The Sharemarket College Pty Ltd and Australian Securities and Investments Commission

The Sharemarket College Pty Ltd and Australian Securities and Investments Commission [2018] AATA 1969 (28 June 2018)
Division:TAXATION & COMMERCIAL DIVISION
File Numbers: 2016/5074; 2016/5075; 2016/5076
Re:The Sharemarket College Pty Ltd
Graeme Rogers
Jill Rogers
APPLICANTS

AndAustralian Securities and Investments Commission
RESPONDENT

DECISION
Tribunal:Deputy President Bernard J McCabe
Date:28 June 2018
Place:Sydney

The Tribunal affirms the decisions to:
a.cancel the Australian Financial Services Licence of the Sharemarket College Pty Ltd; and
b.ban Graeme Rogers from providing financial services for a period of four years.

The Tribunal varies the decision to ban Jill Rogers from providing financial services so that she is banned for two years.
...........................[sgd]..........................................
Deputy President Bernard J McCabe
CATCHWORDS
CORPORATIONS – cancellation of Australian Financial Services Licence – whether breaches of conditions of Australian Financial Services Licence – banning order from providing financial services – breaches of financial services laws – telemarketing – email marketing – where systemic failures in compliance regime – ill-health mitigating factor
LEGISLATION
Corporations Act 2001 (Cth) – ss 79, 79(c), 760A, 912A, 912A(1)(c), 912A(1)(ca), 912B, 912C, 912C(1), 912D, 912D(1), 912D(1B), 915C, 915C(1)(aa), 920A, 920A(1)(ba), 920A(1)(f), 920A(1)(g), 920A(1)(h), 1041H
CASES
Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80
Sovereign Capital Ltd and Australian Securities and Investments Commission [2008] AATA 901
SECONDARY MATERIALS
Regulatory Guide 98 Licensing: Administrative Action against financial services providers (July 2013) – RG98.49
REASONS FOR DECISION
Deputy President Bernard J McCabe
28 June 2018
INTRODUCTION

