Australian Regulator Loses Lawsuit Against Wealth Manager IOOF

Court rules APRA failed to prove firm broke pension laws.

A federal court in Australia has ruled against the country’s financial regulator, the Australian Prudential Regulation Authority (APRA), in its misconduct lawsuit against wealth manager IOOF. 

APRA alleged that IOOF had breached the country’s pension laws, claiming that , directors and executives had failed to act in the best interests of their superannuation members. APRA said that before it decided to take IOOF to court, the regulator had sought to resolve concerns over several years, but concluded that the company “was not making adequate progress,” or was not likely to do so in an acceptable period of time.

“It was for APRA to prove the primary facts on which the allegations of contraventions depended. The way in which it sought to do so was fundamentally inadequate,” Federal Court Justice Jayne Jagot wrote in her ruling, adding that “APRA’s approach involved reliance on the doctrine of res ipsa loquitur [accident implies negligence] when the one thing that is clear is that the facts of the incidents in question in this case by no means speak for themselves.”

APRA said in a statement that it was “disappointed by the decision” and is examining the judgment in detail, and will make a decision on whether to pursue an appeal.

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“Litigation outcomes are inherently unpredictable, however, APRA remains prepared to launch court action – where appropriate – when entities breach the law or fail to act in an open and cooperative manner,” Helen Rowell, APRA’s deputy chair, said in a statement. “APRA still believes this was an important case to pursue given the nature, seriousness and number of potential contraventions APRA had identified with IOOF.”

The ruling could affect a class action lawsuit that was filed against IOOF in April alleging that the wealth manager breached stock market disclosure obligations and “engaged in misleading or deceptive conduct.”

The law firm leading the case against IOOF cited an announcement by APRA of various proceedings against IOOF’s subsidiaries and officers related to the alleged breaches.

IOOF said in a statement that it welcomed the ruling and was “reviewing the written judgment in detail and expects to issue a further announcement in due course.”

APRA said that additional license conditions it had imposed on IOOF last December are unaffected by the federal court’s ruling and remain in force. Rowell also said that despite losing the case, APRA’s “tougher approach” to enforcement did lead to improvements at IOOF.

“APRA has seen significant improvement in the level of cooperation from IOOF since this case was launched,” she said. “Additionally, the new license conditions have enhanced IOOF’s organizational structure and governance, including the role and independence of the trustee board within the IOOF group. This will better support effective identification and management of future conflicts of interest,” she said.

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Exclusive: MetLife’s Ellermeyer Shifts to Apollo Insurance Operation

Investment pro to help manage insurance assets at Leon Black’s shop, which got its start with a defunct insurer’s junk bonds.

Apollo Global Management is best-known as a private equity firm, but it also runs money for insurance companies. So it just hired Jeremy Ellermeyer, a MetLife managing director, to help it do just that.

Ellermeyer, 48, has started work as a managing director at what’s called credit business management in Apollo’s Insurance Solutions Group. Its two large insurance entities, Athene ($119 billion assets under management as of mid-year), which handles the US, and Athora ($14 billion), dedicated to Europe, invest the money generated by premiums, after benefits are paid out.

Neither Apollo nor MetLife would comment on Ellermeyer’s new job. And Ellermeyer himself, who joined MetLife in 2014, couldn’t be reached. At the outset of his career, after graduating from Mount St. Mary’s University in 1992, he spent six years at UBS Global Asset Management. He has an MBA from Fordham University.

Founded by Drexel Burnham investment banker Leon Black in 1990, Apollo has its roots in insurance. After Drexel collapsed amid a rout in its signature junk bonds, Black, who had been the firm’s mergers and acquisitions chief, got ownership of the fixed income portfolio of a failed insurer, Executive Life.

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Turned out that the portfolio was stuffed with Drexel-provided junk bonds, which were valued at a fraction of their par value. The canny Black had scored a bargain. When the high-yield paper’s price later recovered, what was then called Apollo Advisors cleaned up.

Since then, Apollo has carved out a place in the private equity world. Its most recent acquisition was digital imaging outfit Shutterfly for $2.7 billion. And it even has gobbled up an insurer, completing a $2.6 billion deal for Aspen Insurance Holdings in February. But Apollo also has branched into real estate, credit, and investment management.

Apollo just went through a top-level management shift, with the promotion of two longtime partners to lead its private equity business, which boasts $77 billion in assets. Matt Nord and David Sambur are taking over from Co-President Scott Kleinman.

Apollo announced last spring it was converting from a publicly traded partnership to a C corporation, which it felt would help its stock price. CEO Black, lamented at first that the stock still was lagging, but it since has perked up, advancing 33% since the switch.

 

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