Senior finance industry solicitor Peter Townsend welcomed the full report of the PJC on its Trio inquiry. However, he does not believe that regulators or Government fully understand the potential for another fraudulent MIS offering in the future. 

“There has been no real change to rules making early detection and pre-emptive enforcement easier against flawed schemes or fraudulent management. Awareness and action after the fact are swifter than earlier times but I can’t see evidence that early enforcement is materially tighter or more effective. 

“Ripoll’s reviews of Storm and advice processes etc has built better investor protection around making class actions easier to mount AFTER the event has happened. This is laudable but truly having legislation that would stop it happening again by malicious advisers is not yet a reality. 

“It is worth remembering that Storm clients had full documentation outlining all the risks associated with growth assets/gearing but this did not protect them. Advisers were involved in recommending Storm services but there was no protection for their clients from regulators. 

“Please don’t think that ‘Fee for Service’ will automatically end the rorts offered by some commission-based schemes of the past. Unreasonably large fees for the service provided are still possible,” said Peter Townsend, Principal, Townsends Business & Corporate Lawyers.

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The settlement concerns a claim for compensation on behalf of SJP clients (Group Members) who invested in the failed Westpoint Group of companies and is one of eight obtained by ASIC. If approved by the Court, SJP clients will receive over $1.39 million in compensation.

The settlement was reached without any admission of liability by SJP.

In March 2008, ASIC commenced proceedings against SJP following concerns the firm had been negligent and had breached the conditions of its Australian financial services licence in providing advice to its clients.

On 1 December 2011, the Court made orders for ASIC to communicate with all Group Members, providing details of the compensation they will likely receive and providing them with an opportunity to object to the settlement.

The process for approval of the settlement will include:

• writing to Group Members, providing details of the compensation they will receive and giving them the opportunity to lodge with the Court any objection to the settlement
• the Court considering the submissions of ASIC (and SJP) and any Group Member as to why the settlement should or should not be approved, and
• the distribution of compensation to Group Members by ASIC if the settlement is approved (following a period to allow for any appeals).

After Group Members have had time to consider their position, ASIC will file a further application seeking final Court approval of the settlement. The Court has agreed to hear the application for final approval on 23 December 2011.

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Mr Rundle was found guilty of two criminal offences of making a false or misleading statement with intent to obtain a financial advantage for Scots Church Development Limited by a jury on 24 June 2011. The charges were brought by ASIC.

Mr Rundle’s offences involved contraventions of section 178BB of the NSW Crimes Act. The charges related to statements made to a financial institution in relation to obtaining a $71 million construction finance facility to complete a project at York Street, Sydney.

ASIC Chairman Greg Medcraft said chief financial officers, as an officer of a corporation, must take their responsibilities seriously, and discharge their legal duties to the company and to comply with the law carefully.

‘Chief financial officers must ensure that any representations made by them to financiers, on behalf of companies, are accurate,’ Mr Medcraft said.

Mr Medcraft said the case highlighted ASIC’s willingness to address corporate misconduct. ‘To date ASIC has pursued a wide range of actions and remedies concerning Westpoint against gatekeepers such as financial advisers, auditors, trustees and directors,’ Mr Medcraft said.

Mr Rundle was sentenced to eighteen months imprisonment on each count (to be served concurrently), with the sentence to be suspended upon him entering into an eighteen-month good behaviour bond.

The Commonwealth Director of Public Prosecutions prosecuted the matter.

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The Glenhurst settlement, worth $2.5 million, is one of six reached by ASIC on behalf of investors in the Westpoint Group seeking compensation for their failed investments. The settlement will provide returns to 90 investors and payments have been posted during the course of this week.

Other settlements reached by ASIC over the past 12 months were with Professional Investment Services Pty Ltd ($5.9 million); Bongiorno Financial Advisers Pty Ltd and Bongiorno Financial Advisers (Aust) Ltd ($2.6 million) and State Trustees Ltd ($13.5 million). A settlement agreement with Joseph Dukes and Barzen Pty Ltd (formerly Dukes Financial Services Pty Ltd) ($1 million) is subject to approval by the Federal Court and, if approved, will take the total compensation to $25.5 million. These settlements have provided benefits to almost 1000 investors.

In November 2008, ASIC also settled a claim on behalf of investors against Masu Financial Management Pty Ltd. The terms of this settlement remain confidential between the parties.

Since 2007, ASIC has launched 19 actions for the benefit of Westpoint investors. In all, investors are expected to see a return of about $100 million of the $388 million in losses as a result of the above settlements, returns from liquidators and returns from companies not in liquidation. Further Westpoint proceedings are going forward in relation to directors, auditors and three Australian financial services (AFS) licensees. ASIC hopes to resolve these claims during 2010–11.

ASIC Chairman, Tony D’Aloisio, said a key focus for ASIC is using s50 of the ASIC Act to seek compensation for investors who lose funds through failed investment schemes.

‘ASIC’s use of s50 in the Westpoint case is very important for the Commission. Our focus is, as it should be, on identifying the most appropriate and effective regulatory outcome on behalf of retail investors. In this particular case, we felt it was in the public interest to act on behalf of Westpoint investors who were unlikely to get satisfactory redress through other means’, Mr D’Aloisio said.

The Westpoint group of companies collapsed in 2006 owing $388 million to approximately 4000 investors.

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