The Federal Court has ordered four current and former directors of Endeavour Securities (Australia) Ltd (in liquidation) and Linchpin Capital Group Ltd (in liquidation) to pay $390,000 in penalties.
The Federal Court had previously found Endeavour directors Ian Williams, Paul Raftery, Paul Nielsen and Peter Daly (who was found to have acted as an officer of Endeavour) breached their duties as officers of a responsible entity of a registered managed investment scheme and did not act in the best interests of members (23-089MR).
ASIC Deputy Chair Sarah Court said, ‘ASIC took this case because we believed reasonable steps were not being taken by the directors to comply with their own compliance plan and obtain member approval for loans.
‘Today’s penalties are significant and should act as a reminder to directors of responsible entities that operate managed investment schemes that they must act in the best interests of members.’
Mr Nielson, Mr Williams and Mr Rafterty did not contest ASIC’s case at trial and agreed to ASIC’s penalty submissions.
Mr Nielson and Mr Williams will each pay a $100,000 penalty and be banned from managing corporations for four years.
Mr Raftery will pay a $40,000 penalty and be banned from managing a corporation for three years.
Mr Daly, who contested ASIC’s case, will pay a $150,000 penalty and be banned from managing corporations for five years.
In reaching her penalty decision with respect to Mr Daly, Justice Cheeseman said, ‘Mr Daly has only superficially accepted responsibility for his actions.’ Her Honour noted that ‘The lack of remorse or contrition demonstrated by Mr Daly […] is relevant in that it suggests a higher penalty is warranted for the penalty to achieve the objective of specific deterrence.’
The Court previously found that between 2015 and 2018, Mr Nielsen, Mr Raftery and Mr Williams, together with Mr Daly:
- did not take all reasonable steps to ensure that Endeavour complied with its compliance plan, obtain member approval for related party loans and issue Product Disclosure Statements that complied with the law;
- failed to exercise care and diligence;
- did not act in the best interests of members of the Investport Income Opportunity Fund.
The Court found Mr Daly and Mr Raftery improperly used their positions by receiving unsecured loans from the unregistered Investport Income Opportunity Fund for their personal use. Mr Daly received loans totalling $130,000 and Mr Raftery took a $40,000 loan.
Mr Nielsen, Mr Raftery and Mr Williams agreed to each pay $175,000 towards ASIC’s costs. Mr Daly has also been ordered to pay $175,000 in addition to a further proportion of ASIC’s costs associated with the contested hearings.
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Background
At the time of the misconduct, breaches of officers’ duties (under s601FD of the Corporations Act) attracted maximum penalties of $200,000 per contravention for individuals.
In November 2019, ASIC banned Mr Williams, Mr Nielsen, Mr Daly and Mr Raftery from providing any financial services each for a period of five years (19-320MR and 20-122MR).
Endeavour was the responsible entity of a registered managed investment scheme called the Investport Income Opportunity Fund. Linchpin operated an unregistered managed investment scheme, which was also called the Investport Income Opportunity Fund. Both funds were placed into liquidation in 2019 (19-065MR).
Linchpin operated through various subsidiaries (including Endeavour) and provided a range of financial products and funds management and investment advisory services.
Editor's Note:
On 28 February 2024, Peter Daly filed a notice of appeal to the Full Federal Court in relation to the Honourable Justice Cheeseman’s decision handed down on 10 January 2024.
The Court has listed the hearing of the appeal on 15 to 16 August 2024.