In July 2004, APRA disqualified Mr Fearon's fellow directors, Peter Guild, Maris Neimanis, Ian Thomson and Glenn Wall who were all directors of KLA Australia Investments (No 2) Pty Ltd, trustee of the KLA Australia Superannuation Fund, a small Canberra-based superannuation entity. APRA found that while they were trustee directors between 2001 and 2004, the trustee failed to submit annual returns to APRA, breached legal requirements to have equal representatives of employees and employers on the trustee Board and also breached in-house asset rules, member disclosure requirements and the requirement to maintain minutes of meetings.

In September 2005, APRA disqualified Mr Fearon for the same reasons as his fellow directors, and also found he had personally breached the requirement to maintain appropriate records. In October 2005, APRA also found Mr Fearon's position as a trustee director conflicted with his role as auditor and compromised the principle of auditor independence. As such, he failed to carry out or perform adequately the duties of an approved auditor. Further, APRA found that Mr Fearon failed in his duty to inform the trustee of certain contraventions of relevant legislation.

Mr Fearon is the only former KLA director to appeal his disqualifications. He requested an internal review by APRA, which confirmed his disqualifications, and subsequently appealed to the AAT.

In confirming APRA's decisions to disqualify Mr Fearon, the AAT found that Mr Fearon failed to comply with obligations placed on him as a director of the trustee of the fund and repeatedly failed to comply with the requests of APRA. It found he performed audits of the fund even though he was not independent. The AAT also found that Mr Fearon deliberately tried to deceive APRA and ASIC by lodging with ASIC in 2004 documents purporting to show he had resigned as trustee director in 2001.

The AAT agreed with APRA that ‘the financial integrity and the prudential management of superannuation funds is dependent upon auditors and trustees and their professional independence, honesty and integrity in the way in which they carry out their functions'.

APRA has appointed an acting trustee to wind up the fund.

APRA's Deputy Chairman, Mr Ross Jones, said that in taking disqualification action, APRA's objective was to protect the interests of superannuation members from the risks posed by industry personnel who lack competence and integrity, or who are compromised by conflicts of interest. Mr Jones said "APRA relies on information provided by auditors and treats breaches by auditors very seriously".

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.5 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.

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