Australian Securities and Investments Commission v Gallop International Group Pty Ltd, in the matter of Gallop International Group Pty Ltd

[2019] FCA 1514

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Gallop International Group Pty Ltd, in the matter of Gallop International Group Pty Ltd [2019] FCA 1514

File number:

SAD 300 of 2017

Judge:

CHARLESWORTH J

Date of judgment:

16 September 2019

Catchwords:

CORPORATIONS –allegations that two companies contravened s 911A and s 1041H of the Corporations Act 2001 (Cth) and s 12DA and s 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth) – whether the companies conducted a business in this jurisdiction without holding an Australian Financial Services Licence – where financial services business promoted on two websites accessible in this jurisdiction – where websites remained accessible following the cancellation of each company’s licence – whether conduct of uploading accessible conduct to each website was attributable to both companies – whether representations accessible on website were false or misleading in contravention of s 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth) – whether continued conduct of financial services business by first defendant constituted misleading or deceptive conduct in contravention of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) and s 1041H of the Corporations Act 2001 (Cth) – contraventions established against first defendant – no contraventions established against second defendant

CORPORATIONS – whether third defendant aided, abetted, counselled, procured or was otherwise knowingly concerned in the first defendants’ contraventions of s 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth) – nature and extent of involvement – assessment of pecuniary penalty

CORPORATIONS – whether second and fourth defendants should be wound up on just and equitable grounds where no contraventions established against them

CORPORATIONS – whether third defendant should be disqualified from managing corporations – whether third defendant should be permanently restrained from involvement in a financial services business in this jurisdiction

EVIDENCE – where defendants fail to appear at trial – where court satisfied the defendants are aware of the proceedings the orders sought against them – consideration of the inferences that may be drawn from the defendants’ failure to adduce evidence in respect of matters within their knowledge

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth) ss 5, 12AC, 12BA, 12BB, 12DA, 12DB, 12GBA, 12GD, 12GH, 12GJ, 12GLD, 19, 77

Corporations Act 2001 (Cth) ss 9, 79, 206E, 461, 462, 464, 465A, 761A, 763A, 763B, 766A, 766C, 769B, 911A, 911D, 912A, 912D, 913B, 915B, 1041H, 1317QD, 1324

Crimes Act 1914 (Cth) s 4AA

Evidence Act 1995 (Cth) s 140

Federal Court of Australia Act 1976 (Cth) ss 21, 23

Trade Practices Act 1974 (Cth) s 86, Pt VI

Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) Schs 1, 2

Federal Court (Corporations) Rules 2000 (Cth) r 5.11

Cases cited:

ASIC v Adler & 4 Ors [2002] NSWSC 483

Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2017) 258 FCR 312

Australian Competition and Consumer Commission v H.J. Heinz Company Australia Limited (No 2) [2018] FCA 1286

Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd trading as Bet365 (No 2) [2016] FCA 698

Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378

Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; (2016) 340 ALR 25

Australian Competition and Consumer Commission v Telstra Corporation Ltd (2010) 188 FCR 238

Australian Competition and Consumer Commission v Yazaki Corporation (2018) 262 FCR 243

Australian Securities and Investments Commission v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ASCR 189

Australian Securities and Investments Commission v Channic Pty Ltd (No 5) [2017] FCA 363

Australian Securities and Investments Commission v GE Capital Finance Australia, in the matter of GE Capital Finance Australia [2014] FCA 701

Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345

Australian Securities and Investments Commission v Monarch FX Group Pty Ltd, in the matter of Monarch FX Group Pty Ltd [2014] FCA 1387; (2014) 103 ACSR 453

Australian Securities Commission v Donovan [1998] FCA 986; (1998) 28 ACSR 583

Australian Securities Commission v Rohani and Others [1998] FCA 1432; 29 ACSR 106

Baird v Lees (1924) SC 83

Briginshaw v Briginshaw (1938) 60 CLR 336

Director of the Fair Work Building Industry Inspectorate v Robinson (2016) 241 FCR 338

Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421

Jones v Dunkel (1959) 101 CLR 298

Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361

Loch v John Blackwood Ltd (1924) AC 783

RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 41 FCR 164

Re Netsor Pty Ltd and the Companies Act (1981) 6 ACLR 114

Re Tivoli Freeholds Ltd (1972) VR 445

Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20

The Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482

Thompson v Riley McKay Pty Ltd (No 2) [1980] FCA 24; (1980) 29 ALR 267

Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89

Trade Practices Commission v CSR Limited [1990] FCA 762

Heydon JD, Cross on Evidence (11th ed, LexisNexis Butterworths, 2017) 

Date of hearing:

10 September 2018

Registry:

South Australia

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Regulator and Consumer Protection

Category:

Catchwords

Number of paragraphs:

345

Counsel for the Plaintiff:

Ms K Clark

Counsel for the Defendants:

The Defendants did not appear

ORDERS

SAD 300 of 2017

IN THE MATTER OF GALLOP INTERNATIONAL GROUP PTY LTD (ACN 147 664 551)

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Plaintiff

AND:

GALLOP INTERNATIONAL GROUP PTY LTD (IN LIQUIDATION)

First Defendant

GALLOP ASSET MANAGEMENT PTY LTD (ACN 136 696 743)

Second Defendant

MING-CHIEN WANG (and another named in the Schedule)

Third Defendant

JUDGE:	CHARLESWORTH J
DATE OF ORDER:	16 SEPTEMBER 2019

THE COURT ORDERS THAT:

1.The originating application, as amended, be allowed in part.

2.On or before 18 September 2019, the plaintiff is to serve these orders and the reasons for judgment on the defendants.

3.The plaintiff has liberty to vary the date in paragraph 2, such liberty exercisable by email correspondence to [email protected].

4.For the purposes of the order in paragraph 2, service on the third defendant may be made by email to [email protected] and [email protected].

5.On or before 25 September 2019 the plaintiff is to file an affidavit attesting to its compliance with the order in paragraph 3.

6.The final form of relief to be granted in the action be determined on the papers as a separate question.

7.The parties have liberty to file and serve minutes of order giving effect to the reasons for judgment delivered today, such liberty to be exercised on or before 25 September 2019.

8.In the event that no party exercises the liberty in paragraph 7, orders in terms proposed in Schedule A to the reasons for judgment will be made and entered on 26 September 2019 without a further hearing.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

CHARLESWORTH J:

1. In this action the Australian Securities and Investments Commission (ASIC) alleges that the first and second defendants contravened the CorporationsAct 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) in relation to the conduct of a financial services business. ASIC alleges that the third defendant is liable as an accessory to those contraventions. It is alleged that the first to third defendants intended to use the fourth defendant as a corporate vehicle for the continuation of the financial services business and the commission of further contraventions of the Corporations Act and the ASIC Act.

   SUMMARY OF OUTCOME

2. The relief sought by ASIC is set out in its Amended Originating Process dated 11 May 2018 (Amended OA).  The relevant parts of the Amended OA are extracted or summarised under the headings that appear from [128] and following.

3. For the reasons given below, I am not satisfied that the second defendant contravened the ASIC Act or the Corporations Act in the period and in the manner alleged by ASIC. That is because I have determined that the relevant acts and omissions constituting the contraventions are attributable to the first defendant and not to the second. It follows from that finding that the third defendant was not involved in any contravention by the second defendant.

4. I am nonetheless satisfied that orders should be made for the imposition of a pecuniary penalty in the amount of $3 million against the third defendant in respect of his involvement in the first defendant’s contraventions.  ASIC’s application for orders disqualifying the first defendant from managing corporations and restraining him from involvement in any financial services business should be allowed.  I am satisfied that it is just and equitable that the second and fourth defendants be wound up.

5. These reasons are indexed as follows:

SUMMARY OF OUTCOME	[2]
THE APPLICABLE LAW	[6]
THE DEFENDANTS	[7]
APPROACH TO THE EVIDENCE	[14]
Standard of proof	[18]
GAM	[23]
GIG	[30]
STUMAC	[37]
BUSINESS ACTIVITIES	[52]
Websites	[52]
Time of representations	[71]
Presentations	[83]
Investment certificates	[86]
Investors	[89]
Investors introduced by Mr Chen	[89]
Mr Lai	[97]
Ms Chung	[107]
Complaints	[108]
Employees	[110]
Ms Kot	[110]
Mr Zhou	[113]
Consultants	[117]
THE CLAIM FOR RELIEF	[126]
CONDUCT OF AN UNLICENSED BUSINESS	[128]
Corporations Act, s 911A	[128]
The allegation against GIG	[142]
Declaratory relief	[155]
The allegation against GAM	[160]
MISREPRESENTATIONS	[167]
ASIC Act, s 12DB(1)(e)	[167]
The allegations	[170]
The case against GAM	[171]
The case against GIG	[179]
The representation alleged in [1(b)]	[189]
The representation alleged in [1c]	[194]
Transactions on the GIG Deposit Account	[204]
Relevance of the Second GIG Deposit Account	[212]
GAM Deposit Account	[214]
Client trust accounts	[216]
Other accounts	[219]
Other evidence	[221]
The significance of GIG’s non-appearance	[226]
Falsity	[230]
Declaratory relief	[232]
MISLEADING AND DECEPTIVE CONDUCT	[234]
Corporations Act, s 1041H; ASIC Act, s 12DA	[234]
The case against GAM	[235]
The case against GIG	[240]
Declaratory relief	[250]
INVOLVEMENT OF MR WANG	[251]
Alleged involvement in contraventions by GAM	[253]
Alleged involvement in contraventions by GIG	[254]
Declaratory relief	[265]
PENALTY	[268]
ASIC Act, s 12GBA	[268]
Principles	[271]
Maximum penalty	[278]
ASIC’s submissions	[281]
Number of contraventions	[282]
Consequence of contraventions	[297]
Nature and effect of the representations	[302]
Consciousness of wrongdoing	[307]
Mr Wang’s financial means	[311]
Conclusion on penalty	[313]
RESTRAINTS AND DISQUALIFICATION	[315]
Consideration	[324]
Duration of restraints	[329]
WINDING UP	[332]
ORDERS	[344]
SCHEDULE A	[]

THE APPLICABLE LAW

1. The allegations of contraventions against the first to third defendants relate to a confined period of a little over five months in 2017.  Accordingly, all of the conduct forming the subject matter of the allegations is alleged to have occurred prior to the date on which amendments made by Sch 1 and Sch 2 of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) (Amending Act) came into operation. References in these reasons to the Corporations Act and the ASIC Act are to be understood as references to those statutes as in force at the time that the contraventions occurred.

