Cardillo and Australian Securities Investment Commission - [2000] AATA 1053

DECISION AND REASONS FOR DECISION [2000] AATA 1053

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q00/485

GENERAL ADMINISTRATIVE DIVISION       )
           Re      ROSS MICHAEL CARDILLO
  Applicant
           And    AUSTRALIAN SECURITIES INVESTMENT COMMISSION
  Respondent

DECISION

Tribunal Deputy President DP Breen, Presidential Member

Date29 November 2000
PlaceBrisbane

Decision The Tribunal sets aside the decision under review and in substitution therefor determines that the banning order be lifted from the date of this decision, namely, 29 November 2000.

(Sgd) DP BREEN
PRESIDENTIAL MEMBER
CATCHWORDS
CORPORATIONS LAW - securities - banning order - whether the applicant recommended a security - whether the applicant was a securities representative - meaning of "ordinary work of accountants, clerks and cashiers" - duty to perform efficiently, honestly and fairly - protection of the investing public.
Corporations Law ss 9, 92, 93, 94, 780, 806, 829, 851, 849
Christensen v Australian Securities & Investment Commission, AAT 531/2000 dated 30 June 2000

REASONS FOR DECISION

29 November 2000 Deputy President DP Breen, Presidential Member

This was an appeal against a decision by a delegate of the Australian Securities and Investments Commission on 28 April 2000 to prohibit the applicant from doing an act as a representative of a securities dealer or representative of an investment adviser.
The matter was heard before me in Brisbane on 3 and 6 November 2000. Both parties provided written submissions and the hearing was resumed for submissions in reply on 23 November 2000. The applicant, Ross Michael Cardillo, was represented by Mr DJS Jackson, Senior Counsel, instructed by Messrs Brian Bartley & Associates. The respondent Commission was represented by Ms J Hogan of Counsel instructed by ASIC in-house lawyers.
Oral evidence was taken from the applicant; Mrs Evelyn Perkes, the applicant's former Secretary; Mr John William Lindsay, former State Manager of Financial Wisdom; Mr Abelardo Caamano-Bermudez and Mrs Vicki Rose Caamano-Bermudez, Investors.
The following documents were also taken into evidence.

Exhibit 1 "T" Documents
Exhibit 2 Correspondence from Mr Lindsay dated 6.5.97
Exhibit 3 Withdrawal of Mr Cardillo's proper Authority dated 24.11.99
Exhibit 4 ASIC media release
Exhibit 5 Book entitled "High Yield Investments"
Exhibit 6 Audio-tape Series: Depth

