FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v AGM Markets Pty Ltd [2018] FCA 1119

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff’s application for the appointment of a provisional liquidator to each of the first, third and fifth defendants be dismissed.

2.    The plaintiff’s application for the appointment of an interim receiver of the assets of each of the first, third and fifth defendants be dismissed.

3.    On or before 24 September 2018, each of the first, third and fifth defendants file and serve affidavits deposing in detail to and disclosing:

(a)    their financial statements and accounts for the year ended 31 December 2017 or 30 June 2018 (as the case may be depending upon their particular financial years), whether or not audited and whether or not in the form of management accounts only;

(b)    amounts owed to:

(i)    clients of the first, third and fifth defendants;

(ii)    such clients whose claims for compensation have been accepted by the first defendant or the Financial Ombudsman Service;

(iii)    other creditors;

(c)    the number of complaints made by clients of the first, third and fifth defendants to any of those companies or the Financial Ombudsman Service, the nature of those complaints, and the amount claimed (if any);

(d)    profits made by the first, third and fifth defendants, and losses made by clients of any of those companies, in the period in and after October 2017:

(i)    from trading by clients which was not hedged by the first defendant, setting out details for each such client; and

(ii)    from trading by clients which was hedged by the first defendant, setting out details for each such client.

4.    The parties’ costs of the plaintiff’s interlocutory application for the appointment of a provisional liquidator or an interim receiver be their costs in the cause.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BEACH J:

1    The Australian Securities and Investments Commission (ASIC) seeks orders for the appointment of a provisional liquidator to each of the first, third and fifth defendants in these proceedings, respectively AGM Markets Pty Ltd (AGM Markets), OT Markets Pty Ltd (OT Markets) and Ozifin Pty Ltd (Ozifin), in order to:

(a)    identify, secure and preserve the assets of AGM Markets, OT Markets and Ozifin pending the final hearing and determination of ASIC’s application to wind up each company;

(b)    identify, secure and preserve any assets held on trust for the clients of AGM Markets, OT Markets and Ozifin; and

(c)    empower an independent insolvency practitioner to investigate the affairs of AGM Markets, OT Markets and Ozifin.

2    In the alternative, ASIC has sought the appointment of an interim receiver to the assets of each of these companies.

3    ASIC relies upon eight affidavits of Mr Hayden David Pike Evans, a manager in ASIC’s Markets Enforcement section, affirmed on 9 February 2018, 12 February 2018, 14 February 2018, 7 March 2018, 8 March 2018, 27 March 2018, 9 April 2018 and 4 May 2018. ASIC also relies upon the affidavit of Mr Michael Jonathan Bridge, an ASIC solicitor, affirmed on 10 July 2018. AGM Markets relies upon affidavits of Mr Darren James, solicitor for AGM Markets, affirmed on 23 May 2018 and of Mr Paul Tsangaris, chief executive officer of AGM Markets, sworn on 3 July 2018 and 19 July 2018. Ozifin relies upon affidavits of Mr Brendan Gunn, a financial consultant engaged by Ozifin, affirmed on 15 June 2018 and of Mr Amadom Nagash, director of Ozifin, affirmed on 23 May 2018. OT Markets has not filed any evidence.

4    On the hearing of the application, I permitted ASIC’s senior counsel to cross-examine Mr Tsangaris, which occurred over a telephone link to Kalymnos, a Greek island in the south-eastern Aegean Sea.

5    For the reasons that follow, I have declined to order the appointment of a provisional liquidator or interim receiver to AGM Markets, OT Markets or Ozifin. But I will make relevant information disclosure orders.

BACKGROUND

6    It is useful to set out some of the background and the timeline of salient events disclosed in the evidence, although at this stage, of course, I am not making any final determinations or findings.

(a)    Activities of AGM Markets, OT Markets and Ozifin prior to these proceedings

7    At all relevant times, each of AGM Markets, OT Markets and Ozifin operated a business dealing in financial products, being leveraged derivatives in the form of contracts for difference (CFDs), margin foreign exchange contracts (margin FX contracts) and binary options. AGM Markets, OT Markets and Ozifin provided advice to retail clients in Australia regarding such derivatives. A CFD is an agreement to exchange, at the closing of the contract, the difference between the opening and closing price of the underlying asset, multiplied by the number of units of that asset detailed in the contract. A CFD essentially allows a person to bet on whether the value of the underlying asset will increase or decrease over time. A margin FX contract is a form of CFD that allows a person to take a position on the change in value over time of one currency relative to another.

8    Under both CFDs and margin FX contracts, investors are exposed to movements in the value of the underlying asset, without having to purchase an interest in that asset. CFDs and margin FX contracts are invariably highly leveraged. They require the investor initially to pay only a fraction of the price of the underlying asset or currency to open the position. The investor is exposed, however, to the total of the movement in the price of the underlying asset or currency. Whilst those products thereby can be used to magnify profits relative to the initial investment, they have a commensurate potential to magnify losses.

9    For present purposes, it is not necessary to elaborate on the mechanisms of binary options.

10    Since 2 October 2012, AGM Markets has been the holder of an Australian Financial Services Licence (AFSL). AGM Markets’ AFSL permitted:

(a)    the provision of general financial product advice in derivatives and foreign exchange products, but not personal advice;

(b)    AGM Markets to deal in derivatives and foreign exchange products; and

(c)    AGM Markets to market derivatives and foreign exchange products to wholesale and retail clients.

11    Since at least 22 December 2016, AGM Markets has operated a business issuing margin FX contracts, CFDs and binary options to retail clients in Australia pursuant to product disclosure statements dated 22 December 2016, November 2017 and 26 December 2017.

12    On 13 June 2017, Ozifin entered into a Corporate Authorised Representative Agreement (CAR Agreement) with AGM Markets, making it AGM Markets’ authorised representative pursuant to s 911B(1)(b) of the Corporations Act 2001 (Cth). From November 2017 until AGM Markets cancelled these arrangements on 16 April 2018, Ozifin carried on the business of offering various financial products and services under the business name “Trade Financial”, including offering CFDs issued by AGM Markets pursuant to a PDS dated November 2017, and undated terms and conditions.

13    On 18 September 2017, OT Markets entered into a CAR Agreement with AGM Markets, making it an authorised representative pursuant to s 911B(1)(b). From October 2017 until 25 December 2017, OT Markets issued margin FX contracts and CFDs to retail clients in Australia pursuant to a PDS dated October 2017 (OT Markets October PDS), and terms and conditions dated 9 October 2017 (OT Markets Terms). From 26 December 2017 until AGM Markets cancelled these arrangements on 16 April 2018, OT Markets offered margin FX contracts to retail investors in Australia, which were derivative products issued by AGM Markets pursuant to a PDS dated 26 December 2017 and the OT Markets Terms.

14    The OT Markets October PDS stated that OT Markets was the issuer of CFDs. Because OT Markets operated a financial services business as a corporate authorised representative (CAR), and did not hold an AFSL, OT Markets was not entitled to issue CFDs in its own name. It was only entitled to provide a financial service on behalf of the relevant licensee.

15    AGM Markets provided services on its own behalf under the business name “Alphatrade”. Ozifin operated under the business name “Trade Financial”. Each of OT Markets and Ozifin provided services pursuant to the CAR Agreements entered into with AGM Markets.

16    Let me turn for a moment to the practicalities of how AGM Markets, OT Markets and Ozifin operated their businesses, as disclosed in the material filed on the present application.

17    Each of AGM Markets, OT Markets and Ozifin provided a web-based trading platform that clients used to open and close margin FX contracts and CFD positions. AGM Markets, OT Markets and Ozifin used various means to attract clients, including web sites, and advertising on the internet and social media.

18    Having made an initial deposit with the relevant company, clients were then contacted by an account manager engaged on behalf of the relevant defendant. It is the interactions between the account managers engaged by the various companies and retail clients in Australia which have excited the attention of ASIC.

