Fraser and Australian Securities and Investments Commission - [2011] AATA 944

Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 944
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2011/2922

GENERAL ADMINISTRATIVE DIVISION )

Re JUSTIN ROBERT FRASER

Applicant

And

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

DECISION

Tribunal Deputy President P E Hack SC; Dr KS Levy RFD, Senior Member
Date19 December 2011
PlaceBrisbane

Decision The decision under review is set aside and a decision is substituted that the applicant be banned from providing financial services for a period of six months from 27 June 2011.
...............[Sgd]...........................
Deputy President

CATCHWORDS
CORPORATIONS – financial services provider – mortgage lender – fraud – banning order – whether of good fame and character – decision under review set aside and substituted
Corporations Act 2001 (Cth) ss 761A, 920A, 920B, 920E, 1041G, 1041H
Elliott v Australian Securities & Investments Commission (2004) ACSR 621
Re Kippe & Australian Securities and Investments Commission [1997] AATA 580; (1998) 16 ACLC 190
Re Musumeci v Australian Securities and Investment Commission [2009] AATA 524
Rich v Australian Securities and Investment Commission [2004] HCA 42; (2004) 220 CLR 129
Queensland Law Society v Bax [1998] QCA 089; [1999] 2 Qd R 9
REASONS FOR DECISION

