Eugene Liu and Australian Securities and Investments Commission - [2014] AATA 817

[2014] AATA 817

Division GENERAL ADMINISTRATIVE DIVISION

File Number

2013/0608

Re

Eugene Liu

APPLICANT

And

Australian Securities and Investments Commission

RESPONDENT

DECISION

Tribunal Ms J L Redfern, Senior Member

Date 31 October 2014

Place Sydney
The decision under review is affirmed.
.......................[sgd].........................................
Ms J L Redfern, Senior Member
CATCHWORDS
CORPORATIONS – licensing – permanent banning order – failure to comply with a financial services law – misleading and deceptive conduct – issue and distribution of defective product disclosure statement - contraventions serious – significant investor losses - failure of director of investment manager to ensure compliance with product disclosure statement - undisclosed payments - good fame or character - decision affirmed
LEGISLATION
Australian Securities and Investments Commission Act 2001 ss 1, 19
Corporations Act 2001 ss 79, 761A, 766A, 910A, 911A, 913B, 914A, 915A-915J, 916A, 920A, 920B, 1012B, 1012C, 1013D, 1021B, 1021D-1021J, 1041G, 1041H, 1317B
CASES
Briginshaw v Briginshaw (1938) 60 CLR 336
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
HIH Insurance Ltd and HIH Casualty and General Insurance Ltd, Re: ASIC v Adler (2002) 42 ACSR 80
James v ANZ Banking Group Ltd (1986) 64 ALR 347
McBride v Walton [1994] NSWCA 199
Prothonotary of the Supreme Court of New South Wales v Alcorn [2007] NSWCA 288
R v Shawn Darrell Richard [2011] NSWSC 866
Re Coshott v Australian Securities and Investments Commission [2014] AATA 677
Re Davis (1947) 75 CLR 409
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Re Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602; [2008] AATA 278
Shi v Migration Agents Registration Authority (2008) 235 CLR 286; [2008] HCA 31
Sullivan v Civil Aviation Safety Authority (2013) 138 ALD 600; [2013] FCA 1362
Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93
Summers v Repatriation Commission (2012) 130 ALD 32; [2012] FCAFC 104
Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in Liq) (2012) 301 ALR 1; [2012] FCA 1028
SECONDARY MATERIALS
ASIC Regulatory Guide 98, Licensing: Administrative action against financial services providers
REASONS FOR DECISION
Ms J L Redfern, Senior Member
31 October 2014
INTRODUCTION

Mr Eugene Liu is a resident of the United States. On 7 February 2013, a delegate of the Australian Securities and Investments Commission (ASIC) made a decision to permanently ban Mr Liu from providing financial services. The delegate found Mr Liu had engaged in dishonest conduct in the course of carrying on a financial services business.
The decision followed investigations conducted by ASIC into the collapse of Trio Capital Ltd (formerly known as Astarra Capital Ltd) (Trio Capital), which was the responsible entity for two fraudulently managed investment schemes, one of which was the Astarra Strategic Fund, formerly known as the Alpha Strategic Fund (ASF). ASF was registered as a managed investment scheme with ASIC on 9 September 2005. Investors lost millions of dollars and the collapse prompted an Inquiry by the Parliamentary Joint Committee on Corporations and Financial Services (the PJC). The PJC published its report on the Inquiry in May 2012 and described the collapse as “the largest superannuation fraud in Australian history”.
Astarra Asset Management Pty Ltd (formerly Absolute Alpha Pty Ltd) (AAM) was the investment manager for ASF. Astarra Funds Management Pty Ltd (AFM) was a subsidiary of Trio Capital. Mr Liu was a director of both companies from mid-2006 until 24 April 2007, in the case of AAM, and until 8 January 2012, in the case of AFM, except for a two month period from 22 October 2009 to 12 December 2009. He was also the chief investment strategist of AAM and an employee of AFM from 6 August 2007. AAM was an authorised representative of Wright Global Investments Pty Ltd (WGI), which was licenced to provide financial services. Mr Liu was a director of WGI from July 2006 to January 2009.
Over 90% of the assets of ASF were invested in underlying funds comprising offshore-based hedge funds. These funds were controlled by Jack Flader, a United States citizen reportedly based in Hong Kong. Shares were purchased at inflated prices yielding significant profits for Mr Flader’s companies. Ultimately these investments were worthless and many Australian investors lost their savings. Global Consultants and Services Ltd (GCSL) was a company incorporated in Hong Kong controlled by Mr Flader that provided administrative services to the underlying funds.
ASF was wound up by the New South Wales Supreme Court on 19 March 2010. Mr Shawn Richard, who was the chief executive officer of AAM and director of Trio Capital, AAM, WGI and AFM for various periods from 2003 until 2009, pleaded guilty to two offences of dishonest conduct in relation to financial services and was sentenced to three years and nine months’ imprisonment (R v Shawn Darrell Richard [2011] NSWSC 866).
On 13 September 2012 Mr Liu was served with a notice of hearing by ASIC. He participated in the hearing from Hong Kong by videoconference and was represented by five lawyers, three of whom attended the hearing in person whilst the other two lawyers supported him in Hong Kong.
On 11 February 2013, Mr Liu lodged with the Tribunal an application for review of the decision of the delegate on the grounds that he was not afforded procedural fairness, the delegate made findings which were not supported by the evidence and the delegate erred in concluding that Mr Liu intended to mislead investors and acted dishonestly. He also sought a stay and confidentiality orders in respect of the decision. These applications were refused by the Tribunal on 6 March 2013 and directions were made for the preparation of the matter for hearing. Mr Liu did not comply with those directions and his application was dismissed pursuant to s 42A(5) of the Administrative Appeals Tribunal Act 1975 on 18 October 2013. The proceedings were subsequently reinstated on 3 December 2013 and further directions were made about evidence and the filing of statements of facts, issues and contentions.
ASIC opposed the application for reinstatement on the grounds that the hearing would be delayed and Mr Richard would not be available because it was likely he would be deported. Mr Liu accepted this would prejudice ASIC and agreed he would instead rely on other evidence to refute Mr Richard’s evidence. The parties agreed that the matter could be determined on the papers but the Tribunal was assisted by the oral submissions of the parties, during which Mr Liu participated by telephone.
Mr Liu relied on the material provided to the delegate and additional submissions made by him in the proceedings.
ISSUE
The issue for determination is whether the correct or preferable decision in the circumstances of this case is that Mr Liu should be permanently banned, and therefore the decision affirmed, or whether the decision should be varied or set aside and some other decision substituted in its place. Threshold issues for determination included whether Mr Liu breached a financial services law, whether he was involved in the contravention of a financial services law, whether he was competent to provide financial services and whether there was reason to believe he would contravene a financial services law or be involved in the contravention of a financial services law by another. A further issue for determination was whether Mr Liu was “‘not of good fame or character’”. The delegate did not make such a finding but, given the role of the Tribunal is to conduct merits review and make the correct or preferable decision based on the available material, this is a matter that was also open to the Tribunal in the circumstances of this case.
I have found Mr Liu breached a financial services law and was not of good fame or character. I have also found that Mr Liu should be permanently banned and the decision under review affirmed. My reasons follow.
STATUTORY FRAMEWORK
ASIC is a statutory authority charged with responsibility for administering certain laws relating to corporations, financial services, financial markets and those who participate in the financial system. Under s 1(2) of the Australian Securities and Investments Commission Act2001 (the ASIC Act), ASIC must strive to, amongst other things, “promote the confident and informed participation of investors and consumers in the financial system”.
Chapter 7 of the Corporations Act2001 (the Corporations Act) deals with the regulation of financial services and markets.
Part 7.6 establishes a licensing regime in respect of persons or entities that carry on a financial services business in Australia. It is unlawful for a person or entity to carry on a financial services business unless they hold an Australian financial services licence (AFSL) covering the provision of the financial services: s 911A(1). A financial services business means a business providing financial services: s 761A. A person or entity provides financial services if they provide financial product advice: s 766A(1)(a). It is not necessary to be licensed if the person or entity providing financial services is doing so as a representative of an AFSL holder: s 911A(2)(a). A person will be a representative if they are authorised under s 916A or if they are an employee or director of the AFSL holder: s 910A.
Part 7.9 contains provisions relating to the issue, sale and purchase of financial products. In summary, a financial product may not be issued or offered for sale to retail investors unless there is a product disclosure statement (PDS) (ss 1012B and 1012C). The PDS must include such information as a person would reasonably require, as a retail client, to make a decision about whether to acquire a financial product (s 1013D). It is an offence to prepare a defective PDS and/or give a defective PDS to another person in certain circumstances (ss 1021D – 1021J). The expression “defective” in relation to a PDS means a misleading or deceptive disclosure or a material omission that is or would be “materially adverse from the point of view of a reasonable person considering whether to proceed to acquire that the financial product concerned” (s 1021B).
ASIC administers the licensing regime and is empowered to grant an AFSL (s 913B), impose conditions on the AFSL (s 914A), vary, suspend or cancel an AFSL (ss 915A to 915J) and, relevantly, make an order banning a person from providing financial services (s 920A). The order may ban a person permanently or for a specified period, unless ASIC has reason to believe the person is not of good fame or character (s 920B(2)).
Section 920A provides as follows:
ASIC’s power to make a banning order
(1)ASIC may make a banning order against a person, by giving written notice to the person, if:
(a)   ASIC suspends or cancels an Australian financial services licence held by the person; or
(b)   the person has not complied with their obligations under section 912A; or
(ba) ASIC has reason to believe that the person is likely to contravene their obligations under section 912A; or
(bb) the person becomes an insolvent under administration; or
(c)   the person is convicted of fraud; or
(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
(e)   the person has not complied with a financial services law; or
(f)    ASIC has reason to believe that the person is likely to contravene a financial services law; or
(g)   the person has been involved in the contravention of a financial services law by another person; or
(h)   ASIC has reason to believe that the person is likely to become involved in the contravention of a financial services law by another person.
(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.
…
(2)However, ASIC may only make a banning order against a person after giving the person an opportunity:
(a)   to appear, or be represented, at a hearing before ASIC that takes place in private; and
(b)   to make submissions to ASIC on the matter.
…
By letter dated 13 September 2013, a delegate of ASIC caused to be served on Mr Liu a notice which particularised the following concerns:
(a)ASIC may have reason to believe that he was not of good fame or character (s 920A(1)(d));
(b)ASIC may have reason to believe that he was not adequately trained, or was not competent, to provide a financial service or financial services (s 920A(1)(da));
(c)he may not have complied with a financial services law (s 920A(1)(e));
(d)ASIC may have reason to believe that he was likely to contravene a financial services law (s 920A(1)(f));
(e)he may be involved in the contravention of a financial services law by another person (s 920A(1)(g)); and
(f)ASIC may have reason to believe that he was likely to become involved in the contravention of a financial services law by another person (s 920A(1)(h)).
The financial services laws identified in the notices were s 1041H (misleading or deceptive conduct) and s 1041G (dishonest conduct), which provide as follows:
1041H Misleading or deceptive conduct (civil liability only)
(1)A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.
…
1041G Dishonest conduct
(1)A person must not, in the course of carrying on a financial services business in this jurisdiction, engage in dishonest conduct in relation to a financial product or financial service.
…
(2)In this section:
dishonest means:
(a) dishonest according to the standards of ordinary people; and
(b) known by the person to be dishonest according to the standards of ordinary people.
While the delegate did not find Mr Liu was not of good fame or character, as noted the Tribunal is not limited to the review of the delegate’s findings. Accordingly, s 920B(2) is relevant to the determination of this review. It states:
(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.
Thus, for a banning order to be made, there must first be a finding that Mr Liu breached a financial services law, or was involved in a contravention, or that there was reason to believe he was not competent, he was not of good fame or character or he was likely to contravene a financial service law or be involved in a contravention. If such a finding is made the discretion to ban Mr Liu is enlivened. However, if I find Mr Liu is not of good fame or character and a banning order is warranted, there is no discretion to make an order limited in time and Mr Liu must be permanently banned.
ASIC has published a regulatory guide in respect of its approach to the exercise of its administrative functions in respect of financial services, being ASIC Regulatory Guide 98, Licensing: Administrative action against financial services providers. Regulatory Guide 98 (RG 98) explains ASIC’s approach and how it will exercise its discretion under s 920A of the Corporations Act. Unless policy is unlawful or there are cogent reasons as to why the Tribunal should depart from the policy, the Tribunal should have regard to the government policy or policy from regulatory agencies. However, policy should not simply be applied without independent scrutiny. To do so would be an error of law (Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 and Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634).
Regulatory Guide 98 has been produced by an agency which has responsibility for regulation of the provision of financial advice and financial services. It appears sound and is consistent with authoritative case law. RG 98 expressly provides that the factors and examples set out in the tables to RG 98 are “indicative only” and that “each case must depend on its particular circumstances and will be determined on a case-by-case basis”. It is further noted that factors in the table have been compiled taking into account the propositions formulated in HIH Insurance Ltd and HIH Casualty and General Insurance Ltd, Re: ASIC v Adler (2002) 42 ACSR 80 (Adler). I therefore propose to have regard to RG 98 insofar as it is relevant to the facts in this case.
Regulatory Guide 98 identifies factors such as the nature and seriousness of the suspected conduct, the public benefit in making orders, any mitigating factors and the likelihood of general or specific deterrence as being relevant to the issue of whether banning orders should be made and, if so, the period of the banning. According to RG 98, a banning order of three years or less may be appropriate where the conduct alleged is the result of carelessness or inadvertence, there has been an attempt to remedy the contravention and the person has fully cooperated with ASIC and there is no or minimal loss to clients. A banning of three to 10 years may be appropriate where the alleged conduct is inconsistent with the orderly operation of financial markets, there is false, misleading or deceptive or unconscionable conduct, being conduct with a lesser degree of dishonesty, there is incompetence or a high level of carelessness, or there is disregard for the law and compliance with regulations. Finally, a ban of 10 years or more or a permanent banning would be considered to be appropriate where there was dishonesty or intent to defraud, continued knowing and wilful contraventions of the law, serious incompetence and irresponsibility, likelihood of the person engaging in contravening conduct in the future or any dishonest conduct involving clients.
Section 1317B of the Corporations Act provides that applications for review of a decision of ASIC may be made to this Tribunal. The Tribunal conducts its own independent assessment and, while it must address the same question as is required to be addressed by the original decision-maker, the Tribunal is not confined to the grounds argued at the original hearing. The Tribunal must make the correct or preferable decision based on the material and evidence before it and, subject to procedural fairness, may make a decision on different grounds from those argued by the parties: Shi v Migration Agents Registration Authority (2008) 235 CLR 286; [2008] HCA 31; Summers v Repatriation Commission (2012) 130 ALD 32; [2012] FCAFC 104.
Given ASIC contends Mr Liu has engaged in dishonest conduct, there is an issue about the evidentiary standard to be applied in determining this review. Mr Liu submitted that findings of dishonesty were very significant for him as overseas regulators had regard to these findings, and the permanent banning, and this made it difficult for him to work as an adviser in other countries.
In Briginshawv Briginshaw (1938) 60 CLR 336, the High Court considered the standard of proof required to establish what was, at that time, the serious allegation of adultery. Latham CJ identified the principle as “the rule of prudence”, namely, that any Tribunal should act “with much care and caution” before finding that a serious allegation is established (at 347). Dixon J observed (at 362):
The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

