Franke and Australian Securities and Investments Commission
[2008] AATA 83
•1 February 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 83
ADMINISTRATIVE APPEALS TRIBUNAL )
) No S 200600388
GENERAL ADMINISTRATIVE DIVISION ) Re TERENCE MALCOLM FRANKE Applicant
And
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent
DECISION
Tribunal Senior Member R W Dunne Date1 February 2008
PlaceAdelaide
Decision The Tribunal affirms the decision under review.
..............................................
R W DUNNE
(Senior Member)
CATCHWORDS
CORPORATIONS – contravention of ss 946A, 946C and 947B of the Corporations Act 2001 – banning order imposed – whether length of banning order excessive – reasons for contravention – appropriateness of enforceable undertaking – decision affirmed.
Corporations Act 2001 ss 761A, 912A(1)(a), 920A, 946A, 946C, 947B
Re Hayes and Australian Securities and Investments Commission [2006] AATA 1506
Re Nolan and Australian Securities and Investments Commission [2006] AATA 778Rich v Australian Securities and Investments Commission (2004) 220 CLR 129
REASONS FOR DECISION
1 February 2008 Senior Member R W Dunne 1. Mr Terence Franke is the applicant in this case. The respondent is the Australian Securities and Investments Commission (“ASIC”). Pursuant to s 920A(1)(e) and (f) of the Corporations Act 2001 (“Act”) a delegate of the respondent on 6 November 2006 made a decision banning the applicant from providing financial services for a period of 2 years. The respondent found that Mr Franke had contravened the provisions of ss 946A, 946C and 947B of the Act. The respondent also had reason to believe that Mr Franke would not comply with a financial services law in the future.
2. On 29 November 2006, the applicant applied to this Tribunal for review of the respondent’s decision. At the hearing, Mr G Gretsas appeared for the applicant and Ms S Downey appeared for the respondent. The documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (“T documents”) were admitted into evidence as Exhibits R1, R2, R3 and R4, along with the documents tendered for the applicant (Exhibit A1) and a document titled “Contents of Compliance Manager’s Course” (together with a Certificate of Attendance), issued to the applicant by Adviser Solutions Pty Ltd (Exhibit A2).
issues for the tribunal
3. The issues for the Tribunal’s consideration are:
(a)whether the applicant has not complied with a financial services law or will not comply with a financial services law;
(b)whether an order banning the applicant from providing financial services should be made against the applicant pursuant to s 920A(1) of the Act; and
(c)if an order banning the applicant from providing financial services should be made, what is the appropriate period of banning?
legislation
4. The following provisions of the Act relevantly apply to the issues before the Tribunal:
“761A Definitions
…
financial services law means:
(a)a provision of this Chapter [Chapter 7 of the Act] or of Chapter 5C, 6, 6A, 6B, 6C or 6D; or
(b)a provision of Chapter 9 as it applies in relation to a provision referred to in paragraph (a); or
(c) a provision of Division 2 of Part 2 of the ASIC Act; or
(d)any other Commonwealth, State or Territory legislation that covers conduct relating to the provision of financial services (whether or not it also covers other conduct), but only in so far as it covers conduct relating to the provision of financial services.
…
912AGeneral obligations
(1)A financial services licensee must:
(a)do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly;
…
920A 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:
…
(e) the person has not complied with a financial services law; or
(f)ASIC has reason to believe that the person will not comply with a financial services law.
…
946A Obligation to give client a Statement of Advice
(1)The providing entity must give the client a Statement of Advice in accordance with this Subdivision and Subdivision D.
(2) The Statement of Advice may be:
(a) the means by which the advice is provided; or
(b) a separate record of the advice.
…
946C Timing of giving Statement of Advice
General rule
(1)Subject to this section, if the Statement of Advice is not the means by which the advice is provided, the Statement of Advice must be given to the client when, or as soon as practicable after, the advice is provided and, in any event, before the providing entity provides the client with any further financial service that arises out of or is connected with that advice.
