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Caines and Australian Securities and Investment Commission [2012] AATA 289 (14 May 2012)
Last Updated: 8 August 2012[2012] AATA 289
| Division | GENERAL ADMINISTRATIVE DIVISION |
| File Number(s) | 2010/4515 |
| Re | RONALD CAINES |
| APPLICANT | |
| And | AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION |
| RESPONDENT |
DECISION
The Tribunal affirms the decision under review.
......................[SGD]...........................
Dean Letcher, QC, Senior Member
CATCHWORDS
CORPORATIONS – application to cancel or vary banning order – financial services provider – change in circumstances on which banning order made – discharge from bankruptcy – proper understanding of disclosure requirements – no dishonesty or intention to defraud – banning order varied upon Tribunal accepting enforceable undertaking – decision set aside
LEGISLATION
Corporations Act 2001(Cth): ss. 920A, 920B, 920D, 947CAustralian Securities and Investments Commission Act 2001 (Cth.) s. 93AA
Bankruptcy Act 1966
CASES
ASIC v Adler [2002] NSWSC 483; [2002] 42 ACSR 80Rich v ASIC [2004] HCA 42; [2004] 220 CLR 129
Re Julian Hayes v. Australian Securities and Investments Commission [2006] AATA 1506
Briginshaw v Briginshaw [1938] HCA 34; [1938] 60 CLR 336
Re Australian Securities and Investments Commission v. Ronald Caines [2011] AATA 457
SECONDARY MATERIALS
Australian Securities & Investments Commission Regulatory Guide 181 “Licensing: Managing Conflicts of Interest” (30 August 2004)
Australian Securities & Investments Commission Regulatory Guide 98 “Licensing: Administrative action against Financial Service Providers” (April 2006)
REASONS FOR DECISION
Dean Letcher, QC, Senior Member
- Ronald Caines has applied for the review of a decision of a delegate of the Australian Securities and Investments Commission (ASIC) refusing to vary or cancel a banning order prohibiting him permanently from providing any financial services. The making of the banning order itself is not in question.
BACKGROUND
- Mr Caines was an “authorised representative” of successive companies licensed as investment advisers between 2004 and 2008, namely Elm Financial Services (Elm), Wright Global Investments (WGI) and Solutions Wealth Strategies (SWS). In the period 2005 to 2006 Mr Caines provided Statements of Advice for clients advising them to invest in funds promoted by a company associated with Mr Shawn Richard. The total of amounts so invested was some $1,055,000.00.
- Mr Caines, his wife and a company, received from Mr Richard and his associated company, in that similar period, amounts totalling at least $557,667.18 and possibly as much as $762,175.72. No disclosure of the receipt of any of those amounts was made by Mr Caines to any of his clients.
- On 5 August 2008 a delegate of ASIC made a banning order under sec 920A of the Corporations Act 2001 (the Act) prohibiting Mr Caines permanently from providing any financial services. The delegate found that Mr Caines “... did not understand a fundamental duty [of disclosure] owed by financial services participants to their clients ...”, and his statement in the ASIC proceedings “... demonstrates that he does not yet understand the importance of disclosure obligations under the Act”. The delegate was therefore satisfied that “... ASIC has reason to believe that Mr Caines will not comply with a financial services law”. Banning orders are for the protection of the public but also have aspects of general and specific deterrence with the length of the period being influenced by Santow J’s propositions from ASIC v Adler [2002] NSWSC 483; [2002] 42 ACSR 80 approved by the High Court in Rich v ASIC [2004] HCA 42; [2004] 220 CLR 129 and followed inJulian Hayes v ASIC [2006] AATA 1506 and other cases.