   THE DEFENDANTS

2. On 2 November 2017, a solicitor filed and served a Notice of Acting on behalf of the first to third defendants.  The solicitor filed a Notice of Ceasing to Act on 16 May 2018, in advance of the substantive hearing on 10 September 2018.

3. On 22 June 2018, this Court made an order for the winding up of the first defendant, Gallop International Group Pty Ltd (GIG).  The liquidator of GIG does not oppose the orders sought by ASIC and has otherwise adduced no evidence.

4. At the substantive hearing, there was no appearance by or on behalf of the second defendant, Gallop Asset Management Pty Ltd (GAM).  Nor was there any appearance by or on behalf of the third defendant, Mr Ming-Chien Wang (also known as “Ken”).

5. On ASIC’s application, Stumac Pty Ltd was joined as the fourth defendant on 28 March 2018.  At that time Stumac had, as its sole director, Mr Kevin O’Doherty.  A solicitor filed a Notice of Acting on behalf of Stumac on 6 December 2017.  The solicitor made submissions opposing the joinder before ceasing to act on 18 May 2018.

6. Mr O’Doherty resigned as sole director of Stumac effective 1 August 2018.  Stumac did not appear at the substantive hearing on 10 September 2018.

7. ASIC filed Supplementary Written Submissions on 28 September 2018 and judgment was reserved on 1 October 2018.

8. I am satisfied that each of the defendants is aware of ASIC’s application and determine the application on the evidence in the defendants’ absence.

   APPROACH TO THE EVIDENCE

9. The following evidence has been read:

   (1)three affidavits of Ms Kathy-Anne Prosser, an authorised delegate of ASIC, affirmed on 11 May 2018 (first Prosser affidavit), 23 July 2018 and 29 August 2018;

   (2)two affidavits of Mr Stuart Forbes Upham MacKenzie affirmed 8 May 2018 and 21 June 2018;

   (3)an affidavit of Ching Huang (Albert) Lai sworn on 10 May 2018;

   (4)an affidavit of Chiao Fei (Jovi) Chen affirmed on 24 May 2018;

   (5)two affidavits of Ms Tegan Loanni Collins affirmed on 19 July 2018 and 5 September 2018;

   (6)an affidavit of Mr Michael Hassett affirmed on 25 July 2018;

   (7)an affidavit of Mr O’Doherty affirmed on 24 August 2018;

   (8)eleven certificates of translation (marked as exhibits P1 to P11); and

   (9)five transcripts of compulsory examinations conducted under s 19 of the ASIC Act (marked as exhibits P12 to P16), admitted in evidence in accordance with s 77(a)(ii) and (b) of the ASIC Act in respect of the following examinees:

   (a)Ms Sau Li Lily Kot (also known as Lily)

   (b)Mr Fan Zhuo (also known as Van);

   (c)Mr O’Doherty;

   (d)Ms Melody Gao; and

   (e)Ms Sophie Gerber.

10. Also before the Court are two affidavits affirmed by Mr Cameron Alexander Lockett on 25 October 2017 and 26 October 2017.  Those affidavits were read on ASIC’s applications for interlocutory relief.  Mr Lockett’s affidavits have been read for the purpose of determining the application for final relief, to the limited extent that they are cross-referred in the other affidavits upon which ASIC relies.

11. The unchallenged evidentiary material before the Court exceeds 2,500 pages.  Except where it is otherwise apparent, the evidence of the deponents should be understood as having been accepted.  Where the affidavits depose to inferences that may be drawn from the documentary evidence, those depositions have been read as in the nature of submissions.  The Court draws its own inferences from the documents.  With some exceptions, those inferences are the same as those invited by ASIC.

12. The Court has had particular regard to the evidence annexed and referred to in the three affidavits of Ms Prosser and in written submissions prepared by counsel appearing for ASIC.  The Court’s factual findings are based in large part (although not exclusively) on those materials.  As the evidence has been considered as a whole, it is not practical to recite every item of evidence bearing on each of the Court’s discrete findings.

    Standard of proof

13. The Court must find ASIC’s case proven if it is satisfied that the case has been established on the balance of probabilities.  Without limiting the matters the Court may take into account in deciding whether it is so satisfied, the Court is to take into account the nature of the cause of action and any defence, the nature of the subject matter of the proceeding and the gravity of the matters alleged: Evidence Act 1995 (Cth), s 140(1). See also Briginshaw v Briginshaw (1938) 60 CLR 336.

14. Mr Wang is a person entitled to maintain a claim of privilege against exposure to penalty in respect of his alleged involvement in contraventions of s 12DB(1)(e) of the ASIC Act. I have had particular regard to the nature of the relief sought against him and the consequences of the orders sought against him when assessing the evidence.

15. That no defendant adduced evidence or made submissions in opposition to ASIC’s substantive application alters neither the burden nor the standard of proof.  It does, however, allow the Court to draw inferences, where appropriate, that any evidence that might have been adduced by the defendants would not have assisted them:  Jones v Dunkel (1959) 101 CLR 298 at 308, 312 and 320 – 321. The principle stated in Jones v Dunkel does not otherwise operate to fill gaps in ASIC’s case, nor does it operate to “convert conjecture and suspicion into inference”: see generally Heydon JD, Cross on Evidence (11th ed, LexisNexis Butterworths, 2017) at [1215].

16. The Court’s factual findings are now set out between [23] – [124] below.  That narrative will be supplemented with further findings in the course of determining ASIC’s claim for relief from [128] and following.

17. It is convenient to begin with an examination of each of the defendants and the relationships between them.

    GAM

18. GAM is an Australian proprietary company limited by shares.  It has undergone the following changes to its name:

    (1)One Asset Management Limited between 21 April 2009 and 4 March 2013;

    (2)One Asset Management Pty Ltd between 5 March 2013 and 13 October 2014;

    (3)ACN 136 696 743 Pty Ltd from 13 October 2014 to 11 November 2014;

    (4)First Capital Management Pty Ltd for one day on 12 November 2014;

    (5)Onestar Asset Management Pty Ltd from 13 November 2014 to 23 November 2015;

    (6)Gallop Asset Management Pty Ltd between 24 November 2015 and 5 May 2016;

    (7)Hung Ding Financial Management Pty Ltd between 6 May 2016 and 6 July 2017; and

    (8)Gallop Asset Management Pty Ltd from 7 July 2017 to at least 5 September 2018.

19. GAM’s registered office and principal place of business is situated at Suite 4102, 225 George Street in Sydney.

20. Between 24 November 2015 and 26 January 2017 GAM had as a director Ms Julia Tsai, a family friend of Mr Wang.  From 10 January 2017 GAM had additional directors, Mr Timothy Gerber and Ping-Tse Su.  Mr Gerber ceased holding office as director and secretary of the company on 25 September 2017, shortly before ASIC commenced this action.  At the time of the hearing, GAM’s sole director was Ping-Tse Su.  Mr Wang is not, and has never been, a director of GAM.

1. Between 24 November 2015 and 9 January 2017, GAM’s sole shareholder was Advanced Financial Consultants Corp (AFC), a company with an address originally in Taiwan and later in the Seychelles.  GAM’s sole shareholder from 10 January 2017 has been Crowd Smart International Co Ltd, a company registered in Belize.  It is alleged by ASIC that Crowd Smart has associations with Mr Wang.  However, the precise nature of that association has not been explained, nor is it apparent on the material before me.

2. On 7 October 2009, GAM (then named One Asset Management Limited) was granted an Australian Financial Services Licence (AFSL) numbered 336880 pursuant to s 913B of the Corporations Act. That same AFSL was later varied and reissued in the name of GAM, effective 12 January 2016 and again reissued upon the change of the company name to Hung Ding Financial Management Pty Ltd. I will refer to it as the GAM AFSL.

3. Among other things, the GAM AFSL authorised GAM to carry on a financial services business to provide general financial product advice for specified classes of financial products, including derivatives, foreign exchange contracts, interests in certain managed investment schemes and securities.  The GAM AFSL also authorised GAM to deal in financial products by issuing, applying for, acquiring, varying or disposing of certain classes of financial products, to acquire, vary or dispose of certain classes of products on behalf of another person and to provide and operate custodial or depository services other than investor directed portfolio services.  The GAM AFSL authorised GAM to service wholesale clients only.

4. At GAM’s request, ASIC cancelled the GAM AFSL effective 31 March 2017 pursuant to s 915B of the Corporations Act. In a letter dated 27 January 2017, GAM, through its representative, stated that the company (at that time named Hung Ding Financial Management Pty Ltd) had ceased its financial services business in December 2016 and that it did not intend to operate as a financial services provider in the future.

   GIG

5. GIG is an Australian proprietary company limited by shares.  It was formerly named Weather Pro Pty Ltd and Weather Pro Exchange Pty Ltd.  It assumed its current name on 4 May 2016.  It has the same registered office and principal place of business as that identified for GAM.

6. Ms Tsai and Mr Wang are co-directors of GIG. From 18 December 2012, GIG (then named Weather Pro) held an AFSL numbered 419155, issued under s 913B of the Corporations Act. That same AFSL was reissued upon the change of the company’s name to GIG, effective 17 October 2016. I will refer to it as the GIG AFSL.

7. The GIG AFSL authorised GIG to provide a similar range of services to those authorised to be conducted by GAM, except that the GIG AFSL authorised the provision of financial services to both wholesale and retail clients.

8. Prior to April 2016, GIG (then named Weather Pro Exchange) had, as its sole shareholder, Hung Ding Financial Management Company Limited, a company registered in the Seychelles (Hung Ding Seychelles).  The sole shareholder of Hung Ding Seychelles was and remains Mr Wang.

9. In April 2016, Mr Wang acquired all of the shares in Weather Pro Exchange.  His appointment as director commenced at the same time.  Until 11 January 2017, the other director was Mr Zhou.  The change of name from Weather Pro Exchange to GIG took effect from 4 May 2016.