Statement of certain information if Statement of Advice not given when advice provided
(2)If the Statement of Advice is not given to the client when the advice is provided, the providing entity must, when the advice is provided, give the client a statement that contains the information that would be required to be in a Statement of Advice by paragraphs 947B(2)(d) and (e), or 947C(2)(e) and (f), as the case requires, and by section 947D, if applicable.
Time critical cases
(3) If:
(a)the client expressly instructs that they require a further financial service that arises out of, or is connected with, the advice to be provided immediately, or by a specified time; and
(b)it is not reasonably practicable to give the Statement of Advice to the client before that further service is provided as so instructed;
the providing entity must give the client the Statement of Advice:
(c)unless paragraph (d) applies—within 5 days after providing that further service, or sooner if practicable; or
(d)if that further service is the provision to the person of a financial product and section 1019B (cooling‑off period) will apply to the acquisition of the product by the person—before the start of the period applicable under subsection 1019B(3), or sooner if practicable.
…
947BStatement of Advice given by financial services licensee—main requirements
(1) This section applies if the providing entity is a financial services licensee.
(2)Subject to subsection (3) and to the regulations (see subsection (4)), the Statement of Advice must include the following statements and information:
(a) a statement setting out the advice; and
(b) information about the basis on which the advice is or was given; and
(c)a statement setting out the name and contact details of the providing entity; and
(d)information about any remuneration (including commission) or other benefits that any of the following is to receive that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice:
(i) the providing entity;
(ii) a related body corporate of the providing entity;
(iii)a director or employee of the providing entity or a related body corporate;
(iv) an associate of any of the above;
(v)any other person in relation to whom the regulations require the information to be provided; and
(e) information about:
(i)any other interests, whether pecuniary or not and whether direct or indirect, of the providing entity or of any associate of the providing entity; and
(ii)any associations or relationships between the providing entity or any associate of the providing entity and the issuers of any financial products;
that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice; and
(f)if section 945B requires a warning to be given to the client in relation to the advice—a statement setting out, or recording, the warning required by that section; and
(g)any other statements or information required by the regulations; and
(h)unless in accordance with the regulations, for information to be disclosed in accordance with paragraph (d) and subparagraph (e)(i), any amounts are to be stated in dollars.
(3)Subject to subsection (4), the level of detail about a matter that is required is such as a person would reasonably require for the purpose of deciding whether to act on the advice as a retail client.
…”
background
5. The applicant was not called to give evidence. Nor was evidence called from any other witnesses, whether for the applicant or the respondent. However, the factual background to this case was largely not in dispute and may be extracted from the submissions and statements for the applicant and the respondent.
6. From 27 January 1998 and at all relevant times, the applicant was a director of Australian Business Insurance Advisers (ABIA) Pty Ltd (“ABIA”). From 19 February 2003 to 6 November 2006, ABIA held an Australian Financial Services Licence (“AFSL”) which authorised it to carry on a financial services business providing financial product advice for general insurance and life products, interests in managed investment schemes, retirement savings accounts and superannuation. The applicant was ABIA’s key person for the purposes of its AFSL and his wife was the compliance officer. He was also an authorised representative of Mawson Securities Pty Ltd (“Mawsons”), an AFSL holder, from 9 July 2002 until 1 November 2003.
7. The applicant obtained a diploma in financial planning and a diploma in financial advising through the Securities Institute. In March 2006, he had about 2,000 clients and would see between 6 to 9 clients each week. The advisers to these clients were the applicant and Mr Chris Griggs, a qualified commercial insurance adviser. About 50 percent of the income from these clients came from the applicant’s involvement in financial planning, including superannuation, interest-bearing investment trusts and allocated pensions. The remaining 50 percent of the income arose from risk insurance and general insurance. Mr Griggs commenced employment with ABIA in January 2005 and Ms Lisa Stewart, who dealt with house and contents and motor vehicle insurance, commenced in November 2004.
