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Friday 7 July 2017

17-228MR ASIC takes action over misuse of 'sophisticated investor' certificates

ASIC is concerned that some accountants may be harming retail investors by inappropriately providing 'sophisticated investor' certificates.

In general, companies raising money by offering shares to retail investors must give the investors sufficient information by providing a prospectus or other regulated disclosure document. This helps investors in making a decision whether to invest in the company and is a key protection for 'retail investors' under the Corporations Act. ASIC is aware of some instances where accountants have facilitated retail investors acquiring shares offered by a company without adequate, or any, disclosure.

Under the Corporations Act accountants are entrusted with an important role: by providing a certificate of attesting to the assets or income of a person the accountant can attest that a person is a 'sophisticated investor' and therefore does not need the protections that apply to a 'retail investor.'

ASIC is aware that, in certain recent fundraisings, some accountants have used trust or company structures that purport to allow investors who are not 'sophisticated investors' to receive offers to purchase shares without a prospectus or other disclosure document. This has recently occurred in relation to offers of shares by Kwickie International Limited.

ASIC has made a declaration, to put the issue beyond doubt, that Kwickie International Ltd shares may not be offered to retail investors through a trust structure. ASIC is continuing its investigation into the use of these structures. ASIC is also in discussions with the appropriate accounting professional bodies about this issue.

ASIC considers that it is important that the 'sophisticated investor' test is applied in a way that is consistent with the reason these provisions are in the law. Otherwise 'retail investors' will not be afforded the safeguards in making appropriate investment decisions that the law explicitly provides for.

ASIC also notes that accountants need to be careful not to recommend or otherwise provide financial advice unless licensed.

Download ASIC Instrument 17-0657 in ASIC Gazette A30/17 (PDF 487 KB)

Last updated: 30/03/2021 09:31