Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd

The parties and the WRM cash rebate scheme 11 WRM, as an Australian financial services licensee, is permitted to provide advice to retail clients about life risk insurance and superannuation products. 12 JECA, a related company, is the marketing/advertising arm of WRM and trades as "Yes FS". It has, at no time, held an Australian financial services licence (AFSL) or been authorised under such a licence. 13 Yes FP, also a related company, is a corporate authorised representative of WRM and employs most of WRM's authorised representatives (ARs), who provide advice on life insurance and superannuation products. 14 Mr Fuoco was a director of each of the corporate defendants at all relevant times until 13 May 2016 and is the sole shareholder of the corporate defendants. 15 The alleged contraventions arise from a business conducted by the corporate defendants which involved offering and giving cash payments to clients in connection with the provision of financial advice (the cash rebate scheme / the scheme). 16 The scheme operated from December 2015 until 8 May 2017, when this Court made interlocutory injunctions against the corporate defendants restraining them from continuing to operate the scheme: Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd [2017] FCA 477.

The marketing 17 JECA attracted prospective clients to the scheme through a website at www.yesfs.com.au (Yes FS Website) and through online advertising. It targeted and attracted people with a poor credit history who were seeking credit or fast cash. 18 Through the Yes FS Website and its online advertising, JECA represented that it provided credit and/or personal loans (the Credit Representation). The Yes FS Website contained the following statements: (a) in February 2016, at the web address http://yesfs.com.au/pre-approvalloan: FAST PRE-QUALIFICATION: CASH FROM $2,000 - $20,000. YesFS helps many Australians manage, reduce and eliminate their personal loans, credit card debts, payday loans and other loans. Have you been declined previously because of low credit score - too many inquiries in the last 6 months? Obligation free consultation if any of the following you say yes to: - Consolidating debt into one repayment? - Been refused refinance previously because of arrears, non-payments of existing debts? - Credit defaults or judgement? Need cash now? YES FS CAN MAKE…$2000 OF THE AMOUNT AVAILABLE WITHIN 24-72 HOURS*. Applicants must have been employed for at least 1 year and currently employed and earns at least $30,000/yr? Terms and Conditions from the service and product provider apply. Via our affiliated Australian Credit Licence 384 324 (ACR 422603) (b) in March 2016, at the web address http://yesfs.com.au/pre-approvalloan: YesFS helps many Australian (sic) manage, reduce and eliminate their personal loans, credit card debts, payday loans and other loans. Have you been declined previously because of low credit score - too many inquiries in the last 6 months? Obligation free consultation if any of the following you say yes to: - Consolidating debt into one repayment? - Been refused refinance previously because of arrears, non-payments of existing debts? - Credit defaults or judgement? Need cash now? Applicants must: - have been employed for at least 1 year and currently employed and earns at least $30,000/yr? Terms and Conditions from the service and product provider apply. Via our affiliated Australian Credit Licence 384 324 (ACR 422603) (c) in June 2016, at the web address http://yesfs.com.au/pre-approval: Yes FS helps many Australian (sic) manage, reduce and eliminate their personal loans, credit card debts, pay day loans and other loans. Have you been declined previously because of low credit score - too many inquiries in the last 6 months? Obligation free consultation if any of the following you say yes to: - Consolidating debt into one repayment? - Been refused refinance previously because of arrears, non-payments of existing debts? - Credit defaults or judgement? Need cash now? Applicant must: - have been employed for at least 1 year and currently employed and earns at least $30,000/yr? Terms and Conditions from the service and product provider apply. Financial services are provided by our Australian Credit … (d) in November 2016, at the web address http://yesfs.com.au: Cash flow via YesFS No repayments? No interest? No loan? Then the YesFS cash flow solution may be suitable for you. (e) in November 2016, at the web address http://yesfs.com.au/no-credit-check-required: YesFS Eliminate Debt Fast No repayments No interest No loan No Conventional Credit Check Required … 19 Beyond JECA's own website, it has since around December 2015 engaged GoogleAdwords to display advertisements on Google's website, including sponsored links to the Yes FS Website, stating: Personal Loan Low Rates - Loans from $2000-$20,000 - yesfs.com.au www.yesfs.com.au/pre-approval/ (03) 9111 3105 No Credit Check Required Call YesFS. The financial product described in the text is "loans", not rebates, and certainly not anything foreshadowing some impost on the applicant's superannuation. 20 Likewise, JECA engaged Gumtree to display advertisements, including sponsored links, on Gumtree's website stating: (a) in around May 2016: NO CONVENTIONAL CREDIT CHECK REQUIRED (FAST PRE-QUALIFICATION) … YES FS can make the first $2000 of the total cash available within 24-72 hours Obligation free consultation if any of the following you say yes to: - Consolidating debt into one repayment? - Been refused refinance previously because of arrears, non-payment of existing debts, credit defaults or judgement? - Need cash now YesFS helps many Australians to manage, reduce and eliminate their personal loans, credit card debts and pay day loans. Have you been declined previously because of low credit score - too many inquiries in the last 6 months? (b) in around June 2016: NO CONVENTIONAL CREDIT CHECK REQUIRED (FAST PRE-QUALIFICATION*) … YES FS can make the first $2000 of the total cash available within 24-72 hours* Obligation free consultation if any of the following you say yes to: - Consolidating debt into one repayment? - Been refused refinance previously because of arrears, non- payment of existing debts, credit defaults or judgement? - Need cash now YesFS helps many Australians to manage, reduce and eliminate their personal loans, credit card debts and pay day loans. Have you been declined previously because of low credit score - too many inquiries in the last 6 months? (c) in around June 2016: Personal Loan Low Rates www.yesfs.com.au/pre-approval Loans from $2000 - $20,000 No Credit Check Required Call YesFS. (d) in around November 2016: YesFS Fast Cash Cash from $2000 - $20,000* NO CREDIT CHECK REQUIRED* … Receive $1000 to $2000 emergency funding directly into your account and YesFS can make the amount available to you within 24-72 Hours* … USE PROMOCODE: GM2016 for priority processing … 21 From at least June 2016, the Yes FS Website was marketed via a sponsored listing on the "Find Payday Loans AUS" website stating: Personal Loan Low Rates www.yesfs.com.au/pre-approval Loans from $2000- $20,000 No Credit Check Required Call YesFS. 22 Contrary to the Credit Representation, JECA did not provide credit or personal loans. 23 Further, the website passages quoted above show that, on the Yes FS Website, JECA represented that it is an authorised credit representative of the holder of an Australian Credit Licence (ACL) and/or affiliated with an ACL holder (the Credit Licence Representation). For instance, in February and March 2016, the Yes FS Website stated: "Via our affiliated Australian Credit Licence 384 324 (ACR 422603)". 24 Despite the Credit Licence Representation, none of the corporate defendants, known key officers, corporate authorised representatives or ARs (with one exception) held an ACL or were authorised to provide credit services at that time. 25 In an agreement sent to applicants interested in participating in the scheme (the cash rebate agreement/CRA), JECA represented that: (a) the application for the CRA was made to JECA as well as a company called Outsource Financial Pty Ltd (Outsource Financial), who was the holder of an ACL; and (b) JECA was affiliated with Outsource Financial, (the Outsource Financial Representation). 26 The CRAs sent to applicants prior to July 2016 stated: I/We … Submit this application to YesFS and to Outsource Financial P/L to be approved for YesFS's Cash Rebate Agreement. I/We have been informed that my/our Cash Rebate Agreement (CRA) will involve the following elements: - Where appropriate a restructure of our loan arrangements (credit cards, personal loans, store loans, short term loans/payday loans) to allow for debt consolidation and rapid debt reduction using a loan facility recommended by YesFS's affiliated finance broker Outsource Financial … 27 Outsource Financial, however, was in no way involved with the cash rebate scheme. In fact, Outsource Financial had been in a legal dispute with JECA due to JECA making reference to Outsource Financial's ACL without its approval. 28 Further, JECA represented that it offers "fast cash", "cash now" and cash payments of $2,000 within 24 to 72 hours (the Fast Cash Representation). Those representations were made in: (a) the statements from the Yes FS Website from February and November 2016; and (b) the Gumtree advertisements from May, June and November 2016. 29 Despite the representations, JECA did not provide cash within 24 to 72 hours. Typically, emergency cash was paid two weeks or more following receipt of the application form and a further sum was paid within 4-6 weeks or sometimes within 8-12 weeks. 30 Further, through the Yes FS Website and its online advertising, JECA represented that it provided debt management advice (the Debt Management Advice Representation). The representations were as follows: (a) The Yes FS Website Statements from February 2016, March 2016 and June 2016 stated: YesFS helps many Australians manage, reduce and eliminate their personal loans, credit card debts, pay day loans and other loans. (b) The Gumtree advertisements from May 2016 and June 2016 stated: YesFS helps many Australians to manage, reduce and eliminate their personal loans, credit card debts and pay day loans (c) The Yes FS Website Statements from November 2016 stated that Yes FS "Eliminate[s] Debt Fast". (d) Prior to July 2016, the CRA sent to applicants stated: I/We have been informed that my/our Cash Rebate Agreement (CRA) will involve the following elements: - Where appropriate a restructure of our loan arrangements (credit cards, personal loans, store loans, short term loans/payday loans) to allow for debt consolidation and rapid debt reduction using a loan facility recommended by YesFS's affiliated finance broker Outsource Financial … 31 JECA did not in fact provide debt management advice to clients even where such advice was sought by clients in their application form.