19    Each of Ozifin, OT Markets and AGM Markets offered their clients “bonuses” in the form of an increase to the balance of the client’s account. The increase in the clients’ account balance effected by the bonuses improved the client’s margin position, and could therefore be used to avoid having to close existing positions that had moved against a client or open additional and/or larger positions. Account managers engaged by Ozifin and/or AGM Markets represented to clients that the account manager could arrange for a bonus to be paid to the client’s account. But the terms upon which Ozifin and AGM Markets offered those bonuses meant that clients could not withdraw the bonus funds until they had opened a certain number of positions, or a certain period of time had elapsed.

20    Account managers engaged by OT Markets and Ozifin were also based in overseas call centres:

(a)    in the case of OT Markets, in Cyprus and the Philippines; and

(b)    in the case of Ozifin, in Cyprus.

21    People working in those overseas call centres contacted retail clients in Australia. In addition to assisting clients to download trading software and to operate that software, call centre staff:

(a)    provided financial product advice to retail clients in Australia in relation to margin FX contracts and/or CFDs, including what ASIC submits was personal advice;

(b)    in many instances, encouraged or persuaded retail clients to deposit further funds into the trading accounts that they had established with the relevant company; and

(c)    in some instances, encouraged the clients to provide remote access to the client’s computer, and asked the client to open their online banking system so that the account manager could assess the funds available to retail clients.

22    Let me return to the chronology. In November 2017, AGM Markets entered into an agreement with Falcon IC&T Ltd (Falcon), pursuant to which Falcon provided call centre services to the Alphatrade business operated by AGM Markets. The call centres operated by AGM Markets were based in Israel. Falcon ceased providing those services to AGM Markets in the middle of March 2018.

23    In about November 2017, ASIC began receiving complaints from customers of OT Markets and Ozifin. ASIC says that there was a commonality to the complaints. In particular, ASIC received complaints about account managers engaged on behalf of OT Markets and Ozifin who:

(a)    advised complainants to open margin FX contract or CFD positions that resulted in complainants suffering significant losses;

(b)    told complainants that it was necessary to deposit larger sums of money in order to avoid losses on margin FX contract or CFD positions that the account managers had previously advised the complainants to open;

(c)    otherwise placed pressure on complainants to deposit more and more money into their accounts for investment;

(d)    advised complainants not to close margin FX contract and CFD positions, even when the complainant wished to close them; and

(e)    requested remote access to complainants’ computers by use of a software product known as Team Viewer that the account managers had previously asked complainants to download.

24    In addition, customers complained that they had experienced difficulty withdrawing funds from accounts that they had opened with OT Markets and Ozifin.

25    ASIC says that at the time that AGM Markets, OT Markets and Ozifin engaged in the conduct that formed the basis of the complaints, effective control of each of AGM Markets, OT Markets and Ozifin was exercised by people based overseas, and not by their directors. In particular:

(a)    AGM Markets was controlled by:

(i)    Mr Yakov Cohen, a resident of Mauritius; and

(ii)    Mr Yossef Herzog, who ASIC understands is an associate of Mr Cohen, and who lives outside Australia;

(b)    OT Markets was controlled by:

(i)    Mr Ido Fishman, a resident of Cyprus; and

(ii)    Mr Gil Yajir Bachar, an Israeli citizen, and the sole owner of the sole shareholder of OT Markets; and

(c)    Ozifin was controlled by Mr Tomer Raz, an Israeli citizen and one of the beneficial owners of the sole shareholder of Ozifin.

26    ASIC says that at the time of the alleged conduct the named directors of AGM Markets, OT Markets and Ozifin exercised minimal, if any control, over the businesses each operated.

27    ASIC’s investigations of the conduct of AGM Markets, OT Markets and Ozifin have apparently revealed that agents of each:

(a)    provided from call centres in Israel, Cyprus and the Philippines what ASIC contends was personal financial product advice, including advice in relation to superannuation, to retail clients in Australia, in circumstances where AGM Markets, OT Markets and Ozifin were not licensed to provide personal advice;

(b)    misled retail clients in Australia about:

(i)    the nature of the financial products offered by AGM Markets, OT Markets and Ozifin;

(ii)    the means and circumstances by which AGM Markets, OT Markets and Ozifin stood to profit from dealing in those financial products;

(iii)    the risks associated with the financial products issued by AGM Markets, OT Markets and Ozifin; and

(iv)    the need for clients to deposit further funds in their trading accounts in order to avoid further losses on open margin FX contract and CFD positions,

(c)    engaged in conduct in relation to the financial services provided to clients that ASIC contends was unconscionable by:

(i)    advising unsophisticated investors, including retail clients who appear to have been vulnerable to sales tactics promising short term and unrealistic financial gain, to invest in complex financial products, without adequately explaining the operation of, or risks associated with, those products;

(ii)    placing pressure on unsophisticated clients to invest large sums of money (both in absolute terms, and relative to the financial position of the investors, of which the agents were aware) in margin FX contracts and CFDs; and

(iii)    in at least one instance effecting a transaction from a client’s online banking and superannuation account, whilst connected remotely to the client’s computer and engaged in a telephone discussion with the client, but without the express consent of the client.

28    As to the particular misrepresentations concerning the means and circumstances by which AGM Markets, OT Markets and Ozifin stood to profit from dealing in those financial products, ASIC says that the relevant circumstances were the following. The terms upon which AGM Markets, OT Markets and Ozifin dealt in CFDs and margin FX contracts provided that each was entitled to hedge client transactions by opening a similar transaction in the name of the relevant defendant with a hedge counterparty. In the case of OT Markets and Ozifin, funds deposited by clients could be used for that purpose. The terms and conditions on which AGM Markets, OT Markets and Ozifin provided financial services did not provide for clients to pay any form of commission. That being the case, AGM Markets, OT Markets and Ozifin were able to generate revenue in two ways:

(a)    first, if they did not hedge positions opened by clients, they could generate revenue by the position moving against the client (as the relevant defendant was the counterparty to the positions opened by their clients); and

(b)    second, if they did hedge positions opened by clients, they could generate revenue on the spread between the position opened by the client and the hedge position opened by the relevant defendant.

29    Apparently, ASIC’s investigations have not revealed the extent to which AGM Markets, OT Markets and Ozifin hedged positions opened by clients. But in any event, ASIC points out that in neither of the circumstances described above were the interests of AGM Markets, OT Markets and Ozifin and their clients aligned.

30    Despite this, clients of AGM Markets, OT Markets and Ozifin were often told that it was only if the client made money that AGM Markets, OT Markets and Ozifin made money, or that their income depended on the volume of trades placed by the clients.

31    ASIC submits that in the period during which that conduct was continuing, AGM Markets, OT Markets and Ozifin transferred large sums of money from bank accounts in Australia to companies and people overseas, including to companies associated with the controlling minds of AGM Markets, OT Markets and Ozifin. Further, the controlling minds of AGM Markets were associated with Yukom Communications Ltd and its chief executive officer Ms Lee Elbaz. Yukom Communications Ltd operated a binary options business that used sales and retention techniques similar to those employed by AGM Markets, OT Markets and Ozifin. In September 2017, Ms Elbaz was arrested by the US FBI and charged with fraud. On 22 March 2018, Ms Elbaz was indicted on charges of wire fraud, and conspiracy to commit wire fraud. ASIC says that the conduct that formed the basis of those charges bears similarities to the conduct of AGM Markets, OT Markets and Ozifin in the present case. Apparently, Yukom Communications Ltd offered complex derivative products using staff based in call centres in Israel. Sales people employed by Yukom Communications Ltd solicited larger investments from existing customers. And Yukom Communications Ltd offered its clients bonus money to incentivise them to deposit additional funds, which were provided on terms that required customers to reach a high level of turnover before they could withdraw that bonus money.

