Australian Securities and Investments Commission v McCabe

BACKGROUND 5 The evidence relied on by ASIC is principally set out in two affidavits affirmed by Isabella Lucy Allen on 4 April 2022 and 22 April 2022 respectively. Ms Allen is a senior investigator at ASIC and has been involved in an ongoing investigation into Mr McCabe since August 2021. That investigation now relates to suspected contraventions of s 1041G of the Corporations Act in the period commencing 31 July 2014. 6 I set out below a summary of the relevant evidence. Before doing so, I note that some of Ms Allen's evidence is in the nature of hearsay evidence. However, in the context of this application, being an application under s 1323 of the Corporations Act, such evidence can be received and acted upon, not as proof of the truth of its content, but as evidence of the existence of a risk or possibility that gives rise to the necessity for or desirability of a protective order under that section: see Australian Securities and Investments Commission in the matter of Richstar Enterprises Pty Ltd v Carey (No 3) [2006] FCA 433 at [31]. 7 Mr McCabe was a director of Guevara Capital Access Pty Ltd and Online Trading Capital Pty Limited, both of which are now deregistered. He became a bankrupt on 12 November 2020. Ms Allen has summarised ASIC's suspicions based on the documents and information it has thus far obtained as a result of its investigations. In particular, according to Ms Allen, ASIC suspects that: (1) through Guevara and Online Trading Capital, Mr McCabe dishonestly obtained approximately $1.77 million from potentially 29 clients; (2) ASIC has spoken to seven affected clients who each indicated that Mr McCabe represented to them that he would either: (a) set up a foreign exchange account on their behalf, which would contain up to $1 million which the client could trade themselves, with Mr McCabe providing training and daily trade recommendations which would allow them to receive high returns, in excess of 20% per annum; or (b) directly trade funds on their behalf in foreign exchange markets for high returns, in excess of 20% per annum; (3) instead, Mr McCabe: (a) provided clients with trading accounts that were not live accounts and which could not actively trade on any markets, but were "demo" or test accounts that did not contain any actual capital; (b) concealed from clients the fact that the accounts were not live accounts by preventing them from contacting the operators of the training accounts directly; (c) informed clients that their funds had been dissipated through trading losses; and (d) misappropriated the clients' funds to pay for his personal expenses. 8 Ms Allen sets out in some detail the evidence which forms the basis of these suspicions, both at a general level, that is, in terms of what the world at large was told by Mr McCabe, and more particularly, by reference to the investigations and inquiries that ASIC has undertaken with seven clients of Mr McCabe's companies, Guevara and Online Trading Capital. The information obtained from those clients has led Ms Allen to form the view that Mr McCabe adopted what she calls a common "modus operandi" as between clients which included that: (1) clients found out about the program either by word of mouth, charity events, the Guevara or Online Capital Trading websites, the mobile phone application called "meetup", a 2GB radio interview or inflight advertisements; (2) Mr McCabe informed clients that they could "make a lot of money trading foreign currencies if they joined his program"; (3) the clients entered into contracts with either Guevara or Online Trading Group. Ms Allen identified two types of agreements. First, a training agreement in which the client received training on trading foreign currencies and, secondly, a trading agreement under which Guevara agreed to provide a trading account to the client. It seems that the funds in the trading account were owned by Guevara and all trading was to be done on its behalf. Guevara was to provide the client with instructions, decisions and information required by the trader to facilitate the provision of the services. The services, which were set out in appendix A to the agreement, were described as follows (as written): "The Trader shall be required to apply GCA's trading methodology to a trading Account funded by GCA and held in GCAs name in order to gain optimal returns. The Trader will be authorised to trade in Margin foreign exchange contracts…and Contracts for Difference in relation to commodities and indices". (4) after clients entered into the training agreement and the trading agreement they were provided with two days of initial training, two volumes of training materials, a spreadsheet telling them which trade to place each day and the ability to ask Mr McCabe questions about their trading via Skype, email, WhatsApp or text message; (5) clients were able to choose from a number of tiers. Based on the amount of funds that a client transferred to Guevara or Online Trading Capital they would have access to a higher tier and a larger amount of trading capital; (6) shortly after signing up clients were offered discounts to encourage them to invest further funds in order to move to a higher tier which would grant them access to additional trading capital; (7) clients did not make significant profits and often made losses by placing the trades and therefore were usually unable to obtain any profit share; (8) most client trading accounts were either commenced with or moved to FP Markets; (9) in about October 2018, FP Markets shut down the accounts that Mr McCabe had set up. The clients lost access to those accounts and FP Markets subsequently told the clients that the accounts were test accounts and not funded with real funds; and (10) there were instances in which Mr McCabe paid the clients a share of the trading profits under the contract. However, the clients with whom ASIC spoke principally lost all funds that they transferred to Guevara or Online Trading Capital. 