There are three applicants in these proceedings. One is a financial services firm, and the other two are its senior officers, a husband and wife team who are effectively the proprietors of the enterprise. The proceedings were commenced after the Australian Securities and Investments Commission (ASIC) cancelled the entity’s Australian Financial Services Licence (‘AFSL’) and banned both of the individual applicants from providing financial services. The cancellation and banning decisions were made following an investigation and hearing before a delegate who concluded there were breaches of financial services’ laws. The applicants say the contraventions occurred in the midst of – and to some extent as a result of – an extraordinary crisis produced by the ill-health of one of the officers. They also point to the conduct of a rogue employee. They say all the decisions under review should be set aside, and that I should substitute decisions imposing less stringent regulatory action.
The decisions to cancel the Australian Financial Services Licence (the AFSL) and ban Mr Rogers from providing financial service for four years should be affirmed. The decision to ban Mrs Rogers for three years should be varied to reduce the length of the ban to two years. I acknowledge the difficulties faced by the individual applicants, however I am not persuaded they were entirely the victims of circumstances, or that the external shock of ill-health – serious and unfortunate though it was – adequately explains or excuses the contraventions that occurred. I explain my reasons below.
The background
The Sharemarket College Pty Ltd (‘the College’) is a registered training organisation that offered training packages on share trading and investing to members of the public. It obtained an AFSL in 2009 which authorised the College to provide general financial product advice only, and to deal in a financial product. The AFSL did not permit the College to provide personal financial product advice. The College says the activities authorised under the AFSL enriched the other educational services it offered.
As part of its offerings to clients (who were also called members), the College routinely sent out ‘trade ideas’ by email. The trade ideas were developed relying on methodologies taught in the course. The College also provided more general information about market trends.
ASIC became aware of problematic emails sent by personnel working for the College to clients in 2015. ASIC says the emails were misleading or deceptive within the meaning of s 1041H of the Corporations Act 2001 (Cth) (the Corporations Act), or contained personal financial advice in contravention of the conditions on the College’s AFSL. In the course of its investigation, ASIC concluded there were a number of other contraventions (of the terms of the licence and the financial services’ laws) flowing from the initial breach that warranted regulatory action against the College. In a reviewable decision dated 30 August 2016, ASIC cancelled the College’s AFSL pursuant to s 915C of the Corporations Act. ASIC also decided to take action against the husband-and-wife team that ran the College, Graeme and Jill Rogers, under s 920A of the Corporations Act. Mr Rogers was banned from providing financial services for four years. Mrs Rogers was banned from providing financial services for three years. The banning decisions were made on 30 August 2016.
I will begin by briefly describing the role of Mr and Mrs Rogers in the management of the College. I will then discuss ASIC’s concerns and the evidence which is said to justify regulatory action against the College and Mr and Mrs Rogers individually.
The College and its senior managers
Mr Graeme Rogers
Mr Rogers was a director and a 50% shareholder in the College. He was also the self-described chief executive officer of the company who was responsible for “managing [its] day-to-day operations, marketing, sales and promotions”: exhibit A6 at [2]-[3]. During the course of his evidence-in-chief, he clarified that his wife was responsible for the advisory, training (transcript at pp 68-69) and compliance (transcript at p 71) functions while he focused on sales and marketing. He confirmed the ‘sales’ in question were sales of ‘membership packages’ in the College. Membership packages ranged in price from $3,500 to $30,000: transcript at p 69.
Mr Rogers explained in his evidence that he was responsible for training the sales staff with respect to their sales activities (transcript at p 71) while other officers would train staff on different aspects of their role. He said Mrs Rogers would provide training on compliance issues, Ms Cheryl Short (another employee) would provide training on the operation of the database, and an information technology officer would train staff about the IT system. Mr Rogers explained the sales staff was typically comprised of one or two ‘solutions partners’ who did the substantive sales work and a small number of telemarketing staff who contacted people by email and telephone. The telemarketing staff followed up on leads provided by an outside company that collected data from people who had clicked on a banner advertisement on the internet. The telemarketers would tell the people they were being contacted to participate in an information session conducted by Mr Rogers or one of the solutions partners who would explain the benefits of membership. Mr Rogers explained he would train the telemarketers on the use of the scripts they were required to follow when they contacted prospective members – scripts he had authored. The scripts and standard-form emails were stored on a database called Goldmine which was maintained by the firm. He said telemarketers did not need to go beyond the scripts and standard emails contained in Goldmine in order to do their work. Mr Rogers provided more intensive training to the solutions partners who had the substantive contact with prospective members. He said the substantive contact included meeting individuals in their homes for one-on-one presentations following the information sessions. The training included, at least in some cases, the new staff member accompanying Mr Rogers to those presentations so they could hear him make his sales pitch: transcript at pp 75-76.
Mr Rogers said his wife had overall responsibility for compliance functions. However he agreed he performed some compliance activities himself. Mr Rogers said he regularly checked the standardised emails sent from the Goldmine database maintained by the College, and he authored the standard scripts used by the sales staff when they made contact with a prospective client. He also occasionally reviewed the sales books completed by solutions partners in connection with their meetings with prospective clients in their homes.
Mr Rogers also said in his evidence that he reviewed individual Outlook email accounts of sales staff to check they were compliant, but also for training and feedback purposes. Most of the email communications with prospective clients occurred through the Goldmine database using the standard form emails, but it seems some emails were despatched through individual Outlook accounts. Mr Rogers said such a review occurred about once a month. He recalled spending two to three hours reviewing the correspondence on each occasion: transcript at p 74. He said staffers were not aware he checked emails: transcript at p 75. Mr Rogers also said he routinely listened to telephone conversations between his sales staff and prospective members. He worked in an area adjacent to where the sales staffers were making their calls, so he said he was able to overhear some of what was said as those employees went about their work. He provided an example where he overheard a staff member discussing superannuation with a prospective member; Mr Rogers said he counselled the staff member about straying from the approved script. He also listened to recordings of conversations so he could review the performance of sales staff and provide feedback. He pointed out in his evidence in chief that the sales staff were making around 8000 calls a month in early 2015, so he was only able to review a sample of their calls on a (roughly) weekly basis. It is not clear how that sample was selected. He said he spent 60-90 minutes on the review task each week. He added he was not just checking for compliance; he was also interested in using the recordings as a training tool: transcript at pp 73-75.
It is clear from Mr Rogers’ evidence that he focused on what he took to be the core business of the College: recruiting members of the public to sign up for the College’s membership packages. He insisted he was diligent in recruiting, supervising and training his staff, and said he made clear to his sales staff the College’s expectations with respect to compliance. I am satisfied from his evidence that he essentially regarded compliance as incidental to the main thrust of his efforts. That was probably inevitable given the division of responsibilities within the organisation. He made clear his wife was principally responsible for administration and compliance training. The lack of compliance focus was illustrated by his replies to questions about the way in which he went about monitoring and reviewing phone calls and emails. His review activities were unsystematic and they appeared to prioritise the efficacy of the sales process rather than compliance with the law. His approach to recruitment also raised questions over his commitment to compliance relative to marketing considerations. The recruitment of Mr Karl Scott, a solutions partner, illustrates the problem. Mr Rogers was not aware Mr Scott had been struck off as a lawyer when he was hired to work at the College. It seems Mr Rogers relied on his historical observations of Mr Scott when making the decision to hire him. Mr Rogers did not make independent enquiries or check references. That is surprising given the nature of the role Mr Scott was being recruited to undertake.
Mr Rogers did not focus on compliance issues in a rigorous and systematic way as he carried out his pivotal role within the organisation. That meant the organisation was vulnerable to non-compliance – even when he was fully engaged in the workplace. The organisation was even more vulnerable to contraventions if anything distracted Mr Rogers and his wife. On Mr Rogers’ account, he and his wife became distracted in early 2015 when Mrs Rogers became seriously ill. She had been experiencing pain and discomfort for some time before she was admitted to hospital on 2 February 2015. She required major surgery. Mr Rogers said he was caring for (and worried about) his wife. In his statement, he described his state of mind at the time as ‘chaotic’: exhibit A6 at [27]. He was at Mrs Rogers’ hospital bedside during the week of 13-20 February when surgeons operated. He said in his statement that he recalled briefly attending the office on a few occasions, but he was more or less devoted to his wife’s care during this period: exhibit A6 at [28]-[29]. He said he recalled making quick visits to the office each day after 27 February 2015 but he remained focused on his wife. He said he went back to work – albeit that he did not stay long each day – from 2 March 2015.
I accept Mr Rogers was almost entirely focused on his wife’s well-being during the course of this health emergency in February and March 2015. He was doing what any good husband would do. He was unlikely to remain focused on his work in the midst of such a crisis. He said he remained in contact with the office by email which he checked occasionally to see if anything urgent had come up. Inevitably, though, he was compromised in the performance of his responsibilities. That was a real problem in an organisation in which the compliance regime was already compromised by his approach to his role.
ASIC was critical of the fact Mr Rogers ran an enterprise that was unable to cope with an extraordinary crisis. ASIC says the problem goes deeper than a failure to design a robust compliance regime that could withstand the absence or distraction of key officers. ASIC says Mr Rogers was not performing the compliance function effectively before the crisis in any event. I agree. As I have explained, Mr Rogers did not demonstrate a rigorous and systematic commitment to the compliance regime before his wife became ill. But ASIC goes further. It says Mr Rogers effectively authorised the text in misleading or deceptive emails copied to at least one of his sales team for use in correspondence with potential clients. ASIC says Mr Rogers was the source of the compliance problems. Moreover, ASIC says Mr Rogers has failed to acknowledge the extent of his role in the distribution of those emails and has sought to minimise and shift the blame. I will deal with that and other issues below in the course of considering ASIC’s specific concerns.
Mrs Jill Rogers
Mrs Rogers confirmed in cross-examination the essential details of her illness that came to a head in February 2015 when she underwent emergency surgery. I was provided with a bundle of medical reports and records that generally confirm the extent and impact of her ill-health during the period. I accept she was away from work and incapable of discharging her role while she recovered during February and March 2015. She explained her husband took over responsibility for compliance issues in her absence: transcript at p 30. Interestingly, she agreed she was not aware if staff were told she was off work and unable to deal with emails during her absence. She said she recalled receiving emails at home during her convalescence but she was unable to deal with them: transcript at p 41. She returned to the workplace for a few days each week starting in early June 2015, and was back more-or-less on a full-time basis by the end of the month: transcript at p 46. She said she continued to be impacted by medication and other after-effects of her illness. She said her memory of things that occurred in the aftermath of her illness was hazy.
Mrs Rogers described her modus operandi in the workplace during the course of cross-examination: transcript at pp 32-33. She said her office was located in the midst of an open-plan area where employees carried out their work. She was able to overhear calls as they were made. She said calls were recorded routinely and checked randomly. She said she “infrequently” checked the calls of solutions partners, as Mr Rogers mainly reviewed those calls. Mrs Rogers says she focussed more on the advisers and trainers: transcript at pp 32-34. Mrs Rogers said she was under the impression Mr Rogers conducted reviews of phone calls from his team members on a daily basis: transcript at p 34. I note Mr Rogers suggested he conducted the reviews less frequently. Mrs Rogers agreed she did not regularly or systematically review recordings of calls made by other members of the team for which she was directly responsible. It seems she was content to rely on what she overheard as a result of sitting amongst the team.
The answers Mrs Rogers gave to questions in cross examination about checking emails were of particular interest. She initially said she reviewed emails before they were sent out. She clarified (transcript at p 34-35) she meant the standard-form emails were all checked before being uploaded onto Goldmine but she confirmed individual emails based on the approved templates were not otherwise checked before or after dispatch. She said staff knew they were required to use the templated materials that had been approved and which could not be altered without approval. It seems there was no regular or systematic process for checking the emails within Goldmine to determine whether staffers were in fact complying with that obligation: transcript at p 35-36. She added emails should not have been dispatched otherwise than through the Goldmine system. That is problematic in circumstances where I note Mr Rogers’ evidence that he was aware at least some emails were sent from Outlook accounts.
The evidence about Mrs Rogers’ approach to checking emails also sits uncomfortably with the answers she gave during her examination before the ASIC delegate. At p 22 of the transcript of that discussion, Mrs Rogers had said “emails… are looked at daily by either Graeme or myself”. At the hearing in these proceedings, Mrs Rogers explained she was feeling pressured when she appeared before the delegate. She said some of the answers she gave to the ASIC delegate might have been the product of confusion.
Mrs Rogers was also asked about emails and SMS communications that included ‘trade ideas’ sent to existing members from the advisory team that worked for her. The ‘trade ideas’ included examples of shares or other financial products that might be traded. The emails also discussed prices, risk management issues and other data: transcript at pp 37-38. The communications went out once or twice a week. Mrs Rogers agreed the communications routinely referred to the College’s ‘research portfolio’, and for several months prior to July 2015 the emails actually included an excel spreadsheet recording the details and progress of trade ideas. The emails were more detailed than the SMS communications. The SMS communications tended to summarise the content of the emails and invited the recipient to contact the office for more information.
I will discuss aspects of Mrs Rogers’ performance in more detail below. For now, by way of introduction, I would mention one exchange between counsel for ASIC and Mrs Rogers which encapsulates my concerns about her performance, and that of the College. Mrs Rogers was being cross-examined about the adequacy of her response to a notice from ASIC requiring information about emails that were sent out which included representations about the performance of a research portfolio. The applicants acknowledge the research portfolio was a hypothetical exercise; it was apparently brought into existence as a teaching tool, complete with spreadsheets. Yet that is not how it was being used, at least in some of the emails from staff to members. Mrs Rogers said the notice from ASIC alerted her to concerns about references to the research portfolio and claims about its rate of return and the inclusion of the spreadsheets. She instructed that the spreadsheets and articles be removed from Goldmine in July 2015. She also directed that a general review be conducted of the materials being used in the communications. She agreed she did not at that point begin a review of the individual emails in Goldmine sent out by staff: transcript at p 48. Mr Free, for ASIC, argued Mrs Rogers’ responses to ASIC’s notice were neither quick nor candid. Mr Free suggested Mrs Rogers did not engage with the concerns about the portfolio spreadsheets that were at the heart of its concerns. That prompted the following exchange (transcript at p 50):
Mr Free: Now, in June you didn’t issue any directive to the staff about not making representations about the SMC research portfolio, did you?
Mrs Rogers: No, I didn’t because I had knowledge that there was a concern there. I did not have knowledge of the basis of the concern. It was the end of June before we had the response sent back to ASIC. We're a small office, we're a small business. It took a lot of my time responding to my legal advisor, looking for the evidence that was required. Looking to start to find anything that may be of problem with the investigation requirements. I was pretty flat out at that time, I wasn’t well. I was just returning to work after a huge operation. My time was hectic, confused, trying to do everything that I could to respond in an effective way to everything that was being asked.
Mr Free: Did you ask the telemarketers or the solution partners whether they'd been sending out any emails about the research portfolio?
Mrs Rogers: No, I didn’t because my rules on my procedures that were in place was nothing to be sent out that wasn’t approved from GoldMine, so that's why I started checking GoldMine first. They were all in their inductions given strict instructions not to send anything out that hadn't – no new articles and nothing that had been authorised.

