Chapter 16 – The 11 fabricated examples in ASIC’s Stakeholder Referral Paper 29 March 2017

Introduction: more misleading conduct by ASIC’s FA[1] team

The December 2016 Discussion Paper discussed above is not the end of the matter. ASIC used it as a base when it created ASIC Stakeholder Referral to Financial Services Enforcement dated 29 March 2017[2] (the second ASIC paper).

ASIC’s FSE unit is led by Tim Mullaly[3]. It investigates and litigates breaches of the financial services law. The FSE unit investigated Dover’s conduct since 1 January 2015 and their investigations identified “oversight and advice concerns”.

These concerns led ASIC to recommend injunctions under sections 1101B and 1324 of the Corporations Act against Terry. This would be the first time these injunctions had been used against an individual. It was obviously a big step for ASIC: something serious was afoot.

It appears these decisions were made in a series of meetings between ASIC’s Financial Advice (FA) Unit and FSE Unit over December 2016 and January 2017. Dover has tried numerous times to access the minutes of these meetings using FOI but has not been successful[4].

We stress this was based on the five examples in the preceding chapters. No one tested or checked their work. It is assumed to be, and adopted as, true, and was then used by the combined ASIC FA Unit and ASIC FSE Unit as reasons to shut Dover down using urgent Federal Court injunctions under sections 1101B and 1324 of the Corporations Act.

Three simple questions

This is unprecedented. Looking back we have three simple questions at January 2017:

  1. why did ASIC not ask Terry and Dover what they thought of these conclusions? It would come out in the Federal Court anyway: judges do not grant injunctions without evidence and without allowing the target of the injunction to respond
  2. similarly, why did ASIC not respond to Adrian McMaster’s request for feedback and an interim report in November 2016? Falsely stating they were not able to do this and
  3. why did ASIC not seek those urgent heavyweight injunctions Federal Court injunctions under sections 1101B and 1324 of the Corporations Act?

The Royal Commission was coming…

Remember in January 2017 it was expected the Government would announce a Royal Commission at any time, and realistically it would have taken ASIC’s FSE team at least 6 months, if not more, to get its enforcement act together[5].  That takes ASIC’s FSE team out to at least August 2017. The Royal Commission chatter was at a peak.

ASIC skipped its conventional enforcement protocols and processes to instead set Dover up at the Royal Commission.

Proposed enforcement action: shut Dover down[6]

ASIC proposed at section 4 of the second that:

4.1     Following engagements with FSE we would seek to consider action against McMaster under s1101B, specifically pursuing an order that McMaster is prohibited from providing financial services and prohibited from being involved in the provision of financial services so that he can no longer operate Dover. Due to the level of operational control exercised by McMaster in relation to Dover, there is no possibility of any change within the compliance framework of Dover without his removal. Depending on the timeframes, this may also require injunctive action against McMaster under s1324.

4.2     In regards to actions against the Dover AFSL there has been discussions regarding a number of potential actions to be taken. Administrative action via a delegate has been considered, however this approach has been difficult in the past in achieving suitable outcomes. Court based action to cancel or suspend the license is another consideration.

4.3     By commencing an investigation in to the AFSL, ASIC can seek to utilise s19 interviews. This will assist in the work to be completed against the AFS License. 

The alleged 11 misconducts by Dover, Terry and Florence

The second paper says the alleged misconduct comprises 11 separate matters:

“Dover

i. Dover’s process for the appointment of representatives is inadequate and in any event is not complied with.

ii. Dover’s arrangements for the monitoring and supervision of representatives are inadequate.

iii. The quality of advice provided by Dover representatives is poor. A large proportion of files do not comply with the law. The personal financial advice provided by the Key Person and Responsible Manager (McMaster) and the second in charge of the licence (Tee) fails to comply with the law.

iv. When adviser misconduct is identified by Dover (typically pointed out to them by a

third party), Dover fails to take appropriate steps to remediate the client in relation to the advice they have been provided.  