- The delegate was also satisfied that Mr Caines’ bankruptcy was relevant to the provision of financial services, that he was a person “... who has become insolvent under administration within the meaning of s920A(1)(bb) of the Act ...” and consequently that Mr Caines was unable to manage his financial affairs. Having had regard to the serious nature of Mr Caines’ conduct and in view of the uncertain period of Mr Caines’ bankruptcy, the delegate was reasonably satisfied that the appropriate order was to prohibit Mr Caines permanently from providing any financial services. However, the delegate noted that upon Mr Caines being discharged from bankruptcy and “... at such time as he believes he has come to understand his duties and legal obligations as a participant in the financial services industry ...”, it was open to him to apply to ASIC under sec 920D to vary or cancel the banning order.
- On 1 May 2010 Mr Caines applied to ASIC to lift the banning order on his prospective discharge from bankruptcy on 3 July 2010. On 6 May 2010 the delegate of ASIC responded that while Mr Caines’ bankruptcy was a factor in her decision to impose a banning order, it would also be necessary for Mr Caines to identify a change in the other circumstances relating to his breach of the disclosure requirements. The delegate said in her letter to Mr Caines:
- The delegate invited Mr Caines to ask for the matter to be reviewed if he did not agree with the assessment.
- Mr Caines was discharged from bankruptcy on 3 July 2010. On 13 August 2010 his solicitors wrote to ASIC requesting a lifting of the banning order. On 7 September 2010 the delegate conducted a hearing in relation to Mr Caines’ application and, on 22 September 2010, decided not to vary or cancel the banning order. The delegate found that the relevant circumstances upon which ASIC based the banning order were:
- (a) Mr Caines failed to disclose loans to himself, his wife and his company which were monetary benefits that might reasonably be expected have been capable of influencing the advice given to clients, contrary to s 947C(2) of the Act. [s 920A(1)(e)]
- (b) Mr Caines had become an insolvent under administration, contrary to s 920A(1)(bb) of the Act.
- (c) ASIC had reason to believe that Mr Caines will not comply with a financial services law. [s 920A(1)(f)]
- (d) In such circumstances, a period of prohibition was imposed on Mr Caines from providing financial services. By reference to ASIC Regulatory Guide 98, an appropriate period of banning for the disclosure obligations breaches by Mr Caines was considered to be five years. However, having regard to the uncertainty of when Mr Caines’ bankruptcy would end, a permanent banning order was made and in the reasons for decision it was noted that the order could be revoked or varied in the future.
- The delegate said at [44] of the Statement of Facts, Findings and Reasons for Decision of 22 September 2010:
- On 19 October 2010 Mr Caines applied to the Tribunal for a review of this decision and the Tribunal on 16 March 2011 made orders varying the order upon the Tribunal accepting an enforceable undertaking as to education and supervision (re Re Australian Securities and Investments Commission v. Ronald Caines [2011] AATA 457). However, those findings and orders were set aside by the Federal Court of Australia and the matter remitted for re-hearing by the Tribunal [the present proceedings]. I am indebted to Deputy President Handley for his careful and thorough account of the facts and law relating to the application and its history set out in his prior decision.
STATUTORY PROVISIONS
- The power to vary or cancel a banning order is set out in sec 920D of the Act:
(1) ASIC may vary or cancel a banning order, by giving written notice to the person against whom the order was made, if ASIC is satisfied that it is appropriate to do so because of a change in any of the circumstances based on which ASIC made the order.
(2) ASIC may do so:
(a) on its own initiative; or
(b) if the person against whom the order was made lodges with ASIC an application for ASIC to do so, which is accompanied by the documents, if any, required by regulations made for the purposes of this paragraph.
Note: For fees in respect of lodging applications, see Part 9.10.
(3) If ASIC proposes not to vary or cancel a banning order in accordance with an application lodged by a person under paragraph (2)(b), ASIC must give the person an opportunity:
(a) to appear, or be represented, at a hearing before ASIC that takes place in private; and
(b) to make submissions to ASIC on the matter.
- The power to make a banning order is set out in sec 920A and the nature and effect of a banning order are explained in sec 920B and sec 920C respectively.
