ASIC v Mauer-Swisse Securities Ltd and Anor

Supreme Court of NSW|2002-08-02|Before: Palmer J

CITATION : ASIC v Mauer-Swisse Securities Ltd and Anor [2002] NSWSC 684 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3823/02 HEARING DATE(S) : 31 July and 1 August, 2002 JUDGMENT DATE : 2 August 2002

Australian Securities and Investments Commission - Plaintiff PARTIES : Mauer-Swisse Securities Limited - First Defendant Alan Goldman - Second Defendant JUDGMENT OF : Palmer J

COUNSEL : D.R. Stack - Plaintiff B.R. McClintock, P.J. Brereton - Second Defendant SOLICITORS : Jan Redfern, Regional General Counsel, ASIC - Plaintiff Blake Dawson Waldron - Second Defendant CATCHWORDS : CORPORATIONS - SECURITIES INDUSTRY - INVESTIGATION - ASIC commences investigation into apparently fraudulent investment scheme - company involved is incorporated in New Zealand - director of New Zealand company served while in Australia with a Notice to Produce documents under s.33 ASIC Act - director claims ASIC has no jurisdiction to compel production of documents by New Zealand company - ASIC obtains ex parte orders under s.1323(1) and (3) of Corporations Act requiring director to deliver up passport and not depart from Australia - director claims Court has no power under s.1323 to detain a person in Australia for the purpose of assisting ASIC in its investigations - principles discussed. HELD: It is within the purposes of protecting the interests of aggrieved persons, within the meaning and operation of s.1323(1), that a person be detained in Australia to assist ASIC in its investigations into a possibly fraudulent scheme involving Australian investors. Australian Securities and Investments Commission Act - s.33 LEGISLATION CITED : Corporations Act, 2001 (Cth) - s.79, s.911A, s.1041F, s.1041G, s.1041H, s.1041I, s.1323(1), (3), s.1324(1), (4) Sharebrokers Act, 1908 (NZ) CASES CITED : ASIC v Australian Investors Forum Pty Ltd [2001] NSWSC 1180 DECISION : Orders under s.1323(1)(j) and (k) of the Corporations Act continued, subject to review.

1 On 30 July 2002 the Plaintiff ("ASIC") applied for urgent ex parte orders against the Defendants ("MSS" and "Mr Goldman") under s.1323(1) and (3) and s.1324(1) and (4) of the Corporations Act, 2001 (Cth) ("CA"). The orders included an order under CA s.1323(1)(k) prohibiting Mr Goldman from leaving Australia without the consent of the Court and an order under ss.(1)(j) requiring him to deliver his passport to the Court. I made certain orders ex parte, up to 4.00pm on 1 August 2002, including orders under s.1323(1)(j) and (k), abridged time for service of the Originating Process, and made the Originating Process returnable before me at 10.00am on 1 August. 2 When the matter was called on yesterday, Mr Stack appeared for ASIC and Mr McClintock SC appeared with Mr Brereton for Mr Goldman. Mr Stack sought the continuation of the orders which I had earlier made until 5.00pm on 8 August, while Mr McClintock opposed any continuation of the orders. After hearing evidence and submissions until late in the afternoon, I extended the orders, with some variations and additions, up to 3.00pm on 2 August and stood the matter over until 2.00pm on that day. I said that I would deliver my reasons for my orders at that time. That course was acceptable to Counsel for the parties. These are the reasons for the orders made on 1 August. Facts

