A Senate report has lashed Australia's corporate regulator for failing to stop a dodgy investment scheme that targeted elderly investors before it collapsed.
It follows a Senate inquiry examining the Sterling Income Trust scheme, which saw investors sign long-term tenancy agreements and use returns from lump-sum investments to pay rent.
The scheme collapsed in 2019 after almost $30 million was invested.
The report noted the Australian Securities and Investments Commission's "lack of concern regarding the involvement of questionable directors and key personnel", with one director having registered more than 100 businesses using different variants of his name and birth date.
The Labor-chaired committee called ASIC's approach "hands-off", given it took nine months to start formally investigating Sterling after finding its defective product disclosure statement.
Some $4.9 million was invested in the scheme after ASIC issued a 'stop order' in August 2017, citing factors including not disclosing risks, and conflicts of interest in the disclosure statement.
"The committee has serious concerns about the performance of ASIC ... including its under-assessment of the gravity of the risks, the timeliness of its response, and its failure to act proactively," the report reads.
"In this instance the committee believes ASIC had sufficient evidence and grounds for concern ... to refer the matter to its enforcement division for investigation."
ASIC had argued its regulatory framework did not stop such people from promoting schemes.
The committee also recommended a system to compensate financial misconduct victims who can't be paid when a scheme fails, be expanded to include managed investment schemes like Sterling.
Noting Sterling was "another example in a long list of (similar) failures that have preyed on vulnerable Australians", it questioned the strength of the regulatory framework.
They also called for larger penalties for similar future breaches to deter "creation of high-risk financial products that have a significant risk of failure".
A dissenting report from coalition senators argues oversight of the scheme was split between ASIC and Western Australia's industry regulation department.
That report notes the tenants had signed a document they thought guaranteed them their home even if the scheme's income wasn't enough to pay rent, but WA law operated to make that provision void.
"Why was this fatal flaw in the protection of the tenants arising under the Residential Tenancies Act of WA not identified? ... This was not in the purview of the Commonwealth - it fell four square (feet) within the jurisdiction of the WA government," it reads.
It argues the tenants would not have entered into the initial arrangements had they known they were not actually signing a binding life-long lease.
"The testimony was clear. The expectation of the tenants was they had entered into a residential tenancy which had secured their housing requirements for the term of their 40-year residential tenancy," the dissenters reported.
They did not support the recommendation to expand the Compensation Scheme of Last Resort to managed investment schemes.
