ASIC has commenced civil penalty proceedings in the Federal Court against iSignthis Ltd (iSignthis) (ASX: ISX) and its managing director and chief executive officer Nickolas John Karantzis.
The proceedings allege breaches by iSignthis of its continuous disclosure obligations and allege false and misleading representations under the Corporations Act. In addition, the proceedings also relate to Mr Karantzis’ involvement in those alleged breaches by iSignthis, as well as breaches of directors’ duties and his failure to take reasonable steps to ensure information that he gave to ASX was not false or misleading.
Integration agreements
ASIC alleges that iSignthis failed to disclose material information in relation to three integration agreements in breach of its continuous disclosure obligations.
The integration agreements were entered into with three customers, being Corp Destination Pty Ltd, Fcorp Services Ltd and IMMO Servis Group s.r.o. The agreements provided one-off integration and set-up services for trading platforms. ASIC alleges the revenues derived under the agreements resulted in iSignthis achieving performance milestones which caused the allocation of 336,666,667 performance shares, a substantial majority of which were allocated to the directors of iSignthis, including to Mr Karantzis.
Specifically, ASIC alleges iSignthis failed to disclose that in the fourth quarter to 30 June 2018, it had recognised approximately $3 million in revenue that was one-off and non-recurring. It is alleged that the revenue was derived from the integration agreements. In addition, ASIC alleges that iSignthis failed to disclose it had incurred approximately $2.85 million in one-off costs for out-sourcing services, which ASIC contends was for the supply of the integration services.
ASIC also alleges iSignthis made misleading representations about the revenues derived from the three integration agreements in an analyst briefing given by Mr Karantzis on 3 August 2018, when it stated that iSignthis’ revenue for one-off or up-front fees accounted for less than 15% of the total revenue in the fourth quarter to 30 June 2018, when ASIC alleges it actually amounted to 75% of the total unaudited revenue for that period.
ASIC also alleges that Mr Karantzis was involved in the failure of iSignthis to comply with its continuous disclosure obligations and that Mr Karantzis contravened his directors’ duties under the Corporations Act.
VISA relationship
ASIC’s proceedings also relate to iSignthis’ statements about the suspension and termination of its commercial relationship with VISA.
ASIC alleges that by 17 April 2020, iSignthis failed to disclose that VISA had terminated its relationship with iSignthis and iSignthis eMoney Ltd, and failed to disclose the reasons for VISA’s decision to terminate, which included that, according to VISA “IsignThis is not operating appropriate programs to manage Anti-Money Laundering and Risk”.
ASIC alleges Mr Karantzis also failed to take reasonable steps to ensure information that he gave (and authorised to be given) to ASX regarding the suspension and termination by VISA was not false or misleading.
ASIC is seeking declarations and pecuniary penalties against iSignthis and Mr Karantzis. ASIC is also seeking orders that Mr Karantzis be disqualified from managing corporations.
The date for the first case management hearing is yet to be scheduled by the Court.
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Editor's note:
The first case management hearing was listed for 12 February 2021. On 11 February 2021, the Court made orders by consent and no appearances are required for 12 February 2021. The matter is listed for a further case management hearing on 9 April 2021.
Editor's note 2:
On 9 April 2021, the parties were not required to appear at the scheduled case management hearing. The Court made orders by consent and the matter is listed for a further case management hearing on 10 September 2021.
Editor’s note 3:
On 28 May 2021, the Court made orders by consent amending the timetable for discovery and evidence. The case management hearing on 10 September 2021 was vacated and the matter listed for a further case management hearing on 12 November 2021.
Editor’s note 4:
On 23 September 2021, the Court made orders by consent further amending the timetable for evidence. The case management hearing on 12 November 2021 was vacated and the matter listed for a further case management hearing on 19 November 2021.
Editor's note 5:
On 16 November 2021, the Court made orders by consent further amending the timetable for evidence. The case management hearing on 19 November 2021 was vacated and the matter listed for a further case management hearing on 3 December 2021.
Editor's note 6:
On 3 December 2021, a case management hearing was held. Orders were made by consent for the progression of the matter. The Court ordered that, subject to the Court’s availability and conferral between the parties, the matter be listed for final hearing on the first available date.
Editor's note 7:
On 17 June 2022, a case management hearing was held. Orders were made by consent to amend the timetable for the progression of the matter. The matter has been listed for trial commencing on 27 February 2023, for an estimated 8 to 10 days.
Editor's note 8:
The trial for the matter was part heard between 28 February 2023 and 10 March 2023. The trial has been listed for further hearing between 5 to 9 June 2023 for the continuation of the evidence and on 26 and 27 June 2023 for closing submissions.
Editor's note 9:
The trial for the matter was part heard between 5 and 8 June 2023, concluding with closing submissions on 26 and 27 June 2023. Judgment has been reserved.