The Australian Securities and Investment Commission (ASIC) has just released their latest update on enforcement actions taken in the first 6 months of 2021. A copy of ASIC’s report in its entirety can be located here .
ASIC’s report serves as a good reminder that directors and other individuals may be putting themselves at risk of criminal penalties, including imprisonment, due to misconduct in the financial sector.
ASIC is an independent Australian Government body which regulates financial services, consumer credit and authorised financial markets operating in Australia.
In particular, part of ASIC’s role is to ensure Australia’s financial markets, including the Australian Securities Exchange (ASX), are fair and efficient. ASIC performs this role by actively investigating allegations or instances of market misconduct, such as insider trading, market manipulation and non-compliance with continuous disclosure obligations. Failure by companies or corporate individuals (such as directors) to meet their obligations may be investigated by ASIC, and penalties may occur as a result.
Recently, Mr Wu, a former chief financial officer of a company called Traditional Therapy Clinics Limited (TTC) pleaded guilty to market manipulation. TTC is a franchisor of traditional therapeutic health and wellness clinics, with its main business operations in China.
Part 7.10 of the Corporations Act 2001 (Cth) (Act) contains the relevant provisions regarding market misconduct and prohibited conduct in relation to financial products and services. Section 1041A of the Act provides that a person must not carry out a transaction that has or is likely to have the effect of creating an artificial price for financial products (such as shares) on a financial market (such as the ASX). Persons found guilty of market manipulation are liable for imprisonment for up to 15 years.
An ASIC investigation found that shortly after TTC was listed on ASX in 2015, Mr Wu carried out and attempted to carry out, multiple TTC share transactions using several different trading accounts on ASX. At least one of those accounts was flagged for suspicious trading. Mr Wu’s conduct had the effect of artificially inflating the price of TTC shares on the ASX.
Mr Wu was sentenced for the market manipulation offence to an intensive corrections order for 1 year and 10 months, which effectively meant that Mr Wu was sentenced to a prison sentence to be served in the community, albeit under very strict conditions. Mr Wu’s intensive corrections order also included a condition that he perform 200 hours of community service.
In addition to the market manipulation charge, Mr Wu was also charged with fraud in relation to loans he sought and obtained from the Commonwealth Bank of Australia (CBA). Mr Wu provided false and misleading documents to CBA in support of his loan applications. Mr Wu pleaded guilty and was sentenced to a community corrections order for two years and six months.
Mr Wu’s above conduct was serious, and the New South Wales District Court found, among other things, that Mr Wu’s conduct had undermined the integrity of the ASX. In that regard, it is not surprising that Mr Wu’s conduct resulted in significant penalties against him. However, other infringing conduct may not be as a clear cut.
If you are a director or another corporate individual and you’re not sure what (if any) obligations you may have, or if you are facing an investigation or enforcement action from ASIC and looking for legal advice, contact Cinzia Donald.