32    Further, ASIC’s investigations are said to reveal that between October and December 2017, OT Markets issued financial products in Australia, namely, margin FX contracts and CFDs, when it was not licensed to do so.

33    Generally, ASIC alleges contraventions by AGM Markets, OT Markets and Ozifin of financial services laws that enliven rights in clients to recover the amount of loss and damage suffered by that conduct. Further, ASIC puts a case that in the event that OT Markets or Ozifin are liable to clients for losses that clients have suffered by the conduct of those companies, AGM Markets is also liable to clients in respect of any such loss or damage under s 917B of the Corporations Act.

(b)    Events in the course of these proceedings

34    On 9 February 2018, ASIC filed an originating process seeking ex parte orders freezing certain bank accounts of AGM Markets, OT Markets and Ozifin, and restraining travel by directors of AGM Markets and OT Markets.

35    On 12 February 2018 at an ex parte hearing, I made orders:

(a)    freezing funds standing to the credit of two Commonwealth Bank of Australia accounts held by AGM Markets: (a) the 4409 Account, being the OT Markets client money account held by AGM Markets; and (b) the 3879 Account, being the Ozifin client money account held by AGM Markets.; and

(b)    imposing travel restrictions on the second defendant Mr Yossef Ashkenazi, at that time a director and the CEO of AGM Markets, and the fourth defendant Mr Guy Stein, at that time a director of OT Markets.

36    On 20 February 2018 (in respect of AGM Markets and OT Markets) and 23 February 2018 (in respect of Ozifin), I made orders varying the terms of the freezing orders with respect to the use of funds from the 4409 Account and the 3879 Account.

37    On 7 March 2018, ASIC filed an interlocutory process seeking the appointment of a receiver and manager to each of AGM Markets, OT Markets and Ozifin. This interlocutory process was later amended on 11 April 2018 to include the present application for the appointment of a provisional liquidator.

38    On 9 March 2018, I made orders joining Authenticate Pty Ltd to the proceedings as the sixth defendant. As ASIC’s current application does not seek orders in relation to Authenticate Pty Ltd, I can set its position to one side. Also on 9 March 2018, I made further orders concerning the use of the funds in the 4409 Account and the 3879 Account.

39    On 15 March 2018, ASIC sought from AGM Markets, OT Markets and Ozifin undertakings that they would: (a) take all practical steps to avoid giving personal financial product advice to retail clients in Australia; and (b) provide ASIC with access to recordings of calls between account managers engaged by AGM Markets, OT Markets and Ozifin, and clients.

40    On 21 March 2018, AGM Markets provided the requested undertaking to ASIC. OT Markets and Ozifin also provided undertakings.

41    On 3 April 2018, Mr Paul Tsangaris became a director of AGM Markets and Mr Ashkenazi ceased as a director of AGM Markets. By this time Falcon had ceased to provide call centre services to the Alphatrade business operated by AGM Markets. At around the same time, Mr Tsangaris became the CEO of AGM Markets. Whilst Mr Ashkenazi did not, at that time, formally resign as CEO, he has not had any functional role as CEO since Mr Tsangaris’s appointment. Since Mr Tsangaris’s appointment to AGM Markets, he has had ultimate responsibility with respect to the conduct of AGM Markets’ business activities. Almost immediately upon joining AGM Markets, Mr Tsangaris engaged Compliance National Pty Ltd, an independent financial services compliance advisory firm, to review the compliance processes then in place at AGM Markets, advise on and update AGM Markets’ policies and procedures on compliance, and provide training to AGM Markets’ staff.

42    On 6 April 2018, ASIC raised concerns with Ozifin that in spite of the undertakings provided by it, Ozifin had continued to provide personal financial advice to clients, on the basis of recordings of calls between account managers and four clients. In a response received by ASIC on 11 April 2018, Ozifin disputed ASIC’s characterisation.

43    On 10 April 2018, the freezing orders that I had made were varied by consent. I also granted leave for ASIC to file an amended originating process and an amended interlocutory process.

44    On 11 April 2018, ASIC filed and served an amended originating process which sought orders that each of AGM Markets, OT Markets and Ozifin be wound up on the “just and equitable” ground, and filed and served the present amended interlocutory application seeking orders appointing a provisional liquidator or receiver to AGM Markets, OT Markets and Ozifin.

45    On 16 April 2018, AGM Markets provided to ASIC an undertaking which superseded the 21 March 2018 undertaking and which continues in effect until the determination of the amended interlocutory application.

46    Also on 16 April 2018, AGM Markets terminated each of the CAR Agreements with OT Markets and Ozifin and cited as a reason for the cancellation the fact that each of OT Markets and Ozifin had provided unlicensed personal financial advice to clients. ASIC says that AGM Markets cancelled the CAR Agreements with each of OT Markets and Ozifin because of the same conduct that ASIC relies on as the basis for the appointment of a provisional liquidator to those companies.

47    On 24 April 2018, ASIC wrote to the solicitors for both OT Markets and Ozifin seeking undertakings from OT Markets and Ozifin that they would each, in light of the cancellation of the CAR Agreements, inter-alia cease to provide financial services. By letters dated 26 April 2018, OT Markets and Ozifin essentially provided the undertakings sought and ceased carrying on a financial services business in Australia.

48    On 1 May 2018, ASIC filed notices of discontinuance in relation to Mr Ashkenazi and Mr Stein.

49    On 15 June 2018, ASIC approved an initial payment of US$25,000 to Panda Trading Systems Ltd (Panda) from AGM Markets for the purposes of establishing a consolidated platform and agreed to proposed orders for ongoing monthly payments of US$10,000, with further payments up to a limit of US$25,000 to be approved as required.

50    On 22 June 2018, I made orders dealing with the use of funds standing to the credit of a Commonwealth Bank of Australia account known as the 8038 Account.

51    On 28 and 29 June 2018, AGM Markets’ solicitors wrote to the solicitors for Ozifin and OT Markets seeking to set up a mechanism to facilitate an efficient process of client money withdrawals, including by offering to streamline the process by assuming control of the client withdrawal process in cooperation with ASIC.

52    As at 29 June 2018, the 4409 Account contained $11,446,773.95 and the 3879 Account contained $5,996,079.19. As at 29 June 2018, the 8038 Account contained $192,886.50. All three accounts remain frozen.

53    On 13 July 2018, AGM Markets’ solicitors wrote to ASIC requesting that ASIC provide further information in relation to a statement in ASIC’s submissions on the present application that “ASIC [had] received over 190 complaints concerning the conduct of AGM [Markets], OT [Markets] and Ozifin”. On 18 July 2018, ASIC informed AGM Markets’ solicitors that since 17 November 2017, “8 of the complaints ASIC has received concerned [AGM Markets] directly”.

ALLEGED CONTRAVENING CONDUCT

(a)    Personal financial advice (ss 911A and 911B of the Corporations Act)

54    On the present application, there is evidence before me suggesting that AGM Markets, OT Markets and Ozifin have provided personal advice to retail clients in Australia when they were not licensed (in the case of AGM Markets) or not authorised (in the case of OT Markets and Ozifin) to do so. AGM Markets’ AFSL authorised it to provide general financial product advice only. It was not licensed to provide personal advice. Prior to the cancellation of their CAR Agreements, OT Markets and Ozifin could not provide financial services other than those that AGM Markets was licensed to provide.

55    The case studies set out in the affidavits on which ASIC relies appear to reveal conduct of AGM Markets, OT Markets and Ozifin that involved:

(a)    the provision of financial product advice, because it amounted to a recommendation or statement of opinion, explicit or implied, that could be reasonably regarded as being intended to influence a client to make a decision in relation to the relevant margin FX contract or CFD; and

(b)    personal advice, because a reasonable person might have expected the account manager to take account of a client’s objectives, financial position or needs in advising them to make the relevant decision.