The application process 32 A prospective client who wished to apply for a cash payment completed an application form available on the Yes FS Website. The application form required applicants to provide details of their personal circumstances including the loan amount sought, their salary, superannuation, assets and liabilities. 33 Completed application forms were received by a customer service officer (CSO) employed by JECA. The CSO would refer the client to a WRM AR, and forward the completed application form to the AR. 34 The WRM AR would then obtain insurance quotes for the applicant, usually for life, total and permanent disability (TPD) and income protection (IP) insurance. 35 The quotes were forwarded to Mr Fuoco, who then provided the WRM AR with indicative amounts for: (a) the cash rebate and any emergency funding that might be paid to the applicant; and (b) the advice fee to be paid by the applicant. 36 A CSO would then contact the applicant by telephone. The CSO would generally explain that: (a) it may be appropriate for the applicant to alter their superannuation and insurance arrangements (after future consultation with a financial advisor employed by WRM) so as to obtain access to a cash payment; (b) the fee for the financial advice would be paid from their superannuation; (c) the insurance premiums could be paid from their superannuation; and (d) the payment to the applicant would be generated and paid from insurance commissions paid by the insurance providers. 37 If an applicant was interested in proceeding, the CSO sent the applicant an email. The email typically stated: (a) in the period before July 2016: The full process of the restructure and placing insurances can take some time (generally 6-8 weeks), so we offer our clients an emergency cash advance of $[amount] against the quoted rebate should they require it ($200 fee). We can make that available within 7-10 business days from receiving the below listed documents back from you. … Due to the fact that we are recommending changes to your super and your insurances we need to have the process overseen by an AFSL Authorised Representative. … (b) in the period after July 2016: You will be provided with a rebate from insurance commissions of approximately $[amount]* *Please note this figure is an estimate and may change should your financial planner make alternate recommendations once your case is analysed. The rebate process can take some time (generally 6 - 8 weeks) so Yesfs offer clients an emergency cash advance of $1,000.00 against the quoted rebate should they require it (a $100.00 fee applies). This payment can normally be made available in 7-10 business days from receiving the below documents back from you (subject to insurance pre-approval). 38 The CSO's email also attached a number of documents, including agreements to be entered into between JECA and the applicant relating to: (a) the cash rebate (ie, the cash rebate agreement); and (b) the provision of emergency cash (the emergency debt relief agreement/ EDRA). 39 Further information about the applicant's personal circumstances was also obtained, being in each case: the reason that the applicant sought financial advice, the applicant's financial goals and investment risk profile, and the applicant's income and living expenses, asset and liability position, superannuation fund and balance and insurance arrangements (outside superannuation). 40 Paraplanners employed by WRM then drafted an advice, referred to by WRM as a "limited statement of advice" (LSOA). The WRM AR then reviewed the draft LSOA and sent it to the applicant. 41 The LSOA typically recommended that the applicant: (a) replace one superannuation provider (which could be an industry or retail provider) with another superannuation provider (typically a retail provider); and (b) purchase or replace existing life, TPD or IP insurance, usually all three. 42 Importantly, the LSOAs typically did not give any debt management advice. 43 If the applicant was willing to accept the advice, the applicant would complete an authority to proceed form, which was attached to the LSOA. 44 Where an applicant returned the completed authority to proceed form, the applicant would then be sent a further agreement being: (a) a deed of undertaking and agreement between Yes FP and the applicant (Yes FP Deed); or (b) a rebate agreement between Yes FP and the applicant (second CRA). 45 The Yes FP Deed and the second CRA required the applicant to: (a) agree not to cancel the insurance policy taken out on the recommendation of the WRM AR for a period of between 12 and 36 months; and (b) if the applicant cancelled the insurance policy, in the case of: (i) the Yes FP Deed - agree to accept liability for the reversal of any insurance commissions; and (ii) the second CRA - agree to repay the rebate. 46 After the applicant had returned the Yes FP Deed or the second CRA, the advice was implemented. This typically involved: (a) the applicant's superannuation provider being switched; (b) the applicant purchasing or replacing multiple insurance policies; (c) a fee for the advice being paid from the applicant's superannuation; and (d) the insurance premiums being paid from the applicant's superannuation. 47 As well as receiving an advice fee and ongoing commissions, WRM received an up-front insurance commission from the insurance providers for recommending that the client purchase or replace their insurance. Pursuant to a referral agreement between JECA and WRM, WRM paid the up-front commission to JECA, which then made the cash payment to the applicant. 48 At all times, the Yes FS Website and JECA's online advertising failed to disclose the following: (a) to be eligible to receive a cash payment, an applicant must agree to: (i) receive and implement financial advice from a WRM AR; (ii) (usually) replace their existing superannuation fund provider with another provider (typically a retail fund) recommended by a WRM AR; (iii) purchase or switch life, TPD and/or IP insurance policies (usually all three) on the advice of a WRM AR; (iv) a fee for advice being charged to the applicant's superannuation fund typically in the range between 2% and 20% of their superannuation balance; and (v) annual insurance premiums being charged against their superannuation, typically a substantial proportion of the employer's annual contribution to the fund (and in some instances more than the employer annual contribution); (b) WRM receives upfront insurance commissions from the insurance provider on the insurance purchased by the applicant; (c) WRM in turn pays the insurance commissions to JECA pursuant to a referral agreement; (d) the cash offer is in truth an offer to rebate to the applicant part of the commissions paid to WRM; and (e) emergency funding payable under the EDRA is subject to insurance pre-approval, often less than $2,000 and is not paid within 72 hours of the receipt of the application form but rather in excess of two weeks later.

