Davidof and Australian Securities and Investments Commission
[2017] AATA 2594
•7 December 2017
Davidof and Australian Securities and Investments Commission [2017] AATA 2594 (7 December 2017)
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2016/0164
Re:Tony Davidof
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President B W Rayment
Senior Member J C KellyDate:7 December 2017
Place:Sydney
The decision under review is affirmed.
.........................[sgd]...............................................
Deputy President B W Rayment
Catchwords
CORPORATIONS – financial services – banning order – applicant prohibited from providing any financial services – financial products – MINI warrants – financial market – market manipulation – setting of artificial price for purpose of transferring profit/loss – whether market reflects forces of genuine supply and demand – decision affirmed
Legislation
Australian Securities and Investments Commission Act 2001, s 1(2)
Corporations Act 2001, ss 761A, 767A, 920A(1)(e), (g), 1041A
Cases
Australian Securities and Investments Commission v Davidof [2017] FCA 658
Australian Securities Commission v Kippe (1996) 20 ACSR 679Director of Public Prosecutions (Cth) v JM [2013] HCA 30; (2013) 250 CLR 135; (2013) 87 ALJR 836
Secondary Materials
Regulatory Guide 98 Licensing: Administrative Action against financial services licensees
REASONS FOR DECISION
Deputy President B W Rayment
Senior Member J C Kelly7 December 2017
PROCEDURAL BACKGROUND
This is an application by Mr Tony Davidof to review a decision by a delegate of the Australian Securities and Investments Commission (ASIC) to make a banning order against him under ss.920A of the Corporations Act 2001 (Cth) (the Act). The reviewable decision was made on 10 December 2015.
A legal question of importance to these proceedings was determined by Lee J in Australian Securities and Investments Commission v Davidof [2017] FCA 658, and as a result it is clear that the MINI warrants issued by Credit Suisse were financial products within the meaning of the Act. The proceedings were remitted by Lee J to be heard again by this Tribunal and we have heard the proceedings.
The original hearing before Senior Member Kelly was transcribed, and with the consent of both parties, the transcript was tendered before us as evidence of the facts necessary to conduct the review, together with a number of documents.
The issues in this review are whether Mr Davidof contravened s.1041A of the Act, and if so, whether the banning order made against him in December 2015, which was for three years, was appropriate, and if not, whether any banning order should have been made against him, and of what duration.
Dr Lee who appeared for Mr Davidof before us addressed certain questions arising under s.1041A of the Act and we consider first the legal and factual issues arising under that provision. The questions arising in relation to contravention are very similar to those which arose in McLean and Australian Securities and Investments Commission [2017], decided by Deputy President Rayment, in which reasons were published on the same day as these reasons, a copy of which is to be provided to the parties to this proceeding together with these reasons.
THE FACTS
Mr Davidof worked for Macquarie Bank Limited from 15 January 2007 until 11 September 2013. He was a representative of Macquarie Equities Limited. From 13 March 2012 he was accredited as a Level 2 Derivatives Adviser under the ASIC Integrity Rules (ASX Market) 2010 under which he was permitted to provide personal advice to clients in relation to various financial products, including derivatives, options and trade warrants and also to deal in financial products.
Mr Davidof was acquainted with Mr Anderson, who worked on the warrants desk of Credit Suisse (an expression which we will use, for convenience, to refer to any of its related companies involved in transactions with Mr Davidof). Mr Anderson was prepared, on the instructions of Mr Davidof, to cause Credit Suisse to enter into various market transactions without taking security from Mr Davidof. Ostensibly, in the books of Credit Suisse, the transactions would appear to be transactions of Credit Suisse itself. From time to time, if those transactions resulted in a profit, that profit would be transferred to Mr Davidof by the means of the parties entering into sale and purchase transactions of MINI warrants at predetermined prices, calculated to transfer the profit to Mr Davidof. If the transactions led to a loss, the loss would be transferred to Mr Davidof by the sale and purchase of MINI warrants at prices calculated to reimburse the loss to Credit Suisse.
The account which Mr Davidof used for the warrant trades to which we have referred was that of his sister, which he presumably put in funds in some way.
The warrant trades in question took place on 21 February 2013 and 3 June 2013. In the February transactions, a trading loss of $3,800 was transferred by him to Credit Suisse by MINI warrants trading on the ASX.
Similarly, the warrant trade of 3 June 2013 was designed to transfer a trading profit of $1,500 to Mr Davidof and was effected by the purchase and sale of MINI warrants at pre-determined prices calculated to transfer the profit to Mr Davidof.
MINI warrants are described in paragraphs 7 to 16 of the reasons for decision in McLean, and we adopt that description in these reasons.
LEGISLATIVE BACKGROUND
Section 1041A is within Chapter 7 of the Act. The main object of Chapter 7 is set out in s.760A which provides as follows:
The main object of this Chapter is to promote:
(a)confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(b)fairness, honesty and professionalism by those who provide financial services; and
(c)fair, orderly and transparent markets for financial products; and
(d)the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.