9 Ms Allen is of the view that, while not presently under investigation, ASIC's investigation is likely to uncover facts that are relevant to potential claims by consumers under ss 1041H, 911A and 911C of the Corporations Act. Those sections respectively concern misleading or deceptive conduct, carrying on a business without an Australian Financial Services licence (AFSL), and holding out in relation to having an AFSL. Ms Allen has formed this view because ASIC's investigation involves analysis of the business operations of Guevara and Online Trading Capital, as well as their status as holders of AFSLs and whether at all relevant times they held AFSLs. 10 Ms Allen explains that some of the evidence uncovered by ASIC would be available to consumers, for example, transcripts of examinations and business records, who may wish to pursue their own action against Mr McCabe. Ms Allen believes that Mr McCabe may be liable to "aggrieved persons", namely the 29 or so clients of Mr McCabe's companies, in respect of loss or damage that they have suffered as a result of Mr McCabe having engaged in alleged contraventions of the Corporations Act. 11 As I have already observed, Mr McCabe is a bankrupt. In November 2021, the Trustee lodged an objection to discharge with the Australian Financial Security Authority due to Mr McCabe failing to comply with his duties and obligations to provide books and records regarding his property, income and expected income, and for failing to notify the Trustee upon his return to Australia in May 2021. 12 At least at the time Ms Allen affirmed her first affidavit in early April 2021, the Trustee's investigations into the extent of Mr McCabe's assets was incomplete and inhibited by Mr McCabe's failure to provide books and records. Ms Allen deposes that insufficient records have been made available to ASIC to date for it to form a view on the extent of Mr McCabe's assets available to repay clients of Guevara and Online Trading Capital. 13 Ms Allen also gives evidence that, based on her review of particular correspondence received by ASIC, Mr McCabe has provided many different residential addresses on different documents and has, in effect, equivocated about his ordinary place of residence. Ms Allen is concerned that the position is that he does not have an ordinary place of residence in Australia. 14 There is also evidence before me that Mr McCabe has indicated to the Trustee an intention to travel. This was initially for the purposes of undertaking a job interview in Singapore, with correspondence about that intention passing between Mr McCabe and the Trustee in late January and early February 2022. By 22 February 2022, Mr McCabe indicated to the Trustee that he wished to travel, both in relation to potential employment opportunities, as well as for the purposes of attending a wedding of a very close friend which was scheduled to take place "in the coming months". Mr McCabe indicated that he would appreciate being able to attend that event and that he would provide the Trustee "with details ASAP". While that email was sent on 22 February 2022, there is no evidence of any such details having been provided. 15 At the time that correspondence was exchanged, Mr McCabe's passport was in the possession of the Trustee. That passport has now been delivered to the Court pursuant to an order made on 8 April 2022 and referred to at [3] above. Prior to the Court making that order, correspondence passed between ASIC and the Trustee. In that correspondence, the Trustee informed ASIC, in response to a specific request, that while she was willing to provide an undertaking to give ASIC information about any requests Mr McCabe made for the return of his passport, or any other documents permitting international travel, and any correspondence provided in support of such a request, she was unable to "provide an undertaking that [she would] provide seven days written notice prior to make [sic] any decision to release any passport or any other documents permitting international travel". 16 It is apparent, based on the evidence before me, that Mr McCabe has a connection to Singapore and that he has at the very least indicated that he wishes to travel there for more than one purpose. 17 Following the commencement of this proceeding, the originating process and other material was served on Mr McCabe. That included Ms Allen's first affidavit affirmed 4 April 2022 which sets out, in some detail, the nature of the investigation being undertaken into Mr McCabe's conduct and the nature of the potential claims which the former clients of Mr McCabe's companies might have against him. Relevantly, it also refers to ASIC's intention to send a brief to the Commonwealth Director of Public Prosecutions once its investigations are complete. 18 In addition, since that time a notice issued under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) has been served on Mr McCabe, with a further copy being provided to him by email. That notice requires Mr McCabe to appear for an examination at 9.30 am on Wednesday, 4 May 2022 at ASIC's offices. 19 Ms Allen's second affidavit sets out the steps ASIC has taken since Ms Allen affirmed her first affidavit. That is, further notices have been served and are returnable in the near future. It also sets out the remaining steps which ASIC intends to take to complete its investigation. Those further steps include issuing notices under s 19 of the ASIC Act for examination of former employees of Guevara and Online Trading Capital as well as issuing further notices for the provision of documents and finalising witness statements of potential witnesses. There may also be a need to issue a notice under s 30 of the ASIC Act to Mr McCabe and, depending on the outcome of other investigative steps, it may be necessary to undertake a further examination of Mr McCabe, which Ms Allen suggests would take place in July 2022.