10. In a letter to ASIC dated 20 May 2016, GIG, through a representative, provided ASIC with information about GIG’s AFSL and its business operations in support of an application to vary the licence conditions relating to “key persons”.  The letter named Mr Zhuo as the person who would play an “active role” in the management of the business, assisted by GIG’s Responsible Managers.  The letter went on to say this about the role of Mr Wang within the business:

    (e)Mr Ming-Chien Wang (‘Mr Wang’) will provide financial services under Gallop’s AFSL.  Although Mr Wang is currently residing in Taiwan, he travels to Australia once a month to attend to his responsibilities as Director of Gallop.  Mr Wang is and will continue to be in communication with Mr Zhuo and the Responsible Managers on a daily basis.  His role in the business is as an executive director and he is available by telephone and email seven (7) days a week to attend these duties.

    Mr Wang has in excess of eight (8) years of experience in the financial services industry.  Mr Wang has in excess of five (5) years of experience in roles as General Manager and Director, performing the following tasks:

    •Overall supervision of company operation, client relationship management and customer services;

    •Overall supervision of the development and implementation of compliance framework and policies; and

    •Liaising with external service providers, attending regular compliance meetings and reviewing compliance reports to ensure compliance with relevant legislative requirements;

    •Responsible for the preparation and review of legal documents;

    •Training staff members;

    •Dealing with client complaints and responding within appropriate timeframes;

    •Liaising with external accountants and auditors to ensure the business remain solvent, manage the cash flow meet all legislative capital requirements.

11. GIG’s AFSL was cancelled by a decision of ASIC effective 24 May 2017 on the basis that GIG had contravened multiple provisions of the Corporations Act. The decision record contains findings to the effect that GIG had repeatedly failed to comply with the conditions of its licence and with its obligations under financial services laws, particularly laws in relation to the lodgement of financial statements, audit reports, breach reports and notification of changes of control.

    STUMAC

12. The fourth defendant, Stumac, is an Australian proprietary company limited by shares.  It was registered on 18 April 2016.  From that date until 19 July 2017 it had, as its sole director and shareholder, Mr Stuart MacKenzie.  The company was established by Mr MacKenzie as a vehicle by which he might work as an independent finance broker.  To that end, Mr MacKenzie caused Stumac to lodge an application with ASIC for an ASFL.  He also caused Stumac to open an account with the Commonwealth Bank of Australia (CBA) in the company’s name.

13. Stumac was issued with an AFSL numbered 487731 on 1 September 2016 (the Stumac AFSL).  Among other things, the Stumac AFSL authorised it to conduct a financial services business to provide advice and to deal in products including derivatives, foreign exchange contracts and securities to wholesale clients only.  Mr MacKenzie was the sole responsible manager for the purposes of the Stumac AFSL.

14. In the period of time in which the shares in Stumac were owned by Mr MacKenzie, Stumac did not operate any financial services business under the Stumac AFSL, as Mr MacKenzie (properly) wanted to ensure that the company’s organisational processes were in place before providing financial services to any person.

15. In September 2016, Mr MacKenzie gained employment elsewhere.  The conditions of Mr MacKenzie’s employment required him to sell his interest in Stumac.  He approached a solicitor in a financial services law firm who identified potential purchasers for him.

16. In July 2017, Mr MacKenzie entered into an agreement with a company named Stumac Team Creation Limited, a company incorporated in Hong Kong and formerly named Huge Team Creation Limited.  Pursuant to that agreement, Mr MacKenzie issued further shares in Stumac and sold all of the shares in the company to Stumac Team Creation.

17. At the time that it acquired its shares in Stumac, Stumac Team Creation had, as its director, Ms Yi-Wen Kuo (also known as Yvonne).  Ms Kuo was, in the relevant period, Mr Wang’s wife.  At the time of the hearing in this matter she was the sole shareholder of Stumac Team Creation.

18. Ms Kou’s directorship ended on 5 July 2017.  She resumed again as a director on 15 September 2017.  Ms Tsai was a director of Stumac Team Creation between 7 July 2017 and 18 September 2017.  Mr Wang became a director from 18 September 2017.  He was, accordingly, a director of Stumac Team Creation at the time that this Court made orders joining Stumac as a defendant to the proceedings and restraining certain activities in relation to the company.

19. The terms of the share sale agreement provided that Stumac’s AFSL remained the “asset” of Stumac.  By the same agreement, Mr MacKenzie agreed to enter into an agreement pursuant to which he would act as Stumac’s Responsible Manager for an initial term of six months.  The person identified in the agreement as the contact person for Stumac Team Creation was Mr Wang.  Mr MacKenzie remained in the role as Responsible Manager until his resignation on 28 November 2017.  He has not had any involvement with Stumac since his resignation.  There is nothing in the evidence to suggest that Mr MacKenzie had any knowledge of or involvement in any of the wrongdoing alleged against the defendants in this proceeding and ASIC makes no such allegiant against him.

20. Upon completion of (and subject to the terms of) the share sale agreement of 19 July 2017, Mr MacKenzie resigned as a director of the company and Mr O’Doherty was appointed.  Mr O’Doherty became a director when asked by Mr Raman Bhalla to hold that office for a fee of $500 per quarter.  Mr Bhalla is a person having links to Mr Wang.  Those links are described at [202] to [211] of the first Prosser affidavit.  They need not be detailed here.

21. Upon his appointment Mr O’Doherty made no enquiries as to why the company was established and what its future trading intentions were.  Aside from his steps taken in relation to these proceedings, Mr O’Doherty’s activities as a director were limited to the opening of a bank account and the lodging of draft audit accounts with ASIC in late 2017.  Mr O’Doherty received those reports from an accountancy firm, signed them and lodged them apparently without informing himself of their contents.

22. Mr O’Doherty is described by ASIC as a “director for hire”.  That is an apt description, given his very limited knowledge about the proponents of the company and its affairs.  Mr O’Doherty did not know that the company’s shareholder was Stumac.  Nor was he aware that Stumac was the holder of an AFSL, nor that Mr MacKenzie was the Responsible Manager in relation to it.  It appears that Mr O’Doherty never cared to obtain publicly available information in relation to such matters, notwithstanding that he held office as the company’s sole director.  As will be seen, Mr O’Doherty did not concern himself with the transactions occurring on a bank account that he established in the company’s name.  He claims that he was not aware that Stumac had an operational website.

23. Mr O’Doherty corresponded with persons named “Yvonne”, “Ken”, “Fan”, “Ms Du” and/or “Mr Xu” primarily about the payment of his fees.  The names of those persons correspond with the names or pseudonyms of persons mentioned earlier in these reasons including Ms Yi-Wen Kuo, Mr Wang and Mr Zhou.

24. As mentioned earlier in these reasons, Mr O’Doherty resigned as director of Stumac on 1 August 2018.

25. Prior to his resignation Mr O’Doherty received an email from the address [email protected].  The name of that address and the content of the email supports the inference that it was sent by Mr Wang’s wife, Yi-wen Kuo.  The email states (without modification):

    ‘Hi,

    We are just informed by ASIC that the STUMAC PTY.LTD might get inquiry as well, because of Ken, who is the stakeholder of GOLLAP and STUMAC.

    According to this, we would like to confirm the situation with you first, which is the STUMAC will be operated under the regulation even though Ken is one of the stockholder.

    Please be sure that you haven’t been informed anything related about GALLOP, so that you don’t know nothing, if they ask.

    Thank you very much for your cooperation.’  (Sic)

26. The email constitutes a direction to Mr Doherty that he keep himself ignorant of the company’s affairs, including its dealings with ASIC.  It is reasonable to conclude that Mr O’Doherty faithfully followed that instruction and, as a consequence, was unable to provide information to ASIC that a director of a company incorporated in Australia should ordinarily be expected to provide.

    BUSINESS ACTIVITIES

    Websites

27. In January 2016, after the GAM AFSL was issued in GAM’s name, customers who had previously invested with the company under its former name or names were informed by email of the company’s change of name and directed to a website utilising the domain name gamfx.com.  The email (as sent to a customer in Chinese and here translated to English) was expressed as follows:

    GAL.0025.0004.0006

    GAM ANNOUNCEMENT

    To all our loving and supportive consultants and customer partners:

    1.Due to market expansion requirement, in order to provide a higher speed, safer and more stable platform so as to provide better services to our extensive customers, the original company (Onestar Asset Management Pty Ltd) will bring in a new operational management team, as of today the previous company’s name has been officially changed to Gallop Asset Management Pty Ltd.

    2.In accordance with the regulations of ASIC, during the transfer of the management right and the official commencement of the new company bank account, all account withdrawals will be temporarily suspended, currently the new account has gone through registration and is being reviewed, once the account passes the review the company will immediately process cash withdrawal matters, the company would like to express sincere apologies for the long waiting and inconveniences caused to our customer partners during the review period.

    3.The GAM internet website will be officially online on 15 January 2016.  The link to the website is: At the time there will be a brand new premium website for all of you.

    4.For the original OA account, please download the new MT4 program on the day of 15 January 2016, input in the original account passport then you will be able to log in the new GAM platform, all relevant customer rights remain unchanged.

    5.The cash bonus system will be officially online on 1 January 2016, the link to the website is: invest.gamfx.com

    6.The customer service email address for GAM is [email protected] and has already been in use officially, if any consultant or customer partner has any question please contact us by email, we will shrive our best to serve all of you.

    Looking forward to the support and encouragement from our old and new friends, hope in the new year, with the new management concept we will lead the way and become the pioneer of the market, thank you all!

    GAM FX

28. As this announcement indicates, the financial services business conducted by GAM from January 2016 was the continuation of a business previously operated by the same company under its former name and under the same AFSL.

29. The results of a domain name search conducted by ASIC on 16 October 2017 indicate that the domain “gamfx.com” was created in December 2015 and that GAM was and remains the registrant for that domain.  According to the search results, the website had the title “Gallop International Management Pty Ltd”.  Despite its investigations, ASIC has been unable to identify any Australian (or overseas) company bearing that name.

30. I find that from as early as January 2016 and until 9 November 2017, an active website utilising the domain name gamfx.com was accessible in Australia and overseas and was published in English, Chinese and “simple Chinese”.  For convenience, I will refer to that website as the GAM website.  Content accessible on the GAM website was captured by ASIC on 13 July 2016 and in October 2017.  The question of whether it was GAM that uploaded (or caused to be uploaded) readable content to the website at critical times will be considered later in these reasons.

31. On 9 May 2016, the GAM AFSL was reissued in the name Hung Ding Financial Management Pty Ltd to reflect the company’s change of name.

