McCormack and Australian Securities and Investments Commission
[2016] AATA 1021
•14 December 2016
McCormack and Australian Securities and Investments Commission [2016] AATA 1021 (14 December 2016)
Division
TAXATION AND COMMERCIAL DIVISION
File Number
2016/0786
Re
Gerard McCormack
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal Egon Fice, Senior Member
Date 14 December 2016 Place Melbourne The Tribunal decides to set aside the decision made by the respondent on 10 February 2016 to ban the applicant from providing any financial services for a period of five years and in substitution decides that the banning order should not have been made and the applicant’s name should be removed from the register kept by the respondent under s. 922A of the Corporations Act 2001 and the applicant treated as never having been banned.
[sgd]........................................................................
Egon Fice, Senior Member
CORPORATIONS – banning order – whether conduct in relation to a financial product or a financial service – whether conduct misleading or deceptive – purpose of banning order – purpose not achieved where conduct occurred in highly unusual circumstances and behaviour was an aberration – decision set aside
Legislation
Administrative Appeals Tribunal Act 1975 s. 41
Australian Securities and Investments Commission Act 2001 ss. 1, 19
Corporations Act 2001 ss. 79, 760A, 761A, 763A, 764A, 766A, 766C, 920A, 920B, 1041G, 1041H, 1041I
Superannuation Industry (Supervision) Act 1993 s. 10
Cases
Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472
Australian Securities Commission v Kippe (1996) 20 ACSR 679
Australian Securities and Investments Commission v Narain (2008) 169 FCR 211
Re Dollas-Ford and Australian Securities and Investments Commission [2006] AATA 704; (2006) 91 ALD 747
Re Howarth and Australian Securities and Investments Commission [2008] AATA 278; (2008) 101 ALD 602; 48 AAR 10
Re One.Tel Ltd (In liq); Australian Securities and Investments Commission v Rich [2003] NSWSC 186; (2003) 44 ACSR 682
Re Rosenberg and Australian Securities and Investments Commission [2010] AATA 654; (2010) 117 ALD 582
Rich v Australian Securities and Investments Commission (2004) 220 CLR 129
Secondary Materials
Revised Explanatory Memorandum to the Financial Services Reform Bill 2001
REASONS FOR DECISION
Egon Fice, Senior Member
By letter dated 23 October 2006 National Australia Financial Planning, an arm of the National Australia Bank Ltd (NAB), offered Mr Gerard McCormack a position described as Wealth Manager (Financial Planner). Mr McCormack accepted that position in writing on 29 October 2006.
It was a condition of Mr McCormack’s employment that he held a Letter of Authority issued by NAB. He was required to comply with National Australia Financial Planning Licensee Standards and with the NAB policies and procedures generally as varied from time to time.
In a letter dated 10 February 2016 the Australian Securities and Investments Commission (ASIC) informed Mr McCormack that he should be banned from providing financial services for a period of five years. The banning period commenced on the date on which the banning order was served on him. The banning order was made under ss. 920A and 920B of the Corporations Act 2001 (the Corporations Act). Specifically, ASIC, in its findings, was concerned that:
(a)Mr McCormack may have engaged in conduct such that he did not comply with s. 1041H(1) of the financial services law;
(b)Mr McCormack may have been involved in conduct where another person, Mr John William Wright (JWW), did not comply with s. 1041H(1); and
(c)ASIC had reason to believe he was likely to contravene a financial services law.
Mr McCormack lodged an application with the Tribunal seeking a review of ASIC’s decision on 15 February 2016. Although the Tribunal granted Mr McCormack a confidentiality order on 16 February 2016, that confidentiality order was revoked by consent of the parties on 1 March 2016. Although Mr McCormack had also sought a Stay Order under s. 41(2) of the Administrative Appeals Tribunal Act 1975, that application, although commenced, was adjourned and subsequently withdrawn prior to re-commencement.
The specific issues I am required to determine are:
(a)whether Mr McCormack failed to comply with a financial services law, particularly s. 1041H(1) of the Corporations Act;
(b)whether Mr McCormack was involved in a contravention of a financial services law, particularly s. 1041H(1) of the Corporations Act by JWW;
(c)whether Mr McCormack was likely to contravene a financial services law in the future;
(d)if the power to make a banning order under s. 920A(1) of the Corporations Act was enlivened, whether the preferable decision was to make a banning order; and
(e)if I were to form the view that a banning order was preferable, the appropriate length of that banning order.
THE OFFENDING CONDUCT OF MR MCCORMACK
This description of the offending conduct is taken from ASIC’s reasons for decision dated 10 February 2016, with which Mr McCormack does not disagree, and from the oral evidence provided by Mr McCormack at the hearing.
Mr McCormack completed a Diploma of Technical Analysis in 2005. He was granted a Diploma of Financial Services in 2006 and in 2014 he completed an Advanced Diploma of Financial Planning and a Diploma of Self-Managed Super. He was an Associate Member of the Financial Planning Association. Mr McCormack commenced employment with NAB on 13 November 2006, essentially, as a financial planner.
In October 2011 Mr McCormack obtained a new client, JWW. JWW explained to Mr McCormack that he was unhappy with his previous adviser, a Mr Malcolm Bell, and was of the opinion that his funds should not have been as low as they in fact were. Mr McCormack received a number of financial documents from JWW for the purpose of providing those documents to JWW’s tax accountant. In 2013, while sorting through such documents, he came across an account which he did not recognise. The account was in the name of John Wright and it covered the period 1 January 2010 to 31 March 2010. It is stated to be an MLC MasterKey Custom – Pension account. Mr McCormack knew that JWW did not have a pension account. Rather than making enquiries of JWW, assuming that this account belonged to his client JWW, Mr McCormack contacted MLC. This is where his very serious problem began.
MLC told Mr McCormack that the account had been closed and the balance rolled over into what was described as a Maritime Super account. Mr McCormack requested he be provided with the documents dealing with the rollover and MLC dutifully complied. Unknown to Mr McCormack, the account did not belong to JWW but rather to a Mr John Ian Wright (JIW). JWW had been erroneously provided with those documents by Mr Bell, the reason undoubtedly being that the name on the account was simply John Wright.
The documents provided by MLC disclosed that the balance in the account had been rolled over into two accounts held with Maritime Super. Those documents referred to the client simply as John Wright, and they provided a date of birth and residential address which Mr McCormack noted was incorrect. They also disclosed that Mr Bell was in fact John Wright’s financial adviser. Mr McCormack was also concerned by some oddities in the documents, including a Post Office Box address for the account rather than Mr Wright’s residential address. The signature on the documents was not that of JWW.