v. A serious misconduct report relating to Dover’s conduct in managing a client complaint was recently received from FOS. FOS has alleged that in the process of managing a client complaint, Dover made implicit threats to the client regarding defamation action, contrary to FOS’ Terms of Reference. Dover is also alleged to have inappropriately released personal information to a third party in breach of privacy obligations and may have also written to Centrelink alleging fraud conduct by the client. The FOS complaint can be found at Appendix 2.

vi. When providing ASIC details of adviser remuneration under Notice, Dover misinformed ASIC regarding the origin of certain fees in relation to McMaster. Dover do not appear to differentiate between professional adviser fees (such as tax and legal fees) and advice related fees.“

McMaster:

 ASIC has reviewed 2 files containing advice provided by Terry McMaster. ASIC has comprehensively failed both files in relation to s961B, s961G and s961J.

viii. McGrath Nicol reviewed 4 files containing advice by Terry McMaster (2 of these were the same as ASIC). McGrath Nicol failed all files in relation to s961B, s961G and s961J.

ix. Alleged misconduct in relation to Dover is attributable primarily to McMaster. He is the sole director and key person and oversees all aspects of the licensee’s compliance framework. McMaster is involved in all operational aspects of Dover and appears to make all decisions.

Tee:

 ASIC has reviewed 2 files containing advice provided by Florence Tee. ASIC has comprehensively failed both files in relation to s961B, s961G and s961J.

x. McGrath Nicol reviewed 4 files containing advice provided by Tee (2 of these were the same as ASIC). McGrath Nicol failed all files in relation to s961B, s961G and s961J.”

Summary response: this was ASIC’s strategy to set Dover up at the Royal Commission

Each of the 11 allegations in the FSE Referral Document is incorrect. Looking back its now obvious ASIC was setting Dover up for the Royal Commission.

It worth repeating how hard Dover sought to cooperate with ASIC and how hard ASIC resisted. You will recall on 1 June 2017 Terry emailed ASIC’s FSE Unit team members James McAllister-Harris and Inakshi Rajadurai as follows:

Hi James

I hope you are well and that all is well. We are preparing the information you have requested and, and this should be available under your requested time frame.

We confess to concern about the strong overlap and repetition with the information already provided to ASIC over the last 12 months and in previous years going back as far as 2012. We are also concerned about your statement that you are investigating possible breaches of section 912A and the best interests duty and related provisions.

Can you please let us know in what respects you believe we have breached section 912A and which statements of advice you believe were not in the client’s best interest. Being specific here means we can greatly speed up the review process and I undertake to provide the specific information plus any extra relevant explanations to you as soon as possible. We also want to mitigate any damages that may be occurring if your concerns are valid. 

Could you please fill us in on the progress of the surveillance audit and ASIC’s thoughts/findings to date? We had hoped for some feedback by now and are obviously keen to see if there is any way we can do things better. We formally requested an interim report/feedback in about November 2016, but none was provided.

Further, I feel a meeting is a good idea. Are you able to come out to our office to discuss the matter? I would like to take the opportunity to walk you through our processes so you can see for yourself how we review statements of advice, and to also answer any questions you may have about our processes and how we ensure we comply with the law.

I think a meeting like this will add greatly to your understanding. Please feel free to ring me on my mobile 0417 451 961. Unfortunately, I am in meetings this afternoon. But I am available at 9.00 am tomorrow afternoon[7].

Later on 1 June 2017 Terry, emailed James again, as follows:

You will note from Terry’s two 1 June 2017 emails:

  1. Dover was very concerned about mitigating any damages caused to clients by any inadvertent compliance errors and
  2. Dover undertook to rectify any concerns ASIC had even before ASIC advised Dover what those concerns were.

It’s hard to see how Dover could have acted with more good faith.

Dover requested the audit, Dover cooperated fully, even volunteering legally privileged documents to ASIC[8]. Dover repeatedly requested meetings and feedback. Dover was concerned about mitigating client losses, Dover even undertook to rectify any compliance concerns and mitigate any damages before ASIC advised Dover what they were.

