Turner v Australian Securities and Investments Commission
[2009] AATA 417
•11 June 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 417
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/6228
GENERAL ADMINISTRATIVE DIVISION ) Re COLIN DOUGLAS TURNER Applicant
And
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent
DECISION
Tribunal Senior Member R W Dunne Date11 June 2009
PlaceAdelaide
Decision The Tribunal affirms the decision under review.
..............................................
R W DUNNE
(Senior Member)
CATCHWORDS
CORPORATIONS – failure to comply with ss 947C(2)(f)(i) and (ii), 942C(2)(g) and 1041H of the Corporations Act 2001 – banning order imposed – whether length of banning order excessive – reasons for failure to comply – decision affirmed
Corporations Act 2001 (Cth) ss 9, 601ED(1), 761G(1) and (7), 761GA, 764A(1), 766A(1), 766B(1) and (3), 920A(1) and (2), 920B(1) and (2), 941B, 942C(1) and (2), 944A, 946A, 947A, 947C(1), (2), (3) and (6), 1041H(1)
Re Tweed and Australian Securities and Investments Commission [2008] AATA 514
National Exchange Pty Ltd v ASIC (2004) 22 ACLC 609
Weitmann v Katies Limited (1977) 29 FLR 336
Parkdale Custom Built Furniture v Puxu Pty Ltd (1982) 149 CLR 191
Re Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602
Australian Securities Commission v Kippe and Another (1996) 20 ACSR 679
Re Nolan and Australian Securities and Investments Commission [2006] AATA 778
Re Coakley and Australian Securities and Investments Commission [2008] AATA 247REASONS FOR DECISION
11 June 2009 Senior Member R W Dunne introduction
1. On 11 December 2007, a delegate of the Australian Securities and Investments Commission (“respondent”) made a decision, pursuant to ss 920A(1)(e) and (f) of the Corporations Act 2001 (Cth) (“Act”), banning the applicant (Mr Colin Turner) from providing any financial services for a period of six years. The respondent found that Mr Turner had failed to comply with the provisions of ss 947C(2)(f)(i) and (ii), 942C(2)(g) and 1041H of the Act. The respondent also had reason to believe that Mr Turner would not comply with a financial services law.
2. On 18 December 2007, the applicant applied to this Tribunal for review of the respondent’s decision. At the hearing, Mr Turner represented himself and Mr Nigel Wilson appeared for the respondent. The documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) were admitted into evidence as the T documents (Volumes 1–5) (Exhibit R1), the supplementary T documents (Exhibit R2) and the supplementary insolvency T documents (Exhibit R3).
issues for the tribunal
3. The following are the issues for the Tribunal’s consideration:
(a)Whether the applicant has not complied with a financial services law.
(b) Whether the applicant will not comply with a financial services law.
(c) Whether an order banning the applicant from providing financial services should be made against the applicant pursuant to s 920A(1) of the Act.
(d) If an order banning the applicant from providing financial services should be made, what is the appropriate period of banning?
legislation
4. Legislation dealing with the regulation of financial services is largely contained in Chapter 7 of the Act. A “financial services law” is defined in s 761A and includes, inter alia, a provision of Chapter 7. The provisions of Chapter 7 and the other provisions of the Act that are relevant are as follows:
“9 Dictionary
…
managed investment scheme means:
(a) a scheme that has the following features:
(i)people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);
(ii)any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);
(iii)the members do not have day‑to‑day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or
…
601ED When a managed investment scheme must be registered
(1)Subject to subsection (2), a managed investment scheme must be registered under section 601EB if:
(a) it has more than 20 members; or
(b)it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or
(c)a determination under subsection (3) is in force in relation to the scheme and the total number of members of all of the schemes to which the determination relates exceeds 20.
…
761G Meaning of retail client and wholesale client
Providing a financial product or financial service to a person as a retail client
(1)For the purposes of this Chapter, a financial product or a financial service is provided to a person as a retail client unless subsection (5), (6) or (7), or section 761GA, provides otherwise.
…
Other kinds of financial product
(7)For the purposes of this Chapter, if a financial product is not, or a financial service provided to a person does not relate to, a general insurance product, a superannuation product or an RSA product, the product or service is provided to the person as a retail client unless one or more of the following paragraphs apply:
(a)the price for the provision of the financial product, or the value of the financial product to which the financial service relates, equals or exceeds the amount specified in regulations made for the purposes of this paragraph as being applicable in the circumstances (but see also subsection (10)); or
(b)the financial product, or the financial service, is provided for use in connection with a business that is not a small business (see subsection (12));
(c)the financial product, or the financial service, is not provided for use in connection with a business, and the person who acquires the product or service gives the provider of the product or service, before the provision of the product or service, a copy of a certificate given within the preceding 6 months by a qualified accountant (as defined in section 9) that states that the person:
(i)has net assets of at least the amount specified in regulations made for the purposes of this subparagraph; or
(ii)has a gross income for each of the last 2 financial years of at least the amount specified in regulations made for the purposes of this subparagraph a year;
(d) the person is a professional investor.
…
761GA Meaning of retail client—sophisticated investors
For the purposes of this Chapter, a financial product, or a financial service in relation to a financial product, is not provided by one person to another person as a retail client if:
(a) the first person (the licensee) is a financial services licensee; and
…
764A Specific things that are financial products (subject to Subdivision D)
(1)Subject to Subdivision D, the following are financial products for the purposes of this Chapter
…
(ba)any of the following in relation to a managed investment scheme that is not a registered scheme, other than a scheme (whether or not operated in this jurisdiction) in relation to which none of paragraphs 601ED(1)(a), (b) and (c) are satisfied:
(i) an interest in the scheme;
(ii)a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii)an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
…
“766A When does a person provide a financial service?
(1)For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:
(a) provide financial product advice (see section 766B); or
(b) deal in a financial product (see section 766C); or
(c) make a market for a financial product (see section 766D); or
(d) operate a registered scheme; or
(e) provide a custodial or depository service (see section 766E); or
(f)engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.
…
766B Meaning of financial product advice
(1)For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
(a)is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
(b)could reasonably be regarded as being intended to have such an influence.
…
(3)For the purposes of this Chapter, personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where:
(a)the provider of the advice has considered one or more of the person’s objectives, financial situation and needs (otherwise than for the purposes of compliance with the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 or with regulations, or AML/CTF Rules, under that Act); or
(b)a reasonable person might expect the provider to have considered one or more of those matters.
…
920A ASIC’s power to make a banning order
(1)ASIC may make a banning order against a person, by giving written notice to the person, if:
…
(bb) the person becomes an insolvent under administration; or
…
(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.
(2)However, ASIC may only make a banning order against a person after giving the person an opportunity:
(a)to appear, or be represented, at a hearing before ASIC that takes place in private; and
(b) to make submissions to ASIC on the matter.
…
920B What is a banning order?
(1)A banning order is a written order that prohibits a person from providing any financial services or specified financial services in specified circumstances or capacities.
(2)The order may prohibit the person against whom it is made from providing a financial service:
(a) permanently; or
(b)for a specified period, unless ASIC has reason to believe that the person is not of good fame or character.
(3)A banning order may include a provision allowing the person against whom it was made, subject to any specified conditions:
(a) to do specified acts; or
(b) to do specified acts in specified circumstances;
that the order would otherwise prohibit them from doing.
…
941B Obligation on authorised representative to give a Financial Services Guide if financial service provided to person as a retail client
(1)An authorised representative (the providing entity) of a financial services licensee (the authorising licensee), or of 2 or more financial services licensees (the authorising licensees), must give a person a Financial Services Guide in accordance with this Division if the providing entity, as a representative of the authorising licensee, or one or more of the authorising licensees, provides a financial service to the person (the client) as a retail client.
…
942C Financial Services Guide given by authorised representative—main requirements
(1)This section applies if the providing entity is an authorised representative.