At that stage, Mr McCormack suspected that a fraud had been committed on his client. Mr McCormack phoned his client, JWW, and asked him if he had a Maritime Super account and was told that he did not. He sent to JWW documents indicating that a Mr John Wright had such an account and JWW came into his office where they discussed the matter. In cross-examination, Mr McCormack said that JWW was furious and described him as being in a rage, obviously believing that to be the reason why his super funds had been dissipated. As a consequence, rather than put the matter in the hands of the police or ASIC, Mr McCormack decided to attempt to recover those monies for his client.
On 24 June 2013 Mr McCormack contacted Maritime Super by telephone for the purpose of obtaining the balance of the two accounts into which he believed his client’s money had been transferred. In doing so, he falsely claimed that his name was John Wright. His stated intention at that time was to withdraw the balances from the two accounts held with Maritime Super and to deposit the balances into his NAB account for the benefit of JWW. In cross-examination Mr McCormack agreed that he was in breach of NAB code of conduct and that his conduct in attempting to recover the money, which he believed belonged to his client, was reckless.
While JWW was with Mr McCormack in his office at NAB on 24 June 2013, JWW, impersonating the John Wright who held the account with Maritime Super, called their office seeking to obtain withdrawal forms so that the money could be withdrawn from the Maritime Super account. A recording of that conversation was played at the hearing. Mr McCormack then assisted JWW in downloading withdrawal forms from the website and JWW completed those forms using information which Mr McCormack had provided. JWW completed two withdrawal forms which resulted in the withdrawal of $260,000 from one Maritime Super pension account in the name of John Wright and $15,000 from another superannuation account in the name of John Wright. Mr McCormack witnessed JWW signing the forms. JWW forged the signature of John Wright using the forms previously provided to Mr McCormack by MLC.
Maritime Super acted on the withdrawal forms when received and the balances of the two accounts were deposited into JWW’s NAB account on 26 and 27 June 2013. On 26 June 2013 JWW received two calls from Maritime Super confirming the receipt of the withdrawal forms, and during these calls, JWW impersonated Mr John Wright who held the accounts with Maritime Super.
On the following day, 27 June 2013, JWW called Mr Bell’s office and was told that Mr Bell had two clients with the name John Wright. He was one of them and the other a John Wright with the middle name Ian. JWW informed Mr McCormack of this on the same day.
When JWW informed Mr McCormack that the Maritime Super accounts were not in the name of a fictitious John Wright, Mr McCormack made enquiries about returning the funds in JWW’s NAB accounts to the Maritime Super accounts. However, rather than explaining the error to Maritime Super, Mr McCormack again held himself out to be JIW. When asked in cross-examination by Dr P Bender of counsel, who appeared on behalf of ASIC, why he had not told the truth about the transfer, Mr McCormack said that his primary concern at that time was to rectify the accounts prior to the end of the financial year so as to avoid causing JIW any further damage. Mr McCormack was apparently concerned that JIW would breach his concessional caps. Mr McCormack also said that he was not thinking clearly at that time.
Mr McCormack arranged for the funds to be returned to JIW’s Maritime Super accounts in two payments, $125,000 on 28 June 2013 and $150,000 on 1 July 2013. Mr McCormack posted a cheque to JIW for an amount equal to the interest lost as a result of what had occurred. In fact Mr McCormack rang JIW and told him that his name was Craig Watson. The purpose of that call seems to have been to identify JIW’s residential address and that he had previously used Mr Bell as his adviser. Dr Bender suggested that this was simply Mr McCormack covering up his fraudulent conduct.
On 28 June 2013 Mr McCormack told Mr Looby, an account manager at NAB, everything about what had occurred. That afternoon, Mr Looby initiated an investigation of the issue with NAB Fraud and NAB Client Services. He also visited JWW and they decided to visit JIW as Mr McCormack wanted to apologise personally. On 29 June 2013 Mr McCormack and JWW visited JIW and apologised for what had occurred. Apparently JIW had noticed that his accounts were incorrect and had called Maritime Super. Mr McCormack said that while JIW was very angry at first, after the explanation was fully given to him, they left on good terms.
On 26 August 2013 Mr McCormack attended an interview with NAB Fraud. Apparently Mr McCormack told NAB Fraud that JWW did not offer nor did he receive any inducement, incentive, promise or additional money to assist JWW in recovering what he believed was JWW’s money. He also apparently said that following the return of money on or about 1 July 2013, he did not escalate the matter to NAB Fraud or other management in the intervening seven week period as he was embarrassed.
In a letter dated 28 August 2013 following the NAB Fraud enquiry, the Head of Wealth, Personal VIC/TAS, Mr Terkelsen, wrote to Mr McCormack summarising the conduct which had caused concern. It requested Mr McCormack respond to those concerns by 30 August 2013. Mr Terkelsen pointed out that his written response would be used in determining any further action which may apply.
Mr McCormack did not respond but on 4 September 2013 lodged his resignation from NAB. In cross-examination Mr McCormack said he did so because he had no doubt that his employment with NAB would be terminated. Subsequently, on 1 September 2014, Mr McCormack was employed by Westpac Banking Corporation as a financial planner. In his evidence-in-chief Mr McCormack said there had been no complaints with his work while at Westpac and that his performance had been rated as high. Following notification of the banning order made against him, Mr McCormack resigned from Westpac.
MISLEADING AND DECEPTIVE CONDUCT
The first question which I am required to answer is whether Mr McCormack engaged in conduct, in relation to a financial product or financial service, which was misleading or deceptive. I am also required to determine whether Mr McCormack was involved in a contravention of a financial services law when JWW contacted Maritime Super in his presence. The prohibition of such conduct is set out in s. 1041H of the Corporations Act which, relevantly, provides:
(1)A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or financial service, that is misleading or deceptive or is likely to mislead or deceive.
Note 1: Failure to comply with this subsection is not an offence.
Note 2: Failure to comply with this subsection may lead to civil liability under section 1041I. For limits on, and relief from, or liability under that section see Division 4.
(2)The reference in subsection (1) to engaging in conduct in relation to a financial product includes (but is not limited to) any of the following:
(a)dealing in a financial product;
(b)without limiting paragraph (a):
(i) issuing a financial product;
(ii) publishing a notice in relation to a financial product;
(iii) making, or making an evaluation of, an offer under a takeover bid or a recommendation relating to such an offer;
…
(x) carrying on negotiations, or making arrangements, or doing any other act, preparatory to, or in any way related to, an activity covered by any of subparagraphs (i) to (ix).
