The Australian Securities & Investments Commission (ASIC) recently took action in the Federal Court of Australia against an asset management firm and its director for contraventions of the Corporations Act 2001 (Act).
The asset management firm had raised over $17million between May 2016 and April 2018 from retail investors for its fund styled the “Sterling Income Trust”, pursuant to what ASIC asserted were misleading Product Disclosure Statements. ASIC also asserted that the fund had failed to comply with the mandated compliance plan for the fund. The fund went into voluntary administration in December 2019.
The Court ultimately found that the asset management firm in question had included misleading representations in the relevant Product Disclosure Statements, and failed to comply with the mandated compliance plan, both matters being in contravention of section 601FC of the Act. In particular, the Court found that the fund and its director had failed to:
- disclose the existence of conflicts of interest which affected the fund;
- disclose material risks to investors;
- disclose the assumptions used and contingencies relied on in stating “target distributions” for the different types of units in the fund;
- disclose matters pertaining to the financial position of the Sterling group of companies;
- disclose the constraints on investors who wanted to redeem their investment;
- adhere to the requirements of the mandated compliance plan.
The firm in question was fined $2million. The director was fined $100,000.00 and banned from managing a corporation for 4 years.
It is critical that managed investment schemes are set up and maintained in accordance with the requirements of the Act. Further, managed investment schemes running into financial or compliance difficulties should seek advice sooner rather than later. The head in the sand approach may result in an escalation of the problem, especially given ASIC’s current ‘why not litigate’ policy initiative.
Talk to our commercial lawyers regarding assistance in the area of managed investment schemes.