ASIC roundup: illegal phoenix activity and false crypto license claims

The Australian Securities & Investments Commission’s latest actions, August 11 – 18, 2023.

Former director sentenced to good behaviour bond – August 18, 2023

Giovanni Demasi, a former director of the long-haul trucking business Sapphire Freighters Pty Ltd, has been sentenced to a three-year good behavior bond and a A$10,000 ($6,433) recognisance after pleading guilty to one charge of making a false or misleading statement to ASIC.  

On July 6, 2021, Demasi lodged an application with ASIC to voluntarily deregister Sapphire. He claimed that Sapphire was not involved in any legal proceedings. In fact, there were ongoing legal proceedings against Demasi over his failings to comply with a compliance notice relating to outstanding employee entitlements.

Demasi was charged with one count of breaching section 1308(1) of the Corporations Act 2001, an offence which can result in a maximum of five years imprisonment. 

Director disqualified after illegal phoenix activity – August 15, 2023

The director Jun Toyoda has been disqualified from managing corporations for three years after his involvement in the failure of six companies.

Between November 2009 and April 2021, Toyoda was the director of these companies within the food/hospitality industry which all entered liquidation between October 2018 and April 2021:

  • Basic Concept Pty Ltd;
  • Asrapport Australia Pty Ltd;
  • Asrapport Restaurant Systems Pty Ltd;
  • Southern Cross 339 Pty Ltd;
  • About Life Foodservice Pty Ltd; and
  • Globridge Australia Pty Ltd.

Toyoda was also involved in NBI Australia Pty Ltd which entered liquidation in October 2018.

According to ASIC, Toyoda did not meet his director’s obligations after failing to:

  • properly use his position when businesses of indebted BasCon were sold to new companies, thereby gaining an advantage for purchasers and/or causing detriment to BasCon by engaging in illegal phoenix activity;
  • properly use his position to gain an advantage for himself and/or caused detriment to NBI when it was sold without NBI receiving full payment. Toyoda also failed to repay his personal debt to NBI;
  • ensure that BasCon, Asrapport, Souross, Foodservice and NBI complied with statutory lodgement obligations to the Australian Taxation Office (ATO);
  • ensure that proper steps were made to prevent BasCon and Asrapport from continuing to trade and incur debts when they appeared to be insolvent or in serious financial distress; and
  • make sure that BasCon and Asrapport kept financial records.

ASIC calls his misuse of position with two of the companies and his engagement in illegal phoenix activity to be on “the more serious end” of the scale.

At the time of ASIC’s decision, the six companies owed a combined total of A$6,189,299 (3,980,669) to unsecured creditors, including A$2,213,940 ($1,423,903) to the ATO. In addition, NBI also owed A$81,969 ($52,714) to the ATO.

Crypto lender sentenced for false licence claims – August 17, 2023

The cryptocurrency lender Helio Lending Pty Ltd has been sentenced to a non-conviction bond for falsely claiming to holding an Australian credit licence (ACL). The company made false claims in a news article on their website, claiming to hold a proper license.  

Helio pleaded guilty to the charges, and has entered into a recognisance in the sum of A$15,000 ($9,645) for a year on condition of good behavior.

Another charge in connection to alleged content on the website in February 2019 was withdrawn.

Helio was sentenced under section 19B(1)(d) of the Australian Crimes Act 1914 (Cth). Claiming to falsely hold an ACL is a breach of section 30 of the Australian National Consumer Credit Protection Act.

“Helio falsely claimed that it held an Australian Credit licence, misleading customers to believe that they had the protections afforded by such a licence.”

Sarah Court, Deputy Chair, ASIC

Victoria director disqualified for three years – August 15, 2023

Mathew Craig Lynch has been disqualified from managing corporations for three years after his involvement in three failed companies that recruited and provided building industry labor.

Between April 2015 and January 2022, Lynch was director of these companies which all entered liquidation:

  • Option One Construction Pty Ltd;
  • C.N. 608 209 445 Pty Ltd (previously Ultro Construction & Recruitment (Sydney) Pty Ltd; and
  • Ultro Construction & Recruitment Services.

ASIC found that Lynch failed to meet his director’s obligations by failing to:

  • comply with statutory obligations with the Australian Taxation Office (ATO) and to pay Business Activity Statements, payroll taxes and Superannuation Guarantee Charge for Option One Construction and Ultro Construction;
  • pay Workers Compensation premiums for Ultro Construction;
  • deliver all the books to the liquidator as soon as practicable after Ultro Constructions was wound up;
  • ensure that Option One Construction invoiced it clients correctly for the labour hire services, plus failed to maintain proper financial records; and
  • prevent insolvent trading by Option One Construction.

At the time of ASIC’s decision, the three companies owed a combined total of A$10,601,299.37 ($6,819,710) to unsecured creditors, including A$730,019.84 ($469,614) to the ATO.

Financial adviser permanently banned – August 14, 2023

The financial adviser and director Donald James Cuthbertson has been permanently banned from being involved in any way in any financial services business after various conduct by him and via Cuthbertson’s company Professional Wealth Management Services Pty Ltd (PWMS).

For Cuthbertson, ASIC found that the conducted regarded:

  • offers of redeemable preference shares in PWMS;
  • offers of unlisted shares in PWM;
  • the promotion of a trading course involving contracts-for-difference; and
  • unlicensed dealing in derivatives.

ASIC found Cuthbertson not to be a fit and proper person to provide financial services because he:

  • misappropriated investor funds;
  • made false or misleading representations in connection with the redeemable preference shares he offered in PWMS and unlisted shares in PWM, and regarding the level of risk involved in trading contracts-for-difference; and
  • handled derivatives without appropriate authorisation.

