Uncovering Sterling First Scam: Everything You Need To Know

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  • Post published:February 3, 2024
  • Post category:Reviews

In 2015, a property investment scheme called Sterling First burst onto the scene in Western Australia, marketed as a brilliant innovation to help retirees unlock home equity and live rent-free for the rest of their lives.

By 2019, over 100 elderly victims were left homeless and destitute, with losses totaling $18.5 million, in one of Australia’s biggest retirement savings disasters.

As the founding directors now face criminal charges over allegations of dishonest conduct, this article reviews the Sterling First scheme, examines what went wrong, shares victim complaints, and highlights the lessons for avoiding retirement investment scams that are too good to be true.

The Sterling First “Smart” Retirement Scheme

Sterling First marketed itself as an intelligent solution pairing property investors looking for good rental returns with retirees wanting long-term leases so they could sell their homes and live rent-free.

The scheme centered on the “Sterling New Life Lease” (SNLL), where retirees would invest money into the Sterling Income Trust (SIT), a managed fund.

The SIT would use investors’ money to buy residential properties and lease them back to the retirees for the rest of their lives in return for the upfront payment.

Retirees could sell their homes to unlock capital, then use the profits to purchase a SNLL lease, believing their accommodation was secure forevermore.

To vulnerable retirees, it sounded like the perfect way to consolidate assets while avoiding rental and mortgage stress. Sterling First marketed itself heavily in 2015-2016, holding free seminars and using persuasive sales tactics to sign up dozens of retirees in the Mandurah area, south of Perth.

Most investors were in their 70s and 80s, enticed by the promise of ongoing tenure in comfortable homes so they could live stress-free and leave inheritances for their families. Some sold homes they had lived in for decades to invest six-figure sums into SNLL leases.

In total, around 130 retirees purchased SNLL leases valued at $18.5 million. But far from providing secure retirement housing, Sterling First proved to be a elaborately marketed scam that would leave its elderly victims penniless and homeless within a few short years.

The Collapse of Sterling First

Behind its glossy brochures and lofty promises, Sterling First displayed multiple warning signs of a questionable investment scheme destined for failure and financial abuse of vulnerable seniors.

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The business was founded by Ray Jones, who had previously been bankrupted over the 1990s Geneva Finance scandal where investors lost $30 million.

His co-director, Simon Bell, was formerly involved with Westpoint, another property development group that collapsed in 2006 owing investors $388 million.

Despite this dubious history, the pair had no issues gaining regulatory approval to launch the SIT investment fund in 2012 and start operating their “rent for life” retirement scheme. The arrangement also likely benefited from property market conditions in WA that encouraged speculative investments in real estate.

However, right from the beginning in 2015, the SNLL leases being offered failed to comply with WA tenancy laws. Rather than treat this as a red flag on the credibility of the operators and products,

…the WA Department of Consumer Protection assisted Sterling First to tweak the contracts so they aligned with regulations. This move conferred a sheen of legitimacy to the scheme before it went on to lure unsuspecting retirees.

With regulatory approval secured and marketing in full swing, complaints soon emerged alleging Sterling First engaged in misleading and deceptive conduct by targeting vulnerable older people and failing to properly explain the underlying financial structures and risk factors to investors. But these alarms failed to trigger any disciplining action or consumer warnings from authorities.

Behind the scenes, the Sterling First enterprise appears to have been on shaky ground as early as 2015-2016. The SIT fund was financially troubled from the start, with issues covering operating expenses and maintaining investments underlying the leases.

When the Perth property market slowed, Sterling was exposed as a speculative house of cards tied to ever-increasing property valuations.

Despite being clearly insolvent, directors allowed Sterling First to continue trading, amassing further investor money when the scheme should have been shut down.

Eventually in May 2019, the Sterling Group collapsed into liquidation, leaving all SNLL leases worthless and elderly retirees who had entrusted their life savings stranded without either homes or retirement income.

