The former chairman of troubled IOOF told APRA during a review meeting that he “struggled” to think the wealth manager had any conflicts of interest and that the issue was getting too much “airplay”, according to court documents filed recently by the prudential regulator.
George Venardos, who has been on leave from the board since APRA filed its action in December to disqualify him and four other IOOF executives, made representations during the 2017 prudential review meeting attended by four APRA representatives that apart from conflicts of duties between members and shareholders, conflicts were “a bit of a non-event” and “did not create issues for members or fiduciaries”.
The comments were revealed in a statement of claim filed on April 22 in APRA’s Federal Court case, which calls for orders disqualifying Venardos, former managing director Chris Kelaher, chief financial officer David Coulter, company secretary Paul Vine and general counsel Gary Riordan.
APRA claims that IOOF entities IOOF Investment Management Limited (IIML) and Questor, and the five executives did not appropriately acknowledge and address conflicts of interest concerns, which were first raised by APRA in 2015.
The action also seeks an order that the IOOF entities breached the Superannuation Industry Supervision Act. The watchdog said it identified three separate occasions in 2015 where IIML and Questor contravened the Act by compensating superannuation beneficiaries for losses caused by an accounting error from their own reserve funds rather than the trustees’ funds or from third parties.
According to the 190-page statement of claim, APRA held a meeting in March 2017 in which it advised that the use of funds from the general reserve to recoup losses was a “last resort”, to be done only after IOOF had exhausted all other options and had “appropriately held those responsible for the loss to account”.
Venardos assured APRA’s general manager of insurance, Louis Serret, at a further meeting in June last year that taking funds from the reserve did not make beneficiaries worse off, according to the statement of claim.
The document details numerous meetings over several years with IOOF executives during which APRA representatives expressed concerns about conflicts and the practice of “skimming” returns from all superannuation members to compensate for losses.
During a 2016 meeting, Venardos, Kelaher, Riordan and Vine allegedly told APRA that it did not consider the funds in the reserve to be beneficiaries’ money because it was not in their accounts.
Kelaher, who resigned from IOOF earlier this month after 10 years at the helm, also allegedly played down concerns about conflicts, telling the regulator in the 2017 review meeting that IOOF had had no incidents in 20 years.
In launching the action in December, APRA deputy chair Helen Rowell said the regulator had sought to resolve its concerns with IOOF over several years, but decided to take “stronger action” after concluding the company was not making adequate progress.
“APRA’s efforts to resolve its concerns with IOOF have been frustrated by a disappointing level of acceptance and responsiveness to the issues raised by APRA, which is not the behaviour we expect from an APRA-regulated entity,” Rowell said.
“The actions we are now taking are aimed at achieving enduring change to ensure that the trustees of the superannuation funds operated by IOOF fully meet their obligation to put the interests of members ahead of all other interests.”
Rowell said Kelaher, Vernados and the others facing disqualification showed a lack of understanding of their obligations under the SIS Act and a “lack of contrition”.
IOOF announced earlier this month that Kellaher would step down as managing director effective July 2 by “mutual agreement” and that acting chairman Allan Griffiths would take over from Venardos as chair. Venardos remains on leave from the board while APRA’s action proceeds.
In addition to the regulatory action, IOOF is facing at least one shareholder class action alleging the company was aware that its conduct would have significant legal and regulatory risks. The case claims that between May 27, 2015 and August 9, 2018, IOOF breached its continuous disclosure obligations and engaged in misleading or deceptive conduct.
IOOF said in a statement to ASX that the class action was “speculative and unfounded”. The company has also said the allegations by APRA were misconceived and would be “vigorously defended”.
A hearing in APRA’s case is scheduled to begin July 1 before Justice Jayne Jagot.
Gadens represents APRA. Arnold Bloch Leibler represents Kelaher. Jones Day represents Venardos. King & Wood Mallesons represents Coulter, Vine, Riordan, IOOF Investment Management, and Questor Financial Services.
APRA’s case is Australian Prudential Regulation Authority v Christopher Francis Kelaher & Ors.