(2)Subject to subsection (3) and to the regulations (see subsection (4)), the Financial Services Guide must include the following statements and information:
…
(g) information about any associations or relationships between:
(i)the providing entity, or any employer of the providing entity, and the issuers of any financial products; or
(ii)the authorising licensee, or any of the authorising licensees, or any related body corporate of the authorising licensee or any of the authorising licensees, and the issuers of any financial products;
being associations or relationships that might reasonably be expected to be capable of influencing the providing entity in providing any of the authorised services; and
…
944A Situation in which Division applies
This Division applies in relation to the provision of personal advice (the advice) in the following circumstances:
(a) the advice is provided:
(i) by a financial services licensee (the providing entity); or
(ii)by a person (the providing entity) in their capacity as authorised representative of a financial services licensee (the authorising licensee), or of 2 or more financial services licensees (the authorising licensees); and
(b) the advice is provided to a person (the client) as a retail client.
…
946A Obligation to give client a Statement of Advice
(1)The providing entity must give the client a Statement of Advice in accordance with this Subdivision and Subdivision D.
(2) The Statement of Advice may be:
(a) the means by which the advice is provided; or
(b) a separate record of the advice.
…
947A Title of Statement of Advice
(1)The title “Statement of Advice” must be used on the cover of, or at or near the front of, a Statement of Advice.
(2)In any other part of a Statement of Advice, “Statement of Advice” may be abbreviated to “SoA”.
…
947C Statement of Advice given by authorised representative—main requirements
(1)This section applies if the providing entity is an authorised representative.
(2)Subject to subsection (3) and to the regulations (see subsection (4)), the Statement of Advice must include the following statements and information:
…
(f) information about:
(i)any other interests, whether pecuniary or not and whether direct or indirect, of the providing entity, any employer of the providing entity, the authorising licensee or any of the authorising licensees, or of any associate of any of those persons; and
(ii)any associations or relationships between the providing entity, any employer of the providing entity, the authorising licensee or any of the authorising licensees, or any associate of any of those persons, and the issuers of any financial products;
that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice; and
…
(3)Subject to subsection (4), the level of detail about a matter that is required is such as a person would reasonably require for the purpose of deciding whether to act on the advice as a retail client.
…
(6)The statements and information included in the Statement of Advice must be worded and presented in a clear, concise and effective manner.
…
1041H Misleading or deceptive conduct (civil liability only)
(1)A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.”
background
5. On 19 October 2007, the applicant was personally served with a notice of hearing under s 920A of the Act. The notice (dated 18 October 2007) (Exhibit R1, pages 1774-1776) set down a hearing date of 20 November 2007, at which a delegate of the respondent would consider a number of areas of concern involving the applicant’s compliance with financial services laws. The areas of concern and the list of documents on which the concerns were based were set out in attachments to the notice. The notice stated that the applicant should let the delegate know if the hearing date was not convenient. The notice also invited written submissions, in the event that the applicant did not wish to appear at the hearing, which the delegate would take into account in reaching his decision. As events transpired, the applicant was overseas (or proceeding overseas) on the hearing date and did not attend the hearing.
Allegation that Applicant has not Complied with a Financial Services Law
6. In the Statement of Facts, Findings and Reasons for Decision prepared by the respondent’s delegate following the s 920A hearing (“2007 Decision Statement”) (Exhibit R1, pages 12 – 36), the following extract (which the Tribunal understands is not in issue with the applicant), appears:
“4.On 12 November 2007, in response to a telephone message, an ASIC officer telephoned Annette Timpano, an employee of Newstar Accounting Pty Ltd. Ms Timpano advised that Mr Turner is employed as a consultant to the firm. She said that Mr Turner had left a message instructing her to advise ASIC that he had left Australia and would not be able to attend the scheduled hearing and that he would be returning in mid-January 2008. Ms Timpano gave the ASIC officer Mr Turner’s mobile telephone number.”
7. Additional background information is contained and referred to in the 2007 Decision Statement at pages 14-23 (inclusive). Again, the Tribunal understands the applicant does not take issue with this background information, which relevantly reads as follows:
“Background
15.On 9 September 2005 Newstar Securities Pty Ltd (Newstar) was granted Australian financial services license (AFSL) No. 278342. Newstar was wound up on 29 August 2007.
16. Gregory Michael O’Shaughnessy (O’Shaughnessy) has been the sole director of Newstar since 13 February 2006.
17. Mr Turner was appointed an authorised representative of Newstar on 7 October 2005 and remained an authorised representative of the company at all relevant times.
18. Roger Charles Gordon (Gordon) was appointed an authorised representative of Newstar on 7 October 2005 and remained an authorised representative of the company at all relevant times. Mr Gordon was also a responsible officer for the purposes of Newstar’s AFSL and he was also the sole key person for Newstar’s AFSL from 9 September 2005 to 6 November 2006, at which time Peter Martinovich was nominated as an additional key person.
Areas of concern paragraphs 6-7
19. On 19 May 2006, Mr Turner was declared bankrupt and Maris Rudaks was appointed trustee in bankruptcy. Mr Turner and Gordon have liabilities of approximately $3.6 million and no readily realisable assets.”
…
(a) Coaster Investment Fund
(i)On or about the dates shown in Column 1 of Schedule 1 (below) the applicant provided a Statement of Advice (‘SoA’) to each of the persons named in Column 2 of Schedule 1, being retail clients, recommending that they invest in the Coaster Investment Fund in the amounts shown in Column 3 of Schedule 1. The applicant provided the advice in the SoAs in his capacity as an authorised representative of Newstar. The Coaster Investment Fund was not registered as a managed investment scheme.
(ii)Each of the persons named in Column 2 of Schedule 1 completed an application form in relation to investing in the Coaster Investment Fund. The amounts invested in the Coaster Investment Fund by the investors referred to in Column 2 of Schedule 1 totalled $22,000.
(iii)BEC (Aust) Pty Ltd (‘BEC’) was the issuer of interests in the Coaster Investment Fund and the fund manager. The applicant was a director of BEC between 15 March 2004 and 22 May 2006. As a director of Newstar, Mr O’Shaughnessy was an associate of Newstar. Mr O’Shaughnessy had been a director of BEC since 22 May 2006.
(iv)The SoAs each contained the following statement under the heading ‘Disclosure of Relationships’:
‘Newstar Securities Pty Ltd, its directors, officers and/or agents may have an interest as defined in Section 947 of the Corporations Law in the securities recommended in that the companies or its related individuals may hold relevant interest in or receive brokerage and marketing support from such securities.’
(v)Those SoAs contained a specific detailed disclosure in relation to Symetry Limited.
(b) Cashews Group Investors Trust
(i)On or about the dates shown in Column 1 of Schedule 2 (below) the applicant provided a SoA to each of the persons named in Column 2 of Schedule 2, being retail clients, recommending that they invest in the Cashews Group Investors Trust in the amounts shown in Column 3 of Schedule 2. The applicant provided the advice in the SoAs in his capacity as an authorised representative of Newstar. The Cashews Group Investors Trust was not registered as a managed investment scheme.
(ii)Each of the persons named in Column 2 of Schedule 2 completed an application form in relation to investing in the Cashews Group Investors Trust. The amounts invested in the Cashews Group investors Trust by the investors referred to in Column 2 of Schedule 2 totalled $373,000.
(iii)Cashews Group Trustees Ltd (‘Cashews Group’), a New Zealand registered company, was the issuer of interests in the Cashews Group Investors Trust and the fund manager. The applicant had been a director of Cashews Group since 18 February 2005. The applicant was also the trustee of the Turner Family Trust, which had been a shareholder of Cashews Group since 18 February 2005.
(iv)On 15 May 2006 Cashews Group agreed to lend Payday Direct Pty Ltd (‘Payday Direct’) $100,000.00. As a director of Newstar, Mr O’Shaughnessy was an associate of Newstar. Mr O’Shaughnessy had been a director of Payday Direct since 10 May 2006.
