Australian Securities and Investments Commission v Guo

Background facts 9 In around mid-2017, Blockchain Global commenced operating a cryptocurrency exchange platform known as the ACX Exchange. It allowed customers to buy, sell and store cryptocurrency, and received funds and cryptocurrency from ACX Exchange customers for the purpose of trading on that exchange. 10 In December 2019, ACX Exchange collapsed and customers were unable to withdraw their funds. 11 Blockchain Global appointed voluntary administrators in October 2021, and liquidators were appointed in February 2022. Their reports were exhibited to the affidavit of Ms Das. 12 One of the liquidators' reports produced by Ms Das disclosed as follows: Allan Guo Based on the above investigations and the evidence I have obtained through the examination process I have identified potential claims against Mr Guo based on the following grounds: • Breaches of director's duties pursuant to ss. 180, 181, 182, 183 and 184 of the CA; • Breaches of trust; • Unreasonable director-related transactions pursuant to s.588FDA of the CA; • Claims relating to bailment; and • Being a knowing assistant in a breach of trust and breach of fiduciary duty. I have quantified the above claims against Mr Guo as ranging between $12,275,670 and $42,918383.

Mr Guo's affidavit 13 In his affidavit, Mr Guo deposed as follows about his personal circumstances: 3. I was born in China on 12 March 1985 and am a Chinese citizen. 4. I moved to Adelaide, Australia on about 6 March 2002 to commence studying in year 10 at Marryatville High School. Upon completing year 12, I commenced a bachelor of commerce (accounting) at Adelaide University in 2005. I graduated with a Bachelor of commerce in June 2007. 5. In November 2007, I moved to Melbourne. I became a permanent resident of Australia in February 2008, and am currently a permanent resident of Australia. 6. I married my ex-wife … in China in about 2009, having met in 2001. We separated in about 2018. 7. My wife moved to Australia in 2009 and is currently a permanent resident of Australia and a citizen of China. Since moving to Australia, she has been employed in various occupations. Over the last 18 months, she has been employed as a kindergarten teacher. 8. There is one child of our marriage … aged 7 years. 9. Our child was born in Australia and is a citizen of Australia. 10. My ex-wife and I are on amicable terms in relation to the care of our child and we spend about equal time with him and share parental responsibility for him. 11. Our son resides at [address omitted] with his mother. I spend time with my son about 3 to 4 times per week. I do so by visiting my son at the … address, taking him to undertake various activities, and also sleeping at the … address to spend overnight time with my son about 2 times per week usually on the weekend. 12. Our child is a resident of Australia and has lived almost all of his life in Australia with occasional overseas holidays. Our child attends … Primary School in Melbourne … in Australia, attends extracurricular activities in Australia, and has his friends in Australia. [My ex-wife] and I intend to remain in Australia in the future and take care of our son in Australia. 13. My mother and father are citizens of China and are separated. My mother also became a permanent resident of Australia in about 2011. From that time until 2020, my mother spent 90% of her time in Australia. In 2021 and 2022, my mother spent most of her time in China, because her mother was ill, and passed away in October 2023. My mother returned with me to Australia to spend time with me and my son in February 2024. My son is her only grandson. My mother intends to remain in Australia and spend most of her time here in the future. 14. My mother resides with me in a rental property at [address omitted]. 15. My father resides in China and is in bad health. He suffers from heart disease, high blood pressure, asthma and poor eye sight. Earlier this year, I attended China to visit my father and care for him and also to search for a crypto seed phrase, which I refer to below. 16. My father does not have anyone to care for him. For this reason, I wish to travel to China from time to time and care for my father. 14 At the hearing, and in response to a question from me, Mr Schulz said that Mr Guo does not have any "immediate" plans to travel to China. He also told me that Mr Guo has delivered up to the Registry his (Chinese) passport. 15 Mr Guo also gave evidence about other legal proceedings in which he is a defendant, as follows: 26. I am the second defendant in proceeding number SECI 2020 03554 in the Supreme Court of Victoria, brought against me by Jin Chen (the Chen Proceeding). [Blockchain Global] is the first defendant in that proceeding. 27. I am also the fifth defendant in proceeding number SECI 2021 03329 in the Supreme Court of Victoria brought against me by Lance Abel and others (the Abel Proceeding). [Blockchain Global] is the first defendant in that proceeding. 