The Background

The following is a summary of the background facts of this case as taken from both the oral and documentary evidence.
Mr Cardillo operated a company in Mareeba called Ross Cardillo Financial Services Pty Ltd which provided services with respect to life insurance, general insurance and financial planning. In October 1993 Mr Cardillo was appointed as an authorised representative of Financial Wisdom Limited, a licensed securities dealer.
Mr Cardillo was approached by another financial adviser in 1994 who was thinking of opening an office in Mareeba. He told Mr Cardillo of an investment opportunity in a company called the "Wattle Group" which was promising a 50% return paid per month but was a high risk investment. Mr Cardillo did not think that people in Mareeba would really be interested in anything which had such a high risk and did not recommend it to any of his clients.
In 1994 Mr Cardillo went to a seminar conducted by his former employer, Colonial Mutual, at which Mackay & Allen were the key speakers. They were presented as experts in the area of self-managed superannuation funds. After this seminar, Mr Cardillo was contacted by John Cannon of Mackay & Allen who told him about the Wattle Group investment opportunities. He was told that it involved short term bridging finance and offered high returns but was also a very risky investment. Mr Cardillo told Mr Cannon that he did not think he had any clients who would be interested in that type of investment.
In 1997 Mr Caamano-Bermudez approached Mr Cardillo and told him that he had just sold his farm and was looking to invest a lot of money. He had dealt with Mr Cardillo before but had his own stockbroker for share investments. He asked Mr Cardillo if he could recommend any investments with very good rates of return. Mr Cardillo told him that he did not arrange investments of that nature but said he was aware of two investments, one in Western Australia which was offering a 25% return and the Wattle Group which was offering a 50% return.
Mr Caamano-Bermudez said he was interested in the 50% return investment. Mr Cardillo told him he did not really know much about it except that it was short term bridging finance which had been running for a number of years but was considered a high risk investment. Mr Caamano-Bermudez said he wanted to find out more about that investment so Mr Cardillo said he could arrange for Mr Caamano-Bermudez to talk to someone from Mackay & Allen who were the people organising the investment.
Some time later, Mr Cardillo rang John Cannon from Mackay & Allen while Mr Caamano-Bermudez was in the office and had Mr Cannon tell Mr Caamano-Bermudez all about the investment. Mr Cannon said he would send some documentation to them so that Mr Caamano-Bermudez could consider the investment in more detail. Mr Cardillo rang Mr Lindsay at Financial Wisdom and asked if he knew anything about the Wattle Group. Mr Lindsay told him that it was too risky and that he should not have anything to do with it. He also told Mr Cardillo that as this product was not on the recommended list, he could not recommend it to his clients. Mr Lindsay said that at that time he told Mr Cardillo that the Wattle Group was under investigation by ASIC. Mr Cardillo denied that he was told this at that time but that it was around the time when the Wattle Group was collapsing.
On 17 October 1997 Mr Caamano-Bermudez and his wife attended on Mr Cardillo's office again and said that they had decided to invest in the Wattle Group and asked Mr Cardillo to find out the procedure for making the investment. Mr Cardillo rang John Cannon and found out the procedure. Mr Cardillo told Mr Caamano-Bermudez that he thought that the investment was very risky and was similar to placing his money on the horses. Mr Caamano-Bermudez indicated that he thought the investment was a good idea and still wanted to go ahead with it.
At that time, Mr and Mrs Caamano-Bermudez were talking about investing $100,000. Mr Cardillo suggested that it might be better to put in the minimum amount of $20,000 and see how that went first, as he thought it was a bit ridiculous to put 10% of the sale proceeds into a single risky venture. They left to get the cheque from the bank and Mr Cardillo told them he would be out for the afternoon but they could drop the cheque off to his Secretary and he would forward it on. Later that afternoon he received a call from his Secretary saying that Mr Caamano-Bermudez had returned with a cheque for $300,000 and asked what she was supposed to do with it, as Mr Cardillo had told her to expect a cheque for $100,000. Mr Cardillo told her to check that Mr Caamano-Bermudez wanted to invest the whole amount into Wattle and if he did, to simply forward it on to Mackay & Allen.
Mr Cardillo maintained that throughout the entire consultation process with Mr Caamano-Bermudez he was very hesitant about this investment opportunity and once he learned more, he strongly recommended that Mr Caamano-Bermudez not invest in the scheme as he thought it was too good to be true. He also made it clear that aside from his own views he was not recommending the product as Financial Wisdom would not allow him to do so.
A few days later Mackay & Allen contacted Mr Cardillo and indicated that he should be paid commission for Mr Caamano-Bermudez's investment and that in order for that to occur he would have to sign an agreement with them. They sent him the agreement documents which he signed on 23 October 1997. Mr Cardillo admits that there was a clause in the agreement stating that it was his objective to raise $1 million in loans, but he thought it was just a part of their standard contract and, as far as he was concerned, it was simply a means for him to be paid. He indicated that he did not intend to recommend the product but if anyone specifically asked for a high risk/high return investment, then he would refer them to Mackay & Allen.