Whether this Tribunal is bound by the principles in Briginshaw was considered by Jagot J in Sullivan v Civil Aviation Safety Authority (2013) 138 ALD 600; [2013] FCA 1362 and more recently by the Full Court of the Federal Court (Logan, Flick and Perry JJ) in Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93. This case concerned the cancellation of Mr Sullivan’s helicopter licence following a crash in the Northern Territory while he was flying. The question for determination was whether Mr Sullivan was a fit and proper person to hold a licence.
In summary, Flick and Perry JJ rejected the proposition that this Tribunal is bound by Briginshaw as a principle of law, although they recognised that the Tribunal “may express greater caution” when evaluating the factual foundation for a decision reached when the particular fact is more centrally critical to the decision (at [120]). Logan J also dismissed the appeal but noted that the Tribunal must “not lightly” reach conclusions in respect of decisions which are attended with grave consequences. While not bound by the rules of evidence, the Tribunal must act reasonably (at [15]-[16]).
In the present case, there are allegations by ASIC that Mr Liu engaged in dishonest and misleading and deceptive conduct in respect of ASF and that there was reason to believe he was not of good fame or character. These allegations are central to the contention that Mr Liu should be permanently banned.
As I noted in Re Coshott and Australian Securities and Investments Commission [2014] AATA 677, it is clear from the decision of the Full Court in Sullivan that any finding of dishonesty or that the applicant is not of good fame or character must be based on logically probative material. Neither party bears an onus of proof but given the gravity of the allegations and potential findings, I must be reasonably satisfied on the available material before making such findings. I therefore accept that any adverse findings made about dishonesty or fame and character should be made with caution and that the nature and extent of the available evidence is an important consideration. Inexact proofs and circumstantial inferences that are not corroborated or otherwise supported would therefore be unlikely to lead to adverse findings about honesty or fame and character. This is the approach I adopted in Coshott and is the approach I have taken in this case when assessing the evidence.
BACKGROUND FACTS
Mr Shawn Richard and Mr Matthew Littauer were appointed directors of Trio Capital on 5 November 2003. Mr Richard was a Canadian citizen who had resided in Australia since 2000. He was imprisoned in 2011 and has since been deported. Mr Littauer was a businessman operating a financial services business overseas and, according to Mr Richard, he and Mr Flader were business partners. Mr Richard worked for Mr Littauer. He met Mr Liu in about 1999, when they were both working for Mr Littauer.
Mr Liu came to Australia in December 2003 at the request of Mr Littauer. He worked with Mr Richard from this time.
According to a statement sworn by Mr Richard on 3 December 2010 and used in criminal proceedings against him, from July 2004 onwards Mr Richard knowingly put into effect Mr Flader’s instructions in relation to the operation of the scheme whereby Mr Richard used his positions in AAM, Trio Capital, WGI and AFM to arrange the transfer of Australian investors’ monies from managed investment schemes and superannuation funds to overseas funds controlled by Mr Flader. AAM received over $5.3 million from the operation of the scheme and Mr Richard received over $1.3 million in payments.
It is important to have knowledge of the scheme and how it worked to understand the issues in this case. These details were conveniently summarised by Garling J in R v Shawn Darrell Richard at [28] to [42] as follows:
[28] To understand the offences committed by Mr Richard, it is necessary to outline the framework of corporate and managed funds entities within which these offences occurred. This framework consisted of numerous holding and subsidiary companies, often changing names, traversing international jurisdictions beyond Australia, including the United States of America and those within Asia, the Caribbean and Pacific Islands. It is convenient to refer to the entire group as the Trio Capital Group.
[29] Only the key entities through which Mr Richard operated to commit the offences need to be described. A convenient starting point is the Astarra Strategic Fund (“ASF”), as the dishonest conduct of Mr Richard relates to transactions that all have their genesis in ASF.
[30] ASF was a managed investment fund, registered with ASIC, which was wound up by the Court on 19 March 2010.
[31] The responsible entity for ASF was Trio Capital Ltd (“Trio”). Trio was also the responsible entity for other managed investment schemes and, as well, the trustee for five superannuation entities (collectively the “Trio Managed Funds”). Mr Richard was, at various times, a director and the responsible officer and agent of Trio. Mr Richard was a director of Trio’s immediate holding company, Astarra Funds Management Pty Ltd (“AFM”). At all relevant times, Mr Richard falsely represented that he was a director and owner of Trio’s ultimate holding company. Trio was put into liquidation on 22 June 2010.
[32] The investment manager of ASF, via agreements with Trio, was Astarra Asset Management Pty Ltd (“AAM”). Mr Richard was a director of AAM. In addition, AAM was an authorised representative of Trio and Wright Global Investments Pty Ltd (“WGI”). I have already described Mr Richard’s relationship with Trio. With respect to WGI, he was a director and the responsible officer. Mr Richard also falsely represented that he was a director and owner of AAM and WGI’s ultimate holding companies. AAM was wound up on 22 December 2009.
[33] EMA International Ltd (“EMA”) was a special purpose vehicle established to facilitate investments by ASF in funds offshore. Mr Richard was in control of EMA.
[34] It is admitted by Mr Richard that he represented himself to investors as being the controller of Trio, WGI and AAM, in circumstances where Mr Richard was aware that these representations were false. The representation was false because at all times after July 2004, Mr Richard knew that Mr Jack Flader, a US citizen based in Hong Kong, was the ultimate controller of these entities and the business of the Trio Capital Group.
[35] Mr Richard used his positions with respect to AAM, Trio, WGI and AFM to arrange the transfer of Australian investors’ monies from Trio Managed Funds in Australia, to overseas funds controlled by Flader (“Flader Controlled Funds”). The money was subsequently used to purchase shares in US companies at inflated prices, from foreign companies controlled by Flader (“Flader Vendor Companies”). The inflated share prices realised significant profits for the Flader Vendor Companies.
[36] The shares which were purchased were themselves only quoted on the Over-the-Counter Bulletin Board as unregulated US equity securities. This meant that they were vulnerable to share price manipulation, and often, there was only restricted stock available for trading.
[37] From November 2006, when the directors of Trio became concerned and decided to cease its exposure to a particular Flader Controlled Fund (the Exploration Fund), Mr Richard participated in the creation of new offshore funds for Trio to invest in, all of which were controlled by Flader. He falsely represented to Trio and ASF investors that he was diversifying the portfolio to different investment managers from the original Flader Controlled Funds.
[38] The GSCL Group, of which Mr Flader was the Chief Executive Officer and Chairman, was the custodian of the assets of the Flader Controlled Funds at all material times. In addition, the GCSL Group, provided administration services to EMA.
[39] The only monies invested into the Flader Controlled Funds were those from the Trio Managed Funds, with two exceptions. The Australasian Conference Association Superannuation Trust and the Australian Baseball Federation Inc. directly invested in one of the Flader Controlled Funds.
[40] A large proportion of profits received by the Flader Vendor Companies, from the sale of shares purchased from Australian investors’ monies deposited into the Flader Controlled Funds, were subsequently used to provide funds to Trio, WGI, AFM and AAM, by way of loans from other companies controlled by Flader (“Flader Funding Companies”). Mr Richard falsely represented to auditors of Trio, WGI, AFM and AAM that he controlled these funding companies.
[41] Mr Richard did not disclose to, and took steps to actively conceal from, Trio or investors in Trio Managed Funds, his relationship with Mr Flader, the existence of the interrelated network of companies and investment funds and his personal financial advantage from the activities of the Trio Capital Group.
[42] Furthermore, the non-equity investments that contributed a substantial portion of the value of the Flader Controlled Funds were also problematic. Between at least April 2007 to 5 October 2009, Mr Richard was aware that the financial instruments setting up the derivatives, foreign exchange agreements and fixed interest investments had not been verified regarding their execution, ability of counterparties to honour the obligations nor their independent value. This was largely due to the fact that they were also obtained from Flader companies.
Trio Capital issued a Product Disclosure Statement (PDS) for ASF dated 15 February 2006. The PDS was used to promote investment in ASF until replaced by a further PDS dated 31 August 2009. ASF attracted investments totalling $108,535,980 as at 30 September 2009.
Relevantly the 2006 PDS included the following statements:
The Fund is in an Australian managed investment scheme, investing in deferred purchase agreements (‘DPA’), which gives you an indirect exposure to absolute return funds in Australia and other global markets. Section Three of this PDS describes the DPA. [at page 3]
