ASIC Enforcement wrap: December 2022 | Enforcement activity ramps up as 2022 goes out with a bang

ASIC ends 2022 with a flurry of enforcement activity, including a number of milestones. An important theme is continued enforcement of the design and distribution obligations, as we see the first two penalty proceedings commenced over the regime. There were a number of infringement notices issued in December over ‘greenwashing’, following the first notice issued in October earlier this year. Finally, on the disqualification of directors, a recent appeal victory by ASIC in the Federal Court may cement the principle that government decision-makers must consider general deterrence when deciding whether, and how long, to make that ban. 

December in summary – enforcement actions and outcomes

Administrative action:

• Financial Services Bannings – One company and four individuals were banned from providing financial services for a period ranging from 5 years to indefinitely, for reasons such as misleading or deceptive conduct with the creation and publication of promotional materials, failure to ensure the strategies and policies of an AFS licensee is consistent with its obligations, providing inappropriate advice and not acting in the best interests of a client.
• License Cancellation/Suspension – Three AFS licenses were cancelled for reasons such as failing to lodge financial statements, failing to maintain membership with AFCA, having receivers and managers appointed, and failure to provide financial services efficiently, honestly and fairly. One AFS license was suspended for not having required PI insurance coverage. 21 Australian credit licenses were cancelled for failing to maintain membership with AFCA.
• Director Disqualifications – One person was disqualified for being a director for 5 years, involving four companies, owing a total of over $8 million.
• Interim Stop Order – Four interim stop orders were issued by ASIC related to non-compliance with the Design and Distribution Obligations. Reasons cited involve distribution conditions unlikely to result in product being distributed to suitable target market, failure to include any distribution conditions, and failure to specify any information that distributors must report to identify occurrence of a review trigger
• Infringement Notices – Four infringement notices were issued against two entities for greenwashing in relation to overstating exclusions, also known as investment screens. There were claims that investments would exclude certain categories of companies such as ’tobacco‘, ’polluting and carbon intensive activities‘ or ’poor corporate governance‘, but ASIC found these screens more limited than suggested.
• AAT Appeals –  On appeal, the AAT reduced the period of financial services banning imposed on Ashok Sherwal from 6 years to 5 years. 

Criminal:

• Charges – Charges were laid against three defendants, involving offenses such as  using their position as a director dishonestly for the benefit of another, and insider trading.
• Guilty Pleas/Convictions (Awaiting Sentencing) – Guilty pleas and convictions were obtained regarding three defendants on ten charges, involving offenses such as carrying on a financial services business without a license, dealing in the proceeds of crime, obtaining property/financial advantage by deception, and failing to exercise powers of a director for a proper purpose.
• Sentencing – Sentences were handed down on five defendants, involving offenses such as use of false documents, falsification of books while an officer of a corporation, market manipulation, conspiring to defraud superannuation funds, conspiring to defraud share trading funds, and conspiracy to deal in proceeds of crime. In one case, ASIC, as part of an ATO-led Serious Financial Crime Taskforce, was able to crack-down on an international criminal syndicate that used fraudulently obtained identities to steal money of superannuation and share trading accounts of victims. Amount stolen more than $3.3 million, with attempts to steal an additional $7.5 million.
• Proceedings Dismissed/Discharged – 30 criminal charges that had been laid against CBA for making false or misleading representations when selling consumer credit insurance between 2011 and 2015 were dismissed by consent. This followed a Full Federal Court interpretation of the ASIC Act 2001 in effect setting a limitation period requiring proceedings to commence within 3 years. In other words, CBA got off on a technicality. In a separate matter, insider trading charges against an individual with regards to the disposal of 5 million shares of an ASX listed company were dismissed after a contested committal hearing.

Civil Action:

• Proceedings Commenced – ASIC commenced a hefty five civil penalty proceedings in December, noteworthy ones included the first two civil penalty cases regarding alleged breaches of Design and Distribution Obligations, with one against a distributor of a financial product (more information here). ASIC also commenced a proceeding under s 70 of the ASIC Act for failure to produce documents to ASIC as required by a notice, which may result in an order from the Court compelling production.
• Judgments Obtained – The Federal Court found that social media ‘finfluencer’ Tyson Robert Scholz carried on a financial services business without an AFS license. 
• The Federal Court also found that A&M Group Pty Ltd, a debt agreement administrator, has engaged in misleading or deceptive conduct, and undue harassment or coercion against debtors who missed payments. A&M was ordered to pay a penalty of $650,000. 
• Injunctive Relief – Injunctive proceedings were commenced to preserve property of former director of Youpla Group entities, Mr Bryn Jones. ASIC commenced civil penalty proceedings against Youpla Group in 2020 for misleading and deceptive statements in promoting the Aboriginal Community Funeral Plan, and is currently investigating the current and former directors of the Youpla Group entities for alleged contraventions of the Corporations Act.
• Appeals – ASIC wins two appeals in the month of December. Firstly, the Federal Court set aside AAT decision not to disqualify John Gililand because the tribunal failed to consider general deterrence when making its decision. The matter was remitted back to AAT for re-determination.
• In another case, the High Court dismissed an appeal from money lenders Cigno Pty Ltd and BHF Solutions Pty Ltd who claimed they did not require an Australian Credit license. Their combined fees exceeded the prescribed maximum charge allowed to be exempt from holding a credit license. 

Others Actions

• Surveillance – ASIC conducted surveillance on small amount credit lenders’ compliance with Design and Distribution Obligations. This is consistent with ASIC’s stated compliance and enforcement priorities for 2023 (as noted here).

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If any of the above is relevant to you or you want to know more, please feel free to get in touch.

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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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