It is Freezing in Victoria | ASIC Enforcement wrap: June 2022

June 2022 proves to be an interesting month for ASIC enforcement. 

We summarise below important cases and areas of focus that industry participants should be aware of.

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Death, Taxes and Bank Charges: Penalty Handed Down for Australia’s First Prosecution Over Defective Disclosure Statement

Avanteos Investments Limited, a trustee of superannuation funds, has been convicted and penalised a total of $1,710,000 by the County Court of Victoria for failing to update a defective product disclosure statement (PDS).

This prosecution was referred to ASIC from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. 

Avanteos had continued to deduct service fees from members for the provision of financial advice, even after it was informed the member had died. Aventeos not only lacked the authority to deduct the advisory fees after a member’s death, it did not disclose the practice in its PDS. In an aggravating factor, senior management of Avanteos were aware of the defect in the PDS since January 2016, but did nothing about it until May 2018.

When handing down the penalty, the Court considered the fact that Avanteos had remediated the losses of the affected members’ estates, and agreed to pay the costs of ASIC’s investigation in the order of $1.3 million.

Interestingly, although the offence of failing to remedy a defective PDS under s 1021J of the Corporations Act 2001 (Cth) has existed for over 20 years, this is the first criminal offence prosecuted under this section. That such a large penalty was handed down for the first prosecution sends a message that not only do PDSs need to be accurate, but proactive steps must be taken to remedy defective PDSs as soon as they are detected.

Successful Prosecutions Highlight ASIC’s Priority in Maintaining the Integrity of Australian Markets

ASIC has announced a number of successful prosecutions of market manipulation and insider trading cases. It highlights a priority ASIC places on maintaining the integrity of Australian markets, particularly the ASX. A brief extract of the cases are as follows:

• Mr Gabriel Govinda – Pleaded guilty to 23 charges of market manipulation due to his involvement in a ‘pump and dump’ scheme between September 2014 to July 2015. Mr Govinda traded between 13 different share trading accounts he controlled that were nominally under the names of his friends and relatives, and used faked ‘dummy’ bids, to create artificial demand and inflate prices for listed stocks;
• Mr Benjamin Heath Cooper – Pleaded guilty to conspiring with Avrohom Kimelman and Don Evans to manipulating the price of shares in Quantum Resources Limited (now known as Nova Minerals (ASX: NVA)), on 16 November 2015; 
• Mr Jin Xi Li – Sentenced to nine months imprisonment for insider trading, released forthwith on recognisance, upon the condition that he be of good behaviour for a period of two years. In around 2014/2015, Mr Li obtained inside information about an impending takeover bid for PanAust Limited (ASX: PNA) by a Chinese company, and purchased a number of Contracts for Difference of PNA before such takeover bid was announced. Mr Li made a $343,000 profit as a result of criminal conduct.

Readers may note that the criminal events mentioned above happened a number of years ago. It is the nature of market misconduct cases that prosecutions drag on for a long time. This is, in part, due to the amount of information and communications ASIC needs to analyse. The successful prosecution of these market misconduct offences show that when ASIC finds a strong case, they are willing to persevere. 

Disqualifications of Directors of Multiple Failed Companies Continue

Reflecting a trend mentioned in our last ASIC enforcement wrap, a further five directors have been disqualified by ASIC due to their involvement in multiple failed companies:

• Mr Glenn Gaudet
• Mr John William Anderson
• Mrs Desley Soong
• Mr Gunashaker Senthamilselvan
• Mr Joshua Ian Ridley

The disqualification ranged between two to five years.

ASIC found that the directors had breached their duties towards the failed companies, and that the failed companies owed significant sums of money towards various creditors, often a large part to the ATO.

An interesting point to note is the role of the Assetless Administration Fund (AAF) in the disqualifications. ASIC relies heavily on reports from the failed companies’ liquidators in their decision to disqualify directors. Often, there would be little or no assets in the failed companies to pay the liquidators to conduct investigations. The AAF, established back in 2007, means liquidators may still be funded for investigations, maintaining the possibility of enforcement action.

It is Freezing in Victoria: ASIC Obtains Interim Orders to Freeze Assets of Companies

In a reminder of the Court’s power under s 1323 of the Corporations Act 2001 (Cth) to freeze the assets of companies under ASIC investigation, ASIC has obtained interim orders in the past month against the following:

• the assets of company director Sasha Hopkins and two of his companies, The A Team Property Group Pty Ltd (A Team) and Sash Investment Holdings Pty Ltd; and
• the assets of Ashley Vincent Arandez and four companies of which he is a director.

As set out in ASIC’s annual report for the year 2020-2021, ASIC puts priority in punishing and deterring harm and misconduct towards vulnerable consumers. Guided by these priorities, freezing orders are essential in protecting funds in the interim, so that consumers may still receive a measure of compensation after conclusion of the investigation.

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Wilfred Cheng, Lawyer

Michael Chapman, Director

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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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