Peter Seagrim and Anne-Marie Seagrim and Australian Securities and Investments Commission

[2012] AATA 583

[2012] AATA 583

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2011/3326 and 2011/3327
Re	Peter Seagrim and Anne-Marie Seagrim
APPLICANTS
And	Australian Securities and Investments Commission
RESPONDENT

DECISION

Tribunal	Deputy President D G Jarvis
Date	31 August 2012
Place	Adelaide

The decisions under review are varied by reducing the period for which Mr and Mrs Seagrim are prohibited from providing any financial services from three years to the period of six months, from 27 June 2011 until 27 December 2011.

........ [Sgnd] ........

Deputy President D G Jarvis

CATCHWORDS

CORPORATIONS LAW - Finance - banning orders made by ASIC prohibiting applicants from providing financial services for three years - advice to clients to change existing investments due to exigencies of global financial crisis - inadvertent breaches of financial services laws - discussion of relevant considerations - decisions under review varied by reducing duration of banning orders to six months.

LEGISLATION

Corporations Act 2001 (Cth), ss 912A, 912D, 920A, 941B, 942C, 945A and 947C

Corporations Regulations 2001 (Cth), reg 7.7.07(3)

CASES

Daniels Corporations International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543

Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60
Drake v Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
George v Rockett (1990) 170 CLR 104
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24
Re Filsell and Comcare (2009) 109 ALD 198
Re HIH Insurance Ltd (in provisional liquidation); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80
Re Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602
Re Lavery and Registrar, Supreme Court (Qld) [No. 2] (1996) 23 AAR 52
Rich v Australian Securities and Investments Commission (2004) 220 CLR 129

Shi v Migration Agents Registration Authority (2008) 235 CLR 286

SECONDARY MATERIALS

ASIC Regulatory Guide 98 (July 2012)

ASIC Regulatory Guide 175 (April 2011)

REASONS FOR DECISION

Deputy President D G Jarvis

31 August 2012

1. In 1984 the applicant Peter Seagrim commenced working as a financial planner.  He later took the applicant Anne-Marie Seagrim into partnership, and in 1987 their partnership business was acquired by a company, Seagrims Pty Ltd.

2. On 27 June 2011, a delegate of the respondent, the Australian Securities and Investments Commission (ASIC), decided to ban Mr and Mrs Seagrim from providing financial services for a period of three years pursuant to s 920A of the CorporationsAct 2001 (Cth) (the Act).

   ISSUES BEFORE TRIBUNAL

3. The issues before the tribunal are whether in all of the circumstances banning orders should have been made against Mr and Mrs Seagrim, and if so, the period for which they should be banned from providing financial services.

4. On the same day as the banning orders were made against Mr and Mrs Seagrim, the delegate also made an order suspending the Australian Financial Services Licence (AFSL) of Seagrims Pty Ltd for a period of five months[1].  Counsel for ASIC, Mr N Swan, contended that as the decision to suspend the AFSL of Seagrims Pty Ltd is not under review, Mr and Mrs Seagrim could not dispute the facts underlying that decision, and that I would be acting beyond the tribunal’s jurisdiction if I were to inquire into those facts in the present proceedings.

   [1] See Exhibits R1, T2; R14, T2; and R10.

5. The fact that the company’s AFSL was suspended must of course be accepted in these proceedings, and indeed Mr and Mrs Seagrim, who were self-represented, did not contend otherwise. I indicated at the outset of the proceedings that I did not, however, accept the submission that I could not inquire into the circumstances underlying the suspension of the company’s AFSL. Many of the assertions raised by ASIC in the present proceedings relate to the conduct of Mr and Mrs Seagrim as advisers and directors of Seagrims Pty Ltd, and were integral to the delegate’s decision to make the banning orders that are the subject of the applications by Mr and Mrs Seagrim for review. Further, ASIC’s Statement of Facts, Issues and Contentions alleges that Mr and Mrs Seagrim, as directors of Seagrims Pty Ltd, failed to ensure that Seagrims Pty Ltd complied with its obligations under s 912A(1) of the Act, relating to company’s obligations as the holder of an AFSL. It is well established that doctrines such as res judicata or issue estoppel do not apply to proceedings in this tribunal[2], and in any event, Mr and Mrs Seagrim were not parties to the proceedings between ASIC and the company.  Mr Swan did not articulate any legal basis for ASIC’s contention.  In my view, in reviewing decisions to impose banning orders it would be inappropriate, as a general principle, for the tribunal to be constrained by a technical or adversarial approach from receiving and evaluating evidence that might bear upon the correct or preferable decision, in view of the considerations to which I will refer below that are relevant to the review, and the importance of applying those considerations in the context of the particular facts of each case.

   [2] See my analysis of relevant authorities in Re Filsell and Comcare (2009) 109 ALD 198.

   BACKGROUND FACTS

6. The following background facts are not in dispute, and are based on the evidence of Mr and Mrs Seagrim and the documentary material before me.  Mr and Mrs Seagrim gave evidence in a straight forward manner.  They were patently honest witnesses, and I accept their evidence without question.

7. Mr Seagrim started his business in Adelaide, and soon afterwards opened an office in Port Lincoln.  The partnership of Mr and Mrs Seagrim was operating in Port Lincoln when Seagrims Pty Ltd acquired their partnership business.

8. The business grew, in part by acquiring the portfolios of other financial planning businesses.  By 2011, Seagrims Pty Ltd’s principal office was in Port Augusta.  It also had offices in Port Lincoln, Port Pirie, Whyalla and Kadina, and was providing financial advice to approximately 5,000 clients.  The company employed about 30 staff, including authorised representatives who provided financial services, and adviser management officers who provided clerical support to the authorised representatives.  It had approximately $250 million in funds under management. 

9. The company had obtained an AFSL in June 2003.  The licence authorised it to carry on a financial services business with retail clients by:

   (a)providing financial product advice for certain classes of financial products (including interests in managed investment schemes); and

   (b)dealing in a financial product (including by applying for, acquiring, varying or disposing of a financial product on behalf of another person in respect of certain classes of products, including interests in managed investment schemes and superannuation)[3].

   [3] Exhibit R1, T5.11, page 144.

10. Mr and Mrs Seagrim were at all material times directors of Seagrims Pty Ltd and the responsible persons for the purposes of its AFSL[4].  They were also authorised representatives of Seagrims Pty Ltd[5].

    [4] Exhibit R1, T5.1, page 65 and T5.12, page 159.

    [5] Exhibit R1, T15.12, at page 161.

11. Following the onset of the global financial crisis in late 2007, Mr and Mrs Seagrim actively investigated available managed investment schemes with the objective of protecting their clients’ investments as far as possible from the effects of market losses.  Their clients were extremely stressed about their superannuation and investments being on a sharp decline, and the Seagrims and their staff were very worried about them.  They ran six seminars in country regions at their expense and arranged for fund managers to speak to their clients.  They commenced moving their clients as quickly as they could out of funds that had exposure to high yields, unlisted property assets and mortgage funds, and moved their clients into cash.  They did not charge their clients any additional fees for this work, but funded the work themselves.  However, they found that it was a problem trying to move their clients’ investments out of deteriorating assets quickly, because of the amount of paperwork involved.

    Seagrims’ Involvement with Astarra

12. The Seagrims investigated other alternatives, and in March 2008, Mr Seagrim and the company’s Compliance and Finance Manager travelled to Sydney to meet with representatives of Astarra Capital Ltd (Astarra).  This was the responsible entity for managed investment schemes promoted by the Astarra Group.  Astarra was a subsidiary of Wright Global Asset Management Pty Ltd (WGA), and one Shawn Richard was at all material times a director of WGA.  A related company of WGA, Absolute Alpha Pty Ltd, was the investment manager for a managed investment scheme called “Astarra Diversified Funds”.

13. Mr and Mrs Seagrim decided that the Astarra funds were the most suitable management investment schemes for many of their clients, who had various amounts of superannuation invested, but who were under 60 years of age, and therefore could not access those funds (except in the case of extreme hardship).  Their reasons for reaching this conclusion were that the Astarra Diversified Funds included some 15 different funds, which were selected by an independent investment committee which met on a weekly basis.  Mr and Mrs Seagrim explained that in the case of other funds, their investment strategies required them to hold various percentages of the total of the funds in particular categories of assets, and these percentages had to remain fixed, or be maintained within a predetermined range, for each category of assets.  However, the Astarra fund was not limited by those predetermined percentages, and was therefore more flexible, so that a substantial proportion of assets could be converted into and held in cash.  In addition, the investment committee met on a weekly basis, and was therefore in a position to respond quickly to market conditions, whereas other funds were managed by committees which in many cases met only once every six months, even during the period of volatility in global markets.  A further advantage of the Astarra product, in the Seagrims’ assessment, was that it was a relatively small fund, and this assisted it to be flexible, and meant that Mr and Mrs Seagrim were able to have some say in the investment decisions that were made.

14. By June 2008 the Seagrims had decided to promote, where appropriate, new Seagrims-badged products (to become sub-funds of Astarra Funds) for those of their clients who were identified by their advisers as appropriate.  They developed a plan to investigate their total client base to identify which clients were suited to move into their proposed new products.  Some clients could not migrate to the new investment, because their investments were in funds that had become frozen, or they were unable to transfer life cover, held direct shares within their portfolios, or had allocated pensions (which would have been reduced as a result of a new assessment).

15. Seagrims Pty Ltd then prepared a process for migrating clients into the Seagrims-badged products.  An adviser would arrange for a Statement of Additional Advice (SOAA) to be prepared for the selected clients, recommending their migration using a template, which was drafted with involvement from Astarra Administration and Astarra legal staff, and also Seagrims Pty Ltd’s then Compliance and IT manager.

