Edward George and Australian Securities and Investments Commission
[2014] AATA 167
[2014] AATA 167
Division GENERAL ADMINISTRATIVE DIVISION File Numbers
2013/4375 and 2013/4376
Re
Edward George
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal Deputy President RP Handley
Date 27 March 2014 Place Sydney The decisions under review are set aside and the following decisions substituted:
(1) Pursuant to s 920A and s 920B of the Corporations Act 2001, Mr George is prohibited from providing any financial services for a period of three years from 31 July 2013.
(2) Pursuant to s 80 and s 81 of the National Consumer Credit Protection Act 2009, Mr George is prohibited from engaging in any credit activity for a period of three years from 31 July 2013.
.......................[sgd].................................................
Deputy President RP Handley
Catchwords
CORPORATIONS – mortgage broker – dishonest conduct – permanent banning order – whether reason to believe the applicant is not of good fame or character – conduct out of character – no reason to believe that not of good fame and character – applicant not adequately trained to provide a financial service – protection of public – length of banning order – decision substituted
CONSUMER CREDIT PROTECTION – mortgage broker – dishonest conduct – permanent banning order – whether reason to believe the applicant is not a fit and proper person – reason to believe not a fit and proper person to engage in credit activities – conduct out of character – length of banning order – decision substituted
Legislation
Australian Securities and Investment Commission Act 2001 (Cth) s 1
Corporations Act 2001 (Cth) ss 766A, 920A, 920B,
National Consumer Credit Protection Act 2009 (Cth) ss 6, 80, 81Cases
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Fraser and Australian Securities and Investments Commission [2011] AATA 944
Howarth and Australian Securities and Investment Commission [2008] AATA 278
Hughes & Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127
Irving v Minister for Immigration for Local Government and Ethnic Affairs (1996) 139 ALR 84
Ourania Clifopoulos and Secretary to the Department of Social Security [1994] AATA 282
Re Kippe and ASIC [1997] AATA 580
Rosson v Minister for Immigration and Citizenship [2011] FCA 194Secondary Materials
Australian Securities and Investments Commission, Regulatory Guide 98: Licensing: Administrative Action Against Financial Services Providers (Australian Securities and Investments Commission, Canberra, July 2013)
Australian Securities and Investments Commission, Regulatory Guide 218: Licensing: Administrative Action Against Persons Engaging in Credit Activities (Australian Securities and Investments Commission, Canberra, November 2010)REASONS FOR DECISION
Deputy President RP Handley
The Applicant, Mr Edward George has applied for the review of decisions made by a delegate of the Australian Securities and Investments Commission (ASIC):
(a)to make a banning order prohibiting him from providing a financial service permanently, and
(b)to make a banning order prohibiting him from engaging in a credit activity permanently.
BACKGROUND
Mr George has a Bachelor of Arts (Hons) in Economics and Politics from the University of Sheffield in the UK. After graduating in 1996, he worked for insurance brokers in the UK for about four years, establishing and operating their mortgage department, during which time he completed the required training to be licensed as an independent financial advisor. In about 2001, Mr George travelled to Australia where, after backpacking for a while, he settled in Sydney and worked as a mortgage manager for about 18 months before establishing his own business, One Financial Corporation Pty Ltd, a company providing mortgage broking services. He ran this business from February 2004 to January 2008, after which he commenced work as a self-employed finance broker. In May 2009, Mr George moved with his family to Mudgee, where he has lived since, and where he says he is settled.
Mr George was an authorised credit representative of the following companies:
·Finconnect (Australia) Pty Ltd from 21 December 2010 to 12 April 2011,
·Outsource Financial Pty Ltd from 14 April 2011 to 8 September 2011
·Securitor Financial Group Ltd from 7 September 2011 to 26 November 2012, and
he was an authorised financial services representative of Securitor from 14 September 2011 to 26 November 2012. Mr George was also the sole director and shareholder of his own company, Tazlant Pty Ltd (Tazlant).
On 22 February 2013, ASIC served a notice of hearing on Mr George to which was attached particulars of conduct that ASIC stated gave it reason to believe that Mr George was not of good fame and character. On 31 May 2013, Mr George and his solicitor attended a hearing conducted by an ASIC delegate.
On 31 July 2013, the ASIC delegate made orders under s 920A(1) of the Corporations Act 2001 and s 80 of the National Consumer Credit Protection Act 2009 permanently prohibiting Mr George from providing any financial services or from engaging in credit activities. The basis of these decisions was stated to be, respectively, that ASIC had reason to believe that Mr George was not of good fame and character, and was not a fit and proper person to engage in credit activities. This was because ASIC found that he had engaged in deliberately dishonest conduct, that such behaviour was not a one-off event, and that his willingness to falsify documents was illustrative of a person who lacked honesty, professionalism, judgement, diligence and integrity. The permanent banning orders took effect on 31 July 2013.
On 28 August 2013, Mr George applied to the Tribunal for a review of these decisions.
LEGISLATION AND ISSUES
Section 920A of the Corporations Act 2001 (the Corporations Act) provides relevantly:
(1) ASIC may make a banning order against a person, by giving written notice to the person, if:
…
(d) ASIC has reason to believe that the person is not of good fame or character; or
(da) ASIC has reason to believe that the person is not adequately trained, or is not competent, to provide a financial service or financial services; or
…
(1A) In considering whether, at a particular time, there is reason to believe that a person is not of good fame or character, ASIC must (subject to Part VIIC of the Crimes Act 1914) have regard to:
(a) any conviction of the person, within 10 years before that time, for an offence that involves dishonesty and is punishable by imprisonment for at least 3 months; and
(b) whether the person has held an Australian financial services licence that was suspended or cancelled; and
(c) whether a banning order or disqualification order under Division 8 has previously been made against the person; and
(d) any other matter ASIC considers relevant.
Section 920B states:
(1) A banning order is a written order that prohibits a person from providing any financial services or specified financial services in specified circumstances or capacities.
(2) The order may prohibit the person against whom it is made from providing a financial service:
(a) permanently; or
(b) for a specified period, unless ASIC has reason to believe that the person is not of good fame or character.