Processes, policies and training 49 Mr Graham reviewed documents relating to WRM's processes, policies and training and prepared an expert's report in accordance with Div 23.2 of the Federal Court Rules 2011. 50 Based on his review, Mr Graham opines that WRM had no substantive steps, measures, processes or procedures of the kind required of an Australian financial services licensee. He identifies particular concerns with WRM's: (a) compliance manual; (b) training and supervision; (c) registers; and (d) best interest calculator. 51 Each of these will be referred to in turn.

Compliance manual 52 WRM's policies and processes are detailed in a document titled "Compliance Manual and Adviser Handbook", of which there are three versions. 53 The issues identified by Mr Graham were that the compliance manual: (a) did not provide any constructive guidance on how ss 961B and 961G of the Corporations Act are to be interpreted or applied by advisors; (b) contains references to legislation that was repealed and replaced. 54 Mr Graham also notes that: (a) The compliance manual states that "WRM's training program emphasises technical knowledge and compliance, as well as developing professional skills and expertise as a financial planner", yet the training register provided does not record delivery of training that satisfies this claim. (b) The compliance manual states that "[a]ll WRM SOAs are reviewed for compliance by McMasters' Solicitors, under a formal costs agreement, for a fixed monthly fee". Copies of the reviews were not provided, nor were they included in the relevant client files. This asserted approach also seems inconsistent with WRM's other statement in the manual that "WRM does not outsource any part of its operations". (c) The compliance manual makes repeated reference to WRM's preference for "low risk investment strategies based on a conservative APL, an assumption of conservatism and no or minimal debt in all client statements of advice". However, the manual confirms that these positions have not been adopted to protect clients and minimise their risk but instead to "minimise, and even eliminate, claims against individual advisers and WRM in circumstances of a general market fall … or specific investments otherwise falling in value". 55 These failings are exacerbated by the fact that WRM received a report from an external consulting firm, Know Compliance, that identified many issues with WRM's compliance manual, but WRM failed to make necessary changes in subsequent versions of the manual.

Training and supervision 56 Mr Graham reports that WRM's training register: (a) records no relevant compliance or legal training; (b) is sparse and dominated by product training; (c) discloses that no training was provided on compliance, best interests, ethics or advisor obligations or duties; and (d) discloses no references to the "FOFA specific on-line training" referred to in Part 7 of the compliance manual. 57 Mr Graham states in his report that: (a) WRM's compliance arrangements could not ensure that its representatives were appropriately trained and competent to provide appropriate advice; and (b) he has not seen any evidence that representatives are appropriately monitored and supervised.

Registers 58 Mr Graham reported that: (a) WRM's conflicts register appears to be a static document that fails to address adequately structural conflicts (namely the manner in which WRM sourced its fees via deductions against the personal superannuation of clients) or the impact of those conflicts on the advice being given; (b) WRM's complaints register contains little data and no root cause analysis appears to have been undertaken; and (c) the files of two clients indicate that the clients expressed dissatisfaction and frustration with the process, yet no reference is made to these complaints in the complaints register.

Best interest calculator 59 Mr Graham reports that WRM introduced a best interest calculator in around February 2016. The best interest calculator is an Excel tool that purportedly provides parameters/guidelines for determining whether advice is in the client's best interests. 60 In Mr Graham's opinion, the calculator is an inherently limited and subjective tool and, although it may be intended to effectively guide advisors, the limited choices it accommodates make the tool appear biased to recommended new products. The tool also promotes quantitative measures over qualitative ones and points can be allocated for benefits that are not relevant to the client's needs or that could be achieved in their existing fund.

Outcomes for clients - financial advice 61 Mr Graham reviewed 50 WRM client files and concluded that, in every one of the files, the AR did not act in the client's best interests. 62 Mr Graham's consideration of the "safe harbour" provisions in s 961B(2) of the Corporations Act overwhelmingly supports this conclusion. He opines that: (a) in 48 out of 50 files, the WRM AR failed to identify adequately the client's objectives, financial situation and needs that were disclosed to the AR through instructions; (b) in 49 out of 50 files, the WRM AR failed to identify properly the subject matter of the advice sought; (c) in 40 out of 50 files, the WRM AR did not identify the relevant circumstances but simply accepted information provided; (d) in 50 out of 50 files, the WRM AR did not make reasonable enquiries to obtain complete and accurate information from the client where it was reasonably apparent that information about the client's relevant circumstances was incomplete or inaccurate; (e) in 50 out of 50 files, the WRM AR failed to assess whether he or she had the expertise required to provide the client with advice on the subject matter sought, although Mr Graham notes that the ARs expertise was likely to have been assumed; (f) in 41 out of 50 files, the WRM AR did not have a reasonable basis to recommend the financial products that he or she recommended; (g) in 50 out of 50 files, the WRM AR failed to conduct a reasonable investigation into the financial products recommended to the client to consider whether those products would meet the client's relevant circumstances; (h) 50 out of 50 files fail to show that the WRM AR adequately assessed the information gathered in the investigation; (i) 50 out of 50 files fail to show that the WRM AR based all judgments in advising the client on his or her relevant circumstances; (j) 40 out of 50 files show that the WRM AR did not identify any conflicts or take the steps an un-conflicted AR would consider reasonable; and (k) in 49 out of 50 files, the WRM AR did not take any other step that, at the time the advice was provided, would reasonably be regarded as being in the client's best interests given his or her relevant circumstances. 63 Based on his review of the client files, Mr Graham concluded that the advice given by the WRM ARs to clients was not only inappropriate, but that most clients were clearly disadvantaged by the strategies recommended. Mr Graham identifies some particular examples of advice that was seriously detrimental to clients, including the following: (a) various clients' superannuation balances were immediately reduced by between 30% to 58%; (b) a client's negative cash flow of -$32,305 was ignored and his superannuation balance immediately reduced by 40%; (c) a client was rolled over into a more expensive platform to achieve objectives that could have been satisfied in the client's existing industry super fund and the client became over-insured; (d) a client who was single with no dependants was advised to implement arrangements that eroded her superannuation balance in a significant way because of "an urgent need in supporting [herself] and her three kids"; (e) a client who, according to the WRM AR's own analysis, would be $172,480 worse-off in 10 years if the recommendations given were implemented; (f) a number of clients who received advice that committed them to ongoing insurance premiums that would consume more than, or the majority of (in one case 92% and in another case 96.4%), the compulsory superannuation contributions made by the client's employer; and (g) a number of clients who would be substantially financially worse-off at retirement (in one case $227,031, and in another $240,157).