16. Seagrims Pty Ltd provided a Financial Services Guide (FSG) to their clients.  Where clients did not attend the company’s offices, documents were sent out to clients under cover of a letter which also enclosed an SOAA and a Product Disclosure Statement (PDS).  The covering letter alluded to the depressed financial environment, and advised in effect that Seagrims Pty Ltd had been very active in exploring opportunities that might help its clients’ position, and said that it had identified a boutique fund manager that, unlike nearly all other fund managers, had been able to provide consistent returns over the preceding 12 months in its conservative, balanced and growth funds.  The letter went on to say that Seagrims Pty Ltd was very concerned about its clients’ investments, and requested that the forms enclosed be returned as soon as possible.  The letter also said that the SOAA enclosed should be read in conjunction with advice documents previously provided, and offered to provide a copy if the client had not retained his or her copy.  The letter concluded:

    The information we have on file has been used to tailor our advice to you.  We now ask that you carefully read the recommendations.  Should you have any questions please contact us … (T)his is not a change in the type of investment strategy, but one of becoming more conscious of risk return.[6]

    [6] See for example Exhibit A4, Tab 97, letter dated 15 November 2008 to Mr R Saler.

17. At the same time, Seagrims Pty Ltd continued its practice of sending out review letters each year to its clients.  The letters were sent out monthly, on a rotating basis.  These letters invited clients to make an appointment for a personal interview to review such matters as their portfolios’ investment performance, their current cash flow and lifestyle goals, and any new investment opportunities which might complement their current situation.  Attempts were also made to contact clients by telephone in order to arrange an appointment for a review.  Some clients responded to such letters, but others did not come in for a review, in some cases because they lived in a remote area, or because the amount of their funds invested was small.

18. The negotiations with Astarra resulted in Seagrims Pty Ltd entering into three agreements with Astarra, namely: (a) a Licence Agreement with a commencing date of 15 September 2008 (the September Licence Agreement)[7]; (b) a Promoters Agreement dated 30 September 2008 (but not executed by Seagrims Pty Ltd until 20 January 2009) (the Promoters Agreement)[8]; and (c) a Licence Agreement executed by Seagrims Pty Ltd on or about 3 November 2008 (the November Licence Agreement)[9].

    [7] Exhibit R1, T5.16.

    [8] Exhibit R1, T5.17.

    [9] Exhibit R1, T5.15.

19. Mrs Seagrim gave evidence that Seagrims Pty Ltd did not place funds directly with the Astarra Strategic Fund.  She accordingly claimed that the November Licence Agreement is not relevant to the present proceedings, but strictly speaking, it was a document that constituted a disclosable relationship with the Astarra Group.  The Promoters Agreement has never been signed by Astarra or returned to Seagrims Pty Ltd, but the first payment of Astarra’s Promoters fee of 50% of the responsible entity and administration fee referred to in the agreement was received by Seagrims Pty Ltd in April 2009.  This constitutes evidence that by then Astarra had accepted the terms of the Promoters Agreement and was acting in accordance with it.

20. In accordance with the Promoters Agreement, Seagrims Pty Ltd marketed and promoted two funds labelled as Seagrims Diversified Funds and Seagrims Retirement Plan, on the basis that the investments would be placed with the Astarra Diversified Funds[10].  A PDS for the Seagrims Retirement Plan was published on 30 September 2008, and a PDS for Seagrims Diversified Funds was published on 24 October 2008[11].

    [10] Exhibit R1, T5.17.

    [11] Exhibit R1, T5.35, T5.36 and T5.40.

21. Between September 2008 and 15 October 2009, Seagrims Pty Ltd transferred 972 of its clients with funds totalling about $105 million to Astarra funds, with about $88 million in Seagrims-badged products, and $17 million in Astarra-badged products.  Its advisers had seen 542 new clients, conducted 835 reviews, seen 938 existing clients, and presented 108 statements of advice (SOAs) to new clients, making a total of 2,423 clients who had been seen at the company’s five offices.

22. On 16 October 2009, ASIC issued interim stop orders in respect of six Astarra funds, including the Astarra Diversified Funds[12].  On 21 October 2009, further stop orders were issued by ASIC in respect of Astarra products, including the Astarra My Retirement Plan, including the Seagrims Retirement Plan, which was a sub-fund[13].  On the same date the Australian Prudential Regulation Authority (APRA) put a freeze on the My Retirement Plan, including Seagrims Retirement Plan[14].  In December 2009, administrators were appointed of Astarra[15], a liquidator was appointed of Absolute Alpha Pty Ltd (the investment manager for the Astarra Diversified Funds)[16], and redemptions from management investment schemes of which Astarra was a responsible entity, including the Astarra Diversified Funds and the Seagrims-badged funds were frozen[17].  In March 2010, an order was made by the Supreme Court of New South Wales for the winding up of five Astarra managed investment schemes[18], and in June 2010, liquidators were appointed of Astarra[19].

    [12] Exhibit R1, T5.42.

    [13] Exhibit R1, T5.43.

    [14] See Exhibit R1, T5.44.

    [15] Exhibit R1, T5.2 at pages 101-102.

    [16] Exhibit R1, T5.3 at page 106.

    [17] See Exhibit R1, T5.44.

    [18] Exhibit R1, T5.45.

    [19] Exhibit R1, T5.2 at page 101.

23. The stop order and subsequent action occurred because of fraud on the part of the person or persons controlling the Astarra funds, resulting in the loss of the funds invested.  It is, however, clear that there is no suggestion that Mr and Mrs Seagrim or Seagrims Pty Ltd were in any way involved in the fraud.  They pointed out that the responsible entity for the Astarra funds was the National Australia Bank, and they had no reason to believe that those involved with the Astarra fund were not complying with their obligations under relevant laws, or that the activities of Astarra were not being appropriately monitored by ASIC or by the Australian Prudential Regulation Authority.  In the case of the clients of Seagrims Pty Ltd only 5% - 10% of their funds reinvested were lost through Astarra’s fraud, but as events have transpired, the full amount of capital lost has now been reimbursed through the government funded compensation scheme, and it appears that they will also receive compensation for losses of income, calculated at the long-term bond rate.

    Events leading to the suspension of Seagrims Pty Ltd’s AFSL

24. In May 2007 Seagrims Pty Ltd purchased a business referred to as Willoughby’s Financial Group, for a price of approximately $1.1 million.  The purchase price was based on the value of the business’s portfolio of clients, and that value was in turn calculated by reference to a percentage of the income stream from those clients’ investments.  Some time after the acquisition of the business, the Willoughbys left the employment of Seagrims Pty Ltd, set up in opposition, and took back most of their former clients.  This led to the auditor of Seagrims Pty Ltd, in 2010, revaluing the portfolio acquired from Willoughbys by reducing its value by approximately $942,000.00.  By letter dated 29 June 2010 to ASIC, Mr Seagrim advised of a potential breach in the conditions of the company’s AFSL relating to its base level financial requirements[20].  This breach was confirmed when Seagrims Pty Ltd lodged its profit and loss statement and balance sheet on 17 September 2010 with ASIC.  This showed a deficiency in total equity of approximately $760,000.00[21].

    [20] Exhibit A4, Tab 77.

    [21] Exhibit A4, Tab 77.

25. There were then extensive communications with ASIC as to this breach and other concerns which ASIC raised.  Ultimately, in June 2011, as I have said above, ASIC suspended the company’s AFSL for five months, and banned Mr and Mrs Seagrim for a period of three years from providing financial services.  During the period for which the company’s AFSL was suspended, Mr and Mrs Seagrim decided to arrange for their company’s advisers to provide financial services to its clients as representatives of a different unrelated company which holds an AFSL.

1. The concerns which ASIC investigated and which were referred to in the present proceedings involved the following assertions:

   (a)Seagrims Pty Ltd failed to comply with the requirements of its AFSL, in that it breached the base level financial requirements, and did not satisfactorily maintain or rectify its compliance systems;

   (b)there was a failure to disclose benefits provided to Seagrims Pty Ltd arising from investments made by its clients with Astarra;

   (c)advisers had provided advice without first determining the relevant personal circumstances of clients or making reasonable inquiries in relation to the provision of the advice;

   (d)there had been a failure to report a significant breach;

   (e)Mrs Seagrim failed to provide an SOA within the prescribed timeframe in the case of a transaction involving a Mr and Mrs Kennedy; and

   (f)Mr and Mrs Seagrim failed to ensure that Seagrims Pty Ltd complied with its obligations under s 912A of the Act.

   I shall refer to the evidence relating to each of the above matters in turn.  During the hearing in this tribunal, ASIC acknowledged that it was not concerned about two further matters referred to in the delegate’s decision, and I will make no further reference to those matters.

   Failure to comply with AFSL

2. Section 912A(1)(b) of the Act requires a financial services licensee to comply with the conditions on the licence. I will deal separately with the two breaches of the conditions that ASIC asserts.

3. Failure to comply with base level financial requirements:  Condition 8 of Seagrims Pty Ltd’s AFSL required the company, among other things, to:

   (b)       have total assets that exceed total liabilities, or adjusted assets that exceed adjusted liabilities, as shown in the licensees’ most recent balance sheet (i.e.: Statement of Financial Position) lodged with ASIC … .[22]

   [22] Exhibit R1, T5.11, at page 146.