LEGISLATIVE FRAMEWORK AND LEGAL PRINCIPLES 20 Section 1323 of the Corporations Act relevantly provides: (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; or … 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. … (2) An order under subsection (1) prohibiting conduct may prohibit the conduct either absolutely or subject to conditions. … (4) On an application under subsection (1), the Court must not require the applicant or any other person, as a condition of granting an interim order under subsection (3), to give an undertaking as to damages. (5) Where the Court has made an order under this section on a person's application, the Court may, on application by that person or by any person affected by the order, make a further order discharging or varying the first‑mentioned order. (6) An order made under subsection (1) or (2) may be expressed to operate for a specified period or until the order is discharged by a further order under this section. (7) Nothing in this section affects the powers that the Court has apart from this section. (8) This section has effect subject to the Bankruptcy Act 1966. 21 Section 1323 of the Corporations Act has both a jurisdictional requirement and a discretionary element. 22 As to the jurisdictional requirement, the Court's jurisdiction is engaged under the section where one of the three matters in subs 1323(1)(a), (b) or (c) exists. ASIC relies on s 1323(1)(a) of the Corporations Act on the basis that it is presently undertaking an investigation with respect to a possible contravention of s 1041G of the Corporations Act by Mr McCabe. Clearly, the Court's jurisdiction is engaged. 23 The discretionary element turns on whether the orders are "necessary or desirable" for the purpose of protecting the interests of an aggrieved person to whom Mr McCabe is or may be liable to pay money either in respect of a debt or by way of damages or compensation or otherwise to account for financial products or other property. 24 In ASIC v Sino Australia Oil and Gas Limited [2014] FCA 565; 101 ACSR 115, at [13], Davies J said the following about the exercise of the discretion: The next element is whether the relief sought is "necessary or desirable" to protect the interests of the investors: Australian Securities and Investments Commission v Sigalla (2009) 74 ACSR 710; [2009] NSWSC 1205 at [17], [26] per Barrett J. This element is not concerned with the character of the alleged wrongdoing of the defendants or with the ability or willingness of an aggrieved person to pursue their interests but, rather, is concerned with the protection of the interests of those persons who may have claims against the company, in this case the investors: Australian Securities and Investments Commission v Burke [2000] NSWSC 694 at [6] per Austin J; Australian Securities and Investments Commission v Burnard (2007) 64 ACSR 360 ("ASIC v Burnard") at 365. In ASIC v Burnard Barrett J observed at [14]: The section aims to provide a means by which property that may be in due course represent a source for the vindication of the rights of those person is preserved for their benefit, shielded from inroads that might otherwise be upon it. The section is auxiliary to the investigation, prosecution or civil proceeding which provides access to it. As French J (as His Honour then was) stated in ASIC v Carey at [26] the function to be performed under s 1323(1) is essentially one of risk assessment and management. 25 The assessment of the discretion under s 1323(1) of the Corporations Act involves a balancing exercise which requires the Court to weigh the detriment to the particular defendant against the benefit to aggrieved persons: see Australian Securities and Investments Commission v ActiveSuper Pty Limited (No. 4) [2014] FCA 318 at [32]. 26 In Australian Securities and Investments Commission v Johnston [2009] FCA 1276, at [10]-[12] Siopis J identified the following factors as relevant to an assessment of whether relief of the nature now sought by ASIC should be given: 10 First, the fact that the investigation being carried out cannot be properly or effectively conducted in the absence of the person. 11 Secondly, the importance of the person in the ongoing investigation, the character of the potential offences, the fact that the person has a base overseas and the stage at which the investigation is at. 12 Thirdly, whether there is evidence that by examination of the person (which may be thwarted if the person flees Australia) ASIC is likely to improve the chances of the aggrieved persons retrieving their moneys.