28. The Chen proceeding involves a claim for breach of contract against [Blockchain Global], in which the plaintiff seeks possession of 117.34 bitcoins. I was joined to those proceedings because I had in my possession part of the Seed Phrase for the wallet holding the 117.34 bitcoins. 29. The Abel proceeding involves claims against me for knowing assistance and misleading and deceptive conduct in relation to money that individuals allege they are entitled to in relation to an online crypto currency exchange related to [Blockchain Global]. 30. The plaintiffs in the Abel proceeding also claim a proprietary interest to the aforementioned 117.34 bitcoins which are currently the subject of a freeing [sic] order made in the Abel proceeding. 31. Although I have filed defences in both proceedings and dispute the allegations made against me, by September 2023 my financial resources had been exhausted, having borrowed funds from friends and family to fund my legal fees. As such, I could no longer afford the substantial legal costs incurred in actively participating in each of the proceedings. As I further detail below, I am impecunious. 16 He also gave the following evidence about flight risk: 40. Prior to Covid-19 I travelled to China frequently, to see my father who was and is in bad health. 41. Since August 2022, I have travelled to China twice. The first of those trips was in February 2023 to visit my father and also to attempt to retrieve half of the seed phrase in relation to the 117.33 bitcoins referred to above which was recorded on a piece of paper. 42. The second trip was in February of this year, on which occasion I again visited my father to care for him. 43. I have at all times: (a) abided by orders of the court in relation to my dealings with BGL, which included my traveling to China; (b) cooperated with [Blockchain Global's] liquidator and participated in a public examination; (c) returned to Australia, where I have lived since 2002, to raise my child despite my knowledge of the claims. 44. I consider Australia to be my home and intend to live in Australia for the rest of my life. 45. I do not have established connections in China. I left China at the age of 16, and have lost touch with most of my childhood friends. The main reason I return to China is to see my father. 46. I do not intend to, and will not, remove myself from Australia and not return to avoid legal action against me or to avoid my legal obligations. 17 Mr Guo also proffered the following undertaking: 47. If this honourable court is minded to discharge the restraint orders made against me, I am prepared to provide an undertaking to the court that I will not depart from Australia without giving 14 days prior written notice to the [ASIC], such notice to specify: (a) the place or place to which I intend to travel and the dates upon which I intend to be at those places; (b) the dates upon which I am departing and intend to return; (c) the airline or airlines or other carriers which I intend to use for my travel; and (d) my ticketing arrangements.

ASIC's investigations 18 ASIC commenced its investigation pursuant to s 13 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) on 16 January 2024. 19 Ms Das deposed to the fact that other persons of interests, being other directors of Blockchain Global, left Australia soon after its collapse, making Mr Guo the only person closely involved with the affairs of Blockchain Global who remains in Australia. 20 ASIC anticipates that interviewing or examining Mr Guo will be critical to ASIC pursuing the investigation, which it anticipates may culminate in the referral of a brief of evidence to the Commonwealth Director of Public Prosecutions (CDPP). 21 Ms Das gave evidence about conduct of Mr Guo which ASIC considers may have contravened ss 180-184 of the Corporations Act, as well as ss 81 and 82 of the Crimes Act 1958 (Vic). 22 Her Honour summarised that evidence at [13] of her reasons, as follows: In particular, ASIC has stated that it appears that, on 6 March 2018, Mr Guo used the ACX Exchange to transfer investor funds by causing over $333,000 to be withdrawn from an account associated with Blockchain Global to purchase shares in First Growth Fund Limited, for the benefit of ACL Investment Australia Pty Limited, which is a trustee of the family trust associated with Mr Guo's family. ASIC also claimed that Mr Guo caused the transfer of $1.4 million from an account associated with Blockchain Global to purchase further shares in First Growth Fund Limited for the benefit of Blockchain Global, but without recording that transaction in the accounts of Blockchain Global. ASIC has also noted that, during his directorship, Mr Guo transferred $2.6 million out of a bank account holding investor funds, some of which was applied to his personal home loan account and his personal bank account. ASIC has also referred to Mr Guo retaining 23.11 bitcoins, said to be worth approximately $1.8 million, which were the property of Blockchain Global and having transferred them into a cryptocurrency wallet controlled by Mr Guo on 8 December 2019. 23 As her Honour said, and Mr Schulz did not say otherwise, the allegations against Mr Guo are very serious.

