Sydney-based Spring Financial Group (Spring FG) has had an enforceable undertaking accepted by the corporate regulator after it failed to properly monitor a corporate authorised representative.
Spring FG appointed now-defunct Brisbane-based Royale Capital as a representative on 25 October 2011.
Under the terms of the agreement, Royale Capital was licensed by Spring FG to give general advice about a self-managed superannuation fund (SMSF) administration platform operated by ActiveSuper.
But according to the ASIC enforceable undertaking, Royale Capital engaged in cold call marketing, made recommendations to investors to establish SMSFs and offered investments to clients.
Unbeknownst to Spring FG at the time, Royale Capital and its associated firm ActiveSuper became the subject of an Australian Securities and Investments Commission (ASIC) investigation in November 2011.
As reported by InvestorDaily in March 2013, Royale Capital raised more than $4.75 million from more than 200 self-managed superannuation fund investors in order to make purchases in, among other things, distressed properties in the US.
Speaking to InvestorDaily yesterday, Spring FG managing director Keith Cullen said he ended the relationship with Royale Capital in June 2012 as soon as he became aware of the regulator’s investigation.
“If ASIC had [told us in November 2011] we would have terminated the agreement immediately,” said Mr Cullen.
Royale Capital also “severely misled” Spring FG during the due diligence process, he said.
“They’re lied to us directly and through a failure to disclose,” said Mr Cullen.
Only two parties knew about the ASIC investigation at the time, he said – Royale Capital and the regulator itself.
“I’m not sure what we could have done to establish that the investigation was underway,” said Mr Cullen.
“I’m disappointed the regulator didn’t bring it to our attention earlier, but I don’t think any inquiries would have revealed that investigation because ASIC was obviously keeping it very close to their chest,” he said.
Under the terms of its enforceable undertaking with ASIC, Spring FG will be required to appoint an independent expert to review its monitoring and supervision practices.
“We’ve acknowledged ASIC’s concerns. Our supervision and the monitoring could have been better, but I believe our processes for all of our offices and our staff are very robust,” said Mr Cullen.
Spring FG will also be pursuing Royale Capital in the courts through the Trade Practices Act for engaging in misleading and deceptive conduct, said Mr Cullen.
Depending on the outcome of an ASIC action against Royale Capital and ActiveSuper set to begin on 14 October 2013, Spring FG will potentially pursue the companies in regard to statutory breaches, he said.