CONSIDERATION 27 Having regard to the evidence before me and the submissions made by ASIC, I am of the opinion that it is necessary or desirable to make the orders sought by ASIC for the purpose of protecting the interests of the aggrieved persons in this case. I have reached that view for the reasons set out below. 28 First, as ASIC submitted, its investigation cannot be carried out in Mr McCabe's absence. Based on the evidence before me, it is apparent that he was the architect of the scheme pursuant to which moneys were provided to his companies for the purpose of investment. That being so, his examination is critical to understand the way in which that scheme operated and, ultimately, whether the aggrieved persons, being those companies' former clients, might have a cause of action against him. 29 Further, in order to make that assessment, it is necessary to understand whether Mr McCabe has any assets. It appears to be the case, based on the correspondence received by ASIC from the Trustee, that the Trustee is unlikely to take any further steps to investigate Mr McCabe's conduct or indeed his assets. So much is apparent from, among other things, her repeated statement that she is without funds. That being so, if Mr McCabe does not remain in the jurisdiction for the purposes of being examined, evidence, both as to his conduct vis à vis the way in which he interacted with his former clients and implemented his business and as to his asset position, will not be available to the aggrieved persons. 30 Secondly, based on the evidence referred to in Ms Allen's first affidavit and summarised above, I am satisfied that there is a prima facie case against Mr McCabe. No more needs to be said about that. 31 Thirdly, while there appears to be no imminent risk of Mr McCabe leaving the jurisdiction, he has indicated as recently as 22 February 2022 that he wishes to travel to Singapore. As I have already noted, he appears to have historical ties to Singapore. There has been no appearance by or on behalf of Mr McCabe today to inform the Court to the contrary or to provide any evidence on his behalf as to whether the concern, which arises from the correspondence that is available, is misplaced. 32 In those circumstances, I am satisfied that there is a risk that Mr McCabe wishes to leave the jurisdiction. I would infer, now that he is aware of this proceeding and ASIC's investigation, that that desire might be heightened. In short, the chance of aggrieved persons retrieving any money from Mr McCabe may be substantially reduced if he is permitted to leave the jurisdiction and does not return. In the period that the investigation has been on foot, just under a year, ASIC has not examined Mr McCabe but has, in that time, been focused on collecting evidence from other relevant persons, including the former clients who dealt with Mr McCabe's companies. It now proposes to do so. 33 Finally, the orders sought by ASIC have a proposed end date of 26 August 2022, subject to further order. They recognise that preventing a person from travelling interferes with that person's liberty but balance that limitation by seeking an end date in the not too distant future. That date has been identified based on the estimated time required to complete the investigatory steps identified by Ms Allen while allowing for what was described as "some slippage" which may be occasioned by the conduct of third parties who will be or are subject to ASIC's compulsory processes, both in the production of documents and in attending examinations. I am satisfied that in the circumstances the period for which the order will operate as sought by ASIC is realistic and will, it seems, allow it sufficient time to complete its investigations. 34 In my view, having regard to the length of time for which the order sought by ASIC will operate, the importance of protecting the aggrieved persons' interests outweighs Mr McCabe's interest in being permitted to travel.

CONCLUSION 35 For those reasons, I am satisfied that the orders sought by ASIC should be made. Counsel appearing for ASIC this morning has provided the Court with a draft minute of orders. I will make orders in accordance with the proposed orders set out in that draft. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.