56    ASIC has provided me with summaries of instances in which account managers engaged by AGM Markets, OT Markets and Ozifin provided personal advice to clients.

57    Further, there is evidence suggesting that the defendants’ account managers regularly gave personal advice by taking two steps:

(a)    first, the account managers referred clients to one or more external websites that recorded market trends for particular margin FX contracts, information that the account managers referred to as the “trading signal”;

(b)    second, the account managers then advised, encouraged or intimated that the clients should open a position consistent with that “trading signal”.

58    In other instances, account managers simply told clients which positions the clients should open, keep open or close.

59    Such conduct arguably at the least amounts to a recommendation or statement of opinion that the provider favoured or recommended a particular course of action, without necessarily saying so in terms, or implied that the contemplated course of action was likely to be beneficial to the client.

60    Further, as ASIC points out, case studies reveal various instances in which the account managers took account of the clients’ objectives, financial position and needs when providing financial product advice. For example:

(a)    Investor D had transferred $40,000 to his OT Markets account, which he told the account manager he could not afford to lose because it was money set aside to build a house, and the relevant account manager told him that Investor D could make the extra $60,000 he needed to build his house.

(b)    Investor F told an Ozifin account manager that he had been unemployed for six years due to a back injury, and that he was looking for some ways to make an income.

(c)    An account manager engaged by AGM Markets said to Investor L that he was going to help her achieve her goals with the investment, and asked and received answers to various questions about Investor L’s savings and what income she wanted to achieve from her Alphatrade account each month.

(d)    An account manager engaged by AGM Markets said to Investor J that because Investor J was retired, he could “cash out” his superannuation in order to transfer the proceeds to his AGM Markets account.

(e)    An account manager engaged by AGM Markets persuaded Investor K to transfer approximately $35,000 from his self-managed superannuation account to his AGM Markets account, and that in order to avoid further losses he needed to adopt a tactic of opening a larger number of positions, and taking small profits when they appeared.

(f)    An account manager told Investor M that in order to generate a good income from her trading she would have to increase the balance of her account with Alphatrade.

61    In addition, the case studies reveal the following:

(a)    The relevant account managers initiated one-on-one phone calls with and provided advice to retail clients.

(b)    The financial products in relation to which account managers gave advice, namely, margin FX contracts and CFDs, were complex and highly leveraged products, the operation of which the account managers rarely explained to clients. The account managers’ dealings with clients, recorded in transcripts that are in evidence, made it apparent that the clients did not understand the products they were being advised to invest in.

(c)    The advice provided by the account managers was in many instances to open specific positions, often referencing specific currency pairs for particular amounts with specific “stop losses” and “take profits” to be left open in some instances for specific periods of time.

(d)    The account managers provided instructions to clients to close specific positions at specific times.

(e)    The account managers discussed the personal circumstances of retail clients and sought information concerning their assets, including by obtaining access to information concerning amounts held by clients in bank and superannuation accounts.

(f)    Further, in no case did the account managers provide a general advice warning as required by s 949A(2) of the Corporations Act (as modified in the case of OT Markets and Ozifin by Instrument 2015/540 at [5]).

(b)    Misleading or deceptive conduct (s 1041H of the Corporations Act)

62    In addition to the provision of unlicensed personal advice, the various client case studies deposed to in ASIC’s affidavits arguably reveal conduct that was misleading or deceptive, or likely to mislead or deceive. The evidence discloses the following examples.

63    First, the client case studies include several instances in which clients were told that it was necessary to deposit more money to their trading account in order to “avoid” further losses. Arguably that conduct was misleading because depositing further money into a client’s trading account would not avoid further losses. Rather, it exposed the client to greater losses if a client’s open position continued to move adversely.

64    Second, the advertisement to which Investor H responded made various representations regarding investment services apparently offered by OT Markets that were not true, including that “Sharktank” venture capitalists had invested in the organisation being advertised.

65    Third, on various occasions the account managers engaged by:

(a)    OT Markets and Ozifin said to clients that those companies were licensed by ASIC; and

(b)    AGM Markets said that its licence obligations meant that money invested by clients was as secure, or more secure, than if that money were invested with a bank.

66    Fourth, in at least one instance, the “trading signals” passed to a client by an account manager engaged by Ozifin were contrary to the indicators that in fact appeared on the Trading Central website to which that account manager referred.

(c)    Unconscionable conduct (ss 12CB and 12CC of the ASIC Act)

67    Further, the evidence arguably discloses that AGM Markets, OT Markets and Ozifin have, through their account managers, engaged in conduct that in all the circumstances was unconscionable. ASIC has given examples of what it submits was unconscionable conduct within the meaning of ss 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth). Arguably the evidence tendered to date supports such a position.

68    Each of AGM Markets, OT Markets and Ozifin gave financial product advice to retail investors to invest in complex financial products without adequately explaining the operation of, or risks associated with, those products. Advice was given to clients who were arguably vulnerable, and who were arguably exposed to predatory and high-pressure sales tactics.

69    The evidence includes the following six examples:

(a)    First, after experiencing heavy losses on her trading account, Investor B was told by an account manager representing OT Markets that there was an urgent need to invest larger sums of money in order to prevent her losing all of her invested money.

(b)    Second, Investor D was encouraged to invest over $40,000 with OT Markets, most of which was subsequently lost, after Investor D told the account manager that the money had been set aside to build a house, and that he and his wife could not afford to lose the money.

(c)    Third, Investor F told the OT Markets account manager that he was unemployed due to a serious back injury. The OT Markets account manager was aware that Investor F had approximately $120,000 in a bank account, and persuaded Investor F to deposit a total of approximately $88,000, of which he lost approximately $71,000 by reason of positions opened on the advice of OT Markets.

(d)    Fourth, Investor G told the Ozifin account manager that she could not afford to invest the $20,000 that he had encouraged her to invest. Thereafter, the account manager contacted her multiple times, and she eventually agreed to deposit $16,870, all but $478.70 of which she lost as a result of positions that the account manager advised her to open.

(e)    Fifth, Investor J had undergone chemotherapy and suffered significant memory problems. He told an account manager engaged by AGM Markets that he did not wish to deposit any further money, and wanted to stop trading with AGM Markets. Thereafter, the account manager encouraged Investor J to sell shares held in what was apparently a self-managed superannuation fund, and to deposit the proceeds into his AGM Markets account in order to recover losses from his trading with AGM Markets. Investor J eventually allowed the account manager to access his computer remotely to effect a transfer of $20,000 to AGM Markets. He told the account manager that he had trouble remembering things, and that he “didn’t quite understand what it all meant”.

(f)    Sixth, Investor L told the account manager engaged by AGM Markets that she was not employed because she had a “depression problem”. After she had experienced significant unrealised losses on margin FX contracts that she had opened, she told the account manager that she did not like margin FX contracts, and wanted to do something that was easier. But the account manager pressured her to deposit more money into her Alphatrade account, including by telling her that her account could be in danger.

(d)    Conclusion

70    In summary, the evidence filed to date reveals that ASIC has reasonable prospects of establishing the following:

(a)    In the period from September 2017 until April 2018, agents of OT Markets, Ozifin and AGM Markets provided unlicensed and/or unauthorised personal financial product advice to retail customers in Australia.

(b)    In the period from October 2017 to December 2017, OT Markets carried on an unlicensed financial services business by issuing derivative products when it was not entitled to do so.

(c)    Each of AGM Markets, OT Markets and Ozifin has engaged in misleading or deceptive conduct and/or unconscionable conduct.

(d)    Clients of each of AGM Markets, OT Markets and Ozifin are likely to have suffered significant losses as a result of such conduct.