23 December 2011 Deputy President P E Hack SC;
Dr KS Levy RFD, Senior Member

Introduction

On 19 December 2011, at the conclusion of the hearing in this matter, we made the decision earlier set out and said that we would provide written reasons for making that decision in due course. These are those reasons.
The applicant, Mr Justin Fraser, is a financial planner by occupation, an occupation that undoubtedly involves him in providing “financial services” as that expression is used in the Corporations Act 2001 (Cth). On 20 June 2011 a delegate of the respondent, the Australian Securities and Investments Commission, made a banning order, pursuant to s 920A of that Act permanently banning Mr Fraser from providing a financial service.
The delegate concluded that Mr Fraser had not complied with a financial services law, that there was reason to believe that he would not comply with a financial services law in the future and that there was reason to believe that Mr Fraser was not of good fame or character.
Mr Fraser accepts, and has always accepted, that the underlying conduct of which the Commission complains, enabled the Commission (and the Tribunal) to be satisfied that he had not complied with a financial services law. But he contends that there is no reason to conclude that he will not comply with financial services laws in the future and no reason to believe that he is not of good fame and character.
Legislative scheme
Section 920A(1) of the Corporations Act allows the Commission to make a banning order where one or more of the circumstances set out in paragraphs (a) to (f) of the subsection are made out. The Commission’s delegate relied on two: paragraph (e), the person has not complied with a financial services law, and paragraph (f), the Commission has reason to believe that the person will not comply with a financial services law. Before us, Mr Lo Surdo SC, who appeared for the Commission, accepted that no enquiry into paragraph (f) was required. He accepted, correctly as it seems to us, that in light of a concession by Mr Fraser that paragraph (e) was satisfied, it was unnecessary to consider whether any other one of the circumstances in the subsection might be made out.
The expression “financial services law” is defined in s 761A of the Act in a manner that includes, relevantly, ss 1041G and 1041H. The former provides:
“(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.”
For these purposes, “dishonest” means[1],
“(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.”
Section 1041H(1) prohibits a person from engaging in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or likely to mislead or deceive.
[1] See s 1041G(2), Corporations Law.
Where one of the circumstances in s 920A(1) of the Act is made out the Commission may make a banning order, defined in s 920B of the Act in these terms:
“(1)A banning order is a written order that prohibits a person from providing any financial services or specified financial services in specified circumstances or capacities.
(2)The order may prohibit the person against whom it is made from providing a financial service:
(a)permanently; or
(b)for a specified period, unless ASIC has reason to believe that the person is not of good fame or character.”
The Commission submitted, and Mr MacSporran SC, who led Mr Nicholson of counsel for Mr Fraser, did not suggest to the contrary, that the effect of s 920B(2) of the Act was that, if were concluded (and the delegate did in the present case) that there was reason to believe that the person was not of good fame or character, the banning order was required to be a permanent one rather than one for a fixed term.
The underlying conduct
By and large the factual background is uncontroversial. Mr Fraser started work with the Heritage Building Society as an entry level clerk at the age of 19 years. He had risen to the level of branch manager by the age of 25 years and in 2004, at the age of 31, he was appointed a Regional Manager for Heritage. In that capacity he came to know representatives of Bridges Personal Investment Services. Heritage and Bridges had an arrangement whereby Heritage customers seeking financial planning advice would be referred to an authorised representative of Bridges for advice. One of the Bridges’ representatives that Mr Fraser dealt with, Mr Todd Hitchcock, suggested that he ought to consider becoming a financial planner.
Mr Fraser commenced studying financial planning and on completion of an advanced diploma he left the employ of Heritage and took up in partnership with Mr Hitchcock in about July 2005. In August 2005 he became an authorised representative of Bridges. Mr Fraser was apparently quite successful in that role. By May 2008, when his authorisation was revoked, he had become the “number 1 business writer” in Bridges.
The arrangements between Mr Fraser and Bridges were structured in a way that he was entitled to receive what was, in effect, a base salary, together with fees paid by customers for the preparation of financial plans and commissions paid when investments were made by customers into particular investment funds. From time to time Mr Fraser would attend upon customers referred by Heritage for the purpose of preparing a financial advice plan. These customers paid a fee in the range of $250 to $550 for that service. Mr Fraser set the fee and was entitled to retain 69.75% of it. The balance was split between Heritage (22.5%) and Bridges (7.75%). It was within Mr Fraser’s authority to waive payment of the fee if he considered it desirable to do so. It appears that neither Bridges nor Heritage kept any record of referrals for advice or any system to follow up payment of their share of referral fees.
Mr Fraser’s present difficulties arise from the fact that on some 37 occasions between April 2006 and May 2008 he received full payment of fees from customers but did not account to Bridges or Heritage for the 30.25% of the fees that ought to have been paid to them. This occurred on occasions when the customer paid the fees in cash (rather than sending a cheque to Bridges). In this way Mr Fraser retained a total of $3,487.50, to which he was not entitled. On the copies of the fee invoice retained in the records of the partnership Mr Fraser noted, falsely, that the fees had been waived. This was done, he explained, to prevent the office staff from chasing up further payment rather than for the purpose of deceiving Bridges.