…
The expressions, financial product and financial service are defined in s. 761A of the Corporations Act as follows:
financial product has the meaning given by Division 3.
…
financial service has the meaning given by Division 4.
The general definition of a financial product is set out in s. 763A of the Corporations Act as follows:
(1)For the purposes of this Chapter, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:
(a)makes a financial investment (see section 763B);
(b)manages financial risk (see section 763C);
(c)makes non-cash payments (see section 763D).
This has effect subject to section 763E.
…
The meaning of a financial service is defined by descriptive action in s. 766A which provides:
(1)For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:
(a)provide financial product advice (see section 766B); or
(b)deal in a financial product (see section 766C); or
(c)make a market for financial product (see section 766D); or
(d)operate a registered scheme; or
(e)provide a custodial or depository service (see section 766E); or
(f)engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.
In her closing submissions, Ms R Ellyard of counsel, who appeared on behalf of Mr McCormack, while accepting that the expression in relation to was broad, submitted that the conduct of Mr McCormack in contacting Maritime Super on 24 June 2013 may not fall within the proscribed conduct.
In its Reasons for Decision for making the banning order, ASIC explained the conduct this way:
On the morning of 24 June 2013 Mr McCormack in a call to Maritime Super falsely represented that he was ‘John Wright’. It was submitted that, regarding the account about which Mr McCormack had called ‘Mr McCormack thought at the time that this was an account which had been created in his client’s name’. I am satisfied that this conduct was likely to cause the person to whom the call was made, and hence Maritime Super, to apprehend that Mr John Ian Wright was making the call when this was not the case, and hence was likely to mislead the person and Maritime Super. I am satisfied that irrespective of the reason for the conduct, the conduct comprised a failure by Mr McCormack to comply with s. 1041H (1). …
On 24 June 2013 Mr Wright in a call to Maritime super falsely represented that he was the ‘John Wright’ who held accounts at Maritime Super. It was submitted that ‘Mr McCormack does not accept that he knew that what Mr Wright was representing to Maritime Super was false’ and ‘Rather, Mr McCormack understood that Mr Wright was representing to be the owner of the account, which Mr McCormack understood to be the case’. I am satisfied that this conduct was likely to cause the person to whom the call was made, and hence Maritime Super, to apprehend that Mr John Ian Wright was making the call when this was not the case, and hence was likely to mislead the person and Maritime Super. …
Regarding the second phone call to Maritime Super, ASIC relied on s. 79 of the Corporations Act which provides:
A person is involved in a contravention if, and only if, the person:
(a)has aided, abetted, counselled or procured the contravention; or
(b)has induced, whether by threats or promises or otherwise, the contravention; or
(c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d)has conspired with others to affect the contravention.
The transcript of the investigation by ASIC into the affairs of Mr McCormack reveals that Mr McCormack admitted he made the first call to Maritime Super by way of enquiry after he had obtained information from MLC that the account of Mr John Wright had been transferred to that entity. In fact Mr McCormack also made a second call shortly after the first call, enquiring about salary sacrifice payments going into the account and the name of the employer. Mr McCormack also agreed in cross-examination that he identified himself as John Wright to Maritime Super when making those calls.
When asked what questions he asked of the person at Maritime Super in the course of that phone call, Mr McCormack said he was seeking the account balance predominantly wanting to know if there were other accounts held in this name. When asked what he was thinking at that time, Mr McCormack said that he thought that potentially a fraud had been committed on JWW. He said: This is a fictitious account that has been established. In order to ring Maritime Super in the first place, Mr McCormack said that he obtained the information from the roll-over statement given to him by MLC. In fact the roll-over document was given to Mr McCormack by JWW who, in turn, received that statement from Mr Bell; Mr Bell undoubtedly mistakenly believing it belonged to JWW rather than JIW. The roll-over form simply had the name John Wright on it. There was nothing there to alert JWW or Mr McCormack that it was not a document dealing with the account of JWW.
On the afternoon of 24 June 2013, Maritime Super received another telephone call from someone purporting to be John Wright. In a document prepared by Maritime Super, the following is said about that telephone call:
John Parker received a call from someone purporting to be John Wright (different voice then [sic] previous calls) requesting a copy of Pension Application form to be emailed directly to his financial planner Gerard McCormack. There is a second person audible in the background when this person is put on hold.
-we believe this is John W Wright and he is misrepresenting himself in the presence of Gerard McCormack who sounds like he is coaching him.
-the application form which contains the signatures is emailed directly to Gerard McCormack.
…
There was no dispute about the content of the conversations to which I have referred above. Mr McCormack has admitted that he misrepresented to Maritime Super that he was the John Wright who had a superannuation and pension account with Maritime Super. Mr McCormack also admitted that he was present and coached JWW when he made the call to Maritime Super on the afternoon of 24 June 2013. If I were to find that Mr McCormack’s conduct amounted to a contravention of s. 1041H(1) of the Corporations Act, then clearly Mr McCormack can be said to have been involved in a contravention when he aided, abetted, counselled or procured the contravention; or had been in any way, by act or omission, directly or indirectly, knowingly concerned in and party to the contravention. The only question is whether the plainly misleading and deceptive statements made to Maritime Super were in relation to a financial product or a financial service.
The courts have had many occasions in which to examine the phrase in relation to, where it appears in the Corporations Act and in many other circumstances. A helpful summary of the general approach to be taken in respect of this phrase may be found in the Federal Court of Australia decision in Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472 (Maritime Union case) where his Honour, Hill J, explained at 487-488:
It may be accepted that there will always be a question of degree involved where the issue is the relationship between two subject matters. The words “in relation to” are wide words which do no more, at least without reference to context, than signify the need for there to be some relationship or connection between two subject matters: see Smith v Commissioner of Taxation (Cth) (1987) 164 CLR 513 at 533 per Toohey J and PMT Partners Pty Ltd (In liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 at 328 per Toohey and Gummow JJ. But the phrase is both “vague and indefinite”: see per Taylor J in Tooheys Ltd v Commissioner of Stamp Duties (NSW) (1961) 105 CLR 602 at 620. Like the phrase “in respect of”, the phrase “in relation to” will not, at least normally, apply to any connection or relationship no matter how remote: see Technical Products Pty Ltd v State Government Insurance Office (Qld) (1989) 167 CLR 45 at 51 per Dawson J. The extent of the relationship required will depend upon the context in which the words are used.