(v)The SoAs each contained the following statement under the heading ‘Disclosure of Relationships’:
‘Newstar Securities Pty Ltd, its directors, officers and/or agents may have an interest as defined in Section 947 of the Corporations Law in the securities recommended in that the companies or its related individuals may hold relevant interest in or receive brokerage and marketing support from such securities.’
(vi)Those SoAs contained a specific detailed disclosure in relation to Symetry Limited.
(c)Ginseng and PPP Partners Group Partnership
(i)On or about the dates shown in Column 1 of Schedule 3 (below) the applicant provided a SoA to each of the persons named in Column 2 of Schedule 3, being retail clients, recommending that they invest in the Ginseng & PPP Partners Group Partnership in the amounts shown in Column 3 of Schedule 3. The applicant provided the advice in the SoAs in his capacity as an authorised representative of Newstar. The Ginseng & PPP Partners Group Partnership was not registered as a managed investment scheme.
(ii)Each of the persons named in Column 2 of Schedule 3 completed an application form in relation to investing in the Ginseng & PPP Partners Group Partnership. The amounts invested in the Ginseng and PPP Partners Group Partnership by the investors referred to in Column 2 of Schedule 3 totalled $71,000.
(iii)Rohan Hill Trustees Ltd (‘Rohan Hill’), a New Zealand registered company, was the issuer of interests in the Ginseng and PPP Partners Group Partnership and the fund manager. The applicant had been a director of Rohan Hill since 10 November 2004. The applicant was also the trustee of the Turner Family Trust, which had been a shareholder of Rohan Hill since 10 November 2004.
(iv)The SoAs each contained the following statement under the heading ‘Disclosure of Relationships’:
‘Newstar Securities Pty Ltd, its directors, officers and/or agents may have an interest as defined in Section 947 of the Corporations Law in the securities recommended in that the companies or its related individuals may hold relevant interest in or receive brokerage and marketing support from such securities.’
(v)Those SoAs contained a specific detailed disclosure in relation to Symetry Limited.
(d) Extra D Investment Fund
(i)On or about the date shown in Column 1 of Schedule 4 (below) the applicant provided a SoA to the person named in Column 2 of Schedule 4, being a retail client, recommending that the person invest in the Extra D Investment Fund in the amount shown in Column 3 of Schedule 4. The applicant provided the advice in the SoA in his capacity as an authorised representative of Newstar. The Extra D Investment Fund was not registered as a managed investment scheme.
(ii)The person named in Column 2 of Schedule 4 completed an application form in relation to investing in the Extra D Investment Fund. The amount invested in the Extra D Investment Fund by the investor referred to in Column 2 of Schedule 4 totalled $6,000.
(iii)Nova Stella Administration Pty Ltd (‘Nova Stella’) was the issuer of interests in the Extra D Investment Fund and the fund manager. The applicant was a director of Nova Stella between 11 August 2005 and 22 May 2006. As a director of Newstar, Mr O’Shaughnessy was an associate of Newstar. Mr O’Shaughnessy had been a director of Nova Stella since 22 May 2006.
(iv)The SoA contained the following statement under the heading ‘Disclosure of Relationships’:
‘Newstar Securities Pty Ltd, its directors, officers and/or agents may have an interest as defined in Section 947 of the Corporations Law in the securities recommended in that the companies or its related individuals may hold relevant interest in or receive brokerage and marketing support from such securities.’
(v)That SoA contained a specific disclosure in relation to Symetry Limited.
(e) Capital Investors Group Mortgage Trust
(i)On or about the date shown in Column 1 of Schedule 5 (below) the applicant provided a SoA to the person named in Column 2 of Schedule 5, being a retail client, recommending that the person invest in the Capital Investors Group Mortgage Trust in the amount shown in Column 3 of Schedule 5. The applicant provided the advice in the SoA in his capacity as an authorised representative of Newstar. The Capital Investors Group Mortgage Trust was not registered as a managed investment scheme.
(ii)The person named in Column 2 of Schedule 5 completed an application form in relation to investing in the Capital Investors Group Mortgage Trust. The amount invested in the Capital Investors Group Mortgage Trust by the investor referred to in Column 2 of Schedule 5 totalled $20,000.
(iii)CIG Trustees Ltd (‘CIG Trustees’), a New Zealand registered company, was the issuer of interests in the Capital Investors Group Mortgage Trust and the fund manager. The applicant had been a director of CIG Trustees since 9 February 2005. The applicant was also the trustee of the Turner Family Trust, which had been a shareholder of CIG Trustees since 9 February 2005.
(iv)The SoA contained the following statement under the heading ‘Disclosure of Relationships’:
‘Newstar Securities Pty Ltd, its directors, officers and/or agents may have an interest as defined in Section 947 of the Corporations Law in the securities recommended in that the companies or its related individuals may hold relevant interest in or receive brokerage and marketing support from such securities.’
(v)That SoA contained a specific detailed disclosure in relation to Symetry Limited.
(f) Ginseng Investors Group Trust and Partnership
(i)On or about the date shown in Column 1 of Schedule 6 (below) the applicant provided a SoA to the person named in Column 2 of Schedule 6, being a retail client, recommending that the person invest in the Ginseng Investors Group Trust and Partnership in the amount shown in Column 3 of Schedule 6. The applicant provided the advice in the SoA in his capacity as an authorised representative of Newstar. The Ginseng Investors Group Trust and Partnership was not registered as a managed investment scheme.
(ii)The person named in Column 2 of Schedule 6 completed an application form in relation to investing in the Ginseng Investors Group Trust and Partnership. The amount invested in the Ginseng Investors Group Trust and Partnership by the investor referred to in Column 2 of Schedule 6 totalled $30,000.
(iii)Ginseng Trustees Ltd (‘Ginseng Trustees’), a New Zealand registered company, was the issuer of interests in the Ginseng Investors Group Trust and Partnership and the fund manager. The applicant had been a director of Ginseng Trustees since 16 August 2004. The applicant was also the trustee of the Turner Family Trust, which has been a shareholder of Ginseng Trustees since 9 February 2005.
(iv)The SoA contained the following statement under the heading ‘Disclosure of Relationships’:
‘Newstar Securities Pty Ltd, its directors, officers and/or agents may have an interest as defined in Section 947 of the Corporations Law in the securities recommended in that the companies or its related individuals may hold relevant interest in or receive brokerage and marketing support from such securities.’
(v)That SoA contained a specific detailed disclosure in relation to Symetry Limited.
(g) Financial Services Guide
On or about the dates shown in Column 1 of Schedule 7 (below) the applicant, in his capacity as an authorised representative of Newstar and in connection with the financial services provided by him to the investors in the Coaster Investment Fund, the Cashews Group Investors Trust, the Ginseng & PPP Partners Group Partnership and the Extra D Investment Fund, provided a Newstar Financial Services Guide to the persons named in Column 2 of Schedule 7 (below).
(h) Misleading and Deceptive Conduct
Application Forms
(i)On or about the dates shown in Column 1 of Schedule 8 (below) the applicant caused or procured the persons named in Column 2 of Schedule 8 to complete an application form for the purchase of interests in the managed investment schemes named in Column 3 of Schedule 8, being interests offered by the entities named in Column 4 of Schedule 8. Each of the application forms contained the following statement:
‘By signing this form, you acknowledge that:
[Name of the entity issuing the interests in the managed investment scheme] and/or any of their directors, employees or advisers, has not made any recommendation to you concerning participation in the [name of managed investment scheme]’.
Teak Investment Fund
(ii)The Teak Investment Fund was not registered as a managed investment scheme. 6FT2 (Aust) Pty Ltd (‘6FT2’) was the issuer of interests in the Teak Investment Fund and the fund manager. On 8 January 2006, 6FT2 was deregistered. Mr O’Shaughnessy was a director of 6FT2 from 8 July 2002 until the company was deregistered.
(iii)The Teak Investment Fund was included in Newstar’s approved product list, notwithstanding that 6FT2 had been deregistered and that it had been the subject of a due diligence check conducted by Mr Gordon on 1 June 2006.