Victim Complaints and Harm

The human impact on Sterling First’s victims was profound and tragic. Some ended up evicted onto the streets, having sold homes they owned outright to invest in worthless leases.

Many faced sharp rental increases on the properties they had intended to live in permanently, eating further into their depleted savings.

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The elderly age of the group left them poorly positioned to recover financial security. And beyond the money loss, victims described overwhelming stress, shame and hopelessness at falling for the scam as they faced bleak retirement prospects.

Some have reportedly died in poverty since the collapse, with the misery and scandal of everything they lost. Common themes emerge in complaints made against Sterling First:

Directors targeted vulnerable retirees when they should have known the underlying investment structure was unsound. And even as financial issues mounted, they continued soliciting investment from elderly people when the scheme was doomed to fail.

Promotional materials and sales tactics were misleading, glossing over risks that investments were tied to speculative property purchases and creating an unrealistic impression that leases would deliver reliable, lifelong rental returns.

Sterling First exploited seniors’ desires for retirement security by presenting their scheme as a failsafe way to unlock home equity and live without housing expenses. They knew the concept would appeal even while the financial constructs were unstable.

As operators with a history of failed schemes, the directors should have been prevented from launching an elaborate new retirement investment vehicle without better vetting of competency and potential for repeat misconduct.

Regulators failed to pick up on early warning signs, detect issues in the underlying SIT fund, or take decisive action against misleading conduct targeting retirees. Stringent disciplinary action earlier could have mitigated financial losses.

In Parliamentary and Senate Inquiries following the collapse, authorities like ASIC and WA Consumer Protection admitted to oversights in letting the scheme operate unchecked and devastate vulnerable citizens under their watch.

The directors now face criminal charges, but this provides little comfort to elderly victims still reeling and demanding compensation for their destroyed retirement plans.

Key Lessons for Avoiding Retirement Investment Scams

The Sterling First debacle underscores several cautionary lessons for retirees considering non-standard financial schemes that promise lucrative rewards:

1. Beware unbelievable deals: If an investment product seems too good to be true, it often is. Sterling First relied on manipulating seniors’ hopes for better retirement security, but the concept of risk-free, high-return housing leases funded by property speculation made no rational sense.

2. Research directors and promotors: Operator history matters immensely – experienced scammers know how to present legitimacy while redirecting funds quietly. Both Ray Jones and Simon Bell had previously been involved in collapsed financial schemes that should have instantly excluded them from directing retirement funds.

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3. Verify regulatory compliance: Just because a scheme has corporate registration or promotes itself as above board does not mean it has received stringent oversight testing its long-term viability. Either through gaps in enforcement or outright misleading conduct, shady operators often cloak themselves in official trappings while committing fraud.

4. Read the fine print: Scrutinize details of financial structures and risk factors rather than listening only to sales pitches. The way investment funds are used and handled is more revealing than lofty promises of profits. With complex schemes, seeking independent expert advice is wise.

5. Don’t invest the farm: No matter how appealing a deal looks, never invest more than you can afford to lose, especially leveraging assets like home equity that secure your basic standard of living. For retirees, preserving capital should take priority over speculation.

6. Report concerns: If an investment promoter seems overly pushy, the underlying business practices opaque, or you have doubts about stability, report your concerns to regulators immediately. Early complaints help authorities identify issues before schemes grow exponentially.

The Bottom Line

Essentially, if an investment opportunity feels off or risks undermining your retirement security, don’t ignore suspicions just because the sales brochures look professional. Prioritize safety and certainty over speculation in protecting your hard-earned savings.

The directors of Sterling First now face lengthy jail sentences if found guilty of misconduct. But no legal outcome can undo the damage inflicted on over 100 elderly Australians who put their trust in the promoter’s false promises.

They lost life savings, homes, and retirement peace of mind in a preventable scandal that demands heightened prudence by seniors assessing non-traditional investment pitches promising too much with too little accountability.

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