(3) A banning order may include a provision allowing the person against whom it was made, subject to any specified conditions:
(a) to do specified acts; or
(b) to do specified acts in specified circumstances;
that the order would otherwise prohibit them from doing.
The meaning of the term ‘financial service’ is explained in s 766A, and referred to below.
Section 80 of the National Consumer Credit Protection Act 2009 (the NCCP Act) provides relevantly:
(1) ASIC may make a banning order against a person:
…
(f) if ASIC has reason to believe that the person is not a fit and proper person to engage in credit activities; or
…
(2) For the purposes of paragraphs (1)(e) and (f), ASIC must (subject to Part VIIC of the Crimes Act 1914 ) have regard to the following:
(a) if the person is a natural person--the matters set out in paragraphs 37(2)(a) to (f) and subparagraph 37(2)(g)(i) in relation to the person;
(b) …
(c) any criminal conviction of the person, within 10 years before the banning order is proposed to be made;
(d) any other matter ASIC considers relevant;
(e) any other matter prescribed by the regulations.
…
Section 81 provides relevantly:
(1) A banning order is a written order that prohibits a person from engaging in any credit activities or specified credit activities in specified circumstances or capacities.
(2) The order may prohibit the person against whom it is made from engaging in a credit activity:
(a) permanently; or
(b) for a specified period.
(3) A banning order may include a provision allowing the person against whom it was made, subject to any specified conditions:
(a) to do specified acts; or
(b) to do specified acts in specified circumstances;
that the order would otherwise prohibit them from doing.
The meaning of the term ‘credit activity’ is set out in s 6, and is referred to below.
The issues for the Tribunal are whether:
(1)there is reason to believe that Mr George is ‘not of good fame or character’ having regard to the matters identified in s 920A(1A) of the Corporations Act.
If the Tribunal finds that there is reason to believe that he is not of good fame or character, it must make a permanent banning order, although such an order may, pursuant to s 920B(3), include a provision allowing Mr George, subject to any specified conditions, (a) to do specified acts, or (b) to do specified acts in specified circumstances that the order would otherwise prohibit.
(2)there is reason to believe that Mr George is not a fit and proper person to engage in credit activities having regard to the matters identified in s 80(2) of the NCCP Act.
If the Tribunal finds that there is reason to believe that he is not a fit and proper person to engage in credit activities, it may make an order prohibiting Mr George from engaging in credit activities either permanently or for a specified period, and may, pursuant to s 81(3), include a provision allowing Mr George, subject to any specified conditions, (a) to do specified acts, or (b) to do specified acts in specified circumstances that the order would otherwise prohibit.
MR GEORGE’S EVIDENCE
Mr George provided a statement for these proceedings dated 7 March 2014 and gave evidence at the hearing. He also relied on an undated statement prepared for the ASIC hearing on 31 May 2013.
Most of the misconduct, which was the subject of a prior investigation by Mortgage and Finance Association of Australia (MFAA) and of the ASIC proceedings, and to which Mr George admits, took place in the period November 2010 to March 2011. The misconduct involving the production of allegedly false employment documents took place in April and July 2011. Mr George said that, while not seeking to justify his misconduct in the period November 2010 to March 2011, there were personal circumstances at that time which affected his judgement and led to his acting in a manner that is out of character. On 21 September 2010, his sister-in-law unexpectedly lost her first child who was stillborn at 39 weeks. This caused significant grief in the family. On 24 December 2010, Mr George’s father-in-law, to whom he was close, died of cancer after a long illness, at a time when Mr George’s wife was seven and a half month’s pregnant. This caused further emotional strain in the family.
In February 2011, Mrs George gave birth to their third child who would rarely sleep for more than two hours a night. Mr George stated that he and his wife, who were also caring for their two other children, then aged three and a half and 18 months, were sleep deprived; his wife:
47. … in particular was an emotional wreck … [and] constantly teary as she was struggling to come to terms emotionally with trying to be happy that we had a healthy baby yet feeling guilty at the same time as her sister was not coping with the loss of her first baby five months earlier. She was also trying to come to terms with having lost her father approximately two months earlier.
48. I had been working from home since May 2009 and had a home office set up in one of the bedrooms at home. As well as working I was helping my wife care for [the three children]. This meant that the emotional pressures that I have referred to above constantly surrounded me.
Mr George said that, as a result, when he received an email from Colin Barker, of Vero Insurance Ltd, on 2 March 2011, requesting documents in support of the deposit guarantee applications made by Mr George, he “made an error of judgement that I will always regret”.
Mr George states that he started winding up his mortgage broking business from approximately 30 May 2011 when he started working part-time for OnePlan Financial Planning (OnePlan) and stopped arranging mortgages in August 2011 when he became full-time with OnePlan.
Following its investigation into Mr George’s alleged misconduct, the MFAA Tribunal decided on 29 August 2011 that he had “engaged in misconduct by fraudulently and dishonestly altering and issuing three approval letters to Deposit Power”. The Tribunal suspended Mr George from membership of the MFAA for 2 years from that date.
Mr George was employed by OnePlan until ASIC made its banning orders on 31 July 2013. He was then employed briefly by Denis Yeo and Associates, Chartered Accountants, of Mudgee and, since then, has been employed as practice manager by Nortons Business Advisors & Chartered Accountants in Mudgee.
Mr George’s evidence in relation to the 13 counts of misconduct identified by ASIC is addressed below.
EVIDENCE AS TO THE FIRST FIVE COUNTS
These counts concern five applications made by Mr George for deposit guarantees issued by Vero Insurance Ltd (Vero), using the product name ‘Deposit Power’, in the period November 2010 to February 2011. A deposit guarantee is a substitute for a cash deposit provided by the purchaser to the vendor of a property when contracts are exchanged in order to secure the transaction. If the transaction proceeds, the purchaser pays the vendor 100% of the purchase price at settlement. If the purchaser defaults, the vendor can claim on the deposit guarantee, but the issuer of the guarantee has a right of reimbursement from the purchaser pursuant to an indemnity.