8. On 1 July 2004, Mr Lyndon Holland (“Holland”) acquired an interest in ABIA through his private company. He was a director of ABIA during the period from 31 August 2004 to 3 December 2004. His role within ABIA was to run the risk insurance side of the business, which included life and trauma and income protection insurance. Holland brought with him the PaperPort software system, which was scanning software that allowed paper documents to be copied and converted into electronic form. His association with the applicant in ABIA deteriorated and came to an end in late December 2004 or early January 2005. In an interview with the respondent’s officers on 17 March 2006, the applicant stated that Holland had returned briefly in January 2005 and took with him his computer server on which the PaperPort software was located. As a result, the applicant did not have a complete copy of all the data contained in Holland’s computer server. Following the institution of legal proceedings, the computer server was retrieved. However, the data located in the server could not be accessed because ABIA did not have the PaperPort software, although the applicant was able to recover other data using Microsoft Word software.
9. The applicant’s son, Mr Craig Franke (“Craig”), commenced employment with ABIA on 5 July 2004 as a trainee adviser and was still so employed in March 2006. Holland was responsible for training Craig and teaching him how to sell risk products, and business development managers also came to teach him about their various products. However, Craig was not qualified, in accordance with ASIC Policy Statement 146, to provide financial services to clients, unsupervised.
10. Mr Gretsas prepared written submissions to the Tribunal and annexed to the submissions was a Table that included a listing of the names of the applicant’s clients who were the subject of the respondent’s findings and the dates and types of contraventions of the Act that were related to the banning order imposed on the applicant. By way of background, the relevant parts of the Table are set out below:
Client name
Date
Contraventions found by respondent.
T documents
David Benchley
28/7/04
No evidence of the provision of a Statement of Advice – s.946A.
R1, pages 9-10
Steven Horn
28/7/03 & 9/7/04
No evidence of the provision of a Statement of Advice – s.946A.
R1, page 10
Daniel & Sue Sibly
14/12/04
No evidence of the provision of a Statement of Advice – s.946A.
R1, pages 10-11
R2, pages 614-635
Paul Parisella
16/8/05 & 21/9/05
Statement of Advice not provided as soon as practicable after the advice provided etc – s.946C.
R1, page 13
R2, pages 691-692
David & Michelle Benchley
28/7/04 & 23/8/04
Statement of Advice not provided as soon as practicable after the advice provided etc – s.946C.
R1, pages 13-14
R2, pages 354-356
Steven Horn
27/7/04 & 21/9/04
Statement of Advice not provided as soon as practicable after the advice provided etc – s.946C.
R1, page 14
R2, pages 389-391
Paul Lanthois
30/6/04 & 29/7/04
Statement of Advice not provided as soon as practicable after the advice provided etc – s.946C.
R1, page 14
R2, page 340
Mark Urry
8/3/04 & 27/3/04 or 6/4/04
Statement of Advice not provided as soon as practicable after the advice provided etc – s.946C.
R1, pages 14-15
R2, page 224
Daniel & Sue Sibly
15/7/04 & 6 or 10/8/04
Statement of Advice not provided as soon as practicable after the advice provided etc – s.946C.
R1, page 15
R2, pages 349-351
Anthony & Mrs Altman
14/10/04
Statement of Advice not provided as soon as practicable after the advice provided etc – s.946C.
Section 947B(2)(b) and (3) was contravened.
R1, pages 16-17
R2, page 396
David Baker
30/7/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
R1, pages 18-19
R2, pages 341-343
Daniel & Sue Sibly
6/8/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
R1, pages 18-19
R2, pages 349-351
Claude Bortoluzzi
6/9/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
R1, pages 16-19
R2, pages 383-385
Julian Tregenza
6/9/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
R1, pages 18-19
R2, pages 380-382
Steven Horn
21/9/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
R1, pages 18-19
R2, pages 389-391
Paul Parisella
21/9/05 & 25/10/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
R1, pages 18-19
R2, pages 510-513, 690-692
Peter Piasente
1/11/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
R1, pages 18-19
R2, pages 514-516
Mark Urry
6/4/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
R1, pages 18-19, 224
Peter Jones
8/9/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
No details of remuneration – s.947B(2)(d).