32. As at 12 May 2016 (that is, shortly after the re-issue of an AFSL in the name of GIG and GAM’s name change to Hung Ding), the following announcement was made by way of a message to customers on the “back office” section of the GAM website:

    Dear (customer)

    Gallop International Group Pty Ltd from Australia upholds the attitude of honesty and credibility, dedicates itself to providing its customers with the best financial services and products and, in accordance with the strict rules of ASIC, protects the rights of its investment customers in its practice, expands its business items in the future and provides more investment options, in order to respond to market demands.

    To better protect the rights of the customers, the Australian head company has changed its name to Gallop International Group Ltd., and increased business items and supervisory items at the Australian Investment & Securities Commission, with no impact on the services for and the rights and interests of the original existing customers with GALLOP Asset Management Pty Ltd.  We feel sorry for any inconvenience caused in the process of this change.

    If you have any questions, please visit our FAQ page or contact our customer support team via online chat or email.

    Thank you again for choosing GALLOP.  We look forward to providing you with better services!

33. The evidence before the Court does not include any extracts from the “FAQ page” referred to in this announcement as it existed at the time of the announcement in May 2016.  On the material before me it is unclear what the “original customers” of GAM were told in relation to any legal relationship then existing between them and GAM as a consequence of this announcement.

34. In October 2017, ASIC became aware of an active website utilising the domain name gallopfx.com.  The results of a domain name search conducted on 11 October 2017 show that GIG was the registrant for that domain name.  I find that from at least May 2016, an active website utilised that domain name.  I will refer to that website as the GIG website.  It, too, was accessible in Australia and overseas and was published in English, Chinese and simple Chinese.  The only extracts from the GIG website in evidence are those captured by ASIC on 11 October 2017, 13 October 2017 and 19 October 2017.  There is also evidence of “pop up” messages appearing on the GIG website on 16 October 2017, 18 October 2017 and 10 November 2017.

35. The content of the websites in their Chinese and simplified Chinese versions is not materially different from the content of the English language version of the respective sites.  Subject to what is said below, as at October 2017, the GAM and GIG websites were otherwise in all relevant respects identical.  They share the same graphics, images and formatting and contain the same representations.

36. Both the GAM website and the GIG website facilitated access to a trading platform known as Meta Trader 4 (MT4), which enabled customers to trade on their own account in foreign exchange, precious metals and contracts for difference.

37. As at October 2017, the English language versions of the GAM website and the GIG website contained the following statements:

    GALLOP INTERNATIONAL GROUP PTY LTD (GALLOP).  This site is owned by GALLOP and designed in accordance with laws and regulations in Australia.  The product and services described herein may not be applicable to all countries.

    Customer funds will be deposited in a designated trust account in accordance with Australian regulatory requirements.  Funds in this account can only be used for customer transactions and will not be used for other purposes for any reason.  Gallop International Group Pty Ltd segregates customer funds and strictly prohibits mixing the customer assets and the assets of Gallop International Group Pty Ltd.

38. The Chinese and simplified Chinese versions of each website contained similar statements, as follows:

    GALLOP INTERNATIONAL GROUP PTY LTD is authorized to engage itself in the business of financial services in Australia to the extent specified in its financial service license.  This website is owned by Gallop International Group and has been prepared in accordance with the laws and regulations of Australia.  …

    In accordance with the regulatory requirements of Australia, funds from the customer will be deposited into a designated trust account, from which such funds may not be used for any other purposes than for transactions by the customer. The Gallop International Group account will segregate customer funds and strictly prohibit any mixing of customer assets with assets of Gallop International Group.

1. Also as at October 2017, both the GIG website and the GAM website encouraged members of the public to “easily start [your] train of wealth” by making deposits of a minimum $USD100 into a bank account described as follows:

   Beneficiary bank:  Commonwealth Bank, Australia

   BSB:   062-005

   Beneficiary name:  Gallop International Group Pty Ltd

   Beneficiary  Account number: 1129 5564

2. I will refer to that account as the GIG Deposit Account.

3. At the earlier date of 13 July 2016, the GAM website also referred to the GIG Deposit Account, together with a second account described as follows:

   Beneficiary bank:  Commonwealth Bank, Australia

   BSB:   062-005

   Beneficiary name:  Gallop International Group Pty Ltd

   Beneficiary  Account number: 1129 5513

4. I will refer to that account as the Second GIG Deposit Account.

5. At the earlier date of 13 July 2016,  the GAM website contained the following statement:

   GALLOP INTERNATIONAL GROUP PTY LTD Gallop Finance Group (GALLOP) (ACN: 147 664 551) is regulated by Australian Securities and Investments Commission (ASIC) and holds an Australian financial services licence (licence No.: 419155), which has been approved to conduct financial services business within the requirements of financial services licence in Australia.  This website is owned by Gallop Finance Group and prepared in accordance with the laws and regulations of Australia.  The products and services described here may not be suitable for all countries.

6. This earlier capture of the GAM website shows that the business promoted and conducted by the website was one being carried on by GIG at that time.  The GIG AFSL is referred to under the heading “Regulatory Mechanism”, GIG’s membership number with the Financial Ombudsman Service (FOS) is identified, as are GIG’s Australian Business Number and its Australian Company Number.  The terms of trade are expressed as terms between the investor and GIG and the privacy policy published on the website also relates to the rights and obligations of GIG vis a vis its customers.

7. The Court can identify only one reference to the company name “Gallop Asset Management Pty Ltd” on the GAM website. It appears as a heading on one page of the site as at 13 July 2016.  By October 2017, however, that reference was gone, as was the reference to the Second GIG Deposit Account.

   Time of representations

8. ASIC invites the Court to find that the representations appearing on the GAM website and the GIG website as captured by ASIC in October 2017 were accessible from as early as 18 December 2016 and 7 March 2017 respectively.  Reliance is placed on the domain name searches obtained on 11 October 2017 and 16 October 2017 respectively.  The search results for the GIG website domain name contains an entry “Last modified:  07-Mar-2017 03:02:19 UTC”.  The search results for the GAM website domain name contains an entry: “Updated date: 2016-12-18T05:29:08A”.

9. In my view, these search results do not, of themselves, prove the date upon which the readable content of the respective website was last modified.  Considered in their proper context, the entries are better understood as referring to the date upon which the details contained in the domain name search results most recently changed.  The search results for the GAM domain, for example, indicates that the domain name was first created on 16 December 2015 and that the expiration date was 17 December 2016.  The “update” occurring on 18 December 2016 in my view may be fairly understood as reflecting the renewal of the registration on that day, so that it did not expire.  In relation to the GIG website, I do not accept the proposition that, as at October 2017, the content of the website had not been modified since 7 March 2017.  Other evidence suggests that new content was posted to the GIG website after 7 March 2017 (see [77] below) and, for that matter, the GAM website after 18 December 2016 (see [73] below).  The “Last modified” entry in the domain name search results in my view may refer to any number of modifications to the registration details for the domain name, but ought not to be regarded as an indication of when readable content of any active website using the domain name was last uploaded.  It will be necessary to return to the question of when the representations first appeared on the websites for the purposes of determining the question of GIG and GAM’s liability.

10. A screen shot of the Chinese version of the GAM website shows that a message was sent to consultants via the website on 2 June 2017, that is, one week after the cancellation of the GIG AFSL.  As translated, the message reads:

    Dear consultants,

    Thank you for your support and care for GALLOP, and thanks to the Australian Securities & Investment Commission for their corrections and guidance on the administrative procedures of GALLOP.  The Company has appealed to the ASIC and has maintained active communication with it, and has promised to make internal improvements to their administrative efficiency, and submit financial and audit reports within the prescribed period.

    During the interim GALLOP will suspend any acceptance and solicitation of new customers, and will uphold the principle of honesty and credibility, and work hard to safeguard their goodwill and the rights and interests of the customers!  We feel sorry for any inconvenience caused to the consultants.  The Company has been cautious and conscientious in providing quality services for the customers, and will definitely use all its heart and efforts to safeguard the financial security of all its investors, and we would most appreciate it if the consultants could continue to give us a helping hand in this difficult time to create a win-win situation!

    When the Company purchased its business license from the last securities firm, that securities firm was actually in an unsound operating status, often failing to submit audited statements to the ASIC in a timely fashion.  When the license was changed hands, all the responsible managers were replaced, causing doubts and concerns to the ASIC, who believed that this was not quite safe and prudent for the investors.

    All of these old accounts were attributed by the ASIC to GALLOP who is the new license holder.  After the two public hearings on 14 August 2015 and 14 December 2016, unfortunately we were still recently ordered to make improvements.  During the interim ASIC decided that GALLOP can file an appeal, but temporarily cannot solicit new funds externally.  The operation and security of the original funds of existing investors will not be affected.  We feel shocked about and regret the result of the examination.  In addition to making a prompt and responsive announcement on our official website, we wish to use this letter to advise the consultants of the determination of our operation team to do all we can to safeguard GALLOP, a platform where we work hard and grow together!  At present we are reviewing in-depth our mistakes in the operating procedures of our internal administration, and will hire professional consultants to familiarize themselves with the relevant review regulations and mechanisms of ASIC, and submit the various information for examination in a punctual manner.

    Let us work more closely with each other, and use this frustration as the motive power for us to adjust our pace and start again!  Let us go for it!  We thank the consultants for your support and trust.  Thank you!

    Respectfully submitted by Ken on 1 June 2017.

11. The evidence does not explain how ASIC obtained the screen shot of this message.  Like the message appearing in the previous May, it appears on the “back office” section of the website.  The website captures of October 2017 do not include any “back office” pages of this kind.  It is reasonable to infer, and I so find, that messages sent to customers or consultants via the “back office” pages of the website were accessible only to customers or consultants holding accounts enabling them to sign into the site to access their accounts by a “log in” feature on each home page.

12. In the circumstances I have described I consider it likely that the message extracted at [73] above was made not only to users of the GAM website but also to users of the GIG website having log in access. I infer that this message was not otherwise accessible to members of the public who accessed the websites.

13. Notwithstanding the above message, following the cancellation of the GAM AFSL in March 2017 and the GIG AFSL in May 2017, the GAM website and the GIG website remained active and accessible to the public until about 9 November 2017, about two weeks after this Court made orders with injunctions restraining their publication and use.  Members of the public who accessed the websites in that period would not have been informed that the GIG AFSL had been cancelled.

