Chapter 21 – ASIC’s culture: it came from the top: ASIC set Dover up at the Royal Commission

Introduction

First a few quotes from some famous and influential Australian thought leaders.

“I am sometimes inclined to think that in some parts – not all – of the Commonwealth, the old fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to be elementary, is either not known or thought out of date, I should be glad to think I am mistaken.”

Griffith CJ in Melbourne Steamship Co Ltd v Moorehead (1910) 15 CLR 333 at 342

“2        The fairness imperative

Fairness is already a core part of our work: ASIC’s vision is for a fair, strong and efficient financial system for all Australians.

Fairness is also already embedded in the law – in section 912A – the obligation to act ‘efficiently, honestly and fairly’.

The Royal Commission has also helpfully highlighted the fairness imperative.

So, what is meant by fairness? Some people might say fairness is intangible. Nevertheless, through the lens of the Royal Commission it was very clear to the community, and even industry itself, that certain types of conduct was very clearly unfair.  

The fact is ‘fairness’ is a concept we can all readily understand. Moreover, humans can clearly recognise unfair outcomes.

Fairness means doing what’s right; it’s the quality of being reasonable and just. Commissioner Hayne acknowledged that fairness ‘may lie at, or at least close to, the heart of community standards and expectations about dealings with consumers’.”

Mr James Shipton James Shipton, ASIC Chair, Conduct Regulator’s Address, the AFR Banking and Wealth Summit, (Sydney, Australia) 27 March 2019.

They must cooperate with us and there are consequences for not cooperating with us and misleading us (ie ASIC) is a very, very serious matter.”

Daniel Crennan, ASIC Deputy Chair, as reported in the SMH and the Age 23 March 2019.

What does this all mean? What does it say about ASIC and its leadership?

I confess to deep sadness reading over the preceding pages. And the above quotes.

ASIC’s public words do not match its private deeds. A large number of senior ASIC executives actively and knowingly misled and deceived the media and the public. Countless other senior ASIC executives knew of it, but did nothing about it. They are just as bad. Tim Mullaly started it with his Queens Birthday e-mail on Saturday 9 June 2019. Louse Macaulay knew it was not true: see Gervase Green’s e-mail to Andrew Williams in ASIC’s Perth office on Monday 11 June 2019. But Louise and her close colleagues Joanna Bird repeated it without hesitation. Gervase Green sang the same song four months later, ringing the ABC’s Andrew Robertson on 25 October 2018 to tell Andrew it was 100% Terry McMaster’s decision to close Dover.

How does something like this happen? How do so many ASIC executives abandon honesty to blatantly mislead all and sundry about Dover’s closure?

What were they really hiding? What understanding? What conspiracy? What makes Louise Macaulay tell Jon Hayward Dover closed “voluntarily”? What makes Joanna Bird lie to Philip Kewin that the closure of Dover was “completely Terry McMaster’s orchestration and not merely a reaction to directions from ASIC”. What makes Gervase Green ring the Australian Broadcasting Commission, perhaps the last bastion of independent journalism in Australia, to stress “it was Terry McMaster’s decision to close Dover”? Why do they lie?

Louise Macaulay knew she misled Jon Hayward. But she does not have the professionalism and courtesy to contact Jon and apologise for doing so. Her implicit denial amplifies her original wrong. Why won’t Louise tell Jon the truth? What sort of leader sets that bad an example?

Gervase Green lied when he e-mailed those journalists. How hypocritical is he? How malicious is he? How wrong is he? How far short of community expectations is he?

Tim Mullaly started the ASIC lies when he told Angela Friend to say Dover did it.

AFSLs, journalists, and humble members of the public like Jon Hayward are entitled to honesty when dealing with government bodies. ASIC should not be the exception. ASIC should be the role model. ASIC expects honesty. ASIC should give honesty.

It does not lie in the mouth of ASIC chairmen and ASIC deputy chairmen to lecture on probity and propriety. To publicly push Fairness Imperatives and wars on deceptive conduct.

Not when they privately countenance, tolerate and, by acquiescence, encourage senior ASIC executives misleading and deceiving the public, ie the people they are supposed to protect.