3 The investigations of ASIC are still at a very early stage. The facts, so far as they appear from the evidence so far available, may be summarised thus. In 2000 a large number of Australian investors were induced to subscribe for, or to purchase, shares in a Canadian company called Orbit E-Commerce Inc ("OECI"). No prospectus was issued in Australia, the inducements apparently being made in telephone calls emanating from a company called Dreyfus Securities Ltd, which is located in Bangkok. When the investors received their share certificates they read for the first time that there were restrictions on the sale of the shares. The shares are not listed on any stock exchange. How the share price was fixed and how the shares could be traded is not readily apparent, but the share price is said to have collapsed from about USD4.50 to USD0.10 within a very short time. The Australian investors were informed that they could not sell the shares because of the transfer restrictions which had been placed on them. 4 I need not go too much into the detail of the means by which investment in OECI shares was solicited from Australian investors nor as to the difficulties and obfuscation placed in their path when they endeavoured to find out how they could recover some part of their investment. It is sufficient to say that the investment scheme in OECI, so far as it is presently revealed by ASIC's investigation, bears all the depressing hallmarks of yet another bare-faced scam on a large scale. 5 On 25 October 2001 a wholly owned subsidiary of OECI issued a "press release" on its web site announcing that OECI was in the process of raising USD16,000,000 in new equity capital and that it had concluded agreements with MSS, a company incorporated in New Zealand, whereunder MSS would sell "OECI common shares to its retail and institutional clients in Australia" . MSS has never held any financial services licences under CA Part 7.6. It has, therefore, never been entitled to have any retail or institutional clients in Australia. 6 The press release described MSS in terms which gave the impression that MSS is a substantial company with a well established business and clientele and that it conducts large-scale investments "including Blue Chip Investments on all major international stock exchanges" . That impression is totally false. 7 MSS was incorporated on 5 January 2001. Its issued share capital is 100 shares, all of which are held by Mr Benjamin Mauerberger. Mr Mauerberger was the sole director of MSS until 18 May 2001, when he resigned and Mr Goldman was appointed in his place. Mr Goldman is Mr Mauerberger's uncle; he said in evidence that although he is the sole director of MSS he acts in accordance with the directions of Mr Mauerberger, who really controls the company and is the sole signatory on its bank account. 8 When asked why Mr Mauerberger was not a director of MSS, Mr Goldman said that the reason was that Mr Mauerberger was a South African national who, although resident in New Zealand, did not have permanent residency status whereas Mr Goldman, who is also a South African national, did have permanent residency status. I find that explanation quite unsatisfactory, especially in light of the fact that Mr Mauerberger was the sole director of MSS when it was incorporated. 9 It appears that MSS conducts its affairs out of serviced offices in Auckland. The company does not employ any administrative staff. That, at least, was the reason given by Mr Goldman in evidence before me as to why no one presently in New Zealand would be able, even with his instructions over the telephone, to locate MSS documents to send to Australia in response to a notice issued by ASIC under s.33 of the Australian Securities and Investments Commission Act (2001) (Cth) ("ASIC Act"). However, Mr Goldman gave contradictory evidence in an examination by ASIC on 31 July 2002. He then said that MSS employed "three back office people who handle secretarial and administration" . 10 The business card given by Mr Goldman to at least two Australian residents from whom he has solicited business recently and its Client Trading Account Agreement Form which has been proffered to prospective clients show an office of MSS in Hong Kong. Enquiry from the Hong Kong Companies Office reveals that MSS has never been registered in Hong Kong. 11 MSS does not hold a seat on any stock exchange. Between September and December 2001 it obtained a "Sharebroker's Licence" under the New Zealand Sharebrokers Act, 1908 . The licence was issued by the Deputy Registrar of the District Court at Auckland. What the licence entitles the holder to do and what qualifications are necessary in order to obtain one is not yet known. The requirements for the licence cannot be rigorous in terms of the working capital or professional qualifications of the holder. The licence states simply that it is renewable annually upon the payment of the prescribed fee. As to Mr Goldman's experience in the securities industry and his qualifications as a security analyst, all that he told ASIC was that he had been in the business of exporting food and beverage products for twenty years. Nothing is known of Mr Mauerberger's history in the securities industry. 12 It is clear from Mr Goldman's evidence to ASIC that prior to the issue of OECI's press release on 25 October 2001 he and Mr Mauerberger had been involved in discussions with the principals of OECI, Mr Douglas Lloyd and Mr Donald Payne. Those discussions concerned proposed fund-raising by MSS for OECI. 13 On 7 November 2001 OECI issued another "press release" on its web site announcing that it had : "… appointed Orbit Investor Relations Pty. Limited ("OIR") of Sydney, Australia to take charge of the Investor Relations in Australasia." The release continued: "OIR will work closely with OECI to ensure all shareholder inquiries as well as public and shareholder communications in the region are managed in a timely and professional manner.

OIR staff also have an understanding of the business in which OECI is engaged and the issues facing OECI as a Company and will assist shareholders in getting better access to information.