In November and December 1997 Mr Caamano-Bermudez began receiving his interest cheques. He enthusiastically told a number of people in Mareeba about this great investment opportunity and suggested if they wanted to know more they should go and see Ross Cardillo. One or two other prominent businessmen had invested in Wattle as well and were showing people photocopies of their interest cheques and their bank balances. Mr Cardillo found he was getting a lot of enquiries from people in Mareeba who wanted to know more about the Wattle Group. As Mr Cardillo was not recommending or promoting the investment, he was not in a position to give them comprehensive information. Given the level of interest, he decided that rather than have people come in and talk to Mackay & Allen over the phone on an individual basis, he would run an information evening where Mackay & Allen could talk to all interested parties. He also decided to invite all of the local accountants to an information evening so they would be fully informed if their clients asked them about the Wattle Group.
These information evenings took place in the middle of February 1998. Mr Cardillo gave evidence that he introduced Keith Blaksley from Mackay & Allen as the speaker and stated that neither he nor Financial Wisdom recommended the Wattle investment. Mr Cardillo did not ask any questions that evening. He said he left it up to the people who attended. He said one meeting involved professional accountants and the other meeting was attended by a number of wealthy businessmen and some other people who invested money on a regular basis. Mr Cardillo said he often organised information nights when there were new investment opportunities or changes to the law regarding investments or taxation.
Mr Cardillo said he was asked by a number of people at the meeting, and afterwards, what he thought about the investment opportunity. He said his response was that he personally thought it was very risky and that people should not put in any money that they could not afford to lose. Mr Kennedy, Mr Caamano-Bermudez's stockbroker, was thinking about borrowing money to invest, but Mr Cardillo told him that it was a very bad idea to do that and Mr Kennedy ultimately decided not to invest. There were a number of other people who were thinking of investing but chose not to because of Mr Cardillo's negative attitude to the investment.
Mr Cardillo arranged for cheques from four other investors to be forwarded on to Mackay & Allen so that they could invest in the Wattle Group. One of these was in late October 1997 as a result of comments made by Mr Caamano-Bermudez, and the rest came after the meetings in February. All investors were very clear in their statements that Mr Cardillo was very much against them investing in the Wattle Group but they chose to go ahead anyway. Mr Cardillo said once he had signed his agreement with Mackay & Allen, and so knew what his commission was, he did tell all of the people whose cheques he forwarded, how much commission he was earning. While some of those investors cannot recall if Mr Cardillo told them that or not, they all said they expected that Mr Cardillo would be getting a commission on the amounts they were investing.
With respect to Mr and Mrs Lombardi, Mr Cardillo attended their house, at the request of Mrs Lombardi, with Mr Blaksley to further discuss the investment. He said Mr Blaksley did most of the talking. Mr Cardillo had previously drawn up a plan for the Lombardis with respect to their investing in a geared share portfolio in order to maximise their money for retirement. They spoke to their accountant, who was not in favour of the geared share portfolio but was in favour of investing in Wattle. Mr Cardillo attended their accountant with them when they signed the agreement and gave Mr Cardillo the cheque to forward on. At the meeting he again raised his concern as to the riskiness of the investment.
In May 1998 the head of the Wattle Group was declared bankrupt and the Wattle Group began to collapse. The investors who had used Mr Cardillo to send on their investment applications and cheques lost all of their money. Mr Cardillo was informed of this by Mr Caamano-Bermudez and attempted to find out as much information about the bankruptcy as he could.
Mr Cardillo rang Mr Lindsay at Financial Wisdom to tell him about the collapse and expressed concern about the whole situation. Mr Lindsay asked him to write a letter setting out that Financial Wisdom did not recommend the product, that they had not researched it and that Mr Lindsay had thought that it was all a bit of a scam. Mr Cardillo wrote the letter as he was worried that Financial Wisdom would remove his proper authority so he would not be able to continue to operate as a financial adviser.
Financial Wisdom began to make moves to remove Mr Cardillo's Proper Authority and did so on 24 November 1999. Prior to that, on advice from his solicitors, Mr Cardillo had asked all of the people who used his services to invest, to sign a disclaimer. The disclaimer read as follows:
"We (investor's name) confirm that Ross Cardillo of Ross Cardillo Financial Services Pty Ltd did not advise us to loan money to or invest in the Wattle Group. All advice was received from Mackay & Allen."

