Sole directors of Seagrims Pty Ltd are free to work within Australia's financial planning sector after the Administrative Appeals Tribunal (AAT) significantly reduced their three-year ASIC ban.
On 31 August, AAT deputy president Jarvis handed down a 45-page decision on the matter.
Jarvis found in favour of Peter Seagrim and Anne-Marie Seagrim's appeal against their bans after ruling their involvement in the company's failure to comply with its licensee obligations, under the Corporations Act, did not constitute serious misconduct.
As a result, the South Australians' three-year ban was cut to six months, from 27 June 2011 until 27 December 2011.
In July last year, the corporate regulator banned the Seagrims from providing financial services for three years after an ASIC investigation alleged they had, among other things, failed to provide information in the firm's financial services guide (FSG) about fees and revenue it received from Astarra associated funds.
In July this year, the Seagrims chose to represent themselves at their AAT appeal.
According to the AAT decision, the Seagrims' involvement with Astarra began in March 2008 when Peter Seagrim and the then Seagrims' compliance and finance manager met with Astarra Capital representatives in Sydney.
Three months later in June 2008, the Seagrims decided to promote, where appropriate, the new Seagrims-badged products. The products would become sub-funds of Astarra, the documents said.
In late September 2008, Seagrims Pty began a process of migrating clients into the Seagrims-badged products, with an adviser arranging for a statement of additional advice (SOAA) to be prepared for the clients they felt were most appropriate for the product.
"An adviser would arrange for a [SOAA] to be prepared for the selected clients, recommending their migration using a template, which was drafted with involvement from Astarra Administration and Astarra legal staff, and also Seagrims Pty Ltd's then compliance and IT manager," the documents said.
The discussions with Astarra resulted in Seagrims Pty entering into three agreements: a licence agreement with a commencement date of 15 September 2008; a promoters agreement dated 30 September 2008; and a licence agreement executed by Seagrims Pty on or about 3 November 2008.
In accordance with the promoters agreement, Seagrims Pty marketed and promoted two funds, labelled as Seagrims Diversified Funds and Seagrims Retirement Plan, on the basis the investments be placed with the Astarra Diversified Funds. The product disclosure statements for the products were published in September 2008 and October 2008, respectively.
During September 2008 and 15 October 2009, Seagrims Pty transferred 972 of its clients with funds totalling around $105 million to Astarra funds, with about $88 million in Seagrims-badged products and $17 million in Astarra-badged products, the documents said.
Seagrims received $45,393 from Astarra which was a reimbursement for Astarra's 50 per cent share of the advertising costs.
When questioned over the $45,393 and its alleged influence on Seagrims Pty to recommend its Astarra-branded products, Anne-Marie said the reimbursement was a "token" amount compared with the costs incurred by Seagrims Pty, which stood at $2.4 million to $2.8 million in migrating clients to the Astarra products, the documents said.
In response to this, Jarvis stated: " I am therefore satisfied that the advertising contribution did not in fact influence Mr and Mrs Seagrim or any of their authorised representatives to recommend the Astarra products, but s 942C(g) of the Act refers to information about associations or relationships that "might reasonably be expected to be capable" of influencing the providing entity, and this is a concept that must be construed objectively.
"I have concluded that, as contended by ASIC, the terms of the disclosure did not meet the requirements of the Act in relation to FSGs or SOAs, but I take into account that there was some disclosure of the contribution to advertising expenses, and the Seagrims did not intend to conceal the amount actually being received."
In regards to ASIC's allegations that Seagrims failed to provide information in its FSG about fees and revenue from Astarra, Jarvis said Seagrims had breached regulation 7.7.07(3) of the Corporations Regulations in this case.
However, Jarvis said the FSGs "expressly referred" to the fact that clients would be provided with specific information in their SOAs about commissions, fees or other benefits that would be received by Seagrims and did quantify the adviser service fee for the Seagrims Retirement Plan. As a result, Jarvis found the breach a "technical matter".
In 2007, Seagrims engaged Axa Financial Planning-owned compliance company Jigsaw Support Services to conduct an annual compliance review to assist in meeting the requirements of the Corporations Act.
Jigsaw's report recommended, among other things, that the company's risk management policy be reviewed and enhanced, that a disaster recovery plan and conflict of interests register be established and that the company's research policy be reviewed and updated, documents said.
The Seagrims gave evidence that they provided the report to their then compliance and IT manager and asked the recommendations to be implemented.
It was not until Seagrims moved from Jigsaw in September 2008 to Gold Seal Risk Management Services in June 2009, as a result of a further audit, that they discovered the compliance changes had not been made. A change in compliance managers was made, the documents said.
As Seagrims was finalising its AFS Licence Compliance Audit Report with the help of Gold Seal, ASIC issued Seagrims with a breach notice.
"Mr and Mrs Seagrim accept that as the directors of Seagrims Pty Ltd, they were the persons who were responsible for ensuring that Seagrims Pty Ltd complied with its obligations under the Act," Jarvis said.
"They fully accept responsibility for the infringements of Seagrims Pty Ltd, but submit that I should take into account all of the relevant circumstances in which the breaches occurred in determining the issues raised in the present proceedings."
While Jarvis was "satisfied" the Seagrims had not complied with the financial services law within the meaning of section 920A(1)(e) of the act, the AAT was satisfied from the evidence that the Seagrims now had "a clear understanding" of their obligations.
"They were patently honest witnesses, and I accept their evidence without question," Jarvis said.
"I am satisfied that they will be very circumspect in complying with their statutory obligations when they are able to resume their work as financial planners following my decision in this matter.
" I am satisfied that during the period prior to the imposition of the banning orders, they were extremely concerned to do their best to protect their clients' investments, and went to considerable lengths, at significant personal cost, to assist them as far as possible.
"They committed various unintended contraventions in doing so, but in my assessment, this is not a matter where the primary considerations, that is the need to protect the public and deterring future contraventions, warrants the imposition of lengthy banning orders.
"In all of the circumstances, I have concluded that it would be appropriate to impose banning orders against Mr and Mrs Seagrim for a period of six months from 27 June 2011.
"I further consider that it would be inappropriate to differentiate between Mr and Mrs Seagrim in fixing the period of the banning orders. My decision reflects my above conclusion, and as a result, they are now no longer banned from providing financial services."
ASIC acknowledged the ATT's decision in a statement posted on its website.
"On 31 August 2012, following the hearing of their appeal to the Administrative Appeal Tribunal, Deputy President Jarvis concluded that Mr and Mrs Seagrim will comply with financial services laws and reduced the period for which they were prohibited from providing financial services from three years to six months, commencing on 27 June 2011," the ASIC statement said.
Following Astarra's (later known as Trio Capital) collapse in 2009, only 5 per cent to 10 per cent of Seagrims superannuation clients' reinvested funds were lost as a result of the Astarra's fraud, the ATT documents said.
The full amount of capital lost had been reimbursed to the Seagrim's Superannuation funds through the government-funded compensation scheme, it.
