Yahoo Finance Beth was defrauded of her $500k nest egg. Then something worse happened
Beth Spence doesn’t know how to trust anymore.
She has only a couple of close friends, in addition to her husband and daughter. She knows she might come across as aloof or disinterested when she meets new people. And she knows it has made her life harder.
Even though she lost $500,000 and years of her time, to her, this is the most devastating consequence of the financial disaster that ensnared her and 379 others.
“I just don’t trust anyone.”
Spence and her husband Mick were two of the victims of a $60 million fraud conducted by the now jailed financial adviser Bradley Sherwin.
The fraud swallowed their entire nest egg and nearly their property too.
The two had hired Sherwin as their financial adviser in 1996 on the recommendation of Spence’s brother in law, who had studied with Sherwin.
Sherwin, who Spence described as an affable, approachable and trustworthy Queenslander, flew down to their home in Canberra to discuss their finances in September. He was wearing a Hawaiian shirt in the brisk Canberran spring, and the shivering financial adviser is still Spence’s prevailing image.
“It was an open conversation. It was good, the conversations that we had following that - he never pressured us. He explained fully how it worked,” Spence told Yahoo Finance.
To this day, she believes Sherwin at the time was working above board. She and her husband welcomed Sherwin into their home, had him over for dinners and he even stayed at their place.
But then something changed.
The problem was, Spence and hundreds of others didn’t discover their financial adviser had gone crooked until years later.
Christmas 2012
Spence and her husband moved to Byron Bay in September 2012 after their daughter’s wedding. They had decided to sell their Canberra home to move to the sunnier climate.
“He said, ‘Don’t panic. ASIC has just walked into Brad’s office. I’m sure everything will be okay.’"
Mick, who had been involved in a serious workplace accident, and who now used crutches to move, would do better in the warmer weather, Spence explained.
She contacted Sherwin to discuss the proceeds of their house sale, and where to put the cash.
“He never fully returned our calls, and we thought we would wait another few weeks,” she said.
Weeks later, a few days before Christmas, Mick’s brother called.
“He said, ‘Don’t panic. ASIC has just walked into Brad’s office. I’m sure everything will be okay.’
“You can imagine the adjectives that were said.”
In the days that followed, Spence drifted between denial and devastating moments of understanding.
They’d just moved, they had no money in the bank after their daughter’s wedding, and if Sherwin really was a fraudster, they had just lost their retirement savings. They had been days from pouring the money from their house sale down the drain too.
By early 2013 the story was clear: they’d been scammed, in a big way.
Ponzi scheme
Investigators later discovered that Sherwin had been orchestrating a Ponzi scheme of massive proportions, targeting mainly elderly Australians.
He pled guilty to fraud charges and was sentenced to 10 years in prison in November 2017. He will be eligible for parole on 14 November this year.
Sherwin had been found to have been shuffling around his clients’ savings through dozens of accounts set up with the Bank of Queensland by fund manager DDH Graham.
The court found the accounts had been set up without clients’ knowledge, the self-funded retirees - including Spence.
They didn’t even know these accounts existed until Sherwin came undone.
Bank of Queensland and DDH Graham reject any allegations of neglect in failing to stop the fraud from unfolding.
The class actions
It soon became clear that the Spences weren’t getting any of their money back, so she and her husband took their battle to the courts, along with dozens of others.
Sherwin’s fraud became the subject of two class actions.
The first, with Shine Lawyers, claimed that the trustees of the Sherwin-run Wickham Securities investment fund, Sandhurst Trustees, had breached the Corporations Act by failing to check Wickham could repay its investors and was being properly run.
The settlement in 2017 netted Spence $110,000.
“It was a godsend,” Spence said. She had been trying to save for the renovations needed to make their home appropriate for Mick’s needs, and to save for Mick’s back operation.
The second class action, brought by Quinn Emanuel Urquhart and Sullivan against DDH Graham and Bank of Queensland was less successful.