(iv)On or about the dates shown in Column 1 of Schedule 9 (below) the applicant provided SoAs to the persons named in Column 2 of Schedule 9 recommending that they invest in the Teak Investment Fund in the amounts shown in Column 3 of Schedule 9. The applicant provided the advice, being the recommendation to invest in the Teak Investment Fund, in his capacity as an authorised representative of Newstar.
(v)The persons named in Column 2 of Schedule 9 completed an application form in relation to investing in the Teak Investment Fund. The amounts invested by the persons named in Column 2 of Schedule 9 totalled $22,000.”
8. The Schedules 7 to 9 referred to in the additional background information in paragraph 7 are set out numerically below:
Schedule 1 – Coaster Investment Fund Date of SoA Client Amount Invested 15/06/2006 Williams, Dale (& French, Donna) $5,500.00 16/06/2006 Dissinger, Robert $5,500.00 22/06/2006 Wellby, John $5,500.00 23/06/2006 Farrell, Gregory $5,500.00
Schedule 2 – Cashews Group Investors Trust Date of SoA Client Amount Invested 18/11/2005 Stevens, Kim (& English, Leanne) $15,000.00 23/11/2005 Stanley, Phillip & Judith (& SMSF) $30,000.00 Phildy SMSF (self managed super fund) $40,000.00 1/12/2005 Schulz, Alfred ( & SMSF) $50,000.00 2/12/2005 Crampton, Neil & Hennig, Susan $33,000.00 21/01/2006 Cameron, Ronald $15,000.00 31/01/2006 Malkin, Jodie $20,000.00 13/02/2006 Hewitt, Donald & Vanessa $20,000.00 1/06/2006 Smith, Michael Francis John (& SMSF) $150,000.00
Schedule 3 – Ginseng & PPP Partners Group Partnership Date of SoA Client Amount Invested 15/11/2005 Tertsch, Wilfred Hans $7,100.00 17/11/2005 Cramptom, Graham David & Loretta Kay $7,100.00 18/11/2005 English, Leanne Marie & Stevens, Kim $14,200.00 2/12/2005 Hennig, Susan $7,100.00 21/01/2006 Cameron, Ronald $7,100.00 28/01/2006 Baxter, Lisa Marie $7,100.00 31/01/2006 Malkin, Jodie $7,100.00 15/06/2006 Williams, Dale & French, Donna $7,100.00 23/06/2006 Farrell, Gregory $7,100.00
Schedule 4 – Extra D Investment Fund Date of SoA Client Amount Invested 19/06/2006 Marshall, Samuel $6,000.00
Schedule 5 – Capital Investors Group Mortgage Trust Date of SoA Client Amount Invested 1/12/2005 Schulz, Alfred (& SMSF) $20,000.00
Schedule 6 – Ginseng Investors Group Trust & Partnership Date of SoA Client Amount Invested 1/12/2005 Schulz, Alfred (& SMSF) $30,000.00
Schedule 7 – Financial Services Guides Date Client 15/11/2005 Tertsch, Wilfred 17/11/2005 Crampton, Graham 18/11/2005 Stevens, Kim & English, Leanne 23/11/2005 Stanley, Phillip & Judith 1/12/2005 Schulz, Alfred 2/12/2005 Crampton, Neil & Hennig, Susan 21/01/2006 Cameron, Ronald 28/01/2006 Baxter, Lisa Marie 31/01/2006 Malkin, Jodie 13/03/2006 Hewitt, Donald & Vanessa 1/6/2006 Smith, Michael 15/06/2006 Williams, Dale & French, Donna 16/6/2006 Dissinger, Robert 19/06/2006 Marshall, Samuel 22/06/2006 Wellby, John 23/06/2006 Farrell, Gregory
Schedule 8 – Section 1041H Date Client MIS MIS Product Issuer 15/11/2005 Tertsch, Wilfred Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 17/11/2005 Crampton, Graham Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 18/11/2005 Stevens, Kim Cashews Group Investors Trust Cashews Group Trustees Ltd Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 18/11/2005 English, Leanne Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 23/11/2005 Stanley, Phillip & Judith (& SMSF) Cashews Group Investors Trust Cashews Group Trustees Ltd Phildy SMSF (Self managed super fund) Cashews Group Investors Trust Cashews Group Trustees Ltd 1/12/2005 Schulz, Alfred (SMSF) Cashews Group Investors Trust Cashews Group Trustees Ltd Capital Investors Group Mortgage Trust CIG Trustees Ltd 2/12/2005 Crampton, Neil Cashews Group Investors Trust Cashews Group Trustees Ltd 2/12/2005 Henning, Susan Cashews Group Investors Trust Cashews Group Trustees Ltd Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 21/01/2006 Cameron, Ronald Cashews Group Investors Trust Cashews Group Trustees Ltd Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 28/01/2006 Baxter, Lisa Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 31/01/2006 Malkin, Jodie Cashews Group Investors Trust Cashews Group Trustees Ltd Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 13/02/2006 Hewitt, Donald & Vanessa Cashews Group Investors Trust Cashews Group Trustees Ltd 1/06/2006 Smith, Michael (SMSF) Cashews Group Investors Trust Cashews Group Trustees Ltd 15/06/2006 Williams, Dale Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd 23/06/2006 Farrell, Gregory Ginseng & PPP Partners Group Partnership Rohan Hill Trustees Ltd
Schedule 9 – Teak Investment Fund Date of SoA Client Amount Invested 21/01/2006 Cameron, Ronald $5,500.00 19/06/2006 Marshall, Samuel $5,500.00 22/06/2006 Wellby, John $5,500.00 23/06/2006 Farrell, Gregory $5,500.00
Allegation that Applicant will not Comply with a Financial Services Law
9. On 30 December 2002, the respondent banned the applicant from advising on or dealing in securities for one year. The hearing in relation to the banning took place on 11 and 14 November 2002 and related to the applicant’s involvement in offering interests in an unregistered managed investment scheme known as the BFS Recovery Package (otherwise known as the Waldorf Recovery Package). Like the background information in paragraphs 7 and 8 above, further background information is contained in the Statement of Facts, Findings and Reasons for Decision prepared by the respondent’s delegate following the November 2002 hearing (“2002 Decision Statement”) (Exhibit R2, pages 1853 – 1869). Again, the Tribunal understands the applicant does not take issue with this background information, which relevantly reads as follows:
The applicant operated Dorchester Securities Pty Ltd, a financial planning and investment advice business. Dorchester Securities Pty Ltd did not hold a securities license, although the applicant held a proper authority from Professional Investment Services Ltd, a Queensland based securities licensee. The applicant had held a proper authority since 1981.
Between about June 1997 and June 2000, Business & Financial Strategy Pty Ltd (‘BFS’) offered an investment described as a BFS Franchise. For an investment of $11,000 and a limited recourse loan of $34,000 from an associate of BFS, the investor obtained a tax deduction of $45,000. The scheme involved a licence to use financial diagnostic software. The investor obtained rights under a sub-licence to allow a financial advisor or accountant to use the software to enhance the financial services they offered to clients. The investors return was to come from a percentage of the fees charged to those clients. The arrangement did not function because BFS became insolvent and the investors received nothing for their investment. The Australian Taxation Office (‘ATO’) subsequently disallowed the investors’ claims for the tax deduction.
During the 1999 and 2000 financial years, the applicant placed 105 of his clients into this scheme. In about April 2001, BFS ceased operating. The applicant attributed the failure to bad financial management. He maintained confidence in the software product.
The applicant and a colleague of his, Mr Roger Gordon, had a goal of one day purchasing an accounting practice and working together in financial planning. According to Mr Gordon, the applicant conceived an idea that would at once help him and Mr Gordon achieve their goal and assist those of their clients who had run into trouble with their BFS investment. The proposal was that the franchisees would contribute to the purchase of an accounting practice or practices, thereby tapping into a source of users for the financial diagnostic software, along the way convincing the ATO that there were now legitimate and ultimately profitable business arrangements in place. These contributions were styled as a ‘marketing fee’ and the purchase of the business[es] would hopefully generate users of the diagnostic software.
