Arron Wilson was told his funeral fund would help his family - now his money is gone

Ngarrindjeri man Arron Sumner Wilson has been to a lot of funerals, including his brother's in 2017 and his mum's in 2019. He knows how expensive they can be. So he thought he was doing the right thing by signing up to an Aboriginal community benefit fund he believed would cover his funeral costs, so his daughters were not saddled with a debt they couldn't afford to repay.

Instead, he - along with 15,000 Aboriginal policyholders and their families - will likely be left with nothing as the fund has gone into liquidation, owing millions of dollars.

The collapse earlier this month of Youpla Group, which ran Wilson's funeral fund and three others, has sparked calls for the federal government to compensate its victims. It has also raised questions over the failure of state and federal authorities to regulate it - as well as revealing an allegation, made by the liquidators in a report to creditors and filed to the Australian Securities and Investments Commission (Asic), about the role of its founder, Ron Pattenden, querying whether he may have misappropriated money from the business by way of a dividend payment over a number of years.

Wilson has lived on Ngarrindjeri country for most of his life. In 1999 he was working on the CDEP (Community Development Employment Projects, more commonly known as the work for the dole scheme) in Raukkan when a couple of representatives of the Aboriginal Community Benefit Fund (ACBF) came and signed up "about 20" people.

Wilson paid into the fund every fortnight, even as the premium increased from $8 to $10 and then to $14 - until November 2020, when he found out that ACBF had misled him and it was not an Aboriginal community organisation and he sought advice about how to get his money back.

"It's a funeral fund we was putting into, and funerals ain't cheap," Wilson says. "It'd be different if it was like you'd made a fool of yourself by investing in some company that folded, you know, something silly. This was for a funeral, to make sure you get a burial. And money being left behind for other loved ones, that's the whole idea of what I was doing it for."

In November last year, the ombudsman, the Australian Financial Complaints Authority (AFCA), found that Wilson had been "misled and deceived" and the ACBF should repay his $7,034 in contributions, plus interest.

AFCA found that Wilson "was, and remains, a vulnerable person. ACBF misled and deceived him. It acted unconscionably and in breach of its duty of utmost good faith".

He has not received a cent.

For decades, Youpla - previously known as the Aboriginal Community Benefit Fund (ACBF) - sold funeral insurance and funeral expenses policies marketed solely to Aboriginal and Torres Strait Islander consumers, using marketing materials with Aboriginal art designs and attending community events like the annual Koori Knockout rugby league competition.

In dozens of cases the ombudsman found that ACBF misrepresented itself as an Aboriginal-owned and controlled not-for-profit, community organisation serving the Aboriginal and Torres Strait Islander community.

ACBF was found to have sold vulnerable Aboriginal people low-value funeral insurance, including cover for children and babies, with people allegedly paying more over time than the policies were worth.

The royal commission into banking in 2018 heard ACBF would deduct money from Centrelink payments before people received them - which was then legal but is now illegal - and, until a policy change in 2017, deny payouts for suicide.

Community and consumer groups are now calling on the federal government to compensate "the victims of this atrocious failure".

It is urgently needed, according to the Financial Rights Legal Centre's Mob Strong debt help solicitor, Mark Holden. Policyholders who have died since the collapse of Youpla or who pass away in coming months should be able "to depart with dignity and allow sorry business to be observed respectfully," Holden says.

"First Nations policyholders have sacrificed and worked hard to put money aside for sorry business and have now been left with the risk of unimaginable intergenerational debt as a result of Youpla's inability to follow through on its promise."

The consumer advocacy group Choice describes the collapse as one of the "worst failures of regulation it has seen" in decades.

"The government allowed this disaster to unfold. It has a moral obligation to make it right," says the chief executive of Choice, Alan Kirkland.

Legal services have previously pleaded with the government to include funeral funds in a compensation scheme of last resort, which was recommended by the Hayne royal commission in 2019, but there is little chance legislation can be rushed through parliament before the federal election is called.

Even so, the new laws would not have helped Youpla's victims because the treasurer, Josh Frydenberg, excluded funeral funds from the government's proposed model.

