The six-year global hunt for billions of dollars invested by a Malaysian development fund has run through Saudi Arabia and the Cayman Islands. Now, it points to Australia.

Regulators there are liquidating a little-known firm called Avestra Asset Management, saying it put its clients' money at risk in questionable investments.

Avestra focused on Malaysian penny stocks and obscure merger finance, according to a copy of an affidavit by the Australian Securities and Investments Commission reviewed by The Wall Street Journal. But it also had a key role in managing $2.32 billion for state-owned fund 1Malaysia Development Bhd., according to a person familiar with the matter and testimony in June by 1MDB's auditor before a Malaysian parliamentary committee.

That money flowed from 1MDB's first major investment, a joint venture with a Saudi oil company in 2009 that never found any oil and was soon wound down. 1MDB says the money was reinvested in a Cayman Islands fund. But government critics in Malaysia, including a former prime minister, have repeatedly demanded proof that the money is actually in the fund and want to know why it has circulated among various offshore companies for years without being returned to the country at a time when 1MDB is struggling to repay $11 billion in debt.

Now it appears the money ended up being overseen by a firm that is being shut down by Australian authorities, adding another layer of questions to the long-running debate.

The investigation into Avestra and those involved in it is ongoing, according to a person familiar with the matter.

Attempts to reach Avestra weren't successful. Australian regulators are willing to cooperate with Malaysian authorities as they probe 1MDB, the person said.

The 1MDB fund, set up by Prime Minister Najib Razak in 2009 to further the country's development, is facing allegations of graft and missing money. It is now under investigation in at least five countries and has produced a political scandal that is destabilizing Mr. Najib's government. In Malaysia, the central bank, auditor general, anticorruption agency and a parliament committee are probing the fund's activities.

A Malaysian government investigation found hundreds of millions of dollars linked to 1MDB allegedly was transferred into Mr. Najib's personal accounts, most of it ahead of a tight election in 2013, the Journal reported in July. The source of the money is unclear and the government investigation didn't detail what happened to the funds. In August, Malaysia's anticorruption body said the cash was a donation from the Middle East.

Mr. Najib denies wrongdoing or taking money for personal gain. 1MDB has denied wrongdoing and said it will cooperate with any investigation. Attempts to reach Mr. Najib and 1MDB officials weren't successful.

The disputed deal involved a joint venture set up in 2009 with a little-known Saudi Arabian company called PetroSaudi International Ltd. that would invest in energy projects around the world. But it quickly generated controversy.

The 1MDB fund was supposed to invest $1 billion into the joint venture. A draft report into 1MDB by the auditor general, however, found this year that $700 million of the $1 billion investment went into "another account not related to this joint venture" and "without the approval" of the 1MDB board. The venture never produced any oil and was wound down the following year.

Executives at 1MDB say there was nothing improper about the Saudi venture or any of the fund's other transactions.

A representative of PetroSaudi said that all funds were properly accounted for. The Saudi company has said 1MDB made a profit on the venture.

In 2012, 1MDB put $2.32 billion of what it said were proceeds from its PetroSaudi investment into a Cayman Islands-registered entity called Bridge Global Absolute Return Fund SPC. According to 1MDB, that money included its initial $1 billion investment, plus a later investment of about $800 million and profits it earned in the venture. The Bridge Global fund was set up only weeks before it received the 1MDB money, according to documents from the Cayman Islands corporate registry that don't say who set it up.

In testimony in June to the parliamentary committee investigating 1MDB, a representative from current auditor Deloitte Touche Tohmatsu Ltd. said the money in Bridge Global at that time was managed by Avestra. Australia's regulator says Avestra became an "investment adviser" to Bridge Global in March 2014. It is unclear whether Avestra had any prior connection to Bridge Global or if it still has a role at the Cayman Islands fund.

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

Opposition politicians and even some members of Malaysia's ruling party, however, have wondered why 1MDB would keep so much money in a little-known fund. Mohamad Mahathir, Malaysia's former prime minister and one of the most vocal critics of Mr. Razak and 1MDB, has alleged repeatedly in recent months that "vast amounts of money has disappeared" from 1MDB and spotlighted issues with the PetroSaudi investment in particular.

Others have raised questions, too. 1MDB's auditor, KPMG LLP, was fired in December 2013 by Mr. Najib, who is chairman of 1MDB's board of advisers, after it refused to sign off on the Malaysian fund's financial accounts without more details on the investment in Bridge Global, according to the auditor general report.

To enable Deloitte to sign off on its books after KMPG was fired, 1MDB got a unit of a government investment fund in Abu Dhabi known as the International Petroleum Investment Company to guarantee the investments in Bridge Global, a Deloitte auditor told the Malaysian parliamentary committee.

KPMG and Deloitte declined to comment.

Soon after, 1MDB used its investment in Bridge Global as collateral for a $975 million loan from a group of banks including Deutsche Bank. Questioning its collateral after already giving the loan, the banks pressed 1MDB to pay back the loan just nine months after it was issued, according to Malaysia's finance ministry.

The Abu Dhabi firm IPIC stepped in again. It agreed to take over some of 1MDB's debt, including the Deutsche Bank loan, in return for equity, under the terms of an agreement signed in May with the Malaysian fund.

Last year 1MDB said it had redeemed roughly $1.22 billion of its $2.32 billion investment in Bridge Global. Officials at 1MDB said the remaining investment of just over $1 billion will be handed over to Abu Dhabi's IPIC as compensation for helping it repay the Deutsche Bank loan.

At a news conference on Saturday, 1MDB Chief Executive Arul Kanda said the fund was working to reduce its debt. He called the deal in May with IPIC, which also includes the Abu Dhabi fund taking over other bonds issued by 1MDB, "the final piece of our rationalization."

The transfer of the remaining Bridge Global investment to IPIC isn't scheduled to occur until next year, according to the agreement. Any shortfall in the value of the Bridge Global investment may have to be covered by the Malaysian government, according to the terms of the May agreement with IPIC.

Write to Daniel Stacey at daniel.stacey@wsj.com, Bradley Hope at bradley.hope@wsj.com and Tom Wright at tom.wright@wsj.com

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(END) Dow Jones Newswires

November 03, 2015 00:55 ET (05:55 GMT)