Mr Fuoco 64 Mr Fuoco devised and implemented the cash rebate scheme and was intimately involved in its operations. He admits the detailed allegations against him. The evidence shows that he: (a) executed on behalf of both parties, the agreements between JECA and WRM, as well as between JECA and Yes FP, which related to the referral relationship between the parties and the payment of commissions; (b) executed employment contracts for the WRM ARs on behalf of WRM and Yes FP; (c) knew of, authored, authorised and/or approved the marketing and advertising of the cash rebate scheme and/or expenses associated with marketing and advertising; (d) was on a research and investment committee that reviewed model portfolios to be made available to cash applicants; (e) at all relevant times, set the indicative rebate and emergency fee payable, and the advice fee to be charged to applicants; (f) approved payments to be made by the corporate defendants, including commissions and/or bonuses to be paid to Yes FP employees; (g) at all relevant times, worked from the premises that each of the corporate defendants operated from; (h) at all relevant times, was responsible for the strategic operations of the corporate defendants; (i) knew of and/or approved the advice provided by the corporate defendants to cash applicants; (j) knew of, authored, authorised and/or approved of the representations made by JECA in advertisements and on the Yes FS Website; (k) knew of, authorised, approved and/or participated in the application and approval processes for the cash rebate scheme; and (l) knew of each of the elements of the offences in respect of which ASIC alleges that he was an accessory.

JECA - carrying on a financial services business without a licence 65 Section 911A of the Corporations Act provides that, subject to a number of exceptions, a person who carries on a financial services business must hold an AFSL covering the provision of the financial services. As to this: (a) A financial services business includes a business of providing financial product advice: Corporations Act, ss 766A and 766B. (b) Financial product advice includes a recommendation or a statement of opinion that could reasonably be regarded as being intended to influence a person to make a decision in relation to financial products: Corporations Act, s 766B. (c) A financial product includes a facility through which, or through the acquisition of which, a person manages financial risk: Corporations Act, ss 763A and 763C. The Corporations Act also prescribes specific things that constitute financial products, including a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth): see Corporations Act, s 764A(1)(g). 66 A person is exempt from the requirement to hold an AFSL if the person provides the financial services as a representative of another person who does hold a licence covering the services: Corporations Act, ss 910A and 911A(2)(a)(i). 67 ASIC submits, and I accept, that JECA: (a) carried on a financial services business; and (b) did not hold an AFSL and was not authorised under such a licence, in contravention of s 911A of the Corporations Act. 68 JECA carried on a financial services business because the CSOs it employed made recommendations or gave statements of opinion to applicants that could reasonably be regarded as being intended to influence the applicants to make decisions in relation to superannuation and insurance products. 69 The statements made by the CSOs over the telephone and by email relate to insurance and superannuation, both of which are financial products. 70 The statements made by the CSOs to the applicants over the telephone, by which the CSOs explained that the applicant might be required to alter his or her superannuation and insurance arrangements in order to obtain the cash payment that was sought, could reasonably be regarded as intended to influence the applicant to make a decision in relation to superannuation and insurance products. This interpretation is reinforced by the emails that followed from the CSOs to the applicants, which expressly referred to "recommendations" made by the CSOs. 71 By reason of the above, JECA carried on a financial services business. 72 JECA has, however, at no time held an AFSL or been authorised under such a licence and has thereby contravened s 911A of the Corporations Act.

JECA's misleading conduct 73 JECA's contraventions of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(f) of the ASIC Act are related: they each concern JECA's misleading conduct. The sections provide as follows: (a) section 1041H of the Corporations Act provides that a person must not engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or likely to mislead or deceive; (b) section 12DA of the ASIC Act is cast in similar terms and provides that a person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive; and (c) section 12DB(1)(f) of the ASIC Act relevantly provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services, make a false or misleading representation that the person making the representation has an affiliation. 74 The provisions require that there be a connection between the representations and the financial product or service: Australian Securities and Investments Commission v Citrofresh International Ltd (2007) 164 FCR 333 at [61]-[74] per Goldberg J. 75 The ASIC Act provisions also require that the conduct occur in trade or commerce.

Licensing and affiliation misrepresentations 76 The evidence establishes that JECA made the Credit Licence Representation and the Outsource Financial Representation as alleged by ASIC. 77 The evidence also establishes that both of these representations were false as: (a) contrary to the Credit Licence Representation, none of the corporate defendants, known key officers, corporate authorised representatives or ARs (with one exception) held an ACL or were authorised to provide credit services at that time; and (b) contrary to the Outsource Financial Representation, Outsource Financial is in no way involved with the cash rebate scheme. In fact, Outsource Financial had been in a legal dispute with JECA due to JECA making reference to Outsource Financial's ACL without its approval. 78 Each of the above representations relates to financial products, being superannuation and insurance products, and to financial services, namely advice in relation to those financial products. The required connection between the representations and the financial product or service is evident on the face of the representations. 79 The representations were made in trade or commerce, as they were made to members of the public and prospective clients for the purpose of inviting them to participate in the cash rebate scheme, and ultimately to generate revenue for the corporate defendants. 80 By making the Credit Licence Representation and the Outsource Financial Representation, JECA contravened both s 1041H of the Corporations Act and s 12DA of the ASIC Act. 81 By making the Outsource Financial Representation, JECA also contravened s 12DB(1)(f) of the ASIC Act, as it made a false representation that it has an affiliation with Outsource Financial.

The cash rebate scheme 82 Conduct is misleading or deceptive if it has a tendency to lead a person into error: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 (Campbell) at [25] per French CJ. Conduct is likely to mislead or deceive if there is a real or not remote chance or possibility of it doing so: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87. Whether conduct is, or is likely to be, misleading or deceptive is determined objectively: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [109] per McHugh J, approved in Campbell at [102]. Further, in assessing the effect of conduct on a class of persons such as consumers, who may range from the gullible to the astute, the Court must consider whether the 'ordinary' or 'reasonable' members of that class would be misled or deceived: Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 at [7]. 83 Where a person makes a representation with respect to a future matter and the person does not have reasonable grounds for making the representation, the representation is taken to be misleading: Corporations Act, s 769C; ASIC Act, s 12BB. 84 In assessing whether an advertisement is misleading or deceptive, the "dominant message" of the advertisement may be of crucial importance: see Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 (TPG) at [45]. Conduct may be misleading, not only when a contract has been concluded under the influence of a misleading advertisement, but also at the point where members of the target audience have been enticed into "the marketing web" by an erroneous belief engendered by an advertiser, even if the consumer may come to appreciate the true position before a transaction is concluded: TPG at [50]. 85 Having regard to the above principles, it is established that JECA engaged in misleading or deceptive conduct when it made: (a) the Credit Representation; (b) the Fast Cash Representation; and (c) the Debt Management Advice Representation. 86 JECA made the Credit Representation by displaying on the Yes FS Website and in online advertising words including "Personal Loan Low Rates", "Loan from $2000-$20,000", "NO CONVENTIONAL CREDIT CHECK REQUIRED", and "Loans from $2000-$20,000 No Credit Check Required". JECA made the representation on numerous occasions. 87 Contrary to the representation, JECA did not provide credit or personal loans: it provided cash rebates from the commissions paid to it by insurance providers. The representation would naturally therefore lead a person into error. 88 The fact that the CSOs subsequently disclosed to clients that the client would be provided with a cash rebate rather than a loan does not absolve JECA from liability. 89 By its Fast Cash Representations, JECA represented that it offers "fast cash", "cash now" and "YES FS CAN MAKE…$2000 OF THE AMOUNT AVAILABLE WITHIN 24-72 HOURS*". Again, there were numerous instances of JECA making that representation. 90 The representation is: (a) in part a representation as to an existing fact, being a representation as to the nature of JECA's offering; and (b) in part a representation as to a future matter, being that JECA will make cash available within 24 to 72 hours. 91 To the extent the Fast Cash Representations were representations as to an existing fact, they were false and would therefore lead a person into error. JECA did not provide cash within 24 to 72 hours. 92 To the extent the Fast Cash Representations were representations as to a future matter, they were misleading as JECA did not have reasonable grounds to make them. JECA did not make payments within that timeframe and appears to have been unable to do so. 93 By its Debt Management Advice Representations, JECA represented that it provided debt management advice. There were numerous instances of the representation. 94 The representation is: (a) in part a representation as to an existing fact, being a representation as to the nature of the offering; and (b) in part a representation as to a future matter, being a representation that debt management advice will be provided. 95 JECA did not provide debt management advice to clients, even where such advice was sought by clients in their application form. Its systems for determining the advice to provide and its largely-predetermined advice were directed at "shepherding" clients into switching their insurance and/or superannuation, not managing their existing debt. 96 Therefore: (a) to the extent that the Debt Management Advice Representations were representations as to an existing fact, they were untrue and would lead a person into error as to the nature of JECA's offering; and (b) to the extent that they were representations as to a future matter, they were made without reasonable grounds. 97 Each of the above representations relate to financial products, being superannuation and insurance products, and to financial services, namely advice in relation to those financial products. The required connection between the representations and the financial product or service is evident on the face of the representations. 98 The representations were also made in trade or commerce. 99 By making each of the Credit Representation, the Fast Cash Representation and the Debt Management Advice Representation, JECA contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act.