The class action settled in 2018 with two $6 million payments from the Bank of Queensland and DDH Graham, both of which maintained they had not failed in their duties.
“The proposed settlement is an example of an increasing problem in class action litigation in that the legal costs and litigation funding charges are disproportionate to the settlement monies to be distributed to class members."
“BoQ (has) denied liability … and continues to do so,” the bank told the stock market at the time.
Of the $12 million, $11.75 million went into fees for the lawyers and litigation funder Vannin, or 98 per cent.
“The proposed settlement is an example of an increasing problem in class action litigation in that the legal costs and litigation funding charges are disproportionate to the settlement monies to be distributed to class members,” Federal Court Justice Murphy wrote.
Justice Murphy cut the costs bill to $8 million, upping the $250,000 to $4 million.
However, by the time the court heard the case, the statutes of limitations around timing meant that only 53 claimants received any monies at all.
For Spence, that was just over $2,000, after six years in court.
“It’s just not fair,” she said.
She knows that, logically, she would have received nothing if it weren’t for the class action, but the ultimate payout regardless feels like a punch in the gut.
“There should be a cap on how much funders and lawyers can put on the pot,” she said. Anything between 40 per cent and 65 per cent would be fair - but not 98 per cent.
She also has a gripe with the class action system in general, which stymies communication between the lead plaintiffs - in this case an elderly couple - and other members of the action.
“It knocked the wind out of me. It still devastates me now. I still get quite emotional about it. It was surreal. You wake up one day and you think, ‘I really have nothing in the bank. He has taken all of our money.’”
Spence believes there should be some sort of representative for the members to communicate with the lead plaintiff, who generally has to make all of the big calls, without the ability to relay back information.
In this instance, that meant that critical information - like the fact that the settlement also ruled out any further legal claims - was unknown until too late.
It was a blow that “felt worse than the original outcome”.
“It knocked the wind out of me. It still devastates me now. I still get quite emotional about it. It was surreal. You wake up one day and you think, ‘I really have nothing in the bank. He has taken all of our money.’”
Quinn Emanuel Urquhart & Sullivan
Quinn Emanuel Urquhart & Sullivan partner Damian Scattini said the cost of class actions largely comes down to how they are defended, and noted that this class action was taking on two well-resourced defendants.
He noted that as part of the action, his team had to review some 1.2 million documents, stitch together email threads and identify suspicious activities.
"Obviously, people perpetrating a fraudulent scheme are careful to disguise their activities. Transactions were described in innocuous terms, overwhelmingly, legitimate payments were transacted with dubious ones, and Mr Sherwin otherwise, appeared to comply with all of the obligations of his Australian Financial Services License," the firm said in a submission to the Parliamentary Joint Committee on Corporations and Financial Services last year.
"With the benefit of hindsight, we would have filed actions on behalf of only those group members with a contractual claim. Unfortunately, we had to conduct exhaustive investigations before we could reach that conclusion. The ultimate settlement reflected this. Those who lost their money within the six years before we issued proceedings were able to recover damages."
While the firm described the statute of limitations as "terribly unfortunate for many elderly Australians", it said the hurt was not something that the firm visited upon them.
Scattini said the firm ultimately recovered half of its costs, but doesn't complain as it is part of the risk the firm assumed.
"It was not Quinn Emanuel that the group members trusted with their life-savings. It was not QE that breached that trust, and preyed on them over the course of decades. Nor was QE keeping their money ostensibly safely in a managed account," Scattini said.
"It wasn’t QE that paid damages to victims of Sherwin through the court process, which payment would certainly not have happened but for that court process. Scrutiny of those matters should be directed elsewhere."
Life today
Although Spence tries to keep her story “in a box”, and take every day as it comes, the consequences of Sherwin’s fraud follow her.
It’s things like being unable to buy her grandson a Harry Potter t-shirt, or replace her daughter’s faulty dishwashing machine that bothers her.
“We try not to think about it. We take each day as it comes.”
You can hear more from Beth and others on class actions tonight on SBS Insight at 8.30pm.