In the case of applications for deposit guarantees issued by Vero, applicants had to complete an online application form to establish their eligibility. Understandably, this process was designed to minimise the risk to Vero, as Mr George was aware. In particular, Vero required applicants to confirm that they were in possession of an unconditional loan approval to assist with the purchase of the property, subject only to an acceptable valuation.
Mr George completed four applications for deposit guarantees for clients and one application on his own behalf. He admits that he knew at the time of application that the applications did not meet specific requirements of the issuing procedures but falsely stated that they did. As a result, he knew Vero would be issuing deposit guarantees on the basis of false information. In each case, Mr George did not have an unconditional loan approval for the purchase of the particular property. In the case of three counts, he did not have, as required, a fully completed application form signed by the client, and in the case of one count, he did not have appropriate documentation to support a statement as to funds available from the client to support the purchase. In the case of Mr George’s own application, the application form did not state that the purchaser was, in fact, to be his company Tazlant and not himself.
Mr George admits that he did not comply with Vero’s requirements. However, he states that at the time of applying for the deposit guarantees, he did have either conditional or in principle loans approvals, albeit, it appears, that some were not in respect of the property the subject of the application. He said he also believed that the stated additional funds would be available from the purchaser, including in the case of his own purchase, despite the fact that he did not have proper supporting documentary evidence. Nevertheless, I accept that there was some evidence which gave him confidence that the required funds, both loan finance and client funds, would be forthcoming. This does not, of course, detract from the dishonesty involved in these applications to Vero.
COUNTS SIX TO TEN
Counts six to ten concern Mr George’s conduct in responding to an email from Vero dated 2 March 2011. On that date, Colin Barker of Vero sent an email to Mr George requesting documents in support of the five deposit guarantees issued by Vero in response to the applications referred to above, which were still in effect. On 4 March 2011, Mr George sent an email to Mr Barker attaching loan approval documents in support of the applications. Mr George admits that these loan approval documents contained information that had been falsified by him. He said he made these alterations by substituting details as to at least two of the date, purchaser, property, purchase price and loan amount either by placing a substituted date, purchaser, property address, purchase price or loan amount over the original or, in one case, whiting out the name of a purchaser, and then photocopying the altered document. Presumably, Mr George then scanned the altered documents and emailed them as an attachment.
Mr George said he regretted sending these falsified documents almost immediately after he pressed the ‘send’ button. He has “always accepted that this was a wrong and grievous error of judgment”. His explanation of the personal circumstances affecting him at this time is set out above.
Referring to ASIC counts one to ten, in respect of which Mr George has admitted his misconduct, Mr Notley, for Mr George, noted that it is accepted that no one suffered loss as a result of Mr George’s conduct. He also submitted that Mr George did not receive any payment or reward for making the applications. Ms Avenell, for ASIC, submitted that there was a benefit to Mr George by virtue of the fact that, ultimately, he gained the business of the clients for whom he had made the applications. Moreover, in respect of his own application, he did obtain a benefit by securing the purchase of the property in question.
EVIDENCE AS TO COUNTS ELEVEN TO THIRTEEN
These counts concern employment documents that ASIC contends were falsified. On 21 July 2011, Tazlant applied to Future Financial Pty Ltd for a loan, with Mr George (who was the sole shareholder and director) to act as guarantor. In support of this application, which Mr George made as a PAYG (Pay As You Go) employee for what is referred to as a ‘full doc’ loan (as opposed to a ‘low doc’ loan), he submitted two recent payslips from Quest Home Loans and a letter confirming his employment with Quest Home Loans signed by Lucas McEntee, Director. Mr George acknowledged that ‘full doc’ loans were more attractive to him because they carried a lower rate of interest.
In early 2008, Mr George started a mortgage broking business in partnership with his wife in the name HKG Enterprises (HKG). From February 2008, one of the main referrers of work to HKG was Mr McEntee who operated a corporate advisory business under the names Quest Financial Services Pty Ltd and Quest Corporate Services Pty Ltd. For example, in an email dated 25 February 2008, a copy of which was provided in the Tribunal documents, Mr McEntee referred a client to Mr George who wanted to refinance a loan.
In October 2008, Mr George moved HKG into an office in Mr McEntee’s business premises. Whereas previously Mr George had worked in these premises occasionally, he now worked there on about three days a week. At about that time, Mr George assisted Mr McEntee with the purchase of a ‘loan book’ from a person in Canberra which was intended as the basis for a new business, Quest Home Loans (QHL). Mr George was given a QHL email address and was referred to as a representative of QHL. A letter from the Credit Ombudsman Service Ltd dated 30 March 2009 refers to Mr George as a representative of Quest Corporate Services Pty Ltd.
In about July 2010, Mr McEntee and Mr George made a verbal agreement whereby Mr George purchased QHL’s business for the sum of $3,500. Mr George said he believed that he was purchasing the entirety of the business, including the business name Quest Home Loans and the right to its headed notepaper, website and ABN. Although Mr McEntee no longer had any connection with QHL, Mr George assumed Mr McEntee would arrange for any necessary transfers to be made: this was his sphere of expertise and he had already assisted Mr George in setting up Tazlant. Having purchased the QHL business, Mr George believed that he was an employee of the business and considered that he was paid by QHL rather HKG. Therefore, when it came to producing payslips, he prepared these for himself using QHL notepaper, believing that he was entitled to do so. He acknowledged that there were no other QHL employees receiving payslips.
Mr George was questioned about his understanding of different business structures. He appeared to be confused about the difference between a business name, an ABN, and business structures such as a company or a partnership.
Needing a letter from his employer to support his acting as guarantor for Tazlant’s application to Future Financial for a loan, Mr George said he phoned Mr McEntee and asked if he would sign a QHL letter to confirm his employment. Mr McEntee agreed to this. Mr George therefore drafted a letter nominating Mr McEntee as a director. He took this letter with him to a meeting with Mrs McEntee at a café in Rose Bay which was for the purpose of arranging a loan for her to purchase a property in Rose Bay. Mr McEntee was also present at this meeting and, at Mr George’s request, he signed the letter which was dated 11 April 2011. It appears, however, that Mr George did not submit the loan application for Tazlant to Future Financial until about 21 July 2011.