It’s a corrupt and corrosive ASIC culture. It starts at the top. These lies are just the tip of it.

Do you see how this:

derived from this:[1]

Do you see how ASIC forcing Dover to close in June 2018 completed the process started in May 2016 when ASIC lied about Dover, to implement Kell’s instruction to close Dover:

How does ASIC’s flawed culture otherwise manifest?

ASIC’s flawed culture is manifest in the preceding chapters.

One manifestation that is not discussed so far is ASIC’s failure to advise Dover of the true reasons why ASIC wanted Dover to close.

The reasons stated in the 15 May 2018 notice related solely to the client protection policy.

CPP PARAGRAPHS DELETED TEMPORARILY

 

 

The real reason ASIC wanted to close Dover was not disclosed to Dover

ASIC provided three main documents to the Royal Commission”:

  1. Dover Financial Advisers Pty Ltd (‘Dover’) – Discussion Paper dated 12 December 2016
  2. Dover Financial Advisers Pty Ltd (‘Dover’) – Memo to Ops dated 31 January 2017
  3. Stakeholder Referral to Financial Services Enforcement dated 29 March 2017.

These three documents set out the basis for ASIC wanting to close Dover. The eleven main reasons, and how ASIC got each of them wrong, are summarised in the appendix to this chapter. Suffice it to say here in the discussions and negotiations in June 2018 where ASIC forced Dover to close none of these eleven main reasons were provided to Dover by ASIC as reasons why ASIC wanted to cancel or suspend Dover’s licence.

Breach of natural justice and general administrative law principles

However, in the circumstances, including the fact that ASIC decided Dover’s CPP was deceptive nearly two years earlier in 2016 and these eleven main reasons had led ASIC to recommend urgent injunctions against Terry McMaster in 2016 to close Dover, it is reasonable to assume they remained strong reasons for ASIC wanting to close Dover in 2018.

ASIC did not state this in the notice of intention to suspend or cancel its licence that it served on Dover on 15 May 2018, and did not otherwise advise Dover of this.

It is a serious breach of administrative law and natural justice for a regulator such as ASIC to suspend or cancel a licence held by a licensee such as Dover without the regulator advising the licensee of the reasons for the disclosure.

The irresistible inference: ASIC set Dover up at the Royal Commission

It obvious that from 2016 on senior ASIC executives including Peter Kell. Tim Mullaly, Louse Macaulay and Joanna Bird wanted to close Dover. To this end they  deliberately denied Dover the opportunity to rectify any perceived compliance shortcomings.

Peter Kell. Tim Mullaly, Louse Macaulay and Joanna Bird wanted to set Dover up at the Royal Commission to cause maximum public damage to Dover and Terry McMaster. Why else wait 18 months from the 2016 audit findings to the 2018 Royal Commission. Their history drips with malice. An incomplete list of their malicious acts and facts includes:

  1. the total context, described in the other chapters: this shows ASIC engaging in high level unconscionable conduct
  2. Peter Kell engaging in 2016 to note his preference for closing using Dover amidst section 1101B and section 1324 injunctions (but ASIC cannot find any other record of this)
  3. ASIC then sitting on its heels, doing nothing for 15 months, 2017 and more, waiting for the Royal Commission compared to its quick fire approach on the WRM case[2]
  4. ASIC construing Terry’s advice to Dr Amit and Florence Tee’s advice to Katrina as negligently non-compliant and breaching numerous Corporations Act provisions and triggering all sorts of penalties and adverse consequences
  5. ASIC differing from each of PricewaterhouseCoopers, Deloitte, Holley Nethercote, Imac Legal, Sophie Grace, Integrity Compliance, Australian Super and First State Super. ASIC after one hour of meetings and after 18 months of virtually no contact, to instead conclude Dover was hopelessly non-compliant and had to close
  6. ASIC ignored Dover’s requests for meetings and feedback, falsely stating it could not meet during an audit (compared to how Tim jumped when the AMP rang)
  7. ASIC finally responded to Dover, after Dover raised the issue of mitigating client losses and undertook to rectify any compliance concerns, but ASIC omitted its biggest concern, ie the fact it had believed the CPP was deceptive since 2016
  8. ASIC not advising Dover it believed the 2016 Holley Nethercote and Sophie Grace reports were incompetent and ASIC believed the CPP was deceptive
  9. ASIC’s FA unit providing false and misleading information to ASIC’s FSE unit over December 2016 and January 2017
  10. ASIC providing false and misleading information to the Royal Commission.
  11. Tim Mullaly, the head of ASIC’s FSE unit telling Gervase Green, the head of ASIC’s media unit, that it was Terry McMaster’s decision to close Dover
  12. Joanna Bird, the head of FA, telling the AFA ASIC could not extend the 30 day period for Dover advisers to find a new AFSL because it was completely Terry McMaster’s decision to close Dover
  13. ASIC’s media release dated 12 June 2018 recommending Dover clients get independent legal advice and AFSLs be careful taking on Dover advisers
  14. allowing about 15,000 clients receive the CPP, a document ASIC believed to be deceptive, from 2016 in a blatant disregard for the public interest and the expectations of the community regarding ASIC protecting the public interest and
  15. the difference in ASIC’s treatment of Dover compared to its treatment of other large AFSL, as tabulated again on the second next page.