Mr Fraser accepted that this practice was dishonest but he explained that the practice was widespread amongst financial planners engaged by Bridges; it was, he said, “the norm” and the financial planners were not secretive about the practice amongst themselves. Matters came to a head in late May 2008. Mr Hitchcock, having noted that Mr Fraser had not been accounting to Bridges as he ought to have been, suggested that he advise Bridges what had been occurring. He did so by speaking to the compliance manager. He offered to make good any losses but Bridges was seemingly not concerned to press for that at that stage. Following an investigation, Mr Fraser’s authority to act for Bridges was revoked on 30 May 2008. One of the consequences of that termination, according to Mr Fraser, was that he lost the value of the goodwill that he had built up in the business, a figure he estimates at $600,000. We do not find it necessary to consider whether that is correct, either as to the fact of the loss of the goodwill or its value.
Bridges did not, at that time, report the matter to the police although a report was made to the Commission on 3 June 2008 as a “significant breach of a licensee’s obligations”. The Commission determined to take no action on that report.
In early July 2008 Mr Fraser was able to obtain similar employment in the financial planning field as an employee of a firm of accountants, PT Partners, Springwood and as the authorised representative of Securitor Financial Group Ltd. Mr Fraser disclosed the reasons for his departure from Bridges. Securitor “investigated those matters in full” but did not share the same concern as did Bridges.
On his departure from Bridges Mr Fraser was bound by a restraint covenant from contacting his former clients for a period of 12 months. He says (and there is no reason to doubt) that he honoured that covenant however he did inform Bridges, in January 2009, that on the expiry of the restraint he would seek to make contact with his former customers. The response[2] from the CEO of Bridges, a response on which Mr Fraser places some reliance, was in these terms:
“I note your intention to target previous clients you have dealt [with] at the end of 12 months. I also again take this opportunity to remind you of our past discussion together with Michael Delamotte at the time of your departure, that we reserved our position on pursuing these circumstances further subject to your future conduct with respect to our clients.”
[2] Exhibit 1, T21, page 229.
The Queensland Police became involved in September 2009. We do not regard it as necessary to determine the circumstances under which the investigation came about. Mr Fraser was interviewed on 11 October 2009 and made full admissions. He was charged with 37 counts of dishonestly causing a loss of money to Bridges with the circumstance of aggravation that he was an employee of Bridges. He pleaded guilty to all charges in the Magistrates Court on 8 March 2010. On that day he paid the total restitution being sought, an amount of $3487.50. He was fined $2500 without a conviction being recorded.
Mr Fraser’s agreement with Securitor obliged him to notify it if he was convicted of “serious fraud”. On the advice of his solicitor he did not notify Securitor of the fact of charges having been laid however Securitor was made aware by Bridges of that. As a result, in about November 2009 he was “stood down” from his employment by Securitor.
After the proceedings in the Magistrates’ Court had been resolved Mr Fraser commenced employment as an authorised representative of Wealthsure, another company engaged in financial planning. He made full disclosure of the earlier conduct and the criminal charges. In the meantime the Commission had become interested in Mr Fraser’s conduct, perhaps as a result of further contact from Bridges in July 2009[3]. An investigation was undertaken which led to a hearing before the delegate in March 2011 and the decision in issue in these proceedings, made on 20 June 2011, to ban him permanently from providing any financial service. Mr Fraser was served with the banning order on 27 June 2011 and it took effect from that day[4]. These proceedings followed soon after.
[3] Exhibit 1, T 23, page 237-8.
[4] See s 920E, Corporations Law.
Following the service of the banning order Mr Fraser’s authority to act for Wealthsure was cancelled when he notified that company of the fact of the banning order. He spoke as well, at that time, to a Ms Tanya Sale, the CEO of Outsource Financial Pty Ltd, a lending “aggregator”. Mr Fraser had undertaken work on behalf of that entity during his employment with Wealthsure. There is a factual controversy about what precisely Mr Fraser told Ms Sale and, in particular, whether he informed her of the fact of the banning order and the fact that Wealthsure had revoked his authorisation to act for it. We deal with that aspect of the matter in greater detail below.
The parties’ cases
The case for the Commission was that, the discretion having been enlivened, the circumstances were such as warrant the imposition of a permanent ban. That was so, it was said, because of Mr Fraser’s “palpably dishonest” conduct in failing to account to Bridges and the creation of false documents. And the Commission relied upon a more recent matter as being “indicative of the fact that Mr Fraser is not of good fame or character”[5]. That matter was said to be:
“Mr Fraser’s failure to disclose to Ms Sale when seeking to be authorised as a credit representative with Outsource on 27 June 2011 (the day that he was notified by ASIC of the banning order and following his dismissal from Wealthsure) that he had just been banned by ASIC from providing financial services and that his former employer Wealthsure had revoked his authorisation as a credit representative as well as a financial services representative.”