4. I referred above to the re-evaluation arising from the outcome of the purchase by Seagrims Pty Ltd of the Willoughbys business, which led to Mr Seagrim reporting a breach of this condition of the AFSL.  It appears that the original letter from Mr Seagrim notifying the breach did not come to the attention of the investigation section in Melbourne of ASIC until mid-October 2010.  There were then communications between Mr Seagrim and officers of ASIC in Melbourne, and later in Adelaide, as to how the breach could be rectified.  In an email of 6 December 2010, Mr Seagrim asked a Mr Holmes of ASIC in Melbourne to comment on possible ways of rectifying the breach.  Mr Holmes responded that this was a matter for the company’s directors and “not something about which ASIC will express a view”[23].  Mr Seagrim then made further inquiries of his bank and auditors as to the best way to rectify the breach.  One alternative was to form a new company, but this involved stamp duty and capital gains tax complications.  In an email dated 2 March 2011 to Mr Holmes, Mr Seagrim said that he was sure that he could resolve the issue, and it is clear that he wanted to maintain a dialogue with ASIC in order to do so[24].  He also said in evidence that he had told Mr Holmes that he had assets of $4 million to $5 million external to his business that could be used to rectify the breach.  Mr Seagrim discussed other ways of remedying the breach with Mr Natale Rugari, the company’s auditor.  One such further option was to take up additional shares in Seagrims Pty Ltd, and a third option was to correct the accounts of Seagrims Pty Ltd by bringing to account the value of the business which the company assumed after it was registered in 1986, and which had never previously been brought into account as an asset of the company.

   [23] Email dated 6 December 2010, Exhibit A4, Tab 78.

   [24] Exhibit A4, Tab 77.

5. In the event, Mr Rugari further investigated this third option, and sought advice from another firm of accountants, Pitcher Partners.  Mr Rugari was satisfied as a result of their advice and his own research that this option would overcome the breach, and that the assets that would be introduced would not amount to intangible assets for the purposes of accounting standards.  He accordingly prepared accounts for the year ended 30 June 2011 on this basis, and in an email dated 25 May 2011, advised a Mr Sawyer of ASIC what was proposed.  In a subsequent email Mr Rugari explained how he had established the value brought to account.  However, in an email dated 10 June 2011, Mr Sawyer referred to definitions in the AFSL of “adjusted assets” and “excluded assets” (which were defined to mean “intangible assets i.e.: a non-monetary asset with physical substance”), and advised that the company remained unable to comply with the condition of its licence, and asked Mr Rugari to “let me know you thoughts” [sic][25].  Seagrims Pty Ltd subsequently lodged accounts for 2011 in which the value established by Mr Rugari was brought to account.

   [25] Exhibit R4.

6. Mr Seagrim gave evidence that he relied on the advice of Mr Rugari and Pitcher Partners, and had understood that the lodgement of the accounts for the 2011 year would overcome the breach.  He reiterated that the breach was one that it was within his capability to rectify.  The decisions to suspend the AFSL and to make the banning orders occurred on the day after the new financial statements were provided to ASIC, and Mr Seagrim also said that he was concerned that ASIC had not taken the new financial statements into account before the above decisions were made.

7. At the conclusion of the hearing I gave leave to ASIC to file an expert’s report to address the question of whether the treatment in the 2011 accounts of the portfolio acquired by Seagrims Pty Ltd at the time of its registration overcame the company’s failure to comply with the base level financial requirements.  ASIC subsequently tendered a report dated 9 August 2012 from one Zoran Babic, who is apparently employed in the Financial Reporting and Audit section of ASIC.  This report carefully analyses relevant accounting standards, and concludes in effect that:

   (a)the portfolio of clients should not be recognised in the company’s statement of financial position as a financial asset under AASB139;

   (b)the portfolio may be an intangible asset, although the evidence available is not sufficient to conclusively demonstrate so, but if this were so, it would be required to be carried at cost; and

   (c)it is unlikely that the value of the portfolio (if any) would be sufficient to rectify the breach of total assets deficiency, because even if the portfolio were to be recognised as an intangible asset, it would be “required to be measured at cost which is assumed to be zero”.

   The report adds that even if it were demonstrated that there was consideration paid for the acquisition of the portfolio, the portfolio as an asset with limited life would be substantially amortised during the period of 25 years from its acquisition in 1986 to its recognition in 2011.

8. I also provided Mr and Mrs Seagrim with an opportunity to provide a reply to this report, but they advised that they could not afford to incur the further costs of doing so.  They reiterated their evidence as to the steps they had taken to notify the breach, liaise with ASIC with a view to rectifying it, and seek advice from their auditor and also external accountants as to the best solution.  They reiterated their contention that from their experience there is a ready market to purchase client portfolios, and that banks would lend against such assets.  They also reiterated their concern that ASIC was fully aware that they could have fixed the deficiency by other methods, but that ASIC were not prepared to work with them to resolve the matter.

9. In his evidence, Mr Rugari said that he was the auditor of a number of other financial planning businesses.  He was cross-examined about the issue of whether the portfolio of clients should be recognised as an asset notwithstanding that it could be regarded as an intangible asset, but he was not cross-examined about the various accounting standards or all of the issues referred to in detail in the report from ASIC dated 9 August 2012, including for example the proposition that the measure of the value of the client list should be assumed to be zero, or alternatively, that its value should be amortised over the period since 1986.  Further questions occur to me, such as whether the records of the company remained deficient because they did not record an issue of shares to Mr Seagrim equivalent to the value attributed to the client portfolio taken up in 1987; whether, as suggested in the expert’s report, the value of the portfolio should be reduced because the company did not control the portfolio, bearing in mind that the portfolio had been acquired from Mr and Mrs Seagrim who were both directors and shareholders of the company; and whether the value of the portfolio should have been amortised when the investments held by the clients would almost certainly have increased considerably in value over the 25-year period, both by natural growth and also because it was likely that in many cases the clients concerned would over time have added to the value of their investments, resulting in the annual fees earned by the company from those clients’ investments increasing over the years.

10. The evidence as to this issue does not enable me to reach a definitive conclusion as to whether or not the breach was rectified in the 2011 accounts, but it is clear in any event that the 2010 accounts revealed, on their face, a breach of the base level financial requirements.  However, I take into account that the breach occurred as a result of the unexpected loss from the Willoughby transaction, that the Seagrims immediately reported the breach, that they were willing to rectify it, and that they acted in good faith on their own expert advice and believed that the breach had been rectified in accordance with the 2011 accounts.  Further, they were in a position to remedy the breach by other means, and had made this clear to ASIC in previous discussions.  There is no suggestion that the breach resulted in any loss to the company’s clients.  The breach had no practical relevance after the company’s AFSL had been suspended, and Mr and Mrs Seagrim arranged for the AFSL to be surrendered during the period of the suspension.  In the above circumstances, I do not think that the conduct of Mr and Mrs Seagrim in connection with this breach constituted serious misconduct on their part.

11. Failure to satisfactorily maintain or rectify compliance systems:  Condition 3 of Seagrims Pty Ltd’s AFSL required the company to “establish and maintain compliance measures that ensure, as far as is reasonably practicable, that the licensee complies with the provisions of the financial services laws.”[26]

    [26] Exhibit R1, T5.11, page 145.

12. In 2007 Seagrims Pty Ltd engaged AXA Financial Planning Limited trading as Jigsaw Support Services (Jigsaw) to conduct an annual compliance review to assist in meeting the requirements of ASIC under the financial services laws.  In a report dated 30 October 2007, Jigsaw, under the heading “Major Issues Identified” reported that they had found that the overall compliance, legislative and advice procedures of the practice provided a reasonable foundation on which to operate.  They considered that the policies and other tools appraised were of a “moderate standard” but that reviews, adjustments and additions to existing documents and processes were required from a compliance perspective.

13. Jigsaw made a number of specific findings, in some cases to the effect that no issues were identified or that procedures were satisfactory, or in other cases that changes were needed or that new procedures should be put in place.  For example, they reported that whilst the current compliance structure was sufficient for a licensee of the size of the company, it had ensured that only some of the licensee obligations had been met, and it was necessary to provide tools to ensure that staff were regularly reminded of their obligations and to monitor compliance arrangements internally and to ensure that breach reporting procedures were updated and reviewed[27].  Jigsaw also recommended, amongst other things, that the company’s risk management policy be reviewed and enhanced, that a disaster recovery plan and a conflict of interests register be established, and that the company’s research policy be reviewed and updated[28].

    [27] Exhibit R1, T5.49, at page 761.

    [28] Exhibit R1, T5.49, pages 753-754.

14. Mr and Mrs Seagrim gave evidence that they provided the Jigsaw report to their Compliance and IT Manager and instructed him to attend to the matters that Jigsaw had raised.  They said further that on inquiry they later periodically received assurances from him to the effect that he had matters in hand, and they accepted those assurances.  They decided to terminate Jigsaw’s services on 1 September 2008, because Jigsaw’s parent company, AXA, was applying increasing pressure to place business with them, and they considered that Jigsaw’s services should be separate from Seagrims Pty Ltd’s funds management and insurance business.

15. After investigating an alternative auditor, Mr and Mrs Seagrim decided in June 2009 to appoint Gold Seal Risk Management Services Pty Ltd (Gold Seal), a company associated with a Sydney law firm, to provide an external compliance audit.  Mrs Seagrim’s evidence as to her company’s involvement with Gold Seal is as follows.  One of Gold Seal’s auditors visited the company’s head office in Port Augusta in December 2009 and audited its compliance systems and advisers.  Seagrims Pty Ltd received a draft report from Gold Seal entitled “AFS Licence Compliance Audit Report” on 8 February 2010.  This recommended that Seagrims Pty Ltd should report a breach to ASIC concerning certain defects in its SOAs.  Mrs Seagrim immediately instructed the principal of Gold Seal, one Ms Claire Wivell Plater, to prepare a breach report to send to ASIC.  Ms Wivell Plater subsequently prepared a draft breach report letter dated 19 February 2010[29], which Mrs Seagrim received on 26 February 2010.  Mrs Seagrim noticed a number of significant errors in the draft, and discussed these errors with Ms Wivell Plater.  She also amended the draft and sent it to Ms Wivell Plater for comment.  However, before the draft could be finalised, ASIC issued s 19 notices, and Ms Wivell Plater advised Mrs Seagrim that it would be advisable to deal with the breach issues in the context of ASIC’s investigation, when the Seagrims would have more information about the nature and extent of ASIC’s concerns and could deal with them comprehensively.  For this reason, the draft breach report letter was never sent to ASIC.