R1, page 19
R2, page 386
Eddie Matejcic
28/9/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
No details of remuneration – s.947B(2)(d).
R1, page 19
R2, page 392
Geoffrey Phillips
18/10/04
Insufficient details in the Statement of Advices – s.947B(2)(b) and (3).
No details of remuneration – s.947B(2)(d).
R1, page 19
R2, page 428
Nona Gregory
15/10/04
Statement of Advice signed by Craig Franke with Lyndon Holland’s signature.
R1, page 20
R2, pages 409-410
Charlie Nicholas
5/10/04
Statement of Advice signed by Craig Franke with Lyndon Holland’s signature.
R1, page 20
R2, pages 393-395
Tom Nuzzo
19/10/04
Statement of Advice signed by Craig Franke with Lyndon Holland’s signature.
R1, page 20
R2, pages 467-469
Rick Quaiat
11/11/04
Insurance applications signed by Craig Franke with Lyndon Holland’s signature. Insufficient detail in Statement of Advice.
R1, pages 20 & 27
R2, pages 531-532
Frank Palmieri
24/11/04
Insurance applications signed by Craig Franke with Lyndon Holland’s signature. Insufficient detail in Statement of Advice.
R1, pages 20 & 27
R2, pages 571-573
Ashley Simpson
22/10/04
Insurance applications signed by Craig Franke with Lyndon Holland’s signature. Insufficient detail in Statement of Advice.
R1, pages 20 & 27
R2, pages 494-496
Peter Small
5/11/04
Insurance applications signed by Craig Franke with Lyndon Holland’s signature. Insufficient detail in Statement of Advice.
R1, pages 20 & 27
R2, pages 519-521
Kurt Leitner
21/10/04
Insurance applications signed by Craig Franke with Lyndon Holland’s signature.
R1, page 20
R2, pages 488-493
Mark Urry
26/11/04
Insufficient detail in Statement of Advice signed by Craig Franke.
R1, page 27
R2, pages 591-593
Richard Voskamp
21/10/04
Insufficient detail in Statement of Advice signed by Craig Franke.
R1, page 27
R2, pages 470-472
Tamara Boxall
7/04
Dealings with Craig Franke.
R1, page 27
R2, pages 872-873
Tony Cristarella
Dealings with Craig Franke.
R1, page 29
Guiseppe Di Stefano
Since end of 2003
Dealings with Craig Franke.
R1, page 29
R3, page 902
Julian Tregenza
End of 2004 to Feb 2006
Dealings with Craig Franke.
R1, page 29
R3, pages 850, 876-877
Charlie Nicholas
Since 2004
Dealings with Craig Franke.
R1, pages 29, 44-50
Haydn Roberts
24/10/05
Failure to provide details of commissions & fees.
R1, page 34
R2, pages 693-696
R3, pages 905-908
Aldo Mignone
21/3/05
Non disclosure of pre-existing back condition by Craig Franke.
R1, pages 34-36
R2, pages 646-657
consideration
The Contraventions
11. Adopting the classifications in Mr Gretsas’ submissions and Annexure, the applicant’s contraventions may be categorised as follows:
(a)where there is no evidence of the provision of a Statement of Advice (s 946A of the Act);
(b)where a Statement of Advice was not provided as soon as practicable after the advice was provided (s 946C of the Act);
(c)insufficient details in the Statement of Advices (s 947B(2)(b) and (3) of the Act);
(d)Statements of Advice and insurance applications signed by Craig with Holland’s signature;
(e)client dealings with Craig; and
(f)other contraventions.
No evidence of the provision of a Statement of Advice
12. It was Mr Gretsas’ submission that the applicant maintained he gave all his clients a Statement of Advice in accordance with s 946A of the Act. In the case of David Benchley and Daniel and Sue Sibly, there was insufficient evidence to allow the respondent to find that the applicant failed to give a Statement of Advice. Mr Benchley could not remember whether he had received a Statement. There was no evidence from the Siblys themselves on the issue. However, the applicant conceded the possibility that, if a Statement was not prepared for the Siblys, it was an oversight. In the case of Steven Horn, a letter dated 28 July 2003 from ABIA to Mr Horn provided information in relation to an alternative product or products, that he would be invested in the “same funds” and that the two options would not attract “extra fees or charges”. Further, the applicant was not the adviser when Mr Horn rolled over his superannuation in April 2005, which rollover was affected by his new adviser, Mr Terry Burns. The respondent’s delegate accepted that the applicant was not Mr Horn’s adviser in relation to this rollover.
