ASIC roundup: ‘egregious and unacceptable’ conduct

The Australian Securities & Investments Commission’s latest actions and news, December 18 – 29, 2023.

Prospero Markets’ AFS licence suspended – December 22, 2023

The over-the-counter derivatives issuer Prospero Markets Pty Ltd had its Australian financial services (AFS) licence temporary suspended after failing to file its annual financial statement and audit report for the financial year ending June 30, 2023.  

Prospero is suspended from providing financial services until 28 February, 2024, and will need to file its statements or face further suspension or a cancellation of its licence.

ASIC’s investigation of Prospero began in November 2023 with the company suspected of contraventions of the Corporations Act 2001, which allegedly started in March 2021.

Prospero agreed to provide an undertaking of not dealing with client funds without ASIC’s permission in December and is also assisting ASIC with its investigation.

Former director sentenced to 4 years and 4 months imprisonment – December 21, 2023

Former director Mudasir Mohammed Naseeruddin has been sentenced to a prison sentence totalling 4 years and 4 months for conduct that Judge Todd called “egregious and unacceptable”.

He pleaded guilty to two charges of dishonest conduct – breaching 1041G(1) and 1311(1) of the Corporations Act, and two charges of failing to exercise powers and discharge duties in good faith in the best interests of a corporation – a breach of 184(1). He will serve a non-parole period of 2 years and 9 months.

Naseeruddin encouraged investors to rollover their superannuation monies into newly created self-managed superannuation funds, and then to lend those funds to his two companies Secure Investments Pty Ltd and Aquila Group Pty Ltd.

Between May 2015 and January 2020, he dishonestly obtained more than A$520,000 ($351,216) from six investors – funds which he said would be invested in property developments. Only a fraction of the funds were actually invested. He withdrew over A$550,000 ($371,489) from Secure Investments Pty Ltd to purchase shares in a security company for his own benefit.

In October 2020, ASIC obtained orders to wind up Secure Investments Pty Ltd and Aquila Group Pty Ltd, and also discovered that he had operated without the appropriate licence. In May 2022, ASIC took civil action to obtain interim orders to preserve the company assets.

Former director banned for seven and a half years – December 21, 2023

Mark Andrew Cooper has been banned from providing any financial services and controlling or performing a function in any financial services business for seven and a half years.

Cooper was the sole director of Acquire Strategic Advisers Pty Ltd between August 2012 and February 2020, and CFO during January and February 2022. He was found not to have had adequate training or competence, and to have engaged in conduct that was misleading and deceptive when he caused or allowed Acquire to:

  • collect annual review fees from 240 client Self-managed super funds, when those reviews had not been undertaken;
  • lack systems to ensure that clients received the annual client reviews that they had paid for; and
  • fail to maintain complete, accurate and reliable records by not ensuring that file notes of annual client reviews were uploaded to a document management system within reasonable time following the reviews.

Former registered liquidator pleads guilty to dishonest conduct – December 20, 2023

Former registered liquidator and business owner of Amos Insolvency Pty Ltd Peter Andrew Amos has pleaded guilty to six counts of dishonestly using his position as a company officer to gain advantage for his business and for himself – breaching section 184(2)(a) of the Corporations Act.

Between October 2016 and December 2022, Amos allegedly transferred, without entitlement, a total of A$2,498,546.45 ($1,691,274) from five other company accounts to Amos Insolvency. The funds were then used to pay the company’s and Amos’ personal expenses.

The companies from which funds were improperly removed included:

  • Mikcon Employment Services Pty Ltd (Deed of Company Arrangement);
  • TPC (Vic) Pty Ltd (Deed of Company Arrangement);
  • P O W 4X4 Pty Ltd (In Liquidation);
  • A-Force Electrics Pty Limited (In Liquidation); and
  • Conomi Group Pty Limited (Deed of Company Arrangement).

Furthermore, ASIC also alleges that Amos diverted a contribution of A$500,000 ($338,173) intended for Conomi’s Deed of Company Arrangement to Amos Insolvency. $390,000 ($263,778) of that amount has been repaid.

At the time of the offences, the maximum applicable penalty was a fine of 2000 penalty units, or imprisonment for five years, or both. After March 13, 2019, the maximum penalty has been extended to 15 years imprisonment.

Civil action against Open4Sale Global Ltd and two directors – December 20, 2023

Civil penalty proceedings have commenced against Open4Sale Global Ltd and Simeon La Barrie and Ewald Hafer, two of its directors, for allegedly offering shares in the company and distributing application forms without the required disclosure document.

Between March 2019 and July 2023, the company allegedly raised about A$1.3m ($879,740) from more than 80 investors without lodging any disclosure document with them or with ASIC. The investors affected were retail investors rather than sophisticated investors and no exemption from disclosure requirements was therefore available.