All of those people signed the disclaimer and some sent in statements to the respondent to support that disclaimer.
After the respondent completed their investigation, the Commission decided to issue a 15 month ban on the applicant from doing any act as a representative of a securities dealer or representative of an investment adviser.
Contentions
The respondent contends that the investment in Wattle was a prescribed interest pursuant to Section 92 of the Corporations Law and that as a result of his actions Mr Cardillo has breached Sections 780, 851, 849, 806 and 829 of the Corporations Law. The applicant contends that the investment is not a prescribed interest and that even if it is, he has still not breached the Sections referred to. I will address each argument in turn.
Prescribed Interest
The first issue is whether the investment in the Wattle Group was a "prescribed interest". If it is not, then most of the respondent's contentions cannot be supported. The recent Tribunal case of Christensen v Australian Securities & Investment Commission, AAT 531/2000 dated 20 June 2000 considered this very question. Senior Member Beddoe and Mr I Way, Member reviewed the structure of the Wattle Scheme and the leading authorities in the matter. While on its face investment in the Wattle Group may have seemed to be a simple loan agreement, I can see no reason to disagree with their finding that the investment in Wattle Group was a participation interest and therefore a "prescribed interest" pursuant to Section 92 of the Corporations Law.

Section 780 – Unlicensed Dealing

Section 780 provides that:
"(1)     A person must not:
(a)       carry on a securities business; or
(b)       hold out that the person carries on a securities business;
unless the person holds a dealer's licence or is an exempt dealer."

The term "securities business" is defined in Section 93 as "a business of dealing in securities". The term "deal" is defined in Section 9 as:
"(b)… acquire, dispose of, subscribe for or underwrite the securities, or make or offer to make, or induce or attempt to induce a person to make or to offer to make an agreement:
(i)for or with respect to acquiring, disposing of, subscribing for or underwriting the securities; or
(ii)the purpose or purported purpose of which is to secure a profit or gain to a person who acquires, disposes of, subscribes for or underwrites the securities or to any of the parties to the agreement in relation to the securities."

It is the Tribunal's view that the applicant did not at any time induce people to invest in the Wattle Group. He provided an opportunity for a community who was already very interested in the investments to gain more information about them. He specifically said that he did not recommend the product and regularly told people that this was a very high risk investment and tried to dissuade people from investing, particularly if they could not afford to lose the money they were looking to put in. To induce or attempt to induce a person to do something requires an encouragement to do the act which, on the evidence, Mr Cardillo clearly did not do.
Section 851 – Recommendation without a Reasonable Basis
Section 851 provides:
"(1) A securities adviser who:
(a)makes a securities recommendation to a person who may reasonably be expected to rely on it; and
(b)does not have a reasonable basis for making the recommendation to the person;
contravenes this section."

