As part of the EU, Mr Nakhl has also agreed to not manage a company for 15 years.

As part of an ongoing investigation into Mr Nakhl’s conduct over three years at SydFA Pty Limited, which is now in liquidation, ASIC is concerned Mr Nakhl:

• gave unauthorised financial product advice
• gave financial product advice without a reasonable basis
• made false and misleading statements and engaged in misleading and deceptive conduct, including making statements about the returns clients could expect and the risks of the investments he promoted
• failed to carry out his duties as a director with necessary care and diligence, and
• improperly used his position as a director to gain an advantage for himself

Specifically, Mr Nakhl advised some clients, including those in self-managed superannuation funds (SMSFs) to advance money to him so that he could invest it in a high interest rate account on their behalf and pay them a fixed return. ASIC is concerned Mr Nakhl instead spent the money, among other things, on his private sports car and motorbike hire business and himself.

‘Mr Nakhl breached the trust many investors placed in him,’ ASIC Deputy Chairman Peter Kell said.

‘This EU also emphasises ASIC’s recent focus on targeting misconduct within the SMSF sector.

‘Setting up an SMSF is one of the most significant steps an investor can take, and where an individual or company’s conduct unlawfully puts that investment at risk, ASIC will take action.’

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Wealthsure and Wealthsure FS are authorised under their Australian financial services (AFS) licence to offer financial advice. Wealthsure is authorised under its Australian credit licence to engage in credit activity.

Mr Pawski, of Sorrento, Western Australia, was the CEO of Wealthsure and Wealthsure FS and is currently the managing director of Wealthsure.

Wealthsure and Wealthsure FS

The EUs follow an ASIC investigation that started in December 2011. The investigation reviewed Wealthsure’s compliance systems and identified recurring compliance deficiencies, despite previous regulatory intervention in 2006.

ASIC is concerned that Wealthsure’s commitment to compliance is inadequate. This has resulted in a business culture that has not given sufficient priority to risk management, with consequent detrimental outcomes for consumers.

Wealthsure has demonstrated a failure to properly identify, assess and control compliance risks. In 2011, ASIC expressed concerns about licensees operating a ‘lite touch’ business model (refer 11-44MR). 

ASIC is concerned that Wealthsure’s ‘lite touch’ approach to compliance has resulted in:

• a failure to regularly or consistently review its representatives’ financial product advice
• a failure to subject its representatives, with a higher risk of compliance breaches, given their compliance history, associations or business model, to more regular random audits
• a failure to conduct robust investigations into non-compliant representative conduct or give appropriate consideration to breaches
• a failure to systematically ensure appropriate sanctions or other consequences for non-compliant representative conduct
• a failure to provide its representatives with robust documented policies and procedures, and
• a failure to employ adequate processes for identifying and addressing the competence and training needs of its representatives.

The EU requires Wealthsure and Wealthsure FS to complete a program to address its failure to foster and maintain a proper commitment to its compliance obligations. The program will be reviewed by an independent expert, who will report to ASIC regularly until 2018.

Additionally, the EU requires Wealthsure and Wealthsure FS to restructure their board. Wealthsure must replace its managing director, Mr Pawski, and both Wealthsure and Wealthsure FS must maintain a majority of independent non-executive members on their boards.

If Wealthsure or Wealthsure FS breach terms specified in the EU, they must cease providing financial services and credit activities until ASIC is satisfied that they should be allowed to continue.

Mr Darren Pawski

ASIC’s investigation found that Mr Pawski was instrumental in Wealthsure’s multiple compliance failures. Under the EU, Mr Pawski must permanently refrain from:

• exercising or attempting to exercise any influence over Wealthsure or Wealthsure FS’s shareholders or new senior executives
• providing financial services
• having any involvement or exercising any influence in key decisions of an AFS licensee
• taking part in the management of any AFS licensee
• having any involvement or exercising any influence in any key decision-making by Wealthsure, as it relates to credit activities, and
• taking part in the management of Wealthsure or Wealthsure FS, as it relates to credit activities.

ASIC notes Wealthsure, Wealthsure FS and Mr Pawski have fully cooperated and worked constructively with ASIC during its investigation. They have been proactive in their dealings with ASIC in proposing and implementing solutions to address our concerns.

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The policy documents are:

• Information Sheet 151: ASIC’s approach to enforcement (INFO 151). This discusses how ASIC approaches enforcement and why it responds to different breaches of the law in different ways.
• Information Sheet 152: Public comment (INFO 152) is about when ASIC may comment publicly on investigations and enforcement actions. It replaces the public comment policy in Regulatory Guide 47 Public comment (RG 47)
• Regulatory Guide 100 Enforceable undertakings RG 100) outlines what an enforceable undertaking (EU) is and when ASIC will consider accepting an enforceable undertaking.

ASIC Chairman Greg Medcraft said: ‘ASIC wants the public to understand how we use our enforcement powers and why we might pursue a particular type of outcome in a given case. We are improving the transparency of our enforcement approach to help people understand our enforcement role and what we want to achieve by using our enforcement powers.

‘The enforcement guide is about letting Australians better understand how and when we will take action. It is about what happens when the law is broken or when someone thinks they have broken the law and complains to us. It provides transparency about what matters we take on, what matters we don’t and why we seek particular remedies.’

ASIC decision on whether to take enforcement action is based on assessing:

• evidence
• cost vs regulatory benefit
• level of harm or loss.

‘Our revised public comment policy will help stakeholders understand how and when we can comment on investigations. Every year ASIC conducts scores of investigations, some of which will never reach the courts. So ASIC has to balance the need for public transparency with the need to protect individual reputations,’ Mr Medcraft said.

‘Enforceable undertakings can achieve a more effective regulatory result than other remedies in some cases – such as an improved compliance or a quicker outcome for investors. This guide will help spell out how and why we use them and what we expect from parties who enter into them.’

The enforceable undertaking guide outlines:

• what an enforceable undertaking is
• when ASIC will consider accepting an enforceable undertaking
• what terms are or are not acceptable to ASIC
  what happens if an enforceable undertaking is not complied with.

To further increase transparency, ASIC shortly plans to publish a report on key enforcement outcomes finalised during the period from 1 July to 31 December 2011. We envisage issuing similar reports bi-annually.

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The three financial advisers are Ms Carey Fraser of North Ward, Queensland, Mr Trevor Alan Benson of Aspley, Queensland and Mr David Robert McCulloch of Mount Louisa, Queensland.

The EUs were offered following ASIC’s concern and subsequent investigation that in advising clients to adopt the Storm model of investment, Ms Fraser, Mr Benson and Mr McCulloch only advised clients to invest in accordance with the Storm model of investment and without considering whether any other strategy would meet their needs. ASIC was also concerned that their advice involved the implementation of a gearing strategy and they failed to advise clients that the advice provided to them was not necessarily appropriate or tailored to meet their financial goals and objectives.

Ms Fraser has undertaken not to participate in the financial services industry for a period of two years and to inform ASIC if she obtains employment in the financial services industry within the period of a further two years following the expiry of the suspension period.

Mr Benson and Mr McCulloch have undertaken to complete specified professional education within six months and to submit to a regime of supervision, review and audit of their financial services provided to retail clients by an independent senior financial planner (approved by ASIC) for a period of two years.

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