    [29] Exhibit A4, Tab 85.

16. After receiving the Gold Seal report, Mr and Mrs Seagrim decided to purchase a compliance manual from Gold Seal, and did so in February 2010.  In April 2010 they also requested an experienced member of their staff, Ms Kristen Scharenberg, to take over the position of Compliance Manager from the previous incumbent.  This did not happen fully until July 2010, because he was reluctant to hand over his responsibilities to her.

17. Ms Scharenberg gave evidence that she holds a Bachelor of Business in Management Information Systems with minors in Accounting and Finance, and a Diploma in Financial Services (Financial Planning), and said that she had completed all eight Diploma of Financial Services subjects.  She has been employed by Seagrims for approximately 14 years, and this included a period as an adviser.  She provided a detailed account of the careful steps taken by Seagrims to train her and other new staff, to implement appropriate procedures and policies to ensure consistency between all offices, and to ensure adherence to the company’s previous compliance manual, which had been continually updated.  She also described the steps taken to train, supervise and monitor the performance of the company’s advisers.  She confirmed that there was some delay before she could fully assume her role as Compliance Manager because of the reluctance of the previous incumbent to hand over his responsibilities, and that she took over fully as from July 2010.  She prioritised the matters raised by Gold Seal.  This included reviewing the SOA’s template, reviewing the remuneration disclosure in the FSGs, establishing a calendar for reporting requirements, preparing policies and procedures with respect to conflicts of interest, and preparing a risk management plan[30].  She also said that on 7 September 2010, the company decided to adopt the Gold Seal manual which it had previously purchased, and she then proceeded to make appropriate changes and improvements to compliance procedures by reference to the Gold Seal manual.

    [30] Exhibit A4, Tab 75.

18. In response to cross-examination as to the delay in complying with the matters raised by Gold Seal, Mrs Seagrim referred not only to the difficulties that Ms Scharenberg had encountered in taking over the role, but also to the additional pressures of her work at that time due to the number of inquiries from clients who were affected by the freezing of the funds managed by Astarra, and the time involved in responding to the investigations which ASIC were then pursuing.

    Failure to disclose benefits and information re relationships

19. Financial Services Guides and Statements of Advice issued by Seagrims Pty Ltd: Under s 941B of the Act, an authorised representative of a licensee must provide an FSG to a client when providing a financial service to that client. Financial service includes the provision of financial product advice[31].  The Act requires an FSG to include information about the remuneration, including commission, or other benefits, that (for present purposes) would have been received by Mr and Mrs Seagrim, Seagrims Pty Ltd, or any of its advisers, or any associates of any of those parties[32].  In addition, the Act requires the disclosure of information about any associations or relationships that might reasonably be expected to be capable of influencing the providing entity in providing the relevant financial services or financial product advice[33]. Under s 942C(3), the level of detail of information about a matter that is required is such as a person would reasonably require for the purpose of making a decision whether to acquire financial services from the providing entity as a retail client. The remuneration, commission or other benefits to be provided must also be included in FSGs if those matters are able to be worked out at the time when the FSG is given to a client[34].  Corresponding obligations apply to SOAs[35].

    [31] s 766A(1)(a) and 766B of the Act.

    [32] s 942C(2)(f) of the Act.

    [33] s 942C(2)(g) of the Act.

    [34] Regulation 7.7.07(3) of the Corporations Regulations 2001 (Cth).

    [35] s 947C of the Act, and Regulation 7.7.12.

20. Seagrims Pty Ltd issued FSGs in connection with the relevant dealings with their clients.  During the period from 29 July 2008 to 9 February 2009, they issued FSGs in a form referred to as “FSG Version 4.1”[36].  In the period from 10 February to 7 October 2009, the company issued a revised form referred to as “FSG Version 4.2”[37].  Both versions of the FSG included introductory information, which made it clear that the FSG’s purpose was, amongst other things, to explain the kind of financial products Seagrims Pty Ltd recommended, that their clients were entitled to receive an SOA whenever advice was provided that took into account their objectives, financial situation and needs, and that if a particular financial product was recommended, the company must also provide a PDS containing information to enable an informed decision about that product.

    [36] Exhibit R1, T5.32.

    [37] Exhibit R1, T5.33.

21. Both versions of the FSGs included relevantly the following information in relation to the benefits to be received:

    Details of the payment we received are contained in the Product Disclosure Statements for most Financial Product issuers available from your adviser. Your adviser can give you full details.

    If you receive personal advice from us, we will tell you about any commissions, fees and any other benefits, where possible in actual dollar amounts, in the Statement of Advice. Our adviser will give you this Statement of Advice, before we proceed to act on your instructions.

    -     We may be entitled to receive upfront commission from a financial product issuer of between 0.0% and 5.0% on financial products that you invest (for example, on an investment of $200,000 with an upfront commission of 2% the amount of upfront commission would be $4,000).

    -     We may charge you a fee, depending on the time we spend developing your Statement of Advice, or depending on the value of funds you invest. The fee charged will depend on the current fee scale used by Seagrims Pty Ltd.

    …

    -     We may receive ongoing payments from the Financial Product issuer of between 0% and 2% per annum of funds under management (for example, funds under management of $200,000 with an ongoing commission of 1% would be $2,000).

    Other Benefits

    Seagrims Pty Ltd may receive payments and/or sponsorship of up to $5,000.00 from Fund Managers or Life Companies. This money is paid out of the Fund Manages [sic] and/or Life Companies own resources. Sponsorship is paid to Seagrims Pty Ltd to further educate advisers and enable Professional Development of advisers.

    Seagrims Pty Ltd may receive additional override commissions of up to 0.4% from Fund Managers. These overrides and/or rebates are paid out of Fund Managers own resources. These overrides can arise from volume based incentives and/or recognition of support for Fund Managers.  Seagrims Pty Ltd may also receive override commissions from the Association of Independently Owned Financial Planners (AIOFP).

    Seagrims Pty Ltd may receive a combination of any or all of the above when making a recommendation to you.

    From time to time Fund Managers may provide financial support for training and conferences. They may also contribute to the costs associated with providing seminars and advertising.

    Your adviser will tell you in writing in the Statement of Advice what fees we may charge you, when you have to pay, and what payments we may receive from the Financial Product issuer/s.[38]

    [38] Exhibit R1, T5.32, pages 471-2.

1. ASIC asserts that a number of benefits that required disclosure in the FSGs and the SOAs (or SOAAs or Limited Statements of Advice (LSOAs)) issued by authorised representatives of Seagrims Pty Ltd were not disclosed.

2. The first undisclosed benefit to which ASIC referred was a matter which it asserts should have been disclosed in the FSGs issued by the authorised representatives of Seagrims Pty Ltd, namely the adviser service fee payable to Seagrims Pty Ltd of a maximum of 1.1% per annum, being the amount provided for under the September Licence Agreement.  A similar fee, of 1% per annum, was provided for in the November Licensing Agreement.  As to these matters, Mr and Mrs Seagrim submitted that FSGs are intended to be generic documents, that the template which their company used had been developed on that assumption and so that it could be used in relation to up to 34 products, and that it would be inappropriate to include in the FSGs information which was specific to the Astarra products.  Mrs Seagrim said further that the FSGs they used were modelled on FSGs used by other entities, and on documents provided by the Financial Planners Association and their company’s external auditors.

3. The disclosure obligations in relation to FSGs in s 942C(2)(f) (re remuneration etc.) and (g) (re information about other interests, and about associations or relationships) are identical with the disclosure obligations in s 947C(2)(e) and (f) in relation to SOAs. However, there are some indications in s 942C that suggest that an FSG is intended to provide general information about the relationship between the providing entity and the client, and therefore support Mr and Mrs Seagrim’s contention that FSGs are intended to be generic documents. I refer, for example, to the information required to be provided by s 942C(2)(a) to (d), which deal with such things as contact details and the method of providing instructions, and information about the kinds of financial services and financial products available from the authorising licensee. The Act goes on to deal with SOAs in subsequent sections, and imposes an obligation (to which I will refer further below) to the effect that the providing entity must only provide advice to the client if it determines his or her relevant personal circumstances and makes reasonable inquiries in relation to those circumstances, and then gives such consideration and conducts such investigations as are reasonable in all of the circumstances, and provides advice that is appropriate to the client having regard to that consideration and investigation[39]. Further although, as I have said, paragraphs (e) and (f) of s 947C(2) are in the same terms as paragraphs (f) and (g) of s 942C, s 947C(2)(i) provides in effect that subject to the regulations, for information to be disclosed in accordance with s 947C(2)(e) and (f)(i), any amounts are to be stated in dollars. In addition, s 947C(5) provides that the SOA must include any information required by s 947D, if applicable, and s 947D deals with a matter specific to a particular transaction, in that it imposes an obligation to disclose further information when the advice recommends the replacement of one product with another[40]. 

   [39] See s 945A(1).

   [40] s 947D requires the disclosure of additional information regarding any charges to be incurred in respect of the disposal of a product, or the acquisition of another product. There is no suggestion that there was any breach of the provisions of this section in the present case.

4. I note that Regulatory Guide 175 published by ASIC entitled “Licensing: Financial product advisers – Conduct and disclosure” (RG 175) also appears to contemplate that FSGs are generic documents.  This is clear from the example appearing as a note to RG 175.74, which refers to the proposition that an upfront commission from a product issuer could vary depending on the product, and permits the disclosure of what might be a typical upfront commission within a range of percentages referred to in the FSG[41].

   [41] Similarly, RG 175.73 refers to commissions received from “product issuers and licensees”.  See also RG 175.80, which includes reference to the disclosure of the range or rate of fees payable by the client as being a matter relevant to the client’s decision.