The legislation and relevant principles 24 The application was brought pursuant to subsection 1323(1)(j) and (k) of the Corporations Act. 25 Section 1323 gives the court power to make a variety of specified orders in the case where an investigation is being carried out under the ASIC Act or the Corporations Act or where a prosecution or civil proceeding has been begun against a person under the Corporations Act. 26 An application under the section may be brought by ASIC or by "an aggrieved person", being a person to whom the person under investigation (or the subject of a prosecution or civil proceeding) is liable or may become liable in debt or by way of damages or compensation or to account for property. 27 An order under the section may be made only where "the Court considers it necessary or desirable for the purpose of protecting the interests of [the aggrieved] person." 28 Section 1323(1) relevantly provides that: (1) Where: (a) an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; … and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders: … (j) if the relevant person is a natural person - an order requiring that person to deliver up to the Court his or her passport and such other documents as the Court thinks fit; (k) if the relevant person is a natural person - an order prohibiting that person from leaving this jurisdiction, or Australia, without the consent of the Court. 29 As French J (as he then was) explained in Re Richstar Enterprises Pty Ltd (ACN 099 071 968); Australian Securities and Investments Commission v Carey (No 3) (2006) 232 ALR 577; [2006] FCA 433 at [23]-[27]: The liabilities, actual or potential, to which the section refers, may arise from a contravention of the Corporations Act or under the general law. The court may have regard to known facts and circumstances in assessing their existence and potential existence - Corporate Affairs Commission (SA) v Lone Star Exploration NL (1988) SASR 24 at 31; 14 ACLR 499 at 505. Von Doussa J said in that case: …the Court may have regard to all the known facts and circumstances, although in a particular case the Court may think it appropriate to consider whether the actual or potential liability is connected in some way with a particular contravention of the [Corporations Act]. There is a variety of ways in which the interests of persons, to whom liabilities may be owed, can be protected by orders made under the section. The nature of the protection can vary according to the nature of the risks assessed. As Palmer J said in Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd (2002) 20 ACLC 1530; [2002] NSWSC 684 at [37]: … 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. The orders that can be made under the section are directed, inter alia, to the preservation of assets against which recovery may be sought in the event that liability to an 'aggrieved person' is established on the part of a 'relevant person'. The orders are made in circumstances where 'an investigation is being carried out', 'a prosecution has been begun' or 'a civil proceeding has been begun'. That is to say the orders can be made before liability is established and indeed before the evidence necessary to establish liability has been collected. While an application under the section is not interlocutory in an existing criminal or civil proceeding, it is interlocutory in a wider sense. It preserves the status quo and the assets of the relevant person pending the outcome of the investigation, prosecution or civil proceedings which are on foot - Corporate Affairs Commission v Lone Star Exploration NL( No 2) at SASR 30; ACLR 504. At the stage an order is sought the court may not be in a position to identify with precision any particular liability owed by the person the subject of the proposed order. This consideration applies to final orders made under the section as well as to interim orders for which it expressly provides in s 1323(3). The final orders made under the section are necessarily of a temporary or holding character rather than finally disposing of the rights and liabilities of the relevant persons affected by them. The circumstances in which the court may make orders under s 1323(1) are wide as indicated by the words 'necessary or desirable … for the purpose of protecting the interests of a person …'. There is an element of risk assessment and risk management in the judgment the court is called on to make. It follows, and has been accepted, that there is no requirement on the part of ASIC to demonstrate a prima facie case of liability on the part of the relevant person or that the person's assets have been or are about to be dissipated - Corporate Affairs Commission v ASC Timber Pty Ltd (1989) 7 ACLC 467 at 476 (Powell J); Australian Securities and Investment Commission v Adler (2001) 38 ACSR 266; [2001] NSWSC 451 at [7] (Santow J). The nature and duration of orders made under s 1323(1) can be fashioned by the court to reflect its assessment of any risk of dissipation of the assets of a person under investigation. But their legitimate purposes can go further. The interests of aggrieved persons may be protected not only by orders designed to protect dissipation of assets, but also by orders which create an opportunity for the assets of the person under investigation to be ascertained. 30 It must also be borne in mind that it is a serious matter to restrain a person from travelling internationally. See Australian Securities and Investments Commission v Wiggins (1998) 90 FCR 314 at 320 (Finkelstein J); Australian Securities and Investments Commission; Re Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No 19) (2008) 65 ACSR 421; [2008] FCA 38 at [32] (French J) ("The imposition of restrictions upon a person's freedom of movement is a serious step not lightly to be undertaken. Such authority as there is on the imposition of such restrictions under s 1323 of the Act mandates caution in imposing them…" (citations omitted)) 31 On the other hand, the private right to travel may be outweighed by the public interest in ASIC being able to pursue its investigations, and for the purpose of protecting the interests of the aggrieved persons. See Australian Securities and Investments Commission v Johnston [2009] FCA 1276 at [8] (Siopis J). 32 As Gordon J said in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 4) [2013] FCA 318 at [32]: … the relevant test for the making of an order under sub-ss 1323(1)(j) and (k) is whether such an order is "necessary or desirable": s 1323(1) of the Act. In deciding whether to grant or extend an order, the Court is required to perform a balancing exercise, weighing the benefit and detriment to the particular defendant against those of the aggrieved persons … Factors relevant to the balancing exercise include: 1. the importance of protecting investors' interests … 2. the length of time that the respondent has been subject to the order … 3. the risk that the respondent might leave the jurisdiction and not return … 4. the respondent's legitimate interests in being allowed to travel … 5. the length of time for which the matter has been ongoing … (Internal quotations and citations omitted).