(1) ASIC may make a banning order against a person, by giving written notice to the person, if:
(a) ASIC suspends or cancels an Australian financial services licence held by the person; or
(b) the person has not complied with their obligations under section 912A; or
(ba) ASIC has reason to believe that the person will not comply with their obligations under section 912A; or
(bb) the person becomes an insolvent under administration; or
(c) the person is convicted of fraud; or
(e) the person has not complied with a financial services law: or
(f) ASIC has reason to believe that the person will not comply with a financial services law.
(2) However, ASIC may only make a banning order against a person after giving the person an opportunity:
(a) to appear, or be represented, at a hearing before ASIC that takes place in private; and
(b) to make submissions to ASIC on the matter.
(3) Subsection (2) does not apply in so far as ASIC’s grounds for making the banning order are or include the following:
(a) that the suspension or cancellation of the relevant licence took place under section 915B;
(b) that the person has been convicted of serious fraud.
920B What is a banning order?
(Emphasis added)
(1) A banning order is a written order that prohibits a person from providing any financial services or specified financial services in specified circumstances or capacities.
(2) The order may prohibit the person against whom it is made from providing a financial service:
(a) permanently; or
(b) for a specified period, unless ASIC has reason to believe that the person is not of good fame or character.
(3) A banning order may include a provision allowing the person against whom it was made, subject to any specified conditions:
(a) to do specified acts; or
(b) to do specified acts in specified circumstances;
that the order would otherwise prohibit them from doing.
920C Effect of banning orders
(1) A person against whom a banning order is made cannot be granted an Australian financial services licence contrary to the banning order.
(2) A person contravenes this subsection if:
(a) the person engages in conduct; and
(b) the conduct breaches a banning order that has been made against the person.
Note: A contravention of this subsection is an offence (see subsection 1311(1)).
- The main requirements for a “Statement of Advice” given by an authorised representative to a client are set out in sec 947C. This provides relevantly:
(1) This section applies if the providing entity is an authorised representative.
(2) Subject to subsection (3) and to the regulations (see subsection (4)), the Statement of Advice must include the following statements and information:
(a) a statement setting out the advice; and
(b) information about the basis on which the advice is or was given; and
(c) ...
(d) ...
(e) information about the remuneration (including commission) or other benefits that any of the following is to receive that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice:
(i) the providing entity;
(ii) an employer of the providing entity;
(iii) the authorising licensee, or any of the authorising licensees;
(iv) an employee or director of the authorising licensee, or of any of the authorising licensees;
(v) an associate of any of the above;
(vi) any other person in relation to whom the regulations require the information to be provided; and
(f) information about:
(i) any other interests, whether pecuniary or not and whether direct or indirect, of the providing entity, any employer of the providing entity, the authorising licensee or any of those authorising licensees, or of any associate of any of those persons; and
(ii) any associations or relationships between the providing entity, any employer of the providing entity, the authorising licensee or any of the authorising licensees, or any associate of any of those persons, and the issuers of any financial products; that might reasonably be expected to be or have been capable of influencing the providing entity in providing the advice; and
(g) ...
(h) ...
(i) ...
(3) Subject to subsection (4), the level of detail about a matter that is required is such as a person would reasonably require for the purpose of deciding whether to act on the advice as a retail client.
(4) ...
(5) ...
(6) The statements and information included in the Statement of Advice must be worded and presented in a clear, concise and effective manner.
- ASIC’s complaint is that Mr Caines did not comply with subsections 2(e)(iv) and (v) and 2(f)(i) and (ii) of sec 947C in that he failed to disclose to his clients the financial benefits to himself, his wife and related companies from the sale of his business and receipt of loans from the funds and associates receiving the clients’ investments. The issue in this case is whether the banning order made by the ASIC delegate on 5 August 2008 should be varied or cancelled. The Tribunal, standing in the shoes of the ASIC delegate, may, in accordance with sec 920D of the Act (set out above), vary or cancel the banning order if satisfied that “it is appropriate to do so because of a change in any of the circumstances based on which ASIC made the order”. It should be noted that the role of the Tribunal is not, in this instance, to review the decision to make the banning order itself.
