MIU - Issue 153 - October 2023

Landmark continuous disclosure case won against ANZ

The Federal Court has found Australia and New Zealand Banking Group Limited (ANZ) breached continuous disclosure laws when undertaking a $2.5 billion institutional share placement in 2015 by failing to disclose material placement subscriptions allocated to underwriters.

The landmark case reaffirms the importance of the continuous disclosure rules to maintain market integrity. The decision also confirms that a significant take-up of shares by underwriters in a capital raising may be considered price sensitive information requiring market disclosure.

The Court found that ANZ contravened continuous disclosure laws by failing to notify the Australian Securities Exchange (ASX) that between approximately $754 million and $791 million of the $2.5 billion of ANZ shares offered in an Institutional Placement was to be acquired by its underwriters rather than placed with investors.

We’ll now make submissions on appropriate penalties. Judgment by the Court on appropriate penalties will be determined on a date yet to be set.

• Read the media release

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Consumer awareness campaign launched – ‘Don’t get burnt by hype’

As part of our aim to raise awareness of the risk associated with social media led investment hype, we’ve launched a consumer campaign linked to Dumb Money, a new film profiling the GameStop short squeeze episode in 2021.

Created to raise awareness of the impact hype can have on investment decisions and to encourage retail investors to take the time to research online opportunities, the advertisement will play at the beginning of each cinema screening of the film nationally until the end of November.

We remind retail investors who use social media to ramp stock prices, ‘pump and dump’ shares and engage in potential market manipulation that they may be in breach of Australian financial services laws.

Market participants should remain alert to this type of activity and consider the implications for their controls and obligations.

ASIC’s market surveillance team continually monitors market movements in real time, and we’ll take action where concerning misconduct is identified.

• Read the media release

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Interactive Brokers pays $832,500 penalty for ‘negligent’ and ‘reckless’ conduct

Market participant Interactive Brokers Australia Pty Ltd (Interactive Brokers) has paid a penalty of $832,500 to comply with an infringement notice from the Markets Disciplinary Panel (MDP).

The outcome follows the MDP finding that Interactive Brokers was ‘negligent’ in its failure to identify suspicious trading conducted by one of its clients. The MDP also found that Interactive Brokers was ‘reckless’ in continuing to allow further suspicious trading to occur after we raised concerns about the trades, and that it did not maintain the necessary organisational and technical resources to comply with the law.

Market participants play an important gatekeeper role in detecting and preventing suspicious trading. They must have effective controls and adequate resources to efficiently identify and disrupt potential market misconduct, and they need to respond quickly to concerns raised by ASIC.

Compliance with the infringement notice is not an admission of guilt or liability, and Interactive Brokers is not taken to have contravened section 798H(1) of the Corporations Act 2001.

View the infringement notice on the Markets Disciplinary Panel Outcomes Register.

• For details of ASIC’s concerns and the MDP’s findings, read the media release

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Fintech company pays penalties for crypto product representations

Following our action, fintech company Bobbob Pty Ltd (Bobbob) has paid $53,280 to comply with infringement notices for representations it made about a crypto-asset linked investment product.

We were concerned that Bobbob made the following representations that had the potential to mislead consumers that the crypto-asset linked investment product:

• was approved or licensed by ASIC
• was similar to, and therefore shared some attributes of, a bank account including the risk profile
• was a safe and stable investment with minimal risk of customers incurring capital losses
• earned all customers an interest rate of 7.6% per annum from the time they invested.

During the eight-month period the Savings Product was offered, approximately 700 customers deposited funds totalling around $1.6 million.

We also accepted a court enforceable undertaking from Bobbob and its sole director Mr Byron Goldberg regarding the representations. The undertakings included that Bobbob not provide financial services to retail clients for 12 months and restrictions on Mr Goldberg personally.

Bobbob paid the infringement notices on 20 September 2023. Payment of an infringement notice is not an admission of guilt or liability.

The specific reasons for our concerns are set out in the four infringement notices published on the Infringement notices register and the court enforceable undertaking, which has been published on the Court enforceable undertakings register.

• Read the media release

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Former BBY CEO charged with aiding and abetting fraud

The former Chief Executive Officer of stockbroking firm BBY Limited (BBY), Mr Arunesh Narain Maharaj, has appeared in the Downing Centre Local Court charged with aiding, abetting, counselling or procuring fraud.