According to a statement from Troy McLachlan, the General Manager of Future Financial, dated 1 May 2012, Mr George was, at that time, accredited with Future Financial as a (self-employed) direct broker in the name HKG Enterprises trading as Quest Home Loans. This was inconsistent with Mr George’s identifying himself as a PAYG employee of QHL. Future Financial therefore asked Mr George for further verification of his employment and, on about 29 July 2011, received further documents from Mr George including an updated letter from QHL signed by Mr McEntee dated 28 July 2011. On this date, Mr George sent an email to Mr McEntee saying that Mr McEntee might get a call for an employment check on Mr George and asking Mr McEntee to confirm that Mr George had been employed by QHL “since Feb 2008 and currently earn $80,000”. Mr McEntee responded “ok mate no worries” and asked whether Mr George had given them his mobile number. Mr George replied that he had. Mr George said he also emailed Mr McEntee the new letter, dated 28 July 2011, for him to sign and return, which he did.
On 1 August 2011, Future Financial sent an email to Mr George seeking clarification of his employment status, to which Mr George responded, and, in a later email that day, also asking for copies of his Income Tax Returns and Notices of Assessment. On 5 August 2011, Future Financial decided not to proceed with the application and notified Mr George of this by email on 10 August 2011.
Mr McEntee provided a statement dated 11 March 2014, having previously provided a statement to ASIC dated 16 April 2012. He also gave evidence at the Tribunal hearing. He stated that he did not recall meeting Mr George on 12 or 13 April 2011, and stated that he never had coffee with anyone related to work or business at the coffee shop where Mr George said he had met Mr McEntee and his wife. At that time, his wife, who was then seven to eight months pregnant, was working full-time in the City, which she continued to do until two or three weeks before their child was born in May 2011. Mr McEntee confirmed that Mr George had brokered a loan for the purchase of an apartment for his wife in 2011.
At the hearing, Mr McEntee said he and Mr George had socialised together and had dinner with their wives. Mr George was at his wedding in November 2008. Mr McEntee was referred to the letters from Quest Home Loans dated 11 April 2011 and 28 July 2011 confirming Mr George’s employment, which appear to bear Mr McEntee’s signature. Mr McEntee denied signing those letters.
Mr McEntee was referred to an email from Mr George to the Australian Financial Group (AFG) dated 17 March 2009 (AFG claims to be Australia’s largest broking services company). Mr George’s email attached an application by Mr George of “Quest Financial Services” to become a new ‘member authorised representative’ of AFG. Mr George gave his position as ‘Manager Specialised Lending’ of Quest Corporate Services, using Quest’s office address, telephone and fax number, and giving his email address as a ‘questcorp’ email address. Mr McEntee agreed that Mr George had been put forward as Quest’s representative for the purpose of the AFG application.
Mr McEntee was also referred to a Credit Ombudsman Service letter, dated 30 March 2009, addressed to him at Quest Corporate Services. The letter certified that Mr George was listed as a representative under the membership of Quest Corporate Services Pty Ltd trading as Quest Finance Services. Mr McEntee said Mr George was working three days a week out of Quest’s offices as a sole operator at that time. Although it was intended that Mr George would become Quest’s representative, the deal never went ahead.
Mr McEntee was also referred to a Quest Home Loans business plan prepared by Mr George and Mary Kowalski which refers to Mr McEntee as the managing director and Mr George and Ms Kowalski as managers. Mr McEntee said he did not remember this document.
At paragraph 26 of his statement dated 16 April 2012, Mr McEntee said between July and the end of August 2010, he agreed to sell the Quest Home Loans website to Mr George for $4,000. This was just a quick oral agreement and there was no formal transfer. In evidence to the Tribunal, Mr McEntee said he does not remember registering the business name Quest Home Loans (although he said he must have done so). He assumed Mr George would take the name Quest Home Loans as part of the deal.
In addition to the above, ASIC also alleges that, in the Future Financial loan application, Mr George provided false information by stating that he had two children when he in fact had three. Mr George’s explanation is that at the time he made the application in July 2011, his youngest child, who was born in February 2011, was only four or five months old. He said in his statement, dated 7 March 2014, that when completing the online application form:
I entered an age of ‘zero’ for [his youngest child] as, to the best of my recollection, the online application form did not allow for the ages of children to be entered in months. As a result it seems that only two of my children were recorded in the application form. I was not aware of this until it was identified by ASIC.
THE CHARACTER EVIDENCE
Character references were provided for Mr George by a number of those with whom he has worked in recent years. As stated above, Mr George is currently employed as practice manager by an accounting practice in Mudgee, Nortons Business Advisors & Chartered Accountants (Nortons), which also provides compliance based services including taxation, auditing and business advisory services. The two partners in this practice, Linda Druitt, a Certified Practising Accountant and Associate Member of the Institute of Chartered Accountants, and Matthew Dean, a Chartered Accountant and registered company auditor, both of whom have significant professional experience, provided statutory declarations and gave evidence by telephone at the hearing. Both had met Mr George in mid-2011 when he told them of the MFAA investigation into his misconduct. They were aware of his two year suspension by the MFAA, and of the ASIC investigation and subsequent banning order. It was clear from their evidence in cross-examination, that they were aware of the general nature of the misconduct and to what it related, but were not aware of the level of detail revealed by Mr George’s evidence which was put to them by Ms Avenell. Notwithstanding the detail of the misconduct being put to them, both Ms Druitt and Mr Dean stood by their previous assessments of Mr George.