- There is no dispute that there has been at least one change in the relevant circumstances based upon which the ASIC order was made, which is that Mr Caines was discharged from bankruptcy on 3 July 2010. The focus of the evidence was, therefore, on whether there were other changes in these circumstances and, in particular, on whether Mr Caines understands the disclosure requirements insec 947C(2) of the Act, and whether he will comply with such provisions in the future.
THE CIRCUMSTANCES UPON WHICH THE BANNING ORDER WAS MADE
- While the Tribunal’s role is not to review ASIC’s decision to make the banning order against Mr Caines, it is nevertheless, necessary to rehearse some of the facts that led to the making of that decision. This is to enable the Tribunal to make a finding about Mr Caines’ understanding of the disclosure obligations owed by financial services participants to their clients and whether there has been a change in the relevant circumstances since the time of ASIC’s decision.
- The Tribunal’s task is to determine whether there has been “a change in any of the circumstances based on which ASIC made the order” and if so it is thereby appropriate to vary or cancel the banning order.
- It is common ground that when the order was made Mr Caines was bankrupt and his bankruptcy has now ended. The existing bankruptcy from 24 May 2007 to 3 July 2010 was one of the grounds upon which the permanent order was made but it was the indefinite period of the order which was determined by the bankruptcy rather than the banning order itself. The other grounds for the order were: firstly, the lack of understanding of Mr Caine’s duties and legal obligations as a participant in the financial services industry; and, secondly, the belief that, given that lack of understanding, Mr Caines was likely to not comply with a financial services law.
- On 1 May 2010, before he was discharged from bankruptcy, Mr Caines requested ASIC to lift the order made on 5 August 2008 but ASIC refused. Mr Caines was discharged from bankruptcy on 3 July 2010 (almost two years from the date of effect of the order 12 August 2008). As required ASIC’s delegate then conducted a hearing on 7 September 2010 at which Mr Caines was represented and made submissions and on 22 September 2010 declined to vary or cancel the order.
- On 19 October 2010 Mr Caines lodged an application seeking review by this Tribunal of the adverse decision of 22 September 2010. This Tribunal’s jurisdiction is to make the correct or preferable decision in the shoes of the ASIC delegate as to whether the banning order should be varied or cancelled.
- The power is in sec 920D of the Act:
- It can be seen that there is a discretion to vary or cancel only if the Tribunal is satisfied that it is appropriate to do so because of a change in any of the circumstances based on which ASIC made the order. The Tribunal has the same powers as ASIC. The threshold question is whether there has been a significant change in the matters relied upon by ASIC to make the original order. If so, then there is a discretion to be exercised whether or not to vary or cancel by reason of the change. If there has not been significant change in those matters relied upon by ASIC then the Tribunal has no discretion to alter the decision.
THE APPLICANT’S CASE
- Mr Caines’ contention was that after the first AAT hearing he had studied the ASIC publications and educated himself concerning conflicts and disclosure so that no further educational program was required. He pointed to the lack of dishonesty, no evidence of loss and his long experience. He regarded the basis for the loans as friendship without any business connection.
- Mr Caines gave evidence and was tested in cross-examination directed to his understanding of obligations, his credit and his recent past activities
- Cross-examination on credibility (credit) is allowed when the evidence to be adduced by that cross-examination may have substantial probative value, that is, it may have a real and persuasive bearing on the reliability of the witness’s evidence or part of it. Questioning related to any motive to be untruthful, to unreliability of recollection, prior inconsistencies in statements – all these are allowed whereas an allegation of general dishonesty may not be permitted because it lacks probative value and is in the context unfair. In this case the nature and extent of Mr Caines’ knowledge and real acceptance of his obligations was critical.