71    Such a conclusion is relevant to the question of the prospects that ASIC has in obtaining winding up orders against AGM Markets, OT Markets and Ozifin on the “just and equitable” ground. And I would say now that contrary to the submissions of AGM Markets and Ozifin (OT Markets remaining neutral on the point), on the material before me including the matters described above, ASIC has established that it has reasonable prospects of obtaining a winding up order on the “just and equitable” ground against each of AGM Markets, OT Markets and Ozifin. Let me now elaborate on this question in more detail.

APPLICABLE LEGAL PRINCIPLES

(a)    Just and equitable ground

72    There is power to wind up a company on the just and equitable ground (s 461(1)(k)), and ASIC has standing to seek such an order (ss 462(2) and 464). Generally speaking, a company may be wound up where there is a justified lack of confidence in the conduct and management of the company’s affairs such as to give rise to a real risk to the public interest that warrants protection (see Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189; [2013] FCA 234 at [20] per Gordon J).

73    In relation to the exercise of this power, there are three factors that are of central significance:

(a)    First, is there a justifiable lack of confidence in the conduct and management of the relevant company or its affairs?

(b)    Second, is there a real risk to the public or the public interest that warrants protection by such an order and the consequences flowing from liquidation? For example, do investors need to be protected? Further, is it necessary to prevent repeated or threatened breaches of the law?

(c)    Third, is the relevant company solvent? A court may be reluctant to wind up a solvent company.

74    In ASIC v ActiveSuper Pty Ltd (No 2), her Honour at [21] to [24] elaborated on these three themes in the following terms:

In relation to the first, a lack of confidence may arise where, “after examining the entire conduct of the affairs of the company” the Court cannot have confidence in “the propensity of the controllers to comply with obligations, including the keeping of books, records and documents, and looking after the affairs of the company” …

…

In relation to the second, a risk to the public interest may take several forms. For example, a winding-up order may be necessary to ensure investor protection or where a company has not carried on its business candidly and in a straightforward manner with the public … Alternatively, it might be justified in order to prevent and condemn repeated breaches of the law …

In relation to the third, it has been said that “a stronger case might be required where the company was prosperous, or at least solvent” … Solvency, however, is not a bar to the appointment of a liquidator on the just and equitable ground, particularly where there have been serious and ongoing breaches of the Act …

75    As to the relevance of a company’s solvency position, if a company is solvent that may point against a winding up on the just and equitable ground, but it is not a bar. A company may still be wound up on the just and equitable ground even if solvent to prevent repeated or threatened future breaches of the law or where the management of the company is for all practical purposes non-existent or incompetent or otherwise such as to justify a lack of confidence in it. Conversely, if there is good reason to believe that a company is either cash flow insolvent or balance sheet insolvent, whether or not the formal elements of s 459A have been satisfied, I see no good reason why such circumstances cannot be taken into account under the just and equitable ground as one of the factors to consider. In other words, the two grounds are not mutually exclusive.

76    As to the solvency ground, it is to be noted that with leave under s 459P(2)(d), ASIC may apply under s 459P(1)(f) for an order that an insolvent company be wound up under s 459A. A person is solvent if the person is able to pay all the person’s debts as and when they become due and payable (s 95A(1)). A person who is not solvent is insolvent (s 95A(2)). A cash flow test is adopted (Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 at [14] per Barrett J). Contingent and prospective liabilities may be taken into account (s 459D). Further, a court will have regard to commercial realities.

77    Let me make some other points. First, the classes of conduct justifying a winding up on the just and equitable ground are not closed. There is no necessary limit to the generality of the words “just and equitable”. Second, the facts or conduct which make it just and equitable to so wind up must have a direct or immediate relationship to or bearing upon the management or administration of the affairs of the company or the subject of its business. Third, if after examining the affairs of the company the conclusion is that there is a lack of confidence in the propensity of the controllers to comply with legal obligations, including the keeping of records and looking after the affairs of the company, that is sufficient to conclude that it is just and equitable that the company be wound up.

(b)    Appointment of provisional liquidator

78    Section 472(2) of the Corporations Act empowers me to appoint a provisional liquidator at any time after the filing of a winding up application and before the making of a winding up order.

79    Now although I have a broad discretion whether to appoint a provisional liquidator, nevertheless an applicant for the appointment of a provisional liquidator is required to establish two things.

80    First, the applicant must show that it has reasonable prospects of obtaining a winding up order. As a consequence, there is a significant overlap between the matters relevant to determining whether to wind up a company on the just and equitable ground, and the matters that weigh in favour of the exercise of my discretion to appoint a provisional liquidator.

81    Second, an applicant for the appointment of a provisional liquidator must show that there is some good reason for intervention prior to the final hearing of the winding up application, for example that the appointment is needed in the public interest or to preserve the status quo or to protect the company’s assets and affairs.

82    Now it has often been said that the appointment of a provisional liquidator pending the determination of a winding up application is a drastic intrusion into the affairs of a company and should not be ordered if other measures would be adequate to preserve the status quo. Now such considerations are important, but they do not of themselves necessarily limit my jurisdiction or exercise of power to appoint a provisional liquidator.

83    Factors relevant to the exercise of my discretion to appoint a provisional liquidator include:

(a)    whether the affairs of the company have been conducted casually without due regard being given to the applicable legal requirements so as to cause me to have no or little confidence that the affairs of the company are being carried out properly;

(b)    whether the assets of the company will be dissipated in the interim period between the filing of the application to wind up and the winding up order being made;

(c)    whether in the public interest there is a need for an examination of the state of the accounts of the company; and

(d)    whether, if the appointment was not made, there was a strong possibility that there would be further acts, omissions or events which would be detrimental to creditors or shareholders.

84    But unless an applicant can demonstrate that there is a need for interim control of the company pending the winding up of the company, no appointment will be made. It is not by itself enough, for example, that the company has not traded for some time. It is also not enough by itself that a provisional liquidator might be able to undertake investigations which might be fruitful (Allstate Explorations NL v Batepro Australia Pty Ltd [2004] NSWSC 261 at [37] per Austin J).

85    But it may be appropriate to appoint a provisional liquidator where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave me with no confidence that the company’s affairs would be properly conducted with due regard for the interests of creditors and shareholders.

86    Further and generally speaking, it is also necessary to consider the degree of urgency and the balance of convenience.

87    Further, where the company opposes the application for the appointment of a provisional liquidator, the onus on an applicant may not be as heavy as it would be otherwise. If the applicant’s affidavits raise matters to which one would expect there to be some answer and there is no answer provided, then that may raise a suspicion that it may well be in the public interest to appoint a provisional liquidator.

88    Finally and before I proceed further, it is necessary to elaborate on one matter that is central to ASIC’s application.

89    I accept that a consideration which may together with other factors justify the appointment of a provisional liquidator is a need for an examination of the books and accounts of the company by someone other than the directors and independent of the company. But several points may be noted.

90    First, such a purpose has never been a sufficient condition to justify such an appointment. And where judges have referred to such a purpose they have done so in the context of either:

(a)    referring to the advantage of an independent investigation as a consequence of such an appointment that is otherwise justified; or

(b)    referring to the need for an independent investigation as one of the matters to take into consideration in determining whether to make such an appointment, and even then usually referring to this as a secondary consideration rather than a primary consideration.

91    Second, such a purpose has usually been stipulated where there has been a need to identify objectively ascertainable conditions or facts relating to the assets, liabilities or transactions of the company, which need to be identified immediately or in the short term particularly if the company is or is likely to be insolvent or its assets are at risk, as opposed to when and after the winding up order is made; so for example, an investigation of where the assets including bank accounts are located and their state, money flows, creditors outstanding, present liabilities, cash flow analysis etc., where such an investigation is necessary for preserving and maintaining the company’s assets and position pending a winding up order.

