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Annual checks failed to confirm the investment assets – which turned out to be fake – actually existed.
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Caddick fraud victims target class action against SMSF auditors
31 October 2023
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Melbourne-based lawyer Mackay Chapman has filed a class action on behalf of 24 victims of disappeared fraudster Melissa Caddick against the auditors engaged to conduct annual audits of their SMSFs.
The class action alleged that auditors engaged to review the annual financial reports for the SMSFs failed to identify fraudulent documents prepared by Ms Caddick and failed to confirm that the assets purportedly held by the SMSFs in fact existed.
Ms Caddick, an unlicensed financial adviser from Sydney, defrauded approximately $23 million from her clients over an eight-year period before disappearing on 12 November 2020, the day after an ASIC raid on her home.
Operating through her company Maliver, established in 2012, Ms Caddick claimed to be a legitimate financial adviser. Investors handed over funds in the belief that they were being used to buy ASX-listed equities.
But the investments never existed and the money from investors was instead diverted for Ms Caddick and Maliver's own use.
Federal Court later determined that these actions constituted a Ponzi scheme conducted by Ms Caddick and Maliver. It found that the documents purporting to record the investors’ investments and how they were performing were fraudulent creations by Ms Caddick.
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When an investor sought to withdraw money, Ms Caddick drew on the investment pool of funds.
Mackay Chapman said most victims invested with Ms Caddick and Maliver through their SMSFs, which were required to be audited annually.
From 2012–20, at least five auditors were engaged to conduct the mandatory annual audit of the SMSFs and all provided audit reports that, in effect, gave the SMSFs a clean bill of health.
All of the audit reports found that the SMSF financial reports were “free from material misstatement” and “presented fairly in all material respects the financial position of the SMSF”.
In the Sydney Federal Court filing, the victims claimed that the auditors failed to identify fraudulent documents prepared by Ms Caddick or to confirm that the assets said to be held by the SMSFs in fact existed.
”We now know that the financial reports reviewed by the auditors were supported by fraudulent documentation prepared by Ms Caddick and the assets said to be held by the SMSFs did not exist,” Mackay Chapman said.
The actions against the auditors included claims of:
- Negligence.
- Breach of contract.
- Misleading or deceptive conduct and/or misleading or deceptive representations.
- Other contraventions, including breaches of the Corporations Act 2001 (Cth) and the ASIC Act 2001 (Cth).
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