The DPA is a contract between the Manager [AAM] (as agent of Astarra [Trio Capital]) and EMA International Limited. If considered appropriate by the Fund, a DPA will be entered into by the parties whenever an investment is made with the investment manager in offshore global markets. Consequently, the Fund will have exposure to counter-party risk in respect of EMA International Limited. [at page 11]
Under the heading investment “Section Two: Investment Objective and Strategies”, (pages 6 to 10) the PDS included the following statements:
The Fund adopts a ‘multi-strategy-multi-manager/fund of funds’ approach in investing in investment managers to create a diversified absolute return portfolio. This allows the Manager to select investments in funds and other investment vehicles to maximise returns when maintaining an appropriate level of risk for varying market conditions. [at page 6]
Absolute return funds differ from traditional investments as they are more reliant on the performance and skills of the investment manager as a source of investment returns rather than on returns from the market.
Generally these funds are considered to provide increased returns on investments and reduced risk opportunities relative to traditional investments primarily because:
(1) of their ability to participate in a wide variety of financial products and global markets not available in traditional investor products; and
(2) of their ability to take both long and short security positions which provides the opportunity to profit in many economic environments... [page 6 – 7]
Under the heading, “Assessment use by the Manager in selecting the Underlying Investment Fund Managers” in Section Two (at page 9), the PDS stated:
The Manager chooses its absolute return managers by using both qualitative and quantitative analysis, involving a proprietary analytical tool which includes a detailed screening process with its own internal rating system. In addition, the Manager adopts a due diligence process that involves site visits and face-to-face meetings with prospective managers.
The quantitative assessment is described, at page 9, as follows:
The manager regularly monitors performance and significant deviations from expectations are closely examined for any indication that the quality or nature of the investment process has changed.
The qualitative assessment is described, at page 10, as follows:
Assessing top-tier managers is a critical component of successful hedge fund investing. The Manager’s investment team has an extensive track record in advising and investing in hedge funds and benefits from long-standing relationships and institutional clout, which gives the Fund an indirect access to leading managers in the hedge fund industry. Investment manager due diligence, selection and monitoring are part of the proprietary model that the Manager’s investment team implements in advising the Fund.
It is alleged by ASIC that Mr Liu drafted, or oversaw the drafting of, Section Two of the PDS. Mr Liu denied this.
On 2 March 2007 Trio Capital, AAM and WGI entered into an Investment Management Agreement. Under the agreement, AAM was appointed as agent of Trio Capital to act as investment manager of ASF. Relevantly, AAM was obliged to comply with the “investment guidelines” for ASF, which were defined to include the investment strategy referred to in the current PDS.
AAM prepared a document entitled “Absolute Alpha Pty Ltd AIMA Questionnaire” (AIMA Questionnaire) dated 15 July 2007. AIMA is an acronym for the Alternative Investment Management Association. ASIC contended that Mr Richard and Mr Liu were involved in the preparation of the information provided in response to the AIMA Questionnaire. Mr Liu denied this.
The AIMA Questionnaire was provided to Aegis Equities Research Pty Ltd (Aegis) to obtain a research report in respect of ASF. A research report was published by Aegis in October 2007 and was sent to a number of financial planners. Aegis gave ASF a “recommended” rating.
The AIMA Questionnaire included the following statements:
Eugene holds a degree in economics from Trenton State College in NJ.
Absolute Alphas’ unique quantitative approach is based on analysing the performance of hedge funds relative to its peers using proprietary algorithms.
Our research shows that skill, or Hedge Fund Alpha, along with Park Ratio, generally persists over time and can therefore be indicative of future performance. Our model rewards strategies and managers, that consistently beat their peer group on a risk-adjusted basis and who consistently demonstrate exceptional levels of skill at processing information.
We consistently test our models for robustness and accuracy by stress testing and simulating the model outputs across a range of different assumptions and market conditions.
Absolute Alpha’s investment process starts with top-down analysis to determine the Fund’s desired strategy allocations. This is accomplished using third-party analytical software such as PERTRAC as well as systemPASS, a proprietary system that combines (i) a database of approximately 16,500 hedge funds track records (10,000 inactive and 6500 active hedge funds) at the end of December 2006, (ii) automatic scoring/ranking algorithms and (iii) qualitative information collected on each individual manager through the selection process. SystemPASS enables Absolute Alpha to quantitatively evaluate historical strategic strategy performance combined with manager’s qualitative judgement regarding future strategy performance.
The Fund shall not at any time, (a) invest more than 20% of the net asset value of the Portfolio in any single Permitted Fund, nor shall it (b) invest more than 35% of the value asset of the portfolio in permitted funds managed by one particular Fund Management group.
The AIMA Questionnaire identified Dr Peter Smith as an “Asset Consultant” and Dr Peter Beresford Blood as a “Specialist Derivatives Consultant” as key members of the AAM “Investment Team”. For the reasons later outlined, it is clear that this information was false.
The Aegis report made the following recommendation:
Aegis has assigned the Fund with a recommended rating. The Fund provides exposure to a portfolio of hedge fund managers with a multi-manager, multi-strategy focus. Whilst the Manager employs a multi-strategy focus approach, the Fund has a relative value strategy bias, given the Manager’s previous experience. The Fund aims to generate positive returns in both rising and falling markets, and, as such, has a low correlation with equity markets, providing diversification benefits to an investment portfolio. The Manager employs a robust and stringent process to select the portfolio constituents. Given that the current portfolio is relatively small, investors should be comfortable with the ability of the Manager to select Funds that will outperform. To date, the Fund has performed strongly, with only one month of negative performance. The most prominent weakness of the Fund is that this is the first Fund managed by Absolute Alpha. However, we note the extensive experience the management team in the alternative investment industry.
ASIC contended that when viewed as a whole it is clear that Aegis placed significant weight on the representations made in the AIMA Questionnaire.
Following the publication of the Aegis report in October 2007, $90,280,486 was invested in ASF.
On 16 October 2009, ASIC issued interim stop orders on investments in ASF. Further stop orders were made in respect of ASF on 21 October 2009 and on 16 December 2009 administrators were appointed to Trio Capital. On 22 December 2009, a liquidator was appointed to AAM.
SUBMISSIONS OF THE PARTIES
ASIC submitted that Mr Liu knew assets of ASF were being invested in underlying funds controlled by Jack Flader (being the Exploration, Sierra, Pacific and SBC Dynamic Opportunities Funds) and not in accordance with the procedures or the strategy referred to in the PDS. He was involved in the preparation of the PDS knowing that critical parts of the PDS were false. Mr Liu also knew that certain information in response to the AIMA Questionnaire was false. He knew it would be provided to research companies and therefore financial advisers. Mr Liu received $396,880 as reward for his involvement in the scheme. This comprised five payments in the period 20 March 2007 to 20 December 2007 totalling approximately $148,041 from a company incorporated in Hong Kong which was controlled by Mr Flader, and 22 payments during the period 11 April 2008 to 11 November 2009 totalling approximately $248,839 from AAM. This was a conflict of interest. These payments were not disclosed. Mr Liu breached ss 1041H and/or 1041G of the Corporations Act by reason of this conduct.
ASIC also submitted that as investment manager of the assets of ASF, AAM was obliged to comply with the investment strategy specified in the PDS. AAM did not choose its absolute return managers by any “qualitative and quantitative analysis” as represented in the PDS. It did not carry out any “due diligence process that involve[d] site visits and face-to-face meetings with prospective managers”. Nor did AAM comply with the investment strategy referred to in the AIMA Questionnaire. Mr Liu was a director of AAM at all material times. He knew of its failures but did not inform Trio Capital or Aegis of these matters. While not specifically pleaded in ASIC’s statement of facts, issues and contentions, this suggests a possible allegation of breach of directors duties by Mr Liu.
ASIC submitted that by reason of Mr Liu’s own acts and omissions, he had breached ss 1041H and/or 1041G of the Corporations Act. Alternatively, he was knowingly involved in contraventions of ss 1041H and/or 1041G of the Corporations Act by AAM, which carried on a financial services business at all relevant times.
Finally, ASIC submitted that it was unnecessary for the Tribunal to find breaches of the Corporations Act because I could, based on the evidence before the Tribunal, find that Mr Liu was not of good fame or character.