The Consumer Action Law Centre's Aboriginal policy officer, Wurundjeri woman Samanatha Rudolph, says her organisation wrote to Frydenberg in October, trying to get Youpla included in the compensation scheme.

She says Youpla had been taking money from Indigenous people for close to three decades.

"There's been plenty of opportunity for strong regulation and harsh penalties against Youpla," she said.

Frydenberg's office referred Guardian Australia's inquiries to Jane Hume, his assistant minister with responsibility for financial services, who did not answer when asked directly about the government's failure to bring in a compensation scheme covering funeral funds.

A spokesperson said that the government had implemented a royal commission recommendation requiring a licence to sell funeral insurance, which has stopped Youpla writing fresh policies since April 2020.

"The government has also introduced design and distribution obligations that will further prevent this inappropriate selling of such policies," the spokesperson said.

The fund Wilson was in, known as Aboriginal Community Benefit Fund No 2, collapsed in November. Youpla's directors put the rest of the group - Aboriginal Community Benefit Fund (usually known as fund No 1), ACBF Funeral Plans and Community Funeral Plans, and three other companies - into the hands of insolvency practitioners David Stimpson and Terry Rose, of SV Partners, on Friday.

In a statement, Stimpson said he would "endeavour to contact all members as soon as possible with more details" and promised to issue an initial report by this Friday.

The directors pulled the plug after Asic wrote to them on 11 March, questioning Youpla's solvency. The collapse has exposed the scant regulation of funeral fund products, which had been partly overseen by NSW Fair Trading but were not regulated by Asic until two years ago.

Youpla has been on the radar of both regulators for decades, first coming to Asic's attention in 1999 and Fair Trading's in 1992, when an investigation found it was carrying on a funeral fund business without a licence.

Penalties for breaches of the NSW legislation are small: the main one is the threat of deregistration.

Asic's ability to clamp down on Youpla was also limited because until April 2020 funeral funds were exempt from the requirement to hold a financial services licence.

In 2020, Asic launched federal court action accusing Youpla Group and ACBF Funeral Plans of making false and misleading statements to members. Youpla is defending Asic's claim and the case returns to court for a case management hearing on 31 March.

The collapse has also brought to light an allegation about founder Pattenden in the group's financial situation contained in a report to creditors filed with Asic by the liquidator of Fund No 2, W Roland Robson.

"My enquiries with the current directors of the company revealed that the former director of the company [Pattenden] may have misappropriated a large amount of the company's funds by the way of the dividend payment to himself or related entities over a number of years," the report says in a section headed "Voidable Transactions". Where certain payments appear to a liquidator to be "voidable transactions" they may be able to take action to recover that money for creditors.

One of Pattenden's companies also provided reinsurance to the fund.

Robson told creditors he wrote to Pattenden in January demanding companies associated with him repay the money, but Pattenden refused and ended reinsurance of the fund.

The liquidator told Guardian Australia the withdrawal of the reinsurance was among reasons an effort by directors to refloat the fund failed.

He said there was "not much" money held in Fund No 2 for its 3,400 members.

"It's basically about $100,000, that'd be it," he said.

Guardian Australia sought to contact Pattenden on his New Zealand and Australian mobile phone numbers, and at two addresses in New Zealand: a luxury penthouse complex in Gulf Harbour, an exclusive waterside development an hour north of Auckland, and a property called Tio Bay Lodge in the country's north, which covers much of a remote headland, with its own jetty and several residential buildings.

Guardian Australia has not had responses from Pattenden to questions about the liquidator's allegations.

Pattenden's lengthy business career includes running a luxury tourism accommodation business in Vanuatu.

Moored outside the Gulf Harbour address when Guardian Australia visited on Thursday was a smart motor launch used to ferry Pattenden and his crew and guests to his main boat, the 32-metre Dream Catcher, known as the biggest boat in the marina.

According to friends, Pattenden has two full-time crew on the ocean-going boat, which he has used to travel between Gulf Harbour and Tio Bay Lodge.

According to former associates, Pattenden recently sold land in the Bay of Islands for upwards of NZ$5m.