The respondent alleged that the applicant impliedly recommended the Wattle Group by his actions, despite his express disclaimers. It is the Tribunal's finding that the applicant did not recommend the investment in Wattle. He made it very clear to all people involved, even in front of the representatives from Mackay & Allen, that he did not recommend the product. He also made it clear that Financial Wisdom did not recommend the product and he thought that the whole venture was very risky and should be avoided unless investors were willing to lose their money. This is the clear evidence from all of the statements provided to the Tribunal. Mr Caamano-Bermudez is the only person who did not seem to recall Mr Cardillo's warnings of caution. However, the Tribunal does not find Mr Caamano-Bermudez to be a credible or reliable witness. He seems to have an ability to conveniently forget details at will in order to bolster his claim against Mr Cardillo to recover his money. His claim that after having lost $300,000 in the Wattle Scheme, for which he is suing Mr Cardillo, he happily signed a document given to him by Mr Cardillo without even reading it. While this is ludicrous enough, the fact that the document is in plain English and only three lines long, makes it completely unbelievable. It is clear from the evidence that Mr Cardillo did not recommend the investment and in fact attempted to dissuade people from investing.
That Mr Cardillo organised a meeting for Mackay & Allen to present the investment opportunity does not of itself constitute an implied recommendation. He was not there to promote the investment but to respond to a high level of interest in the product from the community he serviced. Such an action cannot be an implied recommendation in the face of express disapproval.
As Mr Cardillo did not recommend the product, he was not required to extensively research it. He made sure all potential investors knew that he did not know a lot about the product and gave them access to people who did, namely, Mackay & Allen. In doing so he was not promoting financial advisers who were known to be involved in questionable deals but, rather, a well-respected firm who were known to be experts in their field of self-managed superannuation funds. Therefore, it is the Tribunal's view that Mr Cardillo did not act recklessly or without due consideration with respect to his involvement with Mackay & Allen.
Section 849 – Disclosure of Adviser's Interest
Section 849 provides:
"(1)This section applies where a securities adviser makes a securities recommendation to a person (in this section called the 'client') who may reasonably be expected to rely on it."

As stated above, Mr Cardillo did not make a securities recommendation. Therefore, this Section does not apply to him. Even if he had, there is sufficient evidence that he did disclose the fact that he would be receiving commission to all of the people who invested. While some could not actually recall whether the matter specifically came up or whether the exact details of how much he would receive were stated, it is not surprising that people who are themselves focusing on returns of 50% of an investment did not pay a lot of attention to exactly how much commission the representative would get or the intricacies of how it would be paid. As such, their failure to recollect these details is no reliable evidence that Mr Cardillo did not inform them of the relevant details.
Section 806 – Representatives of Dealers
Section 806 provides:
"A natural person shall not do an act as a representative of a dealer (other than an exempt dealer) unless:
(a) the dealer holds a dealers licence; and
(b) the person holds a proper authority from the dealer."

Section 9 defines a "dealer" as "a person who carries on a securities business". Section 9 also defines the term "deal" as set out at paragraph 29 of this decision. Section 93 defines a "securities business" as "a business of dealing in securities".
Section 94 deals with representatives of a dealer and states as follows:
"(1)Subject to subsection (2), a person is a securities representative of another person if, and only if, the first-mentioned person:
(a)       is employed by; or
(b)       acts for or by arrangement with;
the other person in connection with a securities business or investment advice business carried on by the other person."
(2)       Except for the purposes of paragraph 88(1)(b):
(a)a person who holds a proper authority from a securities licensee is a securities representative of the licensee; and
(b)a person who holds an invalid securities authority from another person is a securities representative of the other person.
(3)Subject to subsection (4), a person does an act, or engages in conduct, as a securities representative of another person if, and only if, the first-mentioned person does the act, or engages in the conduct:
(a)in connection with a securities business or investment advice business carried on by the other person;
(b)while the first-mentioned person is a securities representative of the other person;
(c)as employee or agent of, or otherwise on behalf of, on account of, or for the benefit of, the other person; and
(d)otherwise than in the course of work of a kind ordinarily done by accountants, clerks or cashiers."

