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ASIC on the verge of Hayne litigation blitz

 ASIC deputy chairman Daniel Crennan ... 'We run cases because we wish to - and expect to - win'  James Alcock ASIC deputy chairman Daniel Crennan ... 'We run cases because we wish to - and expect to - win' James Alcock

ASIC is planning a litigation blitz in coming months as it puts up to 50 matters into the courts, many of them arising from the Hayne royal commission. ASIC deputy chairman (enforcement) Daniel Crennan, QC, has told The Australian Financial Review that on top of the 13 referrals from the commission, the regulator was looking at “three times as many” case studies with a view to legal proceedings.

"There are a very large number of investigations on foot and there will be cases being issued in coming weeks, which are the result of those investigations,’’ Mr Crennan said.

“Those matters will culminate in proceedings being issued before Christmas, and over the next few months.

"If ASIC does not pursue a case that is either referred to us or related to the royal commission we will be in a position to explain why."

Sources have told the Financial Review they expect a slew of cases to be underway before Senate estimates hearings in late October, at which ASIC will be asked to explain the results of a dramatic boost in funding – up 25 per cent in the May budget to $400 million over the next four years – and the progress of its new "why not litigate?" approach to enforcement.

It could mean direction hearings, which can allocate hearing dates, being held before the end of the year.

Launching pad

Mr Crennan would not be drawn on which cases would be first, but fees-for-no service has long been considered the obvious launching pad for Hayne litigation. This is partly because the damning admissions before the commissioner increase the prospect of convictions.

Mr Crennan was speaking as ASIC released its half-yearly Enforcement Update for the first six months of 2019. It shows that enforcement investigations over the past year had risen by 20 per cent.

There is a sharp focus on the activities of the big six – the four major banks plus Macquarie and AMP – with investigations of that group up 51 per cent. Wealth management investigations rose 216 per cent.

“ASIC has a clear resolve. The office of enforcement is ready to deliver on the public's expectation to hold wrongdoers to account,” Mr Crennan says in the report.

He pointed to there being only one enforceable undertaking in the past six months. Gold Coast accountant Jenan Thorne has agreed not to provide financial advice for three years over "best interests" concerns related to a superannuation client.

Another undertaking by communications giant Vodafone was accepted by ASIC on delegation from the ACCC.

“The office is moving away from negotiation, partly driven by the fact we now have penalties to pursue."

'There's a lot on our plate'

For example the "fairness" provision of the Corporations Act – Section 912A – had no teeth until March, but there are now civil penalties of up to $525 million for some companies and $1.05 million for individuals.

“There's a lot on our plate,'' Mr Crennan said. "And it's not just royal commission matters.”

The federal government has appointed four new judges to the Federal Court – two each in Sydney and Melbourne – to handle the fallout from the banking royal commission. There will likely be more judges to come, with a departmental review having suggested that an extra 10 might be needed. 

Mr Crennan said the update numbers reflected “the shift towards a more litigation-oriented agency”.

“In terms of cases more generally, there are a very large number of investigations on foot and there will be cases being issued in coming weeks, which are the result of those investigations.

“In term of royal commission matters proper, there were 13 formal referrals and they are currently being investigated.

“There are a number of case studies which relate to matters within our jurisdiction and of those we are investigating quite a large number – approximately three times as many as the referrals.

“Those matters will culminate in proceeding being issued before Christmas and over the next few months.”

He said co-operation could shorten investigations. “I am confident that those that are currently under foot will culminate in the issue of proceedings against a significant number of entities – including some of the larger entities – within coming weeks and months.”

Mr Crennan said he was involving barristers much earlier in proceedings, both in terms of getting advice and having them conduct compulsory examinations under section 19 of the ASIC Act.

The Office of Enforcement that had also been established was operating with a "specific strategic" role.

Warnings

"It’s more flexible, it's more transparent. It's an improvement on what we had."

Mr Crennan said warnings by himself and ASIC chairman James Shipton about the value of co-operating were having an impact. He noted that in a recent liability hearing – the first part of the penalty process – AMP chose to make admissions.

“That greatly accelerates the process and removes uncertainty. And by doing so they moved to the penalty phase.

“When you're in a penalty phase, the entities or individuals involved are perfectly entitled to argue as to what appropriate penalties might be ordered by the court.

"It's a responsible and sensible way to deal with the legacy of the conduct of the past, in circumstances where we're looking at a new world – or a new paradigm – where the laws are different and the penalties are different.

"I think some of them are getting on board and I encourage those who are less interested in doing so, to do so."
Westpac loss

Mr Crennan said the regulator was not deterred by its defeat in the responsible lending case against Westpac last week in the Federal Court. An appeal is being considered.

"Obviously we were disappointed to lose.'' he said. "We don't run cases in the hope that we win. We run cases because we wish to, and expect to, win."

He said it was "a legitimate objective" to pursue cases where the law was unclear.

"Unfortunately, that can result in the regulator losing cases. But that's the world of litigation.

"If the law remains unclear when you get to the High Court, then that is matter for government.

"As hard as we try we might not be right in the eyes of a judge or judges."

This article was first published by The Australian Financial review
Author: Michael Pelly Legal Affairs Editor
Last modified onMonday, 19 August 2019 02:13

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