14. On 19 October 2017, a pop up message appeared on the GIG website concerning the effect of an election in Japan on investors’ accounts.  The message read:

    FROM 20 October 2017, trading in “JPY” currencies will be temporarily increased.  Customers are recommended to have sufficient funds in their trading accounts to avoid loss greater than their account fund during trading.

15. This message confirms the continued provision of a foreign exchange trading platform by GIG notwithstanding the cancellation of the GIG AFSL and notwithstanding any “back office” message to customers about GIG’s dealings with ASIC.

16. From around 9 November 2017 when the Court made its interlocutory orders, the GIG website displayed the following message:

    Due to notification from ASIC, the Australian Supervisory Authority, the group’s home domain will be formally closed on 10 November 2017.  To protect the original customer’s rights, a back-office link will be sent to customer’s mailbox, Thank you for your support and understanding.

17. The material before the Court does not include the “back-office link” sent to customers’ mailboxes.

18. A website with the url was created on 11 August 2017.  When accessed from an IP address located in Australia, users were automatically redirected to the url The domain name for that website is registered to Stumac’s sole shareholder, “Stumac Team Creation”.  The website refers to Stumac as a “global financial services company”.

19. As at November 2017, the website instructed investors to deposit funds into an HSBC bank account ending with the digits 3838 in the name of “Shenzhen Unite Auto Resources”.  I will refer to it as the Shenzen Unite Account.  The owner of that account is a company incorporated in Hong Kong named Shenzhen Unite Auto Resources Tech Limited.  Ms Kuo (the wife of Mr Wang) has been the sole director of that company from 10 November 2017.

    Presentations

20. The Court has before it an undated PowerPoint presentation bearing GAM’s name and apparently promoting a financial services business conducted by GAM.  As it is undated, I am not satisfied that this PowerPoint presentation was given at any time after the GAM AFSL was cancelled or, for that matter, at any time after GIG commenced the operation of the business under its AFSL.

21. In August 2016, a PowerPoint presentation was given to investment brokers in Taiwan.  It bears GIG’s name in the footer of each slide.  There is no evidence to support a finding that this presentation was given in Australia or elsewhere at any time after GIG’s AFSL was cancelled.

22. The presentations contain representations about the conduct and regulation of the business, including: “Low risk – 100% protected principal”, “Government legal supervision – Australian Financial Market Regulatory Bureau”, “Segregated Trust Account ... USD denominated”, “low threshold – only USD10,000 to open an account”, “monthly dividends”, “Fast Return ... ”, “Short Term – No binding constraints can withdraw at any time after 1 month, flexible use of funds”, “Annual bonus around 8.4%, monthly bonus around 0.7%”, “government legal supervision”, “segregated trust account”, “funds and bonuses are safe and reliable”, “Funds safety is subject to ASIC supervision”, “Steady investment – the investment target is FX trading relation to exchange rates of the current world-wide commonly used currencies …” and “High protection – The Australian Securities and Investments Commission (ASIC) protects clients’ funds up to USD 2 Million (NTD 60 Million)”.

    Investment certificates

23. The PowerPoint presentations suggest that, in addition to providing access to the MT4 trading platform, customers were offered three separate types of investment, promoted by the names “Bonus Plan”, “Principal Guaranteed Fiduciary Fund” (otherwise know as “Fortune Project”) and “Gallop Gift Money Project”.

24. Clients who invested in the “Bonus Plan” were provided with an investment certificate.  In evidence are investment certificates issued by GAM on 14 January 2016, 1 April 2016 and 17 April 2016, that is, prior to the reissue of the GIG AFSL in its name and the announcement about GIG referred to [57] of these reasons.

25. Also in evidence are certificates issued by GIG bearing dates between 31 August 2016 and 18 April 2017, all of which predate the cancellation of the GIG AFSL.

    Investors

    Investors introduced by Mr Chen

26. Mr Chiao Fei Chen is a financial adviser based in Taiwan.  In August 2016, Mr Chen attended a PowerPoint presentation in Taipei in which the services of GIG were promoted.  The PowerPoint slides referred to at that presentation referred to GIG, not GAM.  The presentation was given by a person named Yi-Hung Lai who was introduced as a lead agent. Yi-Hung Lai became Mr Chen’s predominant point of contact.

27. At the presentation, Yi-Hung Lai introduced Mr Chen to Mr Wang as the “big boss”.  Mr Wang said words to the effect that the owner of the company was Mr Wang’s brother, Ming-Zhang Wang.

28. Mr Wang made a series of representations to Mr Chen about the financial products offered by GIG.  Shortly after the presentation in August 2016, Mr Chen was provided with the account number for the GIG Deposit Account.  He was told to instruct investors to deposit their investment funds into that account. Mr Chen was provided with copies of the PowerPoint presentation which he provided to prospective clients.  He instructed clients to deposit funds into the GIG Deposit Account, as he had been told to do.

29. Mr Chen received commission payments for referring clients.  He signed up six clients between 1 August 2016 and 1 March 2017 with investment amounts totalling $962,764.00.  Investment certificates issued to these investors bore the company name and the Australian Company Number for GIG.  The certificates indicate that the clients were entitled an annual return on investment of 6% or 8.4%, apparently depending on the amount invested.  According to Mr Chen, investors were able to withdraw interest monthly from an online account.  However in about April or May 2017, Mr Chen received reports from clients that they were unable to withdraw any returns.  Through his superior, Mr Chen attempted to contact Mr Wang and his brother Ming-Zhang Wang for an explanation.

30. Mr Chen deposes that he was told by Mr Wang that his brother, Ming-Zhang Wang, was the “real owner of Gallop”.

31. In July 2017, Mr Chen and two of his colleagues met with Mr Wang, his brother Ming-Zhang Wang and Dan Fang Du, who he understood to be Ming-Zhang Wang’s wife.  At the meeting, Ming-Zhang Wang said words to the effect that “there are liquidity issues, and I have assets that I can use to repay clients”.  Ming-Zhang Wang said that he was the “boss of Gallop” and that the business was “operated” by Mr Wang, his younger brother.  These statements are consistent with an earlier statement made by Mr Wang to Mr Chen to the effect that it was Ming-Zhang Wang who was the “real owner of  Gallop”.  Whilst I am satisfied these statements were made, I am not wholly satisfied as to their truth.  It will be necessary to return to this aspect of the evidence later in these reasons.

32. In October 2017, Mr Chen and his colleagues communicated with Mr Wang through an intermediary, Mr Mason.  Mr Mason provided Mr Chen with documents which Mr Mason said had been provided by Mr Wang and his brother Ming-Zhang Wang.  The documents appear to be in the nature of financial records evidencing the financial position of GIG.  The documents do not bear titles, dates or signatures.  The submissions advanced by ASIC do not identify what forensic use is sought to be made of those documents in these proceedings.  In my view, the documents cannot be relied upon as reliable evidence of the true financial position of GIG or as reliable evidence of what might have become of investors’ capital.

33. On 28 November 2017, Mr Chen attended a meeting at GIG’s office in Taipei.  About 30 people attended the meeting, including financial advisers and investors.  At the meeting, Mr Wang invited investors to participate in the development of new investment companies so that money could be earned and returned to GIG’s clients.  Mr Wang said words to the effect that GIG’s licence had been “suspended”, that its assets would be transferred to a company called Stumac and that Stumac would conduct the same business previously conducted by GIG.  Mr Wang said that he wanted clients to invest more capital.  When Mr Chen asked whether the money already invested would be returned to clients, Mr Wang did not answer the question.  Mr Wang said “we should all work hard together to sort out the matter”.

    Mr Lai

34. Mr Lai Chain Huang (Mr Lai) is an investor.  He first met Mr Wang in Taiwan in 2014 through a mutual acquaintance.  At that meeting, Mr Wang said that he acted for “Avondale”.

35. Between January 2015 and March 2016 Mr Lai made a series of investments totalling USD$150,000 in financial profits offered by Avondale.  Contracts issued in respect of these investors name Avondale Financial Consultants Co. Ltd as the “Account Trading Agent”.  The contracts contain terms authorising Avondale to trade on Mr Lai’s behalf in foreign exchange, contracts for difference and precious metals.  In return he was promised a guaranteed profit of 2% per month for a one year term.

36. In August 2016, Mr Wang told Mr Lai that he had “bought a new company called Gallop”.  He sent a social media message to Mr Lai stating that he was “moving to Gallop and combining the Avondale and Gallop money”.  At Mr Wang’s suggestion, the funds Mr Lai had invested in Avondale were transferred, via an account held in Mr Wang’s name, into an account held by GIG.  Thereafter, Mr Lai’s online account appeared under the name “Gallop” and Mr Lai received regular emails from the email address using GIG’s domain name, [email protected].  Mr Lai accessed the GIG website for forex trading using the MT4 platform and for withdrawing interest earned on his investments.

37. In April or May 2017 Mr Lai attempted to make a withdrawal from his investment account.  After waiting for two to three months to receive his funds, Mr Lai sent a message to the GIG email address but received no response.

38. On 16 June 2017 Mr Lai received a message from Mr Wang to the effect that the bank had “frozen” the account and that he was working to resolve the issue.  Accompanying the message was a photograph of a letter from HSBC to “Hung Ding Financial Management Company Limited” in relation to a bank account.  The letter states that following a review of the banking relationship, HSBC was no longer able to provide the company banking services, and that the company was required to close the account within 30 days of the date of the letter.  The date of the letter cannot be seen in the photograph.

39. In September 2017, Mr Lai and other investors had a meeting with Mr Wang in Taipei.  Mr Wang said words to the effect that ASIC had cancelled GIG’s licence and “frozen all of the funds”, that investors may get 10% to 20% of their funds returned to them, and that a new HSBC account had been opened.  Mr Wang said that Gallop was “disorganised and the account has been frozen because Gallop has not provided the information the Australian government wanted”.  Mr Wang also said words to the effect that he had “lots of money with the CBA and this means you do not need to worry about your money”.

1. Mr Lai last had contact with Mr Wang in October 2017 when he sent a message informing Mr Wang that he needed his money because his wife was pregnant.  Mr Lai received no response to his message.

2. In December 2017, another investor provided Mr Lai with a copy of an investor contract which, the investor said, had been provided to him by Mr Wang.  The contract was titled “Stumac Team Creation Ltd Foreign Exchange Margin Account Management Contract”.  I will refer to it as the Stumac Contract.