According to ASIC, if the Tribunal finds that Mr Liu was not of good fame or character, he should be permanently banned given the provisions of s 920B(2) of the Corporations Act. Even if the Tribunal is not satisfied that Mr Liu was not of good fame or character, he should nonetheless be permanently banned because of the seriousness of his misconduct. As noted in RG 98, which although indicative is consistent with the principles identified by Santow J in Adler, where there is evidence of dishonesty or contraventions that were intentional, reckless or negligent and there was financial benefit and significant loss or detriment to investors and consumers occasioned by the breach, a permanent banning would be appropriate.
Mr Liu denied that he knew the assets of ASF were being invested in companies associated with Jack Flader. He submitted that to the extent ASIC’s case relied on the evidence of Mr Richard, it should not be accepted. Mr Richard was a convicted criminal and his evidence before the delegate and this Tribunal was not tested or challenged. Mr Liu believed the investments made with the assets of ASF were legitimate and appropriate, due diligence was undertaken on a selection of underlying fund managers and, based on the information available to him, the investment decisions of AAM that he participated in on behalf of AAM were appropriate. He was not aware of any fraudulent activity undertaken by anyone associated with Trio Capital, AAM, ASF or GCSL.
Mr Liu denied he was involved in the preparation of the PDS, which was dated four months before he became a director of AAM. He was not a director of Trio Capital and was therefore not responsible for the statements made. In any event, the statements in the PDS were not false.
Mr Liu denied that he was involved in providing information for the AIMA Questionnaire and denied being involved in the marketing activities of AAM in respect of investments in ASF. He was the Chief Investment Strategist of AAM and there was an “extensive process” undertaken by him and AAM in making investment decisions for ASF.
In respect of the claim of conflict of interest, Mr Liu acknowledged receiving payments from GCSL but says that Mr Richard, as Chief Executive Officer of AAM, was aware of the payments. Mr Liu denied there was anything dishonest in receiving the payments because he had never asserted he was independent. These payments were reimbursement for business expenses paid out of Mr Liu’s own funds and to meet personal living expenses and the shortfall between his AAM package and the actual cost of his rent.
In his written submissions to the delegate, which Mr Liu relied on in these proceedings, he stated that the allegations made by ASIC were “either misplaced or not established by the documentary evidence provided by ASIC”. As such, there was no power to make a banning order. Even if contraventions were established and there was power to make an order it was not appropriate to make an order banning Mr Liu in circumstances where he was unable to re-enter Australia, banning orders have no extraterritorial effect and he was unemployed and had not been working in financial services since late 2009.
Mr Liu filed supplementary submissions in relation to the question about whether the Tribunal should make a finding that he was not of good fame or character. Mr Liu submitted that the fact that the collapse of Trio Capital was reported as an “outright fraud” impacted on ASIC’s investigations and the allegations made against him. There was insufficient evidence to establish he had breached the law and therefore for the Tribunal to make any findings about his character. Such findings were significant because it impacted on his ability to be associated with any securities related or banking business outside of Australia. Mr Liu also contended that if the Tribunal, after reviewing the matter, found that ASIC’s concerns were warranted then the preferable course would be to set aside the decision of the delegate and direct ASIC to enter into an enforceable undertaking on terms previously proposed by ASIC during its investigations.
CONSIDERATION AND FINDINGS
The key issue for determination in these proceedings is whether Mr Liu knew about the scheme and, in particular, the investment of the assets of ASF in underlying funds controlled by Mr Jack Flader. It is also important to understand what role Mr Liu played in the marketing and management of ASF’s investments. On Mr Liu’s account, he did not know about the scheme or about the investments in the Flader funds, he believed the investments were legitimate and he took appropriate steps in respect of the management of assets of the ASF.
ASIC commenced investigations in relation to the collapse of Trio Capital and ASF in late 2009. As part of this process, ASIC issued notices to various persons and entities and conducted private examinations of Mr Liu under s 19 of the ASIC Act on 15, 24 and 25 June 2010 and 26 and 30 April 2012. ASIC also obtained statements from Mr Shawn Richard, former employees or officers of AAM, Trio Capital and AFM and third parties. ASIC relied on eight lever arch volumes of documents (“the tender bundle”), six of which comprised the documents before the delegate with two additional volumes of documents which were filed and served pursuant to directions made by the Tribunal. The documents included statements, emails and the transcripts of the private examinations of Mr Liu. Mr Liu objected to the statements of Mr Richard but did not otherwise object to the documents tendered by ASIC. Mr Liu tendered documents he had obtained from ASIC under a freedom of information application, including a submission by the Australian Taxation Office.
ASIC relied on statements provided by Mr Richard dated 23 March 2011 and 6 July 2011. Both statements exhibited documents which were included in the tender bundle. Mr Richard’s statements were lengthy and referred to a broad range of issues in relation to ASF and what he referred to as “the scheme” by Mr Flader to get access to funds from Australian investors.
A summary of the key aspects of Mr Richard’s evidence, insofar as he made allegations in respect of Mr Liu, are set out below:
(a)Mr Richard met Mr Liu in 1999 while they both worked with Mr Littauer;
(b)In 2003, Mr Richard raised with Mr Littauer the opportunity to purchase a funds management business in Australia, being Tolhurst Capital Limited. Mr Littauer agreed and he sent Mr Liu to Australia to assist Mr Richard in setting up the funds management business;
(c)In December 2004 Mr Littauer and Mr Flader decided to continue with the business in Australia;
(d)Mr Richard discussed with Mr Liu plans to establish a managed investment scheme to raise funds from investors in Australia. AAM was registered in September 2005 and Mr Liu was appointed as Chief Investment Strategist of AAM;
(e)Mr Liu and Mr Richard were involved in the approval of the wording of the PDS for ASF dated February 2006;
(f)Following the issue of the PDS, funds received were invested in the Exploration Fund, which was a fund controlled by Mr Flader. This was done by Mr Liu and Mr Richard on instructions from Mr Flader. From time to time Mr Flader gave instructions about investment in other funds controlled by him. Mr Richard discussed this with Mr Liu and he never raised any concerns about the investments. He said words to the effect “Wouldn’t it be nice to do our own thing”;
(g)Mr Richard regularly updated Mr Liu on where Mr Flader wanted the ASF money to be invested;
(h)Mr Richard instructed Mr Liu to complete the AIMA Questionnaire. Both Mr Liu and Mr Richard prepared AAM’s response to the AIMA Questionnaire;
(i)The sum of $396,880 was paid to Mr Liu, comprising five payments being made by GCSL totalling approximately $148,041, and 22 payments made by AAM to Mr Liu totalling $248,839. Mr Richard caused the payments to be made to Mr Liu at Mr Liu’s request. Mr Richard discussed these payments directly with Mr Flader and obtained authorisation for the payments. The monies paid by AAM were from monies received by GCSL;
(j)AAM had an Investment Committee which was established by Mr Richard. Mr Richard asked Mr Liu to be a member of the Investment Committee and he agreed. The Investment Committee did not make any decisions about investments for ASF and Mr Richard never consulted any members of the Investment Committee about those matters;
(k)As Chief Investment Strategist of AAM, Mr Liu reported directly to Mr Richard. Mr Liu prepared a report dated 14 July 2009 headed “Chief Investment Strategists” report. This report contained a list of the underlying investments of ASF and its exposure to these funds as at June 2009. The table refers to Exploration Fund, Pacific Fund, SBS Dynamic Opportunities Fund Ltd and Sierra Fund, which were all funds controlled by Mr Flader;
(l)Mr Richard discussed with Mr Liu what would happen if the share price of one or more of the US shares fell and how Mr Flader would deal with the resulting impact on the value of the Flader controlled funds;
(m)Mr Richard asked Mr Liu to approve the final version of the AIMA Questionnaire before submitting it to Aegis to ensure he was satisfied with the content. Mr Liu said words to the effect “it looks good to me”; and
(n)Mr Liu knew that Exploration Fund, Pacific Fund, Sierra Fund and SBS Dynamic Opportunities Fund were controlled for the benefit of Mr Flader because Mr Liu had been involved in meetings with Mr Flader where these matters were discussed, Mr Liu had been involved in drafting an Offering Memoranda for Pacific Fund and SBS Dynamic Opportunities Fund and Mr Richard discussed how investments would be made for ASF with Mr Liu each time he received instructions from Mr Flader about investments.
In his statement dated 3 December 2012 which was provided to the delegate and relied on by him in these proceedings, Mr Liu stated as follows at [21(a)]:
I never believed at any time that the invested funds were controlled by Jack Flader because he never acted as the investment manager. Jack Flader never instructed me to make any investments.
Furthermore, Mr Liu stated that he used various spreadsheets to measure fund manager past performance, met with at least 10 different fund managers at the time ASF was created, analysed around 50 fund managers and formulated strategies based on different groups of managers that would provide “low volatility and consistent returns while ensuring an acceptable level of liquidity”.
Mr Liu submitted that the evidence of Mr Richard should not be accepted because his evidence was untested and he was a criminal.
I accept that Mr Richard’s evidence was not tested before the delegate or this Tribunal in these proceedings because he was unavailable. The circumstances that gave rise to this position are more fully described earlier in this decision. Notwithstanding this deficiency, I have taken the view that where Mr Richard’s statements are supported by corroborating information or evidence, I have accepted his evidence. Mr Richard does not state that Mr Liu was aware that part of the scheme involved Flader funds purchasing US Flader company shares at inflated prices. Mr Richard’s key allegation is that Mr Liu was aware the assets of ASF would be invested in underlying funds controlled by Mr Flader rather than through an independent review process.
I am satisfied Mr Liu knew that the assets of ASF were being invested in Flader controlled underlying funds.
On his own account Mr Liu said that he knew Mr Flader and had worked out of his office in Hong Kong. He first met Mr Richard in 1999 and worked for Mr Littauer. Mr Liu knew about Mr Flader’s association to GCSL and Global Corporate Consultants Limited (GCCL) and knew about the connection between Mr Flader and the underlying funds in which ASF assets were being invested as evidenced by the following emails:
(a)An email dated 1 February 2006 from Jack Flader to several persons, including Mr Richard and Mr Liu, providing information regarding a conference described as “Global Meeting of Global Corporate Consultants/New World Financial/Global Financial Managers”. The email is signed “Jack W Flader, Jr, Global Corporate Consultants Limited”;
(b)An email dated 30 April 2006 from Jack Flader to various persons, including Mr Richard and Mr Liu, the terms of which make it clear that Mr Flader controlled GCCL;
(c)An email dated 23 January 2007 from Ms Cheung of GCCL to Mr Liu and Mr Richard referring to subscriptions by EMA International Ltd (which was the special purpose vehicle referred to in the PDS) to “the new fund Sierra”;
(d)An email dated 5 November 2007 from Ms Cheung of GCCL, addressed to Mr Richard then forwarded to Mr Liu, attaching statements for the Pacific Capital Multi-Arbitrageur Fund Ltd and Sierra;
(e)An email dated 5 November 2007 from Ms Cheung of GCCL addressed to Mr Richard then forwarded to Mr Lui, attaching statements for the SBS Dynamic Opportunities Fund.
In Mr Liu’s private examination on 24 June 2010, he admitted that he knew that the administrative services for all the underlying funds were being provided by GCSL.
In evidence given by Mr Liu in his private examination of 15 June 2010 he described the underlying funds in which the assets of ASF were invested as “internal funds”. The evidence given by Mr Liu in this examination of 15 June 2010 is inconsistent with the denial made in paragraph 21(a) of his statement of 3 December 2012. When asked to explain why Mr Liu called the funds “internal”, he responded as follows:
A. Because – privilege. Because they were funds that, as I saw it, controlled by or managed and set up by Jack or – or an affiliate, like somebody that was associated with Absolute Alpha.
Q. Okay. They were either set up or they were controlled by Jack (indistinct)?
A. Privilege. Yeah. Privilege. Besides the Tailwind Investment Fund, we – the Absolute Alpha, or at least me – we didn’t manage – we didn’t manage any of those other funds. So when I say “internal”, that might be misleading We weren’t the investment management managers of those funds, but would still be controlled by Jack and – and one of his managers that he appointed.
Later in the examination of 15 June 2010, Mr Liu admitted to the following concerns about the underlying funds:
Q. Could I just ask one question. Was part of your acceptance of the information you were receiving from the underlying funds, especially those which I think you’ve described as the internal funds, partly based upon the reason that these funds were in fact associated Astarra Asset Management or Jack Flader?
A. Privilege. There - there was - I - I – I’m - I - I always recognised that the funds were – they were not internal in that we had control over what they did, but they were not as independent as somebody like Atlantis. A - a - a - a – the truth of the matter is - is that we did look over the fund - there were specific instances that I had an argument with the manager, Carl, and I can’t recall the specific incident, but I know that there was a block of securities that the fund had sold, or had done something with, that I believed caused some profits to be taken by Carl and Jack and that we had a specific argument about, and Shawn and I had gone to Hong Kong and we had discussed that pretty heatedly, and Carl’s viewpoint was that was in the best interests of the fund.
Mr Liu admitted AAM did not comply with the investment guidelines for ASF on managing liquidity and would have preferred to invest in different investments from those chosen, as illustrated during his private examination on 15 June 2010 as follows:
A.: I did not comply with each of those points on managing liquidity.
Q. And which particular aspects did you not comply with, Mr Liu? Take some time to read the document, if you - if you need, Mr Liu.
A. Privilege. I would have - I - I would say that of the - privilege. Because of the inability to - to accurately estimate our cash inflows, investments coming in, it was very difficult for me to do my job and to be able to make investments into - into - or - or - or make new investments that I would have preferred and that a larger weighting was given to certain funds that I believed might - would not be able to redeem or - or had the liquidity characteristics that are laid out in - in - in the guidelines that you've showed me.
Mr Liu also stated that he did not seek further information about the underlying funds and regretted this, as illustrated by the following evidence:
Q. Mr Liu, I had a question arising from something from something you’ve said shortly prior to the adjournment. You said that you believe that you had the power to demand more information from underlying managers of the ASF fund, those underlying managers being the managers with respect to the Exploration Fund, the SBS Dynamic Opportunities Fund and Pacific Capital Multi-arbitrage Fund Limited, if I’m correct. Why didn’t you exercise that power, Mr Liu?
A. Privilege. I - when I - when I said that, I did - it was more of a recognition that in my role or with my title and being a director of the company, I believe that I had the power to do things differently that would not result in this outcome of us sitting here in this room and that I chose to, or I acted or I took a path that ultimately resulted in this outcome, which I’m not proud of.
Q. Why didn’t you demand further information from the underlying funds of the ASF?
A. Privilege. I - I asked for information. I received it, and when I - or - or some information, and when I was talking to you about some of those shortcomings and some of my doubts, you could say that that would be, with the benefit of hindsight, with all the questions that have been put into my head that make me doubt the job that I’ve done, because in some ways I don’t think I did such an egregious job that it would be criminal or anything like that, I just – but the seriousness of the allegations lead me to believe that something was not done correctly, but at the time I thought it was acceptable.
Q. So, at the time, you didn’t think there was a shortcoming in the information that was coming from the underlying managers with respect to the positions, for example?
A. Privilege. At - at the time, at the time, it was acceptable, because obviously I accepted it and I didn’t raise a big - a bigger fuss about it and demand for things to be done differently.
I am satisfied Mr Liu was involved in early discussions about the establishment of the ASF and knew of Mr Flader’s involvement. This is clear from Mr Liu’s response to ASIC investigators in his private examination of 15 June 2010 as follows:
Q. Okay. Now, you - you were mentioning, prior to answering this question, that you had originally envisaged seeking to invest or to - to have the ASF invest in funds that you weren’t familiar with or had previously dealt with, but you were saying that those funds had become large. What then - what - what - what then was the strategy after - after that?
A. Privilege. Well, the - the - the alternative, and I - I - I don’t recall whose idea - you know, who came up with the idea, whether it was Jack or - or - or Matthew, was to create a fund that operated essentially the same, purchased these deals in-house, so that, like, it was - it was, like, their own kind of product that did exactly the same thing.
I am also satisfied that Mr Liu was involved in the preparation of the 2006 PDS, and, in particular, Section Two. In addition to the evidence of Mr Richard, there is evidence from Ms Zoe-Marie Viellaris and Ms Florrisa Villavert about Mr Liu’s involvement.
Ms Viellaris was an employee of AFM from about May 2005 and an employee of AAM from about March 2006 as Head of Corporate Development. She worked at WGI from 1995 to 2004. Ms Viellaris provided a statement to ASIC dated 12 September 2011 as part of its investigation. Her statement was included in the tender bundle.