WRM's failure to ensure that financial services were provided properly 100 WRM's contraventions of ss 961L, 912A(1)(a) and 912A(1)(ca) of the Corporations Act are related: they each concern the steps that WRM failed to take to ensure that the financial services provided under its licence were provided properly. 101 Section 961L falls within Div 2 of Pt 7.7A of the Corporations Act. This division was introduced into the Corporations Act in 2012 as part of the "Future of Financial Advice Reforms" (the FOFA reforms) by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth). The FOFA reforms were the Government's response to the 2009 Inquiry into Financial Products and Services in Australia by the Parliamentary Joint Committee on Corporations and Financial Services. 102 Division 2 of Pt 7.7A is titled "Best interests obligations" and applies to the provision of personal advice to a person as a retail client: Corporations Act, s 961. As to the meaning of "retail client", see Corporations Act, s 761G. The division provides that individuals who provide advice (see s 961(2)-(4)) must: (a) act in the best interests of the client in relation to the advice (s 961B); (b) only provide advice to the client if it would be reasonable to conclude that the advice is appropriate (s 961G); (c) warn the client of certain matters, if it is reasonably apparent that information relating to the objectives, financial situation and needs of the client on which the advice is based is incomplete or inaccurate (s 961H); and (d) give priority to the client's interests, if the individual knows, or reasonably ought to know, that there is a conflict between the interests of the client and their own interests or the interests of their licensee or an associate (s 961J). 103 Section 961L provides that a licensee must take reasonable steps to ensure that representatives of the licensee comply with ss 961B, 961G, 961H and 961J of the Corporations Act. Section 961L is a civil penalty provision: Corporations Act, s 1317E. 104 These provisions were discussed in Australian Securities and Investments Commission v NSG Services Pty Ltd (2017) 122 ACSR 47 (the NSG liability judgment) and Australian Securities and Investments Commission v Financial Circle Pty Ltd [2018] FCA 2. 105 Turning to the s 912A aspect of the alleged contraventions: (a) The obligation in s 961L "mirrors" that in s 912A(1)(ca) of the Corporations Act: NSG liability judgment at [31]. That section requires a licensee to take reasonable steps to ensure that its representatives comply with the financial services laws. Financial services laws relevantly include any provision of Ch 7 of the Corporations Act: s 761A. Unlike s 961L, however, s 912A(1)(ca) is not a civil penalty provision. (b) Section 912A(1)(a) of the Corporations Act provides that a licensee must do all things necessary to ensure that the financial services covered by its licence are provided efficiently, honestly and fairly. 106 Section 912A was considered in Australian Securities and Investments Commission v Camelot Derivatives Pty Ltd (in liq) (2012) 88 ACSR 206 at [69]-[70]. 107 ASIC submits that WRM has contravened each of ss 961L, 912A(1)(a) and 912A(1)(ca) because: (a) it failed to have adequate policies and processes in place to ensure that its ARs complied with the provisions of the Corporations Act, in particular the FOFA reforms; and (b) its ARs failed to comply with ss 961B, 961G and 961J of the Corporations Act. 108 ASIC contends that, while contraventions of ss 961B, 961G, 961H or 961J provide persuasive evidence of a licensee failing to take reasonable steps, as a matter of statutory construction, there is nothing in the language of s 961L (or s 912A(1) of the Corporations Act) that makes this a requirement. 109 As in the NSG liability judgment, ASIC submits that the issue of whether contraventions of those sections need to be proved does not need to be resolved in this case. While ASIC has not joined any WRM ARs as defendants, it does allege that they contravened ss 961B, 961G and 961J of the Corporations Act. 110 In his expert report, Mr Graham opines that the reasonable steps that a licensee should take to ensure effective compliance with ss 961B, 961G and 961J will depend upon the nature, scale and complexity of its business. 111 Mr Graham contrasts WRM's procedures to those which, in his experience, reflect appropriate industry practice. He identifies appropriate practice as requiring (especially for a national operation providing phone and web-based services, like WRM) that the provider's compliance framework should include: (a) policies and procedures addressing ss 961B, 961G and 961J and providing guidance on these matters; (b) a definition of, and commitment to, best interests, client priority and appropriateness; (c) pre-vetting or peer-review and escalation procedures; (d) regular and targeted risk-based monitoring and supervision of ARs; (e) effective ongoing training; (f) effective record keeping; (g) training on identifying and managing conflicts of interest; (h) no-fault breach report; and (i) regular review of the provider's measures, processes and procedures. 112 Mr Graham identifies, in contrast, serious deficiencies in WRM's compliance manual, training and supervision, registers and best interest calculator. These have been referred to earlier in these reasons. Mr Graham concludes that WRM had no substantive steps, measures, processes or procedures of the kind that appropriate practice would require of an Australian financial services licensee. 113 I am satisfied, on the basis of Mr Graham's evidence, that WRM failed to take reasonable steps to ensure its representatives' compliance with the financial services laws and to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly, in contravention of ss 961L, 912A(1)(ca) and 912A(1)(a) of the Corporations Act.

