Sophisticated scammers who left retirees homeless face potential criminal charges, the corporate regulator says while being blasted for reacting slowly.
The operators of a rent-for-life scam that ripped off seniors and left some homeless have been deemed potentially criminal by the corporate watchdog, which was blasted at a parliamentary inquiry for not acting fast enough when complaints poured in.
Sterling First marketed itself as pairing up “smart property investors that are looking to get a better rental return with retirees that are looking to sign a long-term lease”.
Retirees involved in the scheme sold their homes to free locked-up capital, then moved into rental properties with the expectation they would stay there for the rest of their life.
But the Sterling Group and Sterling Income Trust went into liquidation in 2019 – allegedly after trading while insolvent for months – and many of the lessees were forced out while others fought to keep a roof over their heads.
The liquidators report that the victims will possibly get zero returns.
Australian Securities and Investments Commission chair Joseph Longo testified at the inquiry on Tuesday, saying “certain aspects of the conduct involving the Sterling Group may have been criminal”.
This warranted close consideration by the Commonwealth Director of Public Prosecutions, Mr Longo said.
In its submission, ASIC said it received three reports of suspected misconduct in 2015-16 relating to the Sterling Group, but at the time it considered no further action was warranted.
In August 2017, it served an interim stop order on Theta, the responsible entity for the Sterling Income Trust, prohibiting offers, issues, sales or transfers, and causing sale-pitch seminars to be cancelled and concerning statements on a website to be amended.
By March 2018, ASIC had completed a review of Theta’s new product disclosure statement and decided not to take action to stop its use.
But around the same time, ASIC was concerned about the solvency of the Sterling Group, and about a month or so later, Sterling Income Trust was closed to new investors.
It wasn’t until late May 2018 that ASIC began a formal investigation into whether individuals associated with the Sterling Group had been breaching the Corporations Act from June 2012.
“We are satisfied that the judgments we made were reasonable, based on the information we had at the relevant times,” Mr Longo said.
“We appreciate that those who have suffered losses have wished for us to move faster at times or to have intervened earlier.”
Victim Alan Fardoe gave a heartbreaking account of his loss and said he was not only let down by ASIC but by the Australian Financial Complaints Authority.
He said ASIC was “very slow” to react, including allowing Sterling Group’s Silverlink company to act as an alternative to investments in the Sterling Income Trust after being made aware of it in April 2018 but only launching a broad investigation in March 2019.
“There were so many red flags in this situation – it’s just unbelievable that these people get away with the past record that they had,” Mr Fardoe said.
One of the submissions to the inquiry was: “Sterling directors were well known to ASIC as serial Ponzi schemers. In 2013, ASIC were alerted about a company called Heritage ($15m losses) yet they still allowed the same company’s directors to change its name to Sterling First.”
Mr Fardoe said he and his wife kept running into “dead ends” seeking help, with ASIC referring him to AFCA, which was “a waste of time”.
“We tried every avenue we could … we think, ‘Oh well, we’ll wait for the compensation scheme of last resort’ and that comes out and it excludes managed investment schemes,” he said.
“We’re left with no recourse.”
Coburn Corporate Intelligence managing director Niall Coburn, who set up his practice after working as a senior specialist adviser to ASIC, said there were multiple “red flags” that should have prompted the regulator to seek an injunction.
“The most important stuff you have to do as an investigator … is be fast off the blocks as soon as there is a smell in the air,” Mr Coburn said.
“Because these fraudsters are really good, they’re sharp, you’re dealing with pretty intellectual minds in terms of finance.
“As soon as there’s a red flag … there’d be six or seven here, you’ve got enough to have an injunction, just to stop it.
“If you’re waiting six months to a year, you’re going to have a lot of bodies on the street.
“If you sit back, even though you’ve got those complaints in 2015-16 … and hope that things are going to fly in the window, well, that’s never going to happen.
“How many houses did they go to? How many did they speak to immediately?
“Often the answers are found very earlier on if you start interviewing witnesses and gather evidence.
“It seems to me that the evidence was there within ASIC but hadn’t been put together to make a decisive decision.”
The financial collapse expert and barrister said the problem with ASIC was not resources.
“Someone didn’t make a decision and it would be a senior within ASIC to make a call to do an injunction,” he said.
“We used to be able to go to court ourselves – ASIC lawyers could conduct injunctions themselves.
“Now everything is outsourced. You’re relying on some counsel outside ASIC to hopefully have the same view as you.”
Originally published as Plenty of ‘red flags’ before Sterling First collapse, ASIC deems scam potentially criminal
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