13. The Tribunal is unable to accept Mr Gretsas’ submissions in relation to David Benchley, Daniel and Sue Sibly and Steven Horn. On the evidence contained in the T documents and the findings of the respondent’s delegate, the Tribunal is not satisfied that the applicant gave Statements of Advice to them, as required by s 946A.
Statement of Advice not provided as soon as practicable
14. These contraventions involved the applicant’s clients, Paul Parisella, David and Michelle Benchley, Steven Horn, Paul Lanthois, Mark Urry, Daniel and Sue Sibly and Mr and Mrs Altman. In his submissions, Mr Gretsas suggested that the words “or as soon as practicable after” in s 946C(1) of the Act are of wide import. Nevertheless, he acknowledged to the Tribunal that the applicant accepted that the Statements of Advice were not given to his clients as soon as practicable after the advice was provided. This was an error of judgement and nothing to do with dishonesty. However, the question of dishonesty is not the issue. The legislation (in s 946C(1)) is quite clear. If a Statement of Advice is not the means by which financial advice is provided, the Statement must be given to the client when, or as soon as practicable after, the advice is provided and, in any event, before further financial services are provided that arise out of or are connected with the advice. As was submitted by Ms Downey, to have clients proceed with and act upon financial advice without the benefit of a timely Statement of Advice cannot be explained away by simple inadvertence. Although there was some doubt in relation to the Statements given to Mr Parisella and to David and Michelle Benchley, the Tribunal is satisfied that the findings of the respondent’s delegate in relation to the s 946C contraventions by the applicant were correct.
Insufficient details in the Statement of Advices
15. From the relevant part of Mr Gretsas’ Table (on pages 8-9 of these reasons), these contraventions involved 11 clients of the applicant, commencing with David Baker and ending with Geoffrey Phillips. Mr Gretsas put to the Tribunal that the applicant conceded, in the case of each client, the Statement of Advice given was not sufficient for the purposes of the legislation. However, his explanation was that, in the applicant’s experience, clients did not appreciate high levels of detail. Nevertheless, the applicant had amended ABIA’s draft template Statement of Advice to reflect the changes advised by the respondent. Although the applicant may believe he has experience of his client’s needs, this is no answer to the requirements of s 946C(1). Nor does the amendment of the draft template Statement, by itself, solve what have appeared to be ongoing compliance problems of the applicant. As the applicant has conceded, in the case of the 11 clients involved, that the Statement of Advice give to them was insufficient, the Tribunal finds that the applicant has failed to satisfy the requirements of s 947B(2) and (3) of the Act.
Statements of Advice signed by Craig with Holland’s signature
16. The 10 clients of the applicant in Mr Gretsas’ table (on pages 9-10 of these reasons) who were involved in the contraventions where it had been said that:
·Statements of Advice were signed by Craig with Holland’s signature;
·insurance applications were signed by Craig with Holland’s signature and insufficient detail was provided in Statements of Advice; and
·insufficient detail was provided in Statements of Advice signed by Craig,
commenced with Nona Gregory and ended with Richard Voskamp. It was Mr Gretsas’ submission that Holland’s function was to supervise and teach Craig and that, on the evidence, there was considerable controversy as to the circumstances surrounding Craig signing Holland’s name. The evidence is summarised in the findings of the respondent’s delegate (Exhibit R1, pages 20-25). The delegate was not satisfied that Craig had not signed Statements of Advice and insurance applications for clients with Holland’s signature. Nor was he satisfied that the signing was done with Holland’s consent or authority. In his findings, the delegate said (Exhibit R1, page 32 at paragraph 164):
“The signing of insurance applications and SoAs by Craig Franke with what purported to be Holland’s signature and an insurance application with what purported to be Terence Franke’s signature, without their knowledge, consent or authority, was not honest and was not consistent with providing financial services efficiently, honestly and fairly.”