Consideration 33 Mr Schulz agreed that the first jurisdictional limb of s 1323(1)(a) was satisfied - that is, that ASIC is carrying out an investigation under the ASIC Act in relation to acts or omissions by Mr Guo that may constitute a contravention of the Corporations Act. 34 He submitted, however, that although ASIC has identified that it is investigating whether Mr Guo may have breached ss 180-184 of the Corporations Act and ss 81 and 82 of the Crimes Act 1958 (Vic), it has not claimed that any financial liability to customers of the ACX Exchange would result from, or be enhanced by, the investigations ASIC intend to make into Mr Guo's suspected breaches, so that the second jurisdictional limb was not made out. 35 He sought to stress that Ms Das's evidence was that the purpose of any examination of Mr Guo would instead be to compile a brief of evidence to be referred to the CDPP - in other words, to advance an intended criminal prosecution. For those reasons, he contended, ASIC had not established that the orders sought by ASIC were "for the purpose of protecting the interests of a person … to whom [Mr Guo] is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise." 36 I do not accept that submission. Given the nature of the allegations made by ASIC, which Button J succinctly explained at [13] of her reasons (set out at [22] above), it seems to me that it can fairly be assumed that an examination of Mr Guo might well improve the chances of aggrieved persons recovering monies - those persons being the investors whose money seems to have been misappropriated in the fashion her Honour described. 37 In my view, the continued presence of Mr Guo in Australia is necessary or desirable for that reason and also because the ASIC investigation is in its early stages and ASIC has not yet had the opportunity to speak with Mr Guo. And because he is a "central player" and the only relevant person left in Australia who may be able to assist with the investigation, it will be necessary for ASIC to interview or examine him. 38 In my view, therefore, the orders that ASIC seeks to maintain are necessary or desirable within the meaning of, and for the purpose stipulated in, s 1323(1)(a). 39 The power to restrain Mr Guo in the manner which ASIC presses is thus enlivened, but the exercise of that power involves a number of relevant discretionary matters. Compare Australian Securities and Investments Commission v Hawley (2008) 250 ALR 57; [2008] FCA 1423 at [5] and [19] (Perram J). 40 Mr Schulz submitted that the fact that ASIC's investigations are in their early stages should weigh against the exercise of the discretion to make orders because: [t]he only investigative steps deposed to having been conducted to date are a meeting with the Liquidators and the issuing [of] a compulsory notice upon them to deliver up the books [and] records of the relevant Company. There is no outstanding request from ASIC to the defendant to provide any information or to attend any examination. No timetable for advancing the investigation or any examination of the defendant is proposed, save that it is stated that it is anticipated that the investigation will take at least 12 months. Whilst Ms Das deposes to a belief that ASIC will not be able to conduct an effective and successful investigation without examining the defendant, there is no specific evidence put forward by the plaintiff that the defendant might be absent and unable to participate in such an examination if and when ASIC were ready to conduct one. (Footnotes omitted). 41 Mr Schulz also stressed Mr Guo's strong ties to Australia, as follows: The defendant has strong ties to Australia. He commenced living in Australia in March 2002 and completed his final two years of high school here. He completed his university studies here. He has permanent residency status in Australia, which he obtained in 2008. He currently resides in Melbourne with his mother. He considers Australia his home, intends to live here the rest of his live, and has lost any connection with China, where he has not lived since he was 16 years old. He has strong familial ties to Australia. He has a 7-year-old son who is an Australian citizen, resides in Melbourne and attends school here. He shares parental duties with his ex-wife who lives in Melbourne, has permanent residency status in Australia, [and] is employed as a kindergarten teacher here. He and his ex-wife intend to raise their son in Australia. His mother also has permanent residency status in Australia, which she has had since 2011, and intends to reside in Australia in the future. Given his strong familial ties to the jurisdiction, the defendant should be assessed as a low risk of absconding and being unavailable to assist ASIC with any future