The Sterling Income Trust inquiry received evidence from the Australian Securities and Investments Commission (ASIC) that it considered multiple reports of Sterling Group misconduct. The first of these reports came from the Financial Ombudsman's Service (FOS) in 2015, the year of the commencement of the Sterling New Life rent-for-life scheme involving the Sterling Income Trust; also, in 2015 an ASIC officer had lodged a report of misconduct expressing concern that Sterling First 'may be engaging in misleading or deceptive conduct'.
Prior to 2015, ASIC had identified multiple non-compliance issues against Sterling Income Trust's responsible entity, Theta, from as early as 2010. ASIC revealed that it was aware that a person associated with Sterling, who wasn't identified, had been the subject of reports of misconduct to ASIC in the 1990s for 'failure to provide adequate information about financial standing of investments and payment of investment returns', and that he 'was the subject of a few investigations in the 1990s'.
Despite receiving these multiple reports, about a corporate entity that ASIC knew was operating a scheme targeting vulnerable, elderly consumers, ASIC repeatedly opted to take 'no further action'. Until ASIC commenced a formal investigation into the Sterling Group and Sterling New Life leases in May 2018, the regulator's only action against the Sterling Group was to issue a stop order to the responsible entity, Theta, on the Sterling Income Trust product disclosure statement (PDS) on 29 August 2017—six months after receiving a complaint from Western Australia's Consumer Protection agency.
ASIC publicised the stop order in a press release on 17 September 2017, yet admitted it did not contact the 63 existing Sterling New Life tenants, who had paid in $11.677 million, to inform them; on 18 November 2021 in testimony to the inquiry, ASIC conceded it should have done more to publicise the stop order.
On 29 September 2017, one month after issuing the final stop order, audited financial statements of Sterling Income Trust were lodged with ASIC in which the Auditor's statement revealed that 'a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern'. Nevertheless, despite knowing that the Sterling Group continued to market to vulnerable, elderly consumers, for example at an October 2017 seniors' expo, ASIC claimed to be unaware that the Sterling Group continued to market its rent-for-life scheme under the name Silverlink.
Until ASIC acted to stop Silverlink on 17 December 2018, 38 tenants had paid in $6.877 million.
ASIC's inaction, and delayed actions, against the Sterling Group were not due to ASIC having insufficient powers. Section 13 of the Corporations Act gives ASIC power to initiate an investigation if it has 'reason to suspect' a contravention of the Act. By any measure, ASIC's knowledge of the background of the entities and individuals associated with the Sterling Group, and the multiple reports of misconduct it received from 2015, including from official entities such as FOS and Western Australia's Consumer Protection agency, provided sufficient reasons to suspect corporate misconduct.
In the hearings, ASIC repeatedly gave evidence that these delays were largely due to two significant reasons, namely that it fields thousands of complaints a year, and at that time it was dealing with two larger corporate collapses in Western Australia. ASIC's inaction and excuses are disconnected from the reality that it knew the target market of the Sterling scheme was vulnerable, elderly consumers. This knowledge should have been sufficient for ASIC to respond aggressively to the very first reports of misconduct. By not doing so, more than 100 rent-for-life tenants lost $18.554 million upon Sterling's collapse in 2019, and now face eviction and homelessness.
A concern raised about compensating these victims has been that it would amount to the government compensating a general investment loss. The unique circumstances and especially the failure of ASIC to act in a timely manner distinguish these victims from just being victims of a lost investment. ASIC had all the information and power to respond to the complaints. Had ASIC done so quickly, many millions would have certainly been saved. ASIC did not act quickly.
To be clear, it is not suggested that it is ASIC's responsibility to protect against all investment losses. It is ASIC's responsibility to effectively exercise its powers in a timely manner so that Australians are protected from loss due to non-compliant operators.
The cause of ASIC's failure to act, whether reasonable in the circumstances due to a lack of resources or an inability to investigate all complaints, is not relevant to the question of whether victims should receive compensation. The facts remain there was a failure of ASIC to quickly exercise its powers and that led to more needless victims and more losses. Previous investors were not provided with information which would have caused them to take action to protect their money.
Culpability for this failure must lie with ASIC and, by extension, the government responsible for ASIC. If ASIC was unable to act quickly because of a lack of resources to investigate all complaints, then it is a failure of government. In either case, the victims deserve compensation.
Recommendation
All factors considered, including ASIC's regulatory negligence, and the advanced age and vulnerability of the Sterling and Silverlink tenant victims who are being evicted, the Commonwealth Government, which is responsible for ASIC and its regulatory philosophy, should immediately compensate the 130 victims for the full $18.554 million they lost, plus interest and expenses.
Senator Malcolm Roberts
Pauline Hanson's One Nation Senator for Queensland