ASIC v Australian Investors Forum Pty Ltd & Ors

ASIC v Australian Investors Forum Pty Ltd & Ors - [2005] NSWSC 1198 - NSWSC 2005 case summary — Zoe

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29 I have regard to the following conduct of Mr Anthony, which has been established in these proceedings. 30 First, Mr Anthony used Mr Shaheen as a puppet director of companies within the AIF Group in a calculated and dishonest attempt to disguise the fact that he himself was managing those companies while disqualified as an undischarged bankrupt: Judgment paras 58-61. 31 Second, Mr Anthony used Swiss Pacific and its joint venture agreement with AIF in an attempt to disguise the fact that Mr Anthony himself was managing the affairs of AIF while disqualified as an undischarged bankrupt. The use of Swiss Pacific in that way was dishonest: Judgment para 382. 32 Third, Mr Anthony's evidence concerning his relationship with Swiss Pacific and its directors was false in every particular: Judgment paras 372-381. Mr Anthony was deliberately endeavouring to mislead the Court in a serious way. 33 Fourth, Mr Anthony devised the SCI Agreement as a means of channelling $2.708M out of AIF. The Agreement was a bare-faced fraud of the most egregious character. Even on the face of the document the agreement was obviously worthless yet Mr Anthony persisted in this Court in asserting that it conferred highly valuable rights on AIF. 34 Fifth, the Sage-Techlogica Transaction, involving the payment of $560,000 from the funds of Sage, a public company, was procured by Mr Anthony so that he could obtain $500,000 for the repayment of a debt in his own personal interest. The transaction was nothing more than a cynical plundering of funds of the investing public simply because they were within Mr Anthony's reach and he wanted them: Judgment paras 483, 498. 35 Sixth, similarly, the Sage-AIF Management Fee of $250,000, the payment of $563,000 pursuant to the Medionics-Optum Transaction, and the $425,000 consideration for the AIF-Biotech Transaction, were all procured by Mr Anthony simply because he wanted funds for whatever purpose, and could hardly be bothered giving more than the merest pretext of a commercial justification for the payments. 36 Seventh, corporate structures were freely incorporated and used at the instigation of Mr Anthony as a means of shuffling around funds for his own purposes and disguising the fact that he was involved in managing AIF's affairs: see the Round Robin Payments, Judgment paras 424-436, paras 58-61, paras 372-382, and para 406. 37 Eighth, Mr Anthony continued to assert throughout the trial and throughout his submissions on penalty that all that he did was in AIF's best interest. However, as a result of the Round Robin Payments, AIF lost $2.708M: $1.4M in book debts owing by Mr Lloyd-Cocks and Mr Luvara which had artificially been made to evaporate, and about $1.308M which went into the directors' pockets: Judgment para 436. 38 Ninth, through the Sage-Techlogica Transaction, Mr Anthony was prepared dishonestly to take $500,000 from the funds of Sage, which had been invested by the public, to use for his own private purposes. 39 Tenth, large losses to the investing public have resulted from the dishonest management of AIF by Mr Anthony. 40 Eleventh, none of the conduct of Mr Anthony to which I have had regard was merely negligent or irresponsible or due to lack of knowledge and experience. Mr Anthony is an intelligent man professing experience in financial planning and investment. His conduct was calculated, dishonest, motivated by self interest, and heedless of the high risk of loss to members of the public who invested with AIF and Sage. 41 Having regard to:

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47 I take into consideration the following circumstances relating to Mr Lloyd-Cocks. 48 First, Mr Lloyd-Cocks has shown himself to be capable of deliberate misappropriation of the public's money. He determined that Mr Markotic's "investment" of $250,000 in the Money Mint franchises - if such an illusion could be called an investment - should be "rolled over" into AIF's pre-IPO, despite Mr Markotic's strong and unequivocal refusal to do so: Judgment paras 203-213. 49 Second, Mr Lloyd-Cocks' participation in AIF's breaches of the disclosure requirements of CA s.727 shows that he regarded compliance with the Corporations Act as a mere matter of filling in pieces of paper, which could be made to appear compliant with the law by subsequent doctoring: Judgment paras 130-132, 139-143. 50 Third, Mr Lloyd-Cocks' evidence was characterised by sweeping and unfounded statements which, if he ever paused to consider them - which I doubt - he would have known to be untrue: e.g. Judgment paras 123-126, 133-134. 51 Fourth, Mr Lloyd-Cocks was prepared to solicit funds from the public for investment in AIF's pre-IPO by making statements as to the imminence of its listing on the ASX which were without any reasonable foundation: Judgment paras 201, 202. 52 Fifth, Mr Lloyd-Cocks' participation in AIF's breach of its dealer's licence conditions in relation to the NAB trust account must have been conscious and deliberate: Judgment para 298. 53 Sixth, the Round Robin Payments were directly for the benefit of Mr Lloyd-Cocks in that they resulted in a substantial debt owing by him to AIF being made to disappear from AIF's balance sheet. The device by which this dishonest scheme was implemented was the SCI Agreement. Mr Lloyd-Cocks was as fully involved as Mr Anthony in the fraud on AIF involved in this scheme: Judgment paras 397-414. 54 Seventh, Mr Lloyd-Cocks was prepared to commit $560,000 of the funds of Sage, a public company, to a "transaction" with Techlogica which, on its face, was so manifestly improvident that no honest director of a public company could have contemplated it for a moment: Judgment paras 478-482. In truth, however, Mr Lloyd-Cocks was simply prepared to let Mr Anthony help himself to $500,000 of the money which the public had invested in Sage: Judgment paras 483-499. 55 Eighth, Mr Lloyd-Cocks freely used corporate structures as a means of transferring funds in the Round Robin Payments. 56 Ninth, Mr Lloyd-Cocks, even when confronted with all of the findings against him made in the Judgment, refused to admit any dishonesty or impropriety on his part in the management of AIF and its associated companies. All that he would concede was that "mistakes had been made". He did not even seem to concede that it was he who had made the "mistakes". 57 Mr Lloyd-Cocks protested passionately to the Court in the course of his submissions that all would have been well with AIF and its investors but for the wrongful intervention of ASIC. Mr Lloyd-Cocks convinced me that he actually believed this assertion and that, despite the findings in the Judgment, he remains completely unconscious of any wrongdoing on his part. In my opinion, Mr Lloyd-Cocks poses a grave risk to the public if he is ever permitted to occupy any position of responsibility or trust in advising others in financial matters or in managing their financial affairs. He should never be allowed to use corporate structures or to participate in the management of corporations. As in the case of Mr Anthony, the danger to the investing public is too great. 58 I conclude that Mr Lloyd-Cocks' case falls into the worst category of conduct. Bearing in mind the objects of CA s.206E(1) to which I have referred, I intend to impose a disqualification period on Mr Lloyd-Cocks of twenty-five years commencing from the date of this judgment. Compensation Orders - AIF

