Chapple and Australian Securities and Investments Commission

[2016] AATA 1032

Chapple and Australian Securities and Investments Commission [2016] AATA 1032 (16 December 2016)

Division	Taxation and Commercial Division
File Number(s)	2015/6334
Re	Mark Chapple
APPLICANT
And	Australian Securities and Investments Commission
RESPONDENT

DECISION

Tribunal	Deputy President Gary Humphries
Date	16 December 2016
Place	Canberra

The reviewable decision is affirmed.

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Deputy President Gary Humphries

Catchwords

Permanent banning order prohibiting applicant from providing financial services – where conduct misleading or deceptive – nature of serious fraud – effect of recklessness -purpose of banning order – decision under review affirmed.

Legislation

Corporations Act 2001 (Cth)

Crimes Act 1900 (NSW)

Cases

Drake v Minister for Immigration and Ethnic Affairs 2 ALD 60

Felden and ASIC 45 ACSR 111

Howarth and ASIC 101 ALD 602

Minister for Immigration and Ethnic Affairs v Daniele 5 ALD 135

Pollard v Commonwealth Director of Public Prosecutions (1992) 8 ACSR 813

Saffron v the Commissioner of Taxation 30 FCR 578

Secondary Materials

ASIC - Regulatory Guide 98

REASONS FOR DECISION

Deputy President Gary Humphries

Background

1. The applicant, Mark Chapple, is the subject of a banning order made by the Australian Securities and Investments Commission (ASIC) under s 920A of the Corporations Act 2001 (the Act). The effect of the banning order is that Mr Chapple is permanently prohibited from providing financial services, as defined in the Act. On 2 December 2015 Mr Chapple applied to the Tribunal for review of this decision. He seeks that the banning order be revoked, or at least reduced in length to permit him re-entry to employment in the industry.

2. Mr Chapple has worked in the insurance industry since 1978, specialising in agricultural insurance. It was not disputed before the Tribunal that he had been a successful and well-regarded operator in this industry, and had built a substantial client base in northern NSW. Working independently as an insurance broker and insurance agent and as a subcontractor for an insurance broker, he earned an income through commissions and fees charged to a number of farming clients. In 2004 he was approached to join a specialist rural insurance broker, AgriRisk Services Pty Ltd (AgriRisk), on the basis that he would offer those services in future through the company and head its Tamworth office. He worked as an employee of AgriRisk for the next 9 years until he resigned in 2014.

3. AgriRisk operates on the basis that, generally speaking, it earns income from the commission paid by insurers in respect of clients for whom it places insurance. It also charges clients a broker administration fee in certain circumstances. These arrangements are disclosed in the Financial Services Guide AgriRisk provides to each of its clients.

4. When Mr Chapple joined AgriRisk he brought with him a number of clients he had recruited previously as a sole operator. In respect of four of those clients, he continued to invoice them over several years for insurance-related fees payable to his personal company, notwithstanding that the clients were also receiving invoices from AgriRisk for their insurance premiums and broker administration fees. This arrangement only came to AgriRisk’s attention when Mr Chapple resigned in January 2014.

5. In December 2014 Mr Chapple was charged with four counts each of obtaining money by deception and of dishonestly obtaining a financial advantage by deception, contrary to the Crimes Act 1900 (NSW). In May 2015 he pleaded guilty to each charge in the Local Court of New South Wales, and was convicted and sentenced to 18 months imprisonment, and ordered to pay compensation of $57,121.85. He appealed the severity of the sentences to the District Court of New South Wales where, in September 2015, Judge Cogswell reduced the sentences, suspended them on the basis that Mr Chapple entered into a good behaviour bond and ordered him to undertake 140 hours of community service.

6. On 5 November 2015 a delegate of ASIC made a banning order against Mr Chapple under s 920A of the Act, permanently prohibiting him from providing financial services.

   The issue before the Tribunal

7. Section 920A provides:

   ASIC’s power to make a banning order

   (1)  ASIC may make a banning order against a person, by giving written notice to the person, if:…

   (c)  the person is convicted of fraud; or

   …

   (2)  However, ASIC may only make a banning order against a person after giving the person an opportunity:

   (a)  to appear, or be represented, at a hearing before ASIC that takes place in private; and

   (b)  to make submissions to ASIC on the matter.

