BVI Offshore Business: Grey Area

The Australian Securities and Investments Commission issued an urgent interim stop order to Trio Capital (also known as Astarra Capital) to remove the product disclosure statements for the funds it manages from its website.  The order followed charges filed last week by ASIC against Astarra managers Mr Richard and Mr Liu. Information about filing the case in the New South Wales Supreme Court was not publicly disclosed. 

The Astarra funds were among the top-performing funds during the financial crisis at the end of 2008. One of the funds, the Alpha Strategic Fund, delivered 11.67 per cent over three years to November 2008. This fund, later renamed into Astarra Strategic Fund, was founded in Sydney by Mr Richard and Mr Liu. It is a $118 million hedge fund that operated under a structure that held its assets through the British Virgin Islands entity EMA International.

The Government’s Transaction Reports and Analysis Centre had granted the investment management company run by the managers of the Astarra funds an exemption from all sections of the Anti-Money Laundering and Counter-Terrorism Financing Act, meaning the company did not verify the identity of its customers or report certain transactions. The Strategic Fund allowed retail investors with just $1000 to invest in the complex hedge fund-of-funds product, which had reported only three months of negative returns since its inception in 2005.

Earlier this year, the custody of the Strategic Fund was transferred from ANZ to NAB’s National Australia Trustees (NAT) unit. The Hong Kong branch of Standard Chartered is said to be the custodian of the assets in the British Virgin Islands, but it would not confirm or deny this. Also, unlike other Astarra Funds, the Strategic Fund had not updated its performance since the end of June 2009.

The unusual structure of the Strategic Fund, including the so-called “deferred purchase agreement”,   was said to have tax purposes. The Strategic Fund did not provide information on who provides guarantees for the agreement, just noted that the BVI company EMA International was a special-purpose vehicle, and there was counter-party risk in case of its insolvency or failure to comply with the obligations of the agreement. Court hearing of Astarra managers’ case is scheduled for November 9.