The Australian Securities and Investments Commission (ASIC) has taken legal action against an SMSF fintech company in regards to false or misleading representations about property investments made through an SMSF.
The corporate regulator stated it had commenced civil penalty proceedings in the Federal Court in late December against Squirrel Superannuation Services, which is a financial technology company holding an Australian financial services licence.
ASIC alleges from around January 2015, Squirrel marketed and sold services that helped customers establish and operate an SMSF to purchase established residential property and from March 2015 to July 2018 published and distributed a brochure to members of the public via email which made misleading representations.
Specifically, ASIC alleges Squirrel claimed in its promotional material ‘… residential property in metropolitan locations doubles in value every 7-10 years and generates a rental return of around 4 to 5per cent per annum’ and the use of a deposit from an SMSF to purchase residential investment property could obtain certain average returns.
Additionally, the regulator alleges Squirrel stated there was a ‘remarkable’ difference in returns between investing in a regular superannuation fund (7 per cent) and using an SMSF that purchased residential property (14 per cent) and the costs of managing an investment property through an SMSF were ‘surprisingly low’ compared with using a financial planner to select a series of managed investment funds.
Squirrel stopped distributing the brochure in July 2018 after being contacted by ASIC which commenced a full investigation in December 2018 leading to the filing of these proceedings.
ASIC stated it would seek declarations, pecuniary penalties and cost orders against the firm and a date for the first case management hearing has yet to be scheduled,
In related news, the corporate watchdog has also commenced civil proceedings and obtained freezing orders against Perth-based property developers which the regulator claims recommended the use of SMSFs despite not being licensed to provide financial advice services.
The regulator said it had taken action in the Federal Court against Monica Kaur, MKS Property Investments/Developments, Paradise Property Group as well as against Sadu Singh, Melvin Paul Singh and Stephanie Lee (the defendants) after it was concerned that Kaur was providing unlicensed financial advice services and the defendants were involved in promoting and operating an unregistered managed investment scheme.
ASIC alleges the defendants raised at least $11.3 million from around 300 investors from 1 March 2017 to 22 September 2020 through MKS Property and encouraged investors to establish an SMSF and invest part or all of their superannuation assets into property investments and developments set up by MKS Property and/or Paradise Property. Additionally the defendants, according to ASIC, used some investor funds for their own personal use and to pay returns to investors.
As part of its action, on 16 December 2020, ASIC obtained interim orders restraining the defendants from removing their assets from Australia, disposing of their property, and stipulating monies in their bank accounts be frozen.
In addition, Kaur, Sadu Singh and Melvin Singh have been prevented from leaving Australia.
The following day, ASIC, with the assistance of the Australian Federal Police, executed search warrants on a residential premise and business premises and on 22 December 2020, the parties agreed the asset and travel restraint orders regarding the defendants should continue with slight variation until further order of the Court.
ASIC’s investigation is continuing and the matter is next in Court on a date to be fixed.