5. Notwithstanding the foregoing matters, regulation 7.7.07(3) expressly requires the inclusion in FSGs of the remuneration, commission or other benefits to be provided if those matters are able to be worked out at the time when the FSG is given to a client. This obligation appears to be inconsistent with the generic nature of FSGs, and it would no doubt be more practically convenient if this regulation only applied to SOAs, and not to FSGs. However, that is not the position, and it remained necessary for the authorised representatives of Seagrims Pty Ltd to comply with this regulation, notwithstanding that they were also obliged to provide the same information in the SOAs pursuant to s 947C(2)(e).

6. As appears from paragraph 46 above, versions 4.1 and 4.2 of the FSG referred in generic terms to the proposition that Seagrims Pty Ltd might receive ongoing payments from the financial product issuer of between 0% and 2% per annum of funds under management. The FSGs accordingly did not disclose the then ascertainable amount of the fees in the case of proposed investments with Seagrims Retirement Plan and Seagrims Diversified Funds at the time when the FSGs were issued. This constituted a breach of Regulation 7.7.07(3) of the Corporations Regulations. I note, however, that the FSGs expressly referred to the fact that clients would be provided with specific information in their SOAs about commissions, fees or other benefits that would be received by Seagrims Pty Ltd. In fact the SOAs issued by Seagrims Pty Ltd did quantify the adviser service fee for the Seagrims Retirement Plan, and the dollar amount (as well as other benefits) was also stated in the SOAs[42].  The relevant information was therefore fully disclosed to clients, and I regard the breach of the above regulation as a technical matter.

   [42] See for example the SOAAs at Exhibit A4, Tabs 93-98 and Tabs 100-109.

7. ASIC next referred to advertising expenses.  In September 2008, Seagrims Pty Ltd began an advertising campaign in respect of the Seagrims rebadged products.  Mr Richard agreed on behalf of Astarra, at Mr Seagrim’s request, to contribute equally towards the costs of television and radio advertising[43].  The first reimbursement of Astarra’s share of advertising was received by Seagrims Pty Ltd on 12 December 2008[44].  According to the Alternative Remuneration Register kept by Seagrims Pty Ltd, the total amount received from AAM was $45,393.00 in the period up to the date when the Astarra funds were frozen, in October 2009.

   [43] See Exhibit A4, Tab 28, being an email from Mr Richard to Mr Seagrim dated 17 September 2008.

   [44] Exhibit R1, T5.31, page 464.

8. The agreement with Astarra to contribute 50% of advertising expenses was not disclosed in either Version 4.1 or Version 4.2 of the FSGs.  It would not have been possible to disclose the dollar amount of the advertising support, because the agreement with Astarra referred to 50% of the amount expended, and this presumably varied over the period in which a contribution was received.  However, both versions of the FSGs did include a paragraph reading:

   From time to time Fund Managers may provide financial support for training and conferences.  They may also contribute to the costs associated with providing seminars and advertising.[45]  (emphasis added)

   The SOAAs also referred to the proposition that Seagrims Pty Ltd “may” receive assistance for advertising and marketing from Astarra Funds Management[46]. ASIC pointed out that these disclosures should have stated that a contribution “will” be made, not that it “may” be made, and contended that this constituted a breach of the disclosure obligations. Insofar as ASIC’s contention relates to the FSGs, it is clear, once again, that Mr and Mrs Seagrim regarded the FSGs as generic documents, and did not intend this paragraph to be in any way misleading, and the paragraph was apposite in describing their relationship with all of the promoters of financial products with whom they dealt. Mrs Seagrim also referred in this context to the reference in the FSGs to payments and/or sponsorship of up to $5,000 from fund managers, but agreed that this was not an adequate disclosure of the amounts that were in fact received from Astarra. She also pointed out that the total contribution to advertising expenses received from Astarra was a token amount compared with the costs incurred by Seagrims Pty Ltd of the order of $2.4 to $2.8 million in migrating clients to the Astarra products. I am therefore satisfied that the advertising contribution did not in fact influence Mr and Mrs Seagrim or any of their authorised representatives to recommend the Astarra products, but s 942C(g) of the Act refers to information about associations or relationships that “might reasonably be expected to be capable” of influencing the providing entity, and this is a concept that must be construed objectively.  I have concluded that, as contended by ASIC, the terms of the disclosure did not meet the requirements of the Act in relation to FSGs or SOAs, but I take into account that there was some disclosure of the contribution to advertising expenses, and the Seagrims did not intend to conceal the amount actually being received.

   [45] Exhibit R1, T5.32, page 472, and T5.33, page 479.

   [46] See for example the SOAA at Exhibit A4, Tab 97.

9. ASIC’s next concern related to a potential “equity interest” in funds placed into Astarra products.  The Promoters Agreement included provision for Seagrims Pty Ltd to receive “equity in the value of the Seagrims Diversified Funds”, and provided in effect that this was conditional upon the program continuing for five years and funds under management reaching a minimum of $250 million, and that entitlement would only arise in the event of the sale of the company’s business, Astarra’s business or “similar event”.  The entitlement was referred to as an “equity return” and “50% Equity”[47].  The provisions in relation to equity are expressed in somewhat vague and uncertain terms in the Promoters Agreement, and there is no explanation as to the method of calculating the so-called “Equity Return”.  The wording of the agreement is such that the obligation on Astarra might not be legally enforceable (having regard to the common law requirement for certainty of price or consideration in order for a binding contract to exist), but on the assumption that this aspect of the agreement was enforceable, it was subject to significant contingencies which might never have been satisfied.  Mr Seagrim said that he was quite uncertain as to the amount of any Equity Return, but doubted whether the required minimum funds under the management target of $250 million would have been reached, and he thought that even if the contingencies were satisfied, any amount ultimately received would be significantly less than the costs that had been borne by Seagrims Pty Ltd in migrating their clients to the Astarra products.

   [47] Exhibit R1, T5.17, at page 195.

10. Version 4.1 of the FSG made no reference to the contingent equity interest.  Version 4.2 included a paragraph reading:

    Seagrims Pty Ltd is the promoter of the Seagrims Diversified Funds and Seagrims Retirement Plan.  As promoter of these products, Seagrims Pty Ltd and/or its advisers may be entitled to 50% equity.

11. The Promoters Agreement was not signed by Seagrims Pty Ltd until 20 January 2009.  There is no evidence that the parties had entered into an enforceable agreement for any equity interest at any time before that date, and even then the agreement had not been executed by Astarra.  I am not satisfied that Seagrims Pty Ltd breached their disclosure obligations by omitting any reference to an equity interest in Version 4.1 of the FSG prior to that date.  Soon after that date, the company did include reference to the equity interest where they updated the FSG to Version 4.2.  At the same time as he updated the FSG, the Seagrims’ Compliance and IT Manager updated the SOAs to include a disclosure of the equity interest in the same terms as those incorporated in Version 4.2 of the FSG, but on the same day, the only other employee of Seagrims Pty Ltd who had authority to alter templates overrode his amendment, and this mistake was not discovered until 9 October 2009[48].  The SOAs were then immediately corrected, and the breach was incorporated in the company’s ASIC Breach Register[49].

    [48] Exhibit A4, Tab 82.

    [49] Exhibit A4, Tab 80.

12. ASIC also referred in exhibit R8 to the entitlement of Seagrims Pty Ltd under the September Licensing Agreement and the November Licensing Agreement to charge a commission on contributions received of up to 4%.  However, Seagrims Pty Ltd decided that they would not charge any commission on contributions that resulted from changing investment products to the Astarra products, consistently with their endeavours to assist their clients in the turbulent market conditions that prevailed.  In the case of new investments into an Astarra product, a commission was charged, but Seagrims Pty Ltd’s entitlement to charge commission of up to 5% was disclosed in their FSGs.  I do not agree that there was a relevant failure to disclose this aspect of the licensing agreements.

13. ASIC also contended that neither Versions 4.1 nor 4.2 of the FSGs disclosed the relationship between Seagrims Pty Ltd and Astarra or the Astarra funds. This contention is correct, and whilst this omission occurred because, as explained above, the FSGs had been prepared on the basis that they were generic documents, this does not excuse the omission, as explained above. The FSGs accordingly did not comply with the requirements of s 942C(2)(g) of the Act. I note, however, that SOAAs sent out by Seagrims Pty Ltd to their clients did include reference to Astarra Funds and to the PDS for the two rebadged Seagrims Funds, and to negotiations between Seagrims and Astarra Funds Management resulting in administration fees being reduced by up to 50%. Further, reference to the receipt of benefits from Astarra Funds Management is also included in the SOAAs under the heading “Benefits, Interests and Associations”[50].  Seagrims Pty Ltd’s clients were accordingly informed of the relationship with Astarra, but not via the FSGs.

    [50] See for example Exhibit A4, Tab 97.

    Provision of advice without determining the relevant circumstances and making reasonable inquiries

14. Section 945A of the Act makes provision for requirements that must be satisfied for providing entities to provide personal advice to a retail client. Section 945A(1) provides as follows:

    (1)   The providing entity must only provide the advice to the client if:

    (a)   the providing entity:

    (i)      determines the relevant personal circumstances in relation to giving the advice; and

    (ii)     makes reasonable inquiries in relation to those personal circumstances; and

    (b)     having regard to information obtained from the client in relation to those personal circumstances, the providing entity has given such consideration to, and conducted such investigation of, the subject matter of the advice as is reasonable in all of the circumstances; and

    (c)   the advice is appropriate to the client, having regard to that consideration and investigation.

    Under s 945A(3), a financial services licensee must take reasonable steps to ensure that an authorised representative of the licensee complies with s 945A(1).