That exchange suggests three things about Mrs Rogers’ performance in the compliance role. First, it confirms she was significantly compromised even after she had returned to work. That is unsurprising, given the scale of her health challenges at the time. Second, it suggests Mrs Rogers was left to flounder on her own while she was ill. The organisation failed to take any steps to deal with the consequences of her absence or provide meaningful back-up or assistance. That absence of support was apparent from the answers she gave in cross-examination to the effect that staffers were not told of the extent of her likely absence from the firm after she took leave in February. Third, the organisation did not appear to have any systemic checks or constraints in place in the event staff failed to comply with what Mrs Rogers appears to have regarded as an ironclad rule against sending out any materials that were not authorised. Mrs Rogers cannot be criticised for falling ill, or for being compromised in the performance of her duties as she recovered. But given her pivotal role in the organisation’s compliance regime, she can be criticised for not establishing a system that was able to cope with her absence, and which failed to include systematic checks to ensure staff were complying with the rules whether she was there or not.
I will return to this incident and explore others in more detail below as I address each of ASIC’s concerns.
Concern one: misleading or deceptive emails containing portfolio claims
I have already explained the College used a training tool that it described as a research portfolio. Members were provided with access to the research portfolio as part of their membership. It is now accepted the research portfolio was essentially a hypothetical exercise. The stocks identified as being part of the portfolio were never actually traded, and it was never intended the research portfolio would generate actual returns. In the first half of 2015, however, a number of staffers began referring to the research portfolio in emails to prospective members as if it were a real portfolio that generated actual (and very significant) returns. Around 170 emails to this effect were sent out to prospective members over the course of several months. The emails included spreadsheets which purported to track the trades and gains in the hypothetical portfolio.
The delegate concluded the emails were misleading or deceptive within the meaning of s 1041H of the Corporations Act. That finding meant the College had also failed to discharge its obligations under s 912A(1)(c) because it failed to comply with the financial services laws. Mr and Mrs Rogers were in trouble with respect to the same conduct because ASIC concluded they were ‘knowingly concerned’ in the College’s contravention.
The applicants acknowledged the emails were misleading or deceptive – although there must be some doubt as to whether Mrs Rogers was really convinced on this point. When Mr Free questioned Mrs Rogers about whether members would be misled by the representations contained in the emails, she denied members would be misled about the nature of the research portfolio in all the circumstances because the portfolio was properly explained to them in the course of unrecorded one-on-one interviews: transcript at pp 40-41.
I accept the concession offered by the applicants notwithstanding Mrs Rogers’ reticence because the emails are, on their face, misleading, while the extent or quality of the explanations provided in each of the one-on-one interviews is not recorded.
In the circumstances outlined, I am satisfied the College’s conduct contravened s 1041H, which prohibits misleading or deceptive conduct, and therefore s 912A(1)(c), which obliges the licence holder to comply with financial services’ laws (including s 1041H). That finding was also said to provide a basis for action against Mr and Mrs Rogers under s 920A(1)(g), which permits ASIC to make banning orders against a person involved in another person’s contravention of financial services laws. Mr and Mrs Rogers both deny they were involved as alleged.
I should begin my discussion of Mr and Mrs Rogers’ position by referring to the meaning of the expression ‘involved in the contravention of a financial services law by another person’. ASIC says s 79 is the key to understanding this expression. Of particular relevance, s 79(c) provides:
A person is involved in a contravention if, and only if, the person: …
(c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention;…
ASIC accepts a person will only be involved in the relevant sense if I am satisfied the person had actual knowledge of the facts and circumstances giving rise to the contravention. ASIC acknowledged (in the Tribunal proceedings, contrary to the position adopted by the delegate) constructive knowledge is not enough to constitute knowing involvement. Constructive knowledge is said to exist where the person may not have actual knowledge of the relevant facts and circumstances but should have known – and is therefore taken to have known.
In its written submissions, ASIC pointed out it was not suggesting either Mr or Mrs Rogers approved the despatch of any particular email containing the misleading or deceptive representations. The evidence suggests Mr and Mrs Rogers were absent from the office when many of the emails were despatched and they did not have a robust process for screening or checking individual communications. ASIC says the real problem here is that at various points Mr and Mrs Rogers appeared to approve standard-form communications containing the representations that were subsequently reproduced in the emails. In particular, ASIC says:
·Mr Rogers was involved in the emails sent out by two employees, Corina Clemence and Karl Scott. ASIC says Mr Rogers approved emails containing misleading or deceptive statements that were subsequently uploaded as approved emails on the Goldmine database; and
·Mrs Rogers was involved in the emails sent out by two other employees, Clinton Ryan and Rosie Barnes.
I turn firstly to the evidence of Ms Corina Clemence. Ms Clemence provided a statement (exhibit R22) and gave evidence at the hearing. Ms Clemence commenced work at the College on 16 March 2015 as a telemarketer, although she subsequently became a solutions partner. She was given induction training by Mr Rogers. Ms Clemence did not have a clear recollection of aspects of the induction presentation. In cross-examination, she agreed Mr Rogers had said she would be provided with scripts to follow during calls (although she noted Mr Rogers did not appear to follow a script during a number of calls he made to prospective clients that were intended as demonstrations) and that there were approved documents available on Goldmine that could be sent out to prospective clients: transcript at pp 150-151. She said she did not recall Mr Rogers expressly telling her she could only use approved documents, or that there was a formal process for approving documents: transcript at p 151. She said she became aware following a discussion with Cheryl Short, another employee who managed the Goldmine database, that there was a process of sorts that had to be followed in order to place material on Goldmine: transcript at p 151.
In her statement, Ms Clemence recalled Mr Rogers discussing the research portfolio during the course of what I assume was the induction session conducted on 9 March 2015. She reported he said words to the following effect:
We have a portfolio which we actively trade. It trades shares, contracts for difference, options and foreign exchange. The portfolio is active in all the things we teach. The portfolio has real money, $100,000. We have money in the game. We notify our members of what we are trading. We send the, [sic’] SMS’s notifying them of the trades the portfolio has made, so that our clients can make the same trades if they want to. The fund has made 67%.
Ms Clemence said she was impressed by this aspect of Mr Rogers’ presentation. She recalled telling Mr Rogers prospective clients would be encouraged by the fact the College “has skin in the game”: exhibit R22 at [16].
Ms Clemence gave evidence about an email written by Mr Scott that Mr Rogers forwarded to her on 19 March 2015. A copy of the email is reproduced in exhibit R1 at p 1368, and a (largely illegible) copy is reproduced in Ms Clemence’s statement. Mr Scott’s email appears to have been a draft of a note to a prospective client that was sent to Mr Rogers for his approval on 24 February 2015. Mr Rogers forwarded Mr Scott’s draft with the comment: “You can turn this letter below into you for sending to leads also”. The draft from Mr Scott includes the following text:
The SMC Model Portfolio is a real investment portfolio with a capitalisation of $100,000 that we trade and use as the basis for the SMC Stock Selection Service that Members receive. Many Members piggy-back these trades in their own portfolios.
Mr Rogers initially claimed he did not remember forwarding the email in question but he subsequently accepted he did so: see email to Ms Clemence dated 15 October 2015 in exhibit R1 at p 1368. In cross-examination, Mr Rogers said he did not closely read the Scott email before forwarding it to Ms Clemence because he was distracted by his wife’s health condition: transcript at p 99. That explanation, if true, is hardly exculpatory. It would be understandable if Mr Rogers had not sent an email at all because of his preoccupation with health issues. But it was a serious error to forward a template document – and it was clear from the context that he understood the Scott email included text that was intended to be a template – in circumstances where a new employee was asking for a reliable model to follow for her own work. Mr Rogers suggested in his oral evidence that he did not intend Ms Clemence to uncritically adapt the email in any event, and that he expected she would come back to him to share the results of her rewrite: transcript at pp 102-103. If that was his intention, it is surprising that he did not follow-up with Ms Clemence subsequently. As it happens, Ms Clemence recalled conversations with Mr Rogers which suggested he clearly understood the import of the Scott text – including the representation about the model portfolio, that it was being used, and that it was approved. She said in cross-examination that she understood the instruction to “turn this letter into you” gave her some latitude. She subsequently crafted communications including the text contained in the email Mr Rogers had sent her and language used in other emails that appeared to be in circulation amongst the staff.