According to Ms Viellaris, she was instructed by Mr Richard and Mr Liu to provide sample documents of other PDSs for products similar to ASF. She provided these documents to Mr Richard and Mr Liu and they provided her with drafts of the PDS for editing, including Section Two. Ms Viellaris also stated that she understood Mr Liu developed the investment strategies and actively participated in the manager selection process with Mr Richard because he was the chief investment officer and strategist and he explained that he chose managers and executed the investment strategies. She observed that Mr Richard and Mr Liu worked closely together on a daily basis and stated that they would often take telephone calls from overseas, usually Hong Kong or the United States, together. She often heard Mr Richard on the phone to Mr Flader. Ms Viellaris assisted Mr Richard and Mr Liu with the product launch of ASF in February 2006. The product was launched in Sydney, Melbourne, Brisbane, Adelaide and Perth. Ms Viellaris attended the launch of the product in Sydney, Melbourne and Brisbane and observed Mr Liu and Mr Richard giving presentations at each launch.
Ms Villavert was an employee of WGI from about November 2005 and acted as AAM’s compliance manager on a part-time basis. From February 2007, she was employed by AAM as the Head of Compliance and Legal. Ms Villavert was admitted to legal practice in 1999 and has worked in the financial services industry since 1988. She worked for the Insurance and Superannuation Commission from 1990 until 1997 and was compliance manager for Tyndall Australia from 1998 until 2003 and then joined BT Financial Growth as Senior Compliance Manager. She provided a statement to ASIC dated 12 May 2011, which was included in the tender bundle.
Ms Villavert coordinated AAM’s input into the 2006 PDS. One of her tasks was to assist in finalising the PDS. Mr Liu provided her with a draft of Section Two of the 2006 PDS. They edited the section focusing on semantics, grammar and punctuation. On Ms Villavert’s account, she did not alter the substance of Section Two.
It is also relevant to note that Mr Liu did not deny drafting the content of Section Two of the PDS. Nor did he deny knowing about its content. Mr Liu did not deny being involved in the preparation of the PDS in his statement but simply stated that he believed the contents of the PDS were accurate. He further stated that the fund “adhered to the diversification risk on page 14 of the PDS” and the PDS “was followed”. He did not provide any evidence to substantiate this. Given this statement is inconsistent with the evidence he gave to ASIC investigators in his private examinations in 2010 and 2012, I give Mr Liu’s assertion little weight.
In the submissions filed on his behalf by his lawyers for the hearing before the delegate, Mr Liu submitted he “could not be held responsible for the contents of the PDS, which was dated 15 February 2006, some four and a half months before Mr Liu became a director of either of those companies”. It was further submitted that “the contents of those publications are the responsibility of the directors of AFM and AAM and Trio”. In written submissions provided by Mr Liu for these proceedings, Mr Liu repeated these submissions. Relevantly, he submitted as follows:
d. As I was not a director or officer of or had any other position with Trio I should not be held responsible for the statements of the PDS in circumstances where;
i.     I do not believe that the statements in the PDS to be false or misleading. The PDS states that the fund may be invested into managers related to the manager as well as the minimal diversification.
ii.    No control over the final content and form.
iii.   The PDS was issued in early 2005-2006. At that time the disclosure requirements for these types investments were not the same. In 2010 ASIC released a paper on structured products and noted that a number of hedge funds did not properly disclose the underlying investments.
iv.   The first PDS was based off language from Macquarie’s Equinox product. It was in all respects similar in structure to the ASF. This included using offshore entity related to Macquarie.
v.    The marketing and sales sections were drafted largely by Zoe Vallaeris and Maurice Terreiro.
I am satisfied that Mr Liu knew or ought to have known that the content of Section Two of the 2006 PDS was false and/or misleading. Mr Liu’s submissions and statement fail to address, or indeed recognise, the significance of the representations made in the PDS about the investment strategy for ASF.
In his statement and submissions to the ASIC delegate, Mr Liu denied that the PDS was inaccurate and submitted as follows:
It must be remembered that the PDS was published soon after the Alpha Strategic Fund was registered and it offered investments in the Fund. Thus the discussion of the Fund investment strategy in Section 2 is evidently a forward-looking description of the Fund’s proposed investment strategy. There is no basis for the delegate to conclude that Mr Liu knew that the Fund’s proposed strategy was not accurately reflected in the PDS. Mr Liu believes that the contents of the PDS are accurate. [Emphasis added.]
This demonstrates a basic misunderstanding of the purpose and effect of the 2006 PDS. The 2006 PDS contained representations about how ASF would operate from the time of inception. There is well established authority that a statement made about a future matter may be false and misleading if there is no foundation to support the statement at the time the statement is made (James v ANZ Banking Group Ltd (1986) 64 ALR 347). In so far as Mr Liu knew that ASF would invest in Flader controlled underlying funds, the 2006 PDS was false and misleading at the time of its issue. These underlying funds could not be described as “multi-strategy-multi-manager/fund of funds”. There were also statements in the 2006 PDS that AAM would undertake “qualitative” and “quantitative” analysis using a “proprietary analytical tool”. When Mr Liu was questioned about these matters in the private examinations by ASIC officers, he admitted AAM had little choice how it managed the ASF investment portfolio and in his private examination on 24 June 2010, he gave the following evidence about his concerns:
Q. So the administrator for each of the funds was effectively GCSL or Jack Flader?
A. Privilege. Yes.
Q. Okay. So all the money that was invested into these various underlying funds was effectively - was effectively invested in you could pretty much say the same managers? So the same people managed all these funds and the same administrator provided you with the reports, and the value of - I think the value of the ASF was - at the end of last year was about 120 million, approximately.
A. Privilege. I - I - I wasn’t aware of that, there was that much money in the ASF; but, okay. The reports were not received from the same administrator in that there were separate administrating companies that --
Q. But who sat behind those companies?
A. Privilege. You’re – you’re - yes. My - the - the - the - the services were being provided by GCSL.
Q. Okay. Thank you.
Q. And you say that at one - you had a conversation with Richard Bell that suggested to you that Mr Flader was controlling things. When - when was that conversation?
A. Privileged. It was the - the - the privilege. The - the - the first time I had genuine concern, like, it - that it - the - not - not concern, but the - the - the first time that I - I would actually even question Jack and what G - GCS was doing was when Jacquline was fired, and that would be - privilege. I - I - I - I - I can’t recall, but I - it would probably be 2008, maybe.
Even if Mr Liu did not understand that ASF would principally invest in Flader controlled underlying funds at the time the PDS was first issued, he must have understood that this was the case after ASF had been operating for some time. The 2006 PDS was in effect and was being published by Trio Capital and AAM until 31 August 2009, when it was replaced. It was published on the AAM website from February 2006 and was being used to raise funds for investment. On his own admission, Mr Liu was aware, or at least became aware after February 2006, that some of the underlying funds were illiquid and that the investment strategies represented in the PDS were not being followed. To distance himself from the 2006 PDS because he was never a director of Trio Capital and was not a director of AAM at the time the PDS was issued, demonstrates a lack of understanding by Mr Liu of his obligations as a director of AAM from mid 2006 and as a person who was promoting a product, as agent for Trio Capital, which Mr Liu must have known did not operate in accordance with the PDS.
Mr Liu signed the Management Agreement between Trio Capital and AAM on 2 March 2007 but knew that the investment guidelines were not being followed.
As soon as Mr Liu became aware that the investment guidelines referred to in the Management Agreement were not being followed, he had an obligation as a director of AAM to raise the issue with Trio Capital. As soon as Mr Liu became aware that the representations in the PDS were false and/or misleading (and therefore defective), he had an obligation to raise this with Trio Capital, refuse to publish the PDS and, failing action by Trio Capital, raise his concerns with the regulator. It is an offence to distribute a defective PDS knowing or being reckless as to whether it is defective. By failing to take any action in relation to the 2006 PDS and by continuing to cause it to be distributed and accepting investors’ funds based on what Mr Liu must have know was a defective PDS, Mr Liu was knowingly involved in breaches by Trio Capital, AAM and Mr Richard.
The 2006 PDS was used to raise the majority of the funds invested in ASF. Mr Liu must have known that statements in the PDS would induce members of the public to invest in ASF. Statements to the effect that ASF invests in “leading absolute return managers” (at page 6); that AAM used “qualitative and quantitative analysis” in making investment decisions for ASF (at page 9) and carried out “due diligence process” (at page 9) when selecting investment managers would have been likely to have the effect of providing potential investors with assurance about the process adopted by AAM in managing ASF.
