.

ASIC alleges that Mr Mehri advised 2,930 retail customers to invest $243 million in First Guardian between January 2021 and August 2024, and 2,664 retail customers to invest $173 million in Shield between January 2022 and December 2023.

In response, ASIC alleges Mr Mehri’s businesses received payments from organizations linked to First Guardian and Shield.

ASIC also alleges that Mr Reilly advised 1,396 retail customers to invest $148 million in First Guardian between April 2021 and May 2024 and 1,139 retail customers to invest $114 million in Shield between January 2022 and December 2023.

ASIC alleges Interprac failed to properly monitor and review Mr Mehri and Mr Reilly’s activities or respond to evidence suggesting the advice they gave to their clients “did not meet standards”.

Additionally, the watchdog alleges that the company failed to respond appropriately when Mr. Mehri revealed a conflict of interest.

“On or about June 6, 2024, Mehri filed a statement with Interprac in which he acknowledged that companies he controlled had received more than $19 million from entities affiliated with First Guardian and more than $500,000 from entities affiliated with Shield,” court documents seen by NewsWire said. The statement was included.

“Despite this, Interprac allowed Venture Egg (Mr Mehri’s company) and Mehri to remain its authorized representatives until 31 May 2025.”

ASIC is bringing separate proceedings against Mr Mehri.

Mr Mehri told the ABC the allegations against him would be “vigorously defended” in court.

The watchdog also alleges that Interprac was guilty of numerous compliance failures, including blocking the use of a “negative consent” practice that allegedly led to some customers’ pensions being deposited into Shield and/or First Guardian without those customers’ express consent.

“We allege that Interprac failed to ensure that certain authorized representatives acted in the best interests of their clients and contributed to hundreds of millions of dollars of superannuation funds being invested in unsuitable, high-risk and costly products,” ASIC deputy chairman Sarah Court said in a statement on Thursday.

“We argue that no competent financial advisor could have advised Australians to invest a large proportion of their pensions into these funds and that Interprac, as the licensee, should have been mindful and sensitive to the significant risk this behavior posed to clients, but failed on many levels.”

Interprac is owned by ASX-listed Sequoia Financial Group.

ASIC is seeking declarations, fines and orders to prevent Interprac from conducting a financial services business.

The company has been contacted for comment.

ASIC also targeted SQM Research, an investment research agency that provides ratings on funds and other financial products.

Ratings can influence investment decisions.

In 2021 and 2022, SQM issued a “positive” rating for the Shield.

In its civil action, ASIC alleges that SQM failed to obtain the information it needed to evaluate Shield accurately, failed to properly take into account inconsistencies in the information it received in preparing its reports on the fund, misrepresented that it had a reasonable basis for giving it a ‘positive’ rating and exercised reasonable care and skill in doing so, and made misrepresentations that understated the percentage of funds managed by Shield-related parties and the fund’s asset allocation.

“We believe research houses are important watchdogs and form part of a critical line of defense against poor quality investments or unsuitable products,” Ms Court said.

“Given the important role that research organizations play in rating funds and investments, the public has the right to expect their reports to be accurate and based on appropriate information and analysis.”

ASIC is seeking a declaration and a fine from the Court.

An SQM spokesperson told NewsWire the research firm was assessing ASIC’s claim.

“We are assessing ASIC’s claim and will announce our position on this matter in due course after proper consideration,” the spokesman said.

Finally, ASIC has signaled it will take legal action against MWL Financial Services, former director Nicholas Maikousis and Imperial Capital Group Australia.

The watchdog alleges that between May 2022 and February 2024, nine MWL representatives advised at least 556 clients to invest approximately $114 million in Shield for retirement.

“MWL failed to take reasonable steps to ensure that its representatives acted in the best interests of its customers and failed to provide appropriate advice regarding recommendations for customers to roll over their superannuation to invest in Shield as the pre-selected investment option,” ASIC said in a press release on Thursday.

“MWL failed to ensure that its financial services were provided efficiently, honestly and fairly, and failed to put in place adequate regulations to manage conflicts of interest.

“Acting as a lead, Imperial made misleading representations to potential customers about the standard, quality and benefits of MWL’s financial services and was implicated in MWL’s alleged breach of its obligation to provide financial services efficiently, honestly and fairly.”

ASIC alleges that MWL received “referral fees” charged to customers for preparing Recommendation Statements recommending investment in Shield, and that Imperial, through a related entity, received approximately $12.8 million from Shield-related entities for customer referrals and Shield promotion.

“ASIC will seek to claim that MWL and Imperial were involved in a scheme that resulted in hundreds of Australians’ pensions being invested in a high-risk scheme,” Ms Court said.

“Although Shield does not have a proven track record, we will seek to argue that our clients are advised to invest most or nearly all of their retirement savings in the fund, regardless of their individual circumstances.”

MWL is currently in administration.

“ASIC’s application to make these claims is subject to Court approval (or Administrators’ approval),” the watchdog said.

“If allowed to proceed, ASIC will seek declarations and fines against all defendants and disqualification of Mr Maikousis from running the companies.