Dortkamp and Australian Securities and Investments Commission
[2022] AATA 4395
•20 December 2022
Dortkamp and Australian Securities and Investments Commission [2022] AATA 4395 (20 December 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2022/4741
Re:Paul Dortkamp
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
Decision
Tribunal:Deputy President B W Rayment OAM KC
Date:20 December 2022
Place:Sydney
The Tribunal decides to:
1.set aside the decision of a delegate of the respondent to impose a banning order on the Applicant for a period of two years under ss 920A(1) and 920B(2) of the Corporations Act 2001 (Cth); and
2.substitute a decision that a banning order will not be made.
...............................[SGD].........................................
Deputy President B W Rayment OAM KC
Catchwords
CORPORATIONS – ASIC – banning order – where applicant banned from performing functions as an officer and responsible manager of a financial services business for a period of two years – whether applicant is not adequately trained or not competent – reputational evidence – superannuation software bug – complete information not disclosed to applicant – difference between applicant’s evidence given to the Tribunal and ASIC examination – decision under review set aside
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)
REASONS FOR DECISION
Deputy President B W Rayment OAM KC
20 December 2022
This review concerns a banning order made by the respondent against the applicant. ASIC conceived that the applicant did not understand financial services provided by his company, Spaceship Capital Limited. The period identified by ASIC as problematic was mainly the period from 22 November 2018 to January 2019.
The applicant was a non-executive member of two compliance committees of the company, which I will call SCL, and was the chairman of its three-man board. It met once on November 2018, on 28 November. Mr Bennetts, the chief executive officer of SCL and of the other companies in the group, including its holding company, was also on the board. Mr Bennetts was a full-time employee, and other employees reported to him directly or indirectly.
On 18 January 2022 ASIC banned Mr Bennetts for six years from providing financial services on the ground that he had dishonestly obtained a qualification from the Australian Institute of Company Directors. He was not called as a witness in this review.
The other member of the board was Mr Sedawie, who also worked as portfolio manager of SCL.
The applicant spent about one day each week at SCL’s offices. No employee reported to him, and he did not know some of them.
Of the two compliance committees, the one that mattered to some extent for present purposes was the Risk and Compliance Committee. That committee was constituted by its chairman, Mr Kildea, a full time employee of SCL and its head of Compliance, the applicant and Mr Tsangaris, who attended the relevant meeting on 22 November 2018 by telephone. Both the applicant and Mr Kildea attended the meeting in person. Mr Baragwanath was also part of the committee but was an apology for the meeting of 22 November.
One item referred to in the materials included in the meeting pack by Mr Kildea was the breach and incident register which contained a number of items, one of which related to an incident discovered on 29 October 2018. The applicant does not recall reading the item at the time, although he said that it was his usual practice to review the contents of the meeting pack before meetings of the Risk and Compliance Committee.
Neither he nor Mr Kildea can recall what, if anything was said about the item at the committee meeting of 22 November. Mr Kildea’s affidavit and a number of contemporaneous documents indicate that in fact Mr Kildea knew a great deal about the incident in question and, unbeknown to the applicant, Mr Kildea had discussed it earlier in November with Mr Bennetts, to whom Mr Kildea reported.
The only person with any recollection of what was said at the meeting about the incident is Mr Tsangaris, who swore an affidavit filed on this review.
As is perhaps suggested by the fact that the minutes taken by Mr Kildea of the meeting of 22 November are silent about any discussion concerning the incident, and by the fact that neither Mr Kildea nor the applicant can remember any discussion about the incident, I am satisfied that any discussion about the incident in the committee meeting was brief. The evidence of Mr Tsangaris suggests that the discussion as recollected by him was brief and not alarming.
The terms of the breach and incident register sent out as part of the meeting pack will be discussed below. ASIC submits that the applicant read it, and it will be important to see what the applicant would have gathered from it, if he read and absorbed it.
At the board meeting of 28 November 2018 the incident in question was omitted from the breach and incident register sent to the directors for their meeting. That meeting was attended by the applicant, and by his fellow director Mr Sedawie, and by Mr Bennetts. Mr Kildea attended the meeting and took minutes. Those minutes record nothing being said about the incident. Both Mr Kildea and Mr Bennetts, who both knew a lot about the incident seem not to have said anything about it at the board meeting. Mr Kildea said in his affidavit that the incident was omitted from the breach and incident register by inadvertence.
If that is so, the question arises why both he and Mr Bennetts failed to discuss it at the board meeting. On the last day of the hearing before me, Mr Kildea was to be cross-examined by the respondent but on the morning of that day I was told that the respondent had changed its mind and no longer wished to cross-examine Mr Kildea.
There is no doubt that by late January 2019 the applicant knew all about the incident as a result of discussion at the board meeting of 14 January, and questions which he asked Mr Bennetts and Mr Kildea after the meeting, discussions he had with Mr Sedawie, and emails (to which the applicant became privy on 24 January 2019) which had been written between Mr Bennett and employees of SCL from 29 October 2018 up to the end of December 2018 . On 6 and 8 February 2019, he took steps to cause the company to report the incident to ASIC and to Tidswell Financial Services Limited (Tidswell), which had contractual relations with SCL.
SCL did report the incident to Tidswell and to ASIC in February 2019.
The allegation of ASIC that the applicant did not understand the financial services which his company was providing is hard to reconcile with the applicant’s background and with the views stated by others who have dealt for many years with the applicant, and whom the respondent elected not to cross-examine. The applicant is now 70 years of age and has been involved in the financial services industry his whole working life, since 1971.
The applicant co-founded and was involved in a compliance forum, an industry body which trained persons in the financial services industry who wished to serve on compliance committees.
Prior to the banning order, the applicant was well-known in the industry for his expertise in matters of compliance. As a result of the banning order, the applicant has lost a number of appointments in the financial services industry, and by these proceedings, the applicant seeks in effect to re-establish his reputation.
The experience and qualifications of the applicant
The professional life of Mr Dortkamp commenced in 1971 when he worked for the Reserve Bank of Australia in its Securities Market Department for seven years. He worked on all aspects of the RBA’s management of Australian government debt and its intervention in the security markets through short-term money market dealers. He researched public sector cash flows and liquidity effects.
From 1978 to 1980 he worked as Investment Portfolio Manager for St George Building Society Limited. He managed the Society’s short-term money market liquidity reserves of $120m, and forecast and managed day to day fluctuations in the Society’s funds flows.
From 1980 to 1986 he was Portfolio Manager for Mercantile Mutual Holdings Limited. He had a range of individual portfolio responsibilities including Australian fixed interest portfolios, exchange traded share options and shares in Australian resource companies.
In 1986 he worked for Legal & General Australia Ltd as Investment Fund Manager and from November 1986 until June 1989 he worked for Kleinwort Benson Australia Ltd as Director, Fund Management and was jointly responsible for setting up that company’s fund management operation. From June to October 1989, he was Director of Trading of the company with responsibility for trading activity in Australian money market instruments, foreign exchange and gold. Kleinwort Benson Australia Limited was taken over by Security Pacific Gold Limited and from October 1989 until December 1990 he was Director, Trading and Funding of that company.
From August 1991 he was Head of Asset Allocation of First State Managers Ltd, becoming a director of that company from December 1992. He remained in those roles until September 1997. In those years, amongst other things, he was responsible for all asset allocation decisions in multi-sector funds including Pooled Superannuation Trusts.
From 1997 and until the banning order was made in June 2022, he was a director of a number of public companies and a member of the compliance committees of many companies, listed at pages 5 and 6 of C1 in the applicant’s evidence folder.
Mr Dortkamp set out qualifications attained by him, training he attained and discussed his involvement in a training institution.
He has the following qualifications:
(a)Diploma of Financial Services, Australian Financial Markets Association (AFMA) (2003);
(b)Diploma from the Australian Institute of Company Directors (AICD) (1991 ); and
(c)a Diploma from the Securities Institute of Australia (1981).