Between about April 2001 and January 2002, the applicant held meetings and published correspondence and other materials with a view to attracting participants in the scheme and took contributions from at least 35 members. Waldorf Fiducial Marketing Pty Ltd (‘WFM’) was incorporated on 8 October 2001 for the purpose of the scheme.
applicant’s evidence
10. It was the applicant’s evidence that any non-disclosure that occurred in relation to financial products or Statements of Advice he issued, and which were referred to in the 2007 Decision Statement, was not deliberate. The respondent’s officers had accused him of not having a “compliance mentality”. However, as a consultant with Newstar Securities Pty Ltd, (“Newstar”) all compliance issues were dealt with by Newstar’s compliance expert. In his letter to the respondent dated 17 December 2007 (Exhibit R1, pages 6 – 9), the applicant explained (at page 7):
“… Newstar employed an ex-ASIC compliance expert whose responsibility was to ensure that all Newstar’s work was 100% compliant. We had previously requested from ASIC to allow Mr Don Wiggins to be our compliance expert. You, ASIC, informed us that in your opinion he was unacceptable and you recommended Mr Brett Walker as he was trained by you, ASIC, and was an ex-ASIC employee and expert in compliance. All our documentation was vetted by him, and discussed by him in detail with Mr Roger Gordon, our internal compliance officer. These discussions covered ALL the Trusts and MIS issues raised in your documentation to me. This officer, your ASIC-trained expert, did not raise any issues concerning these trusts. …
My role in Newstar Securities was as follows. I was responsible for generating 70% of all new business income. My role was to conduct client interviews, prepare plan overviews and work out the financial strategies involved. … All my work was then passed on to other trained para-planners and financial planners to finalise the plan and prepare the final paperwork. … It was my role to procure the business and the role of Newstar staff to ensure that all documentation was compliant. These issues were raised regularly with Mr Walker and all our clients’ files were available to be vetted by him.
In regard to Private Trusts and other Approved Products for Distribution, these were the responsibility of compliance officers and not my responsibility.”
11. In relation to his banning in December 2002, the applicant said that “it should never have happened”. The respondent’s delegate involved in the matter (Ms Moroney) had made the decision to ban him for one year and his evidence had been ignored. As to the present allegations of misleading and deceptive conduct, he said the templates that had been used for the investment products had been subjected to scrutiny by the external compliance expert, Mr Brett Walker, and were not his responsibility. In cross-examination by Mr Wilson, he said the findings made in the 30 December 2002 banning order were unjust. However, the decision was in place and he had abided by it. When Newstar was granted an Australian financial services license and he was appointed an authorised representative in October 2005, he would scan the product documentation and Newstar’s Financial Services Guide. However, Newstar’s compliance people were ultimately responsible for ensuring that both the documentation and the Guide were correct. Where the documentation was template-based, he would not look at it, but would rely on the compliance expert vetting it before it was issued. If the template documentation was found to be misleading and deceptive, the conduct had not been intentional or deliberate.
12. When asked about the Coaster Investment Fund, the applicant said that there had been adequate oral disclosure and he did not have an obligation to make further disclosure. The clients involved had made informed decisions and were satisfied with their investment. He was trustee for the Turner Family Trust, which was a shareholder in Cashews Group Trustees Limited. That company was in turn the trustee of the Cashews Group Investors Trust. However, he was not a beneficiary of that Trust. When questioned further by Mr Wilson about the Newstar Financial Services Guide provided to clients, he replied that the Guide did not include specific references to him. When he was referred to a Confidential Client Data Form for a client (Exhibit R1, pages 292 – 313), he acknowledged that clients were expecting full disclosure of any interest he may have in the investments or products recommended, and that a full disclosure of any such interests was to be made in the relevant Statement of Advice. He reiterated that the failure to make full disclosure was not deliberate, but that the responsibility had been passed to others within Newstar’s operation. He was aware of his responsibility, but admitted that full disclosure had not been made in writing. The disclosure that he thought was required had been made orally to his clients. When asked by Mr Wilson about his involvement in the various investment trusts, he confirmed that he did not receive any distributions from the trusts, but had received distributions from investment properties and dividends in 2005 – 2006.
13. In responding to further questioning by Mr Wilson, the applicant contended that the respondent was using the banning order in December 2002 as a basis for demonstrating continuing non-compliance. He asserted that he did have a compliance mentality, and the respondent’s allegation that his failure to comply with the disclosure requirements was “extensive, systemic, knowing and deliberate” was untrue. Although there had been an element of self-interest in some of the discloseable associations, relationships and interests, his involvement was not to the detriment of the participating clients. He took independent professional advice and understood that advice. As a director of the entities issuing interests in managed investment schemes, he had not engaged in conduct that was misleading or deceptive. Moreover, as a director of and shareholder in various New Zealand registered companies in which he was recommending interests issued by them, any omission in disclosing his involvement had not been deliberate, but a mere oversight. Again, the disclosures that were made had been template-driven and he relied on the advice of Newstar’s compliance experts. As far as his own financial position was concerned, there had been no need for him to be declared bankrupt in 2002. Summary judgment had been obtained, and bankruptcy ensued, when a payment that was required to be made to the applicant’s major creditor went unpaid.
consideration
Whether the applicant has not complied with a financial services law
14. In Re Tweed and Australian Securities and Investments Commission [2008] AATA 514, Deputy President Forgie considered when a “person has not complied with a financial services law”. At paragraphs 94-96 of her reasons, the learned Deputy President said:
“94. Burchett J referred to a judgment of Jordan CJ in Ingram v Ingram.[128] Jordan CJ considered the meaning of the expression ‘fail to comply’. That is not a word that appears in s 920A(1) but the approach taken by Jordan CJ is helpful in considering when a person ‘has not’ complied with an obligation. A person had been ordered to render conjugal rights with a consequent order that, if he ‘fails to comply with [the] decree of the Court’, he shall be deemed to have been guilty of desertion without reasonable cause. This was an order made under the Matrimonial Causes Act 1989 (NSW). As set out in Burchett J’s judgment [129], his Honour said:
‘[W]here it is provided by statute that certain consequences shall follow if a person fails to do something which is directed to be done, the meaning of the word “fail” depends upon the context in which it is found. In some contexts it may mean simply the omission to do the thing in question, irrespectively of any reason which may have existed for his not doing it ... In other cases it may mean an omission to do the thing by reason of some carelessness or delinquency on his part, but not omission caused by impossibility for which the person in question is not responsible.... In other cases, it may mean the omission to do the thing, but so that the omission caused by impossibility arising from some causes is included and from others is excluded ...’ [130]
95. This passage illustrates three different interpretations that may be given to the word ‘fail’ depending on the context. Some may import a notion of fault and others may not. These differences in meaning were explored by the High Court. It considered the meaning of the word ‘fail’ when deciding whether the Southern Shipping Company Limited (SSCL) was liable to pay an amount representing the excise that would have been payable on certain goods entrusted to its safekeeping but which were stolen.[131] Section 60(1)(a) of the Excise Act 1901 provided that the Collector of Customs was so entitled if the person entrusted with the possession, custody or control of excisable goods ‘fails to keep those goods safely’. Although not all of their Honours considered it necessary to consider a second point, all were agreed that SSCL had failed to keep the goods safely within the meaning of s 60(1)(a). Owen J’s judgment may be read as imposing an absolute liability upon SSCL.[132] Others, including Dixon CJ and McTiernan J, read the word ‘fail’ as imposing a duty upon SSCL to keep the goods safely subject only to their being lost or destroyed by an inevitable casualty or Act of God. [133]
96. Although considering a different word and a different context, the judgments of both Jordan CJ in Ingram v Ingram and the High Court in Collector of Customs (NSW) v Southern Shipping Co Ltd reveal that some thought must be given to the words ‘has not complied’ when used in s 920A(1)(e). On their face, they appear absolute. If the person has not acted in accordance with the law – has not observed the law – that person has not complied with it. There appears to be no room for any consideration that, for example, the transgression is trivial or for allocation of fault. That is the appearance and I think that it is the proper interpretation. Section 920A(1)(e) is a gateway provision in that it, or one of the other gateway provisions in s 920A(1) must be established before ASIC may exercise its power. In choosing to express the power in terms of ‘may’, it is apparent from s 33(2A) of the Acts Interpretation Act 1901 that the power may be exercised or not at ASIC’s discretion. It is in the exercise of the discretion whether or not to impose a banning order that ASIC can pay regard to the particular circumstances in which the person has not complied with the law. Putting it another way, the mere fact of a person’s not complying with the law opens the gateway but ASIC may have regard to the particular circumstances of the person’s non-compliance in deciding whether or not to pass through the gateway.”