The first question to be asked is whether Mackay & Allen were acting as a securities dealer. The Tribunal has already found that investment in the Wattle Group was a security. On the evidence it is also clear that Mackay & Allen "dealt" in this security. They were the organisation who had the contract directly with the Wattle Group to organise investors. They were the organisation who promoted and recommended the investment, giving seminar presentations and receiving all of the investor's applications. They clearly induced and attempted to induce people to acquire an interest in the Wattle Group. As such, Mackay & Allen were a "dealer" for the purposes of Section 806 of the Corporations Law. It is common ground between the parties that Mackay & Allen did not hold a dealer's licence.
The second question, therefore, is whether Mr Cardillo acted as a representative of Mackay & Allen. With respect to subsection 94(2), Mr Cardillo does not hold either a valid or invalid Proper Authority from Mackay & Allen so he is not automatically deemed to be a representative. Therefore, the nature of the relationship between them must be considered. On 23 October 1997, Mr Cardillo signed an agreement with Mackay & Allen with respect to his referral of clients to them in relation to the Wattle Group.
While Mr Cardillo viewed this simply as a means for him to receive commission if he did refer anyone, it objectively means that from that time on his activities with respect to Wattle were done pursuant to an agreement with Mackay & Allen in connection with a securities business. This would not apply to Mr Caamano-Bermudez's investment, however, because at that time he was not acting pursuant to an arrangement. Therefore, from 23 October 1997, Mr Cardillo was a securities representative of Mackay & Allen.
The final question, then, is whether the acts he did constituted acts of a securities representative. The specific acts in question are:

the passing on of clients to Mackay & Allen
the holding of meetings
the forwarding on of the forms and cheques of the investors
attending on clients after the meeting with people from Mackay & Allen.

All of these acts were done in connection with the securities business carried on by Mackay & Allen. As stated above, once the applicant signed the agreement he was acting as a representative of Mackay & Allen and his actions resulted in a benefit to Mackay & Allen. The issue is, though, whether his acts were in the course of work of a kind ordinarily done by accountants, clerks or cashiers.
There are currently no authorities on this subsection. In today's society the profession of Accountant involves a lot more than simply book-keeping duties. Accountants regularly become their client's financial advisers in matters including taxation, cash management, superannuation and investments. It is not unusual for them to host seminars on changes in laws or new investment opportunities for both their clients and other members of their community. The question is whether the law in this section is seeking to exclude those "newer" activities from regulation or not.
Given that the term "accountant" is linked with those of "clerk" and "cashier", the linguistic principle of noscitur a sociis would suggest that the wider term of "accountant" be read down so as to include only those activities as are consistent with the activities of the other occupations. Considering the overall intent of the legislation, which is focused on regulating all participants in the securities market, it would seem that the narrower interpretation of the subsection is appropriate. As such, activities by accountants who are venturing into the securities and investment area would still be subject to the conditions of Section 94.
The referral of clients to another firm, if the adviser does not have the type of investment sought, would not of itself be a contravention of this Section. However, the fact that the applicant has an agreement for remuneration if he does refer them on, means that he is acting on their behalf, or as a representative.
The forwarding on of forms and cheques, and even the witnessing of signatures as a Commissioner of Declarations, are activities that accountants (in their traditional role), clerks and cashiers ordinarily do. As such, those activities are not acts of a securities representative for the purposes of subsection 94(3).
Organising the information meetings and visiting clients after those meetings with people from Mackay & Allen were also activities done as a representative, which would not be the usual tasks of accountants, clerks and cashiers. While Mr Cardillo's participation in these meetings was not a positive representation for Mackay & Allen, they were still done in his position as representative of Mackay & Allen. He was their point of contact with the people of Mareeba and while his activities were that of a facilitator rather than a promoter, he was still acting as a representative.
Therefore, Mr Cardillo did act as a securities representative for Mackay & Allen without a Proper Authority and they were not a licensed dealer. Therefore, he has contravened Section 806 of the Corporations Law.
It is the Tribunal's finding that, as a matter of fact, Mr Cardillo at no time acted as a representative of Financial Wisdom with respect to the Wattle Group.
Section 829(f) – Failure to perform efficiently, honestly and fairly
Section 829(f) provides:
"Subject to section 837, the Commission may make a banning order against a natural person (other than a licensee) if:
…
(f)the Commission has reason to believe that he or she has not performed efficiently, honestly and fairly the duties of:
(i) a representative of a dealer; or
(ii) a representative of an investment adviser."

