ASIC enforcement of corporate crime

Corporate crime is set to become a whole lot riskier.

The Australian Securities and Investments Commission (ASIC) has recently established a dedicated Office of Enforcement, responsible for carrying out ASIC’s key enforcement activities for market, corporate and financial sector misconduct. The Office of Enforcement is comprised of analysts, investigators and lawyers, and there are plans for continued growth over the next year.

This expansion is a response to the recommendations that came out of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission).

In accordance with the Royal Commission recommendations, ASIC’s enforcement powers have been strengthened and penalties have become much tougher. For example, someone engaging in dishonest conduct in carrying on a financial services business can now face penalties of up to $525 million per contravention, and imprisonment of up to 15 years.

In its recently released Enforcement Update Report for January to June 2019 (“the Report”), ASIC provides some insight into the enforcement outcomes recorded between 1 January and 30 June 2019 across the areas of corporate governance, financial services, markets and small business.

 

Summary of enforcement outcomes

ASIC provides a summary of the total enforcement outcomes across all areas, which include investigations, prosecutions, bannings, and other actions such as court enforceable undertakings:

 

Prosecutions

10 individuals charged in criminal proceedings
70 criminal charges laid
7 custodial sentences (6 people imprisoned)
6 non-custodial sentences
191 individuals charged in summary prosecutions for strict liability offences
386 criminal charges laid in summary prosecutions for strict liability offences

Bannings

103 individuals removed or restricted from providing financial services or credit
29 individuals disqualified or removed from directing companies

Infringement Notices, Compensation and Court Enforceable Undertakings

5 infringement notices issued
$370,800 in infringement penalties paid
$19.2m in compensation and remediation for consumers and investors
1 court enforceable undertaking

Investigations

77 investigations commenced
48 investigations completed

 

The report then continues to expand on the specific role of ASIC and key outcomes in each key area, as well as providing case studies to illustrate this work in action.

All matters were prosecuted by the Commonwealth Director of Public Prosecutions (CDPP).

 

Corporate governance

ASIC regulates public companies to ensure that they treat investors and consumers fairly, and are properly accountable to their investors through accurate and timely reporting.

Between January to June 2019, ASIC recorded 14 corporate governance-related outcomes. The majority of these were administrative remedies, particularly relating to action against auditors.

There was one criminal court determination, against a liquidator. ASIC provides the details in a case study:

 

Case study: Liquidator jailed for fraud

In May 2019, the Brisbane District Court sentenced a former liquidator, Mr Leigh, to seven years imprisonment following an ASIC investigation. Mr Leigh was sentenced after pleading guilty to three counts of fraud.

In 2017, Mr Leigh dishonestly redirected to his own bank account $800,000 of funds belonging to a Brisbane-based property development company to which he had been appointed a liquidator by the Queensland Supreme Court.

As a result of his conviction, registration of Mr Leigh as a liquidator was cancelled.

 

Financial services

ASIC regulates financial services and credit providers to ensure that they act in the best interests of consumers and investors, and that directors are held accountable for company actions.

Between January to June 2019, ASIC recorded 51 financial services-related outcomes. There were three criminal court determinations: two relating to dishonest conduct/misleading statements and one relating to misappropriation/theft/fraud. Additionally, there were 12 civil actions, 28 administrative remedies, one court enforceable undertaking and 7 negotiated outcomes.

 

Case study: dishonest conduct

In April 2019, a former Perth insurance broker was sentenced to two years and nine months imprisonment for dishonest conduct.

Mr. Amaranti pleaded guilty to seven counts of dishonest conduct in the District Court of Western Australia, diverting refunds totalling almost $200,000 to personal accounts held in his name. These refunds were owed to clients of an insurance brokerage firm (where Mr Amaranti was employed as a director) for cancellations and adjustments of their insurance policies.

As a result of his conviction, he was automatically disqualified from managing companies for five years.

 

Markets

ASIC investigates market misconduct to ensure the fairness and efficiency of Australia’s financial markets. This includes addressing issues related to insider trading, market manipulation and market integrity rules.

Between January to June 2019, ASIC recorded 11 markets-related outcomes. This included three criminal court determinations: two for insider trading and one for other market misconduct. Furthermore, there was one civil action and seven administrative remedies.

 

Case study: computer hacking and insider trading

On 25 June 2019, the County Court of Victoria sentenced IT consultant Mr Oakes to three years imprisonment.

An ASIC investigation found that between 2012 – 2016, Mr Oakes hacked into the private computer network of a Melbourne-based financial publisher to obtain the network login credentials of staff. He did this with the intention of accessing inside information – buy recommendations for ASX companies in unpublished reports – in order to engage in insider trading.

Mr Oakes used this inside information on 70 occasions to buy shares in 52 different companies, before the reports with the buy recommendations were published. He made profits from selling the shares soon after publication of the reports.

Mr Oakes had also altered devices by deleting data relevant to ASIC’s investigation before providing the devices to ASIC.

 

Small business

ASIC takes actions against companies, directors and other stakeholder who fail to comply with their legal obligations under the Corporations Act 2001.

Between January to June 2019, ASIC recorded 278 small business-related outcomes. This included 197 criminal court determinations, and 81 administrative actions.

 

Case study: company director jailed for fraud

On 17 April 2019, Mr. Skelly, a former director of Queensland company C&G Group Industries Pty Ltd (C&G), was sentenced to 3.5 years imprisonment for gaining a significant financial benefit with intent to defraud by deceit.

An ASIC investigation found that between 11 December 2014 and 12 January 2015, Mr Skelly deceived a factoring agency by emailing them an invoice and other documents that created the false impression that monies were owed to C&G by debtors. Relying on those documents, the factoring agency paid C&G a total of $529,380.

 

Matters underway

In all of the above-mentioned areas, there were a number of matters within the period that had not attained a final result because:

  • the court/tribunal had determined liability but not decided the penalty or final order
  • a plea was entered but the court/tribunal had not yet made a decision on conviction or sentence, or
  • the court had not yet decided if a breach of law or an offence was committed.

 

As at 1 July 2019, ASIC had the following number of matters underway:

  • nine criminal and nine civil corporate governance-related matters
  • 17 criminal and 29 civil financial services-related matters
  • eight criminal and 18 civil markets-related matters
  • 161 small business-related criminal matters

Nyman Gibson Miralis provides expert advice and representation in corporate crime cases involving a range of government agencies including the ASIC and CDPP.

Contact us if you require assistance.