15. The notice of the hearing under s 920A of the Act was served personally on the applicant, with particulars of the conduct in respect of which he may not have complied, or where there was reason to believe he will not comply, with a financial services law. The hearing was scheduled to take place on 20 November 2007. On 12 November 2007, the respondent was advised by an employee of Newstar Accounting Pty Ltd that the applicant had left Australia and would not be able to attend the hearing. It appears he made no attempt to contact the delegate or to provide written submissions for the hearing. The Tribunal is satisfied that the applicant was given the opportunity to appear, or be represented, at the hearing and to make submissions to the respondent.
The Managed Investment Schemes
16. The Tribunal has considered the relevant Information Memorandum for:
(a) the Coaster Investment Fund (Exhibit R1, pages 69 - 78);
(b) the Cashews Group Investors Trust (Exhibit R1, pages 61 - 68);
(c)the Ginseng & PPP Partners Group Partnership (Exhibit R1, pages 86 - 91);
(d)the Extra D Investment Fund (Exhibit R1, pages 79 - 85);
(e)the Capital Investors Group Mortgage Trust (Exhibit R1, pages 55 - 60); and
(f)the Ginseng Investors Group Trust and Partnership (Exhibit R1, pages 92 - 97),
and is satisfied that each Fund or Trust was a managed investment scheme (vide s 9 of the Act), a financial product (vide s 764A(1)(ba)) and was promoted by a person or an associate of a person who was, when the scheme was promoted, in the business of promoting managed investment schemes, bringing it within s 601ED(1)(b) of the Act.
17. The Tribunal is also of the view that, in issuing a Statement of Advice to the clients investing in each Fund or Trust, the applicant was providing a financial service within s 766A(1)(a) of the Act in that it was a recommendation or statement of opinion that was intended to influence the particular clients in making a decision in relation to investing in the Fund or Trust or could reasonably be regarded as being intended to have such influence. It was, therefore, financial product advice (vide s 766B(1)) and also personal advice within the meaning of s 766B(3) of the Act. As a consequence of these matters and of the matters set out in paragraph 7 of these reasons in relation to each Fund or Trust, the Statements of Advice given by the applicant to his clients were required to contain information about any relevant associations, relationships and interests that might reasonably be expected to be or have been capable of influencing the applicant in providing the advice, as required by s 947C(2)(f)(i) and (ii) of the Act.
Coaster Investment Fund
18. As a director of BEC (Aust) Pty Ltd, the issuer of interests in the Coaster Investment Fund and the fund manager, the applicant’s associations or relationships were sufficiently direct and proximate to when he was recommending the Coaster Investment Fund to clients, that they might reasonably be expected to be or to have been capable of influencing the applicant in providing the Statements of Advice. The Statements of Advice were required to include information about these associations or relationships (vide s 947C(2)(f)(i) and (ii) of the Act). In the Statements of Advice, the statement under the heading ”Disclosure of Relationships” did not contain any “information” or any “detail” about the specific associations or relationships and was not sufficient to satisfy the requirements set out in s 947C(3) of the Act.
19. Having regard to all the evidence in relation to the applicant’s involvement in the Coaster Investment Fund, the Tribunal is of the opinion that, between 15 June 2006 and 23 June 2006, the applicant failed to comply with a financial services law, namely s 947C(2)(f)(ii) of the Act.
Cashews Group Investors Trust
20. As a director of Cashews Group Trustees Ltd, the issuer of interests in the Cashews Group Investors Trust and the fund manager, the applicant’s associations or relationships were sufficiently direct and proximate to when he was recommending the Cashews Group Investors Trust to clients that they might reasonably be expected to be or to have been capable of influencing the applicant in providing the Statements of Advice. The Statements of Advice were required to include information about these associations or relationships (vide s 947C(2)(f)(i) and (ii) of the Act). In the Statements of Advice, the statement under the heading ”Disclosure of Relationships” did not contain any “information” or any “detail” about these specific interests, associations or relationships and was not sufficient to satisfy the requirements in s 947C(3) of the Act.
21. Having regard to all the evidence in relation to the applicant’s involvement in the Cashews Group Investors Trust, the Tribunal is of the opinion that, between 18 November 2005 and 1 June 2006, the applicant failed to comply with a financial services law, namely s 947C(2)(f)(i) and (ii) of the Act.
Ginseng & PPP Partners Group Partnership
22. As a director of Rohan Hill Trustees Ltd and as the trustee of the Turner Family Trust, a shareholder in Rohan Hill Trustees Ltd since 10 November 2004, the association or relationship of the applicant to Rohan Hill Trustees Ltd and his interest (or the interest of the Turner Family Trust) in Rohan Hill Trustees Ltd might reasonably be expected to be or to have been capable of influencing the applicant in providing the Statements of Advice in relation to the Ginseng & PPP Partners Group Partnership. The relevant Statements of Advice were required to include information about these associations or relationships and interests of the applicant (vide s 947C(2)(f)(i) and (ii) of the Act). In the Statements of Advice, the statement under the heading ”Disclosure of Relationships” did not contain any “information” or any “detail” about these specific interests, associations or relationships and was not sufficient to satisfy the requirements in s 947C(3) of the Act.
23. Having regard to all the evidence in relation to the applicant’s involvement in the Ginseng & PPP Partners Group Partnership, the Tribunal is satisfied that, between 15 November 2005 and 23 June 2006, the applicant failed to comply with a financial services law, namely s 947C(2)(f)(i) and (ii) of the Act.
Extra D Investment Fund
24. As a director of Nova Stella Administration Pty Ltd between 11 August 2005 and 22 May 2006 and having regard to his relationship with Mr O’Shaunessy, a director of Nova Stella Administration Pty Ltd since 22 May 2006, the association or relationship to Nova Stella Administration Pty Ltd and to Mr O’Shaunessy, an associate of Newstar, is sufficiently direct and sufficiently proximate to the applicant when he recommended the Extra D Investment Fund to a client, that they might reasonably be expected to be or to have been capable of influencing the applicant in providing the Statement of Advice in relation to the Extra D Investment Fund. The relevant Statement of Advice was required to include information about these associations or relationships of the applicant (vide s 947C(2)(f)(i) and (ii) of the Act). In the Statement of Advice, the statement under the heading ”Disclosure of Relationships” did not contain any “information” or any “detail” about these specific associations or relationships and was not sufficient to satisfy the requirements in s 947C(3) of the Act.
25. Having regard to all the evidence in relation to the applicant’s involvement in the Extra D Investment Fund, the Tribunal is satisfied that the applicant failed to comply with a financial services law, namely s 947C(2)(f)(ii) of the Act.
Capital Investors Group Mortgage Trust
26. As a director of CIG Trustees Ltd and as the trustee of the Turner Family Trust, a shareholder in CIG Trustees Ltd since 9 February 2005, the association or relationship of the applicant to CIG Trustees Ltd and his interest (or the interest of the Turner Family Trust) in CIG Trustees Ltd might reasonably be expected to be or to have been capable of influencing the applicant in providing the Statement of Advice in relation to the Capital Investors Group Mortgage Trust. The relevant Statement of Advice was required to include information about these associations or relationships and interests of the applicant (vide s 947C(2)(f)(i) and (ii) of the Act). In the Statement of Advice, the statement under the heading ”Disclosure of Relationships” did not contain any “information” or any “detail” about the specific interests, associations or relationships and was not sufficient to satisfy the requirements in s 947C(3) of the Act.