Setting aside the contravention of Section 806 firstly, Mr Cardillo did not deal with or recommend this security. He was asked about a product which he would not and could not recommend. Rather than investigating it himself and passing the information on to various people on an ad hoc basis, he organised for a reputable firm who did know about the investment opportunity to come and provide information to seasoned investors and accountants. He was very clear that he was not particularly in favour of the scheme and that Financial Wisdom had nothing to do with it.
When people made up their own minds as to whether they wanted to invest and how much they wanted to invest, he sent off their forms and money. This was mainly because Mackay & Allen did not have an office in Mareeba and Mr Cardillo was a known contact point with them. There is nothing wrong in principle with Mr Cardillo having accepted commission from Mackay & Allen for doing so. In fact, the investors expected, and in the Tribunal's opinion, knew he would. That was the nature of his business.
It is clear that these investors, independently of Mr Cardillo, chose to invest in Wattle. Mr Kennedy followed Mr Cardillo's advice and did not lose any money. If Mr Caamano-Bermudez had followed Mr Cardillo's advice, he would, at most, have lost $20,000 rather than the $300,000 he insisted on investing. If Mr Tudini had followed Mr Cardillo's advice to invest in managed funds rather than Wattle, he would not have lost his money. If Mr and Mrs Lombardi had listened to Mr Cardillo's advice, they would have invested in a geared share portfolio and would not have lost their money.
Allegations were made that Mr Lindsay had told Mr Cardillo in as early as May 1997 that ASIC where investigating the Wattle Scheme. Mr Cardillo was adamant he did not receive such information until May 1998 when Wattle began to collapse. The official investigation did not begin until December 1997. The respondent submitted that I should accept the evidence of Mr Lindsay as it is likely that an unofficial investigation was going on before the official investigation began. However, there is sufficient evidence to the contrary to make his evidence sufficiently unreliable.
Firstly, if Mr Lindsay was aware that an investigation was being conducted, given his position as State Manager, it would have been reasonable for him to have sent a brief minute around to all his advisers, rather than just tell Mr Cardillo. His reasoning for not doing so, namely, a fear of being accused of defamation, is highly disproportionate and not consistent with his very strong attitude that the investment was a scam and should not be touched.
Secondly, there is in evidence a Statement of Mr Tudini, another investor. He said he first heard about the Wattle Group from Mr Caamano-Bermudez. While Mr Caamano-Bermudez was singing the praises of this investment, he mentioned that he had been in touch with ASIC in the Northern Territory and that they advised him that there was nothing wrong with investing in Wattle. Mr Caamano-Bermudez said that he had not called ASIC himself but that a friend of his did and they were told that Wattle was fine.
There is a lot of conflicting evidence on this point and the respondent did not present any concrete evidence of when their informal investigation did begin. Therefore, the Tribunal finds that there is insufficient reliable evidence on which to infer that Mr Cardillo did know of an ASIC investigation into Wattle before it became general knowledge, namely, around the time of its collapse.
Therefore, Mr Cardillo did not act in a reckless manner with respect to his dealings with Mackay & Allen and the Wattle Group.
The final consideration is whether by contravening Section 806, Mr Cardillo failed to act efficiently, honestly and fairly. It would have been prudent for Mr Cardillo to have checked out the authority of Mackay & Allen to act with respect to the Wattle investment and to ensure that all of his actions were pursuant to appropriate authorities. However, as Mr Cardillo was not recommending the product himself, it is understandable that he may not have been sufficiently alerted to the fact that this was necessary.
The situation was further compounded by the fact that this is not a case where it was particularly obvious, on the face of it, that this investment was a participation interest and therefore a security. There were no prospectuses or other relevant documents which are usually required to accompany the promotion of a security. The fact that Wattle had been running since 1992 and ASIC had not done anything to ensure that such documents were created, shows that it was not clear, even to people in this field, that this investment was actually a security and that all relevant regulations applied to dealings with it. Therefore, it cannot be said that this oversight by Mr Cardillo, which led to his contravention of Section 806, means that he carried out his duties with a lack of efficiency, honesty or fairness.
The Banning Order
It was suggested that a banning order under Section 829 is justified on three grounds.