ASIC’s intentionally misleading and deceptive response

James McAllister-Harris and Inakshi Rajadurai responded on Tuesday 6 June 2017. James McAllister-Harris did not mention the Client Protection Policy. Nor their concerns Dover was surreptitiously engaged in egregious schemes. Nor Peter Kell’s engagement to note court action using section 1324 and section 1101B injunctions and ‘phone bugging[9] was needed and administrative action would not work.

No ASIC FSE unit big-ticket concerns were mentioned. It was a stony silence. Not a peep.

Instead James said the suspected contraventions “were around”:

  1. the appointment and on-going monitoring of representatives
  2. the quality of advice provided by representatives
  3. the steps taken by Dover to remediate any representative misconduct.

James added: “These concerns may change during the course of ASIC’s investigations.”

ASIC’s email is shown here:

The benefit of hindsight

Looking back its obvious ASIC was being incomplete, misleading and deceptive. James omitted all the big things and only mentioned the little things. James’ omissions were not an accident. His omissions were intentional. They were part of ASIC’s “let’s set Dover up at the Royal Commission” strategy”.

In the following table we analyse the 11 “misconducts” identified by ASIC in its second paper. These 11 misconducts basically repeat the 5 examples of misconduct described in ASIC’s first paper dated 12 December 2016 just seven weeks earlier.

This means they can be dealt with quite summarily by referring the reader to the relevant chapter in the other parts of this book, and not repeating material unnecessarily.

Table 1           summary of ASIC’s false and misleading statements

Table showing ASIC’s 11 serious compliance concerns and Dover’s responses

 

ASIC ‘s concerns about Dover Dover’s response to ASIC’s concern
1 Dover’s process for the appointment of representatives is inadequate and in any event is not complied with. This is not correct. refer to chapter 4 where Dover demonstrates the process for appointing new advisers was adequate and in fact exceeded ASIC’s requirements
2 Dover’s arrangements for the monitoring and supervision of representatives are inadequate.

 

This is not correct. Refer to chapter 5 where Dover demonstrates its adviser monitoring and supervision processes exceeded ASIC’s requirements.
3 The quality of advice provided by Dover representatives is poor. A large proportion of files do not comply with the law. The personal financial advice provided by the Key Person and Responsible Manager (McMaster) and the second in charge of the licence (Tee) fails to comply with the law.

 

This is not correct. The reader is referred to chapter 13  where Dover demonstrates the quality of advice provided by Dover advisers is not poor and is above industry averages as measured by ASIC. The reader is refered to chapters 6, 7 & 8 where Dover demonstrates McMaster provided good compliant advice to Dr Amit. The reader is refered to chapters 6, 9 and 10 where Dover shows Tee provided good compl;iant advice to Katrina.
4 When adviser misconduct is identified by Dover … Dover fails to take appropriate steps to remediate the client in relation to the advice … provided. This is not correct. The reader is referred to chapter 11 where where Dover demonstrates it takes appropriate steps to remediate where clients receive certain advices on the termination of an adviser
5 A serious misconduct report relating to Dover’s conduct in managing a client complaint was recently received from FOS. FOS has alleged that in the process of managing a client complaint, Dover made implicit threats to the client regarding defamation action, contrary to FOS’ Terms of Reference. Dover is also alleged to have inappropriately released personal information to a third party in breach of privacy obligations and may have also written to Centrelink alleging fraud conduct by the client.  The FOS complaint can be found at Appendix 2. This is not correct. The reader is refered to chapter 21 where Dover demonstrates that FOS failed to report elder abuse and Centrelink fraud and that FOS failed to advise ASIC that reporting elder abuse and Centrelink fraud does not breach the Privacy Act or any other “privacy obligations”.
6 When providing ASIC details of adviser remuneration under Notice, Dover misinformed ASIC regarding the origin of certain fees in relation to McMaster. Dover do not appear to differentiate between professional adviser fees (such as tax and legal fees) and advice related fees.“

 

This is not correct. This appears to be a another mistake on ASIC. McMasters’ and Terry McMaster did not charge clients for financial planning advice. Therefore there was no faliure to “differentiate between professional adviser fees… and advice related fees” because there were no advice related fees to differentiate. (There were no commissions either: McMaster did not accept commissions.)
ASIC’s concerns about Terry McMaster
7 ASIC has reviewed 2 files containing advice provided by Terry McMaster. ASIC has failed both files in relation to s961B, s961G and s961J.

