ASIC Enforcement wrap: February 2023 | ASIC Making Big Moves and Achieving Results in Civil Penalty Proceedings

ASIC enforcement picked up in the second month of the year, with significant results in civil penalty proceedings. Notably, the Federal Court handed down a record penalty of $15 million for breach of continuous disclosure laws against GetSwift for announcing misleading statements, together with record penalties handed against its former directors for corporate misconduct. Also, ASIC commenced a first ever court action on greenwashing, with civil penalty proceedings against Mercer. ASIC complements these high profile moves with continued use of other enforcement options, such as interim stop orders, infringement notices, and surveillance programs.

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February in summary – enforcement actions and outcomes

Civil Action:

Civil Penalties Handed Down – 

• The Federal Court handed down the largest ever penalty of $15 million against a former listed company, GetSwift Limited, for breaching continuous disclosure laws. The Federal Court also ordered the former director, CEO and executive chairman, Bane Hunter, to pay a penalty of $2 million, and another former director, Joel Macdonald, to pay a penalty of $1 million, these being the two highest penalties ever ordered against directors for corporate misconduct. The Court found that GetSwift made numerous misleading statements in its announcements on ASX regarding a series of agreements with enterprise clients for use of Getswift’s SaaS platform. In reality, these clients were only trialling, or contemplating a trial, of Getswift’s platform, and the agreements were not ongoing or revenue generating.
• The Federal Court had found that ClearLoans breached the National Consumer Credit Protection Act when it failed to act efficiently, honestly and fairly when dealing with debtors in financial hardship, with such conduct occurring during the height of the Covid-19 pandemic. For instance, ClearLoans failed to consider hardship notices provided by borrowers prior to making inquiries with their guarantors for repayment, and commenced court proceedings to enforce credit contracts in states or territories outside of where a borrower or guarantor lived. ClearLoans was ordered to pay $6 million in civil penalties.

Civil Penalty Proceedings Commenced – 

• ASIC commenced civil penalty proceedings against RACQ Insurance Limited in the Federal Court for alleged misleading pricing discount failures. Product disclosure statements for certain policies stated that certain discounts would be applied to customers’ insurance premium, when in actuality, the discounts only applied to base insurance premium, and not to additional premiums under certain optional extras. 
• ASIC commenced civil penalty proceedings against Noumi Limited (Formerly Freedom Foods Group) and its former CEO and CFO in the Federal Court for alleged continuous disclosure failure, breach of director duties, and false or misleading conduct. In particular, Freedom Foods failed to disclose material information on the value of its inventories, sales revenue, gross profit and profit after tax in its previous financial reports. Its former CEO, Mr Macleod, and former CFO, Mr Nicholas, were allegedly involved in these failures.
• ASIC commenced the first ever court action on greenwashing, seeking a civil penalty in the Federal Court against Mercer Superannuation (Australia) Limited. Mercer marketed certain “Sustainable Plus” investment options claiming that they exclude investments in companies involved in thermal coal, alcohol production and gambling. ASIC alleges that the “Sustainable Plus” investment options had, in fact, invested in 15 companies involved in fossil fuels, 15 companies involved in production of alcohol, and 19 companies involved in gambling.

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Criminal:

• Charges Laid – Charges laid against two defendants on four counts, involving offenses such as insider trading, carrying on a financial services business without a licence, dealing in the proceeds of crime and engaging in dishonest conduct in relation to a financial product or service.
• Guilty Pleas – Guilty pleas were obtained against three defendants on four charges, involving offenses such as managing a corporation whilst disqualified, breach of anti-hawking laws, and engaging in dishonest conduct in relation to financial products or services
• Sentencing – Sentences were handed down against four defendants on 10 charges, involving offenses such as providing a financial service while unauthorised to do so, engaging in dishonest conduct in relation to a financial service, conspiring to manipulate shares in a listed company, stealing and making false documents 
• Failing to lodge financial reports – In the period between 1 July 2022 and 31 December 2022, ASIC prosecuted fifteen companies for failing to lodge financial reports, obtaining over $115,000 in financial penalties. 11 of the 15 companies were fined, while two were placed on a good behaviour bond, and another two had charges dismissed after pleading guilty. More details in our article discussed here. 
• Failing to assist registered liquidators – In the period between 1 July 2022 and 31 December 2022, ASIC prosecuted 81 individuals for failing to assist registered liquidators. The prosecutions follow the failure of company officers to provide liquidators with access to company books and/or submit a report on company activities and property.

Administrative action:

• Infringement Notices – Infringement notices were issued against two entities. A stockbroking firm was penalised $548,328 for breaching market integrity rules when it reported over 2000 transactions as “Trade with Price Improvement” when it did not appear to offer price improvement.  A credit provider was penalised $26,640 for publishing a repayment calculator which was misleading for using an interest rate that was rarely granted to its customers.
• Interim Stop Order – One interim stop order was issued by ASIC related to non-compliance with the Design and Distribution Obligations for not adequately describing the target market, and having distribution conditions which are insufficient to identify and exclude certain customers.
• Financial Services Bannings – Three individuals were banned from providing financial services, two of them for prior dishonesty convictions, the remaining individual for carrying on an unlicensed financial services business, 
• License Cancellation/Suspension – Two companies had their AFS license cancelled for no longer carrying on a financial services business

Surveillance

• Listed Entity Disclosure – ASIC conducted a financial reporting surveillance program on a selection of 2022 annual reports. Pursuant to subsequent enquiries from ASIC, four listed entities provided further disclosure on material business risks. Further, in response to ASIC concerns, the Star Entertainment Group Ltd made a provision of $150 million for likely fines and penalties for noncompliance with Anti-Money Laundering and Counter-Terrorism Financing laws, when previously it made no provision.

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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