Section 1041A provides as follows:
A person must not take part in, or carry out (whether directly or indirectly and whether in this jurisdiction or elsewhere):
(a)A transaction that has or is likely to have; or
(b)2 or more transactions that have or are likely to have;
the effect of:
(c)creating an artificial price for trading in financial products on a financial market operated in this jurisdiction; or
(d)maintaining at a level that is artificial (whether or not it was previously artificial) a price for trading in financial products on a financial market operated in this jurisdiction.
Mr Davidof entered into the impugned transactions in his sister’s name and it is not denied that he took part in and carried out the impugned transactions, directly or indirectly.
The Act assumes that one transaction may have or be likely to have the effect of creating an artificial price for trading in financial products on the ASX, which is a financial market within the meaning of s.767A of the Act.
In our analysis of s.1041A we adopt paragraphs [27]-[39] of the reasons in McLean. Those reasons support the view that the impugned MINI warrants trading involved a contravention by Mr Davidof of s.1041A of the Act.
That is sufficient to enliven the power of the respondent to make a banning order under s.920A of the Act, and we turn to the question whether such an order should have been made, and if so, for what period.
QUANTUM OF BANNING ORDER
Section 920A is within Chapter 7 of the Act, and s. 760A is therefore also relevant to it. ASIC has published Regulatory Guide 98 Licensing: Administrative Action against financial services licensees. That document contains guidelines with respect to the making of banning orders, inter alia, in cases involving a breach of s.1041A. It sets out that in the event of a breach of that provision, a banning order of between three to ten years is appropriate.
In our opinion, a breach of s.1041A by a financial services licensee is a very serious matter. Market manipulation is prohibited in order to further the objects of promoting confident and informed decision making by consumers of financial products and services, and fair, orderly and transparent markets for financial products. As the High Court observed in Director of Public Prosecutions (Cth) v JM [2013] HCA 30; (2013) 250 CLR 135; (2013) 87 ALJR 836 at [74]: “[p]articipants in the market are entitled to assume that the transactions which are made are made between genuine buyers and sellers and are not made for the purpose of setting or maintaining a particular price”. For a financial services licensee to be involved in such activity is, if anything, all the more serious. A range of banning orders of three to ten years is in our opinion, speaking generally, good guidance for a regulator to provide, and the object of promoting consistency is a good one. Of course, the range is guidance rather than something which is intended to be mandatory or inflexible.
The objects of a banning order are to protect the public, deter like conduct both by others and the person who is to be made the subject of the banning order and to maintain investor confidence in financial markets: see Australian Securities Commission v Kippe (1996) 20 ACSR 679; Re Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602; Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 at [56]; Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [41] and [43]; Re Dollas-Ford and Australian Securities and Investments Commission [2006] AATA 704 at [13] to [15]; Re Musumeci and Australian Securities and Investments Commission (2009) 109 ALD 677; and Re Felden v Australian Securities and Investments Commission (2003) 73 ALD 149.
We turn to the particular circumstances of this case, including the personal circumstances of Mr Davidof.
Mr Davidof was aware, as the transcript from the earlier hearing in this Tribunal shows, that the forces of supply and demand did not govern the impugned transactions. He admits that they were designed only to transfer a profit or loss arising from other transactions, and correctly points out that the method of trading was that of Credit Suisse, devised entirely by them, and by Mr Anderson in particular.
Dr Lee, who appeared for Mr Davidof before us did not contest that within the meaning of s.1041A the impugned transactions were likely to have the effect of creating an artificial price for trading in financial products on a financial market. He submits that they had no effect of maintaining such an artificial price, and ASIC does not suggest otherwise. The impugned transactions were not productive of financial loss.
Dr Lee submitted that the period of the banning order should be shortened to two years, being the period of time already spent. Also to be taken into account in this matter is the fact that Mr Davidof has been an industry participant since 2007, and that the banning order fixed by the delegate will occasion hardship.
DECISION
We think that a banning order at the lower end of the scale is appropriate to the circumstances of Mr Davidof. The matters to which we have referred in paragraphs 19 and 20 of these reasons make such an order desirable, and the factors which tend in Mr Davidof’s favour to which we have referred in paragraphs 23 and 24 lead us to the view that the preferable exercise of discretion is to fix the period of the banning order at three years.
The reviewable decision will therefore be affirmed.
I certify that the preceding 26 (twenty-six) paragraphs are a true copy of the reasons for the decision herein of Deputy President B W Rayment and Senior Member J C Kelly
...........................[sgd].............................................
Associate
Dated: 7 December 2017
Date(s) of hearing: 8 November 2017 Solicitors for the Applicant: Globalex Tax & Legal Counsel for the Respondent: Dr J Renwick & Ms A Mitchelmore Solicitors for the Respondent: Australian Securities and Investments Commission
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