17. Mr Gretsas submitted that the applicant’s failing was in providing insufficient supervision of Craig. There was no evidence of any form of conspiracy or any prior knowledge on the part of the applicant as to what was going on. Moreover, the respondent’s delegate accepted that the evidence did not establish that the applicant knew, whilst it was happening, that Craig was signing his and Holland’s name to documents. However, as the delegate further found, the applicant’s lack of knowledge occurred in circumstances where Craig was able to see clients and provide them with financial advice unsupervised, and where adequate supervision of Craig’s activities as a trainee adviser was generally lacking. The applicant was ABIA’s key person for the purposes of its AFSL and the ultimate responsibility for Craig’s supervision and training rested with him. On this, the Tribunal noted the admission by Mr Gretsas (at page 5 of the Annexure to his written submissions) that Holland’s supervision of Craig appeared to have been inadequate.
18. Although there are inconsistencies surrounding the circumstances in which Craig signed Holland’s name in Statements of Advice and insurance applications, the Tribunal is satisfied, on balance, that the signing was undertaken without Holland’s knowledge, consent or authority. The Tribunal notes that, during the course of a meeting with the respondent’s officers at the offices of ABIA on 30 November 2005, the applicant said that Craig had been forced to forge Holland’s signature whilst Holland was away and as the applicant and his wife were also away, he did not become aware of Craig’s actions until much later (Exhibit R4, page 1134). Notwithstanding this, the Tribunal is of the view that the applicant failed to take adequate steps to prevent Craig’s conduct occurring, to ensure that ABIA did all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly (s 912A(1)(a) of the Act). Ms Downey submitted that, irrespective of what was found by the Tribunal about Craig’s use of Holland’s signature in Statements of Advice, in a letter from the applicant to his clients dated 5 January 2005 (Exhibit R2, pages 643-644), Craig was described as a “Risk Insurance Adviser”. This was clearly incorrect and was a blatant misrepresentation of Craig’s qualification to be able to provide financial services. Mr Gretsas reiterated to the Tribunal that his client’s failing was in providing insufficient supervision to Craig. He said:
“There’s absolutely no evidence of any form of conspiracy or any prior knowledge on the part of my client as to what was going on and we say that the respondent did accept that on the evidence the applicant did not know what was going on whilst it was happening and again we say that my client, perhaps foolishly, entrusted Mr Holland with the task of teaching and supervising Craig which obviously did not go well. …” (Transcript, page 8)
Whether any conspiracy or prior knowledge was involved on the part of the applicant is not to the point. The responsibility for training and properly supervising Craig was with the applicant, as ABIA’s key person.
Client dealings with Craig
19. These contraventions involved the applicant’s clients, Tamara Boxall, Tony Cristarella, Guiseppe Di Stefano, Julian Tregenza, and Charlie Nicholas. In his submissions, Mr Gretsas again suggested that the applicant entrusted the supervision and training of Craig to Holland. He said:
“Again there are a number of clients, and this is at the foot of page 6, which had dealings with Craig Franke and in some instances Craig Franke alone. Again, your Honour, the criticism of my client is he didn’t sufficiently supervise Mr Franke. He accepts that criticism now but some of that blame must, we say, be placed on the shoulders of Mr Holland and as far as we’re aware, there’s been no action against Mr Holland by the respondent.” (Transcript, page 8)
At the risk of being repetitive, the responsibility for ensuring that Craig was properly supervised and did not act in any unqualified capacity rested with the applicant and he is unable to deflect that responsibility by seeking to pass it on to Holland. The Tribunal is again satisfied, on the evidence, that the applicant failed to ensure that the obligations of ABIA under s 912A(1)(a) were properly and adequately complied with.
