Consideration
120 Mr Daly was called as a witness and cross-examined on his affidavit in the penalty hearing. In his evidence, Mr Daly evinced a propensity to blame others and not to accept responsibility for his own actions. His evidence in cross-examination was in many respects contrary to contemporaneous documents of which he was aware and or involved in. In his affidavit, he asserted that he would not have promoted the fund to financial advisors in the Beacon Companies, many of whom were his personal friends, if he suspected that there were "any discrepancies in the way that the fund was being operated". Yet he was taken to documents that showed he was actively promoting the Registered Scheme as a means of addressing cashflow concerns he had at the time with respect to the Beacon Companies. While he expressed remorse that investors had lost money, he did not express contrition for his part in that outcome. Yet throughout the relevant period he was a member of the Investment Committee which was responsible for operating the Registered Scheme in a way that was contrary to the terms of the PDSs, which PDSs he himself used to promote investment in the Registered Scheme. He must have known at the relevant time that the loans approved by the Investment Committee, of which he was a member, were inconsistent with the terms of the PDSs.
121 Further, at the liability hearing, he submitted that he was a member of the Investment Committee of the Unregistered Scheme only and not a member of the Investment Committee for the Registered Scheme. The evidence was overwhelming that there was relevantly a single Investment Committee that operated the Unregistered Scheme and the Registered Scheme and of which Mr Daly was a member. He signed the 1 April 2015 circular resolution recording the decision that the Registered Scheme would invest in the Unregistered Scheme and thereafter as a member of that same committee approved many of the loans which comprised a crucial part of the contravening conduct. He was one of the architects of the strategy that was at the heart of the contravening conduct. His contention that he was a member of an Investment Committee that functioned only in relation to the Unregistered Scheme after 1 April 2015 was implausible. It relied on seeking to leverage off the same name being used in respect of both the Registered Scheme and the Unregistered Scheme.
122 Mr Daly's expressions of remorse were limited in that he focussed on the outcome that investors lost money but did not apologise for the fact that he had done the wrong thing. The central expression of Mr Daly's contrition was as follows:
15. I accept that, on the strength of those findings [in the Liability Judgment] the Court is able to impose a period of disqualification from managing corporations and a pecuniary penalty.
16. I deeply regret that any investors lost money through the operation of the Registered Scheme.
Later in his affidavit, Mr Daly deposes that he is "mortified and deeply regrets that investors lost monies…".
123 Notably missing from his affidavit is an acknowledgment or acceptance that it was Mr Daly's own conduct which contributed to the investors losing money. His regret is limited to the outcome of his conduct, and does not extend to an express acceptance that it was his conduct which led to that outcome. That is not a mere technical distinction. Rather, when coupled with the whole of his approach to the litigation and his continuing attempts to minimise his role, it reflects that Mr Daly lacks insight into the fact that the losses were caused by his contravening conduct. That circumstance weighs heavily in favour of the need for specific deterrence in his case.
124 Mr Daly's limited expression of remorse is consistent with his evidence as to the basis for his genuine belief that he was not an officer of Endeavour and not responsible for its operation. Mr Daly's evidence is that Linchpin operated in a "silo" management structure, which he considered to be "a critical aspect of the management structure of Linchpin overall". Mr Daly's evidence is that the Submitting Respondents "were appointed as directors of Endeavour due to their experience in managing investment schemes" and that he "generally deferred to Mr Nielsen and Mr Williams in matters concerning Endeavour" because of their joint roles as chief executive officers and managing directors. The effect of Mr Daly's evidence as to the structure of Linchpin's management is to minimise any responsibility for his conduct and instead to shift the blame on to the other respondents. Mr Daly has not frankly accepted and acknowledged the part he played as a member of the Investment Committee throughout the whole of the relevant period. I reject Mr Daly's oral submissions to the contrary. Mr Daly's counsel submitted that Mr Daly's acceptance of the Court's ability to impose a period of disqualification from managing corporations and pecuniary penalties is an acceptance that his standard fell below the statutory standard to be expected of company officers. I reject that submission. The acceptance of an objective legal reality - that as a consequence of finding that Mr Daly is liable for contravening s 601FD the Corporations Act, the Court is empowered to impose penalties upon him - is quite different to accepting that one's own conduct fell below the standard that is to be expected.
