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Thursday 8 February 2018

18-033MR Melbourne financial services business and former director to pay $7.8M for breaches of best interest obligations and consumer protection laws

The Federal Court has found that three Melbourne-based companies engaged in numerous contraventions of financial services and consumer protection laws and ordered them to pay penalties totalling $7,150,000. The Court also found that a former director of the companies, Joshua Fuoco, was knowingly concerned in the breaches and ordered him to pay a penalty of $650,000.

Mr Fuoco agreed to declarations and orders being made against him following a settlement with ASIC. Mr Fuoco also agreed to an order restraining him from providing financial services for a period of 10 years and to pay $100,000 towards ASIC’s costs of its investigation and conducting the court proceeding.

The breaches of financial services laws arose from a business conducted by Wealth and Risk Management Pty Ltd (WRM), Yes FP Pty Ltd (in liquidation) (Yes FP) and Jeca Holdings Pty Ltd (trading as Yes FS) (in liquidation) (Yes FS) that offered and gave cash payments to financially vulnerable clients in connection with the provision of financial advice. The business:

  • advertised 'fast cash' to consumers with poor credit histories seeking loans;
  • required consumers to receive and implement financial advice that recommended switching their superannuation and taking out 'high end' insurance;
  • charged advice fees that were paid out of consumers’ superannuation funds and received upfront and trailing insurance commissions;
  • used the upfront insurance commission generated by the financial advice to provide a 'cash rebate' to clients.  

This process often resulted in a substantial erosion of the client's superannuation balances.

The Court found that in conducting this business model:

  • WRM, which held an Australian financial services licence (AFSL), breached its licensee obligations, including obligations requiring that it:
    • take reasonable steps to ensure that its authorised representatives act in clients’ best interests and provide advice that is appropriate; and
    • do all things necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly;
  • Yes FS carried on a financial services business without holding an AFSL, made false and misleading representations and engaged in misleading and deceptive conduct; and
  • all three companies engaged in unconscionable conduct.

In addition to ordering that the companies pay pecuniary penalties, the Federal Court ordered that they:

  • be restrained from carrying on a financial services business for 18 years; and
  • be permanently restrained from:
    • making any offers of cash payments in connection with the provision of financial advice, or
    • entering into or advertising Cash Rebate Agreements or other like arrangements.

The Court also made orders requiring the companies and Mr Fuoco to pay ASIC’s costs.

ASIC Deputy Chair Peter Kell said the breaches were the result of very poor conduct.

"This is a significant outcome in a case where a financial services business has deliberately flouted the law and targeted financially vulnerable consumers.”

ASIC's MoneySmart website has information for consumers about financial advice, including how to complain about an adviser, and what to do if their adviser is banned

A link to the Federal Court orders can be found here.

Background

WRM is licensed to advise retail clients about, and deal in, life risk insurance and superannuation products. Its authorised advisers were employed by WRM’s corporate authorised representative Yes FP, to provide personal financial advice to retail clients referred to them by Yes FS, via the website yesfs.com.au.

Yes FS and Yes FP Pty Ltd, were placed into liquidation in September 2017 and did not take part in the trial.  WRM was unrepresented and also did not take part in the trial.

On 8 May 2017, ASIC obtained an order which, until the trial, restrained WRM, Yes FS and Yes FP from using its “cash rebate” business model. Further information on the injunctive orders can be found here (refer: 17-133MR).  The injunctive orders follow ASIC's commencement of proceedings on 14 March 2017 (refer: 17-069MR).  Mr Fuoco was joined to the proceeding in August 2017 (refer: 17-272MR).

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Last updated: 05/04/2018 03:24