The evidence of Ms Clemence and Mr Rogers is inconsistent. I prefer the evidence of Ms Clemence. At a minimum, I think it is appropriate to treat the recollections of Mr Rogers with caution in circumstances where his own evidence suggests he was distracted from the operations of the business as a result of his wife’s health issues. That distraction on its own suggests he is a less reliable historian. But I am not persuaded the evidence about being distracted is a sufficient explanation for the discrepancy. Ms Clemence’s evidence is consistent with the documentary evidence which speaks for itself. The draft from Mr Scott containing the offending representations was passed on in circumstances where it was clearly intended it should be used as a template. I do not accept Mr Rogers did not know what he was sending. He was clearly offering an endorsement of the contents of the draft and authorising Ms Clemence to use what Mr Scott had written as a model.
The applicants attacked the credit of Ms Clemence but I was not persuaded by the criticisms. I acknowledge she was, at times, a combative witness. She left the College on bad terms, and she was obviously concerned lest she be held responsible for the emails she sent out. The evidence about her workers’ compensation claim against the College did not suggest she was an unreliable witness in these proceedings. The fact she had not spoken up at the time about her growing concerns needs to be understood in the context of an organisation that did not have a strong compliance culture. The fact she discussed issues with fellow employees (including Mr Scott, whose shortcomings she had come to appreciate) without bringing them to the attention of Mr or Mrs Rogers in a timely way is a reflection on the prevailing culture rather than suggestive of anything about her credit. I am also not persuaded Ms Clemence was somehow confused about whether it was Mr Scott or Mr Rogers who had been the source of the misleading material. She was clear in her evidence on the respective roles of Messrs Scott and Rogers; her insistence that Mr Rogers was responsible for creating the impression that the offending material was approved is consistent with the documentary evidence in the form of the email from Mr Rogers.
In those circumstances, I have no reason to doubt Ms Clemence’s claim that Mr Rogers was at least the conduit for (if note the source of) the offending content and that he was aware from subsequent discussions the misleading representations were a routine and approved part of the College’s communications with members and prospective members. I am satisfied he was involved in the emails authored by Ms Clemence. Given my preference for the evidence of Ms Clemence, it follows I also accept her account of the quality and extent of the induction training. The perfunctory nature of the training was part of a pattern of behaviour which included a slap-dash approach to the use of email templates which reflects poorly on Mr Rogers’ commitment to promoting compliance.
The evidence in relation to Mr Scott raises more complex issues. Mr Scott did not provide a statement or appear at the hearing, although he did give evidence before the ASIC delegate. (A copy of the transcript of his evidence was tendered in these proceedings: exhibit R1 pp 1037-1097. The evidence before the delegate suggested Mr Scott was trained by Mr Rogers and that Mr Scott operated under the close supervision of Mr Rogers. ASIC argued in submissions that Mr Scott almost certainly understood he was required to obtain approval from Mr Rogers for any communications. I do not understand any of that to be controversial. The applicants said it would nonetheless be unfair to rely on Mr Scott’s evidence – particularly his more contentious claims – as he was not available for cross-examination. ASIC pointed out the applicants did not ask the Tribunal to compel his attendance until the last moment.
I am satisfied the evidence of Mr Scott should be treated with caution given I did not have the opportunity to observe him giving evidence. But the limited evidence before me should not be disregarded entirely. There is objective evidence which tends to confirm Mr Scott kept Mr Rogers apprised of what Mr Scott was saying in the various emails. I have already referred to one of those emails containing a draft that was sent to Mr Rogers and subsequently forwarded to Ms Clemence; ASIC also referred specifically to an email to a prospective member on 3 February 2015 which included the misleading representations about the nature and performance of the research portfolio: exhibit R1 at pp 1357-1359. Mr Scott had forwarded that email to Mr Rogers on the same day it was sent to the prospective member. Mr Scott noted the email was in response to issues raised by the individual and added the words “as discussed”. The import of that statement is clear. Mr Scott was keeping Mr Rogers informed orally and in writing about what he was saying to prospective clients. Even if I accepted Mr Scott ranged still further beyond his brief, the evidence before me on its own suggests Mr Rogers was involved in the misleading or deceptive conduct contained in that email. It is also consistent with the proposition that those representations were routinely made on behalf of the College to Mr Rogers’ knowledge. I note Mr Rogers appeared to be copied in to a number of other emails from Mr Scott to clients and prospective clients that were reproduced in R1 one at T34. Mr Rogers claimed in cross-examination he was not aware of them and had not read them: transcript at p 110. All of those emails contained problematic representations. (I do not think anything turns on the minor discrepancies between emails about the performance of the fund. The inconsistencies are most likely explained by the haphazard nature of the communication process.) While it is impossible to say Mr Rogers was aware of every single email that contained such a representation, it is unlikely he missed all of them. A cursory read of any one of those emails should have triggered an alarm, even in a distracted manager. I am satisfied Mr Rogers had actual knowledge Ms Clemence and Mr Scott were making problematic representations on the College’s behalf, even if it is unclear how frequently that was occurring. In the circumstances, I am satisfied Mr Rogers was involved in the College’s misleading or deceptive conduct in contravention of s 920A(1)(g) of the Corporations Act.
I turn next to the evidence about the extent of Mrs Rogers’ involvement with emails containing misleading or deceptive representations about the nature and performance of the research portfolio.
Clinton Ryan and Rosie Barnes were both employed by the College. Each of them sent out emails containing the offending representations. Copies of the emails in question are reproduced in exhibit R1 at T47 and T48. The emails were sent from the Goldmine database using templates contained on the system. Mr Ryan and Ms Barnes were apparently following procedures. They were using materials on Goldmine they took to be approved. Mrs Rogers suggested in cross-examination that the emails were marked ‘Do Not Send’ but I was not provided with any evidence to confirm that supposition. ASIC says I should infer the emails were used because they were approved and uploaded onto Goldmine, and the person with authority to give approval was Mrs Rogers.
The circumstances in which the emails came to be uploaded onto the system require explanation. The database manager, Cheryl Short, said in her statement that she became aware Mr Scott had provided documents to the telemarketers to send out without going through the compliance process. She said she asked Mr Scott to provide copies of the documents so they could be ‘complianced’: exhibit A8 at [13]-[14]. In the course of that ‘compliancing’ process, she sent four consecutive emails to Mrs Rogers on 24 March 2015. The first and second emails included the problematic text provided by Mr Scott. The first email put all four emails into context. That email explained the text in the first and second emails was being sent out by Mr Scott and Ms Clemence, and invited comment or approval from Mrs Rogers on all the material in all four emails. The third and fourth emails contained a presentation document and another promotional document. The third and fourth emails did not contain problematic representations.
Mrs Rogers said in her oral evidence she only saw the third and fourth emails from Ms Short. Mrs Rogers claims the first two emails never reached her. She says the email response she sent on 26 March 2015 to the third and fourth emails saying “This one is ok” (A copy of the email is annexed to the statement of Ms Cheryl Short dated 8 November 2016 (exhibit A8)) should be read as an indication of her approval of the contents of the third and fourth emails only. But ASIC pointed out Mrs Rogers was not asked in the third and fourth emails for a reply. The request for a response confirming approval was actually contained in the first email. ASIC says the fact Mrs Rogers knew to respond with her approval indicates she probably read the first email which also referred to the problematic representations. The absence of a negative response to the request for approval meant the documents remained on Goldmine where they could be accessed and used.