92    Third, and as a corollary, such a purpose is not principally to gather facts or information to assist the compensation claims of third parties or to establish liability for contraventions of the type asserted by ASIC. Such a litigation investigative purpose may be laudable but is not the primary purpose for the appointment of a provisional liquidator. Where ASIC is yet to establish a liability case, it is not appropriate to use and justify a provisional liquidator principally to gather facts to support a liability case not yet made out. Of course, if a provisional liquidator is otherwise justified, then a provisional liquidator may as part of his task gather such information. But that is a different question and perspective.

93    Fourth, and related to the third point, it does not assist ASIC to say that the claims of third parties are contingent liabilities and therefore part of the liabilities that a provisional liquidator should investigate now. Strictly that characterisation may be correct. But the urgency or immediacy of investigating the same is not justified other than to say that such information must be gathered now to support ASIC’s liability case at trial. But as far as I am aware, no case binding upon me has suggested that such circumstances could principally justify the appointment of a provisional liquidator.

(c)    Appointment of an interim receiver

94    In the alternative to the appointment of a provisional liquidator, ASIC seeks the appointment of an interim receiver to the assets of AGM Markets, OT Markets and Ozifin pursuant to ss 1323(1) and (3) of the Corporations Act, which provide:

1323    Power of Court to prohibit payment or transfer of money, financial products or other property

(1)    Where:

(a)    an investigation is being carried out under the ASIC Act or this Act in relation to an act or omission by a person, being an act or omission that constitutes or may constitute a contravention of this Act; or

(b)    a prosecution has been begun against a person for a contravention of this Act; or

(c)    a civil proceeding has been begun against a person under this Act;

and the Court considers it necessary or desirable to do so for the purpose of protecting the interests of a person (in this section called an aggrieved person) to whom the person referred to in paragraph (a), (b) or (c), as the case may be, (in this section called the relevant person), is liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for financial products or other property, the Court may, on application by ASIC or by an aggrieved person, make one or more of the following orders:

(d)    an order prohibiting a person who is indebted to the relevant person or to an associate of the relevant person from making a payment in total or partial discharge of the debt to, or to another person at the direction or request of, the person to whom the debt is owed;

(e)    an order prohibiting a person holding money, financial products or other property, on behalf of the relevant person, or on behalf of an associate of the relevant person, from paying all or any of the money, or transferring, or otherwise parting with possession of, the financial products or other property, to, or to another person at the direction or request of, the person on whose behalf the money, financial products or other property, is or are held;

(f)    an order prohibiting the taking or sending out of this jurisdiction, or out of Australia, by a person of money of the relevant person or of an associate of the relevant person;

(g)    an order prohibiting the taking, sending or transfer by a person of financial products or other property of the relevant person, or of an associate of the relevant person:

(i)    from a place in this jurisdiction to a place outside this jurisdiction (including the transfer of financial products from a register in this jurisdiction to a register outside this jurisdiction); or

(ii)    from a place in Australia to a place outside Australia (including the transfer of financial products from a register in Australia to a register outside Australia);

(h)    an order appointing:

(i)    if the relevant person is a natural person—a receiver or trustee, having such powers as the Court orders, of the property or of part of the property of that person; or

(ii)    if the relevant person is a body corporate—a receiver or receiver and manager, having such powers as the Court orders, of the property or of part of the property of that person;

(j)    if the relevant person is a natural person—an order requiring that person to deliver up to the Court his or her passport and such other documents as the Court thinks fit;

(k)    if the relevant person is a natural person—an order prohibiting that person from leaving this jurisdiction, or Australia, without the consent of the Court.

…

(3)    Where an application is made to the Court for an order under subsection (1), the Court may, if in the opinion of the Court it is desirable to do so, before considering the application, grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application.

95    Now, my power to make an order under s 1323(1) is enlivened where relevantly:

(a)    an investigation is being carried out under the ASIC Act or the Corporations Act in relation to an act or omission that constitutes, or may constitute, a contravention of the Corporations Act;

(b)    there is a “relevant person” who is or may become liable to pay money whether in respect of a debt, by way of damages or compensation or otherwise;

(c)    the liability is to another person called “the aggrieved person”; and

(d)    I consider it necessary or desirable to make an order under s 1323(1) for the purpose of protecting the interests of the aggrieved person.

96    In exercising the discretion to appoint a receiver, I do not need to be in a position to identify with precision any particular liability owed by the person the subject of the proposed order and nor does ASIC need to demonstrate a prima facie case of liability on the part of the relevant person. Orders can be made before liability is established. The important consideration is whether it is “necessary or desirable … for the purpose of protecting the interests of a person” to make the orders sought. In the present context, the issue is the overriding concern to protect assets for the benefit of those that might be entitled to them.

97    Section 1323(3) also permits me to appoint an interim receiver. The circumstances that should guide such an exercise of power are not dissimilar to those applying with respect to the appointment of a provisional liquidator. Indeed, the greater the express management powers given to an interim receiver by court order, the closer such an appointment will come to resemble in substance the appointment of a provisional liquidator.

98    In addition to ss 1323(1) and (3), I would also note that the scope of the power contained in s 23 of the Federal Court of Australia Act 1976 (Cth) is sufficiently broad to encompass the appointment of an interim receiver. In any event, there is a specific power to appoint an interim receiver conferred by s 57 of that Act, which is in the following terms:

Receivers

(1)    The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do.

(2)    A receiver of any property appointed by the Court may, without the previous leave of the Court, be sued in respect of an act or transaction done or entered into by him or her in carrying on the business connected with the property.

(3)    When in any cause pending in the Court a receiver appointed by the Court is in possession of property, the receiver shall manage and deal with the property according to the requirements of the laws of the State or Territory in which the property is situated, in the same manner as that in which the owner or possessor of the property would be bound to do if in possession of the property.

99    Sections 23 and 57 are supplemented by r 14.21 of the Federal Court Rules 2011 (Cth).

100    The condition on the grant of the statutory power under s 57 is expressed in broad terms, being where it is “just or convenient so to do”. It may be noted that the statutory power does not confine itself to the scenario of a Mareva receiver nor does it countenance a limitation on the exercise of the power or an implicit fetter based upon phraseology such as: “the appointment of a receiver is an extraordinary and drastic remedy, to be exercised with utmost care and caution and only where the court is satisfied there is imminent danger of loss if it is not exercised” or the power “should be exercised only after great scrutiny and in extraordinary circumstances”. That is not the phraseology of that statutory power and nor is any such limitation consistent with the authority of this Court. The applicable position is that stated by French J (as his Honour then was) in University of Western Australia v Gray (No 6) [2006] FCA 1825 at [71] where he stated:

The power of the Court to appoint a receiver is statutory. It has its origins, however, as an equitable remedy. An order in the nature of an equitable remedy can be made under s 23 of the Act. The class of circumstances in which such power may be exercised is not closed. Nor are the purposes for which a receiver may be appointed and the powers and conditions attaching to such an appointment. There may be many circumstances of considerable diversity which would warrant such an order and it is important that the discretion not be unnecessarily confined by any particular line of cases to which it has been applied.

101    In relation to judicial receivership, a purpose of such a receivership may be to facilitate a quasi-administration of the affairs of a corporate defendant who is in financial difficulties. There is precedent in an appropriate case to support such a purpose, particularly in Victoria. Judicial receivership for such a purpose was ordered in relation to the Massey-Ferguson Group (1980), Qintex Australia Ltd (1989), TEA (1983), International Harvester Australia Ltd (1982) and the Cooperative Farmers and Graziers Direct Meat Supply Ltd (1975). Receivership for conservation can be an appropriate purpose. But it should be stressed that a judicial receivership is not for a plaintiff, as for the witch in Hansel and Gretel, to “cage the defendant and fatten him up so he will make better eating, or at least to prevent him from wasting away” (National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386 at 553).