 

This is a repetition of complaint 3.
8 McGrath Nicol reviewed 4 files containing advice provided by Terry McMaster (2 of these were the same as ASIC). McGrath Nicol failed all files in relation to s961B, s961G and s961J. See above and note  Dover applied section 961B(1) for the best interests duty and did not create a checklist under 961B(2). See Chapter 18 for an explanation of why ASIC’s approach to the best interests duty is incorrect.
9 Alleged misconduct in relation to Dover is attributable primarily to McMaster. He is the sole director and key person and oversees all aspects of the licensee’s compliance framework. McMaster is involved in all operational aspects of Dover and appears to make all decisions. See above, and the other chapters in this book. In summary, there was no misconduct by  McMaster. Every allegation of misconduct is competently refuted. There was no misconduct.
ASIC’s concerns about Florence Tee
10 ASIC has reviewed 2 files containing advice provided by Florence Tee. ASIC has comprehensively failed both files in relation to s961B, s961G and s961J.

 

This is a repetition of complaint 3. See Chapter 18 for an explanation of why ASIC’s approach to the best interests duty is incorrect.
11 McGrath Nicol reviewed 4 files containing advice provided by Florence Tee (2 of these were the same as ASIC). McGrath Nicol failed all files in relation to s961B, s961G and s961J.” See above

 

Short summary: what does this table tell us?

This table proves ASIC made up stories about Terry and Florence when it wrote the ASIC Paper dated 12 December 2016. ASIC did the same thing when it wrote the Referral Document to kick start the FSE action against Dover and Terry seven weeks on 27 January 2017.

ASIC’s intention was obvious: to enhance ASIC’s strategy of setting Dover up at the Royal Commission and closing Dover.

Were these made up stories used elsewhere?

 It appears these made up stories were used elsewhere. This is detailed in chapter 25 “Tim Mullaly deceives Treasury, the Attorney General and the CDPP about Dover.

Tim Mullaly used these made up stories in November 2017 to create a case study to argue ASIC needed increased directional powers. Tim left out the bits about Dover requesting the audit and undertaking to rectify any compliance concerns ASIC had.

These made up stories were provided to the Royal Commission by ASIC in December 2017 and early 2018. They clearly contributed to the Royal Commission’s decision to call Dover and Terry McMaster as witnesses.

This in turn gave power to ASIC’s strategy of closing Dover.

In summary, Andrew Davison and Leah Sciacca made up stories about Dover to ASIC help close Dover.

[1] Financial Advice team

[2] A copy is reproduced in the appendix.

[3] Tim has been handling the banks’ fee for no service issues for about seven years now. He is a very experienced ASIC officer

[4] This is discussed in Chapter 19 dealing with Dover’s FOI requests and ASIC’s fierce resistance thereof

[5] Daniel Crennan has recently stated he expects cases to be prepared within at least 6 months

[6] We stress this recommendation is based in the five case studies in ASIC’s first paper. Each one of these case studies has been shown to be seriously flawed and even falsified in the preceding chapters

[7] There are other e-mails from Dover to ASIC like this, ie asking for meetings and seeking feedback. By and large ASIC ignored them. Dover should have been like AMP and asked the ASIC head honchos out for a meal at a posh restaurant instead

[8] The Holley Nethercote/Imac Legal opinion discussed the Client Protection Policy at length: Dover was an open book and did not hid a thing from ASIC. The 2016 Holley Nethercote report is reproduced and discussed in full in chapter 4. In summary, it analyses Dover’s SOA procedures and Client Protection Policy, and concludes all is in order. This report was voluntarily provided to ASIC despite being a legally privileged document. Dover did this in good faith. Amazingly, the ASIC executives , Andrew Davison and Leah Sciacca, dismissed the 2016 Holley Nethercote report (and a similar Sophie Grace Report) as incompetent. But worse, they did not tell Dover they had done this.

[9] Section 19 of the ASIC Act contemplates ‘phone bugging. The three documents recommend action under section 19.

The Dover Group