He has also completed:
(a)Securities Institute of Australia short courses in Financial Planning & Wealth Creation and Superannuation and Wealth Protection in 1997;
(b)an AFMA ASIC Regulatory Guide 164 course in relation to financial product advice, dealing in a financial product and operating a managed investment scheme (September 2003);
(c)an AFMA ASIC Regulatory Guide 146 course in relation to the provision of financial product advice (September 2003);
(d)a Kaplan On Track: Responsible Manager training module in 2014 (addressing: financial services laws; the regulatory environment; regulators and their roles; the AFS licensing regime and disclosure essentials; AFS disclosure requirements; the adviser-client relationship; sector regulation of insurance, managed investments and super; anti money laundering; managing conflicts of interest; and other regulation including taxation, privacy and ASX rules);
(e)an AICD Directors Nexus course (2014); and
(f)an AICD Short Course on Subsidiary Boards (2015).
He is a fellow of the AICD and of the Financial Services Institute of Australasia.
He has also contributed to professional development within the financial services sector (with a particular focus on compliance matters) over a period of more than 22 years through the Independent Compliance Committee Member Forum (ICCMF).
In 1999, he co-founded the ICCMF, which meets in Sydney, Melbourne and Brisbane and facilitates continuing professional development activities for its members. The continuing professional development activities of the ICCMF focus on topical issues in the financial services sector impacting upon compliance.
The applicant enrolled in about July 2022 in a refresher course entitled “Compliance Fundamentals” provided by Financial Education Professionals, a registered training organisation. The course runs for 12 weeks and equates to 20 hours of continuing professional development. He expected to complete the course by October 2022.
Reputational evidence and evidence going to his competence
This evidence is included within the applicant’s evidence bundle at C5, and the respondent did not challenge it.
Mr Lynn S Ralph, who retired in 2019, after 40 years working in leadership roles in the financial services industry, including as Deputy Chairman of ASIC from 1993 – 1997, and as Chief Executive Officer of the Investment and Financial Services Association (IFSA) from 1998-2002.
He said that he has known Mr Dortkamp for over 25 years. He is aware that Mr Dortkamp co-founded the ICCMF, a body set up to educate its members to fulfil their regulatory functions. At ICCMF conferences, he observed Mr Dortkamp as chairman of the sessions, managing guest speakers and conduction Q&As after guests had presented. Mr Ralph says that Mr Dortkamp steered discussions meaningfully and Mr Ralph found him to be fully informed about the latest compliance issues affecting financial services.
Mr Ralph chaired the compliance committee of DIF Capital Partners and worked while Mr Dortkamp was a member of that committee from November 2005 to March 2010. He said that in all aspects of fulfilling his role, including making decisions about incidents and breaches, Mr Dortkamp demonstrated his familiarity with, and comprehensive knowledge of his regulatory responsibilities, including as to reporting.
He commented on the concerns expressed by ASIC, including the question of his competence and said that his experience of Mr Dortkamp is inconsistent with those allegations.
Mr Peter M Emery, a practising Queensland lawyer who has known Mr Dortkamp since 2002, and who has served with Mr Dortkamp on a number of compliance committees and describes him as astute and often the first to identify a potential problem due to his extensive industry experience. He described Mr Dortkamp as a knowledgeable and competent professional.
Mr Bill Fuggle, a partner within the banking and finance group of Baker McKenzie in Sydney, who has known the applicant for approximately 20 years and knew him both as a director of Fundhost Limited and from 2008-2015 as manager of the ICCMF many of the sessions of which Mr Fuggle attended. He said that ASIC’s concerns, including as to his competence to provide financial services, are at odds with what he knows of him. He considers the applicant to be a careful, compliant and knowledgeable financial services and compliance professional and an excellent role model in those fields.
Ms Paula McCabe, the founder and legal director of PMC Legal who was formerly a partner of Baker McKenzie where she interacted with the applicant similarly to Mr Fuggle. She has also had interactions with him in her current firm and served with him on compliance committees including on Morningstar Investment Management Australia Limited and since January 2018 on the scheme compliance committee of Spaceship Capital Limited. She describes the applicant as a highly skilled member of the financial services community, who exercises professional judgement at all times. She said he understands the financial services regulatory environment in great detail.
Mr Thomas Kildea, a solicitor since 2015, was Spaceship’s Senior Compliance Officer from December 2017 to July 2018 and from July 2018 to October 2021 he was Spaceship’s Head of Compliance. He chaired the Risk and Compliance Committee, of which Mr Dortkamp was a member, from 5 February 2018 until its last meeting in July 2019. Those dates occurred at important times for other purposes in this review, and Mr Kildea’s evidence is also relevant to other parts of these reasons. At paragraphs 76-79 of his affidavit of 12 August 2022 he said:
76In the period 2018 to 2019, in my role as Compliance Manager and Head of Compliance of SCL, my interactions with Mr Dortkamp included:
(a)attending Board, Risk & Compliance Committee, MIS Compliance Committee, and Investment Committee meetings together;
(b)ad hoc discussions when he attended SCL's office, which was often around once per week; and
(c)telephone calls.
77I have observed Mr Dortkamp fulfilling his functions as a non-executive director, responsible manager and committee member of SCL. For example, while he was involved with SCL:
(a)I interacted with Mr Dortkamp in relation to boards and committees in which he was involved. I also observed Mr Dortkamp participate in Board and committee meetings. Mr Dortkamp provided input and guidance to me in relation to the establishment of boards and committees and the inclusion of appropriate agenda items and briefing materials for those committees. I prepared meeting materials for boards and committees. In my observation, it was clear Mr Dortkamp read meeting materials prior to the Board and committee meetings that he attended. He participated actively in Board and committee meetings. He regularly asked questions.
(b)I consulted with Mr Dortkamp on numerous occasions on operational matters that had a regulatory element. For example, I have spoken with Mr Dortkamp about the process and forms involved with matters such as making changes to scheme trust deeds and compliance plans, and lodging audit reports for managed investment scheme financial and compliance plan reports. I regarded Mr Dortkamp's input on those matters as valuable, particularly in confirming that my understanding of the relevant processes and forms was correct.
(c)Mr Dortkamp provided guidance and technical advice to me in relation to SCL's financial adequacy reporting requirements, including net tangible asset requirements. I regarded financial adequacy reporting as an important compliance obligation. I regarded Mr Dortkamp's guidance on technical advice as valuable. It assisted me in ensuring that SCL met its licence conditions and acted in a manner that was consistent with regulatory guidance.
(d)Mr Dortkamp worked with me on due diligence processes involving client disclosure. He provided guidance and advice to me on appropriate governance arrangements for due diligence processes for disclosure documents. While working on due diligence processes with me, Mr Dortkamp provided input on technical matters including the description of product features and investment strategies. I regarded Mr Dortkamp's input as valuable in ensuring that such features and strategies were accurately described in disclosure documents.
(e)Mr Dortkamp provided advice and guidance on maintaining scheme compliance plans to ensure they continued to reflect SCL's organisational practice and changing regulatory requirements. As a result of Mr Dortkamp's advice and guidance, there has been uplift in SCL's scheme compliance plans and greater tailoring of those plans so that they are suitable for SCL's business.
(f)In his capacity as Chair of SCL's Investment Committee, I observed Mr Dortkamp provide advice and guidance on investment governance, risk management and investment strategy. For example, I have observed Mr Dortkamp provide input on matters including attribution analysis, weighting mechanisms, risk management requirements, unit pricing and investment strategy. In undertaking attribution analysis and providing guidance on investment strategy, Mr Dortkamp sought to embed a long-term culture in SCL consistent with the investment strategy of the funds and looked to the overall success of the investment strategy rather than placing too much focus on individual stock performance. In providing advice on weighting mechanisms, I considered that Mr Dortkamp's approach was flexible enough to provide for good investment outcomes while maintaining appropriate diversification in order to protect the financial interests of members.
78Based on my interactions with Mr Dortkamp, I regarded him as experienced and competent in relation to compliance in financial services and the provision of financial services generally. I never had any concerns about his level of competence or understanding of the Spaceship group's compliance obligations. I (and others at Spaceship) relied on and appreciated Mr Dortkamp's experience and knowledge.
