The Australian Securities and Investments Commission (ASIC) has commenced Federal Court action against the former directors of Keystone Asset Management, claiming they invested scheme funds into related entities and third parties without proper safeguards.
The corporate regulator stated the legal action against Paul Chiodo, Ilya Frolov and Mark Yorston alleged they breached their director and officer duties, while Frolov and Jeremy Danon, as former compliance committee members, are alleged to have not met their obligations under law.
ASIC’s case relates to Keystone’s operation and management of the Shield Master Fund, into which more than $530 million of superannuation was invested by around 5800 investors, with the regulator alleging around $305 million was transferred to a related property development fund controlled by Keystone before being transferred again to entities linked to Chiodo and Frolov.
As part of its case, it further alleged funds were transferred without safeguards, such as proper security, valuations, oversight or management of conflicts.
Additionally, it claimed investor money was used for unauthorised purposes that did not have a sufficient connection to the intended property development projects, which included payments to related parties and third parties without the approval of scheme members.
The case also asserted there were failures to ensure compliance with the Shield compliance plan by failing to obtain valuations of the assets of Shield and manage conflicts of interest involving Chiodo and Frolov.
The regulator stated it is seeking civil penalties and disqualification orders against the former directors and costs, with ASIC chair Sarah Court adding: “Investors in managed investment schemes are entitled to expect that their investments will be carefully managed on their behalf, but, in this case, ASIC alleges investors were exposed to conflicted arrangements and poor oversight.
“These proceedings are about holding those we allege to be involved to account and sending a clear message that directors operating schemes of this kind must act in investors’ best interests.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason