The Federal Court has found that AGM Markets Pty Ltd (AGM), OT Markets Pty Ltd (OT) and Ozifin Tech Pty Ltd (Ozifin) (the companies) engaged in systemic unconscionable conduct while providing over-the-counter (OTC) derivative products to retail investors in Australia.
The Court found that Australian investors lost over $30 million as a result of the conduct.
The companies used account managers, often located offshore, to engage with retail investors in Australia. The Court found that the account managers:
- provided personal advice to clients when the companies were not licensed to do so;
- provided advice that was not in the best interests of the companies’ clients; and
- made representations that were false, misleading or deceptive, including representations with respect to the risks of investing in derivative products, the risks to which funds deposited by clients into their trading accounts would be exposed to and the profits that clients were likely to generate from their trading.
After assessing the actions of the account managers, the Court also found that the companies engaged in misleading and deceptive conduct, provided unlicensed personal advice, and advice which was not in the best interests of their clients.
Justice Beach found that AGM contravened its Australian financial services licensee obligations under s912A(1) of the Corporations Act to provide financial services “efficiently, honestly and fairly.”
ASIC commenced its investigation into the companies following a large number of complaints from retail investors who described being subjected to high pressure sales tactics and misleading statements about the potential profitably of entering particular trades.
A further hearing on penalty and relief will be held on a date to be determined.
In February 2018, ASIC obtained interim injunctions and warned investors against AGM Markets, OT Markets and Ozifin (Trade Financial). (18-036MR)
On 9 November 2018, ASIC cancelled AGM Markets’ AFS licence after an ASIC investigation found AGM’s financial services business involved core elements of unconscionability and unmanaged conflicts of interest and followed a business model that disregarded key conduct requirements. (18-340MR)
ASIC also disqualified a former director of AGM Markets for 8 years. (18-347MR)
The size of the Australian market for OTC retail derivatives has grown considerably over recent years through the increase in the number of clients and transactions, as well as gross annual turnover. With that growth, there has been a dramatic increase in complaints to ASIC in relation to conduct relating to OTC retail derivatives.
As part of ASIC’s multi-pronged strategy to address potential harm to retail investors, ASIC has and will continue to take enforcement action against AFS licensees and others that offer OTC retail derivatives and related individuals for breaches of law.
ASIC has several ongoing investigations relating to AFS licensees and others that offer OTC retail derivatives, and will continue to take strong enforcement action against AFS licensees and their related parties in relation to the offering of OTC retail derivatives when misconduct is detected.
On 20 March 2020, the Court made declarations of contravention reflecting its earlier findings and further timetabling orders. Download a copy of the Orders. The next case management conference is on 7 August 2020, with a further hearing on penalty and other relief to be held on a date to be set.
Editor's note 2:
The case management hearing scheduled on 7 August 2020 was vacated. The hearing on penalty and other relief is scheduled for 12 October 2020.
Editor's note 3:
The hearing on penalty and other relief was heard by His Honour Justice Beach on 12 October 2020. His Honour reserved judgement.