3. The Stumac Contract includes bank details for a CBA account held in Stumac’s name.  It names ASIC as the regulatory body and Stumac Team Creation Ltd as the plan’s trustee.  Under the heading “Remarks” the Stumac Contract contains the following statement: “Investors agree to transfer the existing investment funds in Gallop to Stumac after the entry into force of this contract”.

4. Mr Lai did not sign any contract of the kind shown to him by the other investor.  Later in December 2017, Mr Lai accessed his forex trading account.  He took a screen shot of his account showing that the account name depicted on the screen had changed from “Gallop” to “Stumac Team”.

   Ms Chung

5. On 24 November 2017, ASIC received a complaint from an investor, Chung Yu-Chin a resident of Taiwan.  Ms Chung had also made a complaint to the FOS.  Among other things, Ms Chung provided ASIC with remittance advice in relation to a deposit of USD$10,050.00 made by her sister Chung Mei-Chu on 8 July 2017, that is, after the GAM AFSL and the GIG AFSL were cancelled.  The deposit was made to the GIG Deposit Account.  The money invested by Ms Chung and her sister has not been returned.

   Complaints

6. Between 24 March 2017 and 11 August 2017, the FOS received 93 complaints about GIG and GAM, relating to 128 investors.  Losses alleged by the investors total around $USD7 million.  The majority of complainants were residents of Taiwan.  Some resided in China and Singapore.  None of the complainants resides in Australia.

7. The complainants stated they had been introduced either by Mr Wang or Yi-Hung Lai.  The evidence of the complainants is otherwise lacking in detail with respect to their dealings with GAM or GIG as the case may be.  The complainants have not given direct evidence as to any particular words or conduct that induced them to invest.  More specifically, there is no evidence that any one of the complainants were induced to invest because of any statement they accessed and read on the GAM website or the GIG website.

   Employees

   Ms Kot

8. Ms Sau Li Lily Kot (also known as Lily) was employed by GIG as a Responsible Manager for the purposes of the business until 13 March 2017, although an application by GIG to have the conditions of the GIG AFSL varied to reflect her appointment as Responsible Manager was never accepted by ASIC.

9. In her s 19 examination, Ms Kot told ASIC that it was her understanding that GAM was “dormant”. She had only limited knowledge about GAM, its history or membership. She was not aware of GAM trading from the premises from which she worked and she otherwise had no dealings with the company. She was not contacted by any investor claiming to be a client of GAM.

10. It was Ms Kot’s understanding that GAM was a company formerly owned jointly by Mr Wang and a person named Jason, that Jason and Mr Wang had argued and that Mr Wang had acquired GIG because GAM had not undertaken appropriate due diligence and because he wanted a “fresh start”.

    Mr Zhou

11. In his s 19 examination, Mr Zhou told ASIC that he was aware that GAM was a company in which Mr Wang had an interest before Mr Zhou commenced his duties with GIG. Mr Zhou’s understanding was that GAM was going to “ramp down, they don’t have any like activity”. Mr Zhou said that GAM did not have staff working from the Taiwan office. He recalled being asked to submit a form to ASIC in relation to GAM’s change of address and receiving invoices for the payment of ASIC fees in relation to the company, which he paid on Mr Wang’s direction. Mr Zhou was aware that around the time that GIG commenced the operation of the business, funds were transferred into the GIG Deposit Account from GAM. Mr Zhou understood the payments to be explained, at least in part, by clients “switching” their accounts from one entity to another.

12. Mr Zhou said that he had, on Mr Wang’s instructions, submitted a form to effect a surrender of the GAM AFSL.  Mr Wang told Mr Zhou that the AFSL was surrendered because the company had no business activity and he did not want to pay fees in respect of it.  Mr Zhou otherwise had no dealings with investors claiming to be clients or former clients of GAM and he had no knowledge as to the legal or financial mechanism by which clients transferred from GAM to GIG.

13. Mr Zhou told ASIC that following the cancellation of the GIG AFSL he noticed that deposits were still being made to GIG.  When questioned on the receipt of deposits, Mr Zhou said:

    Yes, we do notice there are some because we tell Ken that you have to tell, tell those clients that we cannot provide any financial service to them any more so you cannot, you cannot get any more clients, new clients any more so after we told them that, I think that’s in late May or in June, I’m not sure, but after probably one or two weeks we monitor the bank account.  We still got some money coming in from the client and we tell Ken again this is not acceptable and I think Maggie did talk to Ken directly regarding that issue and Ken said they are trying to inform every IB but they just have some IB that couldn’t cover it in time so we told them that it’s just not acceptable to receive those money from clients anymore …

14. The initials “IB” in this evidence are references to investment brokers, such as Mr Chen, who had been instructed to direct investors to deposit funds into the GIG Deposit Account.

    Consultants

15. From at least May 2016, GIG retained the services of a firm of lawyers and compliance consultants.  A principal of the firm was Ms Sophie Gerber.  Ms Melody Gao was an employee of the firm.  The firm had previously provided compliance and legal services to Weather Pro prior to its acquisition and change of name to GIG.

16. Each of Ms Gerber and Ms Gao participated in examinations pursuant to s 19 of the ASIC Act. Neither professed to have detailed knowledge of the business affairs of GAM. Ms Gao stated that she understood that the owners of GAM had acquired GIG because GAM did not have an AFSL with authorisations covering services that the owners wanted the company to provide. Although the firm provided legal services to GAM for very limited purposes (particularly the lodgement of forms and the cancellation of the GAM AFSL), its services were principally provided to GIG.

17. Mr Wang participated in a meeting with Ms Gao in May 2016 in which, according to Ms Gao, he “orchestrated what was going on”.  The meeting related to “compliance services, setting up MT4 platform and client on-boarding systems”.  These records confirm the commencement of a financial services business by GIG in about May 2016 with Mr Wang as its organising force.

18. Ms Gerber otherwise confirmed that Ms Kot and Mr Zhou carried out instructions from Mr Wang “around the maintenance of the [GIG] AFSL”.  Ms Gao’s evidence was to the same effect.  The firm assisted GIG to apply to ASIC for a “key person” variation to the GIG AFSL so as to change the persons who would be responsible for the company’s regulatory compliance.  That is the context in which the letter of May 2016 extracted at [35] of these reasons was sent.

19. Ms Gerber’s firm gave Mr Wang advice about the regulatory framework in Australia.  The firm also gave presentations about legal compliance to investors who attended the firm’s premises as part of a tour organised by Mr Wang.

20. The original owner of Stumac, Mr McKenzie also engaged the firm for the purposes of finding a buyer for Stumac.

21. Following the cancellation of the GIG AFSL, Mr Zhou and Ms Kot ceased employment with the company. They nonetheless continued to have dealings with the company through a consultancy firm named LK Consultants. Under that arrangement, Mr Wang continued to give instructions to Mr Zhou in Mr Zhou’s capacity as an independent consultant. In his s 19 examination, Mr Zhou confirmed that LK Consultants organised “local director services” for Stumac and that he acted on Mr Wang’s instructions for that purpose. Mr Zhou said that he was discouraged from dealing directly with Mr O’Doherty and instead communicated with an intermediary Mr Raman Bhalla, the person who had originally arranged for Mr O’Doherty’s appointment as Stumac’s sole director. Mr Bhalla’s firm invoiced LK Consultants for director services and LK Consultants, in turn, invoiced Stumac.

22. Mr Zhou confirmed that it was Mr Wang who instructed him to arrange for a bank account to be opened in Stumac’s name.  He said that Mr Wang travelled to Australia around that time and met with him and Mr O’Doherty at a branch of the CBA for that purpose.

23. Additional factual findings will be made in the course of considering ASIC's claim for relief, to which I now turn.

    THE CLAIM FOR RELIEF

24. The claimed relief is set out at [1] to [10] of the Amended OA.  The factual and legal basis for the relief is set out in ASIC’s Concise Statement filed on 11 May 2018, Written Submissions filed on 27 August 2018 and Supplementary Written Submissions filed on 28 September 2018.

25. It is convenient to commence with the allegation that GIG and GAM contravened s 911A of the Corporations Act.

    CONDUCT OF AN UNLICENSED BUSINESS

    Corporations Act, s 911A

26. ASIC seeks declarations in the following terms:

    (1)Pursuant to s 21 of the FCA Act, declarations that [GAM] and [GIG] have, since 31 March 2017 and 24 May 2017 respectively, until 9 November 2017, contravened:

    (a)Section 911A of the Corporations Act by offering, facilitating and receiving monies for investment in financial products, namely trading in foreign exchange, precious metals, derivatives and contracts for difference, and thereby carrying on a financial services business and/or providing a financial service in this jurisdiction without holding an Australian Financial Services Licence (AFSL) or otherwise being authorised by an AFSL holder business in circumstances where a licence was required;

27. As can be seen, the declaratory relief sought against GAM and GIG is identical, except that the declarations reflect the respective dates upon which the GAM AFSL and the GIG AFSL were cancelled.

28. Each of the corporate entities is alleged to have contravened s 911A as a primary contravener. Accordingly, to discharge its onus of proof it is necessary for ASIC to establish that the elements of each contravention are fulfilled in relation to each entity.

29. Subsection 911A(1) of the Corporations Act provides:

    (1)Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services.

30. Subsection 911A(2) sets out exceptions to the requirement in s 911A(1). To the extent that GIG and GAM bear any evidentiary burden in relation to the existence of any such exception, the burden is not discharged. Proceeding from the footing that GIG and GAM bear no such evidentiary burden, I am satisfied to the requisite standard that none of the exceptions applies. That inference may be readily drawn from GIG’s conduct in applying for the AFSL, its conduct in applying for its variation and the extent to which it promoted its business by reference to the fact that it held, and complied with, its AFSL. In the absence of evidence from either GIG or GAM as to whether any one of the exceptions applies, I may infer that any evidence they might have adduced on the question would not have assisted them.

31. Before leaving this topic it should be observed that s 1317QD of the Corporations Act, as inserted by the Amending Act, casts an evidentiary burden upon the defendant in a case such as the present in respect of an exception to the prohibition in s 911A(1). Those provisions have no direct application to the case before me.

32. Whether or not s 911A has been contravened otherwise depends upon the application of a number of statutory definitions that may operate in any number of combinations and permutations.