THE RESPONDENT’S CASE
- ASIC opposed the application and asserted that no sufficiently significant change of circumstances had occurred to enliven the operation of sec 920D upon which the Tribunal’s jurisdiction is founded. ASIC recognised that the discharge from bankruptcy was a changed circumstance. The submission was that Mr Caines did not show an understanding of his ethical duties and legal obligations as a financial adviser sufficiently or significantly changed from the commencement of the banning order 12 August 2008, the delegate’s decision of 16 May 2010 or the decision under review of 22 September 2010.
- ASIC submitted that the evidence showed no sufficient “change in any of the circumstances based upon which ASIC made the order” to justify the exercise of a discretion to vary or cancel the order. Further, ASIC contended that the evidence showed that ASIC had good reason to believe that Mr Caines “will not comply with financial services law”, meaning in particular the identification of conflicts of interest and the disclosure to clients of such matters.
- The ASIC delegate’s decision of 22 September 2010 included findings that those relevant circumstances included:
(b) Mr Caines’ statement that he did not know that he ought to have disclosed the receipt of the money received from those associates showed that he did not understand a fundamental duty owed to clients.
(c) Mr Caines demonstrated that he did not understand the importance of the disclosure obligations under the Act.
(d) ASIC had reason to believe that Mr Caines would not comply with a financial services law.
(e) Mr Caines was unable to manage his own financial affairs as a result of which he became insolvent and bankrupt in 2007.
CIRCUMSTANCES RELEVANT TO THE BANNING ORDER
- Taking each of ASIC’s relevant circumstances in turn:
- As to (a) receipt of amounts not disclosed to clients the non-disclosure and receipt of the amounts are facts that cannot be changed. What can alter is the understanding of obligations, acceptance of importance of the duties and change in Mr Caines’ ability to manage his affairs so as to avoid breaches of financial laws.
- As to (b) lack of understanding of his duty to clients Mr Caines asserted that he now had a full understanding and acceptance of the obligations of disclosure and avoidance of conflict by a financial planner and that he would comply fully with the law. ASIC did not accept that this was so and cross-examined him as to credit, understanding and ability to comply in the future. Mr Caines produced a handwritten statement signed by him but clearly composed by a lawyer and more in the nature of assertions than statements of fact (see Exhibit C).
- It is not necessary to recite all the events giving rise to the banning order. Suffice to say that in 2004-2005 Mr Caines gave Statements of Advice and advised clients to make investments of over $1 million in the Astarra “Absolute Return” funds when Shawn Richard was a director of the funds management company. Mr Caines received somewhere between $557,667.18 (the admitted amount) and $762,175.72 (the amount in the 2007 Deed of Loan) from Mr Richard or his associated company between 2004 and 2006. The reason for these large payments has never been satisfactorily explained by Mr Caines.
- ASIC has not alleged fraud, dishonest conduct or loss suffered by Mr Caines’ clients.
- Mr Caines has asserted without challenge that none of the clients lost money from the transactions. However, his evidence concerning the reasons behind the receipt of the money from Mr Richard has been changeable. Initially, he told the ASIC delegate that the entire amount was a personal loan from Mr Richard and it had no business connection. Later, his story has been that he sold his advisory business and the purchase price was a substantial part of the amount. However, when questioned about the sale details, it emerged that the sale was undocumented, he did not know which entity had bought the business, and he “considered” without explicit agreement that the first three payments (totalling $304,830.68) were, or should be, considered as payment for the purchase of the business. He explained the discrepancy between a supposed purchase price of $AUD300,000.00 and the receipt of $AUD304,830.68 by “currency fluctuations between the Australian dollar and the US dollar”. As the Australian dollar was always well below parity with the US dollar at the time this is not a tenable explanation.
- As to the loan amounts, he denied that they were in fact commission on the investments, asserted that they were personal loans with no business connection and maintained that the only reason for the loans was friendship. He was prepared to accept that the only reason that Richard advanced him these hundreds of thousands of dollars was “out of the goodness of his heart” (see transcript 63.30).
- The context was that Mr Caines was on the brink of bankruptcy with no realistic prospect of making repayment. The only loan document was a “Deed of Loan” created over two years after the first payment in March 2007, a document which Mr Caines’ solicitor characterized as a ‘sham’. There was no worthwhile security for the ‘loans’ and Mr Richard was said by Mr Caines not to believe he would ever be repaid.