79I considered that Mr Dortkamp had broad and deep industry experience in financial services, particularly in relation to investment management and managed funds. This was demonstrated through an ability to identify key risk and compliance matters and provide practical advice on managing them. In my observation he was thoughtful and considered.
Mr Paul Tsangaris, who was a member with Mr Dortkamp and others of the Risk & Compliance Committee of Spaceship Capital Limited, said of the applicant that Mr Dortkamp was very much an active participant at the meetings of that Committee. He said that his impression of the applicant was that he was level-headed and understood what was involved in terms of the company’s compliance obligations. He said that in all his interactions with him, he did not see any indication that Mr Dortkamp was not competent to perform functions as an officer or responsible manager of a financial services business.
Mr Jason Sedawie was examined by ASIC and I comment on his answers in that examination below. Mr Sedawie also affirmed an affidavit, which is also discussed below. Mr Sedawie was a Senior Portfolio Manager of SCL from August 2017 to the date of his affidavit, 30 August 2022. In 2004 he obtained the degree of Bachelor of International Finance from Griffith University, and in the same year he obtained a Diploma of Financial Markets from the Financial Services Institute. In 2007 he attained a Graduate Diploma of Chartered Accounting from the Institute of Chartered Accountants and became a chartered accountant in 2008. He also completed the Chartered Financial Analyst Program from the CFA Institute and the Company Directors Course from the Australian Institute of Company Directors in 2019. At paragraphs 47-51 of his affidavit he said:
47I first met Mr Dortkamp at a mentoring event run by FINSIA (a professional membership body for financial services) before I started at SCL. He also encouraged me to apply for my role at SCL.
48My interactions with Mr Dortkamp were at SCL Board and committee meetings which we attended together, and I would also chat with him when he came into the Spaceship office, which was usually once a week. We would chat mostly about investing. Sometimes, his mind works faster than his mouth. He sometimes thinks aloud and talks through his thoughts quite openly without filtering them, and sometimes expresses ideas that are not fully formed.
49I have high regard for Mr Dortkamp. In 2018-19, my opinion at that time was that SCL had the wrong CEO. Mr Dortkamp is the reason I stayed at SCL during that period. I would probably have left earlier if not for Mr Dortkamp. His background in both investing and compliance was a significant asset to the business.
50SCL was better for him being there and he had a positive influence on the business. I feel strongly about that.
51I trusted him to do the right thing. With the Onboarding Bug, he did the right thing and said: "look it doesn't feel right'. I am surprised there is an allegation about his competence. For me, in handling the Onboarding Bug, Mr Dortkamp knew what he was doing and helped in getting the Onboarding Bug reported.
None of these witnesses was cross-examined by the respondent.
ASIC’s examinations
A number of examinations conducted by ASIC were conducted under Division 2 of Part 3 of the Australian Securities and Investments Commission Act 2001 (ASIC Act), and were conducted in private, on oath, and were summoned by notice given under s 19 of the ASIC Act.
ASIC conducted examinations of a number of officers of SCL in February and March 2019, including three full-time employees: Mr Bennetts on 1 March 2019, Mr Yip on 28 February 2019 and Mr Kildea on 6 March 2019. The applicant was examined on 18 October 2019, and also a full-time employee of SCL, Mr Sascha Kerbert, was examined around that time. ASIC also examined Mr Sedawie in 2019. He was also a director of SCL, who had an employee assisting or reporting to him. His job was as portfolio manager, responsible to choose investments. The ASIC examinations of the applicant and the other persons I have mentioned in this paragraph were put before me as part of the Administrative Appeals Tribunal Act 1975 s 37 documents.
At the time of their examinations under s 19, all persons examined were still employed by SCL and the applicant remained on the board of SCL until the banning order was made against him in June of this year. Since the applicant was a non-executive director and Chairman, it may be assumed that he knew that the February and March examinations had taken place earlier in 2019. The examinations having been in private, he may not have known what others had said. One matter which he anticipated may be the subject of his examination might have been the conduct of Mr Bennetts. Instead, he may have come to appreciate during his examination that his own conduct would be called into question in some way. Answers which he gave during his ASIC examination were emphasised by ASIC during this review.
The promoter agreement
The holding company of the group, Spaceship Financial Services Pty Ltd, entered into a promoter agreement with Tidswell on 23 December 2016. Tidswell was the trustee of the Tidswell Master Superannuation Plan, being a registered superannuation entity under the Superannuation Industry (Supervision) Act 1993. It held an Australian Financial Services Licence (AFSL) under the Corporations Act 2001 and an RSE licence from the Australian Prudential Regulation Authority (APRA). On 27 July 2018 (after the applicant became a director of SCL) the promoter agreement was novated so that, instead of the holding company, SCL became the promoter under the agreement
The promoter agreement was lengthy. For the purposes of this review it is sufficient to refer to clause 8.2.1, clause 8.2.2 and clause 8.3.1 of the promoter agreement. They are as follows:
8.2 Promoter Services
The Promoter agrees to provide the following services to promote the Spaceship Superannuation Division (Promoter Services):
8.2.1 the general marketing and sales function for promotion of the Spaceship Superannuation Division to prospective Members with a view to introducing Members to the Spaceship Superannuation Division;
8.2.2 providing advice and member on-boarding and retention services to Tidswell in relation to all matters relating to the Spaceship Superannuation Division;
8.3 Promoter obligations
The Promoter will, in respect of the Spaceship Superannuation Division and at its own cost:
8.3.1 promptly (and in any event within 2 Business Days of becoming aware of the event or circumstance) notify Tidswell (giving reasonable details) of any event or circumstance, which to the knowledge of the Promoter:
(a)has caused, or is likely to cause, the Promoter to breach this Agreement or a Relevant Law;
(b)has caused, or may cause, a breach of the AFSL under which the Promoter is authorised (whether or not that breach has been caused or contributed to by the Promoter);
(c)has caused, or might cause, the breach of a Relevant Law in relation to the Spaceship Superannuation Division; and
(d)involves ASIC communicating with, investigating or seeking to investigate the Promoter or the Promoter's business or any of the Promoter's associates or any representative of any of them,
and must promptly cooperate with all reasonable requests of Tidswell in relation to its investigation of any such matter;
The onboarding bug
At the time of the commencement of the promoter agreement, there was only one investment option, the GrowthX option. From about February 2018, an alternative investment option was offered to members, the Global Index option. During 2018 the two investment options performed differently. Each delivered more than 10% returns but one of the options delivered greater returns in that period. The promoter’s duties specified in clause 8.2 of the Promoter Agreement were not altered to make express mention of the two investment alternatives, and it was assumed, no doubt, that the recording and inscribing of members to the chosen investment option would be handled by the promoter.
The onboarding bug refers to a computer coding error of failing to inscribe members who chose the Global Index option to that fund, and instead inscribed all members to the GrowthX fund.
On 29 October 2018 SCL’s computer engineers discovered the onboarding bug and on the same day adjusted the computer code to correct it for the future. The problem was concerned with those members who chose the Global Index option between February 2018 and October 2018 who should be remediated. It was necessary to determine how many members fell into that category and the remediation required needed computation. A question also arose as to whether ASIC and Tidswell itself required to be notified. If ASIC was to be notified, a question also arose as to whether Tidswell or SCL or both should give the notice.
The ASIC examination of Mr Sedawie and his affidavit of 30 August 2022
In the transcript of Mr Sedawie’s examination at T8.40, he said several things of significance to this review. To some extent answers which he gave in the examination were supplemented in his affidavit.