102    Finally, I accept that before the practical fusion of law and equity, the Court of Chancery did not make available its remedy of receiver, and that after that fusion such a remedy has not generally been available (absent statutory power), as a means just for establishing a scheme for the administration of a financially embarrassed corporate defendant (National Australia Bank Ltd v Bond Brewing Holdings Ltd at 551). But that says nothing about the breadth of the statutory powers that can be exercised under ss 23 and 57 of the Federal Court of Australia Act and their capacity to be cautiously utilised to achieving such an objective, but as ancillary to and supportive of the primary relief sought.

103    In summary, the powers under ss 1323(1) and (3) of the Corporations Act, which I am prepared to accept have been enlivened, and the powers under ss 23 and 57 of the Federal Court of Australia Act are broad. And I accept that on the final disposition of these proceedings I may be justified in putting in place an insolvency regime in the guise of a receivership to protect the clients of AGM Markets, OT Markets and Ozifin and to maximise their recoveries as creditors (if established) of any of those entities. But at the moment I am dealing only with the interim position.

SHOULD A PROVISIONAL LIQUIDATOR BE APPOINTED?

104    ASIC submits that the appointment of a provisional liquidator is appropriate in the circumstances because:

(a)    there is a strong prima facie case that each of AGM Markets, OT Markets and Ozifin should be wound up on the just and equitable ground, given:

(i)    likely contraventions of the financial services laws;

(ii)    the lack of confidence that I should have in the propensity of the controllers to operate a financial services business lawfully; and

(iii)    the need to protect the interests of retail clients;

(b)    there is a clearly demonstrated need for the appointment of a provisional liquidator to:

(i)    preserve the assets of AGM Markets, OT Markets and Ozifin;

(ii)    manage the orderly withdrawal of client money held in bank accounts (segregated client accounts) on trust for clients of AGM Markets, OT Markets and Ozifin;

(iii)    assess the quantum of claims that clients might have against AGM Markets, OT Markets and Ozifin arising from possible contraventions of financial services laws;

(iv)    determine the assets of AGM Markets, OT Markets and Ozifin that might be available to meet such liabilities; and

(v)    on the basis of (iii) and (iv), provide a report to me and to ASIC as to whether, in the provisional liquidator’s opinion, AGM Markets, OT Markets and Ozifin ought to be wound up.

105    Let me begin with ASIC’s principal contention that there is a strong prima facie case to wind up AGM Markets, OT Markets and Ozifin on the just and equitable ground.

106    First, it says that the evidence supports a finding that each of AGM Markets, OT Markets and Ozifin has engaged in multiple contraventions of financial services laws, including by providing unlicensed financial services. Now that may be so in relation to past conduct and past contraventions. But that does not of itself establish a risk or likelihood of future contraventions.

107    Second, it contends that I can have no confidence in the ability of AGM Markets, OT Markets and Ozifin to carry on a financial services business lawfully in Australia. It is said that the controlling minds of each of the businesses are based overseas and that they have had little regard for compliance with the regulatory requirements of operating a financial services business in this jurisdiction. Now that may also be so in relation to past management, but this does not appear to be the case going forward concerning AGM Markets and Ozifin at least.

108    Third, it is said that the CAR Agreements by which each of OT Markets and Ozifin carried on their respective financial services business have been cancelled. Accordingly, the businesses operated by those companies are no longer viable. True.

109    Fourth, it is said that there are strong public interest considerations that support AGM Markets, OT Markets and Ozifin being wound up. In addition to securing compliance with the financial services laws, the interests of investors will be protected by winding up AGM Markets, OT Markets and Ozifin. That may be so.

110    ASIC says that in the case of AGM Markets, whilst it has taken steps to cancel the CAR Agreements of OT Markets and Ozifin and has appointed a new CEO, the following points can be made:

(a)    Pursuant to s 917B of the Corporations Act, AGM Markets remains responsible for the conduct of OT Markets and Ozifin, including in respect of any loss or damage suffered by those clients as the result of OT Markets’ or Ozifin’s conduct.

(b)    Further, in spite of some correspondence with its former CARs regarding the handling of client funds, AGM Markets does not appear to have taken any steps of its own to investigate whether clients of OT Markets or Ozifin have suffered loss and damage or to remediate any loss or damage suffered. On the evidence before me, I am not sure that that is an accurate picture of the steps that AGM Markets has taken.

(c)    Further, AGM Markets’ potential liability to those clients is likely to outweigh the value of its assets. That may or may not be so. At this stage I cannot say.

(d)    Further, the evidence establishes that in the course of operating its Alphatrade business, AGM Markets provided unlicensed personal financial product advice when not licensed to do so, made misleading or deceptive statements to clients regarding the products that it issued and engaged in unconscionable conduct. That may be so.

111    As to the evidence filed by the defendants, ASIC makes the following submissions.

112    First, OT Markets has filed no evidence. I agree with ASIC that this hardly speaks in favour of OT Markets. But as I will explain later, that omission is not sufficient to justify the appointment of a provisional liquidator. But the absence of evidence does fortify my view that ASIC has reasonable prospects of obtaining a winding up order on the just and equitable ground as part of its final relief.

113    Second, in the case of both AGM Markets and Ozifin, there is nothing in their evidence that rebuts ASIC’s allegations regarding their conduct, and in particular their provision of personal advice or provides any basis upon which I might be satisfied that AGM Markets or Ozifin have taken any substantive steps to compensate their clients for any losses suffered by them by reason of AGM Markets’ or Ozifin’s conduct. I tend to agree.

114    Third, as to the evidence filed by AGM Markets, it relies on evidence of steps it has taken to cancel the CAR Agreements, cease its use of overseas call centres and improve its compliance regime.

115    With regard to its compliance regime, AGM Markets has placed emphasis on the steps that it is taking to improve its compliance structure. Mr Tsangaris has deposed that following his appointment, AGM Markets engaged Compliance National Pty Ltd to, inter-alia, deliver training sessions for AGM Markets staff “with respect to the regulatory requirements related to [AGM Markets’] business and [AGM Markets’] compliance obligations”. But ASIC says that it is apparent from the answers provided in compulsory examinations of compliance staff employed by AGM Markets that senior compliance staff employed at the time of Mr Tsangaris’ appointment, and who are apparently still employed by AGM Markets in that capacity, have:

(a)    little or no experience, and few or no qualifications, relevant to the provision of financial services generally, or compliance requirements in particular;

(b)    little or no understanding of the financial products offered to retail clients in Australia by AGM Markets or its former CARs;

(c)    little or no understanding of the licence conditions pursuant to which AGM Markets conducts its business; and

(d)    not seen, or do not recall having seen, a copy of AGM Markets’ compliance plan.

116    Further, apparently Compliance National Pty Ltd has run only two training sessions since its engagement. ASIC says that AGM Markets’ evidence otherwise rises no higher than an assertion that it will not contravene financial services laws again and does not address the question of whether, and if so how, AGM Markets intends establishing a fully funded regime for the compensation of clients who might have suffered loss and damage by reason of the conduct of AGM Markets’ own account managers, or those engaged by AGM Markets’ former CARs. Now all of this may be true and together with other matters establishes that ASIC has reasonable prospects of obtaining a winding up order on the just and equitable ground. But it does not establish that I should appoint a provisional liquidator or interim receiver at this stage.

117    Fourth, as to the evidence filed by Ozifin, ASIC points out that the propositions advanced in Ozifin’s evidence regarding the possible future conduct of its business appear to be that it has engaged various external consultants to review the conduct of its business during the period relevant to ASIC’s allegations, including an “appropriately qualified person to investigate and resolve complaints by Ozifin clients”, that it will attempt to revive a financial services business, and that such a possible business intends to comply with its obligations under the financial services laws. But ASIC says that those propositions are advanced at a level of such generality that little weight should be given to them. I think more weight can be given to them than ASIC would have it.