- Mr Caines asserted that his study of the ASIC publications had now fully informed him of his obligations. There are several points to be made about that assertion. His evidence was that he had read the ASIC material only after the first Tribunal hearing (see transcript 72.33 and 89.25), his first contact with a training organization was also after the first hearing (see transcript 47.50) and he never took up that course. Between 2008 and the first Tribunal hearing in 2011 he had not changed his view that the ‘purchase” amounts did not require disclosure (see transcript 68.25) and at [9] of his written submissions three days before this hearing that the obligation was “not clear cut” reinforced that view. The furthest Mr Caines went before this hearing was is noted at [21] of the parties’ Statement of Agreed Facts:
- In this context the suggestion in cross-examination that a change in his view was “... something that you have come up with today because you have been advised that that’s your best chance of in some way getting the order varied or cancelled ...” was well-justified. The cross-examiner suggested that his views had not really altered but he was prepared to say what he thought ASIC wanted to hear (transcript 67.23). Mr Caines’ evidence about the reasons for the advances of over $500,000.00, for not undertaking a training course, for not gaining employment and for his successive changes of view of his obligations were simply not credible. I found his evidence unconvincing, incomplete and inaccurate on important details. I do not accept Mr Caines as a witness of credibility on the issues of significant change in knowledge of relevant obligations, nor his acceptance of the importance of disclosures of conflicts in the conduct of investment advisory tasks.
- As to (c) lack of understanding of importance of the disclosure obligations: Mr Caines’ solicitor’s letter of 13 August 2010; his case at the delegate’s hearing on 22 September 2010; his evidence at the first AAT hearing on 25 February 2011; and, his written submission of 25 November 2011 in relation to this hearing, all did not accept that Mr Caines had a duty to disclose to clients that he had received $304,000.00 following the sale of his business to Mr Richard. I am left with the clear impression that until this most recent hearing Mr Caines believed that his chances of lenient treatment were improved by saying that the bulk of the money received was from a sale of his business because there was no obligation to disclose that sale. That would be why the written submissions lodged three days before the hearing at [9] say:
- The distinction is being made between loans and purchase money but the evidence that there was, in fact, a purchase is very tenuous. The Deed of Loan from 2007 speaks only of loans. Mr Caines’ evidence conceded that there was no written agreement, that he did not know exactly who or what bought the business and at 80.5-20 of the transcript of this hearing he said of payments beginning in 2004: “They were advances and loans until we established the fact that he would buy my business...They were advanced as a loan...”. He asserted that there was a “verbal agreement” but the terms were never stated.
- Mr Caines maintained until this hearing that he believed Century Investments was an independent third party and hence there was no obligation to disclose payments from Century Investments to his clients but under cross-examination he conceded that: “...look, to be honest with you, I assumed that Shawn must have had an interest in that company” (see transcript 86.40) although he tended to back away from that under further questioning.
- At the time of Mr Caines advising his clients to invest in Astarra Mr Richard was a director and secretary of Astarra to whom the clients’ funds were duly paid. Century made several of the loan payments and its relationship with Mr Richard has never been clarified except that the parties’ Statement of Agreed Facts notes at [11] that it was a British Virgin Islands company with which Mr Richard was associated.
- There was a clear breach of obligation by Mr Caines in his failure to disclose to clients, investing in excess of $1,000,000.00, that he was receiving over $300,000.00 for the sale of his advisory business from a director of the investment fund. In addition, Mr Richard was: either purchaser of the Caines business himself, or, director of WGI as purchaser; a director of, or closely related to Century Investments; and, was in the course of lending Mr Caines large amounts unsecured. It was only in cross-examination from ASIC (see transcript 66) that Mr Caines said that he had not fully understood that the sale should have been disclosed but even then he began by describing the transaction as a loan (see transcript 66.15) until cross-examined in detail.
