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ASIC bans Queensland financial adviser

by Martha.Ware 29. June 2011 10:55

ASIC has permanently banned Mr Justin Robert Fraser, of Wellington Point, Queensland, after an investigation found he had misappropriated money owed to his employer.

Mr Fraser was an authorised representative of Bridges Financial Services Pty Ltd (Bridges) between 18 August 2005 and 30 May 2008.

Between 12 April 2006 and 2 May 2008, ASIC found Mr Fraser misappropriated fees that were due to Bridges and created false invoices to hide his dishonesty. Bridges’ alerted ASIC to Mr Fraser’s conduct, although none of their clients were adversely affected.

ASIC banned Mr Fraser to protect the public, deter similar conduct and maintain consumer confidence in the financial services sector.

Mr Fraser has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

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ASIC | Offences - finance

ASIC 2009-10 Audit firm inspection report

by Martha.Ware 29. June 2011 10:51

ASIC today released its report summarising the results of 21 audit firm inspections completed between 1 July 2009 and 31 December 2010.

ASIC Chairman Greg Medcraft said: ‘Australia’s audit regime is similar to the regimes in other major developed countries. However, ASIC’s inspections identified some important areas where firms need to focus their attention and make improvements.’

ASIC found for large firms 17 per cent of engagement files reviewed did not contain sufficient appropriate audit evidence and for other firms the figure was 31 per cent.

‘Generally where we concluded that audit engagement files did not contain sufficient appropriate audit evidence, this was based on shortcomings identified for specific key areas of the audit, rather than all areas of the audit,’ Mr Medcraft said. These areas included fair value measurement and impairment calculations.

The Chairman said ‘auditors have a key role in providing independent assurance on financial reports’.

‘As a gatekeeper, investors rely on auditors to make an important contribution to financial reporting quality and informed markets. The community’s expectation of high standards for auditors must be met,’ Mr Medcraft said.

‘Where sufficient appropriate audit evidence was not obtained in key audit areas, the financial reports audited may not be materially misstated. However, the auditor does not have a sufficient basis upon which to reach a conclusion in those audit areas and to support their overall audit opinion on the financial report.

Risk-based methods are used by ASIC to select firms, engagement files and audit areas for review.

Overall, ASIC identified three broad areas where improvements need to be made:

  • the sufficiency and appropriateness of audit evidence on engagement files;
  • the level of professional scepticism exercised by auditors in key areas of judgement; and
  • evidence on audit engagement files about the nature, timing and extent of engagement quality control reviews.

‘To improve audit quality and to ensure auditors’ judgments are robust and well supported, leaders of firms should continue to send strong and consistent messages to partners and staff about the importance of these three areas,’ Mr Medcraft said.

‘Firms we have previously inspected continued to maintain or improve their quality control systems to facilitate compliance with the requirements of the Corporations Act 2001, Australian auditing standards, and Australian professional and ethical standards.’

ASIC has reported its detailed findings separately to each of the firms.

ASIC will continue to inspect firms that audit significant public-interest entities, monitor regulatory developments in auditing and collaborate with foreign regulators to minimise the regulatory burden on Australian firms.

ASIC has recently commenced inspecting audit engagement files under the new clarity standards focusing on those standards that had substantial changes. To ensure that the profession is well informed on a timely basis, ASIC intends to issue a media release on the initial overall findings from these reviews by mid-2012.

A copy of the report is available on ASIC's website.

Background


The objective of ASIC’s audit inspection program is to promote high-quality external audits of financial reports of listed and other public-interest entities in Australia so that users can have greater confidence in financial reports.

ASIC publishes its public audit inspection reports periodically to better inform all firms, the investing public, companies, audit committees and other interested stakeholders in the financial reporting chain of findings and areas of focus.

Since the start of the audit inspection program ASIC has inspected all large national and network firms at least once, with a large number of these firms being inspected a number of times. ASIC has also made good progress in inspecting smaller firms.