15. ASIC asserts that Mrs Seagrim and two advisers employed by Seagrims Pty Ltd, namely Mr Lynch and Ms Will, failed to comply with s 945A(1), in that they failed to make inquiries and obtain information that enabled them to form a reasonable basis for the advice contained in SOAAs and LSOAs provided to 16 clients of Seagrims Pty Ltd whose investments were migrated to Astarra managed funds, on the grounds that up-to-date information about the clients’ circumstances and objectives had not been obtained prior to the provision of advice to transfer to the Astarra products. ASIC referred in relation to this concern to four clients of Mr Lynch, three clients of Ms Will, and nine clients of Mrs Seagrim. In each case, copies of the relevant FSGs, SOAAs or LSOA are included in Exhibits R1 and A4.

16. In response to this aspect of ASIC’s concerns, Mr and Mrs Seagrim referred to their desire to assist their clients to move their investments as quickly as possible to the Astarra managed funds, which they considered to be a safer financial product.  They pointed out that each of the clients in question had been sent a review letter on an annual basis, inviting them to review their current investments and situation, but that some clients chose not to respond to such letters.  Nevertheless, Mrs Seagrim explained that the clients concerned were all existing clients, that the amounts moved were superannuation investments, and because the clients were under 60 years of age, they could not access those funds except in the case of hardship, and it was important to them that the investments should not lose value.  She said that to that extent, she and other authorised representatives of Seagrims Pty Ltd had determined the personal circumstances of the clients concerned, although she conceded that in a number of cases no further inquiries were made to update the information as to clients’ personal circumstances.  Mrs Seagrim also pointed out that the clients who had not elected to attend one of Seagrims’ offices for a personal interview were in some cases clients with small amounts invested, and in other cases clients who lived in a remote area.  Mrs Seagrim further said that in each case, the client’s investment was migrated on a like-for-like basis, that is if the client’s investment was held in a balanced fund, it would be migrated into the Astarra balanced fund, and similarly for clients with existing investments in growth funds or conservative funds.  In addition, no clients were charged entry fees, and in many cases, the ongoing annual fees of the new product were less than had previously applied.  She estimated the costs incurred in transferring the investments at between $2.4 and $2.8 million dollars, and said that this cost had been borne by Seagrims Pty Ltd.

17. Both parties referred to ASIC’s Regulatory Guide 175[51].  This Guide considers how certain conduct and disclosure obligations in Part 7.7 of the Act apply to the provision of financial product advice to retail clients.  In these proceedings, I am standing in the shoes of ASIC for the purpose of determining the issues that have arisen[52], and it is appropriate to take the provisions of the Guide into account[53]. 

    [51] Exhibit R2.

    [52] Shi v Migration Agents Registration Authority (2008) 235 CLR 286.

    [53] Drake v Minister for Immigration and Ethnic Affairs (1972) 2 ALD 60

18. Reference is made in paragraph 175.136 of the Guide to switching, and provides that the providing entity is generally required to consider and investigate both the new product and the old product.  I am satisfied that Seagrims Pty Ltd and its advisers complied with this obligation, and should not be blamed because the Astarra funds which had previously performed much better than others funds became frozen due to fraudulent activities which would not reasonably have been anticipated.

19. Paragraph 175.124 of the Guide refers to the client inquiries requirement, and indicates that all circumstances must be taken into account, including certain factors referred to in Table 4. This Table includes the proposition that less extensive client inquiries are likely to be necessary where the advice is for a relatively simple purpose, rather than where the advice involves complex financial products or strategies. The Table is part of a section in the Guide which refers to the concept of “scalable advice”, which recognises that the requirement of the Act varies depending on the circumstances, including such matters as the complexity of the advice and whether it is provided for a relatively simply purpose. Paragraph 175.125 then deals specifically with financial products with an investment component, and with the requirements of “relevant personal circumstances” and contains a non-inclusive list of 11 matters which should normally be investigated. Some of these matters were not relevant to the 16 clients identified by ASIC. Some other matters were potentially relevant, and Seagrims Pty Ltd’s advisers took those matters into account as the basis for their recommendation to migrate the relevant investments. However, in some cases the advisers did not confirm that the information available to them was up to date, and having regard to the provisions of s 945A(1), they should not have made assumptions about relevant matters.

1. Exhibit R8 is a schedule prepared by ASIC which lists the name of each client whose funds were invested in a rebadged Seagrims/Astarra fund.  ASIC alleged contraventions in 16 such cases.  Exhibit R8 shows the name of each such client, the date of the advice provided by a Seagrims Pty Ltd adviser, and the date of the review prior to that advice.  In some cases, there had been a review within less than 18 months from the date of the advice[54], and I think the advisers were in a reasonable position to provide the advice to the clients in question, having regard to the specific nature of the advice provided, namely the switching from one investment product to another of the same investment category, and other considerations to which I refer below.  However, in the case of the remaining 12 cases, there was a gap of more than this period, and in some cases the date of the review preceding the advice was significant.

   [54] See for example advice provided to Michael Welk, Robert Saler, Kevin Blinman, and Carmel Baxter.

2. ASIC also referred to advice provided by Mr Seagrim to two clients, in November and December 2008.  In addition, ASIC referred in relation to these clients to the failure to disclose the contingent equity return provided for in the Promoters Agreement, and the disclosure that Seagrims Pty Ltd “may” receive advertising and marketing assistance, rather than it “will” receive such assistance.  As I have said above, I do not think that there was any obligation at that time to disclose the contingent equitable interest, because even if that interest were legally enforceable, the Promoters Agreement was not executed until after the advice had been provided.  Further, for the reasons explained above, in all of the circumstances I do not regard the deficiency in the terminology used to disclose the advertising assistance as a serious infringement.

3. I agree with ASIC’s contention that Mr and Mrs Seagrim could not regard their prior informal contacts with these clients, including social contacts, as satisfying their obligations under s 945A, and I further agree that requests to clients to advise the Seagrims whether their circumstances had changed since their position was last assessed do not meet the requirements of s 945A. However, in assessing the gravity of these contraventions, I refer again to the various matters referred to by Mrs Seagrim which I narrated in paragraph 62 above. It is relevant that the clients concerned were long standing existing clients, and Mr and Mrs Seagrim had a good understanding of their circumstances. RG175.128 recognises that, where advice is provided to an existing client, the requirements of s 945A(1)(a)(ii) will generally be satisfied if the providing entity makes reasonable inquiries about whether the information already held about a client’s relevant personal circumstances is up-to-date and complete, but in many cases no such inquiries were made. It is also relevant that the persons to whom the advice was provided were long-standing existing clients of Seagrims Pty Ltd who could not access their superannuation investments (other than in circumstances of hardship) until age 60. In these circumstances, the change of investments held in superannuation funds on a like-for-like basis was not a matter that was likely to require a detailed analysis of the clients’ current financial position or needs, and the covering letter enclosing the relevant documents explained that the reason for the change was to place their investments with a more secure fund due to the depressed state of financial markets. The letter also drew attention to the advice documents previously provided to Seagrims Pty Ltd, and the enclosed SOAAs or LMOAs referred to the clients’ aims and objectives and risk tolerance by reference to the company’s record of these matters[55]. The total number of clients involved was only a very small proportion of the total of 972 clients whose investments were transferred to Seagrims/Astarra funds. The ongoing fees that the clients concerned would incur were generally less than they would have incurred with their previous investments. Seagrims Pty Ltd did not receive any benefit from the change in investments; on the contrary, the changes caused considerable loss and expense to Seagrims Pty Ltd. In all of the circumstances, I do not regard the breaches of s 945A as serious contraventions.

   [55] See paragraph 16 above.

   Failure to report a significant breach

4. Section 912D(1B) of the Act requires a financial services licensee to lodge a written report with ASIC, as soon as practicable, and in any case within 10 business days, after becoming aware of a breach or likely breach of its obligations under s 912A which is significant, having regard to certain specified criteria.

5. I referred in paragraph 40 above, to Mrs Seagrim’s evidence as to receipt of the Gold Seal Audit Report on 8 February 2010.  I note that a further report was provided by Gold Seal entitled “Astarra SOA and SOAA Reviews”, dated 8 February 2010[56].  Both the AFS Licence Compliance Audit Report and the Astarra SOA and SOAA Reviews report referred to certain defects in the SOAs, such as the failure to mention the equity incentive arrangement and the omission of reference to the assistance for advertising and marketing that was being received from Astarra.

   [56] Exhibit R1, T5.51, page 786.

6. As mentioned in paragraph 40 above, Mrs Seagrim immediately instructed Ms Wivell Plater to prepare a breach report to send to ASIC, but the s 19 notices were received from ASIC before the proposed breach report letter had been resolved between Mrs Seagrim and Ms Wivell Plater, and on the advice of Ms Wivell Plater the letter was not sent to ASIC. By then, Seagrims Pty Ltd was no longer investing funds in Astarra products, and it was apparent from the s 19 notices that there would be detailed dialogue with ASIC investigators. There was clearly no intention on the part of Mr or Mrs Seagrim to conceal the existence of the omissions from the SOAs or the SOAAs. Although the failure to notify the breach was an infringement of their obligations under s 912D(1B), I do not, having regard to the above circumstances, regard this breach as a serious contravention of the Act.

   Failure to provide a statement of advice within the prescribed timeframe

7. Section 946C of the Act provides in effect that the general rule is that if the SOA is not the means by which the advice is provided, the SOA must be given to the client when, or as soon as practicable after, the advice is provided, and in any event, before the providing entity provides the client with any further financial service that arises out of, or is connected with, that advice.  Provision is made for “time critical cases” in s 946C(3).  This applies where a client expressly instructs the provider that a further financial service arising out of or connected with the advice is required immediately, or by a specified time, and it is not reasonably practicable for the provider to give the SOA to the client before that further service is provided as instructed; in that case, the providing entity must (subject to a special provision where there is a cooling off period) give the statement of advice within five days after providing the further service, or sooner if practicable.

