Four officers found guilty of breaching duties in $17m MIS

managed investment scheme ASIC

5 April 2023
| By Rhea Nath |
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The Federal Court has found that four current and former directors of Linchpin Capital Group and Endeavour Securities breached duties as officers of a responsible entity of a registered managed investment scheme and did not act in the best interests of members.

According to ASIC, Ian Williams, Paul Raftery and Paul Nielsen, directors of Endeavour, and Peter Daly, director of Linchpin and an acting director of Endeavour, “did not take the proper steps to ensure they complied with the law” in managing $17 million through a registered managed investment scheme called the Investport Income Opportunity Fund.

Linchpin operated an unregistered managed investment scheme, which was also called the Investport Income Opportunity Fund.

The Court found Daly and Raftery improperly used their positions by receiving unsecured loans from the unregistered Investport Income Opportunity Fund for their personal use.

Daly received loans totalling $130,000 and Raftery took a $40,000 loan.

ASIC deputy chair Sarah Court said: “They were responsible for large sums of money but did not take the proper steps to ensure they complied with the law. Disclosure statements did not reflect the true position and two of the directors were found by the Court to have made improper use of their positions to gain advantage for themselves.

“Investors expected a level of compliance that was not delivered. For ASIC, it was critical that these officers were held accountable.”

The Court found that between 2015 and 2018, the individuals in question:

  • Did not take all reasonable steps to ensure that Endeavour complied with its compliance plan, obtain member approval for related party loans and issue Product Disclosure Statements that complied with the law;
  • Failed to exercise care and diligence;
  • Did not act in the best interests of members of the Investport Income Opportunity Fund.

In handing down judgment, Justice Elizabeth Cheeseman said: “The circumstances in which and the way in which Endeavour transferred the funds to Linchpin markedly departed from the standard that one would expect between unrelated parties, each acting in their own best interests.

“In short, the Endeavour transfers were uncertain, uncommercial and improvident.”

She identified a “clear conflict” between the interests of unit holders in the registered scheme and the interests of Linchpin and the borrowers under the unregistered scheme loans.

“That conflict was not recognised and was not mitigated by the respondents in their respective roles as officers of Endeavour,” Cheeseman stated.

“The conduct of Daly and Raftery, respectively, in entering into the Daly Loans and the Raftery Loan (as varied), fell short of the standards of conduct that would be expected of individuals in their position by reasonable persons with knowledge of the duties, powers and authority of officers of responsible entities of a registered managed investment schemes.”

Nielsen, Raftery, and Williams did not contest ASIC’s case at trial.

All four individuals had previously been banned in November 2019 from providing financial services for five years.

ASIC would now seek orders from the Court, imposing pecuniary penalties and periods of disqualification against the current and former directors from managing corporations.
 

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