   (3)  Subsection (2) does not apply in so far as ASIC’s grounds for making the banning order are or include the following:

   (a)  that the suspension or cancellation of the relevant licence took place under section 915B;

   (b)  that the person has been convicted of serious fraud.

8. At different points in the hearing, Mr Chapple took issue with ASIC’s description of the crimes he had been convicted of in the Local Court as fraud. In a submission to the Tribunal he said I did not complete any actions with the intent to defraud, adding I… pleaded guilty on the basis, not of intent but rather that of recklessness.

9. The Tribunal notes that each of the offences of which Mr Chapple has been convicted under the NSW Crimes Act 1900 requires the employment of deception on the part of the accused. Mr Chapple was convicted under both s 178BA (obtaining money by deception) and s 192E (dishonestly obtaining a financial advantage by deception); deception is defined in both sections to mean behaviour that is either intentional or reckless. There is no requirement under either section that a person intentionally sets out to defraud for the offences to be constituted.

10. Mr Chapple’s submissions to the Tribunal on the question of fraud point to a degree of ambiguity on his part as to the gravity of the behaviour which gave rise to ASIC’s banning order. That ambiguity is discussed at greater length below. However, taking his oral and written submissions as a whole, the Tribunal did not understand Mr Chapple to be contending that the power to impose a banning order under s 920A of the Act was not available to ASIC in this case; indeed, he conceded in the hearing at one point that ASIC had that power in his case. Rather, the Tribunal understands he was arguing against the severity of the term of the order, a lifetime ban on working in this industry.

11. Even if Mr Chapple can be said to have been arguing that ASIC lacked the power to impose a banning order because his conduct did not meet the test of fraud under s 920A, the Tribunal does not believe that argument is open to him. The Tribunal is bound to accept the fact of the applicant’s fraud, by virtue of the decision of a competent court affirmed on appeal. As Davies J in Saffron v the Commissioner of Taxation 30 FCR 578 observed (at 581):

    A conviction is a decision in rem which establishes, while it stands, that the person convicted has been convicted of a certain crime. If the person has been convicted of a felony, it establishes that the person is a felon. Such a matter is one which the convicted person may challenge only by seeking to set aside the conviction. In the taxation appeals, the taxpayer may not challenge the fact that he has been convicted of conspiracy to defraud the Commonwealth.

12. While the fact of a conviction is the source of ASIC’s authority to impose a banning order, the Tribunal is not prevented from examining the facts surrounding the conviction for a different purpose, in this case to determine whether the sequela – a lifetime ban from providing financial services – is appropriate: Minister for Immigration and Ethnic Affairs v Daniele 5 ALD 135 at 138-9.

13. The issue presently before the Tribunal, then, is whether ASIC’s decision to impose a permanent ban on Mr Chapple under s 920A should be affirmed or whether some other (lesser) banning period should be imposed.

    Legislative intent regarding banning orders

14. Banning orders serve a variety of purposes. One purpose is protective of Australia’s financial services industry, with the object of sustaining the confidence of investors in that industry, and in the regulatory regime which buttresses it. As the Tribunal noted in Felden and ASIC 45 ACSR 111, such a purpose stands above notions of penalty or punishment:

    397. In Australian Securities Commission v Kippe (1996) 67 FCR 499 the Federal Court of Australia held:

    "Although a banning order has the consequence of excluding an individual from acting as the representative of a dealer or investment adviser, the making of such an order is not designed to punish or impose a penalty on that person for an offence or contravention of any norm of conduct.

    ...That the section is not intended to be punitive is made apparent by having regard to the specified grounds which must be established before such an order is made. These include standard non-blameworthy grounds, for example, becoming "an insolvent under administration" and becoming "incapable, through mental or physical incapacity, of managing his or her affairs".. As the question is one of interpretation, it cannot be said that the character of the subsection changes depending on the particular ground upon which the order is sought. Nor, can it be said in such cases that the purpose of the banning order is to punish or penalise a person who becomes insolvent or incapable. Consideration of the grounds on which a banning order is made does not support the suggestion that the banning order is of a penal nature and certainly is not one for the imposition of a penalty. Rather, the grounds set out in s. 829 clearly point to the conclusion that it is properly characterised as protective" (at 508) [emphasis in original].

