ASIC Enforcement Wrap: October 2023 | Civil penalty actions continue, ASIC gets involved in PwC scandal fallout, and ‘no back door to best interests’

Key October Takeaways:

• ‍ASIC personally targets directors of a credit company in a new civil penalty action, in the latest chapter of the long-running Cigno saga. This shows ASIC’s willingness to take escalated action against individuals who are perceived to be involved in repeated breaches of regulations resulting in consumer harm. For further details, please refer to our article here.
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• Fallout of the PwC tax scandal spreads to ASIC’s arena, with its banning Peter-John Collins, a former partner of PwC Australia. Collins was banned from financial services for eight years on the basis that he was not a fit and proper person, and that it was in the public interest.
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• No back door to “best interests” obligation in a Federal Court judgment against ASIC where the Court found Diversa Trustees Limited did not fail to act efficiently, honestly and fairly, or to ensure its representatives complied with financial services laws, based on the activities of a downstream representative. For further details, please refer to our article here.
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• AAT urges ASIC to focus on the objectives of its regulatory regime in setting aside a banning order made against Dominique Grubisa, in circumstances where Ms Grubisa and her associated entities had no intention of engaging in credit activities or financial services.

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October In Summary – Enforcement Actions and Outcomes

Civil Action

Civil Proceedings Commenced

One civil penalty proceeding was commenced:

• ASIC commenced a civil penalty action against BSF Solutions Pty Ltd (BSF) and Cigno Australia Pty (Cigno Australia), together with their Directors Brenton James Harrison and Mark Swanepoel, for allegedly providing credit without a license. It is the latest instalment in a long running and hard fought battle between the regulator and the respondents (or their associated entities). ASIC has broadened its approach in this action, not just targeting corporate entities but also suing the Directors Mr Harrison and Mr Swanepoel. It appears to be in response to the Directors’ connection with similar contravention/s where ASIC successfully obtained judgment earlier this year. ‍

‍Judgments

Three judgments were handed down in civil proceedings commenced by ASIC, two being civil penalty proceedings:

• The Federal Court ordered Provide Nominees Py Ltd to produce documents that it failed to produce in response to a notice issued by ASIC. Section 33 of the ASIC Act allows ASIC to require the production of documents from individuals and companies. Compliance with a section 33 notice overrides any confidentiality or Privacy Act obligations. Provide Nominees has appealed this decision.
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• The Federal Court found in civil penalty proceedings that ANZ breached continuous disclosure laws when undertaking a $2.5 billion institutional share placement in 2015, by failing to disclose price sensitive information, being that a significant portion (nearly a third) of the placement subscription was allocated to the Underwriters.  Justice Moshinsky concluded that the information was material, because investors of securities would have an expectation that the Underwriters would promptly dispose of the allocated shares and place downward pressure on ANZ’s share price. Penalties will be determined on a future date.
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• The Federal Court found against civil penalty proceedings against Diversa Trustees Limited, finding that it did not fail to act efficiently, honestly and fairly, or fail to take reasonable steps to ensure its representatives complied with financial services laws. Diversa was trustee of a superannuation fund with contractual arrangements for the administration, promotion and provision of platform functions for YourChoice Super Fund. Diversa’s representatives, namely Nizi Bhandar, Australia Super Finder and Australian Dealer Group, offered consumers a “free” search for lost super, but which effectively resulted in customers becoming liable to pay extra fees. The Federal Court found that the knowledge of downstream entities could not be attributed to Diversa, rejecting ASIC’s case.

Appeals

ASIC has appealed one decision of the Federal Court:

• ASIC appealed part of the decision of the Federal Court in its case against ACBF Funeral Plans Pty Ltd and its parent entity Youpla Group Pty Ltd. The Federal Court found that ACBF made representations that it was owned or managed by Aboriginal persons but was not satisfied that this was false. ASIC is appealing this finding, alleging that such representations were indeed false.

Interlocutory

ASIC successfully obtained interim orders in one interlocutory action:

• ASIC has obtained interim freezing orders against Brite Advisors Pty Ltd, which provides advisory, pension administration and asset management services on the basis of an alleged failure to lodge its financial statements and auditors report for FY2022, and to provide audited figures on the value of Brite’s funds under management since December 2019.

Criminal

• ‍Guilty Pleas/Convictions – Two defendants were convicted of 10 counts of offences such as falsification of company books and failure to lodge annual financial reports to ASIC.
• Charges Laid / Committal for trial – Four defendants were charged with over 25 counts of offences such as stealing as an officer of a company, aiding, abetting, counselling or procuring fraud, failure to lodge a profit and loss statement and failure to lodge an auditor’s report.
• Summary Prosecutions - 100 individuals were prosecuted between 1 January 2023 and 30 June 2023 for 194 offences under the Corporations Act for failing to assist registered liquidators, and were fined more than $430,000.‍

Administrative Action

• ‍Financial Services Bannings – Two individuals were banned from financial services due to not being fit and proper persons. In particular, ASIC banned Peter-John Collins, a former PwC Australia partner central to the PwC tax scandal, also invoking public interest grounds in doing so.
• License Cancellation/Suspension – One financial services license was cancelled due to failure to lodge financial statements and audit report, failure to pay Industry Funding Levies and failure to pay late payment penalties.
• Director Disqualification – Two individuals were disqualified for their involvement in the failure of 3 companies, owing a total of over $1.6 million to unsecured creditors, including a total of $748,000 owed to the ATO.
• SMSF Auditors – ASIC has taken action against 11 SMSF auditors during the past quarter ending 30 September 2023:
  (1) Three SMSF auditors were disqualified;
  (2) Five SMSF auditors had additional conditions imposed; and
  (3) Three SMSF auditors had their registration cancelled.
• Appeals - The AAT has set aside a banning order made by ASIC against Dominique Grubisa from engaging in credit activities and financial services. Grubisa delivered live seminars and online broadcasts on asset protection and wealth management through DG Institute. She represented that she and her company DGI Wealth held an AFSL and Credit license, when neither of them held such licenses. While the AAT was satisfied that grounds existed to make the banning orders, it was not satisfied that its discretion should be exercised, because a banning order would not further ASIC’s legitimate regulatory interest, given that Grubisa and her companies do not engage in credit activities or financial services themselves. Having said that, the AAT made serious adverse factual findings against Grubisa and indicated these might be something that might be considered by other decisions makers.

Surveillance

• Listed Company Financial Reporting – Following ASIC review in the financial reporting surveillance program, Shine Justice Limited, the holding company of Shine Lawyers, significantly improved disclosure of its financial statements by accounting for unbilled disbursements and disbursement funding interest. Prior to ASIC review, these expenses were not separately accounted for, as it was offset against interest income Shine was intending to claim from personal injury clients and class action members.

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.