As Beaumont and Lehane JJ said in Joye v Beach Petroleum NL (1996) 67 FCR 275 at 285 [Joye] in discussing a number of the cases dealing with “relates to”:
“… it will depend upon context whether it is necessary that the relationship be direct or substantial, or whether an indirect or less than substantial connection will suffice.” (References omitted.)
Following the guide provided by Hill J in the Maritime Union case and Beaumont and Lehane JJ in Joye’s case, examples of engaging in conduct in relation to a financial product, albeit not exclusive, are set out in s. 1041H(2). At the very least, they provide a context in which to examine whether particular conduct falls within or outside those provisions.
It is reasonably plain that while the expression used is in relation to and it is ordinarily construed widely, the connection between the misleading or deceptive conduct and the financial product is the relationship between the conduct and the product itself. It need not necessarily be a direct relationship. A financial product is a facility into which a member of the public will invest his or her money in order to obtain subsequent financial gain. It is the instrument such as shares or property or a scheme such as a managed investment into which the money is invested.
On the other hand, a financial service is defined by particular actions. While the list of those activities which are considered, for the purposes of the Corporations Act, to be a financial service, are reasonably wide, they deal more specifically with the product itself including activities such as providing financial product advice or dealing with a financial product. It may include providing custodial or depository advice and it may include the kinds of activities prescribed by regulations.
Ms Ellyard, on behalf of Mr McCormack, submitted that his conduct was not in relation to a financial product or service. She referred to the non-exhaustive definition of what constitutes conduct in relation to a financial product as set out in s. 1041H(2) of the Corporations Act. Ms Ellyard submitted that the definition includes dealing in a financial product but that Mr McCormack’s actions could not be described as dealing in a financial product as described in s. 766C of the Corporations Act. She submitted that the conduct described in s. 1041H(2) suggested conduct of a far more substantial and complete nature.
On the other hand, Dr Bender, who also referred to s. 1041H(2), pointed out that the conduct referred to in that section of the Corporations Act was not conclusive as the opening words stated that the conduct referred to was inconclusive. Plainly, that submission must be correct. Dr Bender also referred to the Full Court of the Federal Court of Australia decision in Australian Securities and Investments Commission v Narain (2008) 169 FCR 211. The issue before the court in that case was whether Mr Narain, then the managing director of a listed public company, made a false and misleading statement about the company’s product when he, along with assistance from others, prepared an ASX release announcing the results of certain tests; that announcement affecting the price of its shares. Finkelstein J said, at 214:
…In the context of Pt 7.10 generally, and s 1041H in particular, the expression ought to receive broad construction. One important object of the Part is to ensure that participants in the market for financial products and financial services act with integrity and honesty and that consumers are adequately protected. To further this object I do not think the connection between misleading statements on the one hand and shares in the company on the other must necessarily be immediate or direct. I particularly did not accept as a necessary condition for conduct to be “in relation to a financial product” that the conduct must “on its face” refer to or, as the judge would have it, “deal with” the financial product. With greatest respect to those who hold the opposite view, that approach gives s. 1041H an unnecessarily narrow construction; a construction that will not promote its objects.
Jacobsen and Gordon JJ added the following, at 222:
There is a wealth of authority for the proposition that the expression “in relation to” is extremely wide and that its meaning will be determined by the context. The leading authorities were collected and stated by Beaumont and Lehane JJ in Joye v Beach Petroleum NL (1996) 67 FCR 275 at 285; see also Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472 at [68] per Hill J.
As those cases point out, the words “in relation to” signify the need for there to be some relationship or correlation between the two subject matters that are specified.
But as Hill J observed in ACCC v Maritime Union of Australia 114 FCR 472 at [68] there will always be a question of degree involved where the issue is the relationship between those matters.
Their Honours referred to the Revised Explanatory Memorandum to the Financial Services Reform Bill 2001 (Cth) and then went on to say, at 223:
But what the Revised Explanatory Memorandum shows is that the particular statutory context is that of a prohibition against misleading and deceptive conduct; the relationship between the two subject matters is that of misleading conduct and financial products. So much is also plain from the terms of s 1041H(1) itself.
Misleading and deceptive conduct takes many forms. The degree of the relationship between the financial product and the proscribed conduct is informed by the examples set out in s 1041H(2). They range from issuing a financial product (s 1041(2)(b)(i)) to carrying on negotiations or making arrangements or doing any other act preparatory to “or in any way related to” an activity referred to in the nine earlier examples listed in that subsection: see s 1041H(2)(b)(x).
In our view this indicates that the relationship which is contemplated by s 1041H (1) is at the lower end of the spectrum so that any indirect or less than substantial connection is sufficient.
Dr Bender also referred to s. 764A of the Corporations Act which describes specific things which are financial products (subject to subdivision D) and in particular to subsection (1)(g) which provides:
(g)a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993;…
A superannuation interest is defined in s. 10 of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) as:
“superannuation interest” means a beneficial interest in a superannuation entity;
The expression superannuation entity is also defined in the SIS Act:
“superannuation entity” means:
(a)a regulated superannuation fund; or
(b)an approved deposit fund; or
(c)a pooled superannuation trust.
There was no dispute in this case about whether Maritime Super was a regulated superannuation fund. Therefore, I am prepared to accept that it is such a fund.
It is not possible to conclude otherwise than there must be a connection between a beneficial interest in a superannuation entity, being Maritime Super, and the misrepresentations made by Mr McCormack when attempting to identify the beneficial interest held by the person named John Wright. While it is correct to say, as does Ms Ellyard, that the connection is indirect and directed primarily towards ownership rather than the product itself, I find that it does not take the conduct outside of what is contemplated by s. 1041H of the Corporations Act. I find that Mr McCormack did breach s. 1041H(1) by his misleading conduct when speaking with Maritime Super and arranging for withdrawal of the monies in the account name of John Wright. Mr McCormack carried out that conduct in his capacity as a financial planner.
I also find that Mr McCormack was involved in a contravention of s. 1041H by reason of his conduct which, in effect, facilitated JWW obtaining from Maritime Super two application forms for withdrawal of monies from the John Wright account. Mr McCormack was also present when JWW completed those forms and forged the signatures of JIW. That conduct satisfies what is set out in s. 79 of the Corporations Act where a person has aided, abetted, counselled or procured the contravention; or has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or has conspired with others to effect the contravention.
Section 1041H of the Corporations Act falls under Chapter 7. The expression financial services law is defined in s. 761A to include a provision of Chapter 7 amongst others. There can be no doubt that Mr McCormack’s contravention of s. 1041H constitutes a contravention of a financial services law.
Having made the findings I have regarding Mr McCormack’s contravention of a financial services law, ASIC’s power to make a banning order pursuant to s. 920A of the Corporations Act is enlivened.
