ASIC Targets Research & Advice Failures That Led Australians Into Collapsed Investment Products

Key Takeaways

• Regulator Action: ASIC has filed separate Federal Court proceedings against SQM Research and Interprac Financial Planning over their roles in the Shield and First Guardian fund failures.
• Misleading Ratings: ASIC alleges SQM Research issued “Favourable” ratings for Shield without adequate information, proper analysis, or a reasonable basis.
• Licensee Failures: ASIC alleges Interprac failed to oversee its authorized representatives, resulting in approximately $438 million (AUD $677 million) of client superannuation invested in high-risk, unsuitable funds.
• Gatekeeper Expectations: ASIC highlights that research houses and licensees are key gatekeepers and must exercise rigorous due diligence, independent scrutiny, and meaningful oversight.
• Enforcement Trend: The actions follow REP 820 and ongoing enforcement against individuals linked to the funds, underscoring ASIC’s heightened focus on private credit products, superannuation advice, and product governance.

Deep Dive

Australia’s financial regulator has filed two major Federal Court actions alleging that SQM Research and Interprac Financial Planning failed in their gatekeeping duties, contributing to widespread losses tied to the Shield Master Fund and First Guardian Master Fund. The coordinated actions demonstrate the ASIC’s growing pressure on research houses, licensees, and intermediaries responsible for steering Australians into high-risk investment products.

ASIC’s first lawsuit focuses on the research house whose assessments helped pave the way for Shield to reach thousands of investors. SQM Research issued reports in October 2021, March 2022, and October 2022 rating various classes of the fund as “3 3/4 stars, Favorable.” According to ASIC, those ratings were not supported by sufficient information or proper analysis.

The regulator alleges SQM Research:

• did not obtain the information necessary to assess Shield appropriately,
• failed to reconcile inconsistent information it did receive,
• misrepresented that it had a reasonable basis for issuing a “Favourable” rating, and
• understated the percentage of funds managed by Shield-related parties and misstated the fund’s asset allocation.

These shortcomings, ASIC says, meant SQM Research’s reports did not accurately depict the quality, value, or grade of the product.

Those reports were relied on by financial advisers and superannuation trustees who recommended or onboarded Shield. Roughly 5,800 Australians ultimately invested their retirement savings into the fund, many after being advised to roll their superannuation balances into platforms offering it.

Deputy Chair Sarah Court noted that this case marks the first time ASIC has taken action against a research house.

“Research houses are important gatekeepers,” she said. “The community is entitled to expect that their reports will be accurate and based on appropriate information and analysis.”

ASIC is seeking declarations and civil penalties. The action follows the regulator’s recently released REP 820, which warned that external research houses must perform rigorous due diligence before issuing ratings. Regulatory Guide 79 also outlines ASIC’s expectations around research quality, independence, and transparency.

Interprac Accused of Oversight Failures That Exposed Thousands to High-Risk Products

The second proceeding centers on Interprac Financial Planning, the licensee responsible for advisers who recommended Shield and First Guardian. ASIC alleges Interprac failed to ensure its former authorized representatives, Venture Egg and Rhys Reilly, complied with their best-interest obligations and that the firm lacked adequate risk management systems to prevent widespread harm.

According to ASIC, these representatives advised approximately 6,843 clients to invest about $438 million (AUD $677 million) of their superannuation into the two funds, both of which have since collapsed.

ASIC alleges Interprac failed to:

• properly assess or approve Shield and First Guardian before adding them to its approved product list,
• respond adequately to the use of lead generators,
• act on payments made to companies associated with Ferras Merhi,
• maintain a halt on new investments after senior management raised serious concerns about both funds,
• prevent a “negative consent” practice that resulted in some clients’ superannuation being invested without express approval,
• respond appropriately to the surge in inflows,
• handle complaints with anything more than generic template responses, and
• take meaningful action after repeated audit findings showing significant compliance issues.

“These alleged failures exposed thousands of Australians to poor advice and significant financial risk,” Court said. “No competent financial adviser could have recommended Australians invest large amounts of their superannuation in these funds.”

ASIC is seeking declarations, civil penalties, and orders restraining Interprac from carrying on a financial services business.

The action comes alongside separate proceedings against Ferras Merhi and interim Federal Court orders restricting him from operating in the financial services industry.

Growing Pressure on Financial Gatekeepers

Together, the lawsuits signal a warning that research providers, licensees, and advisers are not passive intermediaries across Australia's financial system. ASIC expects rigorous due diligence, meaningful oversight, and swift responses to warning signs, particularly where superannuation is involved.

As the fallout from Shield and First Guardian continues, ASIC’s cases against SQM Research and Interprac reinforce the message that the regulator is increasingly prepared to test those expectations in court.

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