OIR has established a call centre for OECI shareholders and is committed to dealing with shareholder questions and issues expeditiously in order to advance OECI shareholder goodwill." 14 These statements are shamelessly false. In fact, as the evidence of Mr Goldman to ASIC reveals, OIR was a company incorporated or acquired by the principal of OECI Mr Lloyd for the express purpose of 'fobbing off' enquiries from the large number of Australian investors who were becoming increasingly strident in their attempts to obtain information from him about their investment in OECI. The people who answered telephone calls to OIR were merely telephone operators who knew nothing about OECI and its affairs. 15 The evidence suggests that callers to OIR were informed that MSS might be able to sell their OECI shares. At least one Australian investor was telephoned directly by Mr Goldman who said that he had obtained the investor's details from OIR, that he had spoken to several hundred investors in OECI and that he was offering "a way to dig you out of the shares that you hold" . Mr Goldman said that in order to get the investor's shares released from the transfer restrictions he would need to sign the investor up as a client of MSS. Mr Goldman said that he would be able to get the restrictions on transfer of the OECI shares lifted but that he would required the original certificates to be sent to a "Continental Transfer Agent" for this purpose. When the sale of the shares was effected MSS would deduct a commission, which would be lower if the investor had signed up as a client of MSS. 16 The timing of this telephone call from Mr Goldman is highly significant. It occurred in April 2002. On 14 November 2001 ASIC had sent an e-mail to MSS advising it that MSS did not have a securities industry licence in Australia and that carrying on a business of dealing in securities without such a licence would be an offence which could attract severe penalties. The relevant provisions of the Corporations Act were explicitly referred to. 17 On 14 and 15 November 2001 Mr Mauerberger called ASIC in response to ASIC's e-mail, saying that OECI's press release was unauthorised by MSS and that MSS would not offer OECI shares in Australia. On 15 November a letter signed by Mr Goldman to the same effect was faxed to ASIC. 18 It is clear from this correspondence that Mr Mauerberger and Mr Goldman were made expressly aware, if they were not previously aware, of the provisions of the Corporations Act concerning the carrying on of a securities business in Australia without a licence under Part 7.6 of the Act. 19 Nevertheless, it is very clear from the evidence so far procured by ASIC that since November 2001 both Mr Goldman and Mr Mauerberger have on a number of occasions visited Australia and approached Australian residents directly in meetings in Sydney for the purpose of inducing them to authorise MSS to sell their OECI shares and invest the proceeds, as well as additional money, in other investment schemes promoted by MSS and said to be obtaining returns of 25% to 30%. 20 Of particular significance is one case in which the investor was told for some time that his OECI shares had been sold by MSS but the sale proceeds were not yet cleared. When asked by Mr Mauerberger whether he would be prepared to invest the proceeds of sale in another investment promoted by MSS, the investor expressed interest and was immediately told that the proceeds of sale of the OECI shares had just become available. The investor says that he did not agree to invest the proceeds in another investment. Although he gave express written instructions for the funds to be returned for him, the investor received notification some time later not only that his funds had been invested in some other unidentified investment, but that he was required to send more funds to MSS as the balance of the acquisition price for that investment. 21 The investigation by ASIC into MSS has been on foot for only a matter of days, yet the evidence so far collected suggests very strongly that MSS has flagrantly and deliberately contravened the provisions of CA s.911A in carrying on a financial services business in Australia, and that Messrs Goldman and Mauerberger have procured those contraventions within the meaning of CA s.79. No attempt was made by Mr Goldman when giving evidence to explain or justify his conduct. When he was asked questions concerning his recent activities in Australia, he refused to answer on the ground that the answers might incriminate him. 22 How many Australian investors may be involved in the activities of MSS, Mr Goldman and Mauerberger, and whether and to what extent they have suffered loss as a result of those activities are matters which ASIC wishes to discover, aided inter alia by the orders which it seeks in this application. Mr Goldman's contentions