8. In early November 2010, Mrs Seagrim discussed with a Mr and Mrs Kennedy, at her company’s Kadina office, the possibility of transferring certain investments held by Mr Kennedy into the name of Mrs Kennedy, to enable him to apply for an age pension.  Mrs Seagrim gave the following evidence as to her further involvement with this matter.  At the conclusion of the November meeting, they did not wish to proceed, but said they would think about the matter and get back to Mrs Seagrim.  On Thursday, 9 December 2010 Mr Kennedy contacted Mrs Seagrim and advised that he had decided to go ahead.  Mrs Seagrim then did the detailed calculations necessary to establish Mr Kennedy’s Centrelink entitlement, and on Monday, 13 December 2010 took steps to convert certain investments in IOOF to cash as a first step to transferring assets into Mrs Kennedy’s name, so that Mr Kennedy would be eligible to obtain the pension.  She also commenced working on a detailed SOA on the same day, with the intention of sending the SOA to Mr Kennedy as soon as possible.  However, she had not completed the document by 20 December, when Mr Kennedy telephoned to say that he had decided not to go ahead with the proposals.  Mrs Seagrim explained that she had previously taken immediate steps to liquidate the IOOF investments, so that Mr Kennedy’s application to Centrelink for a pension could be lodged before Christmas, and his entitlement to the age pension would accrue by reference to the date of lodgement.  She accepts that she was in breach of her obligations under s 946C(3) because she had not provided the SOA within five business days.  She said that the reason she had not done so was that the instructions to proceed had happened in the period leading up to Christmas, and this was a particularly busy period because of her other work and her business-related entertainment commitments.

9. In fact, she should have provided SOAs as soon as practicable after providing the advice to Mr and Mrs Kennedy in November and December.  It is clear that the failure to provide the SOAs constituted a breach of the Act.  Mrs Seagrim accepts this and that she did not meet her responsibility on this occasion, but I take into account the circumstances in which this breach occurred.

   The applicants’ failure to ensure that Seagrims Pty Ltd complied with its obligations under s 912A of the Act.

10. Mr and Mrs Seagrim accept that as the directors of Seagrims Pty Ltd, they were the persons who were responsible for ensuring that Seagrims Pty Ltd complied with its obligations under the Act.  They fully accept responsibility for the infringements of Seagrims Pty Ltd, but submit that I should take into account all of the relevant circumstances in which the breaches occurred in determining the issues raised in the present proceedings.

    LEGISLATIVE POWER TO MAKE A BANNING ORDER 

11. Section 920A of the Act empowers ASIC to make a banning order against a person, and provides relevantly as follows:

    920A(1)ASIC may make a banning order against a person, by giving written notice to the person, if:

    …

    (e)the person has not complied with a financial services law; or

    (f)ASIC has reason to believe that the person will not comply with a financial services law.

12. Section 920B(1) defines a banning order as “a written order that prohibits a person from providing any financial services or specified financial services in specified circumstances or capacities.”  Section 766A(1) of the Act provides for when a person provides a “financial service”.  Section 766B provides relevantly in effect that “financial product advice” means a recommendation or a statement of opinion, or a report of either of those things, that is intended to influence a person in making a decision in relation to a particular financial product, or could reasonably be regarded as being intended to have such an influence.

13. Section 761A of the Act defines the term “financial services law” to include any provision of Chapter 7 of the Act. This chapter includes ss 942C (requirements re FSGs), 945A (requirement to have reasonable basis for advice) and 947C (requirements re SOAs).

    CONSIDERATION

14. In reviewing ASIC’s decision, this tribunal may exercise all of the powers and discretions that are conferred by the Act on ASIC, and stands in ASIC’s shoes[57].  The tribunal must conduct a hearing de novo, that is, hear the matter afresh, and must arrive at the correct or preferable decision on the material before it, and not by reference to the material before ASIC[58].  The focus of the review by this tribunal is not the correctness or otherwise of the decision under review, and there is no presumption that that decision is correct.  Further, the decision-maker may seek to support the decision on grounds that are different from that upon which it was originally made, and equally an applicant may seek to have the decision set aside on grounds that are different from the grounds originally put to the decision-maker[59].

    [57] Shi v Migration Agents Registration Authority (2008) 235 CLR 286.

    [58] Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60, and Shi (supra).

    [59] Re Lavery and Registrar, Supreme Court (Qld) [No. 2] (1996) 23 AAR 52 at 56.

15. In the present matter, I am satisfied that Mr and Mrs Seagrim have not complied with a financial services law within the meaning of s 920A(1)(e) of the Act, and so the tribunal’s power to make a banning order has been enlivened. Nevertheless, I consider that it is also important to determine whether s 920A(1)(f) has been satisfied, that is whether the tribunal has reason to believe that the person concerned will not comply with a financial services law. I regard that issue as important in determining whether it is appropriate to make a banning order, and if so, the appropriate duration of any banning order made.

    Is there reason to believe that the applicants will not comply with a financial services law?

16. The relevant belief referred to in s 920A(1)(f) relates to the person’s future conduct. This provision does not require ASIC to be “satisfied” that the relevant conduct will occur, but merely that it has “reason to believe” that the future conduct will occur. This statutory formulation has been said to require a “relatively low threshold”[60].  The concept of “belief” was referred to in George v Rockett[61], where the High Court considered legislation which required a judicial officer issuing a search warrant to be satisfied that there were reasonable grounds for suspecting that the relevant thing existed in any house and that there were reasonable grounds for believing that that thing would afford evidence as to the commission of an offence.  The High Court reviewed a number of earlier authorities and decided that for there to be reasonable ground for a state of mind, including suspicion or belief, there must exist facts which are sufficient to induce that state of mind in a reasonable person.  The Court said:

    The objective circumstances sufficient to show a reason to believe something need to point more clearly to the subject matter of the belief, but that is not to say that the objective circumstances must establish on the balance of probabilities that the subject matter in fact occurred or exists: the assent of belief is given on more slender evidence than proof.  Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture.[62]

    [60] Daniels Corporations International Pty Ltd v Australia Competition and Consumer Commission (2002) 213 CLR 543 at [130], per Callinan J.

    [61] (1990) 170 CLR 104.

    [62] (1990) 170 CLR 104 at 116, per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ.

17. However, the requisite belief is that the person “will” not comply with a financial services law, and this connotes a greater degree of confidence in the belief as to the nature of the person’s future conduct than would have been the case if the provisions had used the formulation that the person “may” not comply.

18. It was contended by ASIC that for the purpose of s 920A(1)(f) the relevant reason to believe is likely to be formed on the past conduct of a person, considering such matters as the nature, seriousness and duration of the conduct and the circumstances under which it occurred. I accept the relevance of these matters, but I think it also important to take into account relevant events that have occurred following the contraventions, and following the making of the primary decision by ASIC. This position was confirmed in Shi v Migration Agents Registration Authority[63] where the High Court decided that when considering whether this tribunal was satisfied that the applicant was not a fit and proper person to give immigration assistance, the tribunal was required to consider the state of affairs existing at the time the tribunal made its decision, and was not limited to considering the facts and circumstances existing at the time of the primary decision.

    [63] (2008) 235 CLR 286.

19. ASIC also relied upon the delegate’s finding that Mr and Mrs Seagrim lacked a basic understanding of the requirements of various financial laws relating to the provision of financial advice. As to this, I am mindful that they went to considerable lengths, in providing documents relevant to the hearing before this tribunal in respect of the contraventions of s 945A of the Act, to explain their reasons for proceeding to move clients’ investments from deteriorating asset classes into more secure investments. They also referred to their pre-existing knowledge of their clients’ circumstances, and their desire to help their clients change their investments quickly in the highly volatile market conditions brought about by the global financial crisis. However, whilst they did not appear to appreciate their strict obligations under s 945A at the time when they arranged the changes in clients’ investments, I am satisfied that they are now well aware of their obligations under that section, and their concern to explain and justify the action they took should not be interpreted as indicating a current lack of understanding on their part of those obligations. I am satisfied from the evidence before me that Mr and Mrs Seagrim now have a clear understanding of their obligations under the various provisions which gave rise to ASIC’s concerns and the resulting investigations, and I think that this understanding was further enhanced by their having read the very comprehensive reasons provided by the delegate for her decision, and by their involvement in the present proceedings. It is also apparent that as a result of the investigation by ASIC culminating in the imposition of banning orders for three years, the Seagrims have been exposed to adverse publicity, and have suffered very considerable financial hardship. I am satisfied that they will be very circumspect in complying with their statutory obligations when they are able to resume their work as financial planners following my decision in this matter.

20. ASIC also relied, in the context of s 920A(1)(f), on the failure by Seagrims Pty Ltd to comply with its obligations under s 912A of the Act, and contended that as Mr and Mrs Seagrim were the controlling minds of the company, its infringements also support the proposition that there is reason to believe that they will not comply with a financial services law. I will refer further to these matters below. For present purposes, it is sufficient to say that as a result of the ASIC investigations and these proceedings, it is clear that Mr and Mrs Seagrim have now given considerable attention to the various matters which constituted actual or possible infringements by their company, and I am satisfied that they have a clear understanding of the relevant provisions, and that the company’s past infringements do not provide a basis for the belief referred to in s 920A(1)(f).

21. In summary, for the above reasons, I have no reason to believe that Mr and Mrs Seagrim will not comply with a financial services law.  On the contrary, I believe they will do so, when they resume providing financial services.

    Considerations relevant to the discretion to make banning orders

22. I have found above that the power to make a banning order against Mr and Mrs Seagrim has been enlivened on the grounds that they have not complied with the financial services law within the meaning of s 920A(1) of the Act. This power is a discretionary power, and the considerations that must be taken into account in exercising the discretion are not enumerated. In these circumstances, the relevant considerations must be determined from the subject matter, scope and purpose of the Act, having regard to all relevant considerations, and disregarding irrelevant considerations, as so determined: Minister for Aboriginal Affairs v Peko-Wallsend Ltd[64]. The power to make banning orders is contained in Chapter 7 of the Corporations Act, which deals with financial services and markets. Section 760A provides as follows:

    760A Object of Chapter

    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

    (c)    fair, orderly and transparent markets for financial products; and

    (d)   the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facility.