The Australian financial services (AFS) licence has also been cancelled for PWMS, with a condition that the external dispute resolution and arrangements for compensating clients remain for 12 months. It was cancelled because PWMS failed to:

  • perform all necessary means to ensure that its financial services were provided efficiently, honestly and fairly;
  • ensure it had proper arrangements to deal with conflicts of interest; and
  • comply with the licence condition that required PWMS to maintain total assets exceeding total liabilities as shown in the recent balance sheet lodged with ASIC.

Ex-director convicted for removing company property – August 11, 2023

The former director David Michael Scofield has been convicted for fraudulent removing of company property.

Scofield, also known as ‘Demo Dave’, was the director of Rhino (WA) Pty Ltd, a demolition and asbestos removal company up until it was wound up in February 2020.

In an investigation, ASIC found that Scofield deposited a cheque of A$32,423.60 ($21,062) from Rhino to Action Asbestos & Demolition Pty Ltd, where Scofield also was a director, in order to conceal funds from the liquidators of Rhino.

Scofield was convicted and fined A$8,000 ($5,196) for the conduct, and is also currently disqualified from managing corporations until August 7, 2028.

At the time of the offending, the maximum summary penalty for a breaching section 590(1) was 12 months’ imprisonment, a fine of A$13,320 ($8,646), or both.

ASIC updates week 33

In other ASIC news this week, on August 16, the Commission called on general insurers to improve their claims handling practices and resourcing – after a review of more than more than 218,000 home insurance claims found weaknesses across the five key areas:

  • consumer communications about decisions, delays and complications;
  • project management and oversight of third parties;
  • recognition and management of expressions of dissatisfaction and complaints;
  • identifying and treatment of vulnerable consumers; and
  • resourcing of claims and dispute resolution functions.

ASIC will write to the six largest general insurers, which represent 63% of the home insurance market, to detail individual areas for improvement. The Commission has also commenced multiple investigations related to insurance claims handling practices, and will take regulatory action where necessary.

“An insurance claim doesn’t have to be handled perfectly, but it must be handled well. Our claims handling review found good practices and poor practices across all six insurers,” said Deputy Chair Karen Chester. “We acknowledge that not all factors that impact claims handling are under an insurer’s direct control. But all five areas we’ve identified for improvement are within the insurers’ control.”

New executive appointments

On August 18, ASIC announced several executive changes within its senior leadership team:

  • Calissa Aldridge, the current Senior Executive Leader for Markets Supervision, has been appointed Executive Director, Markets Group.
  • Rhys Bollen, the current Senior Executive Leader for Credit, Banking, and General Insurance has been appointed Senior Executive Leader for Markets Supervision.
  • Ben Cohn-Urbach will step into the role of acting Senior Executive Leader, Markets Infrastructure.
  • Nathan Bourne, the current Senior Executive Leader, Markets Infrastructure, has been appointed Senior Executive Leader, Credit, Banking and General Insurance.
  • Chris Rowe, the current Senior Executive Leader, Investigations, has been appointed Senior Executive Leader Investigation and Enforcement Action.
  • Brett Crawford, the current Senior Manager, Investigations and Enforcement, has been appointed Chief Investigator and Senior Executive Leader, Small Business Enforcement.
  • Tom O’Shea, from the Fair Work Ombudsman, has been appointed as Senior Executive Leader, Enforcement Inquiries and Compliance.

“I am pleased to announce each of these new appointments which are testament to the strong talent at ASIC, while at the same time reflective of the need for renewal. The economy and broader environment in which ASIC operates is constantly shifting and we are evolving to meet those challenges,” said ASIC Chief Executive Officer Warren Day. “These appointments bring us closer to finalising the implementation of ASIC’s new organisational structure.”

Full Federal Court dismissed appeal

The Full Federal Court has dismissed ASIC’s appeal against an earlier Federal Court decision to dismiss the Commission’s case against the Commonwealth Bank of Australia (CBA) and Colonial First State Investments Limited (Colonial) for allegedly breaching conflicted remuneration laws.

ASIC alleged that CBA and its wholly owned subsidiary, Colonial, breached conflicted remuneration laws when they reached an agreement where Colonial paid CBA to distribute its Essential Super product to retail clients through CBA’s branch and digital channels – to over 390,000 individuals.

ASIC alleged that the arrangements breached the ban on conflicted remuneration under sections 963E and 963K of the Corporations Act 2001.

The court did, however, clarify conflicted remuneration provisions.

“ASIC pursued this matter because conflicted remuneration has the potential to cause consumers to be given financial product advice that may not suit their needs’” said ASIC Deputy Chair Sarah Court. “While the Full Court dismissed the appeal it accepted a number of ASIC’s submissions and, importantly, clarified the meaning and reach of the conflicted remuneration provisions for future matters.”

ASIC acknowledges ASX’s release of new reports

On August 17, ASIC acknowledged Australian Securities Exchange’s (ASX) release of the Special Report and the Audit Report in response to recommendations and findings identified in the CHESS Replacement Program External Review Report.

The External Review was published in November 2022 and resulted in a pause of the CHESS replacement program while ASX revisited the solution design, which contained 45 recommendations to implement to aligned with its objectives.

In the Special Report, ASX details a response plan, including remediation actions and timelines.

ASIC is still waiting for a special report on the licensee’s Portfolio, Program and Project Management Frameworks and an EY audit report, which will assist in its assessment of whether any further regulatory action is required.

Extending instrument

The Commission also proposed to extend the ASIC Corporations (Design and Distribution Obligations Interim Measures) 2021/784 instrument for a further five years. Feedback can be submitted up until August 25.