Ms Druitt said she has been impressed by Mr George’s professionalism, competence and commitment to meeting the best interests of clients, by whom he is highly regarded and from whom she has received only positive feedback. She has been present with him at meetings with clients, during which he demonstrated that he is a good communicator. Ms Druitt said the misconduct to which Mr George has admitted was an error of judgement, out of character, and may have come about as a result of a moment of laziness and failure to appreciate the gravity of the consequences. She said that, notwithstanding this misconduct, she considers Mr George’s integrity to be of the “highest order”. She noted that he has shown “a lot of remorse about his misconduct”, has accepted responsibility for his actions, has greater awareness, and is less naive. She considered that “the wider public can have every confidence in Ed’s integrity and professionalism”.
Mr Dean said Mr George has always been “up front and open” about his misconduct – he is not a deceptive person. Mr Dean’s impression is that Mr George was naïve and the misconduct was out of character; he has shown genuine remorse. Mr Dean said “I hold his integrity in high regard and I have never had any reason to think otherwise.”
Louise Scifleet provided a statutory declaration and gave evidence by telephone at the hearing. Ms Scifleet is a director of the financial planning company, OnePlan Financial Planning Pty Ltd (OnePlan), which employed Mr George from 30 May 2011 as a trainee financial planner. She said that Mr George had informed her, at that time, that he was the subject of an investigation by the MFAA for misconduct in his prior role as a mortgage broker. She checked with Finconnect Australia Pty Ltd about what had happened and learned that nobody had lost any money. She said she believes Mr George lacked proper teaching or peer group support while working as a mortgage broker and that he was naïve in failing to ensure his purchase of Quest Home Loans was executed properly.
Ms Scifleet said Mr George assisted her in providing services to clients and that, while he worked with her, he acted “in a manner of good fame and character and … at a personal level as well”. She said:
Edward’s intentions to assist clients, his work ethic and his best interest duty whilst he was employed by me was always above par compared to other financial planners I have had in my employ and other financial planners I have met during my three decades in the banking and finance industry.
In my opinion, Edward is a very honest person and, morally, a citizen of good standing. I don’t believe the public needs to be protected from someone like Edward.
Ms Scifleet said that when ASIC made a banning order against Mr George on 31 July 2013, her company was unable to continue employing him because of professional indemnity insurance requirements. Ms Druitt and Mr Dean then employed Mr George in their business as practice manager. Ms Scifleet said she has told Mr George that she would be willing to offer peer support and act as his mentor in the future.
In cross-examination, the admissions made in evidence by Mr George were put to Ms Scifleet by Ms Avenell. While acknowledging that she was not aware of all the details of the misconduct, Ms Scifleet said this did not change her opinion of him.
Denis Yeo, the principal of a firm of Chartered Accountants in Mudgee who is also a registered company auditor and tax agent and who has been in professional practice since 1986, provided a statutory declaration and gave evidence at the hearing by telephone. He employed Mr George for a “few months” after he ceased work with OnePlan because of the ASIC banning order and before he commenced employment with Nortons. Mr Yeo said he was aware of both the misconduct charges brought by the MFAA, and the ASIC banning orders. In his statutory declaration, Mr Yeo said he found Mr George to be a quick learner and bright, competent and professional.
Mr Yeo stated that he had found Mr George to be “impeccably honest” in their dealings and Mr George had never backed away from any questions put to him, including about his conduct which was the subject of the investigations by the MFAA and ASIC. He said he considered the actions that led to the banning order to be out of character and inconsistent with the person that he knows. In cross-examination by Ms Avenell, Mr Yeo said he was not aware of the level of detail of the misconduct she described and acknowledged this raised questions about Mr George’s honesty and integrity.
Brian McGuire, who has worked in the banking industry for more than 30 years and is currently a collections officer in the credit services division of AMP Bank, provided a statutory declaration and gave evidence in person at the hearing. He said he has known Mr George and his family for over 10 years and worked directly with him for a period of about six years, most recently in about 2008. Mr McGuire said he was aware of the MFAA investigation in 2011: of the five deposit guarantee applications and of Mr George having made alterations to supporting documents (although he was not aware of the specific details altered). He and Mr George have discussed the matter at various times including the outcome of both the MFAA and ASIC investigations. (The Tribunal notes the oral evidence of Helen Service, a solicitor employed by ASIC, who said that when she phoned Mr McGuire on 28 February 2014, he said he was not aware of matters to do with falsification of loan approval documents.)
Mr McGuire said in his view, the misconduct is out of character and, in his experience, Mr George is a person of honesty and integrity. In the time that they worked together, Mr George always conducted himself in a professional manner. Mr George has told him “how much he regrets his actions and it is clear he is very remorseful”. Mr McGuire said Mr George is very good at building relationships, is respectful of others and is in turn widely respected. He “is someone highly committed to his clients and at no time would look to do anything that would disadvantage a client.”
The Tribunal was also provided with two further written character references from former clients of Mr George. Both spoke highly of him and of the service he provided. Both stated they were confident that he was trustworthy and had acted in their best interests. I also note other references have been provided from former clients all of whom spoke highly of Mr George.
SUBMISSIONS
Mr Notley, for the Applicant, said it should be noted that the misconduct in question took place during the time that Mr George was working as a mortgage broker rather than as a trainee financial planner. The relevant NCCP Act provisions are focused on a person engaged in credit activities. The relevant Corporations Act provisions are focused on the provision of financial services. In relation to the decision made under the NCCP Act to impose a banning order on Mr George, Mr Notley said Mr George concedes that there is reason to believe that he is not a fit and proper person to engage in credit activities as a result of counts 1 to 10 of the 13 counts of misconduct identified by ASIC. As a result, he accepts that it is appropriate to make a banning order against him under the NCCP Act. He contends, however, that this should be for a period of between one and three years, and should take into account that a banning order has been in effect since 31 July 2013.
In relation to the decision made to impose a banning order under s 920A(1) of the Corporations Act, Mr Notley submitted that the power to make such an order was not enlivened because there is no reason to believe that Mr George is not of good fame and character. If anything, he is not adequately trained to provide a financial service and it may be appropriate to impose some form of banning order (pursuant to s 920A(1)(da)) that allows him to undertake further training, for example in respect of ethical conduct, with supervision by a mentor. Mr Notley suggested that Mr George might benefit from having a structure in place for mentoring and peer support, perhaps under the auspices of his current employment with Nortons in Mudgee.