If one accepts Mrs Rogers’ account that she did not see all four emails, the compliance process over which she presided was still a problem because documents were being placed on Goldmine without proper vetting. A vetting process that fails when somebody misses an email is probably deficient – although a finding Mrs Rogers did not see the emails might suggest she was not involved in the contravention in the relevant sense.
I am satisfied Mrs Rogers did receive (if not respond to) all four emails – and was therefore aware of the offending text. (I note Mrs Rogers agreed in cross-examination that if she had seen the emails it would have been obvious the offending documents were already being used and that urgent action was required to take them down.) I am not persuaded by Mrs Rogers’ evidence to the contrary for the following reasons:
·Mrs Rogers’ evidence that she missed the two key emails must be treated with caution because – on her own account – her health conditions compromised her recollection of what occurred: transcript at pp 42-43.
·I agree with ASIC that her response to the later emails must be seen in the context of what she was being asked to do by the first email. Mrs Rogers must have read the first email to understand she was being invited to respond with her approval for the material in all four emails.
It may be Mrs Rogers did respond to all four emails, albeit her responses to the first two have not been located. That seems less likely, if only because Ms Short did not follow up by removing the offending material – assuming, of course, that Mrs Rogers was not happy with the material. It may be Mrs Rogers simply neglected to respond, perhaps because she was overwhelmed notwithstanding the likelihood she would have appreciated she should intervene. In either event, I am satisfied she was aware of the relevant facts and failed to take appropriate action, and was therefore involved in the contravention in the relevant sense.
Those findings bring me back to Mr Rogers. I have explained the offending emails that Ms Short passed onto Mrs Rogers for approval or rejection contained text that was originally generated by Mr Scott. That was the same material I have found Mr Rogers passed on to Ms Clemence in circumstances that clearly indicated his approval of what Mr Scott had written. That (approved) communication or communications effectively cascaded through the organisation when it, or they, were adopted by Mr Ryan and Ms Barnes with the approval of Mrs Rogers. ASIC says that means Mr Rogers was also involved in the contraventions resulting from the conduct of Mr Ryan and Ms Barnes because they were ultimately repeating what Mr Rogers authorised Mr Scott and Ms Clemence to say in circumstances where he plainly intended the representations be adopted more widely.
I think ASIC is ultimately right about that, although I acknowledge there is no evidence to suggest Mr Rogers was aware of any of the particular emails despatched by Mr Ryan and Ms Barnes. In those circumstances, I find Mr Rogers was involved in those contraventions although that involvement does not count heavily against him.
Concern two: providing personal advice in contravention of the conditions of the AFSL
The parties all accepted the conditions attached to the College’s AFSL restricted it to providing general advice, as opposed to personal financial product advice which was excluded. Yet the parties all acknowledge the College did provide personal financial product advice in breach of the condition on at least seven occasions. The offending advice was contained in five emails sent by Mr Scott (reproduced in exhibit R1 at pp 1383-1391 [T52-56]) and two emails sent by Mrs Rogers (reproduced in exhibit R1 at pp 1393-1395 [T57]). I am satisfied those concessions were appropriate. I find the College contravened the conditions of its licence on those occasions. That contravention provides the basis for concluding the College contravened s 912A and ASIC correctly cancelled its AFSL under s 915C.
ASIC accepts – as do I – there is no evidence that Mr Rogers was aware at relevant times of the advice provided by Mr Scott or Mrs Rogers. It follows he was not involved in those contraventions. ASIC also accepts – as do I – Mrs Rogers was not aware of the provision of personal financial product advice in the emails from Mr Scott. But ASIC says Mrs Rogers plainly did know of the personal financial product advice contained in the two emails she drafted and sent out. Mrs Rogers now accepts her conduct contravened the law, although she argued her judgment may have been impaired at the time by her personal circumstances, most obviously her medical condition.
ASIC points out the emails in question were sent in April 2015, after the worst of Mrs Roger’s health crisis had passed. I am satisfied the evidence provided at the hearing about Mrs Roger’s health suggests her performance was still significantly impaired in April, and that her judgment continued to be impaired in the months that followed. That impairment might go some way towards explaining why she made the error in the first place. Her refusal to acknowledge the error until comparatively late in the day is harder to excuse. ASIC points out the applicants resisted conceding all of the emails contained personal financial product advice in contravention of the conditions of the AFSL. Mrs Rogers in particular had insisted during the proceedings before the delegate that there was some doubt over the characterisation of the advice. She was asked in cross-examination about the strategy of denying the contravention before the delegate. She was unable to offer a coherent explanation of why the applicants maintained that position when it should have been apparent it was untenable: see transcript at p 61-62. One consequence of her approach was that the College did not take the sort of timely action to correct the problems it would have taken if its compliance regime was adequate.
Mrs Rogers’ answers during cross-examination suggest she had not fully engaged with the allegations against the applicants when the matter was before the delegate. It is a matter of concern that she seemed unable to grasp there was a problem at that late stage. Her concession before the Tribunal reflects a belated acceptance of the obvious. I accept ASIC’s submission that the delay does not reflect well on her diligence and judgment.
Concern three: the failure to lodge a breach report and deal properly with ASIC
Section 912D(1) and (1B) of the Act require the holder of an AFSL to provide a written report to ASIC of any significant breaches (or likely breaches) of the organisation’s obligations under s 912A or 912B or under the financial services’ laws. Section 912D(1B) says the notice must be given ‘as soon as practicable and in any case within 10 business days after becoming aware of the breach or likely breach…’. The College’s compliance manual refers to the requirement to report significant breaches, although it imposes a shorter time frame for action: clause [3.1.3] says breaches should be reported within 5 business days. (Extracts of the College’s compliance manual are reproduced in exhibit R1 at pp 1422ff.)
There was wrangling between the parties before the hearing over whether the breaches identified in this case were significant within the meaning of s 912D(1)(b) of the Act. That sub-section provides a breach or likely breach is significant having regard to:
(i) the number or frequency of similar previous breaches;
(ii) the impact of the breach or likely breach on the licensee's ability to provide the financial services covered by the licence;
(iii) the extent to which the breach or likely breach indicates that the licensee's arrangements to ensure compliance with those obligations is inadequate;
(iv) the actual or potential financial loss to clients of the licensee, or the licensee itself, arising from the breach or likely breach;
(v) any other matters prescribed by regulations made for the purposes of this paragraph.
The applicants came to accept the breaches I have already identified – the misleading or deceptive conduct in the emails concerning the research portfolio, and the provision of personal financial product advice in other communications – are significant in the relevant sense. I am particularly concerned by the way in which the misleading or deceptive conduct cascaded through the organisation once it took hold in the work of Mr Scott. That phenomenon should have indicated the compliance arrangements were inadequate. I have also referred to my concern over the way in which the officers of the College – most obviously Mrs Rogers – appeared not to have engaged with the magnitude of the contraventions until late in the day. The initial breaches were bad enough, but the lengthy delay in coming to terms with the contraventions compounded the errors and illustrated the shortcomings in the compliance regime.
The contraventions were eventually reported on 18 May 2016. That was some time after the College learned of the breaches. But how long?
Mrs Rogers was presumably aware of the personal advice contraventions at the time she wrote the emails in April 2015. Of course, one can assume she would not have sent the emails in the first place if she had been focused on compliance issues. While technically aware of the behaviour giving rise to the contravention, it is unsurprising she did not think to file a report at the time if she was the author of the conduct. Therein lies the problem. In cross-examination, she said the recipient of the communications she had authored was an old friend, which might explain how she strayed into giving personal advice. She also pointed out she was still unwell when she wrote the emails: transcript at pp 60-61.