33. Section 766A(1) of the Corporations Act relevantly provides:

    (1)For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:

    …

    (b) deal in a financial product (see section 766C); or

34. Section 766C(1) of the Corporations Act relevantly defines the conduct of “dealing” in the following terms:

    (1)For the purposes of this Chapter, the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:

    (a)applying for or acquiring a financial product;

    …

    (2)Arranging for a person to engage in conduct referred to in subsection (1) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice.

35. Arranging for a person to engage in conduct referred to in s 766C(1) is also “dealing” in a financial product, unless the actions concerned amount to providing financial product advice: Corporations Act, s 766C(2).

36. A “financial product” is defined in s 763A to include a facility through which, or through the acquisition of which, a person makes a financial investment. Section 763B provides that a person makes a financial investment if:

    (a)the investor gives money or money’s worth (the contribution) to another person and any of the following apply:

    (i)the other person uses the contribution to generate a financial return, or other benefit, for the investor;

    (ii)the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);

    (iii)the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and

    (b)the investor has no day-to-day control over the use of the contribution to generate the return or benefit.

37. A financial services business is a business of providing financial services: Corporations Act, s 761A.

38. Section 911D provides that a financial services business is taken to be carried on in this jurisdiction if the person engages in conduct that is intended to induce people in this jurisdiction to use the financial services the business provides (or is likely to have that effect) whether or not the conduct is intended, or likely, to have that effect in other places as well.

39. These provisions reside in Ch 7 of the Corporations Act to which s 769B applies. It provides, in part:

    769BPeople are generally responsible for the conduct of their agents, employees etc.

    (1)Subject to subsections (7) and (8), conduct engaged in on behalf of a body corporate:

    (a)by a director, employee or agent of the body, within the scope of the person’s actual or apparent authority; or

    (b)by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

    is taken, for the purposes of a provision of this Chapter, or a proceeding under this Chapter, to have been engaged in also by the body corporate.

    (2)Conduct engaged in by a person (for example, the giving of money or property) in relation to:

    (a)a director, employee or agent of a body corporate, acting within the scope of their actual or apparent authority; or

    (b)any other person acting at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of a body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

    is taken, for the purposes of a provision of this Chapter, or a proceeding under this Chapter, to have been engaged in also in relation to the body corporate.

    (3)If, in a proceeding under this Chapter in respect of conduct engaged in by a body corporate, it is necessary to establish the state of mind of the body, it is sufficient to show that a director, employee or agent of the body, being a director, employee or agent by whom the conduct was engaged in within the scope of the person’s actual or apparent authority, had that state of mind. For this purpose, a person acting as mentioned in paragraph (1)(b) is taken to be an agent of the body corporate concerned.

    …

    (10)     In this section:

    (a)       a reference to a proceeding under this Chapter includes a reference to:

    (i)a prosecution for an offence based on a provision of this Chapter; and

    (ii)a proceeding under a provision of Part 9.4B that relates to a provision of this Chapter; and

    (iii)any other proceeding under any other provision of Chapter 9 that relates to a provision of this Chapter; and

    (b)a reference to conduct is a reference to an act, an omission to perform an act, or a state of affairs; and

    (c)a reference to the state of mind of a person includes a reference to the knowledge, intention, opinion, belief or purpose of the person and the person’s reasons for the person’s intention, opinion, belief or purpose.

    The allegation against GIG

40. Having regard to the content of the GIG website, I am satisfied that the human actors who caused material to be made accessible to the public on that website are persons who were either directors, employees or agents of GIG and acting on GIG’s behalf within the meaning of s 769B(1) of the Corporations Act. I am satisfied that the exceptions in s 769B(7) and (8) do not apply to that conduct. Accordingly, the conduct is attributable to GIG. I make the same findings in relation to all marketing activities relating to GIG and in relation to the receipt of money into accounts held in GIG’s name and all other indicia of the carrying on of a business by GIG to which I have referred.

41. I find that between 24 May 2017 and 9 November 2017, GIG carried on a financial services business in this jurisdiction without holding an AFSL covering the financial services in question by:

    (1)publishing, on the GIG website, material that was intended to induce people in this jurisdiction to use financial services provided by GIG, namely trading in foreign exchange, precious metals, derivatives and contracts for difference and investments into other investment products including the Bonus Plan;

    (2)providing, by the GIG website, a platform facilitating investments by users of the websites in the financial services provided by GIG;

    (3)arranging for investors to acquire or dispose of financial products through the MT4 trading platform made available on the GIG website; and

    (4)receiving more than $4 million from investors into the GIG Deposit Account in connection with the provision of the financial services promoted on the GIG website (as to which see [208] below).

42. I am further satisfied that GIG also used the GAM website in the fashion I have summarised for the purposes of carrying on a financial services business after the cancellation of the GIG AFSL.  More specifically, I find that on and after 24 May 2017, material published on the GAM website facilitated the provision of financial services offered by GIG.  The bank account referred to on the website was held in the name of GIG and, as discussed below, the representations on the website about the financial services in question are readily understood as referring to financial products provided by GIG.

43. For the purposes of s 911D of the Corporations Act, I find that in the course of carrying on the financial services business, GIG engaged in conduct (namely the publication of content on the GIG website and the GAM website) that was intended to induce people in this jurisdiction to use the financial services that GIG provided or that was likely to have that effect.

1. It is relevant that GIG has not wholly cooperated with ASIC’s investigation, particularly by failing to produce records in response to a compulsive notice issued under the ASIC Act. That omission may be explained either by a defiant attitude on GIG’s part or by a failure of GIG to maintain proper records of the kind that were sought. In either case, the responsibility for the default may be attributed to Mr Wang as the company’s executive director.

2. It is also relevant that the investors who have participated in the business have suffered very significant losses for which no explanation has been given.  As I have said, if the losses were caused wholly by risks inherent in the investments themselves, it is reasonable to expect such an explanation to have been forthcoming.

3. In light of the findings set out elsewhere in these reasons, I consider Mr Wang to be a person who has the potential to do great harm to consumers in this jurisdiction by his involvement in financial services businesses, particularly by his use of a different corporate entity (Stumac) to continue the operation of the business following of the cancellation of the GIG AFSL and the installation of Mr O’Doherty as a director who would do his bidding.

4. In all of the circumstances it is reasonable to infer (and I so find) that the email sent to Mr O’Doherty and extracted at [50] of these reasons was sent either on Mr Wang’s instructions or with his knowledge.  The email establishes that it was Mr Wang’s intention to conceal from ASIC the extent of his control of the business to be conducted by Stumac following its acquisition in July 2017.  In the present case, ASIC has devoted considerable resources into an investigation into GIG and the cancellation of its AFSL, only to be confronted with the same business enterprise arising from the ashes, controlled by the same proponent under a new corporate veil, and in all likelihood with some of GIG’s former customers on its records.  There is, I find, a high likelihood that Mr Wang will continue to “transfer” financial services businesses from one corporate form to another should the requirements of regulation prove too burdensome.

5. Mr Wang has not adduced any evidence and there is accordingly nothing to suggest that he has gained insight into the seriousness of the conduct alleged and proven against him.  If he is not restrained I consider there to be a very high likelihood that Mr Wang will continue to operate businesses in Australia and that he will do so with little or no regard for the requirements of Australian regulatory laws or the interests of consumers.

   Duration of restraints

6. In all of the circumstances, I consider that an order restraining Mr Wang from the management of corporations for a period of 10 years is justified.

7. The order sought pursuant to s 12GLD of the ASIC Act would operate to permanently restrain Mr Wang from involvement in a financial services business in this jurisdiction. Having regard to the protective purpose of s 12GLD, I am satisfied that the restraint should be permanent. In reaching that conclusion I have remained mindful that it is not unlawful to acquire a financial services business including (and necessarily) by acquiring an AFSL as a business “asset”. However, the present case is one in which Mr Wang has acquired interests in two corporations each holding an AFSL and has then sought to exercise ultimate control of the operations of each company in a manner that demonstrates the utmost disregard for Australia’s financial services laws. His conduct in installing Mr O’Doherty as a director of Stumac and giving instructions to him either directly or through Mr Zhou exemplifies that conduct. Mr Wang was, I find, motivated to conceal the fact and extent of his control of Stumac so as to avoid the scrutiny of ASIC in respect of its business affairs. At the same time, Mr Wang has shown a propensity to market financial services by representing the services to be compliant with Australia’s financial services laws, knowing that the services are not compliant. There is nothing before the Court to suggest that Mr Wang has any insight into the seriousness of his conduct and nothing to suggest that he is remorseful in respect of it. There is of course a possibility that Mr Wang’s fitness and propriety may change in the future, however, the existence of that possibility does not dissuade me from the view that a permanent restraint is appropriate. The protective purpose of s 12GLD is best served by a permanent restraint.

8. The order should be expressed in terms that prohibit Mr Wang’s involvement in any capacity whatsoever, whether as officer, employee, agent, consultant, contractor or otherwise.  Expressing the order in those terms will prevent Mr Wang from exercising influence and control over other persons (including company directors) who might be minded, for whatever reason, to act upon his instructions.

   WINDING UP

9. ASIC seeks orders pursuant to s 461(1)(k) of the Corporations Act for the winding up of GAM and Stumac on just and equitable grounds: Amended OA, [7].

10. The affidavits of Ms Collins demonstrates that the procedural preconditions for making the orders are satisfied: Corporations Act, ss 462(2), 464 and 465A(1).

11. The discretion to make the orders must be exercised judicially and in a manner that is capable of examination and justification:  Baird v Lees (1924) SC 83; ReTivoli Freeholds Ltd (1972) VR 445; Loch v John Blackwood Ltd (1924) AC 783. In a case such as the present, the test is that stated by Powell J in Re Netsor Pty Ltd and the Companies Act (1981) 6 ACLR 114 at 119 (applied by Beaumont J in Australian Securities Commission v Rohani and Others [1998] FCA 1432; 29 ACSR 106) namely:

    I accept that the words ‘just and equitable’ where appearing in s 222(1)(h) of the Act are words of the widest import, as also do I accept that the words are not to be confined by the creation of categories within which a case must be brought in order that it be held to be ‘just and equitable’ that a company be wound up (Ebrahimi v Westbourne Galleries Ltd, supra); but, this notwithstanding, it seems to me that the facts or conduct which make it, in any case, ‘just and equitable’ that a company be wound up must be facts or conduct which have a direct and immediate relationship to, or bearing upon, the management or administration of the affairs of the subject company or the conduct of its business.  If authority for this view be needed, it is to be found in the advice of the Judicial Committee - delivered by Lord Shaw of Dumferline - in Loch v John Blackwood Ltd [1924] AC 783, 788 where his Lordship says:-

    ‘It is undoubtedly true that at the foundation of applications for winding-up on the ‘just and equitable’ rule, there must lie a justifiable lack of confidence in the conduct and management of the company’s affairs.  But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company’s business.  Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company.  On the other hand, wherever the lack of confidence is rested on lack of probity in the conduct of the company’s affairs, then the former is justified by the latter and it is under the statute just and equitable that the company be wound up.’