[5] Exhibit 8, paragraph [59].
But, in any event, so the Commission contended, even if we did not consider that there was reason to believe that Mr Fraser was not of good fame or character, the nature of his conduct was such that a permanent ban from providing financial services was appropriate. The Bridges’ conduct, so Mr Lo Surdo put it, displayed a defect in character of such a nature that we would be satisfied that there was a propensity for future dishonest conduct.
Mr Fraser accepted that his conduct was dishonest but said that it was an error of judgment which would not be repeated. He contended that there was no reason to believe that he was not of good fame or character and that a considerably shorter banning order, perhaps coupled with an enforceable undertaking, was all that was warranted.
What was Ms Sale told?
There was undoubtedly a conversation between Mr Fraser and Ms Sale, initiated by Mr Fraser, in the early afternoon[6] of 27 June 2011 and within two or so hours of service of the banning order on Mr Fraser. Ms Sale’s quite detailed account of that conversation is set out in a statement dated 22 November 2011 and obtained by the Commission. After reference to the receipt of a telephone call from Mr Fraser, the statement continues:
[6] “Early afternoon” is Ms Sale’s phrase; Mr Fraser refers to “about 1 pm”.
“5.…During the conversation, Justin told me about himself. We then had a conversation to the following effect:
Justin said: ‘I am not going to be with Wealthsure any longer because of a situation with ASIC and Bridges.’
I asked: ‘What happened?’
Justin said: ‘I can’t do financial planning anymore. The situation with ASIC and Bridges happened and was dealt with quite a few years ago. I also still want to do the lending arm though, if that’s possible?’
I said: ‘I can’t see why not. Does this issue involve the lending side?’
Justin said: ‘I don’t believe so.’
6.At no point during this telephone conversation did Justin tell me that he had been charged with and pleaded guilty in the Queensland Magistrates Court to 37 separate counts of fraud in which he has admitted to stealing from his former employer.
7.At no point during this telephone conversation did Justin tell me that Wealthsure had revoked his credit authorised representative status as well as his financial advisor authorised registration.
8.As a result of Justin’s request, I decided to appoint Mr Fraser as a credit representative of Outsource. I put him under Outsource as a lending representative….”
The document appointing Mr Fraser an authorised representative of Outsource was lodged in the Commission shortly after 2 p.m. on 27 June 2011. Subsequently, Ms Sale says, she spoke to Mr Darren Pawski from Wealthsure and it was he who told her that Mr Fraser had been banned by the Commission from providing financial services. Mr Pawski, she says, suggested that she remove Mr Fraser as an authorised representative. She lodged a revocation of Mr Fraser’s authority in the Commission at 4.48 p.m. that day.
When she was contacted by Mr Fraser in late October 2011 Ms Sale was happy to provide, and did provide, Mr Fraser with a reference stating, amongst other things, that her company,
“… would have no hesitation in reappointing Justin Fraser and would welcome the opportunity of working with his company going forward.”
In her subsequent statement, Ms Sale notes that,
“During this conversation Justin did not advise me of the undertaking he had provided to ASIC in early October to not engage in any credit lending activities and I was unaware of the undertaking when I provided the reference advising that I would reappoint him as a credit representative.”
Mr Fraser’s account is quite different. He says that the purpose of his call to Ms Sale, made around 1pm on 27 June 2011, was to inform her of the fact of the banning order. He had earlier made a similar call to Mr Pawski. In his oral evidence he explained that he had notified Mr Pawski and Ms Sale because he operated under the licences of their respective companies. His recollection of the conversation with Ms Sale is that once he had told her of the ban she asked whether it prevented him from doing mortgage broking. Mr Fraser was not sure and told her so and that he would be seeking advice from his solicitor on that point. In the course of the conversation Mr Fraser told Ms Sale that Wealthsure had revoked his financial advisor and credit representative authorizations. Ms Sale volunteered to add Mr Fraser as a credit representative in case he was able to undertake mortgage broking. He told her that he would send her a copy of the banning order which he did by email at 4:43pm that same day. Almost immediately after the email had been sent Ms Sale telephoned, referred to her conversation with Mr Pawski, and said that she would remove him as a credit representative until he could obtain advice from his solicitor.
Ms Sale’s evidence in the course of the hearing demonstrated that the level of her actual recall of the detail of her conversation was significantly short of that which her prepared statement displays. In reality she has a recollection of the fact of the conversation, some recollection of its subject matter but no real recollection of its detail. We have no hesitation in preferring the account of events given by Mr Fraser. It readily fits with objectively ascertainable facts and with logic and common sense.
The timed and dated email, enclosing a scanned attachment, was in evidence. It did not demonstrate what the attachment was but Mr Fraser had his laptop available for inspection. An inspection would have demonstrated what the attachment was but the Commission did not seek to inspect the laptop during the hearing. We are satisfied that Mr Fraser sent a copy of the banning order to Ms Sale.
The case for the Commission was that Mr Fraser wilfully failed to tell Ms Sale of the fact of the banning order when he spoke to her around 1pm. Mr Lo Surdo was unable to explain why, if that had been the case, Mr Fraser would forward a copy of the banning order to her a few hours later.