ASIC issued a notice to the College pursuant to s 912C(1) requiring a written statement dealing with a number of issues, including performance reports for the ‘SMC Model Portfolios’ and ‘SMC Research Portfolios’. The s 912C notice is dated 5 June 2015: exhibit R1 p 1642. Mrs Rogers said in her statement dated 17 March 2017 she had become concerned in any event about individuals sending out emails containing claims about performance and otherwise departing from approved scripts. She had commenced a review of the documents available on Goldmine. She said she began with Goldmine rather than interviewing staff because staffers were aware of their obligation to refrain from using anything that was not stored on Goldmine: transcript at p 50. In her statement, she said she had sent emails to some staff and counselled others about communicating unauthorised content in emails and calls. She also referred to compliance meetings where the topic was discussed: at [115]-[135]. She mentioned emails sent to Ms Clemence and Mr Scott on 20 August 2015 warning them about discussing performance percentages (exhibit A4 at [133]) and further emails to individual staff on 29 September (exhibit A4 at [134]). While Mrs Rogers gives the impression in her statement that she was methodically reviewing what happened and she was slowly becoming aware of problems, Mrs Rogers did not think to report any of these incidents. In her statement, she said (at [148]):
“…I did not recall the obligation to report specific breaches (as defined) when I should have in 2015 during ASIC’s compliance audit and investigation.”
That is a startling admission. Mrs Rogers was in charge of compliance. The compliance manual clearly addressed the reporting obligation. It is unclear how Mrs Rogers could have forgotten or misunderstood her obligations to report if she was competently and diligently performing her role.
Whatever the state of the applicants’ knowledge in June through to September 2015, it is clear the applicants were aware of problems by the time Mr and Mrs Rogers called a staff meeting on 15 October 2015 to discuss compliance issues: documents 12-14 in the applicant’s tender bundle. The minutes of that meeting are reproduced in exhibit R1 at pp 1397ff. The minutes confirm the College was then certainly aware of emails containing misleading statements about the research portfolio. The minutes also refer to the limitations on providing personal product advice. The minutes note Jill Rogers had ominously observed:
“Someone/persons has sent out these emails – is a serious breach of compliance – will be spoken to after meeting.”
That remark suggests two things. First, it makes clear the applicants were casting blame on rogue employees for what occurred. I cannot reconcile that with the evidence I have already accepted from Ms Clemence which makes clear Mr Rogers effectively authorised her including the offending content in the emails in the first place. Second, the fact Mrs Rogers identified the breaches as “serious” in her remarks at the earlier meeting is difficult to square with the applicants’ reluctance to accept the breaches were significant. Mrs Rogers suggested the language used at the meeting might have been deployed for effect rather than because the applicants genuinely believed the breaches were significant: transcript at p 62. That seems unlikely, particularly since the minutes of the meeting go to some lengths to detail the behaviour that had been uncovered during the review. The tenor of the meeting and the way in which it was called at short notice suggest the applicants were shocked by the situation in which they found themselves, and that they were ‘reading the riot act’ to staff as part of an alarmed – even panicked – response. The air of alarm apparent in the minutes suggests they were all too aware of the significance of the contraventions. I am satisfied the applicants knew there was an obligation to report the breach if it was as significant as they appeared to suggest at the meeting. Indeed, the minutes record Mrs Rogers explaining the obligation to report breaches to the regulator – the very detail she claims to have forgotten or misunderstood: exhibit A4 at [148]. When asked about all this in cross-examination, Mrs Rogers complained it was a difficult time for Mr Rogers and her because of the state of her health. She added she had a poor recollection of what occurred. She said she was affected by medication when these events took place and she and her husband were emotionally fraught. Mr Rogers, for his part, suggested lamely that the applicants thought there was no need to report the matter in circumstances where there was already an ASIC investigation under way.
The meeting with the whole staff on 15 October 2015 was followed on the same day by a smaller meeting between Mr and Mrs Rogers, their son Josh (who worked in the business on IT), Mr Scott and Ms Clemence. The minutes of the second meeting are short. They are reproduced in exhibit R1 at p 1402. They record “[a] matter of non-compliance was discussed with both individuals, being the article stating performance returns”. The minutes also recorded Ms Clemence’s angry departure from the meeting before it concluded. Ms Clemence provided more detail about what occurred in her statement: exhibit R22 at [71]-[81]. She said there was a blow-up when Mr Rogers demanded to know where the text of the problematic emails had come from and refused to accept he had provided approval for the substance of those emails in his email of 19 March 2015. Ms Clemence said she noticed shortly thereafter that the email from Mr Rogers disappeared from her inbox. Some of the tables in spreadsheets that had accompanied the daily market updates had also been deleted from the system.
Ms Clemence recalled telling Mr Scott at the time she thought the meetings were part of a “witch-hunt”: statement at [43.3].
Mrs Rogers agreed in cross-examination she asked Mr Rogers about Ms Clemence’s claims that Mr Rogers had authorised her communications. Mrs Rogers said she spoke with her husband within a day after the meeting and he denied giving his approval to Ms Clemence. Mrs Rogers had seen the email by that point; she recalled Mr Rogers saying he did not send the email to Ms Clemence “to be used in that context”: transcript at p 58. While Mr Rogers’ denial is implausible, Mrs Rogers’ failure to do anything about the conduct is puzzling.
That evidence confirms contraventions had come to light by October 2015, even if the applicants were not at that point aware of the precise extent of those contraventions. I am satisfied the applicants should have realised – and did realise – the contraventions were significant and reportable at that point. Yet the report(s) did not formally occur until May 2016. Mrs Rogers sought to explain the delay with reference to doubts over whether the contraventions were really significant, but I have already pointed out the words of Mrs Rogers recorded in the minutes of the compliance meeting make it clear she appreciated the seriousness of what had occurred at a relatively early point. The evidence demonstrating her realisation the breaches were significant puts paid to any argument the applicants were persuaded by legal advice suggesting it was inappropriate or unnecessary to report the breaches.
The role of the lawyers in all this requires some attention. Mrs Rogers suggested during cross-examination the College’s lawyers had failed to advise the breaches were significant: transcript at pp 63-64. Mr Rogers also mentioned legal advice as an explanation: transcript at p 117. Mrs Rogers’ conceded she did not obtain specific legal advice confirming there was no obligation to report in the circumstances (transcript at p 64) while Mr Rogers agreed he did not see any written advice to that effect: transcript at p 117. In the circumstances, I am not persuaded the applicants can now claim legal advice as an excuse for failing to comply with an explicit obligation to report. Advice to that effect was not given at the time.
Mr Rogers’ other explanation for the delay cut across his wife’s explanation that she thought the breaches may not have been significant. He suggested during cross-examination there was no need to report the breach if ASIC was already looking into the College’s affairs. He did not explain why an ASIC investigation would excuse the applicants from complying with their obligation to report. In any event, his claim that the applicants’ duty to disclose was somehow superseded by ASIC’s involvement confirms he assumed the matters were serious enough to warrant disclosure but for the ASIC involvement.
Mr Rogers’ claim that ASIC’s involvement somehow excused the applicants from complying with their obligations to report also sits uncomfortably with the way in which the College responded to the s 912C notice issued on 5 June 2015. I have already pointed out the notice required the College to provide information about a number of matters, including ‘performance reports’ on the ‘SMC Research’ and ‘SMC Model’ portfolios. The parties agreed the SMC Research Portfolio was, in effect, a teaching tool that did not generate actual returns but tracked theoretical trades. Yet in its response to ASIC dated 29 June 2015, the College baldly asserted (exhibit R1 at p 1653): “SMC does not have a Research or Model Portfolio.” That is not true. Mr Rogers repeated that assertion when he was examined by the delegate: transcript of evidence before the delegate, exhibit R1 at p 858.
I am satisfied from the evidence of Ms Clemence in particular that Mr and Mrs Rogers were affected by panic when they realised ASIC had started to take an interest in the communications with clients about the research portfolio. It is likely they realised they had a significant problem and were struggling with how they should deal with it. Mr Rogers was not candid – even with his wife, it seems – about his role in the dissemination of the communications. In any event, they did not come clean with ASIC as they should have done. ASIC was not properly informed of contraventions until 18 May 2016. That delay has not been adequately explained, and the miscommunications with ASIC that occurred during 2015 in response to the s 19 notices are troubling. The conduct reflects poorly on the culture of compliance and the adequacy of the compliance arrangements. It also reflects poorly on the competence, diligence and candour of Mr and Mrs Rogers.
Concern four: a failure to take reasonable steps to ensure representatives complied with financial services laws