With respect to character evidence, Mr Notley contended that all five character witnesses gave Mr George excellent references which they are well qualified to give as professionals with many years’ experience. Mr George worked in the mortgage broking business for almost 15 years during which time there is no evidence of any other misconduct. Mr Notley reiterated that Mr George received no financial reward or gain from the deposit guarantee applications and he has demonstrated his sincere and deep remorse for his misconduct.
Ms Avenell, for the Respondent, submitted that the character evidence does not ameliorate the seriousness of Mr George’s misconduct. Mr George understood that providers of Deposit Guarantees had a process for approving applications and, in particular, needed to be confident that an applicant had loan finance available on settlement. Otherwise, the provider could find itself liable on the guarantee.
Ms Avenell said it is clear from the evidence that Mr George was aware that he did not have the required documentation – the loan approvals – to support the applications made for Deposit Guarantees. Otherwise, he would not have thought it necessary to falsify the loan approval documents. While Mr George received no specific financial reward or gain from the deposit guarantee applications, he did receive an ultimate benefit by reason of gaining the clients’ business. In the case of his own application, the benefit he received was his being able to secure the purchase of a property.
With regard to the employment documents (counts 11 to 13), Ms Avenell doubted the authenticity of the signatures on the letters dated 11 April 2011 and 28 July 2011 and contended that Mr McEntee’s account should be accepted. Furthermore, if Mr George’s evidence as to his lack of understanding of business structures is accepted, it shows a lack of understanding, notwithstanding the MFAA and ASIC processes and the passage of two and a half years since the transaction involving Mr George purchasing QHL from Mr McEntee.
Ms Avenell questioned whether Mr George’s character witnesses had been fully apprised of the details of his misconduct, noting that all, except Mr McGuire, had only known Mr George since early 2011. This raises the question of whether Mr George has been fully frank with his employers about his misconduct.
In conclusion, Ms Avenell submitted that a banning order is required to maintain public confidence in mortgage brokers and financial advisers, whose conduct must be of the highest standard.
DISCUSSION
In its ‘Statements of Facts, Issues and Contentions’, ASIC referred the Tribunal to s 1(2) of the Australian Securities and Investment Commission Act 2001 (the ASIC Act) which provides that in performing its functions and exercising its powers, ASIC must strive to “promote the confident and informed participation of investors and consumers in the financial system”. The Tribunal must, therefore, decide whether a banning order is appropriate having regard to (a) the protection of the public, (b) specific and general deterrence, and (c) maintaining public confidence in the profession. In Howarth and Australian Securities and Investment Commission [2008] AATA 278, at [180], the Tribunal noted:
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. 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. …
In the case of the proceedings under the Corporations Act, the relevant ground relied upon, pursuant to s 920A(1)(d), is that there is reason to believe that Mr George is not of good fame and character. With respect to the proceedings under the NCCP Act, the relevant ground relied on, pursuant to s 80(1)(f), is that there is reason to believe Mr George is not a fit and proper person to engage in credit activities. The difference between the two tests must be considered.
Good Fame or Character. The Tribunal has accepted in cases such as Re Kippe and ASIC [1997] AATA 580, at [219 to 221], that while ‘good fame’ requires consideration to be given to a person’s reputation, ‘good character’ requires that [at 221]:
Regard should be had to a person's conduct, both criminal and general. In doing so, the focus needs to be upon his or her disposition and qualities than upon his or her reputation. In the context of the Law and its protection of the investor and in the context of the operation of the duties of a representative of a dealer, particular regard needs to be had to the person's honesty, integrity and openness.
In the Full Federal Court decision in Irving v Minister for Immigration for Local Government and Ethnic Affairs (1996) 68 FCR 422, at 431 to 432, Lee J said, referring to requirements in the Migration Act 1958:
Unless the terms of the Act and regulations require some other meaning be applied, the words "good character" should be taken to be used in their ordinary sense, namely, a reference to the enduring moral qualities of a person, and not to the good standing, fame or repute of that person in the community. The former is an objective assessment apt to be proved as a fact whilst the latter is a review of subjective public opinion. … A person who has been convicted of a serious crime and thereafter held in contempt in the community, nonetheless may show that he or she has reformed and is of good character …
Fit and Proper Person. The meaning of the phrase ‘fit and proper person’ was discussed by the High Court in Hughes & Vale Pty Ltd v New South Wales (No 2) (1955) 93 CLR 127, at 156 where Dixon CJ, McTiernan and Webb JJ found the word ‘fit’, in relation to an office, to involve honesty, knowledge and ability. The meaning of the phrase ‘fit and proper person’ was also discussed in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, where Toohey and Gaudron JJ said, at 380:
The expression ‘fit and proper person’, standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities.
As their Honours recognised, at 388, whether a person is a fit and proper person involves a value judgement to be made in the context of the particular activity to be licensed.
The Corporations Act Banning Order
ASIC relied on s 920A(1)(d), that there is reason to believe that Mr George is not of good fame and character. In so deciding, pursuant to s 920(1A), regard must be had to any convictions for offences involving dishonesty, any prior suspension or cancellation of an Australian financial services licence held by the person, whether such a banning or disqualification order has previously been made against the person, and any other matters ASIC considers relevant.
Where legislation requires that a decision-maker, in making a finding, must have regard to specified matters, the decision-maker may also have regard to the converse of those matters: Rosson v Minister for Immigration and Citizenship [2011] FCA 194, at [23]; Ourania Clifopoulos and Secretary to the Department of Social Security [1994] AATA 282 at [17]. As noted above, s 920A(1A) requires the decision maker to have regard to, for example, whether the person has held an Australian financial services licence that was suspended or cancelled and whether a banning or disqualification order has previously been made against the person. In my view, where a person has not had such adverse decisions made against them, this can be considered a positive matter, albeit that the decision-maker will need to give careful consideration to the weight to be attributed to this in the light of other considerations.