The Commission, having settled Ms Sale’s statement in a manner that implied that there was something sinister in Mr Fraser’s failure to inform her of the undertaking provided in early October 2011, agreed that there was nothing in the point. We agree: there was no occasion for him to do so and no adverse inference can be drawn against Mr Fraser from not having done so.
Good fame or character?
Given that the banning order must be permanent if we were to conclude that there is reason to believe that Mr Fraser is not of good fame or character, it seems logical to consider that issue first. Given that we have rejected the other basis relied on by the Commission to assert a want of good fame or character that issue is to be resolved by reference to his conduct in failing to account to Bridges.
The submissions of the Commission parties made reference to the decision of Deputy President Forgie in Re Kippe & Australian Securities and Investments Commission[7], a decision made in an identical, but earlier, statutory setting. In that case the Deputy President said[8]:
“Given the purpose of the provisions of the Law …it would seem that a similar interpretation should be applied in paragraph 829(e). Regard should be had to a person's conduct, both criminal and general. In doing so, the focus needs to be upon his or her disposition and qualities than upon his or her reputation. In the context of the Law and its protection of the investor and in the context of the operation of the duties of a representative of a dealer, particular regard needs to be had to the person's honesty, integrity and openness.”
[7] [1997] AATA 580; (1998) 16 ACLC 190.
[8] At [221].
Here the Commission submits that the conduct of Mr Fraser was palpably dishonest, it continued over a lengthy period of time and Mr Fraser did not desist from that conduct until prompted by Mr Hitchcock even though, as he said in his evidence, he had occasion to reflect on the conduct during that period. The creation of false documents, it is said, constituted dishonest conduct of a serious nature.
We consider that the conduct ought be viewed differently and more charitably to Mr Fraser. The amount involved was quite modest. The conduct started at a time when he was quite new to the industry and in a setting where it appeared to him to be the norm. Bridges appeared to be unconcerned to follow up the receipt of payment. The conduct needs to be considered, as well, by reference to Mr Fraser’s unblemished conduct before and following this period. Moreover we do not accept that the characterisation “creation of false documents” is entirely accurate. Mr Fraser did not annotate the documents with a view to misleading his employer, he did so to ensure that the customer was not chased up by employees within his office. The attitude of both Securitor and Wealthsure, entities that engaged Mr Fraser knowing the full circumstances of the conduct, confirms our view that Mr Fraser’s conduct, whilst dishonest, was out of character, and not such as would provide reason to believe that he was not of good fame or character.
We do not then have reason to believe that Mr Fraser is not of good fame or character.
The length of a banning order
Whilst it is not possible to say that every instance of dishonest conduct must necessarily attract a banning order it would be an unusual case where dishonest conduct, in the course of providing a financial service, was not considered sufficiently seriously to warrant the imposition of a banning order. The present is not such an unusual case. It is one where we consider that a short banning order ought be imposed having regard to the purposes of the power to make a banning order.
The Commissioner has promulgated a policy document – Regulatory Guide 98 which sets out the matters that the Commissioner generally takes into account when exercising its powers to suspend or cancel a financial services licence or to make a banning order. Table 2 of the Guide sets out factors and examples of conduct relating to specific periods of banning. The Table is expressed to,
“…have been compiled having regard to propositions formulated in HIH Insurance Ltd and HIH Casualty and General Insurance Ltd;Re: ASIC v Adler, (2002) 42 ACSR 80.”
In that case Santow J set out 15 propositions, drawn from an extensive survey of the cases. It is not necessary for present purposes to set out the 15 propositions but they emphasise that the primary purpose of the power is to protect the public from the person’s future conduct. Additionally notions of general and personal deterrence are relevant as are the personal circumstance of the person. Commenting on those propositions in Rich v ASIC[9] McHugh J observed:
“Both Santow J's list of propositions and the comments of the Victorian Court of Appeal^[[10]] indicate that the factors taken into account in the criminal jurisdiction - retribution, deterrence, reformation, contrition and protection of the public - are also central to determining whether an order of disqualification should be made under the Corporations Act and, if so, the appropriate period of disqualification.”