12. In Australian Securities and Investments Commission v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443 at [119], Warren J (as her Honour then was) identified three “general fundamental principles” guiding the exercise of the direction:

    …  First, there needs to be a lack of confidence in the conduct and management of the affairs of the company …  Second, in these types of circumstances it needs to be demonstrated that there is a risk to the public interest that warrants protection.  Third, there is a reluctance on the part of the courts to wind up a solvent company.

13. Gordon J expanded on these principles in Australian Securities and InvestmentsCommission v ActiveSuper Pty Ltd (No 2) [2013] FCA 234; (2013) 93 ASCR 189 as follows:

    21In relation to the first, a lack of confidence may arise where, ‘after examining the entire conduct of the affairs of the company’ the court cannot have confidence in ‘the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company’:  Galanopoulos v Moustafa [2010] VSC 380 at [32]; see also Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504 at 532-3 133 ALR 1 at 61–2; 18 ACSR 459 at 518–19 (AS Nominees); ABC Fund Managers at [117]-[118]; Australian Securities and Investments Commission v International Unity Insurance Pty Ltd (2004) 22 ACLC 1416; [2004] FCA 1059 at [135]–[139] (International Unity Insurance).

    22There is thus a significant overlap between the matters relevant to the just and equitable ground and the matters which weigh in favour of the exercise of the court’s discretion to appoint a provisional liquidator.  For example, matters which indicate ‘the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company’ might also demonstrate that ‘the company’s affairs have been conducted in a manner without regard to legal requirements or accepted principles of corporate management’.

    23In relation to the second, a risk to the public interest may take several forms.  For example, a winding-up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public:  International Unity Insurance at [138]; see also Australian Securities and Investments Commission v Finchley Central Funds Management Ltd [2009] FCA 1110 at [3]. Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law: Kingsley Brown Properties at [96]; see also AS Nominees at FCR 527; ALR 56–7; ACSR 513–14;Australian Securities and Investments Commission v Chase CapitalManagement Pty Ltd (2001) 36 ACSR 778 ; [2001] WASC 27 at [75]–[77]. Again, there is an overlap between matters which would pose a risk to the public interest for the purpose of s 461(1)(k) and which are relevant to the appointment of a provisional liquidator.

    24In relation to the third, it has been said that ‘a stronger case might be required where the company was prosperous, or at least solvent’:  Kingsley Brown Properties at [96]. Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Act: ABC Fund Managers at [124]-[130].

14. In exercising the discretion it is important to bear in mind that ASIC makes no allegation that Stumac has breached the law and that the allegations of contravention made against GAM have not been established on the evidence in this proceeding.  Notwithstanding those matters, I am satisfied that it is just and equitable that both companies be wound up.

15. In my judgment, if the companies are not wound up, there is an unacceptable risk that they would remain under Mr Wang’s de facto control, notwithstanding that orders will be made in this proceeding to disqualify him from managing the affairs of any company and notwithstanding that orders will be made to restrain him from participating in the conduct of a financial services business in this jurisdiction.

16. There is no evidence before the Court to establish whether either company is prosperous, let alone solvent.  The financial position of the companies is within the knowledge of those who control them.  Neither company has appeared in the proceeding to oppose the orders sought on the basis that the orders would affect any intended future business activities or otherwise prejudice the commercial interests of the companies’ creditors, shareholders or other stakeholders.

17. In addition, having regard to the banking records as a whole, I find that there is extensive and unexplained intermingling of funds between bank accounts held by GIG and bank accounts held by other companies associated with Mr Wang both within and outside Australia.  To the extent that there may be an alternative and innocent reason for the confusing array of transfers, the reasons have not been disclosed to the Court.

18. The appointment of liquidators to the companies will facilitate the proper investigation of the affairs of all of the companies associated with the business formerly operated by GAM, then operated by GIG and intended to be operated by Stumac.  Whilst my reasons for judgment in this matter do not include findings of theft of investors’ funds, the appointment of liquidators to the companies (being the same liquidator appointed to GIG), will facilitate examinations or investigations that may yield evidence of fraudulent conduct of that kind.  The Court’s findings as to Mr Wang’s state of mind in this action are, of course, confined to the particular issues in the case before it.  Judgment in this action does not preclude the commencement of other litigation for the ultimate benefit of the companies’ creditors.

19. The winding up orders against GAM and Stumac will advance ASIC’s objectives as the corporate regulator in securing compliance with both the Corporations Act and the ASIC Act and to protect prospective investors from dealing with any company in which Mr Wang may have direct or indirect involvement.

20. Mr Martin David Lewis has consented to act as liquidator of GAM and Stumac.  It is appropriate that he be appointed.  It is also appropriate to order that ASIC’s costs incidental to the wind up applications be paid from the assets of the respective companies in amounts to be fixed by a Registrar of the Court.

    ORDERS

21. The effect of these reasons is that ASIC’s application should be allowed in part.

22. I consider it appropriate to afford the parties an opportunity to be heard on the final form of orders, including as to costs, the form of declaratory relief and the discharge of interlocutory orders.  That will be done by granting the parties liberty to file and serve minutes of order giving effect to these reasons for judgment if they are so advised.  In the event that the liberty is not exercised by any party, orders in the terms proposed by the Court and forming Schedule A to these reasons will be made on 26 September 2019 and will operate from that day.  The orders made on ASIC’s applications for interlocutory relief, as varied, will remain in force until final orders are made in the action.

I certify that the preceding three hundred and forty-five (345) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth.

Associate:

Dated:       16 September 2019

SCHEDULE A

THE COURT NOTES THAT

1.In these orders the following terms and phrases bear the meanings defined in the Australian Securities and Investments Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth): financial service, financial service business, Australian Financial Service Licence, financial product.

THE COURT DECLARES THAT:

1.Between 24 May 2017 and 9 November 2017, the first defendant contravened s 911A of the Corporations Act 2001 (Cth) by carrying on a financial services business in this jurisdiction without holding an Australian Financial Services Licence covering the financial services provided. The first defendant caused the business to be promoted on two websites accessible to the public in this jurisdiction, which conduct was intended to induce people in this jurisdiction to use the financial services provided by it, or was otherwise likely to have that effect.

2.Between 24 May 2017 and 9 November 2017, the first defendant contravened s 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth) by causing statements to be published on two websites accessible to the public in this jurisdiction to the effect that the first defendant was authorised under Australian law to provide financial services in Australia when it was not so authorised, and so represented that the financial services had approvals or benefits they did not have.

3.Between 24 May 2017 and 9 November 2017, the first defendant contravened s 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth) by causing statements to be published on two websites accessible to the public in this jurisdiction to the effect that investors’ funds would be kept secure by being deposited in a designated trust account in accordance with Australian regulatory requirements and not mixed with the assets of the first defendant, which statements falsely represented that the financial services provided by the first defendant had benefits they did not have.

4.Between 24 May 2017 and 9 November 2017 the first defendant contravened s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) by engaging in the following conduct after the cancellation of its Australian Financial Services Licence, which conduct was misleading or deceptive or liable to mislead or deceive:

(a)promoting its financial products and services on two websites accessible in this jurisdiction;

(b)representing, by the websites, that it was licenced to provide the financial products and services;

(c)receiving funds which were paid by investors on the understanding that they were investing in the financial products and/or financial services offered by the first defendant; and

(d)failing to inform investors and the wider public that its Australian Financial Services Licence had been cancelled.

5.The third defendant was directly or indirectly knowingly concerned in each of the first defendant’s contraventions referred to in paragraphs 1 to 4.

THE COURT ORDERS THAT:

1.The plaintiff’s application for declarations against the second defendant in terms of paragraph 1 of the Amended Originating Application dated 11 May 2018 is dismissed.

2.The plaintiff’s application for a declaration against the third defendant in terms of paragraph 2 of the Amended Originating Application dated 11 May 2018 is dismissed insofar as the application is founded upon alleged contraventions of second defendant of s 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth).

3.The third defendant be permanently restrained, whether by himself, his servants, agents or employees, from, in this jurisdiction:

(a)carrying on a financial services business;

(b)carrying on a business related to, concerning or directed to financial products or financial services;

(c)dealing in financial products;

(d)in any way holding himself out as authorised to do, or being in any way involved in, the matters referred to in sub-paras (a) to (c);

(e)holding office in, or being employed by, or acting in the capacity of a contractor or consultant for any entity engaged in any of the activities referred to in sub-paras (a) to (c).

4.The third defendant is disqualified from managing a corporation for a period of 10 years from the date of this order.

5.The third defendant is to pay to the Commonwealth a pecuniary penalty in respect of his involvement in the first defendant’s contraventions of s 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth) in the amount of $3 million.

6.The second defendant and the fourth defendant each be wound up pursuant to s 461(1)(k) and s 464 of the Corporations Act 2001 (Cth).

7.Mr Martin David Lewis be appointed liquidator of the second and fourth defendants with all relevant statutory powers given to liquidators under the Corporations Act 2001 (Cth).

8.The requirements of r 5.11(3) of the Federal Court (Corporations) Rules 2000 (Cth) be dispensed with.

9.The plaintiff’s costs of the winding up applications in relation to the second and fourth defendants are to be paid from the assets of administration of the second and fourth defendants respectively.

10.Subject to the order in paragraph 9, the first and third defendants are jointly and severally liable to pay the plaintiff’s costs of and incidental to the proceedings in an amount to be fixed by the Registrar.

11. Upon the entering of these orders, all orders made on ASIC’s applications for interlocutory relief shall, by this order, be discharged.

SCHEDULE OF PARTIES

SAD 300 of 2017
Defendants
Fourth Defendant:	STUMAC PTY LTD (ACN 611 910 822)