    [64] (1986) 162 CLR 24 at [39]-[40].

1. I consider that the discretion to impose banning orders should be exercised in such a way as to achieve the objectives set out in this section.  It is accordingly appropriate to take into account that a principal consideration is that the power to make a banning order should be to protect the public from persons who do not comply with the requirements of the Act when providing financial products and services, and also to deter the persons whose conduct is in question and other persons in the industry from contravening the Act.  The imposition of banning orders will have a punitive effect on the persons banned, but the discretion should not be exercised by reference to that consequence, but rather by reference to the need to protect the public, and the deterrent effect of banning orders, which are the overriding considerations[65].  Nevertheless, personal hardship if a banning order is made is a mitigating factor which may be taken into account[66].

   [65] I consider that this approach is consistent with the weight of authority very helpfully reviewed by Deputy President Forgie in Re Howarth and ASIC (2008) 101 ALD 602 at [149]-[180].

   [66] See RG 98, Table 1.

2. It is also relevant, as I have said above, to repeat that in exercising the power to review the delegate’s decision, I am standing in the shoes of ASIC and may exercise all the powers and discretions conferred on ASIC by any relevant enactment. Section 1(2)(b) of the Australian Securities and Investments Commission Act 2001 (Cth) provides in effect that in performing its functions and exercising its powers, ASIC must strive to “promote the confident and informed participation of investors and consumers in the financial system”.

3. Having regard in particular to my finding that Mr and Mrs Seagrim did not take appropriate steps to implement various matters raised by the Jigsaw audit report, the number of inadvertent contraventions of the Act, and the necessity to reinforce the obligation of persons providing financial services to comply strictly with legislative requirements, I have concluded that it is appropriate that banning orders be made, notwithstanding that at all times Mr and Mrs Seagrim acted honestly, and sought only to protect and assist their clients against the effects of the global financial crisis.

4. Under s 920B(2), a banning order may prohibit the person against whom it is made from providing a financial service permanently, or otherwise for a specified period, unless ASIC has reason to believe that the person is not of good fame or character.  There is no suggestion in the present matter that Mr and Mrs Seagrim are not of good fame or character.

5. ASIC has issued Regulatory Guide 98 entitled “Licensing: Administrative action against financial services providers” (RG 98).  This refers to the administrative powers available to ASIC to enforce compliance with the Act, and indicates the matters ASIC generally takes into account when exercising its powers.  Table 1 sets out key factors which ASIC consider in deciding to take administrative action, many of which would point to administrative action being the appropriate course in the present matter.  Table 2 in Section C of RG 98 provides some examples of factors likely to lead to a banning order for a greater or lesser period of time[67].  Where such guides are available, it is appropriate for decision-makers to follow them, unless there are cogent reasons not to do so[68].

   [67] Paragraph 98.29.

   [68] Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at [640]-[641].

6. Table 2 of RG 98 provides firstly for a period of banning for less than three years, and secondly for banning for periods from three to 10 years, and thirdly for more than 10 years or permanently.  The Guide provides for the following factors and indicative examples of conduct in the category of banning orders for less than three years:

Factors	Examples of conduct (indicative only)
·   Conduct is the result of carelessness or inadvertence	·   Giving a complying disclosure document, but not within the required time
·   Attempt to remedy the contravention and person has fully cooperated with ASIC	·   Failing to lodge documents with ASIC as required
·   No loss (or minimal loss) to client	·   Failing to notify ASIC about a representative’s breach of the licensee’s obligations

1. The second category, namely banning for three to 10 years, lists a greater number of factors and examples of indicative conduct.  The factors and examples include circumstances involving a high degree of culpability, including dishonest or misleading conduct, or circumstances where the imputed conduct might have an effect on the orderly conduct of financial markets.  Both ASIC and the delegate expressly disavowed any suggestion that Mr and Mrs Seagrim had behaved dishonestly, but ASIC contended that the delegate’s decision to ban them for three years should be affirmed, and that they were on the “cusp” of the second category, namely banning for a period of three to 10 years.  In support of this contention, ASIC refer in particular to the penultimate factor, namely:

   ·Incompetence, irresponsibility or high level of carelessness, but with the possibility that the person may develop requisite skills and abilities.

   I have also, of course, had regard to the other factors and examples listed in the second category of Table 2 of RG 98, and these examples include disregard for the law and compliance with regulations, and failing to comply with disclosure requirements.  Table 2 includes a footnote reading as follows:

   Note:  These factors and examples are indicative only. Each case must depend on its particular circumstances and will be determined on a case-by-case basis. The factors in this table have been compiled taking into account the propositions formulated in HIH Insurance Ltd and HIH Casualty and General Insurance Ltd, Re: ASIC v Adler, (2002) 42 ACSR 80. A combination of more than one example of misconduct can increase the seriousness of the misconduct, so that a longer banning than indicated by this table is merited. Investor loss is not a prerequisite for a period of banning.

2. I have also taken into account the propositions formulated by Santow J in Re HIH Insurance Ltd (in provisional liquidation)[69].  I note that in Rich v Australian Securities and Investments Commission[70], McHugh J referred to Santow J’s judgment as the leading authority on the reasons for a court exercising its powers under the Act to order the disqualification of a person from managing corporations[71].  McHugh J proceeded to characterise some of Santow J’s propositions as relating to the protection of the public; considerations that operate to reduce the period of disqualification such as personal hardship to the defendant, mitigating factors, repayment of amounts misappropriated and the defendant’s expressed intention no longer to hold a management position; and propositions that have the objectives of personal and general deterrents, resembling sentencing principles under the criminal law[72].

   [69] (2002) 42 ACSR 80 at [56].

   [70] (2004) 220 CLR 129.

   [71] (2004) 220 CLR 129 at [48].

   [72] (2004) 220 CLR 129 at [50].

3. I have referred above to each of the contraventions raised in the present proceedings.  As to the failure by Seagrims Pty Ltd to comply with the conditions of its AFSL, Mr and Mrs Seagrim have explained the circumstances that gave rise to that failure.  As mentioned above, I do not regard the failure to comply with base level financial requirements as constituting serious misconduct, having regard to the circumstances which gave rise to that failure, and the attempts made to remedy it.  It is of concern that Mr and Mrs Seagrim did not ensure that the recommendations made by Jigsaw were implemented, and having regard to their responsibility as directors of Seagrims Pty Ltd, it was not sufficient to rely upon the assurances provided to them by their Compliance and IT Manager.  Nevertheless, they did engage another external auditor, and this of itself is evidence of their concern about compliance matters.  Mrs Seagrim also became actively involved in discussing the recommendations by Gold Seal as soon as she had received the Gold Seal report.  These matters are relevant to the consideration of the need to protect the public.  I also note that Mr and Mrs Seagrim requested that Seagrims Pty Ltd’s AFSL be cancelled, and this occurred during the period for which the AFSL had been suspended.  The public are therefore no longer exposed to continuing risks from this contravention.

4. I have analysed the evidence as to the failure to disclose benefits in some detail.  In some cases, omissions from the FSGs were incorporated, or at least referred to, in SOAAs, and in other cases, such as the contribution to advertising expenses and the contingent equity interest, some reference was made to these matters, although not in terms that met the strict requirements of the Act.  Whilst ordinarily the full disclosure of all benefits is a most important consideration when taking into account the need to protect the public, in the circumstances of this case, Mr and Mrs Seagrim were doing everything they could to protect the interests of their clients in the very unusual and difficult circumstances brought about by the global financial crisis.  It is clear that these breaches were not intentional, that the amounts of benefits received by Seagrims Pty Ltd were inconsequential, and grossly disproportionate to the costs incurred in endeavouring to assist their clients, which costs were estimated at between $2.4 million and $2.8 million.  In the unusual circumstances of this case, I do not regard this contravention as a serious matter.

5. I make the same assessment of the contraventions of 945A, and refer to my detailed analysis of those contraventions.  Again, it is clear that Mr and Mrs Seagrim made extraordinary endeavours to assist their clients, at considerable expense to themselves, in the very difficult market conditions that prevailed.

6. I have also referred above in detail to the remaining contraventions that gave rise to the banning orders.  For the reasons I have explained above, I do not regard those matters as serious contraventions.

7. Mr and Mrs Seagrim have acted as financial advisers for many years, and established a successful business providing financial advising services to clients in five rural centres.  I am satisfied that during the period prior to the imposition of the banning orders, they were extremely concerned to do their best to protect their clients’ investments, and went to considerable lengths, at significant personal cost, to assist them as far as possible.  They committed various unintended contraventions in doing so, but in my assessment, this is not a matter where the primary considerations, that is the need to protect the public and deterring future contraventions, warrants the imposition of lengthy banning orders.  In all of the circumstances, I have concluded that it would be appropriate to impose banning orders against Mr and Mrs Seagrim for a period of six months from 27 June 2011.  I further consider that it would be inappropriate to differentiate between Mr and Mrs Seagrim in fixing the period of the banning orders.  My decision reflects my above conclusion, and as a result, they are now no longer banned from providing financial services.

   DECISION

8. The decisions under review are varied by reducing the period for which Mr and Mrs Seagrim are prohibited from providing any financial services from three years to the period of six months, from 27 June 2011 until 27 December 2011.

I certify that the preceding 101 (one hundred and one) paragraphs are a true copy of the reasons for the decision herein of Deputy President D G Jarvis

... [Sgnd] ...

Associate

Dated 31 August 2012

Dates of hearing	24 - 27 July 2012
Date final submissions received	24 August 2012
Counsel for the Respondent	Mr N Swan
Advocate for the Respondent	Mr M Povey
Solicitors for the Respondent	Australian Securities and Investments Commission