27. Having regard to all the evidence in relation to the applicant’s involvement in the Capital Investors Group Mortgage Trust, the Tribunal is satisfied that the applicant failed to comply with a financial services law, namely s 947C(2)(f)(i) and (ii) of the Act.
Ginseng Investors Group Trust and Partnership
28. As a director of Ginseng Trustees Ltd and as the trustee of the Turner Family Trust, a shareholder in Ginseng Trustees Ltd since 9 February 2005, the association or relationship of the applicant to Ginseng Trustees Ltd and his interest (or the interest of the Turner Family Trust) in Ginseng Trustees Ltd might reasonably be expected to be or to have been capable of influencing the applicant in providing the Statement of Advice in relation to the Ginseng Investors Group Trust and Partnership. The relevant Statement of Advice was required to include information about these associations or relationships and interests of the applicant (vide s 947C(2)(f)(i) and (ii) of the Act). In the Statement of Advice, the statement under the heading ”Disclosure of Relationships” did not contain any “information” or any “detail” about the specific interests, associations or relationships and was not sufficient to satisfy the requirements in s 947C(3) of the Act.
29. Having regard to all the evidence in relation to the applicant’s involvement in the Ginseng Investors Group Trust and Partnership, the Tribunal is satisfied that the applicant failed to comply with a financial services law, namely s 947C(2)(f)(i) and (ii) of the Act.
Financial Services Guide
30. On an analysis of the Statements of Advice and the Schedules referred to in sub-paragraphs 7(a)(i), 7(b)(i), 7(c)(i), 7(d)(i), 7(e)(i) and 7(f)(i) above, between 15 November 2005 and 23 June 2006, in his capacity as an authorised representative of Newstar and in connection with the financial services provided by him that are referred to in those sub-paragraphs, the applicant provided a Newstar Financial Services Guide to the persons named in Column 2 of Schedule 7 (in paragraph 8 above).
31. The associations or relationships referred to in sub-paragraphs 7(a)(iii), 7(b)(iii) and (iv), 7(c)(iii) and 7(d)(iii) might reasonably be expected to be capable of influencing the applicant in providing the relevant advice and, as such, by virtue of s 942C(2)(g) of the Act, the Newstar Financial Services Guides identified in Column 3 of Schedule 7 (in paragraph 8 above) had to, but did not, include information about those associations or relationships.
32. Having regard to all the evidence, the Tribunal is satisfied that, between 15 November 2005 and 23 June 2006, the applicant failed to comply with a financial services law, namely s 942C(2)(g) of the Act.
Misleading and Deceptive Conduct
33. The applicant caused or procured persons to complete an application form for the purchase of interests in the managed investment schemes referred to, and offered by, the entities named in Schedule 8 (in paragraph 8 above). Each of the managed investment schemes are financial products. In causing or procuring the completion of an application form, the conduct by the applicant in doing so was in relation to a financial product or, alternatively, in relation to a financial service. Each of the application forms contained the following statement:
“By signing this form, you acknowledge that:
[Name of the entity issuing the interests in the managed investment scheme] and/or any of their directors, employees or advisers, has not made any recommendation to you concerning participation in the [name of managed investment scheme].”
The statement infers that the applicant was not, at the time, a director of the entity issuing interests in the managed investment schemes, whereas he was a director of each of the entities at that time. Conduct will be misleading or deceptive or likely to mislead or deceive if the representee “labours under some erroneous assumption” or may be expected so to labour. Such an assumption or anticipated assumption may be obvious, predictable or fanciful: National Exchange Pty Ltd v ASIC (2004) 22 ACLC 609 at 614. Conduct is misleading or deceptive if it does, or is likely to, cause a person to misinterpret, or be deluded as to, the facts: cf Weitmann v Katies Limited (1977) 29 FLR 336 at 342. It is also unnecessary to prove that the person intended to mislead or deceive: Parkdale Custom Built Furniture v Puxu Pty Ltd (1982) 149 CLR 191 at 197.
34. In the Tribunal’s view, the statement contained in the application forms was capable of misleading or deceiving anyone reading it as to the applicant’s directorship of the company’s concerns. The Tribunal is satisfied that, between 15 November 2005 and 23 June 2006, the applicant failed to comply with a financial services law, namely s 1041H of the Act.
Teak Investment Fund
35. The Statements of Advice referred to in sub-paragraph 7(i)(iv) above implied that 6FT2 was a registered company and was capable of issuing interests in the Teak Investment Fund and of being the fund manager. That was not the case as 6FT2 had been deregistered at the time the Statements of Advice were provided. The Statements of Advice were capable of misleading or deceiving anyone reading them as to the true status and capacity of 6FT2. The provision by the applicant of the Statements of Advice and the recommendations to the persons to invest in the Teak Investment Fund was conduct in relation to a financial service that was misleading or deceptive. The Tribunal is of the opinion that, between 21 January 2006 and 23 June 2006, the applicant failed to comply with a financial services law, namely s 1041H of the Act.
36. In summary, the Tribunal is satisfied that, between 15 November 2005 and 23 June 2006, the applicant did not comply with ss 947C(2)(f)(i) and (ii), 942C(2)(g) and 1041H of the Act. Each of these sections is a financial services law within the meaning of s 761A of the Act. The applicant argued that the failure to comply with the Act was the fault of Newstar’s compliance expert and was not his responsibility. The Tribunal does not accept this argument. In Re Tweed (supra), Deputy President Forgie was of the view that the words “has not complied” when used in s 920A(1)(e), on their face, appear absolute. If the person has not acted in accordance with the law, that person has not complied with it. There appears to be no room for any consideration that the transgression is trivial or, as was the applicant’s position, for allocation of fault. The Tribunal respectfully adopts the view taken by Deputy President Forgie.
Whether the applicant will not comply with a financial services law
37. As already mentioned, in 2002 the applicant was banned by the respondent for a period of one year and was found at that time not to have complied with financial services laws. The Tribunal’s delegate made the finding that:
“… Mr Turner does not adequately understand the high standards of conduct required of an investment adviser or securities dealer.
…
… Mr Turner’s conduct fell short of the reasonable standard that could be expected of a person in his position and that a period of banning is required to enable Mr Turner to reflect upon and understand the conduct considerations of concern to ASIC and to prepare himself for a more objective approach to investor interests.” (Exhibit R2, pages 1868-1869)
38. It was the respondent’s contention that the applicant will not comply with a financial services law and its power to make a banning order against the applicant under s 920A(1)(f) of the Act is thereby enlivened. In its statement of facts and contentions, the respondent sought to rely on the following matters from which this conclusion ought to be drawn:
(a) that the applicant failed to disclose relevant associations, relationships and interests in Statements of Advice and Financial Services Guides given by the applicant to the clients referred to in paragraphs 7 and 8 above;
(b) that the relevant associations, relationships and interests were well known to the applicant and, as such, the failure to disclose them was as a result of a deliberate and knowing decision not to do so; and
(c) that the applicant knowingly failed to comply with s 1041H of the Act in respect of the acknowledgements in application forms that he obtained from clients.
39. The applicant’s evidence was that any non-disclosure that occurred in relation to financial products or Statements of Advice was not deliberate. He denied that he lacked a “compliance mentality”. All compliance issues were dealt with by Newstar’s compliance expert, Mr Walker, who had been trained and recommended by the respondent as an expert in compliance. As to the allegations of misleading and deceptive conduct, the templates that had been used for the investment products had been scrutinised by Mr Walker and were not the applicant’s responsibility.
