Financial Services Update: Fraudulent services provided by AFSL holder lead to tragedy

In this edition:

  • Fraudulent services provided by AFSL holder lead to tragedy;
  • Sustainable investments are more important than ever; and
  • September is the last month for transitional arrangements for financial adviser register.

Fraudulant services provided by AFSL holder lead to tragedy

In June this year, the Executive Chairman of Oceanic Asset Management (OAM) David Jones and his wife Jeanette took their own lives leaving a suicide note admitting they had been defrauding investors for years.

OAM holds an Australian Financial Services licence and is licensed to provide funds mangagement advice to wholesale clients. According to ASIC, OAM appears to have been operating a number of unregistered managed investment schemes.

The Joneses ran Mulato Nominees out of the same office building as OAM, a company marketed as a ‘highly successful private investment company specialising in unearthing investment opportunities at the smaller end of the Australian quoted market, predominantly resources orientated’.

The Joneses defrauded numerous UK-based investors who had put their life savings through Mulato Nominees and associated companies.  The local press reported that in the suicide note found at their home in Perth,  the couple said that they had tried to overcome the losses they had caused in the hope of a recovery, but this was without success and they could not live with the guilt and shame. It was also reported that as recently as 2014 Mulato was described as a ‘$100 million private investment company’.

ASIC has successfully applied to the Federal Court under the Corporations Act 2001 (Cth) to have a provisional liquidator appointed to OAM, Mulato and four other associated companies linked to Jones’ fraudulent activity.  The Federal Court’s judgement referred to previous case law which establishes that the appointment of a provisional liquidator is  a ‘drastic measure’ but one that may be required to preserve the status quo.

In a media release, ASIC attributed the application as a result of concerns arising from complaints made to the regulator and the West Australian Police Services Major Fraud Squad by a large number of UK-based investors.  ASIC is currently investigating various breaches of the Corporations Act by OAM and the other five companies, including the making of false or misleading statements and engaging in misleading or deceptive conduct.

Theft and fraud offences under the Criminal Code Compilation Act 1913 (WA) are also being investigated.

In the Federal Court, ASIC also successfully obtained asset preservation orders and the appointment of a Trustee to the deceased estate of Mr Jones. This will come as a relief to UK couple Thomas and Lynda Briers who lost more than $1 million after they were conned by the Joneses and took issue with relatives of the family keeping ill-gotten gains such as luxury cars and jewellery.

While ASIC and the ATO continue to investigate the affairs of OAM and associated entities, the appointment of the provisional liquidator will  protect the interests of shareholders, investors and creditors.

Sustainable investments are more important than ever

An increase in the number of reports and initiatives in the past year that focus on environmental, social and governance (ESG) scores of financial institutions reflects the increasing importance of sustainable investment in the financial sector.

ESG scores for global managed funds

In line with this trend, Morningstar, a leading independent investment research group that provides research for stocks, funds, EFT’s, credit and LIC’s, has announced that it will launch the industry’s first ESG scores for global managed funds and exchange-traded funds.

The research house also provides financial data, news, and investing articles for North America, Europe, Australia and Asia and it will base its new scores on ESG company ratings supplied by Sustainalytics for release later this year, applauding Morningstar for its innovation.

The two research groups will work together to release the new fund scores in the fourth quarter of 2015. The combination of the groups’ portfolios will allow Morningstar to create asset-weighted composite ESG fund scores based on company-level Sustainalytics ESG ratings.

Morningstar Director of Manager Research – North America, Jon Hale, has said that ESG ratings will bring more transparency and accountability to the investment industry.

Sustainable Investing

Investors are placing more importance on ESG policies and practices. The Morgan Stanley Institute for Sustainable Investing released a study in February this year that found that 71% of individual investors are interested in sustainable investing and that this type of investing doesn’t require financial sacrifice.

There has also been a 29% increase in the past year in the number of financial institutions that have signed the UN-supported Principles for Responsible Investment Initiative, bringing the total to almost 1,400 firms, managing in excess of $59 trillion, joining together to promote responsible investment.

The new ratings are said to, for the first time, provide investors with a fund comparison across categories, relative to benchmarks, and over time using ESG factors with the ability to examine the scores for the environmental, social and governance pillars. Also, investors will be able to ‘drill down’ to see scores for each of the three pillars.

September is the last month for transitional arrangements for AFS licensees

Transitional arrangements allowing AFS licensees to ensure that their financial advisers’ and authorised representatives’ details are up to date will end on 30 September 2015. From 1 October 2015, new fees and notification periods will apply for updating or changing the details of AFSL financial advisers and authorised representatives.

This will mean that AFSL holders from October this year will have no more than 30 business days from the effective date of change to notify appointments or updates. In addition, AFSL holders will have to pay a fee of $29 to do so and late fees of up to $312 will apply to those who fail to make a notification within the 30 day period.

Also from 1 October, AFSL holders will be able to notify ASIC of all changes for representatives online. This means that licensees will no longer need to use paper forms to:

  • update addresses for authorised representatives;
  • nominate a business name for authorised representatives;
  • update representative names and ABNs for authorised representatives and financial advisers; or
  • cease an authorised lodger so they can no longer lodge for a licensee or authorised representative.

Licensees should take advantage of the transitional arrangements and ensure their details are correct before September 30.

More information is available on the ASIC website.


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