He said that at the 14 January board meeting Mr Bennetts appeared to him to be concerned that the onboarding bug was included within Mr Yip’s Chief Risk Officer (CRO) report to the board tabled on 14 January, because, Mr Sedawie thought, he did not want the details of the onboarding bug to be brought to the company’s board. Mr Sedawie described management as having tried to “hide it” from the senior people. In his affidavit at paragraph 15, Mr Sedawie said the onboarding bug was raised while Mr Yip was discussing his CRO report to the board:
I recall Mr Bennetts' reaction when the Onboarding Bug was raised. The discussion passed over the topic quickly but I remember Mr Bennetts' physical reaction, it shocked him to attention. The non-verbal reaction was so pronounced I made a note to follow up the Onboarding Bug with Spaceship's engineering team afterwards. I am an investor and, when I see someone react physically to news, I know to pay attention to it. I cannot recall the details of what was said at the meeting.
He said as follows in paragraph 16 of his affidavit:
At the time of the 14 January 2019 SCL Board meeting, I also thought the Onboarding Bug was interesting, and that I should follow up after the meeting to get more information. I recall thinking I would have expected to have come across this issue already, or that someone would have told me about it since I was manager of the portfolio. I also wondered what the Spaceship Group was doing to look into the issue, since it was January 2019 and the issue had been identified in October 2018.
Mr Sedawie pursued the matter with Mr Yip and later Mr Kildea, Mr Peter Stace (a member of SCL’s information technology team) and Mr Tweedie. He also referred to a conversation that he had with Mr Kildea about conversations Mr Kildea had with Mr Bennetts which I take it were around 8 November. He said that Mr Kildea said words to the following effect:
"I told the CEO [Mr Bennetts] to report it, but he told me not to report it because if we did APRA might not give us a licence. He said if we don't get an APRA licence that will impact more customers even more because we won't be able to put out a really good product against our competitors, so you know that outweighs any potential from this. He said we don't want to look silly from an IT and reporting point of view."
In paragraph 29 of his affidavit he referred to an email he sent to Mr Kildea and explained as follows:
By this time, I was disappointed and pretty worked up about the Onboarding Bug. I sent the email at paragraph [28] above because I thought Mr Dortkamp had power over Mr Bennetts to make it happen. I felt like Mr Bennetts just didn't understand his responsibilities at that point in time. I thought Mr Dortkamp could influence Mr Bennetts and that Mr Bennetts would listen to him. He was experienced and had background and knowledge in the area. I thought Mr Dortkamp could get the matter resolved if I involved him.
Secondly, he said of the applicant that after he told the applicant that Mr Bennetts had instructed Mr Kildea not to report it to Tidswell, being a matter to which Mr Kildea referred in his affidavit before the Tribunal, the applicant then rang Mr Bennetts. The applicant was not in the office on that occasion, but Mr Sedawie was near Mr Bennetts when he took the applicant’s telephone call. He overheard Mr Bennetts saying to the applicant that if SCL reported the breach, it’s going to look bad to APRA, ahead of the licence application.
It should be explained that the holding company of SCL had decided to incorporate a new subsidiary, which would seek to obtain is own AFSL and RSE licence and take over from Tidswell, and steps toward that end had begun before November 2018 and were still pending in January 2019. The applicant was not to be associated with the new subsidiary.
Mr Sedawie said that after overhearing Mr Bennetts’ side of the conversation with the applicant, he spoke to the applicant by telephone, who told him that he was going to push about the bug. He described that in his affidavit as being that the applicant said he was going to push to do something about the onboarding bug.
Mr Sedawie described in his ASIC examination his suspicion that between 29 October 2018, when Mr Bennetts and other employees first learned of the onboarding bug, and the date when the facts came out in January 2019 the onboarding bug incident was deliberately, at the instance of Mr Bennetts, kept from senior persons including the applicant and himself.
Mr Sedawie was the portfolio manager of SCL before he was asked to go on the board, in May 2018, so that SCL could have three directors. He had an investment analyst assisting him.
He said it amazed him that he had not heard about the matter before 14 January 2019 when the problem had been discovered in October 2018. He had also identified, prior to giving evidence in 2020, that the breach and incident register put to the board in November 2018 had omitted the incident in question. He said in his affidavit that at the 14 January board meeting he recalls thinking that he would have expected to have come across the onboarding bug issue already, or that someone would have told him about it since he was manager of the portfolio.
The communications with the applicant in November 2018
A meeting pack was sent out electronically to the applicant and perhaps to others before the Risk and Compliance Committee meeting of 22 November 2018.
The meeting pack, received by Mr Dortkamp and Mr Tsangaris and prepared by Mr Kildea included a schedule (the breach and incident register) which had a number of columns. The entry for the onboarding bug and relevant column headings were as follows:
Reference: SC18-1B-030
Product: Tidswell-Super
Type: Incident
Category: Onboarding
Description: Bug identified impacting investment option selection, process underway to determine whether any members have been impacted.
Root cause: System error
Root cause analysis: TBD - analysis underway
Date occurred: 12/02/2018
Date reported: 29/10/2018
Potential loss: Unknown
Actual loss: Unknown
Potential E&O/PI notified: No
Obligation: TBD
Breach of financial No
services law:Compliance Assessment Impact unknown
(Significance):Reported to ASIC: No
Response: (blank)
Status: Open
Date Closed: (blank)
Days to Close: (blank)
There were a number of things not dealt with in the breach and incident register sent out with the meeting pack.
The effect which the bug had on investment option selection was not identified in the document.
The promoter agreement was not mentioned in the document. Similarly, the fact that the incident required to be reported under the promoter agreement was not mentioned. The author was Mr Kildea who thought that the matter should forthwith be reported to Tidswell, and it does not mention that Mr Bennetts had told him not to do so for the time being. None of those things were discussed at all. The few things that Mr Tsangaris recollected did not include any of those matters.
The document had a number of columns which were not completed, such as the root cause analysis column, the potential and actual loss columns, and whether or not the breach (if it was a breach) was significant was said to be unknown. It rather suggested that further information would be given in due course. It was open to a reader to assume that before any action was required a full report about the incident would be made to the Risk and Compliance Committee or the board or both.
The document left open the possibility that the problem was not with SCL’s staff but with Tidswell. It also expressly left open the possibility that no one may have been affected by the incident.
It described the matter as an incident, not a breach.
Mr Kildea as Head of Compliance knew many details of the incident which were not included in the breach and incident register and also knew but did not mention either in the register or at the meeting that he had been instructed by Mr Bennetts not to report the incident to Tidswell for the time being. Indeed, Mr Sedawie said during his ASIC examination that he had spoken to Mr Kildea who nominated the pending licence application as the reason Mr Bennetts gave him for not notifying Tidswell. That information does not appear in Mr Kildea’s affidavit.
If it was intended as a report to non-executive members of the Risk and Compliance Committee about the bug, it was very insufficient.
The board meeting held a few days later omitted reference to the incident altogether. That was a meeting attended by Mr Bennetts and Mr Kildea and neither of them is recorded in the minutes as saying anything about the onboarding bug. The applicant’s fellow director Mr Sedawie is recorded as having been present at the meeting and said during his ASIC investigation that he knew nothing about the matter until the meeting of 14 January 2019. The applicant’s affidavit of 30 August 2022 says in paragraph 79 that once he was provided with details of what the bug actually involved his reaction was to err on the side of reporting it, that is, whether or not there was any legal obligation to do so. Reporting to both ASIC and Tidswell was what the applicant sought to achieve by his emails of 6 February and 8 February 2019.
The affidavit of Mr Tsangaris about the meeting of 22 November 2018
Mr Tsangaris said that he recalls someone saying at the meeting words to the effect of “We’ve identified an issue with onboarding a couple of customers”. He says he thought “it did not seem to be a big deal”. In a way, that is inconsistent with the breach and incident register, which raises a doubt as to whether anyone was affected. If the words used were “maybe a couple of customers” that would not be inconsistent with the breach and incident register. Regardless, the words he recollects would not likely have been alarming to make the applicant or Mr Tsangaris enquire further. Neither the applicant nor the respondent embraced the affidavit of Mr Tsangaris by putting the affidavit to the applicant, and the respondent finally decided not to ask any questions of Mr Kildea. Indeed, the only person who gave oral evidence before the Tribunal is the applicant.