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ASIC

Financial adviser banned following $1.3m fraud

by Martha.Ware 29. June 2011 10:48

ASIC has permanently banned a financial adviser following a surveillance by the corporate regulator which found he had misappropriated more than $1 million from his clients over a three month period.

ASIC’s surveillance focused on the conduct of Shaun Daniel Fitzgerald, of the Sunshine Coast, Queensland, while he was an authorised representative of Financial Planning Services Australia between 9 December 2008 and 29 June 2010.

The surveillance found Mr Fitzgerald acted dishonestly and in breach of financial services laws, misappropriating $1.3 million from his clients.

The money was deposited into accounts of companies whose only director was Mr Fitzgerald and was not returned when requested by the clients.

Mr Fitzgerald’s conduct was bought to ASIC’s attention by Financial Planning Services Australia, which has cooperated fully with ASIC’s surveillance and advised ASIC of the compensation it has paid to clients.

ASIC banned Mr Fitzgerald to protect the public, deter similar conduct and maintain consumer confidence in the financial services sector.

Queensland Police has also laid several fraud related charges against Mr Fitzgerald stemming from his conduct.

Mr Fitzgerald has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decision.

Background

Mr Fitzgerald is a director of 360 Asset Management Pty Ltd and Zero Cost Base Pty Ltd. Mr Fitzgerald and 360 Asset Management were authorised representatives of Financial Planning Services Australia. Mr Fitzgerald provided financial advice to clients under the business name 360 Asset Management which was based in Birtinya, Queensland.

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ASIC

Decision in Centro civil penalty case

by Martha.Ware 27. June 2011 15:25

ASIC Chairman Mr Greg Medcraft today welcomed the Federal Court’s decision in its case against eight directors and former executives of Centro Properties Group, citing it as a landmark decision in Australian corporate governance.

Mr Medcraft said Justice Middleton’s judgment on the legal duties of directors and management sent a clear message to boardrooms across the country about corporate accountability.

‘The central question in the proceeding was whether the directors were required to apply their own minds to, and carry out a careful review of, the proposed financial statements and the proposed directors report, to determine that the information they contained was consistent with the director's knowledge of the company's affairs, and that they did not omit material matters known to them or material matters that should have been known to them,’ Mr Medcraft said.

Mr Medcraft endorsed the statement by Middleton J that: 'A director is an essential component of corporate governance. Each director is placed at the apex of the structure of direction and management of the company. The higher the office that is held by a person, the greater the responsibility that falls upon him or her. The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors.'

The Chairman said the case also highlighted the danger of boards uncritically relying on management, or the auditors.

‘Each member of the board must bring and apply their own skills and knowledge when declaring financial statements are true and fair,’ he said. ‘This is not a responsibility company boards can delegate or merely rubber stamp. It’s not good enough for directors to just be present.’

Mr Medcraft said there was a minimum standard of boardroom participation that directors must meet. This means the key elements of a company’s financial position are something directors should understand and be able to communicate accurately to the market.

‘The Court found that Centro’s directors fell short of the minimum standard of boardroom participation. It is not unrealistic to expect that these standards should be met,’ Mr Medcraft said.

Mr Medcraft said ASIC would continue its consistent approach to enforcing the law.

A penalty hearing is to be scheduled.

Background

ASIC alleged that the seven directors of Centro Properties Group and Centro Retail Group failed to discharge their duties with due care and diligence in approving the financial reports for Centro Properties Ltd, Centro Property Trust, and Centro Retail Trust for the year ended 30 June 2007.

ASIC also contended that the directors, and the former chief financial officer, knew that the entities had very significant short-term interest bearing liabilities, and should have known that these liabilities were incorrectly classified in the 2007 financial reports.