BANNING ORDER
Section 920A of the Corporations Act relevantly provides:
(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;
…
(g)the person has been involved in the contravention of a financial services law by another person;…
Much has been written about the purpose to be achieved by making a banning order or a disqualification order. Deputy President S A Forgie in Re Howarth and Australian Securities and Investments Commission [2008] AATA 278; (2008) 101 ALD 602; 48 AAR 10 (Howarth) canvassed many of the authorities dealing with such decisions, noting that they were not necessarily consistent. She concluded, at [180]:
The weight of authority in the Federal and Supreme Courts to whose judgements 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 the 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 offence. 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. …
It is perhaps useful also to refer to the High Court of Australia decision in Rich v Australian Securities and Investments Commission (2004) 220 CLR 129. While McHugh J agreed with the majority, he also offered the following, at 148:
… Despite frequent statements by the judges who administer the legislation that the purpose of disqualification provisions is protective, what the judges actually do in practice is little different from what judges do in determining what orders or penalties should be made for offences against the criminal law. Elements of retribution, deterrence, reformation and mitigation as well as the objective of the protection of the public inhere in the orders and periods of disqualification made under the legislation.
If the disqualification provisions were purely protective, the only issue for the court would be whether the defendant is now or will in the future be a fit and proper person to manage corporations. If the court were to find that, despite the misconduct, the defendant is now a fit and proper person to manage corporations, the court should refuse to make an order of disqualification. If the court were to find that the defendant would be a fit and proper person to manage corporations in the future, the only issue for determination would be the time when that would occur. …
Given the above, it is safe to say, as did ASIC when making the banning order, that ASIC may make a banning order for the purpose of protecting the public, deterring like conduct and maintaining investor and consumer confidence in financial markets. Although its effect may act in a punitive way, it is not intended as a punishment.
The question for me to decide then is whether the banning order made on Mr McCormack for the reasons of his conduct as I have described above, will serve the purpose for which it is made.
Ms Ellyard submitted that this is one of those occasions, which is so exceptional, that the rationale for making an order is not warranted. She referred to the Tribunal decision in Re Rosenberg and Australian Securities and Investments Commission [2010] AATA 654; (2010) 117 ALD 582 (Rosenberg). In particular, the Tribunal said, at [115]:
… This was an exceptional situation, unlikely to be repeated and, without doubt, Mr Rosenberg will be circumspect in taking any future action of the kind taken in this case. We note there is also no other evidence of Mr Rosenberg having breached provisions of the Act.… we doubt whether there is any further specific deterrent effect to be gained from making a banning order in respect of Mr Rosenberg. Moreover, given the exceptional circumstances of this case, we also doubt whether any more general deterrent effect will flow from a banning order.
Ms Ellyard also submitted that Mr McCormack had no criminal history whatsoever. He had completed Diplomas of Technical Analysis and Financial Services in 2005 and 2006 respectively. He was employed by NAB from 23 October 2006 and was authorised to deal in a variety of financial products. During his employment with NAB, he completed a range of training courses. While working in that role with NAB, Mr McCormack was not the subject of any client complaints or any other complaints. In 2014 Mr McCormack completed an Advanced Diploma of Financial Planning. After being employed by Westpac, Mr McCormack was not the subject of any complaint by clients. In fact, except for the subject matter of this proceeding, Mr McCormack has not been the subject of any disciplinary action either from NAB or Westpac. Mr McCormack made full disclosure to Westpac regarding the circumstances which led to him resigning from NAB.
Mr McCormack made it clear in his oral evidence that he had no intention of obtaining any benefit whatsoever from his conduct which led to the withdrawal of monies from the superannuation account of JIW. The objective evidence supports that statement. His sole purpose of taking the actions that he did was to right a wrong which he firmly believed had been perpetrated on his client, JWW. In his s. 19 examination under the Australian Securities and Investments Commission Act 2001 (ASIC Act), Mr McCormack accepted he should not have acted the way he did and, with the benefit of hindsight, would not act the same way again in similar circumstances should they arise. He would adopt a far more cautious approach, contacting the police to begin with. Also, as was evident from his oral evidence, Mr McCormack was highly embarrassed by his actions and the publicity that was given to his case. By way of mitigation, Ms Ellyard submitted that:
(a)Mr McCormack’s conduct was the result of a genuine mistake which arose from very unusual circumstances;
(b)Mr McCormack has a clear understanding of the obligations of his role;
(c)because of the highly unusual and exceptional circumstances of the case there is no basis to find that the conduct will or is likely to be repeated;
(d)this was an isolated event and in no way reflected the standard of work usually performed by Mr McCormack;
(e)given the highly unusual nature of the event, there is no pattern of behaviour or course of conduct from which the public requires protection;
(f)no person lost any money from the conduct;
(g)Mr McCormack obtained no financial gain from the conduct; and
(h)there was no evidence of any previous or subsequent misconduct by Mr McCormack.
On the other hand, ASIC contended that while the power to make a banning order under s. 920A is discretionary, that discretion must be exercised bona fide having regard to the policy and purpose of the statute conferring the authority and the duties of the decision maker to whom it was given.
ASIC also referred to the objects of Chapter 7 dealing with financial services and markets. Section 760A of the Corporations Act relevantly provides:
The main object of this Chapter is to promote:
(a)confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(b)fairness, honesty and professionalism by those who provide financial services; and…
While ASIC also referred to s. 1(2) of the ASIC Act regarding its functions, that section refers essentially to the performance of the financial system and to promote confident and informed participation of investors in it. Respectfully, it adds little if anything to the issue of whether a banning order should be made. Of more concern should be the circumstances which gave rise to a decision being made to issue a banning order. Each case must be considered on its merits.
McHugh J in Rich referred to the decision of Bryson J in Re One.Tel Ltd (In liq); Australian Securities and Investments Commission v Rich [2003] NSWSC 186; (2003) 44 ACSR 682 (One.Tel), and said, at 155:
…His Honour’s reasons show that the jurisdiction cannot be characterised as purely protective. They reflect an approach that can be found in many other cases concerning the disqualification from office of company officers. Among the matters Bryson J thought were relevant were the second defendant’s age and stage of career at which disqualification would fall, the office held, the extent of the second defendant’s responsibilities in terms of the value of assets, the complexity of the activities and the number of people within the range of adverse effects of the second defendant’s breaches of duty …. His Honour warned that the guidance to be obtained from other decisions with respect to the reasons for ordering disqualification and the period of disqualification is limited. Each decision is closely related to its own facts, which tend to be highly complex. Further, the circumstances of each defendant are special to that person …. Bryson J also said that there is “not much to be gained from considering or attempting to classify periods of disqualification which have been imposed in other cases”…. That is because breaches of the Corporations Act, the circumstances of the breaches and the outcomes of the breaches, including the number of persons and the value of interests affected, may take many forms. In addition, the personal circumstances of persons in breach vary greatly ….
