ASIC Enforcement Wrap: December 2024

Key December Takeaways:

• Federal Court orders the first civil penalty against an entity for failing to prepare a target market determination, in contravention of DDO obligations. Bit Trade Pty Ltd, operator of the Kraken crypto exchange, is to pay a $8 million penalty in relation to their ‘margin extension’ product.
• Federal Court confirms that there is no implied obligation for a person who seeks the appointment of a receiver (even if such person is ASIC) to indemnify the receiver’s remuneration costs and expense. The Court commented that receivers are entitled to negotiate, accept or reject any offer of appointment as they see fit.
• ASIC continues its focus on protecting vulnerable consumers with regards to credit contracts, commencing a civil penalty proceeding against Swoosh Finance, and accepting a court enforceable undertaking from Lend NT.

Spotlight– AFS licensee’s general obligation to act “efficiently, honestly and fairly” has worldwide application

The Federal Court has found that collapsed CFD Issuer, Union Standard International Group Pty Ltd (USG) and two of its former corporate authorised representatives, engaged in numerous contraventions of financial services laws between 2018 and 2020.

One contravention related to USG offering margin foreign exchange contracts to customers in China, where USG knew, or ought to have known, that those customers were likely contravening Chinese law. Amicus curae, appointed by the Court made submissions that USG could not be said to have contravened s 912A(1)(a) of the Corporations Act 2001 (Cth) (Corporations Act) because it has no extraterritorial operation and is limited to provision of financial services to consumers in Australia.

Justice Wigney rejected the Amicus’ argument, and confirmed that an AFS licensee’s general obligation pursuant to s 912A(1)(a) of the Corporations Act to provide financial services “efficiently, honestly and fairly” is not limited in operation to the provision of financial services in Australia or to customers in Australia, but extends to any financial services covered by the license.[1]

This decision has important implications for AFSL holders providing financial services to customers outside Australia.

AFSL holders must therefore ensure that all their services are legal in the various overseas jurisdictions in which they operate. It appears necessary that suitably experienced local counsel must be properly briefed with all relevant materials to provide an opinion on the legality of the licensee holder’s overseas operations. This is especially important for the offering of products of which there are considerable regulatory differences between countries, such as CFDs and cryptocurrency.

December in Summary – Enforcement Actions and Outcomes

Civil Action:

Civil Proceedings Commenced

ASIC commenced four civil penalty proceedings:

• ASIC commenced civil proceedings in the Supreme Court of NSW against Regional Express Holdings Limited (Rex) and four of its former directors, alleging that they engaged in, or were involved in, misleading and deceptive conduct and contraventions of continuous disclosure obligations. On 28 February 2023, Rex released an announcement stating that Rex was “optimistic the Group will have positive operating profits for the full FY23 barring any further external shocks”. ASIC will allege that this announcement was misleading, and that Rex did not have a reasonable basis for that claim for a number of reasons, including because it had incurred operating losses in the financial year to date, and that it did not prepare a financial forecast for FY23 before issuing the announcement.
• ASIC commenced civil proceedings in the Federal Court against HSBC Bank Australia Limited (HSBC) alleging failures to:
  • have adequate controls to prevent and detect unauthorised payments;
  • comply with its obligations to investigate customer reports of unauthorised transactions within specified timeframes; and
  • promptly reinstate their clients’ banking services.

Between January 2020 and August 2024, HSBC received approximately 950 reports of unauthorised transactions, resulting in customer losses of about $23 million.

• ASIC commenced civil proceedings in the Federal Court against Oztures Trading Pty Ltd, trading as Binance Australia Derivatives (Binance), alleging that more than 500 of their retail clients were denied important consumer protections after being misclassified as wholesale, representing 83% of Binance’s Australian client base. Retail clients trading in financial products have important rights and consumer protections, such as right to be provided with a product disclosure statement and access to a compliant dispute resolution scheme.
• ASIC commenced civil proceedings in the Federal Court against Ausfinancial Pty Ltd, trading as Swoosh Finance (Swoosh), alleging breach of its responsible lending obligations when providing credit contracts to 11 consumers. ASIC alleged that Swoosh failed to assess the loans as being unsuitable where there were indicators consumer would be unable to make repayments, and failed to make reasonable inquiries about the borrower’s financial situations. ASIC also alleges Swoosh breached its design and distribution obligations in failing to review its target market determinations, and continuing to provide such credit contracts despite increasing complaints received from customers or via AFCA. Swoosh provided consumers with medium amount credit contracts for $2,000 to $5,000 secured by a vehicle, trailer or boat.

Civil Penalties

The Federal Court ordered civil penalties totalling $8 million against Bit Trade:

• Bit Trade Pty Ltd, operator of the Kraken crypto exchange, was ordered to pay $8 million in civil penalties for offering its customers a ‘margin extension’ product without a target market determination. The product provided for margin extensions to be made and repaid in either digital assets like bitcoin or national currencies such as US dollars. Bit Trade issued its margin extension product to over 1100 Australians, who were charged fees and interest of more than US$7 million, and those customers suffered trading losses of more than US$5 million. In handing down the penalty, Justic Nicholas noted that Bit Trade did not turn its mind to the DDO regime until it was first drawn to its attention by ASIC.

