Episode 64: Markets enforcement outcomes

5 May 2021

In this episode, we discuss the work of ASIC’s Markets Enforcement team. We are joined by ASIC Senior Executive Leader, Molly Choucair, to discuss recent Court action against AGM Markets and Antares Energy as well as ASIC’s Immunity Policy.

Podcast length: 14 minutes 8 seconds


Speaker notes (may vary slightly from podcast recording)

Louise Tapsell: Hello and welcome to the official podcast of the Australian Securities and Investments Commission, I’m Louise Tapsell.

Today I am joined by ASIC’s Senior Executive Leader of Markets Enforcement, Molly Choucair to discuss ASIC’s work to promote a fair and efficient market and the action we take against misconduct.

Welcome Molly.

Molly Choucair: Hi Louise.

Louise: Molly, tell us what matters the Markets Enforcement team investigate and bring before the Courts.

Molly: ASIC regulates Australia’s financial markets so they are both fair and efficient. We act where there is misconduct that threatens market integrity and investor confidence.

Louise: You’re talking about insider trading, market manipulation, continuous disclosure failures and false or misleading statements.

Molly: Yes, that’s right. We also focus on misconduct involving the sale of over-the-counter derivatives (also known as OTC products) and making sure that client and company money is kept in separate bank accounts. Australian Financial Services licensees have client money obligations to protect Australian investors from having their money transferred overseas, for example. Client money needs to remain separated from licensee money so that client funds are protected.

Louise: You mention OTC derivative products.

ASIC reviews have found everyday Australians, or retail investors, lose money trading CFDs. ASIC took action against some CFD providers in late 2020 and had a major win. Tell me more about that.

Molly: ASIC took action against AGM Markets, OT Markets and Ozifin Tech. We argued before the Federal Court that they provided unlicensed personal advice, engaged in unconscionable conduct and made representations that were false, misleading or deceptive while selling OTC derivatives. The companies sold risky products to people and recommended trading strategies designed to result in large scale losses.

When ASIC became aware of the misconduct, we immediately took action. We sought injunctions from the Court to protect client deposits and froze money in multiple bank accounts controlled by the companies while we investigated further.

Louise: So, investing in CFDs is like looking at an asset class and wagering on whether the price would go up or down?

Molly: Yes, that’s right. When you trade CFDs, you don’t actually buy or sell the underlying asset. For example, you don’t buy a commodity like gold. You buy or sell a number of units and essentially bet on whether you think the price of gold will go up or down. For every point the price of gold moves in your favour, you gain multiples of the number of units you have bought or sold. However, for every point the price moves against you, you will make a loss. But here’s the critical point: losses can exceed the amount that you have deposited in your account to trade.

Louise: Right, I see.

Molly: So, in AGM these are everyday Australians investing large amounts – sometimes up to $10,000 – which is then leveraged up to $4,000,000. The excessive leverage caused investors to wager far more than they had originally planned. This exposed them to losses much larger than their initial investment.

Louise: The Judge, Justice Beach, said the case was an example of people seeking …. “financial heroin hits". AGM kept encouraging people to invest more and more, even if it meant they would continue to lose large amounts of money.

Molly: The ASIC investigation found that some account managers were saying things like, “hold my hand”, “take my hand”, and used other related phrases, even referring to themselves as a “friend” of the investor to keep people investing their money.

And when the Judge mentions ‘heroin hits’, it’s because this type of trading, wagering on something going up or down, really can be addictive.

Louise: What did the Judge rule?

Molly: AGM Markets was fined $35 million, OT Markets and Ozifin were fined $20 million each, which is $75 million in total. It’s the highest combined pecuniary penalty in ASIC history. And important, the ruling also helps around 10,000 former clients receive some refunds, as the three firms are now in liquidation.

Louise: Now, just recently, ASIC banned the sole director and four former employees of another OTC issuer called Forex Capital Trading, known as Forex CT. Tell me more.

Molly: That’s right. Forex CT employed account managers that encouraged clients to trade in high-risk CFDs and margin foreign exchange contracts (FX Contracts) products issued by Forex CT. ASIC banned five employees, one of which is Forex CT CEO, responsible manager and sole director Shlomo Yoshai. Mr Yoshai has been banned from providing financial services for ten years. The four other bans range from 3 to 6 years.

Louise: ASIC found Mr Yoshai was involved in Forex CT’s trading floor culture, an environment that had been likened by former Forex CT account managers to The Wolf of Wall Street.

Molly: ASIC’s investigation revealed that a bell was rung when clients deposited funds of certain amounts into their trading accounts.

Account managers could also participate in incentive ‘games’ such as ‘wheel of fortune’, roulette tables and dice games to win cash if client deposit targets were met.