Other contraventions
20. In Mr Gretsas’ Table, these contraventions involved the applicant’s clients Haydn Roberts and Aldo Mignone. In the case of Mr Roberts, income protection insurance was arranged for him by the applicant, in circumstances where he became doubly insured and was paying double premiums. The applicant’s answer to this was that Mr Roberts should have been aware that he was doubly insured and cancelled one of the policies. Mr Gretsas acknowledged that the applicant’s omission was “inadvertent”. With Mr Mignone, in March 2005 he submitted an application for an income protection policy, which appears to have been completed by Craig, but signed by the applicant. The application failed to disclose a previous back claim, which ABIA had made through the applicant. Although no loss was suffered, Ms Downey submitted that there had been potential for Mr Mignone to suffer significant loss. It was Mr Gretsas’ submission that, to the extent that Craig completed the application incorrectly, it was again an issue of the applicant’s lack of supervision or an issue of judgement, not one of conspiracy or dishonesty. In the case of these two clients, the Tribunal is satisfied that the applicant again failed to ensure that ABIA complied with its obligations under s 912A(1)(a) of the Act.
The Banning Order
21. With regard to the banning order, Mr Gretsas submitted that the applicant’s infractions related to only a small number of his clients. The applicant obtained no benefit from the conduct and no detriment or loss was suffered by his clients. However, these submissions ignore the fact that the high standards expected of the applicant under the Act were not met. It has already been said that the applicant was the key person and the principal director of ABIA. Through his actions (or inactions) he was turning a blind eye to his obligations and responsibilities (and the obligations and responsibilities of ABIA) under the Act, and he appeared unable to appreciate the importance of complying with the requirements of the Act. In failing to deliver to his clients the quality and level of advice that was necessary, he failed them as consumers of his services. As was submitted by Ms Downey, it is the protection of the consumer that is of paramount importance when considering banning orders.
22. Mr Gretsas also made point of the fact that the respondent had given insufficient weight to the animosity that had existed between the applicant and Holland during the period the contraventions (or some of the contraventions) had occurred. The inference here was that, because he was suffering distraction in having to deal with Holland, both during the period when he was a director of ABIA and afterwards when litigation ensued, the applicant was unable to attend to the other day-to-day activities of ABIA’s business. The Tribunal cannot accept these submissions. The applicant should have been aware of the need to act efficiently, honestly and fairly in relation to ABIA’s business, and having to deal with Holland was no different from other distractions that might arise in the conduct of such a business. The Tribunal understands that the problems the applicant experienced may have created difficulties. However, the problems should have been controlled and not allowed to become such a serious distraction that they resulted in the breach of the applicant’s obligations to his clients.
23. In his closing, Mr Gretsas put to the Tribunal that, even if it made the same findings as the respondent’s delegate, a banning order of only one year for the applicant was appropriate and not a 2 year order. In support of this submission, he referred to the decision of Deputy President R N J Purvis AM QC in Re Hayes and Australian Securities and Investments Commission [2006] AATA 1506 and the decision of Deputy President H Olney AM QC in Re Nolan and Australian Securities and Investments Commission [2006] AATA 778. In discussing the period of a banning order, Deputy President Purvis in Re Hayes said (at paragraph 13):
“13. The legal principles significant to a decision as to the period of any banning order is dependent upon the extent to which the Tribunal determines that the community warrants protection. However, a banning order does not merely serve the purpose of protecting the public but inevitably exposes the person the subject of the order to a penalty (Rich v ASIC (2004) 220 CLR 129). Thus even if the purpose of a banning order is intended to be protective (Rich v ASIC (supra)), the fact that the effect of such an order is to inflict a penalty on the person the subject of the order does not make the order unreasonable or inappropriate.”
