Ready, willing and able to enforce
By John Price, Commissioner, Australian Securities & Investment Commission
This article was submitted to the Australian Institute of Company Directors for publication in the Company Director magazine in November 2016
Commissioner John Price provides recent examples of ASIC’s enforcement actions and outlines how ASIC is using enforcement to promote good governance.
Ready, willing and able to enforce
The conduct of directors remains an ongoing area of focus for ASIC and our recent enforcement outcomes demonstrate ASIC’s commitment to taking action where misconduct is identified.
As readers would know, ASIC’s strategic priorities include promoting investor trust and confidence, and ensuring fair, orderly, transparent and efficient markets. We rely on gatekeepers, including directors, to comply with their regulatory obligations to achieve these goals.
When a gatekeeper fails in their role, it can have serious consequences for investors and our markets. This is why we take enforcement action to hold gatekeepers to account.
Over the past financial year, ASIC has:
- commenced 19 criminal and 74 civil litigations
- obtained convictions against 22 people
- disqualified 39 people from directing companies
- secured $212 million in compensation and remediation
- issued 110 infringement notices (primarily for National Credit Act breaches, and also for breaches relating to continuous disclosure and ASIC ASX24 Market Integrity Rules)
- banned 141 people from financial services
- commenced 206 investigations
- completed 175 investigations.
We recently published our enforcement report for the period 1 January 2016 to 30 June 2016. The report demonstrates the breadth of ASIC’s enforcement activities and the significant outcomes we achieved. It highlights ASIC's key areas of focus and outcomes supporting those areas including poor organisational culture in the financial services industry and illegal phoenix activity. As outlined in our enforcement report many of ASIC's outcomes concern directors.
The strong deterrent effect of enforcement outcomes is a key part of our regulatory toolkit. These outcomes can change the behaviour of potential offenders who fear the consequences of getting caught. A recent outcome achieved in the Kleenmaid case demonstrates the persistence ASIC employs to achieve results. ASIC commenced a criminal investigation in June 2009 into Bradley Young, managing director of one of the Kleenmaid group of companies. Following a trial which lasted 71 days, Mr Young was recently sentenced to nine years imprisonment after being found guilty of one count of fraud and seventeen counts of criminal insolvent trading.
We expect directors to discharge their duties diligently and in accordance with the law. As our recent enforcement outcomes show, where we detect misconduct, we will take strong action, especially where the outcome can establish important principles to change market conduct for the better.
ASIC’s action against Storm Financial directors, Emmanuel and Julie Cassimatis is an important reminder that directors should not cause the companies they control to breach the law. Storm provided ‘one-size-fits-all’ investment advice without considering investors’ individual circumstances. The Cassimatises had failed their directors’ duties by failing to ensure that Storm did not breach the law by providing inappropriate investment advice. The Cassimatises were the sole shareholders of the company which was solvent at the time. But the Court rejected their argument that this meant they could pursue a risky course of action likely to contravene the Corporations Act.
ASIC's action against the chairman of Sino Australia Oil & Gas, Tianpeng Shao, for breaching his directors’ duties illustrates that a director's role comes with significant responsibility. Mr Shao was found to have failed to act with proper care and diligence by signing off on the company’s prospectus despite not being able to speak or read English and without obtaining a full translation.
Other notable recent enforcement outcomes involving directors include:
- five years imprisonment for the CEO of collapsed debenture issuer, Wickham Securities, Garth Robertson, for dishonestly obtaining property and money, giving or permitting false information and falsifying company books.
- a one-year imprisonment and five-year disqualification from managing companies for the director of Carrington Carpet Services, Garry Matthews for withdrawing company money for personal use.
- a $25,000 fine and three-year disqualification from managing companies for directors of Padbury Mining, Gary Stokes and Terence Quinn for authorising a misleading and deceptive announcement about funding for the company’s project.
We also act to protect investors by disqualifying directors from managing companies where directors have a history of involvement in failed companies and their conduct directly contributed to the failure.
Our role in promoting good governance extends much further than enforcement. We have a broad regulatory toolkit to respond to wrongdoing, including educating investors, providing guidance to gatekeepers, undertaking surveillance, and giving policy advice to government. We rely on each of these tools to promote and uphold Australia’s strong culture of compliance and good corporate governance. But where we see bad conduct, we stand ready, willing and able to enforce the law.