The defendants to ASIC’s civil penalty action were:

  • Mr Brian Healey, former Chairman and non-executive director
  • Mr Andrew Thomas Scott, former Chief Executive Officer (CEO) and Managing Director
  • Mr Samuel Kavourakis, a former non-executive director
  • Mr James William Hall, a non-executive director
  • Mr Paul Ashley Cooper, a non-executive director
  • Mr Peter Graham Goldie, a former non-executive director
  • Mr Louis Peter Wilkinson, a former non-executive director; and
  • Mr Romano George Nenna, former CFO.


ASIC sought orders to disqualify the directors and officers from managing corporations and asked the Court to impose pecuniary penalties on them.

At the commencement of the trial Mr Nenna filed an Amended Defence admitting most of ASIC’s allegations against him.

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ASIC

Former director sentenced for insider trading

by Martha.Ware 27. June 2011 09:11

Former director of WHL Energy Ltd (WHL), Dr Jeffery James Bateson, has been sentenced to a term of two years imprisonment to be served by way of an Intensive Correction Order after pleading guilty to one charge of insider trading brought by ASIC. Dr Bateson was also fined $70,000.

Dr Bateson appeared in the Supreme Court of New South Wales on 24 June 2011. On sentencing, Justice Buddin noted that Dr Bateson had entered a plea of guilty at the earliest opportunity.

As a result of his conviction for this offence, Dr Bateson is automatically disqualified from managing a corporation for a period of five years.

ASIC had alleged that between 11 and 16 May 2008, Dr Bateson acquired 550,000 shares in WHL in the name of a self-managed superannuation fund of which he and his wife were the sole beneficiaries. Dr Bateson acquired the shares when he was in possession of price-sensitive information relating to a joint venture agreement proposal that WHL had not, at the relevant time, publicly announced.

Dr Bateson was a director of WHL (then known as Wind Hydrogen Ltd) at the time.

‘Investor confidence in our markets is at the heart of ASIC’s market regulation agenda. ASIC has recently increased its focus on insider trading and market manipulation, successfully prosecuting eleven individuals since 1 January 2009
with another 12 individuals currently before the Courts. ASIC is currently investigating a further 62 cases of alleged markets offences’, ASIC Commissioner, Shane Tregillis, said.

The matter was referred to ASIC by the Australian Securities Exchange and was prosecuted by the Commonwealth Director of Public Prosecutions (CDPP).

Background

1. Since 1 January 2009, ASIC and the CDPP have successfully prosecuted the following matters in relation to insider trading or market manipulation:

NameOffenceDate
Andrew Dalzell Insider Trading 23 May 2011
Oswyn de Silva Insider Trading 31 March 2011
Tamara Newing Market Manipulation 18 January 2011
John Hartman Insider Trading 2 December 2010
Noel Stephenson Insider Trading 20 July 2010
Newton Chan Market Manipulation 13 July 2010
John O'Reilly Insider Trading 16 April 2010
Geoffrey Newing Market Manipulation 18 March 2010
Mukesh Panchal Insider Trading 27 April 2009
Rocco Musumeci Market Manipulation 16 February 2009
Richard Wade Market Manipulation 16 February 2009


In all but one of these matters, the offenders were sentenced to terms of imprisonment. Five of these offenders served, or are currently serving, jail terms of between four months and three years.

2. Intensive Correction Orders were introduced recently in New South Wales and have replaced periodic detention as a sentencing option. An Intensive Correction Order can only be made when the offence is a serious one and a sentence of imprisonment up to two years is appropriate.

3. Further information about ASIC’s three outcomes for markets, including our deterrence of market misconduct, is outlined in
a speech given by ASIC Commissioner, Shane Tregillis, to the Stockbrokers Association of Australia Conference on 26 May 2011.

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ASIC

Kilara Financial Solutions enforceable undertaking

by Martha.Ware 27. June 2011 09:08

ASIC has accepted an enforceable undertaking from Kilara Financial Solutions Pty Ltd (Kilara) to modify aspects of its compliance culture and to remedy past compliance concerns in the provision of financial advice to retail clients.

