ASIC sues three Keystone Asset Management directors

ASIC is suing former Keystone Asset Management directors Paul Chiodo, Ilya Frolov and Mark Yorston for allegedly failing their duties to safeguard superannuation members from the collapse of the Shield Master Fund.

Some 5800 investors with $530 million in retirement savings were invested in Shield. Keystone, which is now in liquidation, was the responsible entity for Shield.

ASIC alleges about $305 million of this total was transferred as "loans to entities" linked to Chiodo and Frolov, who were officers and directors of Keystone. The regulator is also concerned such transfers involved the giving of financial benefits to a related party.

Chiodo was also the director and co-founder of CF Capital, the investment manager of Shield.

Keystone told investors their funds would be used for property development projects, such as apartment buildings and resorts.

In its 2023 PDS, Shield told investors: "the investment manager (being CF Capital) and Keystone as RE of the Shield Master Fund (SMF) each always dealt with the other on at least arm's length terms, and Keystone as RE took its responsibilities under law, including in relation to the management of conflicts, very seriously."

ASIC alleges this was not the case and funds were transferred without basic safeguards, including proper security, valuations, oversight or management of conflicts.

The directors used members' money for unauthorised purposes without a sufficient connection to the intended property development projects, ASIC found, including payments to related parties and third parties without the required prior approval of scheme members.

Additionally, the directors did not abide to the "Shield Compliance Plan" by failing to obtain valuations of the assets of Shield and manage conflicts of interest involving Chiodo and Frolov.

ASIC is also suing Frolov and Jeremy Danon, who were former compliance committee members of Shield, for allegedly failing to meet their obligations.

"We allege hundreds of millions of dollars of superannuation was transferred to related entities without basic safeguards, exposing thousands of Australians to significant financial risk," ASIC chair Sarah Court said.

"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."

Court added ASIC's investigations into the matters connected to Shield are continuing.

ASIC is seeking civil penalties, disqualification orders against the former directors and costs.

Last year, some 3000 investors had their $321 million invested capital in Shield returned after Macquarie entered into a court enforceable undertaking with ASIC.