Unconscionable conduct 114 Section 12CB of the ASIC Act provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable. 115 Section 12CB is not limited by the unwritten law of the States and Territories relating to unconscionable conduct: s 12CB(4)(a). There is, therefore, no foundation in its language or purpose to impose limitations from the unwritten law, such as the necessity to identify a specific or particular person: Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 (National Exchange) at [30]. The language in the section must be given its ordinary meaning and must not be qualified by pre-existing constraints on liability: National Exchange at [30]. 116 In order for conduct to be characterised as unconscionable, it must demonstrate something more than a mere tendency to mislead. The requirements fall short of a necessity to prove actual dishonesty. It is sufficient that there be a sufficient deviation from rectitude or right practice as to justify the epithet of "unconscionable": Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] ATPR 42-447 (Lux Distributors); Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525; Australian Securities and Investments Commission v Kobelt [2016] FCA 1327 at [216]-[226]. 117 Section 12CC sets out a non-exhaustive list of factors to which the Court may have regard for the purpose of determining whether a person has contravened s 12CB of the ASIC Act, including: (a) the relative strengths of the bargaining positions of the supplier and the service recipient; (b) whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; (c) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; andthe extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient. 118 I am satisfied that each of the corporate defendants engaged in unconscionable conduct by reason of their involvement in the operation of the cash rebate scheme. 119 The scheme was marketed to target financially vulnerable persons, namely persons looking for "bad credit" loans or payday loans, or who had suffered numerous past loan rejections and whose financial circumstances were such that they needed recourse to those kinds of short-term, high interest loans. 120 The marketing was replete with references to "loans" and to JECA as a provider of credit. Of course, the financial products provided were not loans, or credit facilities, but rebates comprising just part of the overall fees and commission claimed by the defendants from, and with the ultimate effect of significantly eroding, the clients' existing superannuation funds. 121 These marketing tactics by the corporate defendants echo the unfair tactics deployed by the respondent in Lux Distributors. Just as the respondent in Lux Distributors inveigled their way into the homes of customers with offers of vacuum-cleaner checks, but intending to make sales, so too the defendants introduced the scheme into the consciousness of customers, using the language of loans (and debt management services) but intending to channel applicants into the insurance and superannuation switching system that comprised their business model. The tactic was even more expressly targeted than in Lux Distributors, but with an equivalent misleading element. 122 Further, and importantly, the service then provided to clients involved: (a) not acting in the best interests of applicants; (b) providing advice that was not appropriate; and (c) failing to give priority to the applicants' interests. 123 The factors set out in s 12CC of the ASIC Act support ASIC's allegation that the corporate defendants acted unconscionably. 124 In relation to the relative strengths of the bargaining positions of the supplier and the service recipient, the clients were in a very weak bargaining position as they were generally in urgent need of cash and had no other avenues available to them to obtain cash. 125 In relation to whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services, in his expert report, Mr Graham opines that: (a) most clients did not appear to understand the consequences and implications of implementing the recommendations that provided them with the rebate; (b) the LSOAs should have, but failed to, prominently address the risks that the client would assume by replacing one insurance policy with another; and (c) while LSOAs generally included long-term projections of the impact of the advice, the recommendations and rebate calculations were based on the first-year premium. 126 As to whether any unfair tactics were used against the service recipient, I consider that unfair tactics were used by the corporate defendants against the clients for the following reasons: (a) Clients were induced to make an application to JECA based on advertising offering quick cash or loans. In fact, the offering by the corporate defendants was substantially different as, in order to obtain the cash, clients had to engage a financial advisor and implement the advisor's recommendations in relation to superannuation and insurance. (b) Clients were induced and encouraged to enter into cash rebate agreements and emergency debt relief agreements because they were told that they had been conditionally approved for a cash payment. This conditional approval was given before the clients had received any financial advice from an AR. (c) Before the applicant had been unconditionally approved for a cash payment, the applicant was required to sign the cash rebate agreement and thereby agree to pay a fee for financial advice. This meant that an applicant, who had approached JECA seeking a loan or fast cash, might ultimately not be approved for a cash payment, but would still have an advice fee (which in most cases exceeded the value of the cash rebate) deducted from their superannuation. (d) The financial advice provided by the ARs was typically not appropriate for the client. It is doubtful whether, absent a client's financial difficulty or need or desire for cash, the client would have agreed to implement the AR's recommendations or receive financial advice at all. (e) After an applicant received financial advice from an AR, the applicant was required to complete a further agreement, in the form of the Yes FP Deed or the second CRA. The Yes FP Deed and second CRA imposed additional conditions on the applicant's entitlement to a cash payment. The applicant had to agree not to cancel any insurance policy taken out on the recommendation of the AR for a period of between 12 and 36 months and, if the applicant did cancel the insurance policy, to repay the rebate or accept liability for the reversal of any insurance commissions. 127 In relation to the extent to which the supplier was willing to negotiate the terms and conditions of its arrangements with the service recipient, there is no evidence of clients being able to negotiate or alter the terms and conditions of the cash rebate scheme.

Accessory involvement of Mr Fuoco 128 ASIC submits, and I accept, that Mr Fuoco was knowingly concerned in: (a) JECA providing financial product advice without an AFSL in contravention of s 911A of the Corporations Act; (b) JECA engaging in misleading or deceptive conduct in contravention of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(f) of the ASIC Act; and (c) WRM's, JECA's and Yes FP's unconscionable conduct in contravention of s 12CB of the ASIC Act. 129 Mr Fuoco has: (a) admitted all the allegations made by ASIC in its further amended statement of claim; and (b) consented to the Court making orders for declarations, injunctions, civil penalties and costs against him. 130 A person will be knowingly concerned in a contravention if that person was an intentional participant in the contravention, with knowledge of the essential elements constituting the contravention at the time of the contravention: Yorke v Lucas (1985) 158 CLR 661 (Yorke) at 670; Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181 (ActiveSuper) at [398]-[410]; Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2) (2005) 53 ACSR 305 at [113]-[118]. To be an intentional participant, the defendant must have done something or omitted to do something that implicates or involves the person: Ashbury v Reid [1961] WAR 49; ActiveSuper at [407]. Actual knowledge of the essential elements constituting the contravention is required: Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537 (Young) at [11]; ActiveSuper at [399]. Imputed or constructive knowledge is insufficient: Young at [11]; ActiveSuper at [399]. It is not necessary, however, that the person know that the essential elements amount to a contravention: Yorke at 667; Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2) (1999) 95 FCR 302 at [186]; Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 at [8]-[13]; ActiveSuper at [398]. 131 The extent of Mr Fuoco's involvement in the scheme indicates that he was the mastermind and architect of the cash rebate scheme. 132 I am satisfied, on the basis of Mr Fuoco's admissions, that he was knowingly concerned in the contraventions.

Principles applicable to orders sought by agreement 133 Insofar as the relief sought relates to Mr Fuoco, the relief is sought by consent. The applicable principles regarding the making of orders by agreement and as regards declarations are well established. They were summarised by Gordon J in Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [70]-[79].

