ASIC roundup: Illegal phoenix activity, and bank fined A$15m for misleading customers

The Australian Securities & Investments Commission’s latest actions and news, September 25 – 29, 2023.

Penalty for crypto product representations – September 27, 2023

The fintech company Bobbob Pty Ltd has paid A$53,280 ($33,666) to comply with infringement notices regarding promoting a crypto-asset linked investment product. According to ASIC, Bobbob made representations that could have mislead customers by saying that the crypto-asset linked investment product:

  • was approved or licensed by ASIC;
  • was similar to and therefore shared some attributes of a bank account;
  • was a safe and stable investment with minimal risk; and
  • would provide customers an interest rate of 7.6% per annum from the time they invested.

During the eight months the investment was offered in 2022, about 700 customers invested a total of A$1.6m ($1m). Since then, Bobbob has returned all funds, with interest, to the customers since the offering was ceased.

Besides the fine, Bobbob and its sole director Byron Goldberg will also undertake to cease to be an authorized representative of the Australian Financial Services licensee. Bobbob will also not be able to provide services to retail clients for 12 months, and Goldberg will not provide or be involved in managing a business that provides financial services to retail clients for 12 months.

“Bobbob’s representations potentially misled customers about the product’s approvals, risks, characteristics and benefits. As a result, customers may not have fully understood the product they were investing in.”

Sarah Court, Deputy Chair, ASIC

Auditor suspended for 12 months – September 27, 2023

The Companies Auditors Disciplinary Board (CADB) has suspended the registered company auditor Rocco (Roy) Luciano Spagnolo for 12 months over deficient audits, where two of his audits failed to comply with auditing standards. 

Spagnolo, a director of Corporate Audit & Advisory Services Pty Ltd, was responsible for auditing the June 30, 2019 and June 30, 2020 financial reports of Alliance Insurance Broking Services Pty Ltd, now Alliance Management Group Pty Ltd. Following an ASIC investigation and application, the CADB found that Spagnolo failed to: 

  • obtain sufficient audit evidence of client monies held in trust;
  • plan and perform the work with professional scepticism;
  • identify and evaluate circumstances and relationships that could jeopardy his independence as an auditor; and
  • fulfil reporting obligations to ASIC.

Spagnolo’s has cooperated with ASIC regarding his conduct, and has agreed to:

  • not audit listed entities or AFS-licensed entities for three years;
  • have other auditors review his first three audits following his suspension, plus his first two audits of AFS licenced entities after the three-year period; and
  • to meet certain professional development requirements. 

Spagnolo was also ordered to pay ASIC’s costs of A$20,000 ($12,715).

A$15m penalty for misleading customers – September 26, 2023

Australia and New Zealand Banking Group Limited (ANZ) has been ordered to pay a A$15m (S9.5m) penalty after it admitted misleading customers about available funds in certain credit card accounts.

The Court found ANZ was falsely indicating that customers could hold more funds than they should in their account under ‘Available Funds’ by not displaying incurring fees and interest – which breaches the ASIC Act and the National Consumer Credit Protection Act.

The failing occurred for years, and customers who obtained a cash advance based on these available funds were slapped with fees and interest.

Over 186,000 accounts have been remediated by ANZ for charged fees and interest on cash advances, yet some customers were charged thousands of dollars while the average remediation was only around A$45 ($29) per affected account.

Besides the A$15m penalty, ANZ has also established a remediation program of more than A$8.3m ($5.3m) to repay customers who were affected between November 2018 and September 2021.

ANZ has admitted the contraventions, and consented to orders being made, and the parties have made joint submissions on liability and penalty.

“Many ANZ customers relied on the account information displayed by the bank and were charged fees that were inconsistent with that information.”

Sarah Court, Deputy Chair, ASIC

Shadow director disqualified after illegal phoenix activity – September 25, 2023

Philip Whiteman has been disqualified from managing corporations for five years after being involved in the failure of five companies and engaging in illegal phoenix activity.

The companies:  

  • A&S Services Australia Pty Ltd;
  • Bolton & Swan Pty Ltd;
  • ACN 147 341 991 Pty Ltd;
  • Armstrong and Shaw Pty Ltd; and
  • Ainslie Harding & Wood Solicitors Pty Ltd;

were involved in business advisory services including pre-insolvency, legal, tax and accounting advice.

Between November 2010 and June 2017, Whiteman acted as a ‘shadow director’ to the companies, where he was controlling them and acting like a director despite not being registered as one.

According to ASIC, Whiteman used his position improperly, failed to act in good faith in the best interests of the companies, including failing to exercise care and diligence – regarding A&S, DNV and Armstrong. He also failed meet statutory lodgement requirements to the Australian Taxation Office (ATO) and keep written financial records to A&S, B&S, DNV, and Armstrong.

At the time of ASIC’s decision, the companies owed a combined total of A$17m ($10.9m), including A$15.2m ($9.8m) to the ATO.

ASIC news week 39

Strengthen remediation procedures

On September 25, ASIC called upon Australian financial services and credit licensees (licensees) to ensure that they remediate affected customers quickly and fairly – in line with ASIC’s guidance in Regulatory Guide 277 Consumer Remediation (RG 277).

The call follows a recent review of the remediation policies and procedures of some of the large financial institutions to assess their implementation of RG 277 – which identified gaps and inconsistency in some licensees’ policies and procedures.

During the last seven years, the Commission has overseen a total of more than A$7 billion ($4.5 billion) of remediation to an about 8.42 million Australian consumers over failures within the financial services industry.

“RG 277 provides licensees the guidance they need to get remediation right,” said ASIC Deputy Chair Karen Chester. “Getting remediation wrong is very costly – costly to consumers who bear the burden of a financial firm’s mistakes, but also very costly for firms who have to re-do remediations and repair reputational damage.”

Remakes on sunsetting legislative instruments on takeovers, compulsory acquisitions and relevant interests

On September 28, the Commission announced it had remade seven legislative instruments relating to takeovers, compulsory acquisitions and relevant interests – which were due to automatically repeal and cease operation (‘sunset’) on October 1, 2023 if they were not remade.

The relief is contained in the following seven legislative instruments:

  • ASIC Corporations (Changing the Responsible Entity) Instrument 2023/681;
  • ASIC Corporations (Takeover Bids) Instrument 2023/683;
  • ASIC Corporations (Compulsory Acquisitions and Buyouts) Instrument 2023/684;
  • ASIC Corporations (Bidder Giving Substantial Holding Notice) Instrument 2023/685;
  • ASIC Corporations (On-Sale Disclosure Relief for Scrip Bids and Schemes of Arrangement) Instrument 2023/686;
  • ASIC Corporations (Warrants: Relevant Interests and Associations) Instrument 2023/687; and
  • ASIC Corporations (Replacement Bidder’s and Target’s Statements) Instrument 2023/688 (together, the Instruments).