[9] [2004] HCA 42; (2004) 220 CLR 129 at [52].
[10] In Elliott v Australian Securities & Investments Commission (2004) ACSR 621, 658.
The principal purpose of the banning power,
“…is to contribute to the public interest by limiting the conduct of financial services business to people with the requisite capacity and integrity to provide the services in a lawful and competent manner.”[11]
There is no question about Mr Fraser’s capacity or competence; by all accounts he is exceptionally capable and is highly regarded by both colleagues and customers. And, on the view we take of Mr Fraser’s conduct, we are satisfied that, notwithstanding his aberrant conduct, he is to be regarded as a person of integrity. That is demonstrated by his forthright conduct in dealing with Bridges in May 2008 and thereafter and by his otherwise unimpeachable record. We are satisfied that the public, and those who deal with Mr Fraser, are adequately protected by his inherent integrity. Despite his earlier dishonesty we do not consider him likely to engage in similar conduct in the future. We do not accept, as the Commissioner submitted, that he would again yield to temptation. He has had a powerful, and expensive, reminder of the consequences of wrongful conduct.
[11] Re Musumeci v Australian Securities and Investment Commission [2009] AATA 524 at [65] per Senior Member Taylor SC.
In Musumeci, Senior Member Taylor SC concluded, with respect, correctly, that the objective of general deterrence,
“…must necessarily be a less compelling consideration in the exercise of the banning power if the occasion for consideration of its exercise arises after, and in the light of, a curial assessment of what constitutes adequate punishment of the convicted person in the particular circumstances.”[12]
Here the processes of the criminal law have been put in train and Mr Fraser has been fined $2,500 for his conduct. The judicial officer charged with the task of exercising the punitive powers of the state has exercised those powers. We approach the matter on the basis that both general and personal deterrence are of much less significance than they might have been, absent the prosecution of criminal charges.
[12] At paragraph [82].
Consideration of the protective and the punitive aspects led us to conclude that a banning order of six months was appropriate in the present circumstances. The practical consequences of Mr Fraser’s conduct have the effect that he was prevented from providing financial services for a longer period than six months. There were considerable gaps between his periods of employment with Bridges, then Securitor, then Wealthsure.
A conclusion that a banning order of six months is appropriate is also supported by reference to the Commission’s Regulatory Guide. The factors said to justify a banning order of less than three years are described in that as:
-   Some loss to client, but as a result of carelessness or inadvertence rather than dishonesty.
-   Attempt to remedy the contraventions and person has fully cooperated with ASIC.
-   No previous history of contraventions
-   Indications of clear intention to comply with legal obligations in demonstrated behaviour.”
Mr Fraser’s “contravention” has been remedied in full with restitution having been paid. Moreover Mr Fraser offered restitution to Bridges at an early stage albeit that Bridges did not then require restitution. Mr Fraser cooperated with the Commission and with the Queensland Police. He has no previous (and in the past three years, no subsequent) history of contraventions. There is a demonstrated intention on the part of Mr Fraser to comply with his obligations in the future.
There was a loss to a “client”, Bridges, which was made good and that loss was occasioned by dishonesty rather than carelessness or inadvertence. But, as Pincus J A noted in Queensland Law Society v Bax[13],
“dishonesty, like other forms of misbehaviour, has grades of seriousness.”
The dishonesty here was at the lower end of a scale of seriousness and, as we have said, out of character for Mr Fraser. Before and after that period in his life, his integrity had never been brought into question. His previous errors have been dealt with by the Magistrates Court which saw fit not to record a conviction. In our view only a short period of banning was warranted.
[13] [1998] QCA 089; (1999) 2 Qd R 9 at page 20.
For these reasons we considered it appropriate to impose a banning order of six months to take effect from the date of service on Mr Fraser of the original banning order.
I certify that the 42 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC and Dr KS Levy, RFD, Senior Member
Signed:         .....[Sgd]............................................................
  Associate
Date of hearing  19 December 2011
Date of reasons for decision     23 December 2011
Counsel for the applicant          Mr AJ MacSporran SC & Mr MD Nicholson
Solicitors for the applicant        Robertson O'Gorman Solicitors
Counsel for the respondent      Mr AP Lo Surdo SC
Solicitors for the respondent     Australian Securities & Investment Commission

GENERAL ADMINISTRATIVE DIVISION		)
Re		JUSTIN ROBERT FRASER