Kilara operates a financial services business in Corowa, New South Wales, and has held its Australian financial services (AFS) licence since May 2006. The AFS licence authorises the company to provide financial products to wholesale and retail clients.

In addition to providing financial advice, Kilara acted as investment manager for two managed investment schemes namely, My Income Pool and My Growth Pool.

During the period October 2006 to June 2008, Kilara recommended retail clients switch their superannuation holding into another fund, My Retirement Plan, that invested in either My Income Pool or My Growth Pool. ASIC held concerns that Kilara:

  • did not consider the clients’ existing superannuation fund when providing advice to switch superannuation funds
  • did not consider, or in the alternative, failed to document the consideration of the relevant personal circumstances, risk tolerance, goals and objectives of some of the clients
  • systematically provided defective Statement of Advice documents to clients; and
  • failed to provide a Statement of Advice document when advice was provided on a time critical basis in two instances.

Trio Capital Limited (formerly Astarra Capital Limited) was the responsible entity for My Retirement Plan.

The EU offered by Kilara sets out how it intends to rectify these issues and how it will focus on its compliance program to address any shortfalls. The compliance program will be reviewed together with the ongoing operations of Kilara by an independent expert who will regularly report to ASIC during the next 13 months.

In addition, Kilara will write to the relevant clients to whom My Income Pool and/or My Growth Pool products were issued and invite any client who believes they have been adversely impacted by the advice to request Kilara to conduct a review to ensure compliance and appropriate disclosure is made as required by the law. Any complaints will be resolved by Kilara’s internal complaints resolution approach or failing this, a referral can be made to the Financial Ombudsman Service.

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ASIC

WA director pleads guilty to misuse of position charges

by Martha.Ware 22. June 2011 12:35

Mr Mark Travis Goldenberg, of West Leederville, Western Australia, has pleaded guilty in the Perth Magistrates Court to 39 counts of breaching his duties as a director of Mortimer Close Pty Ltd following an investigation by ASIC.

ASIC alleged that Mr Goldenberg breached his obligations to the company by transferring approximately $1.5 million of investors’ money out of Mortimer Close for his personal benefit.

Investments in Mortimer Close were intended to be used for a land development in Wellard, south of Perth, however, the development never took place.

This matter was committed to the Perth District Court for a pre-sentence hearing on 5 August 2011.

The Commonwealth Director of Public Prosecutions is prosecuting the matter.

Background


On 26 September 2008, ASIC suspended the Australian financial services (AFS) licence of Concentric Wealth Management (CWM) following the appointment of a receiver and manager. Mr Goldenberg was CWM’s sole director.

On 12 March 2009, the Federal Court ordered the appointment of a liquidator to Mortimer Close. Mr Goldenberg was Mortimer Close’s sole director.

On 19 May 2009, ASIC permanently banned Mr Goldenberg from providing financial services and cancelled the AFS licence of CWM. Mr Goldenberg was formerly employed as an authorised representative of CWM.

On 23 March 2010, ASIC disqualified Mr Goldenberg from managing corporations for five years.

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ASIC

Convicted company director permanently banned from credit and financial services

by Martha.Ware 22. June 2011 09:19

ASIC has permanently banned Mr Moshe Yair Mordechai, formerly of Glenwood, New South Wales, from engaging in credit activities and financial services as a result of a history of serious fraud offences.

ASIC has also cancelled the Australian credit licence (credit licence) issued to Australian Lending & Finance Corporation Pty Ltd (ALFC), of which Mr Mordechai, 55, was formerly a director, on the grounds that its credit licence application was false or misleading.

Under the National Consumer Credit Protection Act 2009, the licence application process requires corporations to nominate a responsible person for the purpose of determining whether the corporation is competent to engage in credit activities. The responsible person nominated in ALFC’s licence application was ‘John Frederick Kennedy’, which was in fact an alias used by Mr Mordechai.