Having regard to these matters, I am therefore satisfied that Mr Liu contravened s 1041H of the Corporations Act and that this contravention was serious. It certainly had serious consequences for investors in ASF.
I am satisfied that Mr Liu was involved in the issuing of the AIMA Questionnaire to Aegis. There is evidence from Ms Viellaris, Ms Villavert and Mr Richard to this effect. It is also relevant to note that Mr Liu was a director of AAM at the time AAM responded to the AIMA Questionnaire.
According to Ms Viellaris, Mr Liu and Mr Richard were responsible for the factual information presented in the AIMA Questionnaire. She worked with both of them at the relevant time and there is no reason why her evidence should be disbelieved.
Ms Villavert stated that the response to the AIMA Questionnaire was drafted by a number of people, including Mr Richard, Mr Liu and her. Parts of the questionnaire concerning the investment process and fund manager section were drafted by Mr Liu with involvement from Mr Richard. Ms Villavert exhibited to her statement an email dated 23 July 2007 from Mr Terreiro to Mr Liu and Ms Villavert headed “Re; AA AIMA Questionnaire for AEGIS with Annexures”, the text of which was to the following effect:
Florrissa and Eugene, Can you please give me the okay here. I really … need this ready to submit ASAP.
In written submissions provided by Mr Liu in these proceedings, Mr Liu responded as follows:
With regard to the Aegis research, I do not have recollection of many of the events. I do not believe that I or anyone at AAM had extensive contact with Aegis. This project was handled by Zoe Valleris [sic] and Maurice Terreiro who at various times were associated with Financial Wealth, Solutions Wealth and WGI. Details of the arrangement were not then or now known to me.
I give Mr Liu’s submissions little weight. They are inconsistent with the evidence of Mr Richard but more importantly, Ms Viellaris and Ms Villavert. There is no reason why their evidence should be disbelieved. They worked with Mr Liu at the relevant time and their evidence is supported by the email dated 23 July 2007. In his submissions to the ASIC delegate, Mr Liu relied on an undated but signed statement from Mr Sean McIntyre, who was an employee of AAM from July 2006, to the effect that Mr Richard did most of the work responding to the AIMA Questionnaire and that Mr Liu was only asked to provide “minimal strategy background”. I give little weight to this evidence. Mr McIntyre stated that he had minimal involvement in the preparation of material provided to research houses, unlike Ms Viellaris and Ms Villavert. It is therefore unclear how he would know the nature and extent of Mr Liu’s involvement in the preparation of the AIMA Questionnaire.
It should also be noted that Mr Liu’s denial is inconsistent with the evidence he gave during his private examination on 24 June 2010 to the effect that he was responsible for the content of the paragraphs under the heading “Step 7”, which referred to the step said to have been undertaken by AAM when making investments. The following transcript of Mr Liu’s examination confirms that he was responsible for the content in the AIMA Questionnaire and sets out his understanding of the testing undertaken prior to investment by ASF in various funds:
Q. Right. Well, let’s return to the - to the document. I’ll take you to page 33 of the document, and the barcode of the document S0197166, the Absolute Alpha Pty Limited AIMA questionnaire. And you’ll see on page 33 there’s a paragraph that’s headed “Step 7” and it says: Step 7 involves a period of test account. And then there are two following paragraphs, if you could read those to yourself, Mr Liu?
A. Privilege. Okay.
Q. Again, were you responsible for the content of these paragraphs under the heading “Step 7”?
A. Privilege. Yes.
Q. And the form that these paragraphs appear in, was that the form that you provided the content for with respect to those paragraphs?
A. Privilege. Yes.
Q. The paragraphs refer to a process whereby underlying funds are tested before significant investments are made in them; would you agree with that?
A. Privilege. Well - we - that - that’s - that – that’s what we tried to do with a few, but the - the - the funds were actually not - they - they weren’t actually accepted. So with the - the Tulip Trend Fund and with (indistinct) we tried to set up a - a test account that was not accepted by the fund administrator.
Q. Of the Tulip Trend Fund?
A. Correct.
Q. Was this testing system applied to any of the other funds invested into by the ASF?
A. Privilege. It - it - it was followed for the - the - the Tailwind Fund.
Q. Was it followed for the Exploration Fund?
A. Privilege. No, no, it was not.
Q. For the Pacific Capital Mult-arbitrage [sic] Fund?
A. Privilege. No, it was not.
Q. The SBS Dynamic Opportunities Fund Limited?
A. Privilege. No.
Q. For Sierra Multi Strategy Fund Limited?
A. Privilege. No.
I am satisfied that Mr Liu knew or ought to have known that the disclosures made in the AIMA Questionnaire were false and/or misleading. In this regard, given many of the representations made in the AIMA Questionnaire were of a similar nature as those made in the PDS, I repeat the evidence and findings concerning the PDS. In his submission, Mr Liu accepted that the statement recorded in the AIMA Questionnaire that he held a degree in economics from Trenton State College in New Jersey was incorrect. In paragraph 3 of his statement Mr Liu “unreservedly” apologised but did not explain how this came about. Mr Liu also provided this false information to the Department of Immigration and Citizenship in support of his visa to work in Australia, as evidenced by the curriculum vitae provided by Mr Liu, or his immigration agents, in support of his application for residency.
The AIMA Questionnaire refers to AAM’s Investment Committee. It notes that Dr Peter Smith, was a member of the Investment Committee. Dr Smith was the chief investment officer and a director of Investec Capital Limited between 1998 and 2001 and from 2003 to March 2008 he managed a team at Van Eyk Research Ltd. He left Van Eyk in about March 2008 and took up a part-time contract position at AAM, where he worked until December 2009 when it was placed into voluntary administration. Dr Smith provided a statement to ASIC dated 25 July 2011, which was included in the tender bundle. According to Dr Smith, he was asked by Mr Richard to be a member of AAM’s Investment Committee in about 2008. Notwithstanding this request, he never attended nor was he asked to attend any Investment Committee meetings.
The AIMA Questionnaire also noted that Dr Peter Beresford Blood was a quantitative analyst engaged by AAM from April 2009. Dr Blood provided a statement, which was undated but was signed by him. The statement was included in the tender bundle. According to Dr Blood he was never employed or engaged by AAM as a consultant for any advice or services. He was named in the AIMA Questionnaire as a “Specialist Derivatives Consultant” of the investment team of AAM. Dr Blood denied this claim and stated the first time he met Mr Richard and Mr Liu was in about mid 2006. Dr Blood holds a Bachelor of Science (Agriculture) from the University of Sydney, an adjunct professorship from Bond University in Queensland and a PhD from the University of London.
As chief investment strategist and a director of AAM, Mr Liu must have known that the representations in the AIMA Questionnaire regarding Dr Smith and Dr Blood were false.
The AIMA Questionnaire sets out the due diligence process undertaken by AAM. When Mr Liu was questioned about the due diligence process undertaken for the Huntleigh Fund, which was later named the Exploration Fund, during his private examination on 15 June 2010. Mr Liu responded as follows:
A. Privilege. I - I - I guess I - I will have to say that the Huntleigh Investment Fund was a special kind of circumstance because it was something that was recommended, in that I think there was no way that I could say that this investment should not be made and I went - and - and I went about doing some checks on my own to just satisfy myself.
Q. So that - that - it was recommended by - who was that investment recommended by?
A. Privilege. I - I - I cannot - I - I can’t say that it was - that explicitly somebody told me that this would happen, but I felt that it was a product that was related and that almost it was a part of the business and that I could not say no to making that investment.
To the extent that the AIMA Questionnaire represented that underlying funds would be chosen by AAM by objective analysis and due diligence and testing, this representation was false and misleading. This is evidenced by Mr Liu’s own admissions in his private examination on 24 June 2010.
Mr Liu described the “ due diligence” he undertook in respect of Mr Richard Bell and Mr Carl Meerveld, who were the managers for the Sierra, Pacific, SBC and Exploration Funds, in his private examination on 24 June 2010. Mr Liu’s background checks for Mr Meerveld consisted of a Google search and a reference from Mr Flader. His checks for Mr Bell consisted of reviewing his NASDA broker check record that outlined his employment record and disciplinary history. Mr Liu worked with Mr Bell at World Financial Capital Markets. According to Mr Liu’s evidence in his examination on 26 April 2010, he was satisfied that Mr Bell was appropriately qualified even though his NASDA broker check disclosed that Mr Bell had a poor compliance record and he had been banned from running a brokerage firm. Neither Mr Bell nor Mr Meerveld had experience in fund management. Mr Liu was asked whether he was concerned about this in his private examination of 26 April 2010. He did not directly respond to this question and his response, as recorded a page 126 of his transcript of evidence, is confusing and difficult to understand.