While I accept that the overarching framework in which financial services are provided must be considered, ASIC is of course required to take whatever action is necessary in order to ensure that the law is observed and that undesirable persons should not be permitted to participate. I also agree with the contention that private interest considerations must not be allowed to prevail over the public given the protective purpose of banning orders.
It should be apparent from the circumstances of Mr McCormack’s offending, that it cannot be said to fall within the category of actions taken by financial planners in the ordinary course of dealing with clients and their investment requirements. The circumstances encountered by Mr McCormack must, on any assessment, be regarded as highly unusual. Mr McCormack’s actions were the result of a number of coincidental factors which led to the belief that his newly acquired client, JWW, had a basis for expressing to him that he had some concerns about his previous financial adviser, Mr Bell, and his belief that some of his funds had been dissipated while Mr Bell was his financial adviser.
Having instilled in Mr McCormack’s mind that something may have been amiss with the way in which JWW’s account had been handled, it is understandable that Mr McCormack would have been sensitive to any matter which, at least to his mind, may have been the cause of the problem. Therefore, when JWW provided to Mr McCormack documents which included a statement described as a Rollover Benefits Statement which had the name John Wright as the individual’s details, including a post office box address, which disclosed that the sum of $109,649.03 had been rolled over into a Maritime Super account, it is understandable that his suspicion was aroused. JWW was not aware that Mr Bell had two clients with the name John Wright, nor was Mr McCormack. The chance of that occurring must be regarded as, at least, very slim. It is also understandable that Mr McCormack had some concerns about making enquiries of Mr Bell, given what JWW had told him about Mr Bell.
Having established the basis for the action he took, while not in any way condoning or accepting that it should be excused on those grounds, it should be apparent that the risk of such an event occurring again must be extraordinarily low.
I of course have concern about the way in which Mr McCormack then proceeded to recover the moneys for his client, JWW. It is clear that Mr McCormack gave no consideration at all to the possibility that the impression he had formed may be incorrect or of the consequences of his actions should that be the case. While I have no doubt that Mr McCormack’s concern was solely for that of his client, the actions he took can only be properly described as foolhardy. His conduct was also deliberately deceptive as, at all times, he knew that he was not entitled to the information he sought from Maritime Super nor was the withdrawal of funds from that account lawfully obtained. It was, as ASIC described, misleading and deceptive conduct of a serious nature.
Dr Bender also submitted that Mr McCormack’s conduct subsequent to the discovery that the moneys in the Maritime Super account in the name of John Wright were the property of JIW, and not that of JWW, disclosed that Mr McCormack attempted to cover up his wrongdoing and did not make full disclosure as he initially claimed. First, he impersonated JIW in order to obtain his superannuation contribution details so that the moneys could be returned to him. Also, he called JIW in order to establish his identity but held himself out to be Craig Watson. When an investigation was conducted by NAB and in the course of an interview, a recording was played of one of the calls he made to Maritime Super, he denied it was his voice on the recording. Subsequently, he resiled from that denial but stated that he did not know whether he made that call. He later admitted he had lied in the course of his private examination by ASIC.
Mr McCormack’s explanation for in effect attempting to cover up his wrongdoing was that he was seriously embarrassed by his own actions and simply wanted the matter to go away. While I accept that explanation, it does raise the question as to whether Mr McCormack was seriously of the view that the entire matter could simply be brushed aside. It should have been apparent to Mr McCormack at that stage that all of the facts would eventually be disclosed and that it was in his interest to admit to his conduct in full. While I can understand the embarrassment which Mr McCormack must have felt at that time, it is of some concern that he was not able to overcome that and provide a full and accurate account of what occurred.
However, I accept Ms Ellyard’s submissions that Mr McCormack’s conduct in dealing with what he believed to be misappropriated funds is not indicative of the way in which he normally performs his role as a financial planner. Subsequent to these events, Mr McCormack has undertaken further studies to enhance his skills in that field. Furthermore, there was no evidence of any complaints by clients which might suggest Mr McCormack’s performance as a financial planner should be questioned. It does appear to be an aberration as was submitted by Ms Ellyard. I accept that Mr McCormack was not motivated by financial gain and no allegations of dishonesty were levied against him. While commonly, fraud may be understood to include dishonesty, the Corporations Act appears to distinguish those expressions. This was explained by DP Forgie in Howarth where she said, at [122]:
In view of what appear to be conscious choices that have been made by Parliament to use “fraud”, “serious fraud” and “dishonesty” throughout the Corporations Act, it seems to us that we need to give the word “fraud” an interpretation that distinguishes it from the others. In particular, “dishonesty” does not equate with fraud and vice versa. It seems to us that we should give the word “fraud” a meaning consistent with the meaning that it has long had at common law. That requires two elements before fraud can be established. The first is that the person has deceived or had the intention to deceive. That may be demonstrated by, for example, the person’s positive acts or statements or by that person’s withholding of information. The second is that there has been some loss of property or of an advantage or the possibility of the loss of property or of an advantage.
Ms Ellyard also submitted that Mr McCormack’s conduct did not result in any loss or detriment to consumers of financial products and financial services and therefore there was no evidence to suggest that Mr McCormack posed a risk to the investing public.
However ASIC has a different view about that conduct. It submitted:
(i)there was detriment to the victim’s funds which were misappropriated and that if events had taken a different course, the funds may well have been dissipated;
(j)Mr McCormack’s deception when contacting Maritime Super caused it to provide confidential information about JIW and it was deceived into releasing his funds on false withdrawal forms;
(k)Mr McCormack’s conduct exposed NAB to possible liability;
(l)Mr McCormack’s conduct enabled JWW to perpetrate a fraud by falsifying signatures and providing false information to Maritime Super; and
(m)Mr McCormack’s conduct has the capacity to reduce public confidence in the financial system as a whole.
Although I accept some of the submissions made by ASIC regarding the way in which the conduct should be viewed, it should be obvious that there was never any intention by either Mr McCormack or JWW to misappropriate funds belonging to another person. Once it was discovered that the funds withdrawn from Maritime Super were in fact the funds of JIW, there was never any question that those monies would not be returned to JIW or that if JIW had in fact suffered any detriment as a consequence of the withdrawals, that Mr McCormack would not make good that deficit. That being the case, there could be no basis upon which NAB would become liable for any loss.
