Class action initiated by the victims of Melissa Caddick against SMSF auditors

Media Release

Mackay Chapman has filed a class action on behalf of 24 victims of Melissa Caddick against the auditors engaged to conduct annual audits of their self-managed superannuation funds (SMSFs).  

The class action, filed in the Federal Court of Australia in Sydney, alleges the 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 said to be held by the SMSFs in fact existed.  

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Background  ‍

Melissa Caddick, an unlicensed financial adviser based in Sydney, Australia, defrauded approximately $23 million from her clients. This occurred from 2012, when she established her financial services company, Maliver Pty Ltd (Maliver), up to her disappearance on 12 November
2020, following an ASIC raid on her home the day before.  

Ms Caddick's scheme involved purporting to be a legitimate financial adviser.  

Investors provided funds to Ms Caddick in the belief that the funds were being predominately invested in ASX-listed equities using CommSec accounts. 

The Federal Court later determined that these actions constituted a Ponzi scheme conducted by Ms Caddick and/or Maliver. 

The “investments” in fact never existed, and the money provided by the investors was instead fraudulently diverted to for Ms Caddick and/or Maliver's own use.

It has become apparent that the documents purporting to record the investors; investments and how they were performing were fraudulent creations by Ms Caddick, as found by the Federal Court.  

In some cases, when some investors sought to withdraw money from their investment, Ms Caddick and/or Maliver purported to pay them from their purported investment. It is now understood that the investor was being provided with money from the pool of funds which investors had invested with Ms Caddick and/or Maliver. 

Bruce Gleeson, one of the receivers appointed to the property of Ms Caddick, has stated following his investigations that he could not identify a single genuine document that Ms Caddick provided to her investors, and he could not identify any circumstances in which any of the CommSec account statements provided by Ms Caddick to her clients were found to have been true. 

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The auditors' role  

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Most victims invested with Ms Caddick and Maliver Pty Ltd through their SMSFs.  

SMSFs are required to be audited annually.   

Over the 8 years between 2012 and 2020, at least five auditors were engaged to conduct the mandatory annual audit of the SMSFs.  

The auditors all provided audit reports that, in effect, gave the SMSFs a clean bill of health.  Specifically, all of the audit reports found that the financial reports for the SMSFs were 'free from material misstatement' and 'presented fairly in all material respects the financial position
of the SMSF'. In other words, they did not identify any concerns. 

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. 

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Claims against the auditors 

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The victims claim that the auditors failed in their duties by failing to identify fraudulent documents prepared by Ms Caddick and failing to confirm that the assets said to be held by the SMSFs in fact existed.  
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This gives rise to actions against the auditors in:  
- Negligence. 
- Breach of contract;  
- Misleading or deceptive conduct and/or misleading or deceptive representations; and  
- Other contraventions, including breaches of the Corporations Act 2001 (Cth) and the ASIC Act 2001 (Cth). 
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The class action has been allocated to the docket of the Honourable Justice Markovic and is presently being case managed by Her Honour.

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.

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