125 The conduct engaged in by Mr Daly was serious. He was an officer of Endeavour through his membership of the Investment Committee which was responsible for approving how the funds raised in the Registered Scheme were passed to the Unregistered Scheme and for the approval of many of the loans using those funds. He disregarded the PDSs, Endeavour's lending policy and compliance plan and applied investor funds in a way that was not consistent with the scheme's foundational documents. That is what is critical, not whether his conduct is properly characterised by ASIC's appeal to the phrase used in Trilogy Funds Management Pty Ltd v Sullivan (No 2) [2015] FCA 1452; 331 ALR 185 at [902] (Wigney J). In addition, Mr Daly improperly used his position as an officer of Endeavour to obtain a personal benefit by applying for and receiving unsecured personal loans, to the detriment of the investors in the Registered Scheme. That he did so when he was in financial difficulty highlights his position of conflict and the self-interest that drove his conduct.
126 Mr Daly continues to be the director of four corporations related to a charitable organisation. Mr Daly understands that a disqualification order will mean that he must not be involved in the management of those corporations. He ceased to be a director of RIAA recently, on 7 April 2023. Mr Daly had not previously been the subject of regulatory action and has no prior criminal convictions.
127 On 19 November 2019, Mr Daly was banned by an ASIC delegate from providing financial services for a period of five years, pursuant to s 920A of the Corporations Act. He applied to the AAT to have the banning order reviewed. He only withdrew the application after the liability hearing in this proceeding.
128 Mr Daly did not repay the loans improperly made to him until February 2023, by which time the liquidators of Linchpin had obtained default judgment against him and served a bankruptcy notice on him. He did not defend the recovery proceedings against him, but says he used the time to raise the funds to repay the debt. Mr Daly led no evidence to suggest that he had taken steps to keep the liquidators informed of his attempts to raise funds to repay the Daly Loans and it appears that it was not until he was under threat of bankruptcy action that he marshalled funds to repay the loans.
129 Mr Daly is 64 years of age. His wife is 63 years of age and is too ill to work.
130 He deposed that he was in financial distress and that the imposition of a pecuniary penalty would cause him significant financial hardship. His liabilities exceed his assets, and his monthly expenses exceed his income. He does not expect to be employed on a long-term basis.
131 There is a risk that through his lack of insight and his lack of acceptance of responsibility for his actions that Mr Daly may engage in further contraventions in the future. The relief imposed must protect the community from such conduct. The community has received some level of protection from the imposition of the banning order, but that does not protect the public from the risks attendant on Mr Daly continuing to be involved in the management of corporations. Mr Daly's lack of insight into his own responsibility for the loss occasioned by conduct for which he shared responsibility warrants a longer period of disqualification than for the other respondents. The Submitting Respondents have accepted responsibility and shown insight into their conduct. That of itself suggests that there is a lesser need to protect the public from the risk of the Submitting Respondents engaging in similar conduct in the future.
132 I have considered the issue of parity. The parity principle derives from criminal sentencing, it requires that like cases to be treated alike, and different cases to be treated differently: Green v The Queen [2011] HCA 49; 244 CLR 462 at [28] (French CJ, Crennan and Kiefel JJ). To apply the parity principle in the present context is not necessarily straightforward because notwithstanding the substantial overlap in the courses of conduct that comprise the contravening conduct, the starting point between the Submitting Respondents and Mr Daly is not the same.
133 The starting point for the Submitting Respondents is that for the reasons given, I am satisfied that the relief agreed between ASIC and the Submitting Respondents is an appropriate remedy, in all the circumstances pertaining to each of the Submitting Respondents. Those circumstances are not limited to the circumstances that pertain to the three courses of conduct that comprised the contraventions but extend to include the circumstances attending their conduct in the proceeding and their acceptance and insight into their culpability. The Submitting Respondents have negotiated an outcome with the regulator that reflects the value that the regulator places on the co-operation of those respondents, their acceptance of liability and the saving of public resources. Finally, in assessing whether the relief is an appropriate remedy, I have also factored in each of the Submitting Respondent's personal circumstances which are unique to each of them even though there are some common features with their personal circumstances and those of Mr Daly.