23 ASIC has issued a Notice under s.33 of the ASIC Act to Mr Goldman and to MSS to produce certain books and records for the purpose of identifying those persons in Australia with whom Mr Goldman and MSS have had dealings which could constitute the carrying on of a financial services business by MSS in breach of CA s.911A. ASIC wishes to have those records in order to examine Mr Goldman further since the examination conducted so far has been necessarily preliminary in the absence of records and of greater particularity. 24 Mr Goldman has told ASIC that he has no such books and records with him. He now wishes to return to New Zealand. Indeed, he was due to depart this morning. 25 Mr Goldman says that MSS has the records sought by ASIC but he says, through his solicitor and Counsel, that ASIC and this Court have no power to compel their production because MSS is not a company registered in Australia. He says, however, that he is willing to return to Australia if ASIC wishes to examine him again. 26 Further, says Mr Goldman, although he is sole director of MSS he is not in a position himself to procure MSS to send the records to Australia because Mr Mauerberger is really the controller of the company and can countermand any instruction which Mr Goldman may give to anyone for the production of records. 27 Further, Mr Goldman says, no one presently in New Zealand knows where the records are: Mr Mauerberger knows where they are but he is not now in New Zealand; he himself knows where the records are but he, of course, cannot return to New Zealand without the leave of the Court. 28 Further, says Mr Goldman, even if he could give instructions to someone else as to where to find the records, it would not do any good because the records are in a locked filing cabinet to which there are only two keys, one held by himself and one held by Mr Mauerberger. Mr Mauerberger is, of course, not presently in New Zealand. It would not do any good either, says Mr Goldman, for him to send his key by overnight express to New Zealand because even if someone else had the key and even if he were to give instructions over the telephone, no one else would really be able to produce the documents. 29 I have to say, quite bluntly, that Mr Goldman's reasons for his inability to procure the documents struck me as transparent prevarication. 30 Mr Goldman says that he often visits Australia to pursue his religious studies and would be willing to co-operate with ASIC in its investigation on such a future visit. He did not offer any security for his return, although this was suggested in Court. I regard Mr Goldman's offer to return to Australia to co-operate with ASIC's investigations as utterly worthless. ASIC's contentions

31 ASIC says that it wishes to invoke the Court's power under s.1323(1)(j) and (k) to detain Mr Goldman in Australia in order that they may procure, through his co-operation coerced by such orders, the production of MSS records and a further examination of Mr Goldman based upon those records. ASIC says that, for this reason, it is desirable for the purpose of protecting the interests of "aggrieved persons" within the meaning and scope of s.1323(1) that the orders preventing Mr Goldman from leaving Australia be continued, at least up to 8 August. 32 ASIC says that all of the requirements in s.1323(1) for the continuation of the orders are fulfilled:

there is an investigation being carried out under the ASIC Act in relation to an act or omission by Mr Goldman that constitutes or may constitute a contravention of the Corporations Act , namely, procuring MSS to commit a breach of s.911A so that Mr Goldman is involved in the contravention within the meaning of s.79(a); there may well be other breaches of the Corporations Act by MSS which Mr Goldman has also procured, for example, the making of false or misleading statements in contravention of CA s.1041E and other fraudulent or dishonest conduct prohibited by s.1041F, s.1041G and s.1041H;

Mr Goldman may be or become liable to "aggrieved persons" in Australia to pay money by way of compensation or to account because of his accessory liability under CA s.79(a) pursuant to CA s.1041I, or pursuant to causes of action available under the general law;

"protection of the interests" of aggrieved persons includes the detention of Mr Goldman in Australia in order to prevent his disappearance beyond the reach of Australian law and its Courts and in order to enhance the prospects of production of documents from MSS which are required for its investigation. The scope of CA s.1323