 

Unconscionable conduct incidents connected to the CPP Chapter
Dover requested the audit in a meeting with Louse Macaulay in April 2016. (This was confirmed in ASIC’s May 2016 letter to Dover advising of the audit)  
Dover has a history of requesting audits.  Dover also requested an ASIC audit in 2013  
Dover cooperated with the ASIC audit. This contrast to most other large AFSLs  
Dover volunteered two legally privileged lawyers’ reports to ASIC to help ASIC understand Dover’s compliance processes. The 2016 Holley Nethercote report openly discusses the CPP. That is, Dover disclosed the CPP to ASIC in June 2016  
ASIC dismissed the two lawyers’ reports as incompetent but did not tell Dover  
ASIC determined the CPP was deceptive in 2016 but did not tell Dover  
ASIC decided to close Dover and issue section 1101B and 1324 injunctions against Terry McMaster, but did not tell Dover or Terry. This is despite their repeated requests for feedback and their undertakings to rectify any compliance shortfalls. See below.  
Dover formally requested feedback from ASIC in November 2016 but was told ASIC could not meet with Dover during the audit (this contrasts with ASIC’s treatment of large AFSLs eg AMP where urgently organised audit meetings were common)  
Dover requested meetings and feedback again in early 2017 but ASIC refused  
On 1 June 2017 Dover expressed concern about mitigating client damage due to the time being taken by ASIC to complete the audit.  Later on 1 June 2017 Dover also undertook to rectify any compliance concerns ASIC had (before ASIC advised what these concerns were)  
On 6 June 2017 ASIC finally responded to Dover and advised it had three concerns but did not advise it was concerned by the CPP. This was in effect a representation that ASIC was not concerned by the CPP.  
On 22 June ASIC repeated the 6 June 2017 advice to Dover  
After 6 June 2017 Dover immediately commissioned two fresh consultants’ reports. Each consultant’s report confirmed Dover was complying with the three concerns listed in ASIC’s letters dated 6 June 2017 and 22 June 2017  
During 2016 and 2017 Dover provided more than 500 statements of advice to ASIC under formal notice. Most SOAs included the CPP. ASIC responded “NFA” in each case and did not advise Dover it considered the CPP deceptive.  
ASIC’s review of each of Adam Palmer (7 November 2017) and Andrew Smith (20 November 2017) are good examples: neither set of minutes/notes mentions the CPP even though the CPP was in most of the Dover SOAs the “banning committees” reviewed. They found the Dover advices to be good. Did not mention the CPP. Why not?  
During 2016 and 2017 Dover engaged Holley Nethercote. Imac Legal and Sophie Grace to review its compliance processes. ASIC knows this. ASIC knows each law firm did not have any concerns with the CPP.  
ASIC knew from August 2016 on Dover engaged MLA Lawyers to review each SOA for compliance with the best interests duty and the appropriateness of advice rule. It was reasonable to conclude ASIC assumed MLA Lawyers did not believe the CPP was deceptive. But ASIC did not tell Dover this  
ASIC knew Dover had a large number of compliance staff who checked every SOA It was reasonable to conclude ASIC assumed these staff did not believe the CPP was deceptive  
ASIC knew Dover had 410 advisers. It was reasonable to conclude ASIC assumed the advisers did not believe the CPP was deceptive.  
ASIC advised WRM ASIC believed WRM was acting illegally within just a few months of ASIC forming that opinion. Why did ASIC not advise Dover of its concerns for nearly two years? And then only just before the Royal Commission  