Firstly, that the applicant contravened a securities law namely - on the Tribunal's finding – Section 806;
Secondly, that the applicant failed to efficiently, honestly and fairly perform the duties of a representative of a dealer; and
Thirdly, that there is reason to believe that he will not perform efficiently, honestly and fairly the duties of a representative of a dealer.

With respect to the first two grounds, it is the Tribunal's view, as discussed above, that the applicant should not be subject to a banning order. His actions with respect to the Wattle Group were carried out fairly, efficiently and honestly. He was very up-front with all potential investors as to the state of his knowledge of the company, his level of involvement with it and his negative attitude to investing in it. He was also very clear that he was in no way acting on behalf of Financial Wisdom regarding the Wattle investment. Therefore, he did not breach any duties to them. His contravention of Section 806 was one more of inadvertence and a lack of understanding of the finer details of securities law, but then this is a mistake that many in the industry made with respect to the Wattle Group, as it is not a clear-cut case. The loss of his Proper Authority from Financial Wisdom is sufficient to ensure that in the future he will be very careful who he becomes involved with and what products he does associate himself with in any way.
With respect to future dealings by Mr Cardillo in the investment market, it was alleged that he has not learnt his lesson from the Wattle Group. Shortly after the Wattle collapse, Mr Cardillo forwarded on a query about investment in Biz Equity to Financial Wisdom. Biz Equity was a scheme offering similar returns to the Wattle Group.
This query was brought to him by Mr Caamano-Bermudez who had just lost $300,000 in the Wattle collapse. Mr Cardillo said he did not think that Biz Equity was a good idea given the situation with Wattle but Mr Caamano-Bermudez insisted that he wanted it sent to Financial Wisdom for further information. The evidence showed that while Mr Caamano-Bermudez always made up his own mind on things, he tended to look for a second and even a third opinion on matters, rather than just accepting the advice of one person. Mr Cardillo expected a negative response from Financial Wisdom and hoped that with that response he would be able to dissuade Mr Caamano-Bermudez from investing.
As such, that incident does not reflect adversely on Mr Cardillo's ability to carry out his duties efficiently, honestly and fairly in the future.
The real purpose behind a banning order is not to further punish a person but rather to protect the investment community. In this case, Mr Cardillo facilitated the obtaining of information and processing of documents for investors looking for high risk/high return investments. He made it clear to them that this was a particularly risky venture. In organising the information nights, he did so in response to a demand for the information, rather than in an attempt to drum up business. While Mr Cardillo could have refused to get information for the interested parties and could have refused to take their money and forward it on, this is the commercial world and he is under no obligation to turn away clients because they want high risk investments.
While a certain level of paternalism and protectionism is necessary in the investment market to ensure that elderly and naïve investors are not taken advantage of, this is not the case here. The investors in question were wealthy people who regularly invested in a number of different ventures. They had their own accountants and stockbrokers to give them added advice. People such as this cannot knowingly invest in high risk ventures, contrary to the advice of the relevant financial adviser and then cry foul when they lose their money and attempt to lay the blame at the adviser's feet.
It is the Tribunal's finding that despite the breach of Section 806, Mr Cardillo does not pose a risk to the investing public. Therefore, the Tribunal sets aside the decision under review and determines that the banning order be lifted from the date of this decision, namely 29 November 2000.

I certify that the 70 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President DP Breen, Presidential Member
Signed:         Emma Oettinger
  Associate
Date/s of Hearing  3.11.00, 6.11.00
Final submissions  23.11.00
Date of Decision  29.11.00
Counsel for the Applicant        Mr DJS Jackson SC
Solicitor for the Applicant         Messrs Brian Bartley & Associates
Counsel for the Respondent    Ms J Hogan
Solicitor for the Respondent    Ms D Binstead, Departmental Lawyer