40. The issue is whether the matters upon which the respondent sought to rely provide reasons to believe whether the applicant will not comply with financial services laws in the future. The ambit of s 920A(1)(f) of the Act was considered by the Tribunal, then constituted by Deputy President Forgie and Member Hughes in Re Howarth and Australian Securities and Investments Commission (2008) 101 ALD 602, where it was said at paragraphs [135] and [136]:
“135. Although perhaps trite to say so, what amounts to reasonable grounds will depend on the context. In this case, the immediate context is that of s 920A(1)(f) but the broader context is that of founding a power on which to make a banning order. As we will conclude later in these reasons, that is a power that is exercised on the basis of the protection of the public and not for the punishment of the person banned or to penalise that person. There is no doubt, though, that a consequence of a banning order is to prevent the person banned from undertaking work that person has chosen to do in the past. That may well be work that has provided the person’s income and means of supporting him or her self and a family. That is a serious consequence for the person just as protecting the public is a weighty endeavour. These sorts of matters will be borne in mind in deciding whether there exist facts sufficient to induce in the mind of a reasonable person a reason to believe that the particular state of affairs exists.
136. In the case of s 920A(1)(f) that state of affairs is that the person “will not comply with a financial services law”. The state of affairs is not the person “may not comply with a financial services law”. To our minds, the distinction between what a person will do and what that person may do is very important. A state of mind in which a person has a reason to believe that another person may do something may well be reached before and on less convincing material than is required for a state of mind that the person will do something”
41. The Tribunal is concerned about the applicant’s actions and, perhaps even more importantly in this case, his lack of understanding of what is required of him in his professional capacity. However, his role was to conduct client interviews, prepare plan overviews and work out the financial strategies involved. His work was then passed on to Newstar staff and the compliance expert to ensure that all documentation was compliant. On the applicant’s evidence, he believed that this procedure would relieve him from responsibility for the information contained in the Statements of Advice and the Financial Services Guides. There was not a deliberate and knowing decision to refrain from making appropriate disclosures. One can be reasonably confident that the applicant will have gained a valuable insight about the need for regulatory compliance from these proceedings. The matters upon which the respondent has based its contentions arguably raise a possibility of a breach of financial services law in the future, but the Tribunal is not satisfied that the applicant will do so. The respondent’s case for a banning order against the applicant under s 920A(1)(f) of the Act is not made out.
Bankruptcy of the Applicant
42. The applicant was declared bankrupt, upon the presentation of his own petition, on 19 May 2006. Mr Maris Rudaks was appointed trustee of his estate. The circumstances of the bankruptcy are set out in the respondent’s Statement of Facts, Issues and Contentions in respect of the Applicant’s Previous Banning and Bankruptcy dated 9 May 2008 (“2008 Statement”). At the hearing, the applicant did not take issue with any of the factual particulars contained in the 2008 Statement. In relation to his bankruptcy, the applicant’s Statement of Affairs dated 19 May 2006 showed unsecured creditors totalling $3,619,832 and no assets available to pay those creditors. Part of this indebtedness was the subject of proceedings in the District Court. According to the applicant, there was a “deal” for him to pay $52,000 and the proceedings in the Court would be discontinued. No payment was forthcoming. Strangely, the applicant suggested that, had payment been made, he would not have been declared bankrupt.
43. From an analysis of the particulars in the 2008 Statement, the applicant was a director of a total of seven companies at the time they were placed into liquidation. Concerns had been raised by the liquidators of two of the companies, in reports prepared by them, about the directors allowing agreements to be entered into to avoid employee entitlements and as to insolvent trading. The liquidators also stated that causes of failure included poor financial control, poor records or a lack of records and poor business management.
44. It was the respondent’s contention that the matters set out above indicated a substantial indebtedness and pointed to either serious financial and business incompetence or an inability of the applicant to keep a proper oversight of financial and business affairs. Also, the circumstances of the applicant’s bankruptcy raised concerns as to his competence as a financial adviser and as to his ability to exercise sound judgement in advising others on their financial affairs. In these circumstances, it was the respondent’s further contention that the power to make a banning order against the applicant under s 920A(1)(bb) of the Act was enlivened by reason of the applicant’s insolvency.
45. Subject to what follows, the Tribunal is satisfied that the respondent’s case, based on s 920A(1)(bb) of the Act, is made out. However, it is noted that, in the absence of objection, the applicant would have been discharged from bankruptcy on 19 May 2009. If this has, in fact, occurred it would follow that the respondent’s (and the Tribunal’s) power to make a banning order under s 920A(1)(bb) is no longer enlivened.
the banning order
46. As the Tribunal has found that the applicant committed breaches of ss 947C(2)(f)(i) and (ii), 942C(2)(g) and 1041H of the Act, the requirements of s 920A(1)(e) are met. Depending on whether the applicant has been discharged from bankruptcy, the requirements of s 920A(1)(bb) may also be met. Because of this uncertainty, in considering the making of a banning order against the applicant, the Tribunal prefers not to make a finding in terms of s 920A(1)(bb). The Tribunal notes that, in relation to banning orders and the period for which such an order is to apply, the respondent has published Regulatory Guide 98: Licensing: Administrative action against financial services providers (“RG98”).
47. The purpose of a proceeding which may result in a banning order is not for the imposition of a penalty. It is to protect the public. As was said by the Full Federal Court in Australian Securities Commission v Kippe and Another (1996) 20 ACSR 679 at 687:
“The immediate and direct legal effect intended by a banning order is not to impose a penalty or punishment on the person concerned, but to be preventative in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein.”
However, the Act does provide any guidance as to the exercise of the discretion to fix the period for which a banning order is to apply. As was said by Deputy President Olney in Re Nolan and Australian Securities and Investments Commission [2006] AATA 778 at paragraph 36:
“36. … The current judicial opinion, as expressed by the High Court in Rich v Australian Securities and Investments Commission (2004) 78 ALJR 1354; [2004] HCA 42 is that disqualification orders under the Corporations Act have both a punitive or a protective component. The need to protect the community is obviously a primary objective of s 920A but the section must also be treated as having a punitive element which gives rise to the need to assess the effect of the order on the particular person.”
48. In ReCoakley and Australian Securities and Investments Commission [2008] AATA 247, Deputy President Walker was required to consider the appropriate period for the banning order in that case. At paragraphs 188-189 of his reasons, the learned Deputy President said:
“188 Santow J in Re HIH Insurance Limited (In Prov Liq) and HIH Casualty and General Insurance Limited (In Prov Liq); Australian Securities and Investments Commission v Adler & Ors (2002) 42 ACSR 80, 97-99, usefully summarised the principles governing banning and disqualification orders and set out the principles applying to the assessment of an appropriate length of prohibition. The scales of responsibility that his Honour identified are paralleled in regulatory guide 98, table 2, although not exactly. For these purposes I think regulatory guide 98 should be treated as the appropriate standard.
189 On that basis the applicant falls within the middle category, which is stated as warranting banning from three to ten years. The applicant’s contraventions satisfy two of the four factors in that category, namely “A significant loss” and “Incompetence and irresponsibility but with the possibility that the person may develop requisite skills and abilities”. The guide does not suggest that all four factors must be present, but the fact that two of them are not met in this case suggests that the applicant’s conduct falls at the lower end of the scale of responsibility.”
49. The Tribunal notes the factors and examples of conduct relating to specific periods of banning that are referred to in Table 2 of RG98. The respondent submitted that the conduct of the applicant fell both within the banning from 3-10 years and the permanent banning categories set out in Table 2 of RG98, with the applicant’s contraventions satisfying two of the four factors in the 3-10 year category, as well as four of the six factors in the permanent banning category. The respondent then contended that the period of banning of six years imposed by the delegate in the 2007 Decision Statement was appropriate. On the basis of the principles as enunciated in the cases referred to above and in RG98, the Tribunal agrees that the six year ban imposed by the delegate was appropriate in the circumstances.
decision
50. For the above reasons, the Tribunal affirms the decision under review.
I certify that the 50 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne
Signed: .....................................................................................
AssociateDate of Hearing 11 September 2008
Date of Decision 11 June 2009
Advocate for the Applicant Self-represented
Counsel for the Respondent Mr N Wilson
Solicitor for the Respondent ASIC
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