ASIC also contended that a preparedness to distance oneself from the offending conduct may also be a relevant matter to the imposition of a banning order as can a failure to gain an insight into what the person has done wrong. While I accept that contention, respectfully, that is not an accurate description of Mr McCormack’s conduct after he discovered his gross error. Rather than distance himself from that conduct, he took immediate steps to redress the error and refund the moneys to JIW including any losses which may have been incurred. He also visited JIW personally to apologise. I accept that Mr McCormack’s subsequent less than full disclosure of exactly what occurred may be the cause for some concern about his character overall. However, as was apparent to me in the course of Mr McCormack’s oral examination at the hearing, his serious embarrassment at what is now obvious to him was remarkably foolish behaviour, inhibited his forthright disclosure.
While both parties referred to cases which they considered supported their respective contentions with regard to whether a banning order should be made; Ms Ellyard to Rosenberg, and Dr Bender to ReDollas-Ford and Australian Securities and Investments Commission [2006] AATA 704; (2006) 91 ALD 747 (Dollas-Ford), in my respectful opinion, they do not assist either party. That is because the circumstances in which Mr McCormack’s offending took place are significantly different to those in both cases.
In the Rosenberg case, Mr Rosenberg was the managing director of a corporate entity which conducted securities broking operations. In the course of conducting those operations, Mr Rosenberg became concerned about the fact that administrators might have been appointed to an entity to which the broker had on-lent certain securities. That concern led Mr Rosenberg to initiate an off-market transaction which, if certain rules are obeyed, would be lawful. Having obtained bank finance to fund the transaction, three days later Mr Rosenberg advised that the transaction would be cancelled. ASIC formed the view that Mr Rosenberg’s actions had the effect of causing or creating a false or misleading appearance of active trading on the financial market operated by the ASX. Mr Rosenberg proceeded with the transaction because he was motivated to protect his company’s clients’ interests (and his own interests) but did not intend to manipulate the market or seek a benefit from the transactions. ASIC issued a banning order prohibiting Mr Rosenberg from providing any financial services for a period of four years. The Tribunal found that Mr Rosenberg’s conduct was not misleading or deceptive and therefore he had not contravened s. 1041H of the Corporations Act. However, the Tribunal said that even if it had found Mr Rosenberg to have been in contravention of the Corporations Act, it considered that a banning order was disproportionate to the alleged contraventions.
The Dollas-Ford case, also a Tribunal decision, was concerned with a financial services business previously operated by Ms Dollas-Ford but which she had transferred to her son, Mr Dollas. In May 2005 the superannuation fund informed Mr Dollas that the clients in question were requesting their funds be transferred to MLC through the NAB Super fund. There was no evidence that they had completed any transfer forms at that stage. Mr Dollas attempted to contact the clients because in previous discussions with the clients they indicated to him they had decided to retain their investment with the original super fund. Unable to contact the clients and because he was leaving to go overseas, he asked his mother, Ms Dollas-Ford, to contact the clients. She attempted to do so but was only able to speak with their daughter because the clients were also overseas until the end of May 2005 and could not be contacted. Ms Dollas-Ford became concerned about preserving the present position until she had the opportunity to clarify the situation with the clients. However, rather than acting on instructions, Ms Dollas-Ford wrote a letter purporting to be from the clients to the super fund requesting that the funds transferred to MLC be held until the end of the following month. Apparently Ms Dollas-Ford had previously had a similar situation where clients had signed a form to rollover their super into another fund but after contacting the client, found it was not their intention. In early June 2005 when Mr Dollas returned from overseas, the clients made him aware of the delay in transferring their account to MLC. He sent to the clients a letter of apology. There was no obvious detriment suffered by the clients and in fact it seems they had a small gain as a result.
Apparently Counsel for Ms Dollas-Ford conceded at the hearing that the facts disclosed her conduct to be dishonest within the meaning of s. 1041G of the Corporations Act. It defines dishonest conduct as:
(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.
The decision does not make clear why that was accepted. The Tribunal simply stated that the applicant’s conduct was palpably dishonest. The applicant did not act to obtain any benefit for herself or her son. There was no evidence of any loss suffered by the clients and the applicant had shown contrition and remorse, accepting the wrongfulness of her conduct. Otherwise, she was of good reputation and character. She assisted ASIC in its enquiries and apparently resisted a suggestion made by the clients that the matter would go away by the payment of a sum of money to charity. The Tribunal concluded, at [23]:
Having regard to my findings of fact and considering the overriding requirement for protection of the public and to have regard to all unified elements of retribution, deterrence, reformation and mitigation, I conclude that notwithstanding the applicant’s previous good character, the personal hardship she will suffer, the contrition and acceptance shown on her part, the absence of any loss on the part of the clients, the fact that the applicant was not motivated out of any notion of gain to herself or her son (and no such gain was obtained) and her willingness to assist the respondent, the legislative objective of personal and general deterrence and the protection of the public nevertheless require that this serious act of dishonesty, albeit an isolated incident, result in the making of a banning order.
Although the Tribunal set out its findings on what it claimed was the evidence, with respect, it did not set out how it arrived at its findings or the pathway by which the evidence led to its findings. It appears simply to have accepted the facts, there not being any obvious dispute about them. More significantly, the passage I have quoted above does not, in my view, explain why a banning order was appropriate in the circumstances of that case. The Tribunal simply referred to those elements which would ordinarily give rise to a banning order being made but said nothing about how the making of a banning order in the circumstances of that case would achieve the stated objectives, such as protection of the public, deterrence and reformation. The Tribunal set out this quote which was apparently a response from Ms Dollas-Ford to a question regarding the propriety of her actions, at [18]:
I realise that I’ve done the wrong thing. I’m sorry about that. I am deeply embarrassed and I would never do it again. I haven’t done it before, because I’ve always been able to contact the clients. I know it was wrong, but the only thing I was doing was just to delay till they got back. It wasn’t to stop it altogether. That wasn’t the intention. The letter said to hold till the beginning of June.
It should be apparent from what I have stated above that I have found both the Rosenberg and the Dollas-Ford decisions to be unhelpful. The Rosenberg decision seems to be based on the disproportionate consequences, a factor for which I am unable to find any support in court decisions. The Dollas-Ford decision simply does not set out the basis upon which the Tribunal came to a conclusion that a banning order was the preferable decision in order to achieve the purposes for which such an order was intended. Needless to say, I accept the caution expressed by Bryson J in Re One.Tel and repeated by McHugh J in the Rich case.