The evidence of the applicant
For this purpose it is necessary to consider the transcript of his examination by ASIC, the affidavit which he swore on 30 August 2022, and his answers in cross-examination before the Tribunal. I will discuss, first the affidavit of the applicant of 30 August 2022, and then his answers during his cross-examination by Mr Faulkner.
The applicant swore the affidavit seeking, amongst other things, to correct or comment on some of his answers given in the ASIC examination, which suggests that he may have given incorrect answers in his ASIC examination from some cause. I asked him some questions after he had given evidence, and after Mr Sherman told me that he would not be asking any questions in re-examination as follows:
DEPUTY PRESIDENT: Mr Dortkamp, do you believe you misspoke in some way when you were answering a number of questions during your section 19 examination?
MR DORTKAMP: Yes.
DEPUTY PRESIDENT: Could you tell us, please, how that happened? Was it in some way how you were feeling, or what was it?
MR DORTKAMP: I believe I was answering questions truthfully.
DEPUTY PRESIDENT: Yes?
MR DORTKAMP: But the way the questions were put to me, I found difficult to answer - - -
DEPUTY PRESIDENT: Were you nervous or - I mean I’m just trying to find out ---?
MR DORTKAMP: Very, yes.
DEPUTY PRESIDENT: You were nervous, yes?
MR DORTKAMP: Yes, and there were many questions across a range of topics and not necessarily in chronological order. I’m not saying they weren’t in chronological order but - and I found it quite difficult at times to work out - not, again - my state of mind. What period are we talking about? When was I saying I knew about something I didn’t know about something.
DEPUTY PRESIDENT: Right?
MR DORTKAMP: What was my state of mind before or after a meeting?
DEPUTY PRESIDENT: Mm?
MR DORTKAMP: When did discussions occur? Before or after a meeting. I found that a little say confounding.
DEPUTY PRESIDENT: But were you - okay - and how did that affect your answers do you say?
MR DORTKAMP: I found I wasn’t able to give answers. Some answers I wasn’t able to give in context of the right context at the right time.
DEPUTY PRESIDENT: Thank you. Now, first of all does anybody want to ask any questions arising from that?
MR FAULKNER: Not me, Deputy President.
MR SHERMAN: No.
His cross-examination in the Tribunal began towards the end of the first day, and I noticed that his answers at that time were very hesitant and followed long pauses. Having regard to evidence given from about transcript page 85 onwards up to page 88, I made the remarks attributed to me at page 88 lines 34-36 and at page 89 lines 8-10. The Tribunal adjourned about 20 minutes early and resumed the following day.
I asked him to come back the next morning and postponed his further cross-examination, in the hope that he would have settled down. I draw nothing from answers which he gave in the first afternoon of the hearing.
Mr Sherman did not lead any oral evidence from the applicant and elected not to re-examine him after his cross-examination.
In his affidavit he said while he expected the bug incident was one of a number of topics that could be potentially discussed, he expected that the primary focus of the examination would be on conduct issues concerning Mr Bennetts. Before he swore the affidavit of 30 August, on the other hand, he had taken the opportunity to assemble all the documents relating to the onboarding bug.
In his affidavit he said that he cannot recall reading the row identifying the onboarding bug when he reviewed the register. He said that he has no recollection of discussing that matter with anyone prior to the 22 November meeting.
As to the omission from the register sent to board members for the 28 November meeting on the item concerning the onboarding bug, he said that he first became aware that the matter was omitted during the ASIC examination.
He said that at the ASIC examination he had difficulty remembering when he had had conversations with others from SCL about the bug, but having considered the matter, he thought it was likely that conversations with Mr Sedawie around the time of the board meeting of 14 January were the conversations he had in mind. He said that at the board meeting of 14 January, the onboarding bug was discussed in the context of the report of the Chief Risk Officer, Mr Yip. After that board meeting he spoke with Mr Sedawie about the matter at least twice during January. He received from Mr Sedawie an email of 24 January 2019. In that email Mr Sedawie said that he had just received the email chain which he forwarded to the applicant on that date. It began with an email of 28 October sent to Mr Bennetts by Mr Tweedie following discovery of the onboarding bug by SCL engineers on that day, and which was immediately fixed, that is, for the future. After some emails between Mr Tweedie and Mr Bennetts, Mr Bennetts suggested to him that Mr Kerbert in Risk be asked to “spend the majority of their time solving this before it hits us in the face”. He described Mr Sascha Kerbert as “dependable”. The next email in the chain was from Mr Kerbert to Mr Bennetts dated 8 November 2018, reporting on work done by him over the previous two days.
Mr Kerbert said that information regarding the bug would likely reach the regulators in the immediate future, posing an unexpected risk to the licence application. He said that work underway included beginning the drafting of a breach report – with inputs from Risk, Compliance, Product and Engineering. He set out the following under the heading ‘Key next steps’:
1. Contact Tidswell and inform them of the bug - (ASAP)
·We will need to consider how best to frame the issue to them in order to limit potential flow-on effects (they are going to be talking to ASIC about Spaceship during November)
·Tidswell will be the entity responsible for reporting this potential breach to APRA and/or ASIC given the members sit under their licence (and they will need to determine whether the breach is 'material' under the relevant legislation)
·Tom Kildea to manage this engagement.
·Spaceship to contact APRA (and potentially ASIC) independently - (ASAP)
·Given the potential impact the issue may have on our licence application, I believe it would be best for us to proactively reach out to the regulators (independently of Tidswell) to inform them of the nature of the issue and how we have responded to it
·Doing so allows us to control the narrative of the issue with the regulators rather than relying on Tidswell's interpretation of the issue to influence the regulators
·There is the potential to use this issue as a 'positive example' of how Spaceship's governance processes and procedures operate in practice
·Determine the appropriate remediation strategy - (ASAP)
·Will require consultation with Tidswell as they have final sign-off on the remediation strategy as the trustee
·Engage with Compliance, Legal and Tidswell in order to draft communication material to members (1-4 weeks)
·The communication materials may include emails, letters and any call scripts for customer success
·Implement remediation strategy (TBC)
The next email in the chain was from Daniel Yip, dated 18 December, enquiring whether Tidswell had yet been informed, and if not, what was the expected timeframe to do so and corresponding steps prior to notification. Mr Kildea replied on 21 December in the following terms:
Hi Daniel
As discussed earlier today, I've revised the remediation and rectification section in the Breach Report based on stakeholder feedback (please see page 7) to complete the assessment to determine whether there was a fault or not given no queries or complaints received etc.
1. The incident report has been updated with recent developments and to include revised options for completing assessment of whether there was a fault.
2. Remediation is pending finalisation of a plan to identify if any members were impacted as outlined on page 7.
3. Tidswell has not be informed yet, timeline was dependent on the above. A report has been prepared in the form of their online database for advising them.
Would be interested in your thoughts on the options outlined. Will then get management approval to proceed.
Kind regards
Tom
On 24 January Mr Sedawie wrote to Mr Kildea stating his preference was to report the breach to Tidswell and the regulators as soon as possible. Mr Sedawie and the applicant spoke on 24 January, having previously spoken on 22 January.
The applicant said that the email chain referred to above was the first time he had seen detailed analysis of the onboarding bug. He said that when he read the emails, he was surprised that an extensive investigation into the bug had occurred and that the details had not been communicated to him until this point.
He said that he spoke to Mr Bennetts on the morning of 29 January. This was the phone call referred to by Mr Sedawie at [56] above.
At around 31 January legal advice was obtained by SCL and an email from Mr Kildea had apparently been redacted to remove reference to the advice received (T8.44)
ASIC and Tidswell were notified of the bug in February 2019, with the agreement of the whole board of SCL.