enquiries. … Although the defendant has travelled to China as recently as last month, which was in order to visit his father, he nevertheless returned to Australia and indicated an intention in an arrival card to reside in Australia for the next 12 months, despite his knowledge, had since in early 2023, that the liquidators of the Company were investigating commencing claims against him as a former director of the Company that may expose him to potential criminal charges. These are presumably the same matters which ASIC [is] now investigating, given ASIC's concerns have been derived from the Liquidator's reports to creditors. The defendant denies any wrongdoing in relation to his involvement with the Company, the allegations the subject of ASIC's concerns, and deposes he intends to defend any proceedings issued against him in relation to them. The defendant has demonstrated his willingness to comply with previous requests that he be examined in relation to the affairs of the Company, having attended for examination over two days in October 2022 by the Liquidators of the Company on issues which, ASIC concedes, are "similar to those in ASIC's investigation". The defendant has left Australia twice since that examination took place and returned to Australia. (Footnotes omitted). 42 ASIC, on the other hand, submitted that the balancing exercise weighed very much in favour of the continuation of the order for a period of six months, as follows: Here, as previously established, there would be a significant detriment to the aggrieved persons should Mr Guo leave the jurisdiction either permanently or for an extended period, as it would significantly hamper the ASIC investigation into him and Blockchain Global. He is the only former director of Blockchain Global (relevant to the issues being investigated) who remains in Australia and the investigation cannot proceed effectively or efficiently in his absence. On the other hand, the only matter identified in Mr Guo's affidavit which suggests a detriment to him occasioned by the Travel Restraint Orders is his desire to be able to travel to China from "time to time" to care for his father. Mr Guo has only just returned to Australia from a trip to visit and care for his father. He has not indicated any specific intention or need to return in the next 6 months (being the approximate duration of the current restraint), although it can of course be accepted that if his father is in ill-health, a reasonably urgent need to travel may arise. 43 I have given the matter anxious consideration, because, as the cases make clear, the power to prevent a citizen or a permanent resident from leaving the country is not lightly to be exercised. 44 Ultimately, however, I do not think that the orders made by Button J should not be disturbed, for the reasons advanced by ASIC set out at [42] above. 45 In that regard, in my view, the seriousness of the allegations against Mr Guo is a significant factor weighing in favour of keeping the orders in place. It warrants repeating that ASIC alleges that Mr Guo: used the ACX Exchange to transfer investor funds by causing over $333,000 to be withdrawn from an account associated with Blockchain Global to purchase shares in a fund for the benefit of a family trust associated with Mr Guo's family; transferred $1.4 million from an account associated with Blockchain Global to buy more shares in the fund for the benefit of Blockchain Global, without recording the transaction in Blockchain Global's accounts; transferred $2.6 million out of a bank account holding investor funds, some of which was applied to his personals accounts; and transferred about $1.8 million worth of Bitcoins belonging to Blockchain Global into a cryptocurrency wallet that he controlled. 46 It also warrants repeating that the liquidators have identified potential claims against Mr Guo based on the various grounds set out at [12] above ranging from $12.275 million and $42.918 million. 47 If some pressing need does in fact arise for Mr Guo to travel to China, including to visit his father, before 20 August 2024, then, as ASIC submitted, he remains free to approach ASIC and the Court to seek to have the orders varied or discharged for that purpose. At that point, a new assessment can be made having regard to, among other things, the basis and duration of the proposed travel, as well as the progress of the ASIC investigation. 48 I did give consideration to Mr Guo's proffered undertaking, set out at [17] above, but in my view it is not sufficient. 49 I also note that although Mr Guo asserted in his affidavit that he is impecunious, his counsel (unsurprisingly) did not advance that as a ground to discharge the orders. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Callaghan.