Declarations 134 ASIC seeks declarations in respect of each of the corporate defendants' contraventions, and Mr Fuoco's accessory involvement in the contraventions. The declarations are sought: (a) in respect of WRM's contravention of s 961L of the Corporations Act, pursuant to s 1317E of the Corporations Act; (b) in respect of all of the other contraventions by the corporate defendants, pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) or s 1101B(1)(a) of the Corporations Act; and (c) in respect of Mr Fuoco's involvement in the contraventions, pursuant to s 21 of the Federal Court of Australia Act. 135 Section 961L is a civil penalty provision (Corporations Act, s 1317E, Item 19) and s 1317E provides that, if a Court is satisfied that a person has contravened a civil penalty provision, "it must make a declaration of contravention". In Australian Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623 at [31], Gordon J confirmed the mandatory nature of declarations under s 1317E of the Corporations Act. 136 It is not mandatory for the Court to make the other declarations. 137 Before making a declaration, three requirements should be satisfied: the question must be a real and not a hypothetical or theoretical one; the applicant must have a real interest in raising it; and there must be a proper contradictor: see Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-438; Australian Competition and Consumer Commission v Fisher & Paykel Customer Services Pty Ltd [2014] FCA 1393 at [51]. Each of these requirements is satisfied in the present case. 138 I consider that it is appropriate to make declarations substantially as sought by ASIC in the Proposed Minute of Order. Accordingly, I will make declarations as follows: 1. The first defendant: a. in respect of each client identified in Annexure A, contravened s 961L of the Corporations Act 2001 (Cth) (the Corporations Act) by failing to take reasonable steps to ensure that its authorised representative complied with s 961B of the Act; b. in respect of each client identified in Annexure A, except for client 33, contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that its authorised representative complied with s 961G of the Act; c. in respect of each client identified in Annexure A, except for client 33, contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that its authorised representative complied with s 961J of the Act, as set out in Annexure A. 2. The first defendant has at all times since 1 December 2015 contravened s 912A(1) of the Corporations Act by: a. failing to do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and b. failing to take reasonable steps to ensure that its representatives comply with the financial services laws. 3. The second defendant has since 1 December 2015 contravened: a. section 911A of the Corporations Act by providing financial product advice within the meaning of s 766B of the Corporations Act by making, to each client identified in Annexure A, recommendations intended to influence persons in making a decision in relation to superannuation interests and life products (or that could reasonably be regarded as being intended to have such an influence) to acquire, vary and/or dispose of an interest in superannuation interests or life products, and thereby carrying on a financial services business and/or providing financial services in this jurisdiction without holding an Australian Financial Services Licence (AFSL) or otherwise being authorised by an AFSL holder; b. section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), and/or s 1041H of the Corporations Act, by causing advertisements and statements to be published on the internet and communications to be made to Cash Applicants representing that: i. the second defendant provides credit and/or personal loans; ii. the second defendant offers 'fast cash', 'cash now' and cash payments within 24 to 72 hours of receipt of an application form; iii. the second defendant is an Australian Credit Licence (ACL) holder or an authorised credit representative of an Australian Credit Licensee; iv. the application for the Cash Rebate Agreement is made to the second defendant and Outsource Financial, which holds an ACL, and that the second defendant was affiliated with Outsource Financial; and v. the second defendant provides debt management advice, being representations made in trade or commerce in relation to financial services that were misleading or deceptive or likely to mislead or deceive; and c. section 12DB(1)(f) of the ASIC Act, by representing that it was affiliated with Outsource Financial which holds an ACL and thereby making a false or misleading representation in trade or commerce in connection with the supply, possible supply or promotion of the supply or use of financial services. 4. The first to third defendants contravened s 12CB of the ASIC Act by: a. providing misleading information, including, in the case of the second defendant, making the representations, to members of the public about the nature of the products and services offered by the first, second and third defendants; and/or b. in respect of the clients identified in Annexure A, providing advice that: i. was not in their best interests; ii. was not appropriate to their circumstances; iii. failed to give priority to the client's interests, as set out in Annexure A; and/or c. employing unfair tactics against members of the public so as to obtain fees and commissions, and thereby engaged in conduct in trade or commerce in connection with the supply or possible supply of financial services to a person that was in all the circumstances unconscionable. 5. The fourth defendant was knowingly concerned in: a. the second defendant's contraventions of: i. section 911A of the Corporations Act; ii. section 12DA of the ASIC Act and/or s 1041H of the Corporations Act; and iii. section 12DB(1)(f) of the ASIC Act; and b. the first to third defendant's contraventions of s 12CB of the ASIC Act.

Injunctions 139 ASIC seeks injunctions against each of the defendants, effectively disqualifying them from carrying on, offering or being involved in the provision of financial services. 140 The injunctions are sought pursuant to s 1324(1) of the Corporations Act and s 12GD(1) of the ASIC Act. Both sections provide that the Court may grant an injunction against a person where the person has engaged in a contravention or where a person has been knowingly concerned in a contravention. 141 In respect of the corporate defendants, the injunctions are also sought pursuant to s 1101B(1)(a) of the Corporations Act. Section 1101B(4) expressly provides that the power in s 1101B(1) extends to making injunctions of the kind sought in this case. 142 ASIC seeks injunctions restraining the corporate defendants from carrying on: (a) a financial services business for 18 years; and (b) the cash rebate scheme permanently. 143 For the following reasons, I consider the injunctions sought by ASIC to be appropriate. 144 The factors that support WRM being restrained from carrying on a financial services business for 18 years are as follows. 145 First, WRM's contraventions must be regarded as a particularly egregious example of the kind of conduct that the statutory provisions are designed not merely to prevent, but to dissuade and sanction in the strongest terms. That is, upon the evidence and confirmed by the admissions made by Mr Fuoco late in the proceeding, the cash rebate scheme: (a) targets financially vulnerable members of the public; (b) uses misleading information to attract them to participate in the scheme; (c) having ensnared them, involves a business model that does not deliver the debt management or loan services that seemed to be on offer, but instead a program of substantially pre-determined advice directed at procuring clients to give instructions enabling the defendants to claim advisor fees and commissions from the clients' superannuation; and (d) typically involves immediate, substantial and permanent detriment to the clients' long-term financial position, via hefty reductions to their personal superannuation funds. The evidence also discloses that 20% of clients had their superannuation balance immediately reduced by between 40% and 59.11%. 146 Secondly, there is a reasonably high likelihood that WRM would engage in similar conduct if not prevented by the Court from doing so. This is evident from WRM's systemic culture of non-compliance and from the fact that, despite investigations by ASIC and purported attempts by WRM to ensure compliance with the financial services laws, it remained non-compliant up to the time of the interlocutory injunctions issued in May 2017. 147 Thirdly, it is likely that harm will be caused to the public if WRM is not prohibited from providing financial services. There is potential for WRM to do significant financial damage to clients via its financial services operations. The cash rebate scheme has had a far reach. In particular, I note that: (a) in a six-month period, 901 clients participated in the scheme; and (b) in most cases, a client's involvement in the scheme substantially reduced the client's superannuation balance. The deferred but eventual effects of the immediate reductions are very disturbing. In one case, the client's superannuation balance would ultimately be reduced by $227,031, and in another case, by $240,157. 148 Fourthly, the evidence establishes that the cash rebate scheme is not only non-compliant with the financial services laws, but involves the targeting and exploitation of financially disadvantaged people. 149 While each of the corporate defendants engaged in different breaches of the Corporations Act and the ASIC Act, ASIC submits, and I accept, that given that they worked collectively to operate the cash rebate scheme, the period of disqualification for each of them should be the same. 150 ASIC seeks a permanent injunction restraining the corporate defendants from carrying on the cash rebate scheme as, in ASIC's submission, the scheme is inherently unsound. I accept this submission. In particular, the cash rebate scheme: (a) creates incentives for advisors to not act in the best interests of their clients, to give advice that is not appropriate and to not prioritise their clients' interests; and (b) relies upon attracting financially vulnerable people to participate in the scheme by using misleading information, and uses unfair tactics to ensure they complete the application and rebate process. 151 It is difficult to conceive of the scheme operating without continuing contraventions of the financial services laws. It is appropriate that it be permanently enjoined. 152 At the directions hearing held on 11 December 2017, Mr Fuoco, by his solicitor, gave an undertaking in the form sought by ASIC commencing from 22 December 2017 until the hearing and determination of the proceeding. ASIC seeks an injunction restraining Mr Fuoco from carrying on a financial services business for 10 years from that date. Mr Fuoco consents to the injunction sought. I consider an injunction against Mr Fuoco, as jointly proposed by the parties, to be appropriate in the circumstances.

