Keep it safe: under the mattress

THERE were two big superannuation stories this year. One was that after 10 years, according to bodies that track this kind of thing, the average return on super – about 3 per cent – barely matched the return on cash.

So, while a stupendous gravy train of hangers-on has supped majestically on the sweat of the Aussie worker’s brow, the workers themselves would have done better if they had plonked their savings in a bank deposit for the past decade.

The second story is about a Ponzi scheme, a scam in which superannuation was siphoned off to a Caribbean tax haven by a canny ring of crooks. More than $100 million is still missing. It is the biggest theft in Australian super history.

To the guts of it: the crooked investment managers got their hands on some super fund money from gullible financial planning networks. The planners were amenable to juicy commissions, not to mention “marketing allowances”, and even loans, for sending their clients’ savings in the right direction.

The crooked fund, Astarra Strategic Fund, was showing beautiful returns, suspiciously beautiful in retrospect. While the financial crisis was wreaking its havoc on most investments, Astarra was touting smooth double-digit returns.

Unwittingly, the asset consultant Morningstar played its part, slapping a superlative four-star rating on Astarra for its magnificent management. Not much due diligence there. Nor from Astarra’s auditors WHK, its custodians National Australia Nominees, Trio Capital (the funds manager responsible for running it), or the prudential regulator APRA, for that matter.

Armed with its four stars and boasting terrific “returns”, the savings flowed in. While the other funds in Astarra – which was subsequently acquired by Trio – were fair dinkum and therefore provided good cover for the scam merchants, the Astarra funds were sent to the British Virgin Islands via Hong Kong.

There, in what tax cognoscenti fondly call the BVI, the funds were deployed to buy ”deferred purchase agreements” – another silly name concocted by financial magicians. In this case, it simply meant Astarra was chock-full of dodgy assets which had been ”bought” from a Hong Kong lawyer, Jack Flader.

To recap, more than $100 million in savings of Aussie battlers was sent to the Caribbean only to vanish. The regulator has not been able to recover it.

The Herald and its reporter, Stuart Washington, got their scalp this week though when the Australian Securities and Investments Commission nailed its first conviction in the Astarra scam.

A 35-year-old investment manager, Shawn Richard, pleaded guilty to two charges of dishonesty. However, the mastermind – the long-haired international playboy Flader – remains at large.

This was not a Ponzi scheme in the classical “cascading pyramid” sense. Some money did come back to Australia to keep the scheme going. Shawn Richard is said to have received $6.4 million. No doubt some was funnelled to Flader’s interests here – and remitted to the dopey financial planners via assorted payments.

Unlike new media, we at the Herald can’t just publish anything we like. There is the burden of proof to consider, not to mention the spectre of a defamation suit whether a story is right or wrong. Along the way, there were legal threats in prosecuting the Astarra story, as there are chasing many a good yarn.

Suffice to say that Astarra is not the only fund on the Australian super landscape to have boasted suspiciously beautiful returns.

The fraction of our national savings pool skimmed off in fraud will, however, always be dwarfed by the meaty percentage frittered away in unfair fees and charges, unnecessary advice and consultancies, unwarranted executive payments … and in related party transactions which should never have been sanctioned.

There is an Australian subsidiary of a Miami company, Brightstar, which recorded a pre-tax profit of $46 million on revenue of just $143 million last year. It had notched up a tidy $70 million on revenue of $181 million the year before. It’s a dream margin, the sort of profit margin a mining company might strike in a resources boom – not that of a handset supplier, a middleman, in the cut-throat telco sector.

Brightstar had managed until recently to keep its accounts secret, claiming that, as it only had one customer, it should be exempted from normal reporting requirements. Disclosure, it contended, would unfairly disadvantage against its competitors.

Alas, Brightstar had to cough up its financials after losing a Federal Court appeal earlier this year. The accounts are, to say the least, impressive – and not for the diversity of their customer base.

That one customer was Telstra. Good old Telstra, under its former management of chief executive, Sol Trujillo, and chief operating officer, Greg Winn, had been paying Brightstar two to three times the industry rate for handsets in 2007, according to leaked contracts and articles published at the time.

Trujillo had awarded Brightstar an exclusive supply contract shortly after he signed up with Telstra in 2005. Trujillo and (famed member of the Three Amigos) Winn had been co-investors with Brightstar’s founder, Marcelo Claure, in a Chinese telco venture called Silk Road Telecommunications. Trujillo and Claure are said to be friends.

Although nothing dishonest or illegal is suggested, had Telstra bothered to conduct a tender process before helping Brightstar to an exclusive contract and a $1 billion-a-year business, a piquant aroma might not have been wafting so steadfastly around Brightstar, and indeed Telstra and its board, for so long.

Last month, and now under the stewardship of David Thodey, Telstra announced it had conducted a review of its third party contracts and would bring its mobile phone handset purchase arrangements back in house.