Civil proceedings against blockchain mining companies – April 12, 2024
Civil proceedings have commenced against blockchain mining companies NGS Crypto Pty Ltd, NGS Digital Pty Ltd and NGS Group Ltd (NGS Companies) and the sole directors Brett Mendham, Ryan Brown and Mark Ten Caten.
On April 10, 2024, Anthony Connelly, Kathy Sozou, and Jamie Harris of McGrathNicol were appointed by the Federal Court as receivers over the digital currency assets of the NGS Companies and of Mendham, Ten Caten and Brown. Orders to restrain Mendham from travelling outside of Australia have also been made.
Allegedly, the NGS Companies targeted investors to buy into blockchain mining packages with fixed-rate returns, and encouraged them to transfer money from regulated super funds to self-managed super funds, and then converted into cryptocurrency. According to preliminary investigations, ASIC found that about over 450 Australians invested approximately $41m through the NGS Companies.
The companies are also believed to have breached section 911A of the Corporations Act by providing financial services without an Australian financial services (AFS) licence.
With the proceedings, ASIC seeks interim and final injunctions against the NGS Companies preventing them from providing financial services in Australia without an AFS licence.
The investigation into the NGS Companies and their directors is ongoing.
A$1.25m penalty on AFSL ‘licensee for hire’ firm – April 11, 2024
Lanterne Fund Services Pty Ltd, a wholesale licensee, has been ordered to pay a A$1.25m ($815,295) penalty after failing to comply with six of the general obligations of Australian financial services (AFS) licence holders.
Read the full article here.
James Mawhinney arrested and charged – April 9, 2024
James Mawhinney has been arrested and charged with four counts of engaging in dishonest conduct.
Allegedly, Mawhinney dishonestly misrepresented to the trustee of the IPO Wealth Fund that the IPO Wealth Group owned two Italian companies (Poveglia S.R.L. and Retta S.R.L) on four occasions between August 9, 2019 and April 21, 2020 – when it did not.
The maximum penalty for each charge is 15 years in prison. Mawhinney will appear before the Melbourne Magistrate’s Court on June 28, 2024.
Head of audit pays A$20,625 penalty for audit rotation issues – April 5, 2024
The director of William Buck Audit (Vic) Pty Ltd, Nicholas Benbow, has paid A$20,625 ($13,575) to comply with three infringement notices over audit failures.
Allegedly, Benbow failed to conduct three reviews on listed companies in accordance with the auditing standards in March 2023 – a role he had had for each company for five successive years.
This is also the first infringement notice issued under the Corporations Act for an alleged breach of audit rotation issues.
Cancelled AFS licences
Menon & Associates Pty Ltd – April 3, 2024
The Australian financial services licence of Menon & Associates Pty Ltd has been cancelled because the company no longer carries on a financial services business.
Court updates
Sunshine Loans charged customers prohibited fees – April 12, 2024
The small amount lender Sunshine Loans has been found entering into over 670,000 contracts that are not permitted by the National Credit Code. The loans were made between July 2016 and November 2020 and included an amendment or rescheduling fee – which was required over 12,000 times and meant the company received nearly A$300,000 ($193,986) from customers.
Shortly after ASIC’s intervention, the company ceased charging the fees in November 2020, without admission of liability.
Ok to wind up Prospero Markets Pty Ltd – April 11, 2024
ASIC’s application to wind up Prospero Markets Pty Ltd on just and equitable grounds has been granted by the Federal Court.
An investigation into Prospero began after the Australian Federal Police’s Operation Avarus-Nightwolf, which resulted in former company officers and managers being charged with money-laundering offences in October 2023 relating to the Changjiang Currency Exchange money remitting chain.
The Commission’s concerns included the management of Prospero’s business, complying with conditions of the Australian Financial Services Licence (which was also suspended in December 2023), and obligations as an OTC derivatives issuer under the Corporations Act. The company is also believed to be holding “substantial client funds”, which ASIC is keen to see returned to clients as a priority.