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The order must specify the amount of the compensation." 60 The first transaction in respect of which ASIC seeks declarations of contravention and Compensation Orders is the Round Robin Payment: Judgment paras 386-446. 61 I have found that, in devising the scheme whereby AIF entered into the SCI Agreement and paid $2.408M to Suisse Credit Pty Ltd, both Messrs Anthony and Lloyd-Cocks, as officers of AIF, breached their duties of care and diligence to AIF, in contravention of CA s.180(1), s.181(1) and s.182(1): Judgment para 446. These are civil penalty provisions: CA s.1317E(1). I will make declarations of contravention accordingly, pursuant to s.1317E(2). 62 Mr Macintosh, the liquidator of AIF, has given evidence that Suisse Credit Pty Ltd is in liquidation and that there is no prospect that any monies can be recovered from it for the benefit of AIF. I accept that evidence. 63 However, I do not think that ASIC, when seeking a Compensation Order under s.1317H(1) against a delinquent officer of a corporation, can prove loss resulting from a relevant transaction only by demonstrating that the corporation has no prospect of recovering that loss from a third party. All that ASIC must show is that, as a result of the delinquent officer acting in contravention of the Act, the corporation suffered loss by the transaction. 64 If the corporation has been able to recoup some part of the loss by action against a third party, a Compensation Order subsequently made under s.1317H(1) will relate only to the shortfall in recoupment. But the corporation is not obliged to endeavour to mitigate its loss from the transaction by proceeding against third parties before looking to the delinquent officer whose contravention of the Act occasioned the loss. The corporation, and ASIC on its behalf, are entitled to look first to the delinquent officer to make good the loss. Obviously, if the corporation proceeds against the delinquent officer and a third party, there cannot be double recovery. 65 Messrs Anthony and Lloyd-Cocks submitted that no Compensation Order should be made in respect of payment by AIF to Suisse Credit Pty Ltd because no loss arising from the transaction had been suffered by AIF as at the date of ASIC's intervention - which I take to mean ASIC's ex parte application for asset freezing orders and other relief on 24 October 2001. They say that any loss which arose from the transaction was occasioned by ASIC's wrongful intervention in AIF's affairs. They make the same submission in respect of each of the Compensation Orders now sought by ASIC consequent upon the findings in the Judgment. 66 For the reasons which I have already given, there is no substance in these submissions. 67 I am satisfied by reason of the contraventions of the Corporations Act to which I have referred, being civil penalty provisions, AIF has suffered loss as a result of the payment to Suisse Credit Pty Ltd in an amount of $2.408M. I will make a Compensation Order under s.1317H(1) against Messrs Anthony and Lloyd-Cocks, jointly and severally, for that amount. 68 ASIC seeks declarations of contravention and Compensation Orders in respect of the payment of $300,000 by AIF to Webfeatures. I have found that in authorising that payment both Messrs Anthony and Lloyd-Cocks, as officers of AIF, contravened CA s.180(1), s.181(1) and s.182(1). 69 Mr Macintosh says, and I accept, that Webfeatures is in liquidation and that no money has been recovered from it in respect of this transaction. I am satisfied that by reason of the contraventions to which I have referred, AIF has suffered loss in the amount of $300,000. I will make declarations of contravention and Compensation Orders against Messrs Anthony and Lloyd-Cocks jointly and severally, in accordance with this finding. 70 ASIC seeks declarations of contravention and Compensation Orders in respect of the payment by AIF to Medionics of $303,000. I have found that in approving that payment, Messrs Anthony and Lloyd-Cocks, as officers of AIF, contravened CA s.180(1), s.181(1) and s.182(1): Judgment para 565. 71 Mr Macintosh says, and I accept, that no recovery of this money has been obtained from Medionics and that there is no prospect of recovering it. 72 I am satisfied that by reason of the contraventions to which I have referred, AIF has suffered loss in the amount of $303,000. I will make declarations of contravention and Compensation Orders against Messrs Anthony and Lloyd-Cocks jointly and severally, in accordance with this finding. 73 ASIC seeks declarations of contravention and Compensation Orders in respect of the payment or transfer of monies and the transfer of property worth $425,000 by AIF to Biotech pursuant to an invoice dated 16 October 2001. 74 On 17 October 2001, AIF transferred to Biotech 500,000 shares in Sage for a consideration of $275,000. There is no evidence of the remainder of the Biotech invoice, i.e. $150,000, having been paid: Judgment paras 566, 567, 573 and 574. 75 I have found that in approving the transfer by AIF to Biotech of the Sage shares, Messrs Anthony and Lloyd-Cocks contravened CA s.180(1), s.181(1) and s.182(1): Judgment para 581. 76 Mr Macintosh says of this transaction: "I refer to paragraphs 566 to 581 of the Judgment in relation to the payment of $425,000 by AIF in respect of an invoice issued by Biotech Securities Ltd and say that:

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