33 Mr McClintock submits that the detention of a person, especially a foreign national, in Australia for the purpose of enabling or assisting ASIC to carry out an investigation is not within the scope of s.1323, so that the Court has no jurisdiction in the present case to make or continue the orders against Mr Goldman which have already been made. 34 Mr McClintock submits that it is plain from s.1323(1) that the powers conferred thereunder are for the purposes of protecting the interests only of aggrieved persons, i.e. in this case, the investors, not for the purpose of assisting ASIC in its investigations. ASIC itself cannot be an "aggrieved person" . Accordingly, there would be power under the section to prevent a person departing from Australia if the Court could see that the particular claims, actual or potential, of an "aggrieved person" might need protection, but not otherwise. Further, the powers should not be exercised any further than to the extent which is necessary to protect the particular claim of the aggrieved person. 35 Mr McClintock says that the only actual or potential claim by an aggrieved person against MSS or Mr Goldman which has been identified by ASIC is a claim for about USD12,000 which, he says, is a trifling sum not warranting Mr Goldman's detention in Australia against his will. 36 In my opinion, that submission is without substance. The words in s.1323(1) "protecting the interests" of an aggrieved person are as wide as they could be, and deliberately so. What "the interests" of aggrieved persons may be and how they ought to be protected are matters incapable of categorisation or of precise definition. Indeed, it would have been folly on the part of the legislature to attempt to define or limit what interests should be protected or how: to do so would have been to ignore the sad reality that the ingenuity of fraudsters is inexhaustible, their snares for the gullible pitiless and of infinite variety, and the eagerness of the foolish to be parted from their money irrepressible. 37 Accordingly, in any particular case, where the Court determines that the interests of aggrieved persons are or may be prejudicially affected, it will be a matter for the Court, in the exercise of a discretionary judgment, to decide what sort of protection available within the parameters afforded by s.1323(1) should be given. Sometimes, where claims actual or potential against a "relevant person" are few in number, readily identifiable and tolerably quantifiable, orders would be made primarily directed to the preservation of assets in order to meet those claims, and no further. But in other cases, there may be evidence to suggest that fraud has been perpetrated on a large scale and that many of the victims have no or little information about the extent of the fraud, no or little means for their own investigations, and no or little resources to prosecute their own claims. In such a case, the interests of such persons are protected, within the contemplation of s.1323, by enabling ASIC to conduct an investigation for the purpose of identifying the wrongdoers and exposing them not only to penalties under the Corporations Act and other legislation, but also to claims for compensation from the victims themselves. 38 In the present case, the requirements are met for exercise of the powers provided by s.1323(1). I accept ASIC's submission that an order detaining Mr Goldman in Australia for the purpose of assisting its investigation is an order which is desirable for the purpose of protecting the interests of persons in Australia to whom Mr Goldman is, or may become, liable. 39 I recognise that such an order is extraordinary and coercive in its nature and that it should not be exercised lightly: see per Hamilton J in ASIC v Australian Investors Forum Pty Ltd [2001] NSWSC 1180, at para.4, and the cases therein cited. However, where the Court finds - as I do in this case - that there is strong prima facie evidence of a wide-scale fraud perpetrated or connived at by a foreign national whose return to Australia to submit to investigation is dubious, then the Court cannot shrink from exercising the power. Orders

40 An order detaining a person in this country against his or her will can produce great hardship to the person and to others affected by the order. The operation of such an order should be kept under close supervision by the Court. 41 The application which ASIC has made is not for final orders under s.1323(1) but for interim orders under ss.(3). ASIC says that such an application was necessary because its investigations are still at a very early stage. 42 I take into account that ASIC has given a Notice under s.33 of the ASIC Act to an Australian stockbroking firm to produce documents which may assist it in identifying those persons in Australia with whom MSS and Messrs Mauerberger and Goldman have had dealings. The documents were to be produced to ASIC this morning. It was said that they might enable ASIC to continue a useful examination of Mr Goldman very quickly so that he is not detained in Australia for very much longer. 43 In those circumstances, I extended the orders which I had earlier made up until 3.00pm today and adjourned the matter for further hearing until 2.00pm today. If it appears that the production of documents from the Australian company will enable Mr Goldman's examination to be concluded so far as it can be concluded at this stage within a short time, I will extend the orders up until that time. 44 However, if I am satisfied that there can be no useful further examination of Mr Goldman unless and until the documents of MSS itself can be produced, then I will extend the orders for a period to be fixed, subject to review. As this is still an application under s.1323(3), I do not think it appropriate simply to extend the orders until further order. However, I should make it clear that I would propose to continue the orders detaining Mr Goldman in Australia until I am satisfied that he has given all co-operation in the ASIC investigation which is reasonably possible. That co-operation includes procuring MSS to deliver its documents to ASIC.

Last Modified: 08/06/2002 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

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Judgment (15 paragraphs)

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