ASIC and James Mawhinney – the saga continues

ASIC has opened a new chapter in its ‘odyssey’ of litigation against James Mawhinney and his related entities, commencing proceedings for contempt of court yesterday.

Key takeaways

• The allegation of contempt is based on the alleged breach by Mr Mawhinney of orders made by the Federal Court on 19 April 2021.
• The April Federal Court orders banned Mr Mawhinney fundraising in relation to financial products for 20 years.
• In late Jun 2021 it was reported that despite the Federal Court ban, Mr Mawhinney and companies associated with him were fundraising.
• Now ASIC has responded, commencing the Federal Court action alleging that this fundraising is contrary to the April Federal Court ban and amounts to contempt.

The current action and what came before

Yesterday, ASIC filed proceedings in the Federal Court against Mr Mawhinney and related entities which, inter alia, seeks to punish Mr Mawhinney for contempt.

See ASIC’s media release [here: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-302mr-asic-files-contempt-application-against-james-mawhinney/]

The Federal Court ordered Mr Mawhinney to stop raising funds in relation to financial products for 20 years in April 2021.  See our article on the fundraising ban here.

Despite the Federal Court orders in June 2021, the AFR reported that Mr Mawhinney was back fundraising.  The AFR reported that despite being banned from raising funds in relation to ‘financial products’, Mr Mawhinney was relying on ‘comprehensive legal advice from [his] team of barristers and QCs’ as to the compliance of these new ‘credit activities’ with the Federal Court orders’, and offering investors opportunities under a ‘credit facility agreement’, which is specifically excluded from the predictably complex definition of a ‘financial product’ under the Corporations Act 2001 (Cth).

We wrote about these reported further fundraising activities here, and noted the potential complexity of framing orders restricting fundraising activities and queried how ASIC would respond.

Now, just a few months later, ASIC has commenced the contempt proceedings.

In these proceedings, ASIC alleges Mr Mawhinney and related entities, Eleuthera Group Pty Ltd and UK-based Eleuthera Group Ltd, engaged in misleading or deceptive conduct, or conduct likely to mislead and deceive consumers, by sending emails directly to consumers regarding investment options, terms and rates of return, and that Eleuthera Group Pty Ltd carried on a financial services business in without an AFSL.

ASIC have filed a total of 12 documents overnight against Mr Mawhinney and his related entities, but have not made any publicly available at this stage.

Based on its media release, ASIC is seeking civil penalties, injunctions preventing Mr Mawhinney and his related entities from promoting or soliciting funds from consumers, and orders preventing Eleuthera Group Pty Ltd from carrying on a financial services business in Australia.

The Federal Court of Australia’s powers in respect of contempt are broad, and include the power to fine, imprison, order the sequestration of assets and impose a suspended sentence.

This latest action comes weeks after a heated hearing before the Federal Court in which ASIC sought $12 million in penalties against Mr Mawhinney on top of the 20-year ban.

The contempt action is just the latest court proceedings in the fallout from the Mayfair 101 and IPO Wealth products.  Litigation is not the only thing to have come from the collapse with significant investor losses estimated at approximately $211million and a spotlight being shone on the outdated definition of ‘wholesale client’ in the Corporations Act 2001, and its undermining effect on the financial services consumer protection disclosure regime.  

You can read our detailed analysis of the ‘retail versus wholesale’ definitions and the issues they pose here.

As to ASIC and Mayfair 101 and James Mawhinney, we await the detail of the contempt case, and the outcomes of the penalty hearing before the Federal Court.

One thing seems certain – this is unlikely to be the last piece of litigation involving ASIC and James Mawhinney.

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