In paragraph 79 of his affidavit, the applicant said:
79I now wish to clarify and provide some additional explanation in relation to the following matters:
(a)During my Section 19 Examination, I gave evidence about discussions concerning the Onboarding Bug. At the time of my Section 19 Examination, I thought that Mr Yip's CRO Report prompted the discussion. I said that I did not recall when this discussion occurred. I recalled talking about SCL's role as promoter of the Spaceship Superannuation Fund in the context of the Onboarding Bug and its responsibility as the entity in the group that held a financial services licence to report the Onboarding Bug to ASIC. Having reviewed the documents from around this time, I now think that these discussions followed the email I received from Mr Sedawie on 24 January 2019, to which I refer above at [59]. As I said above at [54]-[56], the Onboarding Bug was discussed at the 14 January 2019 meeting but Mr Yip's report caused me to request further information.
(b)During my Section 19 Examination, in the course of an answer to a question regarding the 28 November 2018 Board pack, I speculated about the reasons why the Onboarding Bug may have been omitted from the Register. Later in the examination, I referred to the Onboarding Bug being "over there in super". These answers require some further explanation.
(i) At the time the Onboarding Bug was first identified by SCL's information technology engineering team in October 2018, SCL had only recently assumed responsibility as the promoter of the Spaceship superannuation fund from Spaceship Financial Services with effect from around July 2018. As I outlined above at [16]-[17], in and around November 2018, significant organisational resources were being deployed to prepare for the lodgement of an RSE Licence application by an entity within the Spaceship group. I understood that the Spaceship Superannuation Fund was a division of a superannuation fund where Tidswell was the trustee.
(ii) When I referred to the Onboarding Bug being "over there in super", I was referring to the possibility or assumption that the issue was being managed by a member of Spaceship's superannuation team who was dealing with Tidswell. I was attempting to explain how an incident in superannuation might not have made its way into SCL reporting.
(c)During my Section 19 Examination, I was asked questions about my understanding of SCL's role as a promoter, Tidswell and Sargon's roles in providing financial services and the role of the SCL board in relation to superannuation. My answers to these questions require further explanation.
(i) As I have explained above at [16]-[17], I was aware that SCL took over the role of the promoter of the Spaceship Superannuation Fund in July 2018 pending the lodgement of an RSE Licence application. As I explained above at [79b.i] I understood that the Spaceship Superannuation Fund was a division of a superannuation fund where Tidswell was the trustee. As I have explained above at [19], I was also aware that SCL held an AFSL which allowed it to operate particular managed investment schemes. I was also aware that the licence authorised other activities related to financial services of a more general kind.
(ii) During the Section 19 Examination I found it difficult to be precise about my state of mind about SCL's role as promoter at particular times during the events concerning the bug. I recalled that an issue which came up concerning the bug was whether it came under SCL's AFSL. I observed that the concept of a "bug" was something that did not lend itself to rapid, concise, focused action. The bug affected a fund of which Tidswell was trustee and SCL was promoter. Having reflected on the documents, particularly those above at [60] and [68], I think my reaction once I was provided with details of what the bug actually involved was to err on the side of reporting it. My view is that if there is uncertainty, it is better to report something than not to. At the time, I took actions to make sure that would happen. I thought the bug should be reported by SCL because it was the promoter. At the time, people had different views about how SCL's AFSL should be interpreted. In around late January or early February 2019 legal advice was obtained but I am not able to disclose it or speak about the substance of that advice.
(d)During my Section 19 Examination, I was asked questions about SCL's compliance manual. My answers to some of these questions require further explanation.
(i) As I explained in my Section 19 Examination, the SCL compliance manual was developed before SCL was in "go mode". By this I meant that the manual was developed at around the time that SCL obtained its AFSL. I would have reviewed the manual at around that time to satisfy myself that it was adequate. However, I understood that the manual would need to be revisited once the organisation was more mature to ensure it was fit for purpose. I considered that the manual would primarily be used by SCL management personnel in their day-to-day activities in administering SCL's compliance function. As a compliance professional with many years' experience, I did not feel the need to refer to the compliance manual in dealing with the Onboarding Bug. From my perspective, in the exercise of my professional judgement, once given details about the Onboarding Bug, I knew it was necessary to report it.
(e)During my Section 19 Examination, I was asked questions about my assessment of the significance of the Onboarding Bug. My answers to some of these questions require further explanation.
(i) At the time, I did not think it was necessary for me to make a formal assessment of the Onboarding Bug's significance for the purposes of section 912D because I had formed the view that it should be reported to ASIC. That view was influenced by considerations beyond the test in section 912D. At around this time, as I have discussed above at [17], SCL was in the process of preparing to lodge an RSE licence application. In those circumstances, I thought that it was important to be transparent with ASIC about this issue and proactively disclose it.
(f)During my Section 19 Examination, I was asked questions about whether I was aware of Tidswell or Sargon being notified of the breach. My evidence was that I did not know, but that I thought there was a dialogue between Spaceship and Tidswell. As I have explained above at [71], having reviewed the emails from the time, I said to the Board that it was my view that a report should be sent to the trustee. As I have said above at [74], once the Board had resolved to notify the Trustee it was my expectation that Mr Kildea would take that step. While it is my understanding from the documents above at [75]-[76], that my expectation was correct and I was told about the report shortly after, I could not recall those matters during my Section 19 Examination.
In due course, SCL remediated those who were affected by the bug, paying the affected scheme members a total sum of some $10,500.
The cross-examination before the Tribunal, and the ASIC investigation
Mr Faulkner SC, who appeared for the respondent with Dr Hoel of counsel, took the applicant to the ASIC examination transcript on a number of occasions and to his affidavit of 30 August 2022.
Mr Faulkner challenged the affidavit of 30 August 2022 by contrasting its contents with sworn answers given during the ASIC examination, suggesting that relevant answers given during the ASIC examination represented the true position. The applicant’s answers before the Tribunal on the second and third day of the hearing were consistent with the affidavit of 30 August 2022. Mr Faulkner elicited a number of other matters from the applicant, not involving the transcript of the ASIC examination, and the applicant answered each of those questions fairly and without hesitation.
One thing which Mr Faulkner elicited from the applicant was that as at April 2018, SCL was contemplated to be the entity that would distribute Spaceship Superannuation, and that this was one of the purposes for which it needed an AFSL. And therefore, by virtue of the novation, from July 2018 it did distribute Spaceship Superannuation.
Mr Faulkner elicited from the applicant that although he does not remember reading the relevant row on the breach and incident register or report, he accepts that in the ordinary course, he would have done so. He also elicited that although he does not remember any discussion about the item, in the ordinary course the incidents on the breach register would have been discussed.
Mr Faulkner drew attention to the description of the Risk and Compliance Committee as the AFSL Risk and Compliance Committee and elicited from the applicant that he understood that the function of the Risk and Compliance Committee was to consider SCL’s compliance with its AFSL.
The minutes note that the Committee noted two open incidents and breaches that required follow-up and closing. The applicant agreed that one of those items was the relevant item.
Mr Faulkner also elicited from the applicant that while he has no recollection of having discussed the relevant incident prior to the meeting, he does not deny it.
The applicant said that the conduct issues which he thought might be discussed at his ASIC examination concerning Mr Bennetts related to the lodgement and subsequent withdrawal of the licensing application.
It was put to the applicant that he was fully prepared when he attended the ASIC examination and the applicant disagreed. His attention was drawn by Mr Faulkner that in part of the notice to him under s 19 of the ASIC Act which mentioned that ASIC was investigating suspected contraventions of s 912A(1)(a), (e) and (h) and/or s 912D(1)(b) of the Corporations Act 2001. He put to the applicant that the notice for examination said nothing about Mr Bennetts and the applicant agreed.
Mr Faulkner refers to that part of the examination in which Mr Pyyvaara (the ASIC inspector who asked most of the questions of the applicant) asked him when to the best of his recollection the applicant found out about the onboarding bug and the applicant had replied that it was when Mr Yip made a report to the board (that is, on 14 January 2019).
Mr Faulkner then took the applicant through a number of answers given during the ASIC investigation, which were relied upon by the respondent in making the reviewable decision. Those answers were at least for the most part ones discussed in the affidavit of 30 August, which in effect suggested that the answers in question were not correct.
