As ASIC continues to keep a close watch on funds’ advertising and promotional material, licensees, representatives, and investment managers should be aware resolution of an issue with ASIC will not save you from later facing regulatory or court action. Partner Selina Nutley highlights three recent cases and explains what you need to know.
Over the past 18 months, ASIC undertook risk‑based surveillance of advertising material, website disclosure, and PDSs issued by managed funds, focusing on whether funds were providing potential investors with adequate information as well as accurately and clearly presenting key features of their investment products. ASIC held concerns about advertising material containing unbalanced comparisons, safety and stability representations which did not accurately portray the risk of capital loss, and misleading representations as to withdrawal timeframes.
Arising from this surveillance, ASIC commenced two noteworthy actions in relation to advertising. These decisions provide guidance for the industry about the types of representations which should be avoided in advertising, as well as the seriousness with which ASIC and the court regards inaccurate or misleading advertising.
The Mayfair 101 Group offered investments in multiple debenture products. The products would appear in Google searches for terms such as ‘bank term deposits’ and ‘best term deposit’. After the Mayfair Group’s collapse, ASIC commenced civil penalty proceedings. The Federal Court said the Mayfair companies had represented—
The Court permanently restrained the companies from using phrases such as ‘term deposit’ and ‘certainty’ in any future advertising.
In a sign of how seriously the Court viewed the Mayfair Group’s conduct, it was collectively ordered to pay a pecuniary penalty totalling $30 million. It is important to note Mayfair Group has appealed the Federal Court’s decision, both on liability and the penalty judgment. That appeal is presently before the Full Federal Court, and we will keep you updated about its progress.
The crux of ASIC’s concerns in relation to La Trobe’s conduct was the advertising of two products called the ‘48 Hour Account’ and ‘90 Day Account’. These products were primarily mortgage funds.
The Court said:
An interesting focus of the judgment was the use of the term ‘capital stable fund’. ASIC’s view is that term should only be used to describe a fund that invests across a range of asset classes, but with a significant portion in defensive assets such as fixed interest investments and cash, and a small portion in growth assets such as shares and property. In the case of La Trobe products, the majority of the fund’s assets were loans secured by first mortgages, as well as cash and deposits.
Ultimately, La Trobe conceded it had contravened the law by making the representations but placed significant weight on the fact it had always paid redemptions within the period represented in the advertising. La Trobe had undertaken various modifications to its advertising in conjunction with ASIC. The Court inferred ASIC had accepted its correspondence caused La Trobe to believe ASIC had no concerns about its advertising.
Despite a maximum penalty of $15 million, ASIC and La Trobe had agreed to a proposed penalty of $750,000. Ultimately, the overriding circumstances, and particularly the level of cooperation shown by La Trobe, was sufficient to convince the Court (albeit with deep reservations) the penalty of $750,000 was sufficient.
In 2021, ASIC also launched Federal Court proceedings against PE Capital Funds Management (PE Capital), seeking declarations some of PE Capital’s advertising was misleading and deceptive.
PE Capital had been the authorised representative (AR) of various AFSL holders. However, much of its activities fell outside the authority it had been given and had been undertaken without the licensee’s knowledge. Despite this, PE Capital stated in each of the relevant information memoranda (IM) that it:
The court said:
Like the Mayfair case, PE Capital was also found to have falsely represented various feeder funds would hold security over real property assets, when they did not.
In June 2020, ASIC issued a press release confirming it had directly raised concerns with seven REs, including La Trobe, about their advertising and disclosure, and those seven REs each took corrective action. While the seven REs were unnamed in ASIC’s press release, following a Freedom of Information (FOI) request, the Australian Financial Review (AFR) named several of the REs and published a series of articles on this topic. Other REs escaped being named as they successfully opposed the AFR’s FOI application, including clients represented by McMahon Clarke.
Our Litigation and Funds Management teams are monitoring these cases closely. If you have concerns about your advertising or have received correspondence from ASIC, it is important you act promptly. Contact us for assistance.