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The investigative roles of ASIC

Subject: Corporation Law

Topic: The investigative roles of ASIC

The Australian Securities and investments commission (ASIC) is currently investigating two corporations based in Queensland accused of misleading their investors about the value and status of their investments. In this case, Royale Capital Pty Ltd (Royale) and Active Super Pty Ltd (Active) have been accused of misleading their investors between 2010 and 2012. So far, ASIC has found that the two companies raised more than $4.75 million illegally from more than 200 investors by misleading them during the period. In March 2013, the federal court of Australia made orders to appoint Robert Graham Killer of Grant Thornton and Michael Gerrard McCann as the joint provisional liquidators to MOGS Ltd. This was after a hearting in which ASIC had filed a court petition accusing the two companies of acting against the federal corporate law that requires corporations to disclose the status and value of their shares and equities to their prospective and current investors. The two companies, which are based in Queensland, were notified of their investigations on November 2011.

According to ASIC, the clients of Royale and Active may have been cold called and misled when the two companies encouraged their clients to set up self-managed superannuation funds (SMSFs). The two companies then went on to make the clients invest in a number of things. For instance, they were encouraged to invest in distressed [properties in the United States of America, with the information involving the statuses of these properties largely lacking. ASIC argues that the investment in the American properties was being conducted through LLC companies based in the United States.

In addition, ASIC has alleged that Active and Royale had not obtained any authority to offer their shares in the LLC companies to the funds as required by the corporations Act of Australia. Moreover, the authority also alleges that both companies offered investments to the funds as an enticement to purchase shares in SPG and WPO, but the appropriate document of disclosure was not lodged with ASIC. Moreover, there are concerns in the way these investors were misled and deceived about the actual status and nature of the funds and the American companies. So far, ASIC investigations have shown that money subscribed to the American LLC companies, SPG and WPO may have been provided to MOGS in form of a long-term loan provided to meet its daily operations. In addition, ASIC has accused the two companies of failing to inform their clients on the actual status of the investments after it was found that Cayco was the investment manager of both SPG and WPO at the time of investments. ASIC alleges that Cayco was aware that funds ought to have been received by WPO and SPG from the SMF funds when investing in real estates.

Investigations have shown that at the time of this malpractice, Admson, who is actually a partner with Clamenz Evans Ellis law firm, acted as a director both at Cayco and MOGS. ASIC has found that most of the properties were purchased in Arizona, but a large chunk of them has been sold. As the investigation continues ASIC hopes to find other important information about the case. For instance, ASIC is investigating the conduct of the defendants such as those who had the control of sale and proceedings from sales in the properties bought in Arizona before they were sold off.

ASIC IS empowered by two sections of the Australian company law. The corporations act 2001 and Australian securities and investments commission act of 2001 empowers ASIC to investigate the roles and practices of companies and thereafter apply administrative sanctions if it finds a company guilty of malpractice. Such sanctions may significantly affect both companies as well as individuals involved in any form of malpractice.

Under these acts, ASIC has the role of promoting a stable as well as a secure financial system in Australia by ensuring that the regulated corporations and individuals comply with the legislations. In addition, it seeks to protect clients, investors and consumers from suffering from the misconduct that may be perpetrated by corporations. However, before sanctions are made, ASIC is require by the law to investigate the suspected companies and come up with a comprehensive report that can be tabled in court as evidence. The two acts then require ASIC to seek criminal and civil sanctions from the courts of law against the accused company or individual. Thus, under the law, ASIC has the powers to conduct investigations, gather information and conduct hearings.

So far, it is evident that the corporation law and other regulations are sufficient enough for ASIC to successfully investigate and make corporate and individuals liable. It is worth noting that both Acts have vested a lot of powers on ASIC in order to enable it control corporate behavior. However, it is quite clear that ASIC faces a number of challenges when doing investigations, given that it has to produce solid evidence in court (Nehme 2010). It is often difficult to investigate companies because they tend to sophisticate their practices, concealing evidence and ensuring that minimum information is leaked (Nehme, Hyland & and Adams 2011). Therefore, to improve the roles of ASIC, it is important to ensure than adequate statutory safeguards are in place to ensure that ASIC, as a regulator, is publicly accountable.

Australian Securities and Investments Commission Act 2001 (Cth) ss 93AA , 93A.

Nehme, M, 2010 “Enforceable Undertakings in Australia and Beyond”, Australian Journal of Corporate Law vol. 1.

Nehme, M, Hyland M & and Adams, M, 2011, “Enhancement of Continuous Disclosure” Australian Journal of Corporate Law, vol. 121.