On the question of payments made to him, Mr Liu does not deny receiving the payments but stated that they were not wrongful because Mr Richard was aware of the payments, there is no evidence Mr Flader authorised the payments or that the payments related to any investment decision made by Mr Liu. Mr Liu denied any conflict of interest and in his statement asserted that the payments were for reimbursement of business expenses paid by him or for his personal living expenses to assist him in paying the gap between the rental allowance included in his package and the actual cost of rent.
Mr Richard Telfer provided a statement to ASIC dated 15 September 2011, which was included in the tender bundle. Mr Telfer is a Certified Practising Accountant. He worked at Ipac Securities Ltd as the Manager of accounting and investment services and investment operations from 1994 to 2003 and was the Manager of financial reporting for JP Morgan from November 2004 until he joined AFM and Trio Capital as its Chief Financial Officer in February 2006. He was appointed a director of AFM on 24 April 2007. Mr Telfer was responsible on a day-to-day basis for looking after the financial affairs of AFM and Trio Capital. He was a member of Trio Capital’s Investment Committee from April 2006.
Mr Telfer was responsible for managing the financial records for AFM and Trio Capital and was aware of the payment arrangements for Mr Liu. Mr Liu was paid by AFM fortnightly. AAM reimbursed AFM for these payments. He was paid a fortnightly rental allowance of $4,170.77. Mr Telfer stated that he was not aware of any additional payments that Mr Liu was receiving in respect of his roles with AFM and AAM. Mr Telfer was shown a document by ASIC investigators which recorded payments made to Mr Liu by GCSL. GCSL was the administrator of EMA International Limited. Mr Telfer stated that he was not aware of these payments being made to Mr Liu. He also stated that these payments were not disclosed to him or anyone else at Trio Capital. Nor were the payments disclosed to the Investment Committee or to Trio Capital’s board. Mr Telfer also stated that he was not aware of any additional payments being made to Mr Liu by AAM. These payments were not disclosed to him by Mr Liu or, as far as he was aware, by anyone else to Trio Capital, its Investment Committee or its board. Mr Telfer stated that if he had been aware of these payments, he would have reported the payments to others within Trio Capital.
ASIC submitted that the payments were not reimbursements for living expenses or business expenses and the inference was that these payments must have been financial reward for Mr Liu’s involvement in the investments of assets of ASF in the underlying funds. There is no direct evidence about this although it is relevant to note that Mr Liu did not provide details of the expenses incurred when he was questioned about this by the delegate during the hearing. Mr Liu did not provided any detail about these expenses in his statement or submissions to the delegate or in his submissions for these proceedings. According to Ms Villavert, Mr Liu did not disclose to her that he was receiving payments from GCSL or AAM. Ms Villavert stated that if she had known Mr Liu was receiving payments, she would have investigated the matter in accordance with accordance with AAM’s conflict of interest policy.
In his written submissions provided to the Tribunal for these proceedings, Mr Liu stated as follows:
3. Payments are corrupt commissions or kickbacks from Jack Flader
a.        Payments were made from Shawn Richard to multiple individuals and entities that he had professional or personal relationships with.
b.        Payments made to me are for smaller amounts than funds sent to personal friends out of hardship.
c.        No correlation between funds received and investments. In 2009 I was involved in other projects unrelated to ASF and often did not participate in or have knowledge of investments.
While difficult to understand, this submission appears to be to the effect that payments made by Mr Richard were justified because he made payments to other individuals and entities, the payments were made for small amounts and there was no evidence of any correlation between the funds received and investments made by ASF. In my view, this submission does not address the allegation made by ASIC, nor does it provide any explanation or justification for receiving the payments.
The uncontroverted evidence is that over a two year period Mr Liu received payments, in addition to his remuneration, in the sum of $396,880. These payments were made by GCSL and AAM. There is no satisfactory explanation for these payments and at no stage has Mr Lui provided any evidence to substantiate the payments, either during his private examinations in the course of ASIC’s investigation, at the hearing before the delegate or any in submissions made in these proceedings. Mr Liu knew this was the subject of ASIC scrutiny and concern and he had adequate opportunity to address this during ASIC investigations. He did not do so. The preponderance of the evidence is to the effect that the only people who knew about these payments were Mr Richard and Mr Liu. They were not disclosed to officers of AAM or Trio Capital. If these payments were legitimate, it is difficult to understand why they were not disclosed and why Mr Liu could not provide some explanation for them.
In his final submissions, Mr Liu submitted that he was involved in other projects unrelated to ASF in 2009. He did not provide details of the other projects. This submission also fails to address the issue that a number of the payments were made to him prior to 2009. I am therefore satisfied the payments were more likely than not related to investments by ASF. As a director of AAM, which was the manager of ASF for Trio Capital, it was inappropriate for Mr Liu to be receiving such payments and it is surprising that Mr Liu did not recognise any potential conflict of interest.
ASIC submitted that, based on all of this evidence, I should find Mr Liu breached ss 1041H and 1041G of the Corporations Act. For the reasons already stated, I am satisfied Mr Liu breached s 1041H. Mr Liu could therefore be banned on the basis of this breach. The position is not so clearly in respect of s 1041G, which requires that a person must not engage in dishonest conduct in relation to a financial product or financial services in the course of carrying on a financial services business. For the same reasons as set out in my decision in Coshott, I am not satisfied that Mr Liu himself “carried on a financial services business”. He may have been knowingly concerned in the contravention by Mr Richard or AAM of s 1041G under s 79 of the Corporations Act. However, I do not need to determine this issue because I am satisfied that there is reason to believe Mr Liu is not of good fame or character.
The question of whether there is an absence of good fame or character has been considered in a number of professional misconduct cases. As noted by the Court of Appeal (Beazley JA, McColl JA and Hoeben J) in Prothonotary of the Supreme Court of New South Wales v Alcorn [2007] NSWCA 288 at [57], the absence of good fame or character “is a matter that falls to be determined at the time of the hearing”. The “good character” must be relevant to the purpose for which the complaint is entertained (Kirby P in McBride v Walton [1994] NSWCA 199). Dishonest conduct was said to be incompatible with “the more enduring moral qualities denoted by the expression, ‘good fame and character’” relevant to admission to the Bar (Dixon J in Re Davis (1947) 75 CLR 409 at 420). The role of a financial adviser is a fiduciary relationship (Rares J in Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in Liq) (2012) 301 ALR 1; [2012] FCA 1028) and dishonest or misleading and deceptive conduct when dealing with a client is equally incompatible with the role and obligations of a fiduciary.
There is no evidence to suggest that Mr Liu has reformed or that he admits and is remorseful about his conduct. He takes no responsibility for the significant losses of investors in ASF. Mr Liu maintained that he had done nothing wrong in his submissions before the delegate and in these proceedings. There is evidence that Mr Liu was involved in promoting investments in ASF through his role with AAM. He was sent to Australia to assist Mr Richard with the establishment and operation of ASF. He worked with Mr Richard on a daily basis. Mr Liu does not deny this. He knew Mr Flader was involved in controlling the underlying funds in which ASF invested, yet he continued to deny this. He knew that ASF was not operating in accordance with the 2006 PDS or with its investment guidelines. He received significant payments that were not disclosed to Trio Capital, as responsible entity for ASF. Mr Liu has not provided any satisfactory explanation for these payments or for why he believes the 2006 PDS was accurate. There was evidence that the 2006 PDS was defective, or became defective at some stage after its issue, and Mr Liu knew or ought to have known this.
Notwithstanding the admissions Mr Liu made during his private examinations, he has maintained his conduct was not wrongful. He submitted that the evidence of Mr Richard should not be believed, but much of Mr Richard’s evidence is corroborated by the evidence of others and Mr Liu’s only evidence during his private examinations. Mr Liu was given ample opportunity to respond to these issues during the course of ASIC’s investigations and during the hearing before the delegate, in which he was legally represented. Review of the transcript of Mr Liu’s private examinations reveals his evidence was confusing and at times unconvincing.
Accordingly, I find there is reason to believe Mr Liu is not of good fame or character which enlivens the discretion to make a banning order against him pursuant to s 920A(1)(d) of the Corporations Act.
CONCLUSIONS
ASIC contended that a permanent banning is appropriate and the decision of the delegate should be affirmed. The power to make a banning order is circumscribed by s 920B. While there is discretion whether or not to make a banning order under s 920A, if the Tribunal finds that Mr Liu is not of good fame or character there is no power to make a banning order limited in time. The order must be permanent. If I do not make a finding that Mr Liu is not of good fame or character, ASIC relies on the factors identified by Santow J in Adler at [55]–[56] as reflected in RG 98 and contended that the nature of the contraventions were so serious that a permanent banning is warranted. In contrast, Mr Liu contended the Tribunal should accept an enforceable undertaking that he be banned for a period of time.
Adler concerned a breach of civil penalty provisions and, in particular, breach of director’s duties. Santow J helpfully set out the guiding principles to be taken into account when the disqualification of a director is being considered. These principles have subsequently been adopted in a number of disqualification cases and in my view the principles are equally relevant to the exercise of the discretion under s 920A(1) of the Corporations Act. As observed by the Tribunal in Re Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602; [2008] AATA 278 at [180]:
The weight of authority in the Federal and Supreme Courts to whose judgments we have referred seems to be to the effect that a disqualification order, and so a banning order, is made on the basis of what will protect the public. It is not made on the basis of what will punish the person concerned even though punishment or the imposition of a penalty may be the practical outcome of the making of an order. Deterrence is also a relevant concern. Deterrence may relate both to the person concerned and to others engaged or potentially engaged in the finance. 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 Adler Santow J identified 15 factors relevant to cases on disqualification. His Honour noted that longer periods of disqualification should be reserved for cases where contraventions have been of a serious nature, such as those involving dishonesty or significant financial loss to consumers and investors. He also noted that a mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming.
Having regard to these matters and my findings, I find that a banning order, rather than an enforceable undertaking, is warranted. This was one of the largest and most serious collapses of a managed investment scheme. Retail investors lost retirement savings and Mr Liu was involved in promoting and managing investments in ASF. General deterrence is an important consideration in this case. It is also important for the public to have confidence in the regulation of the financial services industry and for the regulator to send a message to other financial service providers about the significance of compliance with the financial services laws.
Section 920B(2) provides that an order may prohibit a person from providing a financial service for a specified period unless ASIC has reason to believe that the person is not of good fame or character. If there is a reason to believe that the person who is the subject of the order is not of good fame or character, there is no discretion. That person must be permanently banned.
In this case, I have found there is reason to believe Mr Liu is not of good fame or character. Accordingly, a permanent banning order is appropriate in the circumstances of this case.
DECISION
I affirm the decision under review.

I certify that the preceding 124 (one hundred and twenty four) paragraphs are a true copy of the reasons for the decision herein of Ms J L Redfern, Senior Member
.................[sgd]..................................................
Associate
Dated 31 October 2014

Date of hearing 29 April 2014

Applicant Self-represented, by telephone

Counsel for the Respondent Mr S Golledge

Solicitors for the Respondent Mr N Goodstone, Australian Securities and Investments Commission

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2013/0608
Re	Eugene Liu
APPLICANT
And	Australian Securities and Investments Commission
RESPONDENT

Tribunal	Ms J L Redfern, Senior Member
Date	31 October 2014
Place	Sydney

Date of hearing	29 April 2014
Applicant	Self-represented, by telephone
Counsel for the Respondent	Mr S Golledge
Solicitors for the Respondent	Mr N Goodstone, Australian Securities and Investments Commission