ASIC Enforcement wrap: August 2022 | ASIC Sets Priorities for 2022-2026 with Corporate Plan

ASIC’s enforcement outcomes in August included significant criminal and administrative outcomes.  We summarise below important cases and areas of focus that industry participants should be aware of and provide an overview of the type and number of outcomes.

Key takeaways

• ASIC releases corporate plan for 2022-26, with an emphasis on continuing enforcement of DDO Regime, and in respect to Crypto-Assets and Scams
• The former auditor of Big Un Limited, Graham Rothesay Swan, was convicted for failing to conduct an audit in compliance with auditing standards – a reminder that auditors need to uphold their requisite standard of work, or face serious consequences, including potentially losing their registration as an auditor
• Daniel Farook Ali, an alleged fraudster suspected of misusing funds provided to him by investors for trading and investment purposes, was extradited from Poland – showing that ASIC’s enforcement activities can reach even those located overseas from Australia

August in summary – enforcement actions and outcomes

• Administrative action:

• Financial Services Bannings – three individuals were banned for reasons such as engaging in misleading or deceptive conduct, having been convicted for dishonesty offences, and demonstrating a lack of professionalism and judgment
• Financial Services Licence Cancellations – five companies for reasons such as engaging in misleading or deceptive conduct, not having provided any financial services within 6 months of licence being granted, failure to lodge financial statements, failure to maintain AFCA membership, and the licensee being in liquidation 
• Financial Services License Suspension – two companies for reasons such as failure to lodge financial statements, and failure to have required professional indemnity insurance
• Director Disqualifications – two individuals for involvement in multiple failed companies
• Interim Stop Order – preventing a financial services licensee from transferring interests in a fund, because of alleged misleading or deceptive statements in the fund’s marketing and disclosure

• Criminal:

• Three instances of criminal charges being laid, involving offences such as of making a false or misleading statement to ASIC, the fraudulent removal of company property by a company officer and dishonestly obtaining property by deception
• Six defendants pleading guilty to charges brought by ASIC, involving offences such as failing to conduct an audit in compliance with auditing standards, theft, market manipulation, forgery, providing false documents to ASIC, making a false or misleading statement to ASIC and fraud, with two defendants immediately sentenced

• Civil Action:

• Federal Court penalises against two companies for superannuation advice breaches, each company penalised for a sum of $125,000
• Appeal – Full Federal Court upheld a decision by a single judge in the Federal Court to disqualify and penalise a former director for failure to comply with continuous disclosure provisions

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ASIC Releases Corporate Plan Setting Out Its Priorities for 2022-2026

ASIC’s latest corporate plan has listed four external strategic priorities, being:

• Product Design and Distribution
• Sustainable Finance
• Retirement Decision Making
• Technology Risks

ASIC also set up eight core strategic projects to support and advance these priorities, being sustainable finance practices, crypto-assets, scams, cyber and operational resilience, breach reporting, design and distribution obligations, digital technology and data, and the Financial Accountability Regime.

All of the priorities and strategic projects will be reflected in how ASIC allocates its resources in taking enforcement action. 

Of particular note is the continued focus on the new Product Design and Distribution Regime (DDO Regime) introduced in October 2021.

As we noted in our ASIC enforcement wrap for July 2022, ASIC has made its first use of ‘stop order’ powers under the DDO regime, and financial service providers should expect more of its use in the future. 

In fact, this month ASIC has placed another interim stop order, which prevented Fawkner Property Ltd from issuing or transferring interests in a fund it was responsible for, on the basis that Fawkner misrepresented the performance risks of the fund in its marketing

As ASIC Chair Joseph Longo succinctly put it in his speech to CEDA on 23 August 2022, “Selling products now requires clear consideration of the objectives, financial situation and needs of the consumers being targeted.”

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Former Auditor Convicted for Failing to Comply with Auditing Standards

On 1 August 2022, the former auditor of Big Un Limited (BUL), Graham Rothesay Swan, was convicted for failing to conduct the audit of BUL for the financial year ending 30 June 2017 (FY2017) in compliance with auditing standards.

BUL’s original audited financial statements of FY2017 stated that it had net assets of $1,003,586 as at 30 June 2017, but as a result of a direction from ASIC, BUL’s FY2017 financial statements subsequently restated that it had net liabilities of $9,570,868 as at 30 June 2017, a difference of over $10 million.

Mr Swan pleaded guilty, and was ordered to pay a penalty of $2,000. Mr Swan is only the second auditor to face criminal charges for failing to comply with auditing standards.

At the time of the offending, the maximum penalty for contravening subsection 307A(2) of the Corporations Act was $10,500, but this has now significantly increased to $53,280, and a possible custodial sentence of two years has also been added.

In October 2020, Mr Swan voluntarily cancelled his registration as a company auditor. 

Had Mr Swan not voluntarily cancelled his registration, ASIC may have used its power under s 1292(1)(d)(i) of the Corporations Act to apply to the Companies Auditors Disciplinary Board (CADB) to cancel or suspend Mr Swan’s registration as an auditor, on the basis that he has failed to carry out or perform adequately and properly the duties of an auditor.

On 3 March 2022, upon ASIC’s application, CADB has suspended for 1 year the registration of Mr Jakin Leong Loke as an auditor, another individual who was also involved in the audit of BUL in FY2017.

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Can Run, But Can’t Hide: Australia Successfully Extradites Suspected Fraudster from Poland 

Daniel Farook Ali has been extradited from Poland to Australia.

ASIC alleges that between May 2016 and November 2017, Mr Ali dishonestly used funds provided to him by investors for trading and investment purposes for unauthorised purposes, including to buy real estate and luxury cars for his family members and related companies, and to pay returns to other investors. Mr Ali has never held an AFSL.

Mr Ali departed Australia on 8 May 2018. 

Following an application by ASIC, a warrant for Mr Ali’s arrest was issued by a Queensland magistrate in December 2020, before Mr Ali was arrested in Poland in November 2021.

Australia requested Poland for Mr Ali’s extradition, and the Polish Government granted his extradition in July 2022 after Mr Ali consented to being extradited.

Successful instances of extradition are an infrequent occurrence, and it is even rarer for white-collar financial services crimes. For instance, the Attorney General’s Department Annual Report 2020-21 cites only 8 persons surrendered to Australia pursuant to extradition requests, and none of them involve financial services crimes.

Nevertheless, the extradition of Mr Ali shows that, in certain circumstances, ASIC will pursue enforcement even if the suspect had left the jurisdiction.

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.

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