ASIC found that Mr Yoshai had little regard for compliance with the law and was actively involved in the operations of the company, which was primarily concerned with making sure clients invested as much money as possible. The ten-year ban reflects the fact that Mr Yoshai had ultimate responsibility, as the CEO.

Louise: What else is ASIC doing to protect investors from these types of investments?

Molly: ASIC made a product intervention order that addresses some of the issues with contracts for difference. The order applies to all market operators from 29 March 2021. Some of these conditions limit the excessive leverages we spoke about and target the aggressive sales practices that were encouraging people to lose money.

For example, leveraging is now capped at 30:1, rather than what we saw with AGM Markets, where some leverages offered were up to 500:1. The order also protects investors against negative account balances by limiting a retail client’s CFD losses to the funds in their CFD trading account. This means you can’t lose more money than you invested. The order also prohibits giving or offering certain inducements to clients, like rebates or free gifts like iPads.

Louise: You’ve told us about these high- risk products available to retail investors, now tell us a bit about client money obligations. As I understand it, this law is to ensure client money is kept separate from licensee money. Why is that?

Molly: In the event that unexpected problems occur, client funds are preserved and remain available and can be returned to investors. This is a cornerstone principle of maintaining investor confidence and the integrity of Australia’s financial markets.

Louise: In the matter of Pershing Securities Australia, they transferred sale proceeds from international trading into their business bank account, rather than ensuring that these funds were paid into segregated clients’ trust accounts.

Molly: ASIC (through the Commonwealth Director of Public Prosecutions) charged Pershing and took them to Court. Pershing pleaded guilty to breaching its client money obligations and was convicted for the offences. The judge ordered that Pershing pay a penalty of $40,000.

Louise: Societe Generale Securities was also taken to court by ASIC in late 2020 for breaching client money obligations. They received client money in connection with financial services but failed to deposit that money into trust accounts of an Australian Authorised Deposit-taking Institution. They were also convicted of the offence charged and were ordered to pay a penalty of $30,000.

Molly: Yes Louise, these were two cases that demonstrated to the market the importance of properly handling client funds. This was the first time that client money breaches were pursued criminally by ASIC & CDPP.

Louise: Companies also have an obligation to maintain continuous disclosure to the market, so where there is information that a person would expect to have a material effect on the price or value of the entity’s securities, then that entity or company must tell the ASX (Australian Securities Exchange).

How does ASIC enforce continuous disclosure laws?

Molly: In October last year, there was an outcome in the Federal Court against Antares Energy, now known as Blue Star Helium, where the Court found they breached continuous disclosure laws.

Louise: So Antares announced that they were selling their Northern Star asset for over US$148 million and its Big Star asset for over US$105 million?

Molly: Yes and they were selling both assets to Wade Energy but did not disclose to the market that Wade Energy was the purchaser. Instead the company described the purchaser as a “private equity purchaser”.  The Court also found that prior to making the company announcements about the sale, Antares had not independently verified or determined the capacity of Wade Energy to complete the purchase. Antares had also been informed by Wade Energy that it had not yet received the funding approval necessary to complete the purchase and this information wasn’t disclosed to the market by Antares.

Louise: What did Antares stand to gain from not disclosing this information to the market?

Molly: Well, the price of Antares Energy shares rose following the release of the company announcements because investors heard about the potential sale and therefore invested in Antares shares.  The main reason that ASIC took on this case is because information that is market sensitive needs to be disclosed in a timely manner.  A well-informed market leads to greater investor confidence, a fact that was commented on by the Judge, Justice Banks-Smith.

Louise: What can you tell me about this new Immunity Policy which ASIC released this year?

Molly: Yes, I’m glad you raised it – this is a new tool in our toolkit to combat and detect misconduct.  In February 2021, ASIC released an immunity policy for certain contraventions of the Corporations Act.

Under the new policy, an individual who has engaged with others to manipulate the market, commit insider trading or engage in dishonest conduct when operating a financial services business can, in certain circumstances, seek immunity from both civil penalty and criminal proceedings.

Immunity is only available to the first individual who satisfies the immunity criteria and reports the misconduct to ASIC prior to commencement of an investigation into the conduct. Individuals found to have contravened prohibitions in Part 7.10 of the Act can:

  • face up to 15 years in prison, and
  • be fined almost $1,000,000 or if the court can determine the benefit derived from the contravention, three times the benefit’s value.

Louise: Molly, thank you for speaking with me today and taking me through ASIC’s work in the markets enforcement space.

You can keep up-to-date with our enforcement work by subscribing to our media releases on the ASIC website.

If you have any feedback on this podcast, send us a tweet to @ASICmedia. We’d love to hear from you.

Last updated: 05/05/2021 12:00