ALFC’s credit licence application stated that ‘Mr Kennedy’ had not within the last 10 years:

  • been convicted of a criminal offence;
  • been insolvent; or
  • been known by any other name.

ASIC determined that the above statements were false.

In particular, Mr Mordechai had been convicted in 2007 and 2008 of numerous fraud offences, including possessing and using false credit and debit cards and false identification documents. He had also been declared bankrupt in 2006 under the alias ‘Jamal Almostafa’.

Mr Mordechai and ALFC have the right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decisions.

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ASIC

ASIC seeks comment on case-specific variations to proposed relief from indirect self-acquisition provisions

by Martha.Ware 22. June 2011 09:17

ASIC has issued a consultation paper, CP 162 Indirect self-acquisition by investment funds: Further consultation—Employee share schemes (CP 162) seeking additional public comment on a proposal to vary relief that permits certain indirect self-acquisitions. The variation is aimed at facilitating the operation of specific types of employee share schemes.

Under s 259C of the Corporations Act 2001, the issue or transfer of shares or units of shares of a company to an entity it controls (indirect self-acquisition) is void unless certain exceptions apply.

ASIC’s Consultation Paper 1 Indirect self acquisition by investment funds (CP 1) and Consultation Paper 137 Indirect self-acquisition by investment funds: Further consultation (CP 137) sought feedback on the circumstances in which relief from s 259C should be given. Based on the policy proposed in CP 1, ASIC has provided case-by-case relief.


Employee shares schemes and s 259C relief


Since the release of CP 137, ASIC has become aware that some entities operating employee share schemes are having difficulty complying with one of the standard conditions of s 259C relief.

This condition says that the company and its controlled entities must not acquire the power to control voting or disposal in more than five per cent of the company’s voting shares in aggregate (the 5% limit).

ASIC understands that some institutions may not be able to comply with the 5% limit because of interests acquired by the company or its controlled entities for the purpose of employee share schemes. As a result, we are consulting on whether it is appropriate to increase the 5% limit in the case of employee share schemes, and if so, the conditions that should be imposed.

ASIC is also seeking feedback on whether there is any need to impose a condition that limits the amount of the company’s shares held by a controlled trustee or responsible entity to a certain percentage of the trust or scheme’s assets.


Other issues concerning s 259C relief


ASIC is also consulting on two other conditions we have imposed in standard s 259C relief:

  • whether the parent company’s interests or just the controlled entities’ interests should be included in the calculation of the 5% limit; and
  • how companies should report economic interests acquired through derivatives.


Feedback sought


The consultation paper seeks the views of companies, investment banks, investment funds, insurance companies and their representative organisations.

Submissions on the issues in the consultation paper close 14 July 2011.

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ASIC

ASIC News: Extension of transition period for shorter PDS regime

by Martha.Ware 21. June 2011 16:34

ASIC has announced its intention to extend the transition period for the shorter product disclosure statement (PDS) regime for superannuation and simple managed investment schemes.

On 8 June 2011, the Federal Government announced its plan to make refinements to the shorter PDS regime. These proposed refinements will allow providers of these regulated products to:

  • remain in the old regime until 22 June 2012;
  • continue to issue supplementary PDSs until 22 June 2012;
  • opt into the new regime from 22 June 2011 if they are ready to.

Class Order CO 11/576 gives effect to this proposal on an interim basis. This is to allow time for the Federal Government to implement the refinements to the shorter PDS regime it previously announced, and to avoid any interim disruption that could adversely impact retail investors and providers of superannuation and simple managed investment scheme products.

The Federal Government’s announcement also included a number of other changes to clarify or refine the operation of the shorter PDS regime. These refinements include:

  • changes to confirm that pure risk products are excluded from the regime (irrespective of whether they are provided through a superannuation fund or not);
  • changes to clarify that combined defined benefit and accumulation products are included in the regime;
  • amending the regulations to allow for situations where applications are electronically lodged.

CO 11/576 does not give effect to these proposed changes.

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ASIC



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