134 The starting point for Mr Daly is that he did not settle with ASIC. In his case, I must come to a decision applying the established principles in relation to civil penalties based on instinctive synthesis to arrive at the appropriate penalty, accepting that there may be a range within which the appropriate penalty falls. His conduct comprises two distinct courses of conduct, one of which involved him preferring his own personal interest above those of investors in the Registered Scheme in circumstances where he was an officer of the responsible entity. He contested liability. While he is not to punished for that, he is not entitled to receive the benefit that the Submitting Respondents receive attendant on their having reached agreement with ASIC. I do not accept the underlying premise for Mr Daly's submissions by which he hypothesises as to the agreed outcome he may have achieved with ASIC relative to what ASIC agreed with the other respondents. The fact is that he did not reach any such agreement. His appeal to the parity principle by reference to a hypothetical settlement is misplaced.
135 I have not overlooked that during the course of the penalty hearing, Mr Daly agreed to the form of the declaration to be made against him. I do not regard his agreement to the form of the declaration as being a matter that should be given other than minor weight. Once he was found to have contravened s 601ED(3), the making of a declaration against him was required under s 1317(1) of the Corporations Act.
136 That Mr Daly did not accept his culpability by agreeing before the liability hearing that he was liable for the contraventions alleged against him reflects another factor in considering what is the appropriate penalty in his case. It is consistent with the fact that even after he has been found to have contravened s 601FD of the Corporations Act, that Mr Daly has only superficially accepted responsibility for his actions. He lacks real insight into his conduct and in substance has demonstrated limited remorse. Those factors emphasise that there is a greater need in Mr Daly's case for specific deterrence and public protection. The lack of remorse or contrition demonstrated by Mr Daly, assessed in light of his conduct as a whole, is relevant in that it suggests a higher penalty is warranted for the penalty to achieve the objective of specific deterrence: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; 274 CLR 450 at [47] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ); Australian Building and Construction Commission v Construction, Forestry, Maritime, Mining and Energy Union [2020] FCA 1662 at [83] (Colvin J); Commissioner of Taxation v Bogiatto (No 2) [2021] FCA 98 at [79] (Thawley J).
137 Taking all of these matters into account, the critical factor is that there must not be unjustifiable disparity between the remedies agreed by the Submitting Respondents, and accepted as an appropriate outcome by the Court, and the relief granted against Mr Daly. The differences in relief ordered against them must be rational and fair, so that no justifiable sense of grievance may arise.
138 Taking into account all of these matters, as well as Mr Daly's difficult personal circumstances and his financial position, it is appropriate to order that Mr Daly be disqualified from managing corporations for a period of five years and that he pay to the Commonwealth a pecuniary penalty in the sum of $150,000. I am satisfied that the period of disqualification of five years is justified having regard to Mr Daly's role on the Investment Committee through the whole of the relevant period coupled with the limited insight he has shown into his contravening conduct. These circumstances give rise to a greater need to protect the public such that a longer period of disqualification is warranted. I am satisfied that applying as I must a process of instinctive synthesis that $150,000 is an appropriate pecuniary penalty. I reject Mr Daly's contention that the penalty should be the same as that imposed on Mr Raftery. The whole of the circumstances demonstrate that the need for specific deterrence is much greater for Mr Daly than Mr Raftery, who it will be recalled repaid his loans relatively early and who has demonstrated remorse and insight. Mr Raftery also had a more limited role on the Investment Committee and his role in the contravening conduct was likewise more limited, notwithstanding he was a director of Endeavour. ASIC contend that Mr Daly should pay a pecuniary penalty of $200,000 that is double that agreed with Mr Nielsen and Mr Williams. While I accept that Mr Daly should pay a higher pecuniary penalty I am satisfied that the appropriate amount in all of the circumstances to achieve the objective of general and specific deterrence is $150,000.
139 Mr Daly is to pay ASIC's costs of the proceedings assessed at $175,000 up the first day of the liability hearing, and thereafter he is to pay ASIC's costs for the remainder of the liability hearing, as agreed or assessed and one quarter of the costs of the penalty hearing as agreed or assessed.