In my opinion, the facts of this case require the discretion to be exercised in the context of considering the protection of the public, deterrence and the maintenance of investor and consumer confidence in the financial services industry.
It seems to me that in respect of the first consideration, as was stated by the Full Court of the Federal Court in Australian Securities Commission v Kippe (1996) 20 ACSR 679, although dealing with the predecessor of s. 920A of the Corporations Act, that is, s. 829 of the Corporations Law, the section is clearly characterised as protective. The Court said, at 687 – 688:
The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventative in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein.
Chapter 7.3 of the Law, the legislative context in which s 829 is found, is concerned with persons engaged in the securities industry. Division 5 is concerned with the exclusion of persons from participation in the industry and to preserve the effective operation of the industry. The broad range of discretionary remedies supports the view that the purpose of the provision is to protect the operation of the industry by moulding the remedy to the particular circumstances of the individual case under consideration.
If that statement is correct, and I accept that it is, then a banning order should only be made where the evidence discloses that there is a (perceived) real threat that the conduct complained about or conduct in similar circumstances is likely to arise again in the future. Furthermore, that threat must be a threat to the public interest and public confidence in the securities and futures industry. Such a threat would ordinarily be apparent where the conduct complained of was conduct which involved the holder of a financial services licence performing the duties common to his or her role in that capacity.
However, that was clearly not what gave rise to ASIC making a banning order in Mr McCormack’s case. While it may not have been a unique situation, the confluence of circumstances which preceded Mr McCormack adopting the approach he did in order to recover monies he was firmly of the view had been wrongfully taken from JWW would, realistically, be unlikely to ever arise again were Mr McCormack to continue to work as a financial planner. Furthermore, I have no doubt whatsoever that Mr McCormack is acutely aware of the impropriety of the actions he took to recover that money. He was solely motivated by and focused on the fact that his client’s funds had been misappropriated. As he said in his oral evidence, he would never take that course of action again in the same or similar circumstances. Given his flawless conduct as a financial planner other than in the circumstances of this case, I accept his evidence that he has always carried out his duties as a financial planner so as to benefit his clients.
Furthermore, ASIC did not suggest that Mr McCormack’s conduct constituted dishonesty. Therefore, while the methods he adopted in order to recover what he firmly believed was JWW’s money were clearly inappropriate, it was obvious from his oral evidence that he is now acutely aware of his reckless approach to solving that problem. Furthermore, because he has received significant adverse publicity in the press as a consequence of his actions and a subsequent ban from acting as a financial planner, even if the circumstances or similar circumstances were to arise again, I find it highly improbable that he would repeat his conduct. Therefore, the imposition of a ban, for whatever length of time, would have no effect whatsoever in alleviating a threat to the public interest or confidence in the financial services industry. Its sole purpose would be to penalise Mr McCormack for the poor judgement he exercised in dealing with that matter. That is not a ground, on its own, which would justify making such an order.
As for the deterrent effect of a banning order, given the extraordinary circumstances in which this conduct arose, and the unlikelihood of it being repeated, I find it is highly unlikely that a banning order would have any deterrent effect to others who might consider similar conduct. That is because the confluence of the circumstances in this case which gave rise to Mr McCormack’s conduct is unlikely to arise again. It would of course be different if his conduct were related to the ordinary tasks conducted by a financial planner in the provision of financial products or services. If that were the case, it is likely that a banning order would have a deterrent effect to others performing the same activities. Given the highly unusual circumstances of this case, I find that the banning order would be unlikely to have a deterrent effect. That is essentially because it is highly unlikely that any other financial planner would find themselves in similar circumstances. In fact, the adverse publicity to which Mr McCormack has been exposed as a consequence of his actions in this matter, coupled with the fact that Mr McCormack has now been prevented from working as a financial planner since 10 February 2016, should deter any other person who might find himself or herself in similar circumstances from attempting similar recovery action.
Finally, I cannot envisage how a banning order in Mr McCormack’s circumstances could have the effect of maintaining investor and consumer confidence. No consumer or investor in financial products or services suffered any financial detriment as a consequence of what Mr McCormack did. It is significant in this context that a breach of s. 1041H is not an offence and that failure to comply with that section of the Corporations Act may give rise to a civil liability under s. 1041I. Section 1041I provides for the recovery of any loss or damage suffered by a person for the reason of a contravention. Regardless, Mr McCormack ensured that JIW did not suffer any loss or damage as a consequence of his conduct.
In addition, the circumstances of Mr McCormack’s offending were so unusual that it is difficult to foresee a consumer or investor in financial products finding themselves in a similar situation. Therefore, I find that a banning order made for the purposes of maintaining investor and consumer confidence in these circumstances would be ineffective.
CONCLUSION
Although I have found that Mr McCormack was in breach of s. 1041H of the Corporations Act because he engaged in misleading or deceptive conduct in relation to a financial product or financial service, I have found that a banning order should not be made in his case.
That is because, in the very unusual circumstances of this case, I find that a banning order would not serve to protect the public. Nor would it serve to deter like conduct because of the very remote possibility of the same or similar circumstances arising in the future. It would have no effect in maintaining investor and consumer confidence in financial markets which, on the evidence before me, was not in any event affected by Mr McCormack’s conduct. No person suffered any financial detriment and therefore no loss or damages claim could arise. Mr McCormack accepted that his conduct in attempting to recover his client’s money for him was wrongful and an aberration on his part. The only purpose a banning order could serve in these circumstances is to penalise Mr McCormack. That, by itself, is plainly an inappropriate purpose.
I find that the decision made by ASIC on 10 February 2016 to ban Mr McCormack from providing any financial services for a period of five years was not the preferable decision. I set aside that decision. Therefore, ASIC must treat Mr McCormack as never having had a banning order made against him. In case there should be any doubt, the consequences of my decision should result in Mr McCormack’s name being removed from the register kept by ASIC pursuant to s. 922A of the Corporations Act which lists the persons against whom a banning order or disqualification has been made.
91. I certify that the preceding 90 (ninety) paragraphs are a true copy of the reasons for the written reasons herein of Egon Fice, Senior Member
[sgd]….........................................
Associate
Dated 14 December 2016
Date of hearing 29 July 2016 Counsel for the Applicant Ms R Ellyard
Solicitors for the Applicant Doogue O’Brien George, Ms A Smith Counsel for the Respondent Dr P Bender Solicitors for the Respondent Australian Securities and Investment Commission, Mr A Paciocco
28
13
0