ASIC Enforcement wrap: September 2022 | Significant Civil Outcomes, Increased Surveillance Efforts and the return of ASIC v James Mawhinney

ASIC’s enforcement outcomes in September see significant developments in a number of ASIC’s civil cases and the increased use of surveillance as an enforcement tool at an early stage.  We provide below a quantitative summary of enforcement actions, so you can would be aware ASIC’s recent areas of focus and outcomes.

Of particular note was the latest chapter in the ASIC and James Mawhinney saga, with the Full Federal Court overturning the 20 year ban earlier imposed by a single judge of the Federal Court and remitting it back to the Federal Court for a rehearing.  The appeal was allowed on the basis of a denial of procedural fairness, arising from a technical issue with the manner in which ASIC ran its case and the findings the Federal Court made.  Importantly, the Full Court reinstated earlier interim injunctions having a similar effect to the ban while the matter is reheard by the Federal Court in light of the Full Court’s findings.

So, another chapter is written in this ‘very exceptional’ case (in the words of the Full Court), and another is to come.

September in summary – enforcement actions and outcomes

Administrative action:

• Financial Services Bannings – a director was banned for being involved in the contravention of financial services laws by an Australian Financial Services Licensee
• Director Disqualifications – two individuals involving 21 failed companies, owing a total of over $37 million
• Interim Stop Order – three funds were targeted for deficiencies and non-compliance of their target market determinations, for more details, see our article here dated 4 October 2022
• Infringement Notice – a financial clearing house was penalised $222,000 for violations of off-market block trade requirements

Criminal:

• Charges Laid - against four defendants, involving offenses such as failing to conduct an audit in accordance with the Australian Auditing Standards, fraud, breaching directors’ duties and obtaining a financial advantage by deception
• Guilty Pleas – made by three defendants, involving offenses such as making a false or misleading statement to ASIC, providing a financial service on behalf of a person who carries on a financial services business while unauthorised to do so, and engaging in dishonest conduct in relation to a financial service
• Charges Withdrawn – against one defendant, involving an offence of exercising the power of a director while the company was in liquidation 

Civil Action:

• Penalties Imposed - against two financial services firms for failing to act in their clients’ best interests, failing to provide advice appropriate to their clients’ circumstances and charging fees for services that were not provided, total fines were over $21 million
• Penalty Proceedings Commenced – against a listed company and its board for continuous disclosure breaches and misleading or deceptive conduct
• Penalty Proceedings Dismissed – against two defendants in a case involving alleged breaches of conflicted remuneration provisions
• Restraining Order – Full Federal Court overturned a 20-year ban against James Mawhinney from advertising investments and raising funds, but reinstated interim injunctions along the same lines pending the case being remitted to the Federal Court for another hearing.

Surveillance

• Financial reporting surveillance – two ASX listed companies made amendments to their financial reports as a result of ASIC raising concerns on certain items of the said financial reports, such as the carrying value of the goodwill, free cash flow projections and quality of disclosure of business risks in its operating and financial review
• Managed Fund Surveillance - Thirteen responsible entities or trustees of investment funds have voluntarily amended, or arranged for the investment manager to amend, their marketing materials and/or practices across 18 funds as a result of ASIC’s ongoing surveillance into the marketing of managed fund performance and risks.

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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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