    398. Having referred to the "well settled" distinction between punitive and protective statutory provisions, the Court continued:

    "Of course, in one sense it might be said that many statutory provisions which have the purpose of protecting the public will seek to achieve that protection by imposing a disability or disqualification so that it might be suggested that the provision has a dual purpose. However, the authorities support the view that even where this is so the Court will look to the predominant purpose of the provision of under consideration: see Nicholas v Commissioner for Corporate Affairs (1986) 5 ACLC 258 at 265; Re Network Agencies International Ltd (In liq); Johnston v Edwards (1991) 5 NZCLC 67,535 at 63,538. In the present case we do not think that the provision has a dual purpose" (at 506-507).

    "The functions of the ASC include the maintenance of investor confidence in the securities and futures markets by ensuring adequate protection for such investors. This clearly indicates that one of the underlying purposes of the Act is protective in nature. ...

    The immediate and direct effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventive in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein" (at 508) [emphasis in original].

    399. Accordingly, the primary consideration to which the Tribunal must have regard in determining whether to impose a banning order and, if so, its duration, is the need to maintain the confidence of investors and to encourage participation in the securities industry by demonstrating that representatives who do not perform their duties efficiently, honestly and fairly can expect to be excluded from the industry for some period.

15. Another purpose of a banning order is deterrence. In Howarth and ASIC 101 ALD 602 Deputy President Forgie discussed the effect of earlier decisions with respect to disqualification orders for unprofessional conduct, and came to this conclusion (at [180]):

    The weight of authority in the Federal and Supreme Courts to whose judgments we have referred seems to be to the effect that a disqualification order, and so a banning order, is made on the basis of what will protect the public. It is not made on the basis of what will punish the person concerned even though punishment or the imposition of a penalty may be the practical outcome of the making of an order. Deterrence is also a relevant concern. Deterrence may relate both to the person concerned and to others engaged or potentially engaged in the finance [industry]. If imposed, it is relevant in the case of the individual in that it protects the public from that person’s being involved in the industry. Whether imposed or not, the possibility that an order might be made is itself a deterrent both to an individual and to all of those engaged in that industry. As was said in Re Donald and Australian Securities and Investments Commission, the Tribunal said:

    116. The imposition of a banning order against a dealers representative certainly achieves, in respect of at least one member of that profession, the second aspect of public protection for the period in respect of which it is imposed. That is, it ensures that the public can be certain that a particular person, who has been found to have breached a statutory standard applicable to him or her, is no longer entrusted with dealing in shares. At the same time, it informs both other dealers representatives and members of the general public that the behaviour is neither acceptable nor tolerated.

    117. Whether it achieves the first aspect of public protection is more debateable. A period of prohibition may, rather like a retreat or a period of contemplation, lead a person to reflect upon his or her behaviour and to come to an understanding of why that behaviour has been regarded as inappropriate by others and, if it is necessary to do so, to take steps to improve his or her knowledge of what is an appropriate manner of behaviour. On the other hand, a period of prohibition may not result in such reflection or lead to a person’s coming to any greater understanding than he or she had when it was imposed.

16. The applicant in Howarth had assisted clients to arrange short-term loans for the purpose of paying insurance premiums but was found to have falsified loan transaction documents. In affirming the decision to impose a permanent banning order under s 920A of the Act, the Tribunal pointed to 3 factors which contributed to that outcome. It said, in relation to the third (at [192]):

    Even though we consider them unsuccessful, MrHowarth’s attempts to lay the blame at the doors of others should be seen in conjunction with what we also find to be his minimisation of what he has done. Minimisation is the third factor. We find that he has minimised his conduct and its consequences by referring to the fact that all of the loans have been repaid to Centrepoint and to BMW Finance and that his clients have been happy with the service he provided in obtaining loans for them. His focus was entirely upon the financial loss or, more importantly, on the lack of any financial loss to any of the lenders or borrowers. We have considered his evidence with care but have concluded that MrHowarth has very little understanding of the risk to which he exposed Centrepoint and BMW Finance. On the basis of his own evidence, we find that was not a risk to which he turned his mind when he was submitting the false documentation. It is not a risk to which he appeared to have turned his mind before the interviews with the ASIC officers. At the hearing, MrHowarth continued to see his actions in terms of helping his clients and their intentions to repay the loans rather than extending his sights to the potential risk to which he exposed Centrepoint and BMW Finance.