24. Mr Gretsas submitted that the facts in Re Hayes were similar to the facts in the applicant’s case. Mr Hayes was banned from providing financial services for a period of 3 years, based on a number of contraventions over a 3 month period. Nine clients of Mr Hayes were involved, some of whom were family, friends and relatives. In the Tribunal’s view, the facts in the applicant’s case are not similar to those in Re Hayes. Certainly, the delays in providing Statements of Advice and the fact that some were insufficient, are similar. However, the derelictions of responsibility by Mr Hayes were largely attributable to haste, absence of due care and professional consideration. He was doing what he had been taught or told to do and was following instructions, which he said was the practice where he was employed. He lacked a basic understanding or awareness of his legal and professional obligations as an adviser to all his clients. The applicant, on the other hand, ran his own business and was the key person in it. Whereas Mr Hayes had been in the industry for a short period of time, the applicant had been in the insurance industry for over 10 years and had been a director of ABIA since 1998. In these circumstances, there is (and must be) a higher threshold of diligence and responsibility.
25. In Re Nolan the applicant had been banned for 5 years for contraventions that were particularly serious and in some instances involved misleading and deceptive conduct and the misuse of his clients’ funds. The improper conduct had taken place for a number of years between 1991 and 2002. Deputy President Olney found that Mr Nolan had breached the fiduciary duty he owed to certain of his clients. Ultimately, the banning order was reduced from 5 years to 3 years. On review, the Deputy President found that ASIC had in some way been complicit in the ongoing contravention of the Act. He chose to disregard conduct prior to 2002, because ASIC had abided the role of the applicant to some extent in that period, but he nevertheless found that a lengthy banning order was still appropriate. Moreover, by the time ASIC made the banning order, Mr Nolan had been out of the industry for over 2 years.
26. In the present case, Mr Gretsas submitted that the basis of his client’s application was one of contrition and apology. However, unlike the situation in Re Hayes, Mr Franke did not appear as a witness to enable the Tribunal to hear him and to view his demeanour. Mr Gretsas submitted that, if he had not been contrite, his client would have attended the hearing, which would have run for a longer period, and he would have called witnesses as to his client’s good character. From the Tribunal’s perspective, the appearance of Mr Franke before it could only have been of assistance in its consideration of his application for review. Having regard to his long history in the financial services industry, it is difficult to regard the applicant’s departures from acceptable standards of conduct as mere oversights due to inadvertence. The breaches committed by him were not the result of lack of training or general lack of knowledge on his part. His failure to provide Statements of Advice in sufficient detail and to overlook his responsibility as the key person in ABIA to supervise and train Craig was more than inadvertent, it was reckless. Although Mr Gretsas did not address the alternative of an enforceable undertaking by the applicant, the Tribunal nevertheless considers such an undertaking would be inappropriate. As was submitted by Ms Downey, the circumstances of the applicant’s case and the nature and severity of the contraventions are not such that the matter can be addressed by an enforceable undertaking.
27. In determining the appropriate period for the banning order in the present case, certain of the reasons of Kirby J in Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 are apposite. At page 171, he said:
“Disqualification from corporate management was a quid pro quo for the trust essential to the enjoyment of the powers and privileges of that position. Because corporations are creatures of statue, as are their officers, the entitlement of corporate governance is a statutory privilege. It is inherently susceptible to variation or withdrawal upon demonstrated unfitness to enjoy that privilege. …
People such as the appellants (or anyone else for that matter) have no right to be involved in company management. It is a statutory privilege to be earned each day. That privilege may be withdrawn for misconduct but also for incompetent, improper or lax activities in the functions of corporate management. …”
Mr Gretsas pointed to the fact that the applicant had undertaken a course of instruction provided by Adviser Solutions Pty Ltd. In the Tribunal’s view, the fact that the applicant undertook such a course of instruction is of no real assistance to him in arguing the period of the banning order in his case.
28. Having regard to all the circumstances, the Tribunal is of the view that the respondent’s order banning the applicant for 2 years was not excessive and is appropriate in the context of this application.
decision
29. For the above reasons, the Tribunal affirms the decision under review.
I certify that the 29 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne
Signed: .....................................................................................
AssociateDate of Hearing 10 September 2007
Date of Decision 1 February 2008Solicitor for the Applicant Mr G Gretsas
Gretsas & Associates
Counsel for the Respondent Ms S Downey
Solicitor for the Respondent ASIC
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