ASIC roundup: A$1m penalty for order information transparency failure, and liquidator sentenced

The Australian Securities & Investments Commission’s latest actions and news, March 4- 8, 2024.

Liquidator sentenced for dishonestly withdrawing company funds – March 8, 2024

Ronald Lester Cardwell has been convicted and sentenced to 24 months imprisonment (to be served by way of intensive correction order) after dishonestly withdrawing company funds. During the intensive correction order, Cardwell must also complete 150 hours of community service, and is disqualified from managing corporations for five years.

ASIC found that Cardwell was not a registered liquidator, yet was still appointed as a members’ voluntary liquidator of Loch-Co No 6 Pty Ltd, and dishonestly withdrew $150,367.12 ($99,762) in 12 separate transactions from Loch-Co’s liquidation account between May 2015 and March 2016.

He also failed to comply with an issued notice requiring him to produce books and records to ASIC.

Cardwell pleaded guilty to one count of contravening s184(2) of the Corporations Act 2001 (Cth), with one count of contravening s63(1) of the Australian Securities and Investments Commission Act 2001 (Cth) taken into account at sentence pursuant to s16BA of the Crimes Act 1914 (Cth).

Cardwell has also been referred to community corrections for a report relating to the imposition of a home detention condition, and the execution of the sentence is stayed pending receipt of the report.

Director Joseph Gutnick disqualified for four years – March 8, 2024

Joseph Gutnick has been disqualified from managing corporations for four years due to his involvement in three failed companies between June 2016 and March 2020:

  • Axis Consultants Pty Ltd (deregistered);
  • Merlin Diamonds Limited (in liquidation); and
  • Legend International Holdings, Inc. (in liquidation).

Gutnick was found to be acting improperly and to have failed to meet his director’s obligations when he:

  • exercised his director’s powers of Legend after it was wound up;
  • allowed Merlin to lend A$13,752,124.78 ($9,137,380) to Axis where the loans caused detriment to Merlin and gave an advantage to Axis;
  • allowed Merlin to trade while insolvent;
  • failed to ensure that Merlin maintained complete financial records and complied with its obligations as a public company;
  • let Axis to lend money to related parties without documentation; and
  • failed to monitor and oversee Axis’s financial affairs, and didn’t assist the liquidator of Axis when requested.

Legend and Merlin owned a combined total of A$43,209,965 ($28,701,017) to unsecured creditors.

ASX pays A$1m for order information transparency failure – March 7, 2024

ASX Limited has paid a penalty of A$1,050,000 ($692,994) for failing to comply with Market Integrity Rules – which is the first infringement notice issued to a market operator.

Allegedly, ASX breached the pre-trade transparency rule requirements 8,417 times between April 2019 and December 2022, when failing to make certain information about orders available on its trading system. The fault was found as a result of an incorrect system configuration, which went undetected until a market participant noticed it.

ASIS says that this conduct was serious, and that ASX could have identified the issue earlier. Yet, once discovered, ASX immediately remedied the issue and notified ASIC.

Due to incorrect system configuration, the consideration for block trade exemptions was set to A$0 instead of A$200,000 for some Tier 3 equity products – which caused 8,417 placed orders to not be pre-trade transparent, and 165 trades occurred in purported reliance.

“Confidence in Australia’s market operators is fundamental to fair and efficient markets. This action demonstrates that ASIC will hold market operators to the highest standards.”

ASIC Chair Joe Longo

Court decision in conflicted remuneration case against financial advice licensee – March 4, 2024

The Federal Court has found R M Capital Pty Ltd failed to take adequate steps to ensure that its authorized representative, the SMSF Club Pty Ltd (SMSF Club), did not accept conflicted remuneration.

Earlier, ASIC alleged SMSF Club for advising its clients to set up self-managed superannuation funds (SMSFs) to buy real property via Positive RealEstate Pty Ltd – where, between December 2013 and July 2016, and pursuant to referral agreements, Positive RealEstate paid SMSF Club around A$5,000 ($3,296) each time a client bought a property through them using their SMSF.

This made SMSF Club contravene s963G of the Corporations Act by accepting payments from Positive RealEstate, and RM Capital contravened s963F of the Corporations Act by failing to make sure that SMSF Club did not accept the payments.

Court orders are to follow.

ASIC news week 10

Letter to insurers

A letter reminding general insurers of their obligations as Australian financial services (AFS) licensees has been issued, with the goal of improving their claims-handling practices.

ASIC says that it expects to see “a better response by the industry to the events that have occurred during this summer and more focus by insurers on resolving any outstanding claims related to flood events that occurred in 2022”.

In the letter, ASIC states areas of improvements, which include:

  • better communications – for transparency and timeliness;
  • better project management – for minimum intrusion and burden;
  • better handling of complaints – for fairness;
  • better treatment of vulnerability – for fairness; and
  • better resourcing – for timeliness and fairness.

New investor alert list

As we reported, the Commission has shut down almost 3,500 scam websites in under a year. To strengthen its scam prevention tools further, ASIC has now published a new investor alert list, where consumers can look up entities and see if they could be fraudulent, a scam or unlicensed.

“There are bad actors out there, and while we can’t avoid being targeted, having access to the right information can help consumers better protect themselves,” said Deputy Chair Sarah Court. She added that, at launch, the alert list included 52 unlicensed entities and 25 websites impersonating legitimate entities.

The new list replaces the previous Companies you should not deal with list, and includes both domestic and international entities that are operating without appropriate licenses, exemptions, authorization or permission, plus “impostor” entities.

Final rules and further guidance for the Financial Accountability Regime

The Commission and the Australian Prudential Regulation Authority (APRA) have released final rules and further guidance to support implementing the Financial Accountability Regime (FAR).

The FAR replaces the Banking Executive Accountability Regime, and imposes a stronger responsibility and accountability framework for APRA-regulated entities, their directors and senior executives in the banking, insurance and superannuation industries.

For the banking industry, the FAR will come into force on March 15, 2024 and on March 15, 2025 for the superannuation and insurance industries.

Consultation on registered liquidator registration guidance

ASIC is consulting and seeks feedback on proposed changes to the existing Regulatory Guide 258 Registered Liquidators: Registration, disciplinary action and insurance requirements, which was issued in March 2017.

The updates will reflect legislative changes, including helping applicants to provide appropriate information in their application and to prepare for interviews with a committee. Feedback can be submitted until May 2, 2024.