17. As well as the provisions in chapter 7 of the Act, which promote fairness, honesty and professionalism by practitioners in the industry, it behoves the Tribunal to consider policy guidelines governing ASIC’s exercise of those powers: Drake v Minister for Immigration and Ethnic Affairs 2 ALD 60 at 69-70. Regulatory Guide 98 deals with the administrative powers available to ASIC to enforce compliance with the Act, including financial services licensing and market integrity provisions. Table 1 sets out factors to consider in deciding to take administrative action and Table 2 sets out factors and examples of conduct relating to specific periods of banning. Table 1 factors include:

    ·Whether there is evidence that the contravention involved dishonesty or was intentional, reckless or negligent

    ·Whether the licensee or person has a poor compliance record

    ·Whether the case is likely to help participants in financial markets to better understand their obligations.

    A mitigating factor is

    ·Whether the misconduct was inadvertent and the person undertakes to cease or correct the conduct.

18. Factors set out in Table 2 which are relevant for banning orders of 10+ years or permanent banning orders include:

    ·Dishonesty or intent to defraud

    ·Serious incompetence and irresponsibility

    ·A likelihood that the person will engage in contravening conduct in the future.

    The conduct giving rise to the banning order

19. In his judgement in the District Court of New South Wales on Mr Chapple’s appeal against his conviction, Judge Cogswell SC referred to the victims of Mr Chapple’s crimes and said:

    …these four sets of persons and corporations were deceived by his failure to disclose that they were not obliged to pay him any money and, to the extent that they trusted him, he failed to honour that trust. That is why essentially it is criminal behaviour. It is significant criminal behaviour and to my mind the more serious of the crimes, namely the offences against s 192E, should attract a sentence of imprisonment.

20. The Tribunal regards the conduct giving rise to the offences of which Mr Chapple was convicted as serious. The behaviour occurred repeatedly over a period of almost a decade and involved recurring violations both of the law and of his employer’s policies. Over that period he received commissions totalling more than $57,000, payments to which he was not entitled. Mr Chapple gave evidence that he did not have a clear appreciation that his conduct was in breach of his employer’s policies, in part because he had not read some of the policies (despite the fact that he headed his employer’s Tamworth office and the policies sat for years on his desk there). His conduct was not discovered until after he left his employment with AgriRisk.

    Consideration

21. The jurisdiction to impose a banning order arises by virtue of the eight fraud convictions against Mr Chapple. Standing in the shoes of ASIC to consider the exercise of the discretion in s 920A, the first question is whether a banning order should issue at all: Howarth and ASIC 101 ALD 602 at [151]. The answer to that question must be yes, in that the behaviour in question is serious and fully satisfies the criteria referred to in Regulatory Guide 98.

22. The Tribunal must next consider whether a permanent banning order against Mr Chapple is the correct or preferable decision, taking into account the full circumstances giving rise to his convictions, or whether a reduced period of disqualification from involvement in the industry is called for.

23. Mr Chapple placed before the Tribunal aspects of his personal circumstances which, he argued, should motivate in favour of a lesser period of exclusion from the industry. He emphasised the lack of any other criminal convictions during a long career, the strong and productive relationships he enjoyed over many years with the clients who were the subject of the charges, his firm belief that he never formed any intention to defraud those clients and his full cooperation with the subsequent ASIC investigation. He also told the Tribunal that he was suffering from severe depression during the proceedings in the courts, and that significant shame and embarrassment had been visited on his family, particularly his 13-year-old daughter who had been badly affected by the adverse publicity his case generated. He said that his professional position had been ruined by the proceedings against him, and that he was unemployed and facing bankruptcy. He pointed out that he had worked in this industry all his life, and still had skills which prospective employers had told him they were prepared to use if he was legally free to provide them.