We allege that Mr Maharaj aided, abetted, counselled or procured offences by another former BBY employee, who, by deception, dishonestly obtained a financial advantage for BBY from St George Bank, a division of Westpac Banking Corporation. The financial advantage was obtaining additional funding by way of improperly drawing down on an overdraft facilitation account which BBY held with St George Bank which BBY was not entitled to.

Mr Maharaj has been charged with two counts contrary to sections 192E(1)(b) and 346 of the Crimes Act 1900 (NSW). The first count relates to obtaining additional funding at the end of June 2013. The second count relates to obtaining additional funding from November 2014 to early 2015.

The matter was adjourned for further mention on 5 December 2023.

• Read the media release

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Market integrity during fundraising and merger and takeover activity

We’ve recently observed an increase in media reporting ahead of fundraising and merger and takeover activity and remind market participants to be vigilant to the risk of leaks or mishandling of information.

We continue to monitor trading surrounding significant market announcements to identify potential market misconduct, insider trading and continuous disclosure issues.

For market participants

Sound and effective policies and procedures addressing behaviours and processes for handling inside information are vital. This includes:

• implementing effective information barriers
• limiting information to a ‘need to know’ basis
• having wall-crossing staff who are made aware of inside information
• maintaining insider lists
• having appropriate restrictions on personal account dealing
• ensuring oversight by a compliance or control function.

For listed entities

Entities involved in fundraising and control transactions should proactively manage information about the transaction. This includes:

• requiring consultants and contractors to enter confidentiality agreements
• having appropriate arrangements to handle inside information, including on a ‘need to know’ basis
• recording who has been provided with the inside information – and when
• ensuring that continuous disclosure obligations are being actively monitored and met in relation to fundraising and control transactions.

Entities should have a formal leak policy outlining steps to monitor and react to any leaks of proposed transactions.

Advisers to these entities should have policies and appropriate controls to limit access to inside information to only those who require it.

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Derivative trade repository rules update

We’ve remade the ASIC Derivative Trade Repository Rules 2013 (DTR Rules 2013) in substantially the same form as the ASIC Derivative Trade Repository Rules 2023 (DTR Rules 2023) to continue the operation of Australia’s OTC derivative trade reporting regime.

The DTR Rules 2023 implement our proposals outlined in Consultation Paper 370 Proposed remake of the ASIC Derivative Trade Repository Rules 2013 (CP 370). CP 370 proposed to remake the 2013 DTR Rules in substantially the same form, except for two minor and targeted policy updates:

• a new ASIC direction provision to resolve erroneous derivative trade data in certain circumstances
• removing the geographic location of the underlier category from the weekly statistical data requirements in relation to public reporting.

For more information, read the Explanatory Statement and visit our derivative trade repositories webpage.

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Short selling regime compliance review

We remind all clients and executing brokers that the prohibition on naked short selling also extends to intraday short selling.

A recent short selling regime compliance review identified a small number of instances of suspected breaches of the naked short selling prohibition involving intraday short selling. The controls that allowed this activity to occur have now been remediated.

Subject to some exemptions, generally at the time of entering an order, a short seller is required to have an existing securities lending arrangement to have a ‘presently exercisable and unconditional right to vest’ the product in the buyer.

We remind all clients and executing brokers of their obligations under the Corporations Act 2001, including:

• the prohibition on naked short sales, including intraday naked short selling (section 1020B)
• executing brokers’ obligation to ask a seller if it is short selling (section 1020AE)
• to report short sale transactions and short positions (sections 1020AB and 1020AC).

For more information about short selling rules and exemptions, see Regulatory Guide 196 Short selling.

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ASIC Annual Forum next month

Registrations are still open for the ASIC Annual Forum and dinner to be held on 21–22 November 2023 in Melbourne.

In our time of constant change, we have the opportunity to explore how we adapt and evolve. How do we respond ambitiously and effectively to disruption drivers such as geo-political and economic change, AI and cyber?

Join thought leaders and experts to explore strategies for navigating disruption and delivering great outcomes.

Highlights will include:

• a welcome address from The Hon Dr Jim Chalmers MP, Treasurer of Australia
• ‘State of the economy’: a panel session featuring ASIC Chair Joe Longo, RBA Governor Michele Bullock and more
• ASIC Deputy Chair Sarah Court releasing our enforcement priorities for 2024, followed by a panel including US SEC Enforcement Director Gurbir Grewal
• ‘Taking Australia’s cyber pulse’: a panel session with Rachael Falk, CEO, Cyber Security Cooperative Research Centre and Air Marshal Darren Goldie AM CSC, National Cyber Security Coordinator, Department of Home Affairs.

The program schedule is now available. Register now to secure your place.

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