La Barrie, US-based founder and executive director, allegedly participated in the making of the share offers and the distribution of application forms, and Australian director Hafer allegedly met with investors to distribute these.

ASIC is seeking declarations of contraventions, pecuniary penalties, disqualification orders, and injunctions restraining all named parties from raising funds for the company without having lodged a disclosure document.

Infringement notices to Northern Trust Asset Management – December 19, 2023

Northern Trust Asset Management Australia Pty Ltd has paid A$29,820 ($20,173) to comply with two infringement notices regarding alleged greenwashing and making false and misleading statements about the application of a Carbon Emissions Exclusion Screen. 

At least three companies (DTE Energy, NiSource, and Power Assets Holding) were not excluded from the affected holdings despite failing the low carbon transition management score quartile – which resulted in errors when applying the Carbon Emissions Exclusion Screen.

“We want to stress that as the publisher of these statements, it is the company itself who is responsible for them, not the third party applying the exclusions. Effective oversight of third parties is essential to avoid misleading investors.”

ASIC Deputy Chair Sarah Court

Hope Island financial advisor permanently banned – December 19, 2023

Delan Pagliaccio has been permanently banned from providing, controlling or performing a role in financial services after engaging in dishonest, deceptive and misleading conduct.

Pagliaccio was the sole director of Veridian Securities Pty Ltd (deregistered), Veridian Markets Pty Ltd (undergoing external administration), and Synergy Asia Pacific Partners Pty Ltd (previously SKR Private Pty Ltd and Synergy Equities Group Pty Ltd). As a director of Veridian Markets between May 2017 and June 2022 his conduct included:

  • Making representations to prospective clients that Veridian could invest their funds in Macquarie Bank Cash Management accounts and achieve guaranteed returns of 8% annually;
  • employing the clients’ funds for personal use without having the clients authority or permission to do so;
  • failing to return client funds, even when clients requested their redemption.

Pagliaccio also continued to provide financial services after Veridian Markets Pty Ltd no longer had an Australian Financial Services Licence (AFS) license authorisation.

The AFS license held by Synergy Asia Pacific Partners Pty Ltd had also been cancelled.

Kristofer Ridgway charged with providing false or misleading information to ASIC – December 18, 2023

Former financial adviser Kristofer Ridgway has been charged with two counts of providing false or misleading information to ASIC – a breach of section 64(1) of the Australian Securities and Investments Commission Act 2001 (Cth).

Ridgway allegedly provided false or misleading information to ASIC while he was being questioned during a compulsory examination as part of an investigation into his role in recommending unlisted McFaddens Securities shares to clients.

Providing false or misleading information to ASIC during a compulsory examination carries a maximum penalty of 5 years imprisonment.

Earlier In April, Ridgway was permanently banned from having any involvement in financial services.

ASIC news weeks 51-52

After publishing the first integrated financial reporting and audit surveillance report in October, ASIC now urges directors, preparers of financial reports and auditors to evaluate the impact of uncertain market and economic conditions when reporting for full and half-years ending December 31, 2023.

“Directors should ensure that company financial reports provide investors with useful and meaningful information on the impact of changing and uncertain economic and market conditions and other developments on their company’s financial position and future performance,” said ASIC Commissioner Kate O’Rourke.

The Commissions latest annual corporate insolvency statistics highlight “the lag of the impact of the COVID-19 pandemic on small business”.

The highest number of reports (28%) were received for insolvencies in the construction industry, followed by the accommodation and food services industry (15%). The most common causes reported were inadequate cash flow or high cash use (52%), followed closely by the ‘other’ (50%) and trading loss (49%) categories. 19% of those citing ‘other’ causes indicated that the Covid-19 pandemic was at least a contributing cause.

Instrument update

The exemption from disclosure and reporting consistency obligations in ASIC Superannuation (Disclosure and Reporting Consistency Obligations) Instrument 2023/941 has been temporary extended, and will continue until January 1, 2026.

With Instrument 2023/941, RSE licensees are exempt from complying with 29QC(1) of the Superannuation Industry (Supervision) Act 1993.

Court decisions

The Federal Court has found that Zurich Australia Limited did not breach its duty of utmost good faith when the previous owner of Zurich’s life insurance business (OnePath Life Limited) did not honour an income protection policy because the insured had failed to disclose a prior history of hospitalisation for serious mental health issues.

“ASIC took on this case to clarify the steps that an insurer must reasonably take before avoiding an insurance policy on the basis of fraudulent non-disclosure. We believe this was an important case to bring given our view that it was appropriate for procedural fairness to be provided before avoiding a customer’s insurance policy,” said ASIC Deputy Chair Sarah Court.