APRA accepts enforceable undertaking from former Trio director - Keith Finkelde

11.18

The Australian Prudential Regulation Authority (APRA) today announced it has accepted an enforceable undertaking from former Trio Capital Limited (Trio) director Keith Finkelde. Trio was formerly the licensed trustee of five registered superannuation entities as well as the responsible entity of a managed investment scheme known as the Astarra Strategic Fund (the ASF), a fund of hedge funds.

Mr Finkelde was a non-executive director of Trio from April 2007 until Trio’s collapse in December 2009. He was also a member of the Investment Committee from July 2008 to December 2009. Mr Finkelde has undertaken not to act as a trustee or as a responsible officer of a body corporate that is a trustee, investment manager or custodian of an APRA-regulated superannuation entity for a period of six years.

Mr Finkelde has acknowledged APRA’s concerns that he failed to carry out his duties properly as a director of a superannuation trustee. APRA’s concerns included that Trio:

• failed to redeem existing investments in the Exploration Fund Limited (EFL), an offshore hedge fund, given:
  o there was a lack of arms’-length arrangements in place as the EFL was a related party to Trio;
  o the investment risks associated with the EFL; and
  o Trio had failed to comply with the provisions in its Overarching Investment Policy dealing with hedge fund and related party investments;
• failed to redeem existing investments in the ASF and made ongoing investments in the ASF, given there were similar issues to those associated with the EFL investment. Trio failed to adequately consider counterparty risk, the risks of investing in offshore hedge funds and the risks associated with the investment structure of the ASF through Deferred Purchase Agreements; and
• caused the Trio superannuation entities’ interests in the EFL to be transferred to the ASF, pursuant to an in specie transfer, which resulted in the superannuation entities assuming the counterparty risk and other risks associated with the investment structure of the ASF.

The Trio superannuation entities’ investments in the ASF have not been able to be redeemed and ACT Super Management Pty Limited (ACT Super), the Acting Trustee appointed to the Trio superannuation entities, has determined that the funds have been lost due to fraud or theft.

Mr Finkelde accepts that, with the benefit of hindsight, and with what has since transpired, he should have acted differently in relation to APRA’s concerns, and genuinely regrets the consequences that arose.

APRA Deputy Chairman Ross Jones said that the acceptance of the enforceable undertaking was an appropriate resolution of the matters between Mr Finkelde and APRA.

‘APRA’s ongoing enforcement action demonstrates its determination to identify and take action against directors involved with Trio who have failed to meet the high standards expected of trustee directors,’ Mr Jones said.

Mr Finkelde is the fourth Trio director to give an enforceable undertaking to APRA arising out of APRA’s investigation into the collapse of Trio. APRA’s investigation is continuing.

Download a copy of Mr Finkelde’s enforceable undertaking.

Background

On 8 September 2011, APRA announced it had accepted enforceable undertakings from former Trio directors Rex Phillpott and David Andrews. Mr Phillpott was an executive director of Trio from October 2005 until December 2009. Mr Phillpott has undertaken not to act as a trustee or as a responsible officer of a body corporate that is a trustee, investment manager or custodian of an APRA-regulated superannuation entity for a period of 15 years. Mr Andrews was a non-executive director of Trio between November 2005 and January 2006 and from July 2006 onwards. Mr Andrews has undertaken not to act as a trustee or as a responsible officer of a body corporate that is a trustee, investment manager or custodian of an APRA-regulated superannuation entity for a period of 10 years.

On 4 July 2011, APRA announcedit had accepted an enforceable undertaking from former Trio director Natasha Beck. Ms Beck was a non-executive director of Trio from June 2008 until December 2009. Ms Beck has agreed not to act as a trustee or as a responsible officer of a body corporate that is a trustee, investment manager or custodian of an APRA-regulated superannuation entity for a period of four years.

On 13 April 2011, in response to an application by ACT Super and on the recommendation of APRA, the Assistant Treasurer, the Hon. Bill Shorten MP, announced his decision to grant approximately $55 million in financial assistance to over 5,000 members of the Trio superannuation entities as a result of funds being lost to fraud or theft.

On 17 December 2009, APRA suspended Trio as the trustee of its four superannuation funds and one pooled superannuation trust, and appointed ACT Super, a subsidiary of McGrathNicol, as Acting Trustee to manage these five entities. APRA suspended Trio and appointed ACT Super as a result of numerous breaches of Trio’s licence conditions and it not being able to satisfy APRA’s concerns regarding the valuation of superannuation assets.

APRA commenced its investigations in relation to the Trio superannuation entities in October 2009. The Australian Securities & Investments Commission (ASIC) has also been conducting a concurrent investigation into Trio Capital. Both agencies have been cooperating with each other with respect to their investigations.