Mr George has admitted to the misconduct referred to in counts one to ten, the essential details of which are described above. Mr George submitted applications for five deposit guarantees providing false information and stating dishonestly that they satisfied the issuers’ requirements when they did not. Subsequently, when asked by the issuer for supporting documentation, Mr George submitted documents which he had falsified. At the relevant time, between November 2010 and March 2011, Mr George was working as a mortgage broker. I accept that, at the time, he was stressed as a result of his personal circumstances. While this may, to some extent, explain his conduct, particularly as to the provision of falsified documents, it does not excuse such misconduct.
With regard to the misconduct alleged in relation to counts 11 to 13, Mr George denies that he falsified the QHL payslips for the purpose of showing he was an employee of QHL and denies that he forged the signature of Mr McEntee on the letters dated 11 April 2011 and 28 July 2011. He also denies that he deliberately understated the number of his children.
Mr George’s evidence suggests that at the relevant time in 2011 and, perhaps rather improbably, today, he did not understand the concept of a legal entity and, in particular, the difference between a company and a registered business name. He claims to have believed that he was employed by QHL when, in fact, QHL was merely a business name and not a legal entity. Improbable though this may seem in a person who has a university degree and a history of employment in the mortgage broking industry since 1996, this confusion was evident in Mr George’s evidence at the hearing. Moreover, evidence given at the hearing by Glen Lawrence, his accountant in Mudgee, who had provided a letter dated 23 September 2013, indicates that when Mr George first sought assistance from Mr Lawrence in relation to his tax affairs, in May 2010, Mr George lacked a proper understanding of the nature of business structures. Further, in August 2011, when Mr George sought Mr Lawrence’s assistance in relation to the 2010/2011 tax year and informed Mr Lawrence of his purchase of QHL and that he had been paid ‘wages’ by QHL of $5,000 per month, Mr Lawrence advised Mr George that the QHL business had been purchased by Mr and Mrs George’s partnership and that the income of the QHL business was income of the partnership. Thus, Mr Lawrence advised Mr George that the $5,000 per month Mr George had been paid was in fact ‘drawings’ by the partners rather than wages.
Having heard Mr George give evidence at the hearing and having heard the evidence of his character witnesses, I am satisfied that, although his lack of understanding of business structures is somewhat improbable, he was telling the truth. I am not satisfied on the evidence before me that he intentionally falsified the QHL payslips. With regard to the two letters signed by Mr McEntee which ASIC claims were forged, I am inclined to accept Mr George’s evidence that the letters were signed by Mr McEntee. I prefer Mr George’s account of what happened, which is a credible one and which accords with the email exchange between the two of them on 28 July 2011 referred to above. Mr McEntee’s conduct in providing Mr George with a ‘questcorp’ email address, telephone and fax number, use of Quest offices and, on a number of occasions, seemingly allowing Mr George to be held out as a representative of Quest, suggests that the relationship between Mr George and Quest has at least some of the indicia of an employment relationship.
As to the incorrect information provided by Mr George (having two children rather than three) in the Future Financial application form, Mr George’s explanation for what occurred is plausible and, in the absence of any countervailing evidence, I accept this.
Thus, in summary, I find the misconduct identified by ASIC in Counts one to 10 to be proved. I am not satisfied as to counts 11 to 13. Mr George has, to his credit, admitted to his misconduct all along, albeit that he has sought to explain the circumstances in which the misconduct occurred.
In relation to the matters to which I must have regard pursuant to s 920A(1A), I note that Mr George has no convictions for offences involving dishonesty, has not previously held an Australian financial services licence that has been suspended or cancelled, and has not been the subject of any previous banning or disqualification order. The evidence indicates that Mr George has cooperated with the MFAA and ASIC in their investigations and has made appropriate admissions. I am also satisfied from his evidence to the Tribunal and from the evidence of his referees that he has shown remorse for his misconduct. There has been no financial loss or other detriment to his clients or the issuer of the Deposit Guarantees. I accept that Mr George received no direct financial reward as a result of his misconduct albeit that he may have secured clients as a result and, in his own case, procured a deposit guarantee which enabled him to complete the purchase of an investment property.
The issue I must decide is whether, as a result of the found misconduct, there is reason to believe Mr George is not of good fame or character. With regard to fame, the evidence clearly establishes that Mr George is highly regarded by those who have employed him since 2011. I do not accept, as suggested by Ms Avenell, that he was not ‘up front’ with those referees. They were aware of the MFAA and ASIC investigations and outcome. I do not consider that their inability to recollect a high level of detail of the misconduct undermines their evidence. I do note, however, that when the full details of the misconduct were put to Mr Yeo, he acknowledged this raised questions about Mr George’s honesty and integrity.
I find on the basis of the character evidence and noting also written references from former clients of Mr George, to which I accord only limited weight given that they were not tested in cross-examination, that Mr George has a good reputation in the community and is of good fame.
With regard to character, the evidence of his referees is that Mr George’s misconduct was ‘out of character’. When considering ‘character’, the Tribunal must have regard to the person’s conduct, to the qualities of the person, and to his or her honesty, integrity and openness: Re Kippe and ASIC [1997] AATA 580, at [221]. In this instance, Mr George has admitted to dishonest conduct. He has, however, been open about this and there is significant other evidence attesting to his honesty and integrity. Aside from the misconduct that is the subject of his admissions, the evidence does not suggest there is reason to believe he is not of good character when seen in the light of his past history of no prior convictions, no prior disciplinary action and the fact that he has shown what I accept is genuine remorse for his misconduct (As was recognised by Lee J in Irving, a person may show that they have reformed). I am inclined to take a similar view to that taken by the Tribunal in Fraser and Australian Securities and Investments Commission [2011] AATA 944, that Mr George’s conduct, while dishonest, was out of character: it did not justify a finding that there is reason to believe he is not of good fame or character and a permanent banning order was therefore not mandated under s 920B(2). Whilst the conduct in question, concerning the Deposit Guarantee applications, was made during the period November 2010 to February 2011, and the falsified documents were created on 4 March 2011, I am inclined to regard this as ‘out of character’ such that, in terms of ASIC’s functions, or in terms of maintaining public confidence in the financial system, a permanent banning order is not required for the protection of the public.