The cross-examination along those lines continued for two days. It will be more useful to take several examples rather than summarise the whole of the cross-examination, because at the end of the day the resolution of the conflict between the answers given during the ASIC examination and the matters deposed to in the applicant’s affidavit and during his cross-examination will depend less on those differences than on more general matters.
So I will take several examples of the matters of difference.
Mr Faulkner then took the applicant to a series of questions and answers at pages 266 and following of the ASIC examination transcript at T8.1. Mr Pyyvaara pointed out that in the breach and incident register sent out for the board meeting of 28 November, the relevant incident was omitted. This part of the ASIC examination is what the applicant said in his affidavit was when he first realised that the incident was omitted. He also said in his affidavit that what he then said was speculation on his part. Mr Pyyvaara asked him whether he knew anything about why it was omitted. The applicant replied “Privilege, yes”. The examiner asked “What do you know?” It is better to quote the applicant’s answer and following questions and answers from the transcript:
MR DORTKAMP: Privilege, my recollection is that Spaceship Capital Limited board meetings were focused on the operations and management of the registered schemes, and that it wasn't in our remit to involve ourselves as the Spaceship Capital directors with the operations of the superannuation fund. So there were some matters that we would have addressed as directors of Spaceship Capital that were specific to us. There were some items that typically wouldn't have been formally put through to us that may have been dealt by other parts of the Spaceship Capital - of the Spaceship business, um, for instance a complaint from the superannuation client wouldn't necessarily have flowed through to us. From time to time we would get incidental material because it was difficult to exclude. At other times I would not have had an expectation that I would have seen every incident and breach across the entire group including superannuation. My recollection at the time was, it was felt by management being - so Tom, Paul Bennetts and co and the other people involved in the business that this on boarding bug was a specific superannuation issue rather than a Spaceship Capital issue - - -
MR PYYVAARA: M'hmm.
MR DORTKAMP: - - - on the basis that it didn't involve a financial product that was being managed, operated, issued by Spaceship Capital.
MR PYYVAARA: M'hmm.
MR DORTKAMP: In retrospect it would seem - yeah, I withdraw that in retrospect I - yeah. So, privilege, in looking at this I am not surprised that it was omitted.
MR PYYVAARA: Okay. And that was because it wasn't relevant to - sorry, did you say that it's because it wasn't relevant to the Spaceship Capital board?
MR DORTKAMP: Privilege, at the time I felt that it was an issue for Spaceship's superannuation to take charge of and deal with - - -
MR PYYVAARA: Yep.
MR DORTKAMP: - - - and not a responsible as me as a director of Spaceship Capital to take charge of and deal with.
MR PYYVAARA: So do you recall discussing removing this particular item from the breaches and incidents register?
MR DORTKAMP: Privilege, I don't have any recollection of any specific conversation to remove it.
MR PYYVAARA: Okay. So, I - you don't - but do you have any recollection of a discussion generally with Mr Kildea or anyone else about not including items relating - that were maybe related to the trustee, or rather than Spaceship Capital, in your opinion from removing them from the register, did you have discussions or anything like this?
MR DORTKAMP: So, privilege, I don't have a recollection of any specific discussions but I recall that we had a general view that we didn't – that Spaceship Capital was to deal with matters that - of Spaceship Capital.
MR PYYVAARA: Okay.
MR DORTKAMP: And not superannuation.
MR PYYVAARA: Okay.
MR DORTKAMP: Yeah.
Having read those passages to the applicant, Mr Faulkner had the following interchange with the applicant:
MR FAULKNER: Your clear evidence on 18 October 2019, was that you thought that as a director and a member of the board at Spaceship Capital Limited, you regarded your responsibility as limited to the managed investment schemes, and not to the distribution of Spaceship Superannuation. Do you agree with that?
MR DORTKAMP: No.
MR FAULKNER: You don’t agree that that was what you were saying there?
MR DORTKAMP: Correct, I don’t agree. Yes.
After an objection to a question by Mr Sherman was discussed in the absence of the applicant, the cross-examination continued as follows at page 133 of the transcript:
MR FAULKNER: Mr Dortkamp, I can’t remember my question so I am going to ask you another question. And I’m looking at page 267 of your evidence under section 19 and you said to the ASIC officers starting at line three, “My recollection is that Spaceship Capital Limited Board meetings were focused on the operations and management of the registered schemes and that it wasn’t our remit to involve ourselves as the Spaceship Capital directors with the operations of the superannuation fund.” Do you see that?
MR DORTKAMP: Yes.
MR FAULKNER: And that was your view in 2018 that it wasn’t in the remit of the Spaceship Capital directors to involve themselves in the operation of the superannuation fund. Isn’t that right?
MR DORTKAMP: Yes.
MR FAULKNER: And you also held the view that you describe at line 15. So you say, “My recollection at the time was it was felt by management being – so Tom, Paul Bennett and Co, and the other people involved in the business that this onboarding bug was a specific superannuation issue rather than a Spaceship Capital issue.” Now, my question to you is that was not only the view of Tom and Paul Bennett. It was also your view in 2018. Would you agree with that?
MR DORTKAMP: No.
MR FAULKNER: You don’t agree with that?
MR DORTKAMP: No.
MR FAULKNER: Well, you say that they had that view on the basis that it didn’t involve financial product that was being managed operated issue by Spaceship Capital. Do you see that?
MR DORTKAMP: Yes.
MR FAULKNER: How do you know they had that view?
MR DORTKAMP: I’m speculating in an answer to a question about why the item might have been removed from the register and my reference to my recollection at the time, I believe, is incorrect. The time that I was recalling was when this came up in January.
MR FAULKNER: And Mr Pyyvaara asked you at line 25. “Okay. And that was because it wasn’t relevant – sorry, did you say that it is because it wasn’t relevant to the Spaceship Capital Board?” And you answer, “Privilege. At the time I felt that it was an issue for Spaceship Capital’s” – sorry, I’ll withdraw that. You answer, “Privilege. At the time I felt that it was an issue for Spaceship’s superannuation to take charge of and deal with and not a responsible as me as a director of Spaceship Capital to take charge of and deal with.” Do you see that?
MR DORTKAMP: Yes.
MR FAULKNER: And you’re not talking about Tom or Paul Bennetts’ view there. You’re talking about your own personal view, aren’t you?
MR DORTKAMP: Yes.
MR FAULKNER: And you described that view as being held by you at the time. Do you see that?
MR DORTKAMP: Yes.
MR FAULKNER: And that’s a reference to the time when the breach and incident register was changed between the Compliance Committee meeting on the 22 November 2018 and the Board meeting on the 25 November 2018. Isn’t that right?
MR DORTKAMP: No.
MR FAULKNER: That is exactly what that transcript says, isn’t it, Mr Dortkamp?
MR DORTKAMP: Correct.
MR FAULKNER: And that’s what you meant to say when you gave his evidence to Pyyvaara on the 18 October 2017 didn’t you?
MR DORTKAMP: No.
MR FAULKNER: Incidentally, did you ever have the view that the issue – the onboarding vote was for Spaceship’s superannuation to take charge of and was not a responsibility for you as a director of Spaceship Capital to take charge of?
MR DORTKAMP: Despite the wording my view was that the onboarding for superannuation was a Spaceship Capital matter.
MR FAULKNER: That is the exact opposite to what you told ASIC on the 18 October 2019, isn’t it?
MR DORTKAMP: No. I was expressing a view on the operations of the superannuation fund.
MR FAULKNER: I will read you the words again, Mr Dortkamp. What you said – your words – line 27. “At the time I felt that it – onboarding bug – was an issue for Spaceship’s superannuation to take charge of and deal with and not a responsibility as me as a director of Spaceship Capital to take charge of and deal with.” Do you see that?
MR DORTKAMP: Yes.
MR FAULKNER: The same that it was your view that the onboarding bug was not a responsibility for you as a director of Spaceship Capital. Do you see that?
MR DORTKAMP: Yes.
MR FAULKNER: And that was your view wasn’t it?
MR DORTKAMP: No. These are my words at the time. They’re wrong.
MR FAULKNER: And in paragraph 33 of your affidavit you said - - -
DEPUTY PRESIDENT: I think he might have been going to add to that answer. Is that right or not?