- Indeed, Mr Caines was asked:
He replied:
“Why? Because under report 30 in relation to soft dollar benefits and in particular section 8 of that report it states – that even a loan to [a financial services licensee], even on commercial terms from a product provider , could be seen as influencing the [advisor] ...”
The response was given in terms of what the ASIC publication said but not with any real sense of the reason behind the rule.
- Mr Caines asserted (see transcript 66.45):
- However, he went on to state that if he had a future sale “I would disclose it because there is absolutely – from the point of view of disclosure and conflicts of interest, I can understand ASIC’s viewpoint in relation to how there could be seen to be conflicts and potential disclosure issues in relation to recommending funds from that particular product provider ...”. Whilst this is a statement of understanding the ASIC opinion it is not an acceptance that the problem is a real one.
- It was Mr Caines case that he had improved his understanding of his obligations by a course of self-study and that a formal course of education was not necessary. It emerged that he had read ASIC’s regulatory guides shortly after the February 2011 hearing on ASIC’s website, downloaded them and read them several times (see transcript 89.20). He became aware of an online course offered by RG146 Organization specifically on conflicts of interest and disclosure which would have taken about two days to complete followed by an examination (see transcript 46.45), but he had not undertaken that course because he had not been able to afford the $260.00 fee. He had been hoping to have the ban lifted and then borrow the money or have an employer pay for it (see transcript 47.10). He agreed that since 2008 he had known that one way to deal with a lack of understanding of disclosure obligations was to undertake a training course but he had not done so.
- Unfortunately, this seems to reflect quite accurately Mr Caines’ attitude to the banning order: that it should not really have been applied to him; that his transgression was a mistake but more of a ‘compliance issue’ than a breach; and, that he had suffered enough. I am not satisfied that Mr Caines accepts the importance of the disclosure requirements in general, nor that he has given a truthful account of the reasons why he received the large amounts of money nor that he has done more than pay lip service to the task of learning and accepting the regulatory requirements that he breached.
- As to (d) whether ASIC has reason to believe that Mr Caines will not comply with a financial services law: the first Tribunal believed that Mr Caines was confused about his obligations arising from his financial arrangements. Having heard further cross-examination and elaboration of his story, I am not convinced that he was confused rather than unconcerned about his obligations.
- I do not draw an adverse inference on this ground from the mere fact of the two bankruptcies, nor on the basis that the Bankruptcy Act 1966 may be a “financial services law”. However Mr Caines’ evidence about the reasons for the bankruptcies showed an unwillingness to take responsibility for them despite the facts showing otherwise. Similarly, his reluctance to give a clear account of his dealings with Mr Richard showed that he was prepared to advance the version which seemed to best suit his advantage at the time. That version changed dramatically as hearings progressed, for example: the loans or purchase and Mr Richard’s association with Century.
- Before this hearing he had stated that WGI (Wright Global Investments) had definitely decided not to buy his business, and that Shawn Richard had been the purchaser for $300,000.00.
- Thus, in 2008 Mr Caines said: “... WGI didn’t want to show the sale of my business in their books. When I got into difficulty I had discussions with Shawn that I needed funds. I knew the value of my business was $300,000.00 and the first $300,000.00 I received was what I considered to be the sale of my business”.
- In cross-examination (see transcript 76.10):
Answer: “That’s right.”
- There was further evidence of conversations, but this account seems to explain why the first three payments totalled $304,830.68 rather than an exact $300,000.00. The proffered explanation that the additional $4,830.68 was caused by “an exchange difference” does not make sense, and the odd amounts of all the other payments are more consistent with someone calculating amounts of commission, rather than a friend making advances purely out of the goodness of his heart (see transcript 58.05, 63.25). I do not make a finding that the payments were a form of commission but I find it concerning that Mr Caines was not troubled by the questions of origin, amount, or, reasons for the payments. He refers to himself, a veteran of thirty years in the investment business, as naive (see transcript 59.33).
