The Administrative Appeals Tribunal (AAT) has affirmed ASIC's decision to ban a former financial advisor, Tony Davidof, and former Credit Suisse employee, Philip McLean from providing financial services for three years.

ASIC's decision to ban Mr Davidof and Mr McLean followed an ASIC investigation that found both had engaged in manipulation of the price of MINI warrants issued by Credit Suisse (commonly called 'MINIs') through engaging in pre-arranged trades for the sole or dominant purpose of transferring a profit or loss from previous transactions.  MINIs are a type of derivative product traded on the ASX.

In separate decisions, the AAT noted the seriousness of the breach of the market manipulation provisions by both Mr Davidof and Mr McLean. 'Market manipulation is prohibited in order to further the objects of promoting confident and informed decision making by consumers of financial products and services, and fair, orderly and transparent markets for financial products,' the AAT said.

The AAT found that Mr Davidof  contravened s1041A of the Corporations Act 2001 and that a three-year ban was appropriate in the circumstances. The AAT noted that 'Mr Davidof was aware…that the forces of supply and demand did not govern the impugned transactions. He admits that they were designed only to transfer a profit or loss arising from other transactions.'

The AAT found that Mr McLean had also contravened s1041A of the Corporations Act 2001 and that a three-year ban was appropriate.

The AAT noted that Mr McLean's 'experience and level of training and knowledge and involvement in the impugned transactions should…have alerted him to the likely breach of the market manipulation prohibitions.'

Background　

A MINI is a type of 'derivative' in that it derives its value from something else, which is commonly referred to as the 'underlying instrument' or 'reference asset'.  The underlying instrument of a MINI may be, among other things, a share, a share price index (including the S&P/ASX 200 Index), a pair of currencies or a commodity.

ASX SPI 200 Index Futures (SPI Futures) are a derivative product which tracks the value of the S&P/ASX 200 Index.

Credit Suisse ceased issuing MINIs on ASX in October 2013.　

Mr Davidof

In December 2015, ASIC banned Mr Davidof for a period of three years. This was after an investigation found that in February and June 2013 he took part in back-to-back buy and sell trades in MINIs on ASX with a former employee of Credit Suisse (now deceased) after the pair had pre-arranged the price, volume and approximate timing of the trade. On each occasion, in the preceding days, the former Credit Suisse employee had traded SPI Futures on behalf of Mr Davidof resulting in a loss (in February) and a profit (in June) for Mr Davidof.

ASIC found that the prices at which Mr Davidof and the former Credit Suisse employee arranged to trade MINIs were designed to transfer the profit/loss from all the preceding trading. This was likely to have the effect of creating an artificial price for trading in the affected MINIs on ASX (refer: 15-398MR).　

In January 2016 Mr Davidof applied to the AAT for a review of ASIC's decision to ban him from providing financial services for three years. The AAT upheld Mr Davidof's appeal on the basis that the MINIs were not a financial product (refer:17-012MR).

In February 2017 ASIC filed a notice of appeal from the decision to the AAT to the Federal Court of Australian. In June 2017 Justice Lee upheld ASIC's appeal finding that the MINIs were a financial product and referred the matter back to the AAT for further determination.

Mr McLean's appeal to AAT　

In October 2015, ASIC banned Mr McLean for a period of three years. This followed an investigation that found that in December 2012 and February 2013, Mr McLean took part in back-to-back buy and sell trades in MINIs on ASX with a third party after the pair had pre-arranged the price, volume and approximate timing of the trade. On each occasion, in the preceding days, Mr McLean had traded shares and SPI Futures on behalf of the third party resulting in a profit (in December) and a loss (in February) for the third party.

ASIC found that the prices at which Mr McLean and the third party arranged to trade MINIs were designed to transfer the profit/loss from all the preceding trading. This was likely to have the effect of creating an artificial price for trading in the affected MINIs on ASX.

In October 2015 Mr McLean applied to the AAT for review and a stay of ASIC's decision.

For consumers:

ASIC's MoneySmart website has useful information for clients to help them understand what to do if their adviser has been banned.