SYDNEY • Australian regulators are liquidating a little-known firm that had a key role in managing US$2.32 billion (S$3.3 billion) for scandal-plagued 1Malaysia Development Berhad (1MDB), the Wall Street Journal (WSJ) reported yesterday.

The authorities accused Avestra Asset Management, which focused on Malaysian penny stocks and obscure merger finance, of putting its clients' money at risk in questionable investments, the WSJ said, citing a copy of an affidavit by the Australian Securities and Investments Commission.

The newspaper said that the US$2.32 billion flowed from the Malaysian development fund's first major investment, a joint venture in 2009 with a Saudi oil company that never found any oil and was soon wound down. 1MDB says the money was re-invested in a Cayman Islands fund. But critics, including former prime minister Mahathir Mohamad, have demanded proof that the money is still in the hands of the fund.

Now the dispute becomes more complex as the money appears to have ended up being overseen by a firm that is being shut down by Australian authorities, the WSJ said.

An anonymous source told the US-based newspaper that the probe into Avestra is still ongoing, and that Canberra is willing to cooperate with Kuala Lumpur in the 1MDB investigation.

However, Australian regulators are not looking into Avestra's relationship with 1MDB, but instead at whether retail investors may be at risk. They allege Avestra hid its investments from regulators by routing them through Bridge Global fund, where 1MDB had invested its money.

Malaysian Prime Minister Najib Razak is facing calls to step down over allegations that billions are missing from 1MDB, which he set up in 2009 to further the country's development.

The WSJ reported in July that nearly US$700 million linked to the firm might have found its way into his personal bank accounts.