Appeal on Finder Wallet decision – April 10, 2024
The Commission has appealed the Federal Court’s decision to dismiss proceedings against Finder Wallet Pty Ltd – where it allegedly was providing unlicensed financial services, breaching product disclosure requirements and failing to comply with design and distribution obligations reagrding its crypto-asset related product ‘Finder Earn’.
Earlier, ASIC alleged that the product was a debenture – which was dismissed by the court in March.
Cameron Lindsay Duncan’s liquidator registration reinstated – April 10, 2024
Following an application, the Administrative Appeals Tribunal has decided to reinstate the liquidator registration for Cameron Lindsay Duncan – with multiple conditions imposed on him – for as long as he remains a non-resident of Australia.
The registration was earlier cancelled, alleging Duncan no longer had the qualifications, experience, knowledge or abilities needed under the Corporations Act 2001, plus he was no longer resident in Australia or another prescribed country.
Still, ASIC believes that the product was offered without the proper licence or authorization, and “without the benefit of important consumer protections”.
Former financial adviser charged with dishonest conduct – April 2, 2024
David Valvo, a former Sydney-based financial adviser, has been charged with 12 counts of dishonest conduct in relation to Your Financial Freedom Pty Ltd.
According to ASIC, Valvo acted dishonestly between July 2019 and January 2020 when he completed and submitted adviser fee withdrawal forms for 12 of his clients’ superannuation accounts totalling about A$110,000 ($71,599) – even though he knew that the forms were not genuine.
Valvo has been granted conditional bail where he has surrendered his passport and remains in Australia. Sentence is to be set later. Each offence of engaging in dishonest conduct and breaching s1041G(1) of the Corporations Act 2001 (Cth) carries a maximum penalty of 15 years imprisonment.
Application to prevent ASIC investigation dismissed – April 2, 2024
The Federal Court has dismissed an application by Provide Nominees Pty Ltd – which was made in order to prevent ASIC’s further investigation of the company. In the application, the company alleged that “ASIC did not have the state of mind required to conduct an investigation under the Australian Securities and Investments Commission Act 2001 (ASIC Act)”. Yet, her Honour found that Provide Capital’s claims were illogical and that the application had no “reasonable prospect of success”.
Provide Capital has also been ordered to pay ASIC’s costs. Last month, ASIC also successfully defended an appeal where the company failed to respond to the Commission’s request to produce documents.
“The outcome in this case demonstrates ASIC’s commitment to taking action to prevent its investigations being delayed by baseless challenges to its powers.”
ASIC Chair Joe Longo
ASIC news weeks 14 – 15
Speech
On April 11, 2024, Commissioner Kate O’Rourke spoke at the Australian Restructuring Insolvency and Turnaround Association‘s (ARITA) National Conference about improving regulatory guidance for registered liquidators.
Photo: ASIC
She announced proposed changes to RG16 (see section below), which are intended to reduce unnecessary effort and expense regarding reporting obligations.
O’Rourke said that the Commission recognises the challenges and duties registered liquidators are having, and that the volume of insolvency work is growing. For this financial year, it is also expected that more than 10,000 companies will enter external administration or controllership, “a figure not seen in over a decade”.
“We can’t change the ‘less than 50 cents in the dollar’ rule that drives the obligation to lodge so many reports. We can, however, provide guidance to lessen in volume and improve in value the amount of information collected and submitted. We can also improve what we do with that information,” O’Rourke said.
Consultation on misconduct reporting guidance
A consultation paper with proposed updates for regulatory guidance has been released, and affects external administrators and controllers regarding reporting and lodging statutory reports about alleged misconduct.
ASIC says that the reporting obligations are “an important ‘front line’ information source” for possible offences or misconduct, and some of it is to monitor ‘phoenix’ behaviour, take administrative actions such as director bannings, and to identify appropriate cases for enforcement action.
For the year ended June 30, 2023, ASIC received a total of 5,775 Initial Statutory Reports, and requested 778 Supplementary Statutory Reports. Feedback on the Consultation Paper 377 Guidance for reporting of possible offences and misconduct by external administrators: Updates to RG 16 can be submitted up till June 6, 2024