Civil Judgments

Two judgment(s) were delivered in civil proceedings involving ASIC:

• ASIC successfully defended an application by the receivers of A One Multi Services Pty Ltd (AOMS) that ASIC indemnify them for any shortfall in monies available from the assets of AOMS to pay the receivers’ remuneration and disbursements. The Court approved the Receivers’ remuneration and ordered that they be entitled to recover that sum of money from the property of AOMS. Back in 2021, ASIC obtained orders appointing receivers to AOMS which was suspected to be engaging in unlawful activity. The Court held that there is no implied obligation for the appointer of the receiver to indemnity the receiver for their costs, and it is a matter for the receivers, prior to accepting the appointment, to determine whether the appointment will be financially viable for them.
• The Federal Court found that collapsed CFD issuer, Union Standard International Group Pty Ltd (USG) and two of its former corporate authorised representatives, BrightAU Capital Pty Ltd (trading as Tradefred) and Maxi EFX Global AU Pty Ltd (trading as EuropeFX), engaged in systemic unconscionable conduct as well as a raft of other contraventions. The Court heard that customers of EuropeFX and TradeFred lost over $83 million during the period of the extensive breaches, including systemic unconscionable conduct, misleading and deceptive conduct and the provision of unlicensed personal advice. In an Australian first, the Court also found that USG breached its general obligation to ensure that the financial services were provided efficiently, honestly and fairly where it offered those services to customers in China, and it knew, or ought reasonably to have known, that those customers were likely to contravene Chinese law and it failed to take any reasonable steps to warn. Justice Wigney held that the general obligations of AFSL licensees are not limited to financial services provided to customers in Australia.

Criminal:

Charges– one individual was charged:

• Vittorio Letizia was charged with five counts of insider trading in connection with purchases of shares in ASX listed Genesis Minerals Limited.

Sentencing– four individuals were sentenced:

• Lyndon Allen Kinston, former director and CEO of Bananacoast Community Credit Union Limited (BCU), was sentenced to 18 months’ imprisonment after being found guilty of four dishonesty offences. The offences include dishonestly using his position to gain advantage for himself by unlawfully receiving payments from two BCU contractors without approval or knowledge of the BCU board, and providing false and misleading information to the auditor of BCU to conceal the said payments.
• Peter Andrew Amos, former registered liquidator and external administrator of Amos Insolvency, was sentenced to four years imprisonment with a non-parole period of two years, after pleading guilty to charges of dishonestly using his position with the intention of gaining an advantage for his business and himself. The Court heard that Mr Amos transferred $2,998,546.59 from the bank accounts of companies which Mr Amos administered to Amos Insolvency. The funds were then used to pay unrelated expenses of Amos Insolvency and Mr Amos’ personal purposes.
• Benjamin Thomas Molloy was sentenced to a recognisance release order with a fully suspended sentence of 12-months imprisonment for making false statements to ASIC.
• David Sipina was sentenced to three years’ imprisonment, to be served by way of an intensive correction order, following his guilty plea to two charges, the first relating to aiding and abetting the carrying on of an unlicensed financial services business, and the second relating to dealing with money that he believed to be proceeds of crime worth $1 million or more. Both charges relate to the unlicensed Courtenay House financial services business.

Other Results

• Vaughan Bowen, former chair of Vocus Group Limited, was acquitted of insider trading charges in relation to the disposal of more than 5.5 million Vocus shares on 4 June 2019.

Administrative action:

Financial Services Bannings

One individual was banned from financial services:

• ASIC banned Bruce Stuart Davis from providing financial services due to observations, amongst other things, that Mr Davis provided unlicensed advice and dealing services, failed to act in his clients’ best interests, and made misleading and deceptive representations. In making its decision, ASIC considered that Mr Davis’s failure to acknowledge or accept responsibility that his advice and trading caused losses to his clients reflected poorly on his fitness to be involved in financial services.

Licence Cancellation/Suspension

Four companies/individual had its AFS license cancelled or suspended:

• ASIC suspended the AFS licence of Edisons Global Pty Ltd for six months for failure to comply with license obligations, such as lodging industry funding metrics, or lodging its annual financial statements and audit report.
• ASIC cancelled the AFS licence of Patrick Joseph O’Neill for failure to comply with licence obligations, such as being a member of an external dispute resolution scheme, lodging annual financial statements between 2018 and 2023, and to pay outstanding industry funding levies.
• ASIC cancelled the AFS licence of Macgill Financial Services Pty Ltd after finding it has ceased to carry on a financial services business.
• ASIC suspended the AFS license of Equitise Pty Ltd until February 2025 because it is under external administration.

Court Enforceable Undertakings

ASIC accepted two Court Enforceable Undertakings:

• ASIC accepted a Court Enforceable Undertaking from NT-based pawnbroking business Lend NT Pty Ltd and its sole director Laddawan Te Maroupon concerns that the company was engaged in unlicensed credit. Lend NT provided Drive Away Loans to consumers, where consumers provided their motor vehicle as security, but were permitted to retain their motor vehicle during the term of the loan. These arrangements were outside the scope of Lend NT’s pawnbroking license. The enforceable undertaking requires Lend NT and Ms TeMaro to implement a remediation program, compensating 58 customers of $49,685 in redress.
• ASIC accepted a Court Enforceable Undertaking from Sanlam Private Wealth Pty Ltd after it admitted to breaching its licensee obligations, including by failing to adequately supervise its many authorised representatives. ASIC states that at one point, Sanlam had 42 corporate authorised representatives and 71 authorised representatives. As part of the EU, Samlam must engage an ASIC-approved independent expert to review its systems and processes. It must also provide remedial action plans to ASIC and the independent expert.

Other actions:

Decisions by Independent Statutory Bodies

• The Companies Auditors Disciplinary Board (CADB) has suspended the registration of Joseph John Santangelo as a company auditor until Jun 2026. The CADB found that Mr Santangelo failed to carry out or perform adequately and properly the duties of an auditor in conducting the audit of the Greensill Group.

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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.

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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‍[1]Paragraph 1782 of Judgment