Pecuniary penalties 153 The principal purpose of a pecuniary penalty is to act as a personal and general deterrent: Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 (Adler) at [125]-[126]. The penalty should be no greater than is necessary to achieve that objective: ASC v Donovan (1998) 28 ACSR 583. The penalty should be fixed with a view to ensuring that the amount is not such as to be regarded by the offender or others as an acceptable cost of doing business. In Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249, the Full Court of this Court held, at [63], that "those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention". 154 The size of the penalty is a matter of discretion: Adler at [126]. The process of fixing the quantum is not an exact science: Australian Securities and Investments Commission v GE Capital Finance Australia, in the matter of GE Capital Finance Australia [2014] FCA 701 (GE Capital) at [75]. All of the circumstances must be weighed: GE Capital at [75]. The approach that should be adopted is one of "instinctive synthesis": Markarian v The Queen (2005) 228 CLR 357; GE Capital at [75]. Attention should be paid to the maximum penalty fixed by the statute so as to compare the worst possible case with the one before the court: GE Capital at [75]. 155 Factors for consideration in determining an appropriate penalty are (Adler at [126]): (a) the seriousness of the conduct; (b) whether the conduct was dishonest; (c) whether further contraventions are likely; (d) the character of the defendant; (e) whether the defendant intended to deprive persons of funds; (f) the quantum of any losses; (g) whether the defendant has shown remorse; (h) the defendant's conduct in the proceedings; (i) the capacity of the defendant to pay; (j) whether the penalty will prejudice the rehabilitation of the defendant; and (k) whether a disqualification order has been made that has significant consequences. 156 Further factors for consideration include (Trade Practices Commission v CSR Ltd [1991] ATPR 41-076; [1990] FCA 762): (a) the size of the contravening company; (b) the deliberateness of the contravention and the period over which it extended; (c) whether the contravention arose out of the conduct of senior management or at a lower level; (d) whether the contravener has a corporate culture conducive to compliance as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and (e) whether the contravenor has shown a disposition to co-operate with the authorities responsible for the enforcement of the legislation in relation to the contravention. 157 The Court must also take into account the totality principle, which requires that the aggregate penalty be just and appropriate: Australian Securities and Investments Commission v Vines (2006) 58 ACSR 298 at [52]. 158 The maximum penalty for a contravention by a corporation of s 961L of the Corporations Act is $1,000,000: Corporations Act, ss 1317G(1E)(b)(ii) and 1317G(1F)(b). 159 The maximum penalty for a contravention by a corporation of s 12CB or 12DB(1)(f) of the ASIC Act was at the relevant time $1,800,000: ASIC Act, s 12GBA(3), Item 2. (The amount of a penalty unit increased subsequently, on 1 July 2017.) 160 The maximum penalty for an individual being involved in a contravention of s 12CB or 12DB(1)(f) of the ASIC Act was at the relevant time $360,000: ASIC Act, s 12GBA(3), Item 2. 161 As noted above, Mr Fuoco consents to a civil penalty in the sum of $650,000. It is nevertheless necessary for the Court to be satisfied that this sum is an appropriate penalty. The other defendants have not consented to penalties. It is therefore necessary for the Court to determine, in relation to the corporate defendants, the appropriate penalty. 162 The following factors support the imposition of significant pecuniary penalties against each of the corporate defendants, and Mr Fuoco, in respect of each of the relevant contraventions and accessory involvement. 163 First, the contraventions are very serious in nature. 164 Secondly, the contraventions were deliberate and extended over a period of a year and a half. The defendants' flagrant disregard for the financial services laws is highlighted by the fact that the contravening conduct persisted for over a year after ASIC made the defendant aware of its concerns, and ceased only once this Court issued an interlocutory injunction. 165 Thirdly, there is a reasonably high likelihood that the defendants will engage in similar conduct if not prevented by the Court from doing so. 166 Fourthly, the defendants cannot be regarded as having demonstrated good character for the purposes of mitigation. The cash rebate scheme is not only non-compliant with the financial services laws, but involves the targeting and exploitation of financially disadvantaged and desperate people. In the case of Mr Fuoco, this is compounded by his personal history of non-compliant conduct and disqualifications. 167 Fifthly, the quantum of revenue derived from the scheme is one consideration going to the appropriate penalty and, in this case, the corporate defendants operate a substantial enterprise. In particular, I note that: (a) in a period of six months, 869 clients were serviced; (b) the corporate defendants generated an average of $5,707 per client (being the sum of the average advice fee and the average retained component of the up-front commission); and (c) in addition, the corporate defendants were also paid ongoing commissions annually from the insurance provider in the amount of approximately $517 per client. 168 Even setting to one side the ongoing commissions, in the six-month period identified, the corporate defendants generated around $4,959,383 in revenue. As the cash rebate scheme operated for a year and a half, the above analysis indicates that the scheme is likely to have generated well over $5 million, and perhaps over $10 million, in revenue. Bearing in mind that the advice fee and insurance premiums were drawn entirely from customers' superannuation funds, it is apparent that substantial harm was caused to customers. 169 Sixthly, the defendants deliberately intended to deprive financially disadvantaged persons of funds. Clients participating in the scheme have suffered huge immediate and ongoing losses to their superannuation. 170 Seventhly, the contraventions arose out of the conduct of Mr Fuoco, who was a director and the owner of the corporate defendants. Mr Fuoco devised and procured the implementation of the cash rebate scheme. That is, the contraventions arose out of deliberate strategies formulated at the highest level of management within the corporate defendants. 171 Eighthly, a systemic culture of non-compliance is prevalent in respect of each of the corporate defendants. This is apparent from the nature of the cash rebate scheme as well as from the wholly-deficient processes, policies and training available to staff. WRM's disrespect for the financial services laws is highlighted by its failure to lodge a breach report with ASIC after an external consultant identified numerous compliance issues. WRM ultimately lodged a breach report after being prompted by ASIC. 172 ASIC submits, and I accept, that the contraventions established against the defendants are at the very serious end of the spectrum. For JECA, its false representations were carefully framed to create an impression of prompt payday-type loans provided by a licensed lender, and it carried on a financial services business over an extended period without a proper licence. For WRM, the systemic failures comprising its s 961L contraventions were not merely technical matters; they went to the heart of its business model. Its business model was likewise fundamentally built upon the unconscionable and predatory behaviour set out above. And Mr Fuoco designed and oversaw the whole cash rebate scheme. 173 ASIC made detailed submissions regarding the number of contraventions of each provision that occurred. Ultimately, however, I do not consider it necessary to reach a concluded view as to the number of contraventions. This is because, on any view, there were multiple contraventions of each relevant provision, and regard must be had to the substance of the conduct engaged in by the relevant defendant in determining the appropriate penalty. 174 In light of the matters discussed above, I consider the pecuniary penalties sought by ASIC in relation to each of the corporate defendants to be appropriate and I will make orders accordingly. I also consider the pecuniary penalty agreed between ASIC and Mr Fuoco to be an appropriate penalty. I have considered the totality principle in reaching these conclusions.

Conclusion 175 For these reasons, I will make orders substantially to the effect sought by ASIC in the Proposed Minute of Order. I certify that the preceding one hundred and seventy-five (175) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.

SCHEDULE OF PARTIES VID 238 of 2017 Defendants Fourth Defendant: JOSHUA DAVID FUOCO