ASIC concluded the College had contravened s 912A(1)(ca) because the evidence suggested it failed to take reasonable care to ensure its representatives complied with the financial services laws. ASIC says Mr and Mrs Rogers are both involved in that contravention.
ASIC pointed to shortcomings in the College’s induction program. Ms Clemence gave evidence suggesting the induction program was perfunctory. In her statement, she recalled the induction session was a meeting with Mr Rogers where he went through a Powerpoint presentation. The induction session was said to run for no more than 60 minutes. (A copy of the presentation was reproduced in exhibit R1 at pp 1760ff.) She said Mr Rogers spent no more than five minutes talking about compliance issues or the College’s obligations as a financial services organisation. She said she also spent time with Ms Short who talked about the operation of Goldmine. Ms Clemence claimed she did not receive any other compliance training: exhibit R22 at [23]-[24]. She was asked about this evidence during cross-examination. She was taken through the slides that were said to have been used at the meeting. She did not have a clear recollection of the slides which referred to the importance of not using material unless it was formally authorised. She was ultimately unsure if she had been shown the slides referring to compliance issues but she insisted the reality within the organisation was much less formal. She was unclear on how documents were uploaded onto Goldmine. She said Mr Rogers could and did authorise her to use particular text or references outside of a formal process: transcript at pp 151-152.
Once again, the email of 19 March 2015 is critical to my assessment of the evidence. If the compliance program really was at the core of the College’s operations, and if a compliance culture existed, Mr Rogers would not have sent that email. The email effectively invited employees to freelance outside the compliance program. If that is how he behaved in practice, it is hard to accept he would have taken an especially diligent approach to the induction program. I am inclined to prefer Ms Clemence’s account of the induction program given the subsequent behaviour of Mr Rogers in sending the email.
As it happens, there is other evidence available which supports Ms Clemence’s account of a cursory induction program. Ms Barnes gave evidence in her statement about an organisational failure to acquaint her with the contents of the compliance manual.
The perfunctory induction program was not the only shortcoming apparent in the compliance program. Mrs Rogers, the officer in charge of compliance, approached her compliance role on the basis staff all understood the only approved material was located in Goldmine, and that they understood they were not to use any other material. Yet a number of the employees clearly did not share that understanding. Documents approved by Mr Rogers outside the compliance regime were sent out by Ms Clemence and Mr Scott. Documents (like those which Ms Short asked Mrs Rogers to review in the four emails) that were not reviewed found their way onto the Goldmine system. That was possible because the process for reviewing documents and uploading them was flawed. Mr and Mrs Rogers did not rigorously review emails or recordings of phone calls to ensure their assumptions about the operation of the compliance program were valid. I have already explained Mr Rogers reviewed emails and calls, but the evidence does not establish he did so systematically or rigorously – and his behaviour in sending the email of 19 March 2015 confirms he was in need of compliance education himself. The evidence of Ms Clemence suggests his focus was on improving sales rather than on compliance. Mrs Rogers admitted during cross-examination that when she became aware of ASIC’s concerns in June 2015, her first response was to start a review of the documents on the Goldmine database. She did not allow for the possibility the staff might not have complied with what she regarded as an iron-clad rule about using approved materials.
There is also a glaring failure to report the contraventions in a timely fashion. I have already observed the failure to comply with s 912D and the compliance program was not adequately explained. There was no system in place to ensure compliance with the reporting requirement. The fact Mr and Mrs Rogers – Mrs Rogers in particular, because she took the lead on compliance issues – failed to report the breaches without a satisfactory explanation is disturbing. Their delay was all the more blameworthy when it became manifest at the meetings of 15 October 2015 that Ms Clemence in particular was acting on instruction. Thereafter the failure to report the breaches began to look more like a cover-up.
Some of the shortcomings I have identified came to light when Mrs Rogers was ill. I accept she and Mr Rogers were understandably distracted from their functions during that period. But the distraction that resulted from the illness was not the root of the problems. The problems arose because the compliance program was flawed, and because it was not being properly implemented. These problems were avoidable. They are the product of a failure to take reasonable steps towards ensuring compliance with the financial services’ laws. Those steps must surely have included more rigorous induction programs and compliance education and more systematic monitoring. They should also have included some sort of recovery plan which was capable of being implemented in the event key officers like Mrs Rogers were unavailable. While Mrs Rogers’ illness might not have been specifically anticipated, the organisation should have made plans for dealing with an incapacitated manager. In the absence of such a plan, Mr Rogers should have taken steps when his wife became incapacitated to arrange for another staff member to step into the compliance manager’s role. That did not occur.
The shortcomings in the compliance program were compounded by the approach of Mr and Mrs Rogers once the shortcomings came to light – particularly once ASIC took an interest. After what looks like an attempt at the compliance meeting in October 2015 to fix the blame for the contraventions on rogue staff came to nought, there was significant delay in reporting the breaches to ASIC. Their failure to report breaches was attributed to legal advice, to doubt over whether the breaches were in fact reportable, and to the assumption there was no need to report the breaches to ASIC because ASIC was already aware of what had occurred. I am satisfied the evidence suggests it was more likely to be attributable to panic at the dawning realisation their conduct as managers was seriously deficient.
Mr Rogers and Mrs Rogers were both aware of the flaws in the assumptions underlying the compliance program, even if they did not regard them as flaws. They were also both aware of the (limited) extent of monitoring and review to ensure compliance. They were both aware of the failure to report the breaches to ASIC in a timely way in accordance with the obligations in s 912D. Those findings all suggest the College’s compliance program was not fit for purpose. The absence of an effective compliance program means the College failed to take reasonable steps to ensure compliance with financial services’ laws. Mr and Mrs Rogers were aware of the details of the compliance program: their performance lay at the heart of the problem. In those circumstances, it is clear they were involved in the College’s contraventions.
Concerns five and six – a likelihood of future contraventions
ASIC’s fifth and sixth concerns are related to the fourth. Whereas the fourth concern focused on the College’s failure to take reasonable steps to ensure compliance with financial services’ laws, the fifth concern addresses the likelihood of future contraventions occurring. Section 915C(1)(aa) refers to suspension or cancellation of an AFSL where “ASIC has reason to believe that the licensee is likely to contravene their obligations under section 912A”. ASIC says Mr and Mrs Rogers are both likely to be knowingly involved in the College’s future contraventions. It also concluded Mr and Mrs Rogers were likely to contravene their own obligations under s 912A. Section 920A(1)(ba) identifies the likelihood of future contraventions as a further basis for banning the applicants.
A finding that a licensee has contravened its obligations in the past does not inevitably mean it is likely to do so in the future. In each case, it is necessary to look at what occurred and determine whether that conduct or those circumstances are such that they would give the decision-maker reason to believe future contraventions are likely to occur.
I am satisfied there is a sound basis for believing future contraventions are likely in the sense contraventions are more likely to occur than not. The problems identified are partly systemic in nature. There were inherent flaws in the compliance program, starting with the working assumptions that:
a)the entire staff including managers understood that only authorised material uploaded onto the Goldmine system would be used in the course of communicating with clients and potential clients. I have already concluded Mr Rogers effectively led his own staff astray when he recommended they adopt templates that had not been approved, and were not found on the Goldmine system; and
b)there was a rigorous process for vetting material before it was uploaded onto Goldmine. The nature of the haphazard exchanges between Mrs Rogers and Ms Short in relation to the material being considered for upload in March 2015 confirms that was not the case.
The flawed assumptions go some way towards explaining why Mr and Mrs Rogers did not develop a systematic process of monitoring and review that would ensure everybody conformed to the program. Mr and Mrs Rogers just assumed that was occurring, as evidenced by the way in which Mrs Rogers responded to news of unauthorised emails. When she learned of this information from ASIC, she began by auditing Goldmine and only belatedly reviewed individual communications.
Of course, systemic problems might be fixed following an overhaul. It is possible to learn and recover from bad experiences. I am not satisfied that has happened in this case, or if there is reason to believe contraventions will not happen in the future. The applicants were initially reluctant to acknowledge misleading emails and personal advice had been sent out. Their first reaction was to blame individual employees even though the misleading conduct was at least partly authorised by Mr Rogers. Some of the personal advice was actually authored by Mrs Rogers. The applicants were slow to come clean with ASIC when the reality of what occurred became apparent. Even during the course of the hearing before the ASIC delegate, the applicants remained reluctant to acknowledge the full extent of what occurred: Mrs Rogers agreed in these proceedings that some of the information she provided to ASIC was wrong or misguided. But Mr and Mrs Rogers also held fast to their defence that the problems were essentially the product of rogue employees and the distraction caused by the sickness was to blame for much of what occurred.
Mr and Mrs Rogers did not impress me as individuals who had learned the full extent of the lessons from the mess that emerged in 2015. The lack of insight into their behaviour and its shortcomings provides reason to believe the College is likely to contravene its obligations in the future. While Mr and Mrs Rogers remain in charge, the risk remains until they can more clearly establish they have learned the lessons and are prepared to establish a more effective compliance regime and foster a compliance culture. The same lack of insight suggests the applicants are likely to contravene a financial services’ law (s 920A(1)(f)) or be involved in another person’s contravention of a financial services’ law (s 920A(1)(h).
What regulatory action is justified in the circumstances?
I am satisfied ASIC’s concerns are justified, and grounds exist for taking regulatory action against the College and against Mr and Mrs Rogers.
The applicant’s solicitors point out in their written submissions (at [46]) the decision about regulatory action should be taken on the basis of the material before me at the time of my review, rather than on the material before the delegate. On that basis, it was argued I should make less of the approach the applicants adopted earlier in the proceedings (for example, trying to explain the tardiness in reporting the breach of the compliance regime because there were doubts over whether the breach was truly significant) and focus on what they said at the final hearing where those shortcomings were acknowledged with more candour.
As it happens, I agree I must make my decision on the basis of the material before me at the hearing – but that material includes evidence of what was said and done at an earlier point. I need to consider the applicants’ behaviour as a whole when deciding what must be done.
ASIC points out my deliberations about regulatory action must be informed by the object of Chapter 7 of the Corporations Act which is set out in s 760A. I note the object of promoting “fairness, honesty and professionalism by those who provide financial services” is likely to be particularly relevant in these proceedings. ASIC also referred me to the contents of Regulatory Guide 98 Licensing: Administrative Action against financial services providers (July 2013) (‘RG98’). RG98 sets out the factors ASIC ordinarily considers when deciding whether to take administrative action (at [RG98.49] table one). I am satisfied RG98 provides a sensible and coherent approach that I should follow in these proceedings.
The first issue I should consider is the nature and seriousness of the conduct. I should say at once there does not appear to be any suggestion anybody experienced actual loss, or that the applicants experienced any benefit. It is also unclear whether the misconduct which I have found impacted on the market or on public confidence. I am not aware of the applicants having a poor compliance history apart from the matters identified in this case. There is no suggestion the conduct is continuing. But I did find the conduct was the product of systemic failures in the compliance regime. I am also satisfied that the representation about the Research portfolio which emanated from Mr Rogers was dishonest. (I can reach no other conclusion in circumstances where I have accepted the evidence of Ms Clemence who explained she was provided the text and was told by Mr Rogers the research portfolio was real.) The other contraventions were principally caused by negligence or were the product of Mrs Rogers’ ill-health and a general lack of competence as a compliance manager. It follows that the conduct – especially the representations about the research portfolio – is relatively serious.
I am also required to consider the extent and efficacy of internal controls. I have found the internal controls in this case were inadequate. The compliance program was based on flawed assumptions, and the monitoring was not rigorous or systematic. The compliance training was perfunctory and the breaches were not detected until ASIC began an investigation. Those failures must be laid at the door of Mr and Mrs Rogers.
The conduct after the alleged contravention occurred also counts against the College. It did not report the breach to ASIC in accordance with its obligations. Mrs Rogers’ decision to start with a review of the database rather than the emails delayed the College’s response. It was also slow to acknowledge defects in its compliance; it preferred to attribute any failings to rogue individuals. That response does no credit to Mrs Rogers in particular.
I expect there may be some level of public benefit if action is taken. The College was operating on the fringes of the market, although it was offering an educational service to inexperienced participants. It is unclear if the public will enjoy greater protection if action is taken but the reputation of the financial services industry for integrity may be enhanced. It is also possible the circumstances of the case may be instructive to others. In this case, the College was affected by the personal trauma experienced by Mr and Mrs Rogers. That trauma was said to excuse or at least mitigate the offending conduct. But the impact of personal trauma must be carefully evaluated. Without doubting the distress of Mr and Mrs Rogers, it is important to make the public point that compliance regimes must be robust enough to cope with unanticipated events.
There is some likelihood of a change in the conduct of the licensee or potential for wider deterrence. The College does not have a problematic record of compliance, although that may be because it operated on a relatively small scale. I understand the College has also sold part of its business. ASIC acknowledges Mr and Mrs Rogers are now taking a more exacting approach to compliance. But there is a need for specific deterrence, and it is appropriate to send a message to other participants in the market about the unacceptable conduct I have found in this case.
There are mitigating factors. Mrs Rogers experienced serious health problems. Those problems clearly impacted on her performance and her recollection, although they are not the whole story. She also had shortcomings as a compliance manager. Mr Rogers was also affected by his wife’s ill-health. I understand he was distracted from his work, although I have also identified serious failings on his part that contributed to what occurred. I accept consumers have not suffered financial detriment. It is unclear whether the applicants will experience personal hardship in circumstances where the College has sold its business.
I am satisfied all these factors suggest Mr and Mrs Rogers ought to be subject to regulatory action. The contraventions I have identified in relation to each of them suggest banning orders are appropriate. But for how long in each case?
ASIC referred me to the discussion in Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 of the factors that might be relevant when assessing the duration of a banning order. I acknowledge a banning order is not intended to punish. It is intended to protect investors, maintain confidence and encourage participation in the industry. The protection afforded by a banning order might come about because the individual is prevented from participating in the industry. The protection might also arise out of the deterrent effect on that individual and others. General deterrence is particularly important where there are findings of lack of candour, as there are in this case in relation to Mr Rogers.
I am satisfied I should affirm the decision to ban Mr Rogers from providing financial services for four years. His role in the firm’s misleading or deceptive conduct suggests a reasonably lengthy banning order is appropriate. The breaches were serious. While I cannot be sure Mr Rogers was aware of the contents of every problematic email issued from the firm, I have found he was aware those communications were being widely disseminated. A person in Mr Rogers’ position cannot be seen to get away with misleading or deceptive conduct of this nature if the integrity of the markets and of the enforcement regime is to be maintained. His approach to compliance more generally appears to have been irresponsible, which was a problem in circumstances where he was the chief executive officer. I accept he faced trauma in his personal life at the time, but I am troubled by his lack of candour once the problematic emails were exposed.
I am inclined to take a more sympathetic view of Mrs Rogers’ behaviour. On its face, that conduct would also merit a banning order of at least three years in circumstances where she was the author of personal advice emails (particularly problematic when she was the firm’s head of compliance), she failed to discharge her compliance role competently, and she was tardy and unforthcoming in her dealings with ASIC. I was also troubled by the way she sought to attribute the misleading or deceptive conduct to individual employees. But her illness clearly played a role in all this, even if it was not by any means the entire explanation of what went wrong. A banning order is appropriate in light of the conduct I have discussed and in order to deter others, but I think she should be banned for a period of two years rather than three in light of the mitigating circumstances of her illness and in light of the fact I am not satisfied she was dishonest, but ineffective.