 

Table showing ASIC’s treatment of ANZ and CBA compared to Dover: further evidence of ASIC’s general unconscionable conduct towards Dover
Organisation ANZ CBA Dover
Responsible ASIC staff member Tim Mullaly Tim Mullaly Tim Mullaly
Matter Unqualified personal advice Unqualified personal advice Client protection policy
Time period behaviour occurred 6 years 5 years 2.5 years
Did behaviour harm clients? Yes Yes No
Did institution know the conduct harmed clients? Yes Not known NA
Monies taken from clients? $3,600,000,000 $3,700,000,000 None
On-going annual benefit such as management fees? $36,000,000 (1%) $37,000,000 (1%) None
Effect on market capitalisation (6%)

(ie increase in shareholder wealth)

$600,000,000 $617,000,000 None
Did the institution know of risk (at board level)? Yes Not known No
Did the institution believe its licence was at risk? Yes Not Known No
Did the institution dispute ASIC’s view? Yes Yes No
Did the institution cooperate with ASIC’s investigation? Not known No Yes
Length of dispute Four years Four years NA
Time taken to cease activity? Four years Four years One day
Did ASIC require remediation? No No Yes
If remediation was required, was it completed efficiently? NA NA Yes
How long did remediation take? NA NA 14 days
Did ASIC require a penalty? No No Yes
Did the organisation suggest a penalty? Yes Yes No
Amount of penalty suggested by organisation? $1,000,000 $1,250,000 NA
Did ASIC cancel licence? No No Yes
Did ASIC issue misleading press releases? No No Yes
Did the Royal Commission include the matter in the organisation’s “rubric” (agenda of matters to be discussed)? Yes Yes No
Did the organisation otherwise know the matter would be the object of questions at the Royal Commission? Yes Yes No, it was an ambush
Did ASIC provide information/notice to the organisation before providing information the Royal Commission of its concerns? Yes, it knew well in advance Yes, it knew well in advance No, it was an ambush
Did ASIC publicly say it expects the organisation to breach the financial services law again? No No Yes
Has the organisation previously entered into enforceable undertakings for financial services law breaches? Yes Yes No
Has ASIC otherwise previously alleged the organisation has breached financial services laws? Yes Yes No
Did the organisation appear in other matters before the Royal Commission in connection with other breaches of the financial services law? Yes Yes No
Were these other breaches significant and repetitive? Yes Yes NA
Was the organisation allowed to continue the original behaviour? Yes, for 45 days Yes, for 49 days No
Has ASIC allowed a similar modified form of the original behaviour to continue? Yes Yes No
Did ASIC enter into an enforceable undertaking? Yes Yes Yes
Was the enforceable undertaking an alternative to legal action? Yes Yes No
Is ASIC commencing legal action to obtain declarations the organisation breached the financial services law? No No Yes
Is ASIC seeking court ordered penalties from the organisation? No No Yes
Is ASIC seeking court ordered penalties from an employee or director? No No Yes
Did ASIC publicly warn other AFSLs about the behaviour? No No Yes
Did ASIC publicly recommend the organisation’s clients receive a second opinion from a different adviser? No No Yes
Did ASIC publicly say any person was deceptive? No No Yes
Did ASIC publicly say any person was of poor fame and character No No Yes
Estimate of the relative cost to ASIC? Very high Very high Very low

 

[1] See chapter 8 ASIC’s Example 3 – ASIC’s review of Terry McMaster’s advice. A study in incompetency. Every sentence is a lie

[2] This is detailed in chapter 30

 

The Dover Group