- My view is that Mr Caines has a deficient understanding of his obligations under security laws such that he is likely to offend again. This may be “inadvertent” by reason of his failure to pay attention to those laws or because he does not fully accept that he needs to be educated in the situations where conflict arises, and where the client is entitled to disclosure before committing funds.
- As to (e) ability to manage his financial affairs: the final story which Mr Caines asserted at this hearing was that he “considered” that there was a sale for $300,000.00 of his business, although he did not know who was the actual purchaser and there was no documentation. The idea that a financial adviser would dispose of his valuable business to a person unknown, without a written agreement, at a time uncertain with no agreement about time of payment is difficult to accept. It was a most improbable situation but Mr Caines did not appear to regard it as unusual or inappropriate except in the eyes of ASIC. That story and the history leading up to the bankruptcies gave me serious concern about his ability to manage his financial affairs. Other aspects of this concern were that: this was his second bankruptcy; it was caused by rash property speculation (exchanging contracts on a development site without finance arranged – see ASIC Hearing 07.07.08 transcript 40); and, he had not obtained any employment since August 2008 (but complained of hardship caused by the banning order). Insofar as one can rely upon demeanour in such cases, Mr Caines’ actions did not show great concern about his livelihood - he had not undertaken any formal educational course and appeared to be convinced that the hearing was a mere formality to overcome a technical breach of ASIC’s requirements.
- One of ASIC’s background factors in its “Areas of Concern” notified to Mr Caines before the order was that he had previously been made bankrupt from 28 July 1994 to 29 July 1997 (see [4] TF.1). The fact that there were two periods of bankruptcy while Mr Caines was a financial adviser could bear on his ability to comply with financial services law, as well as his ability to manage the financial affairs of others given his difficulty in managing his own. Mr Caines’ view was that the first bankruptcy was caused by “a decision overnight” by a company to recall all of its agents’ loans. “We had a second mortgage and there was shortfall there ... nothing that I’d done irresponsibly ...” (see ASIC Hearing 07.07.08 transcript 50.6) which indicates some over-extending of investment.
- The second bankruptcy he says was the result of a creditor wanting “... to be bloody minded. I had no control over that.” (see ASIC Hearing 07.07.08 transcript 38.8) but the fact was that Mr Caines had signed a contract to purchase an incomplete home unit development without first arranging finance, he could not complete and he was sued for the deficit.
- His view of each matter was that he had no responsibility and each was the result of someone behaving unfairly. Mr Caines is an investment adviser with 30 years’ experience in commercial matters (see ASIC Hearing 07.07.08 transcript 51).
FINDINGS AND CONCLUSION
- I find that there has been a change of circumstances since the original banning order was made in that Mr Caines has been discharged from bankruptcy. Additionally, there has been some change in his knowledge of his obligations of disclosure of possible conflicts of interests as an investment adviser, but that change has not been of such degree or significance as to lead to an exercise of discretion in his favour so as to lead to a variation of the banning order.
- This matter has serious consequences for Mr Caines who has derived his livelihood from work as a financial adviser, and also for the public in whose interests the financial laws are made. My findings are made on the balance of probabilities but in the context of a Briginshaw v Briginshaw [1938] HCA 34; [1938] 60 CLR 336 degree of satisfaction given the situation. I am satisfied that there has not been a significant change of the relevant circumstances upon which ASIC relied in making the original banning order on Mr Caines such that my discretion should be exercised to vary or cancel the order.
- Accordingly, I affirm the decision under review.
| I certify that the preceding 62 (sixty two) paragraphs are a true copy of the reasons for the decision herein of Dean Letcher, QC, Senior Member. |
Associate
Dated 14 May 2012
| Date(s) of hearing | 28.11.2011; 08.12.2011 |
| Advocate for the Applicant | J Thomas |
| Counsel for the Respondent | K Stern |
| Solicitors for the Respondent | A Rees |
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URL: http://www.austlii.edu.au/au/cases/cth/AATA/2012/289.html
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