Mr Notley submitted that, referring to s 920A(1)(da), “if anything” Mr George is not adequately trained to provide a ‘financial service’ (defined in s 766A to include providing financial product advice). The misconduct in this case was not in relation to the provision of financial services. Rather, Mr George was engaging in ‘credit activities’ at the relevant time. However, in my view, as suggested by Mr Notley, the evidence indicates that he may benefit from further training, for example, in ethical conduct, and I am satisfied that s 920A(1)(da) is the appropriate ground and which enlivens the discretionary power to make a banning order.
Banning orders are not intended to punish those who have committed misconduct. Rather, they are intended to be protective of the public and with a view to maintaining proper standards in the conduct of that activity. In doing so, deterrence is a relevant matter both in terms of the individual concerned and others who are engaged, or may engage, in such activity; see, for example, the discussion in Howarth and ASIC [2008] AATA 278 at [167] to [180].
I have had regard to Regulatory Guide 98, a policy document published by ASIC, and specifically to Table 2 ‘Factors and examples of conduct relating to specific periods of banning’, which lists indicative factors for the decision-maker to consider. These were “compiled taking into account the propositions formulated in HIH Insurance Ltd and HIH Casualty and General Insurance Ltd, Re: ASIC v Adler (2002) 42 ACSR80”. I note that “False, misleading or deceptive, or unconscionable conduct, or conduct with a lesser degree of dishonesty” is a relevant factor for a banning order of 3 to 10 years. With regard to other factors, there was no deliberate course of conduct by Mr George to enrich himself at others’ expense, and no loss to any client. There is no previous misconduct, and his misconduct, for which he has expressed his remorse, may, at least in part, have been the product of the particular circumstances in which Mr George found himself at the time, albeit that, while this may in part explain his conduct, it does not in any way excuse it. He also cooperated with ASIC in the investigation of the misconduct.
Remembering that the Tribunal stands in the shoes of the original decision-maker for the purpose of exercising relevant powers, in my view, having weighed up the particular circumstances of this case, a banning order of three years is appropriate as permitted by s 920B(2)(b) of the Corporations Act both as a means of protecting the public while Mr George undertakes further training and is rehabilitated, and as a deterrent. This order will date from 31 July 2013 and expire on 30 July 2016.
The NCCP Act Banning Order
The ground on which ASIC relied in making the banning order under s 80(1) of the NCCP Act was that there is reason to believe Mr George is not a fit and proper person to engage in credit activities. The meaning of the term ‘credit activity’ is set out in s 6 of the Act and includes the provision of credit services, a term which is defined in s 7 as providing credit assistance to a consumer, or acting as an intermediary. This is the context in which a value judgement must be made about the person’s ability to perform their requisite functions with honesty and integrity.
Mr Notley has conceded that there is reason to believe that Mr George is not a fit and proper person to engage in credit activities as a result of counts one to 10 of the 13 counts of misconduct identified by ASIC. Given Mr George’s admissions in relation to misconduct, in my view this concession is appropriate given the dishonest conduct involved in the Deposit Guarantee applications and the falsification of documents subsequently provided by him in support of the applications.
The enlivening of the discretion to make a banning order under s 80(1) raises the question of whether a banning order should be made and, if so, whether the order should prohibit the person from engaging in a credit activity permanently or for a specified period, pursuant to s 81(2). Although there is reason to believe that he is not a fit and proper person to engage in credit activities, the above assessment I have made about Mr George’s character leads me to conclude that this was ‘out of character’, noting the evidence of his referees and the remorse he has expressed for his misconduct. In my view, this ameliorates the seriousness of the misconduct and should be taken into account in assessing the length of any banning order that is deemed appropriate
I have had regard to Regulatory Guide 218, a policy document published by ASIC, which deals with action against persons engaging in credit activities, and specifically to Table 2, ‘Factors and examples of conduct relating to specific periods of banning’, indicative factors “compiled having regard to the propositions formulated in HIH Insurance Ltd and HIH Casualty and General Insurance Ltd, Re: ASIC v Adler (2002) 42 ACSR80”. As in Regulatory Guide 98, “False, misleading or deceptive, or unconscionable conduct, or conduct with a lesser degree of dishonesty” is a relevant factor for a banning order of 3 to 10 years. Also, with regard to other factors, there was no deliberate course of conduct by Mr George to enrich himself at others’ expense, and no loss to any client. So too, there is no previous misconduct, and his misconduct, for which he has expressed his remorse, may, at least in part, have been the product of particular circumstances in which Mr George found himself at the time, albeit that while this may in part explain his conduct, it does not in any way excuse it. As noted above, he also cooperated with ASIC in the investigation of the misconduct.
In my view, as with the banning order under s 920A(1) of the Corporations Act, having weighed up the particular circumstances of this case, a banning order of three years is also appropriate under s 80 of the NCCP Act both as a means of protecting the public while Mr George undertakes further training and is rehabilitated, and as a deterrent. This order too will date from 31 July 2013 and expire on 30 July 2016.
DECISION
The decisions under review are set aside and the following decisions substituted:
(1) Pursuant to s 920A and s 920B of the Corporations Act 2001, Mr George is prohibited from providing any financial service for a period of three years from 31 July 2013.
(2) Pursuant to s 80 and s 81 of the National Consumer Credit Protection Act 2009, Mr George is prohibited from engaging in any credit activity for a period of three years from 31 July 2013.
I certify that the preceding 90 (ninety) paragraphs are a true copy of the reasons for the decision herein of Deputy President RP Handley .......................[sgd].................................................
Associate
Dated 27 March 2014
Date(s) of hearing 10 to 12 March 2014 Date final submissions received 14 March 2014 Counsel for the Applicant R Notley Solicitors for the Applicant N Wilson, Wilsons Solicitors Counsel for the Respondent M Avenell Solicitors for the Respondent Australian Securities and Investments Commission
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