MR DORTKAMP: No.
DEPUTY PRESIDENT: Okay.
MR FAULKNER: In paragraph 33 of your affidavit you said, “During the examination I was concerned about giving truthful answers and did my best to answer ASIC’s questions accurately and to the best of my recollection as it handed me documents and asked me questions about them.” And that evidence is true isn’t it?
MR DORTKAMP: Yes.
MR FAULKNER: And the evidence you gave at line 27 and following on page 267 of your section 19 transcript is true isn’t it?
MR DORTKAMP: Yes. In context to the question.
MR FAULKNER: Are you saying that you never had the view that the onboarding bug was not a concern for the Spaceship Capital Board?
MR DORTKAMP: I’ll ask you to state that again. I’m sorry.
MR FAULKNER: Are you saying that you never had the view that the onboarding bug was a concern for the Spaceship Capital Board?
MR DORTKAMP: I can’t say that.
Later Mr Faulkner took the applicant to questions asked by the ASIC inspector about the board meeting of 14 January 2019 at page 275 line 27 and following of the ASIC examination transcript. The applicant was then asked what he recollected of the discussion at the board meeting was. He said:
MR DORTKAMP: Privilege. My recollection of that discussion was that in this context, the implications for Spaceship Capital rather than Spaceship Super were sort of drawn together. Like – so – Privilege. It was unclear for a while whether this was a issue that was related purely to superannuation or – and whether it should be managed by the team that managed superannuation, or it should fall into the orbit of Spaceship Capital Limited as the promotor of the Spaceship Super product. My recollection is at this meeting it became clear – clearer to me that this is something that Spaceship Capital should take the regulatory lead on.
The examiner picked up on the word “clearer” used by the applicant and asked a series of questions about what discussion the applicant had had with others. The applicant replied that he did not remember what discussions he had had, including with Mr Kildea and Mr Bennetts. He referred to things that he may have been vaguely aware of, adding that it is a small office and “you get fragments of conversations”. He said that the board meeting of 14 January was when the light went on.
Mr Faulkner put to the applicant that he intended to convey that the light went on at the board meeting but that before then he thought that it was not his responsibility. The applicant said that he did not agree.
Consideration
Generally, despite the answers he gave at the ASIC examination, both in his affidavit of 30 August and throughout his cross-examination, the applicant maintained that a number of answers he had given in the ASIC examination were incorrect, and sought to explain how that occurred, including in the answers he gave me which I have recorded at [75] above.
In such a case as this, it is necessary to make a finding about whether the witness in question was affected by stress or other matters when he gave the answers in question. I saw an instance of the applicant apparently being affected by stress on the first day of the hearing such that he gave unexpected answers to certain questions, and which suggested to me that he was not bringing a calm mind to his task. Alternatively, one could take the view about such a witness was dissembling when he says that his answers before ASIC’s investigators were simply incorrect.
After the witness was urged to settle down, and did so overnight, he returned the following day and gave answers which no longer suggested to me that he did not have sufficient calm to give reliable answers. Throughout the balance of his testimony, my reaction to his evidence before the Tribunal was that it was reliable. A view that his answers before the ASIC inspectors by reason of stress and nervousness were not accurate, and that his answers to probing questions before the Tribunal on the second and third day of the hearing were true is open, despite the fact that the transcript of the ASIC examination contains admissions which ordinarily would be taken at face value, and suggest a different state of facts.
It may be that some at least of the conclusions of the reviewable decision were justified by the answers given in the ASIC examination. They are however, difficult to reconcile with the applicant’s experience, reputation and the view of qualified persons as to his competence.
In addition I have referred to an incident which occurred early in the cross-examination at [76] and [77]. That incident provided an illustration of what may have occurred at the time of the ASIC examination. If the applicant was stressed, nervous or felt himself under attack, answers may have been given by him without proper thought.
His evidence before me when cross-examined on days 2 and 3 seemed to me to be given truthfully, and honestly. Similarly, and for those reasons I accept the statements made by him in his affidavit of 30 August in preference to the evidence appearing in the transcript of the ASIC examination.
I am satisfied that even if the applicant read the item in the breach and incident register sent to him as part of the meeting pack for the Risk and Compliance Committee of 22 November, what he read was not sufficient to alert him to the same matters he learned in January of 2019. Whether he should have made further enquiries if he read it is not the case now made against him. Whether he was put on enquiry by anything said at the meeting would depend on whether he was led to expect that after further investigation a full report would be put before him.
The fact that none of the emails which he saw on or about 24 January 2019 had been shared with him earlier suggests that, as Mr Sedawie suspected, he and the applicant were deliberately kept in the dark. The incident remained obscure at least until the board meeting of 14 January and later in January.
In those circumstances, I am not satisfied that the applicant failed to act, did not understand the financial services which his company was providing or is incompetent.
Two other suggestions adverse to the applicant are relied upon by ASIC. The first is that Mr Sedawie, rather than the applicant, took the steps that should have been taken by the applicant in January and February 2019. It is clear that the two acted in co-operation and in agreement with each other as soon as the relevant facts discussed in the board meeting on 14 January 2019 came to notice. Mr Sedawie was of course an executive and the applicant was not. As early as 29 January, when Mr Sedawie told the Applicant that Mr Bennetts had earlier directed Mr Kildea not to report the matter to Tidswell, the applicant telephoned Mr Bennetts who explained that he was apprehensive that the pending licence application would suffer if the matter was reported. The applicant then told Mr Sedawie that he had decided to push the matter. By emails of 6 and 8 February, that is what he did. He also clearly thought that the fact that the company’s licence application might be adversely affected was not a reason not to report the breach to Tidswell, or to ASIC.
Secondly, ASIC suggests that the applicant failed to understand and act consistently with the compliance manual of SCL. The compliance manual was breached in my opinion, when Mr Kildea failed to draw attention to the actual details of the onboarding bug at the meeting of 22 November, and failed to bring it to the attention of the meeting of directors held on 28 November. The applicant is not responsible for either of those things and so far as he was aware no such breaches occurred. He regarded the compliance manual as a work in progress, as may well have been the case. It was some time before November 2018 that the applicant had seen the compliance manual. Mr Dortkamp had reviewed the compliance manual when it was first created. He did not feel it was necessary to go back to it in January and up to 8 February 2019, and I do not see that that fact justified any allegation of lack of competence against Mr Dortkamp. Without needing to refer to the compliance manual again, he did what was necessary to comply with it, by causing the company to comply with legal advice and his own and Mr Sedawie’s view, that is, to report the breach to ASIC and Tidswell. He took the sensible view that if there was any doubt about the matter, it should be reported to ASIC. If for example, the lawyers had expressed doubt as to whether the breach was significant, the applicant took the view that it should be reported to ASIC.
More generally, the experience of Mr Dortkamp and the reputational evidence and the uniform view expressed by others was that he was competent. One critical complaint made by ASIC was that he did not understand that the distribution of superannuation was one of the financial services mentioned in SCL’s AFSL. The applicant repeatedly said during Mr Faulkner’s cross-examination that the distribution of superannuation was one of SCL’s financial services (see transcript page 92 lines 27 - 43, page 93 lines 13 - 19 and page 104 line 39 - page 105 line 7).
In the result, therefore, the reviewable decision will be set aside. Instead, a banning order will not be made.
I certify that the preceding 123 (one hundred and twenty -three) paragraphs are a true copy of the reasons for the decision herein of Deputy President B W Rayment OAM KC
..................................[SGD]......................................
Associate
Dated: 20 December 2022
Date(s) of hearing: 4-7 October 2022 Date final submissions received: 7 November 2022 Counsel for the Applicant: Mr M Sherman Solicitors for the Applicant: Mr J Emmerig & Ms E Galati,
Herbert Smith FreehillsCounsel for the Respondent: Mr T Faulkner SC & Dr A Hoel Solicitors for the Respondent: Mr R Chiarella & Ms S Halbich,
Australian Securities & Investments Commission
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