I am satisfied regulatory action against the College is also appropriate. The contraventions were serious and it is necessary to deter other participants in the market from engaging in similar conduct, and to remind other participants of the need to embrace a compliance culture. Merely imposing conditions or seeking enforceable undertakings is unlikely to send a sufficiently stringent message to other participants in the market.
I have considered whether it would be appropriate to suspend rather than cancel the College’s AFSL. The Tribunal has noted in the past that suspension may be enough to achieve the protective effect contemplated in the legislation if there is reason to believe the licence holder can remedy the defects: see Sovereign Capital Ltd and Australian Securities and Investments Commission [2008] AATA 901 at [84]. In the circumstances, given the evidence suggests the College is effectively the creature of Mr and Mrs Rogers, it is difficult to be confident the defects will be reliably addressed in the sort of time that would make a suspension order a viable alternative. On balance, I am satisfied the College’s AFSL should be cancelled.
CONCLUSION
The Tribunal affirms the decisions to (a) cancel the Australian Financial Services Licence of the Sharemarket College Pty Ltd and (b) ban Graeme Rogers from providing financial services for a period of four years. The Tribunal varies the decision to ban Jill Rogers from providing financial services so that she is banned for two years instead of three.

I certify that the preceding 102 (one hundred and two) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

.............................[sgd].........................................
Associate
Dated: 28 June 2018

Dates of hearing:
26 June 2017
27 June 2017
28 June 2017

Date final submissions received: 26 July 2017

Counsel for the Applicant: S A Cominos

Solicitors for the Applicant: Norton Rose Fulbright

Counsel for the Respondent: S Free

[2018] AATA 1969

28 June 2018

Key Legal Topics

Areas of Law

Administrative Law

Commercial Law

Legal Concepts

Judicial Review

Procedural Fairness

Breach

Remedies

Standing

Statutory Construction

Dates of hearing:	26 June 2017 27 June 2017 28 June 2017
Date final submissions received:	26 July 2017
Counsel for the Applicant:	S A Cominos
Solicitors for the Applicant:	Norton Rose Fulbright
Counsel for the Respondent:	S Free