On 5 February 2018, the Federal Court of Australia handed down judgment for the case of Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd (No 2). Justice Moshinsky found that all four defendants contravened various provisions under the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission 2001 (Cth). The parties have been ordered to pay total penalties of $7.8 million.

In Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd (No 2)1, ASIC brought proceedings against Wealth & Risk Management Pty Ltd (‘WRM’) and its related companies, Yes FP Pty Ltd (in liquidation) (‘Yes FP’) and JECA Holdings Pty Ltd (in liquidation) (‘JECA’) alleging they had contravened various provisions of the Corporations Act 2001 (Cth) (‘the Corporations Act’) and the Australian Securities and Investments Commission Act 2001 (Cth) (‘the ASIC Act’). Mr Fuoco, who was a director of each of the companies at all relevant times, was added to the proceedings in October 2017.

Summary of facts

ASIC, alleged that WRM, Yes FP and JECA contravened provisions of the Corporations Act and the ASIC Act, and that Mr Fuoco, was an accessory to the contraventions.

WRM was an Australian Financial Services Licensee permitted to provide advice to retail clients about superannuation products and life risk insurance. JECA, a related company, was the advertising or marketing arm of WRM trading under the name of ‘Yes FS’. It had never held, or been authorised under, any Australian financial services license. Yes FP was a related company, and was a corporate authorised representative of WRM. Yes FP employed most of WRM’s authorised representatives who provided advice on superannuation products and life insurance.

JECA advertised online that it would provide ‘fast cash’ payments of $2,000 within 24 to 72 hours, as well as debt management advice to people with a poor credit history. At all times the Yes FS website and JECA’s online advertising failed to disclose key aspects of the scheme in the application process to prospective clients. The scheme generally gave clients financial advice to switch their superannuation and take out expensive insurance. The advice fees were then charged out of the client’s superannuation funds and received upfront, following insurance commissions. The business then used the upfront insurance commission from the financial advice to give a ‘cash rebate’ to clients. ASIC alleged that JECA falsely advertised that it was an authorised credit representative of the holder of an Australian Credit License.

Key findings

Moshinsky J found that JECA was carrying on a business, by giving advice and recommendations over the phone on financial products, without a licence in contravention of s 911A of the Corporations Act.2 JECA was also found to have been engaging in misleading and deceptive conduct in relation to financial products and services in breach of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(f) of the ASIC Act. The credit licence representation, fast cash representation, debt management advice representation and the representation that Outsource Financial were involved with the cash rebate scheme were all found to be false. In particular, JECA did not provide any loans; it provided cash rebates from the commissions paid to it by insurance providers. The mere fact that CSOs would later disclose that there would be a cash rebate rather than a loan did not absolve JECA from liability.3 JECA also failed to provide cash within the promised timeframe and did not provide any debt management advice to clients.4

WRM was found to be in contravention of ss 961L, 912A(1)(ca) and 912A(1)(a) of the Corporations Act. This was due to the serious deficiencies in WRM’s compliance manual, training, supervision, registers and best interest calculator. WRM had therefore failed to ensure financial services were provided efficiently, honestly and fairly under its licence according to the Corporations Act.5

Due to the vulnerability of the clients looking for short-term, high interest loans, and the unfair tactics and misleading elements used by the corporate defendants, the corporate defendants were all found to be in breach of s 12CB of the ASIC Act.6 This section provides that a person must not engage in unconscionable conduct in trade or commerce in connection with the supply of financial services to a person. Further, the fact that clients could not negotiate the terms and conditions of their arrangements was a factor in Moshinsky J’s finding that the conduct was unconscionable.7

Mr Fuoco admitted to all the allegations made against him by ASIC.8

Orders

Moshinsky J ordered that WRM, Yes FP and JECA:

  • be immediately restrained from carrying on a financial business or any business related, directed or connected to financial products or services for eighteen years;9 and
  • be permanently restrained from making any offers of cash payments to prospective retail clients in connection with purchase of insurance products, provision of a Statement of Advice and/or the switching of superannuation;10 and
  • be permanently restrained from entering into or offering to enter into any Cash Rebate Agreements, Emergency Debt Relief Agreements or other like arrangements with prospective retail clients in connection with purchase of insurance products, provision of a Statement of Advice and/or the switching of superannuation.11

His Honour ordered that Mr Fuoco be restrained for a period of ten years from carrying on a financial business or any business related, directed or connected to financial products or services.12

Pecuniary penalties

The WRM was ordered to pay a combined sum of $2.8 million for contraventions of s 961L of the Corporations Act and s 12CB the ASIC Act. The JECA was ordered to pay a combined sum of $2.55 million for contraventions of s 12DB(1)(f) and s 12CB the ASIC Act. Yes FP was ordered to pay $1.8 million in respect of contraventions of s 12CB of the ASIC Act. Mr Fuoco was ordered to pay $650,000 in respect of his involvement in the contraventions by corporate defendants of s 12CB of the ASIC Act and JECA of s 12DB(1)(f) of the ASIC Act. The defendants were ordered to pay ASIC’s costs.