1. However, in undertaking consideration of this issue, the Tribunal is troubled by the ambivalence Mr Chapple demonstrated, in his written and oral evidence, regarding the nature of the conduct which led to the convictions. The authorities suggest that an applicant’s view of his own criminal behaviour is a seminal element in determining what consequences – particularly with respect to periods of disqualification – should flow from that behaviour. Considering the totality of that evidence, the Tribunal has come to the view that it would be inappropriate, or even unsafe, to reduce the period of the banning order. The factor militating most strongly in that direction is the same one referred to by the Tribunal in Howarth as militating against leniency: namely, the tendency of the applicant to minimise the seriousness of the conduct giving rise to the banning order. In summary, the Tribunal is concerned that a decision to reduce the period of the banning order may reinforce Mr Chapple’s apparent belief that his conduct did not really amount to a crime and may even send a similar signal to the northern NSW community where the offences occurred.

2. There is ample basis for this concern in the evidence taken by the Tribunal. Mr Chapple acknowledged that he had been at fault with respect to his dealings with the four sets of clients who were being, in effect, double charged. During his criminal trial he acknowledged gross error on my part, and did not dispute before the Tribunal that there was a proper legal basis on which to convict him of the crimes with which he was charged; he said I admit to the error in my ways. However, there was also countervailing evidence that in fact he disputed the basis on which the convictions were obtained.

3. Although Mr Chapple acknowledges error, he refers elsewhere in his submissions to my supposed error. He says that the word fraud in relation to his actions is not altogether appropriate. I was remiss, and perhaps reckless in my actions, actions which were carried out without intentional fault. He told the Tribunal that he was unsure if his actions even amounted to incompetence. He also writes:

   I did not or could not show remorse to the charges. I never for one minute believed I had intentionally defrauded these long-standing clients.

   and

   I recognise that the law is what it is, however the penalty imposed does not befit my error.

4. Mr Chapple provided a statement to the Tribunal headed Acceptance of Where I was wrong and “Why did I do it?” In it he explained I didn’t think it was wrong at the time but that he did what he did To make money. He emphasises in the statement the strong results he obtained for the clients in question, and added I did not clarify in my own mind what I was doing. He said:

   … I certainly believe I worked hard for these clients, achieving good outcomes and that my invoices were justified because of that.

   and even

   My belief is that I didn’t defraud those clients.

5. In a filed statement, Mr Chapple referred to how his family had been affected by the proceedings against him – which had ruined me financially – and added

   ..they like me retain a strong degree of anger against those who brought these charges against me… we will never forget the greed that generated these actions by the Directors of AgriRisk.

   In live testimony he described AgriRisk’s decision to report him to the police as a very harsh thing for them to do. However, under questioning he conceded that AgriRisk had no alternative on discovering that Mr Chapple had breached the Act but to report his conduct of the police.

6. Mr Chapple refers to the judgement of Judge Cogswell in the District Court. The judge affirmed the basis of the conviction on all eight charges against Mr Chapple, finding that the more serious of the crimes, namely the offences against s 192E, should attract a sentence of imprisonment, which he nonetheless suspended. His Honour said:

   In these kinds of cases it is sometimes a challenge to ask oneself: what is the criminal aspect of the conduct? Behaviour in financial matters can amount to the commission of crimes but the way in which that conduct becomes a crime or the reason it should be classified as a crime is not always clear. Some cases are more serious than others. The case I am dealing with this afternoon seems to be a less serious example.

7. The judge also referred to a presentence report which opined that Mr Chapple lacks insight into his offending behaviour and appeared to minimise his role in the offences and the consequential impact on the victims, adding that he seemed confused about his role and his perceived entitlement to charge customers for his services.

8. Mr Chapple put to the Tribunal that the effect of Judge Cogswell’s decision was to cast doubt on the extent of his criminality. He says of the judgement that it is unclear if my behaviour even befits that of a crime.

9. The Tribunal spent some time questioning Mr Chapple as to his view about the wrongfulness of his actions. He emphasised constantly to the Tribunal that he perceived no error in his actions at the time he carried them out, and that he believed he was acting in the best interests of his clients throughout this period. He said he would, if he had his time over again, probably not have pleaded guilty to the charges; he blamed poor advice and the fact that he was depressed and on heavy medication for the decision to plead guilty. He said I myself am a victim of my own error.

10. It appears to the Tribunal that the lack of insight and confusion – to which Judge Cogswell referred in the District Court – persists. The Act defines the conduct Mr Chapple engaged in here as serious fraud, and – having been sustained over a long period of time and in such a way as to enrich Mr Chapple – it must be regarded as such in both the technical sense used in the Act and in a lay sense. It involved dishonesty in the provision of financial services to his clients, giving rise to a personal benefit to Mr Chapple of more than $57,000, conduct which the Act’s design clearly envisages should lead to significant sanctions. As such, the Tribunal regards a lengthy period of disqualification from involvement in the industry as appropriate in order to protect the general public and to maintain confidence in the securities industry.

11. Mr Chapple highlighted that his offences – to the extent he conceded that they were offences at all – were attended by mere recklessness rather than an intention to defraud. Abadee J in Pollard v Commonwealth Director of Public Prosecutions (1992) 8 ACSR 813 at 822 had this to say about the distinction:

    Indeed, it might be reasonably thought that the conduct of a person who makes a statement with reckless disregard as to whether that statement is false or misleading should be treated as being just as blameworthy or guilty as the person who makes the statement knowing it to be false or misleading in a material particular. Each in my view could be said to be dishonest in the ordinary sense of the word. If a person knows he is making a false statement, that is a form of dishonesty. To do so with reckless disregard as to whether it is true or false appears to me capable of equally being regarded as dishonest. Indeed, someone who is prepared or willing to seek a financial advantage by making a statement without regard to whether such is true or false, without regard to what the true position might be, could well be thought to be acting dishonestly.

12. In considering whether to reduce a period of disqualification, Mr Chapple’s apparent belief that his culpability has been overstated is telling. In all the circumstances, it appears to the Tribunal that Mr Chapple seeks a reduction in the period of disqualification not only to revive his livelihood in the industry but also as a form of vindication. As such, a decision to reduce that period carries considerable risk, in that it may reinforce Mr Chapple’s belief that his actions were criminal only in some marginal or token sense, a breach of the law but excusable on the basis that he worked always in the best interests of the client. In this regard Mr Chapple’s conduct is reminiscent of the applicant’s in Howarth, where a lengthy banning order was affirmed by the Tribunal.

13. The authorities cited above and the criteria in Regulatory Guide 98 refer to a sanctioned person’s contrition and willingness to accept the error of their conduct as one basis for leniency. It is clear that those authorities and criteria do not specify contrition as the sine qua non without which leniency is not possible. Equally, in the present circumstances, Mr Chapple’s lack of insight into his offending behaviour militates powerfully against the exercise of such leniency. In particular, it goes to some of the factors mentioned in Table 2 of Regulatory Guide 98: a failure to understand what he has done wrong connotes serious incompetence and, as a by-product of that failure, the risk is present that, if allowed to resume practice in the industry, he might engage in contravening conduct in the future.

14. The Tribunal also needs to be mindful of the message a remission of the period of the banning order might send to the community in which these crimes occurred: Howarth at [180]. Table 1 of Regulatory Guide 98 refers to Whether the case is likely to help participants in financial markets to better understand their obligations. Mr Chapple told the Tribunal that there had been considerable publicity around his case, and that there are many people who have watched my case with interest and see a significant unjust result. There is the danger then that, for those people and others, allowing Mr Chapple re-entry to the financial services market in northern NSW might countermand the signal which his original disqualification was designed – quite appropriately, in the Tribunal’s opinion – to send. Given the apparent polarisation of community opinion around what occurred in this Chapple’s case, a risk of reducing the period of disqualification is that the impression might be created not just that his behaviour was less serious, but that it was in fact not serious at all.

15. Mr Chapple points to the devastating effect the banning order has had on his life, his livelihood and his family. The Tribunal accepts his evidence in this respect without qualification. However, there are public policy considerations embedded in the Act and the regulatory instruments which Mr Chapple appears not to fully understand. His inability to understand their role in the decision to impose the banning order weighs heavily against mitigating the impact of the order.

16. Accordingly, the Tribunal affirms the reviewable decision of 5 November 2015 to impose a permanent banning order under s 920A.

I certify that the preceding 39 (thirty nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President Gary Humphries

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Associate

Dated 16 December 2016

Date(s) of hearing	26 August 2016
Applicant	In person
Solicitors for the Respondent	Judith Birch