118    Generally, ASIC says that there is a strong case for the appointment of a provisional liquidator given inter-alia the following matters:

(a)    There are strong grounds for believing that AGM Markets, OT Markets and Ozifin have contravened various financial services laws and that AGM Markets, OT Markets and Ozifin have carried on their affairs without proper regard to the legal requirements of conducting a financial services business.

(b)    In light of past contraventions, there is a need to appoint an independent person to:

(i)    assess claims for compensation or damages that clients might have against AGM Markets, OT Markets and Ozifin;

(ii)    determine the assets of AGM Markets, OT Markets and Ozifin that might be available to satisfy those claims; and

(iii)    protect the assets of AGM Markets, OT Markets and Ozifin that might be called on to satisfy those claims, and to preserve the status quo while the existence and quantum of such claims are determined.

(c)    In addition, following the cancellation of the CAR Agreements under which OT Markets and Ozifin carried on their businesses, there is a need to appoint an independent person to manage the orderly return of client funds from the segregated client accounts, including to assess whether clients or past clients have an entitlement to funds held in those accounts.

(d)    Further, the evidence filed by AGM Markets does not provide a sufficient degree of confidence that AGM Markets will not, itself or through other authorised representatives, commit further contraventions of financial services laws.

119    ASIC says that the present case is the very sort of case in which a provisional liquidator should be appointed. It is said that there are serious allegations of contraventions of the Corporations Act that have not been answered by AGM Markets, OT Markets and Ozifin, and which demand independent investigation.

120    Further, ASIC says that this is also a case in which it is appropriate to appoint a provisional liquidator to preserve the status quo, and to ensure the orderly determination and resolution of claims that people may have against AGM Markets, OT Markets and Ozifin or to the assets they hold, including the segregated client accounts.

121    Further, ASIC has asserted that AGM Markets, OT Markets and Ozifin are insolvent or likely to be insolvent. I must say that this assertion was not substantiated on the material before me, and it seemed to depend upon making an assumption (not yet established) that these entities were liable to their clients in amounts that exceeded the entities’ assets as well as the moneys standing to the credit of the bank accounts the subject of the freezing orders. When I put these difficulties to ASIC’s senior counsel, he fell back on propositions that one did not know the true position one way or the other and further that no up to date accounts had been provided. I agree that there is an information deficiency, but I can rectify this by making information disclosure orders for the moment. ASIC’s submissions on this point do not justify the more draconian step sought.

122    In summary, I do not propose to appoint a provisional liquidator or interim receiver to any of the corporate defendants. Although I am prepared to accept that ASIC has reasonable prospects of obtaining a winding up order against each of AGM Markets, OT Markets and Ozifin under the just and equitable ground, I do not accept the need for any interim appointment at this stage. First, the relevant assets of each entity have been frozen by my freezing orders. Second, ASIC’s evidence does not show a strong likelihood of future substantial contraventions of financial services laws. Third, Ozifin and OT Markets at the moment are not carrying on the relevant impugned businesses. Fourth, there have been significant management changes for AGM Markets.

123    Let me deal with each of the corporate defendants in turn.

(a)    AGM Markets

124    In my view the interim appointment(s) sought by ASIC with respect to AGM Markets is not justified.

125    First, there is no urgent need to preserve the status quo.

126    As AGM Markets points out, the giving of any financial advice by AGM Markets is regulated by the undertaking given by AGM Markets to ASIC, which requires AGM Markets to take all reasonable steps to ensure that no “personal advice” is provided by its staff or authorised representatives, including by monitoring a considerable sample of recordings on a weekly basis and providing weekly written certifications to ASIC.

127    Further, there is no urgent need to “secure” or “preserve” the assets of AGM Markets, including any assets held on trust for clients of AGM Markets or the former CARs. I agree with AGM Markets that there is no cogent evidence that it is necessary to prevent dissipation of assets. Now ASIC submits that the “Corporate Defendants transferred large sums of money from bank accounts in Australia to companies and people overseas …”. But as AGM Markets points out, the evidence ASIC relies on in relation to AGM Markets shows that AGM Markets previously made overseas payments in the total sums of $472,244.57. ASIC’s evidence does not identify any specific overseas transactions made by AGM Markets as being a cause for concern. In any case, as AGM Markets points out, the evidence shows that all the overseas payments were made by AGM Markets to third-party service providers in the ordinary course of business. AGM Markets’ evidence also shows that contracts with those third-party service providers have been terminated.

128    Further, there is no cogent evidence that it is necessary to take any further steps to preserve AGM Markets’ assets pending trial. AGM Markets’ evidence shows that it holds substantial funds in the amount of approximately $20 million in its bank accounts. And ASIC’s assertion that AGM Markets’ potential liability to clients is likely to outweigh the value of its assets is in some respects speculative. Further, the important question is not sufficiency of assets per se, but rather whether the existing assets are at risk pending trial. In the present case most of AGM Markets’ assets are already preserved pending trial by the restraint regime put in place by my orders. Pursuant to this regime, approximately $11 million held by AGM Markets in the OT Markets client money account and approximately $6 million held by AGM Markets in the Ozifin client money account remain restrained (save for some carve-outs in my orders). Further, funds standing to the credit of an AGM Markets client money account have also more recently been restrained with AGM Markets’ consent. Further, the undertaking dated 16 April 2018 given by AGM Markets to ASIC provides that AGM Markets will pay any funds procured from any customer of any of its authorised representatives as soon as practicable into one of the restrained client money accounts.

129    Second, there is no present need to appoint a provisional liquidator to investigate the affairs of the company because of alleged past wrongdoing or to manage the orderly withdrawal of client funds.

130    As AGM Markets points out, Mr Tsangaris, who was not involved in any of the alleged wrongdoing, is reviewing the affairs of the company, including its business operations and its compliance regime. AGM Markets under his management is taking steps to put in place an efficient complaints handling mechanism, and is seeking to do so together with the former CARs. This may involve addressing claims of past misconduct by clients and seeking to satisfy those claims. It may also involve putting in place an orderly client money withdrawal process. Apparently this has been the subject of correspondence with the former CARs, and continues to be the subject of “without prejudice” discussions between AGM Markets and the former CARs.

131    Third, in considering as I must the balance of convenience, the potential adverse effects of the appointment sought by ASIC must be taken into account. An appointment will paralyse the normal operations of AGM Markets and, although it can trade on under the control of the provisional liquidator, the appointment is likely to damage its business. Further, the appointment has the effect of displacing its directors and other officers, who will essentially be unable to perform or exercise a function or a power as an officer during the provisional liquidation.

132    Fourth, as AGM Markets points out, relevant also is the not inconsiderable burden of the costs of the provisional liquidator, which would be visited upon AGM Markets.

133    Fifth, in terms of the need for an investigation to obtain information relevant to clients’ potential claims, as I have already said that is not an appropriate principal purpose justifying the appointment of a provisional liquidator or interim receiver. In any event, such a question can be dealt with by appropriate disclosure orders which I intend to make.

134    Generally, in my view the interim appointment sought is not justified, whether of a provisional liquidator or an interim receiver.

(b)    OT Markets and Ozifin

135    Let me deal now with the position of OT Markets and Ozifin, but in reverse order.

136    In relation to Ozifin I have also decided not to appoint a provisional liquidator, albeit that I had more cause to doubt its position as compared with AGM Markets.

137    First, in the evidence filed by Ozifin there was little if any disclosure of its assets or financial position.

138    Second, its current director proposes to resign when a replacement can be found, but there was little in the material giving me confidence in its present or future management.

139    Third, the affidavit of a financial services consultant engaged by Ozifin was at a level of generality and vagueness that was less than helpful concerning the future plans and management of Ozifin.

140    Fourth, I enquired of counsel for Ozifin as to why and how it was proposed to inject value back into Ozifin. In other words, why not allow a provisional liquidator or interim receiver to be appointed? What was the prejudice if Ozifin was not doing anything? I was not given any convincing response. An issue that is relevant, contrary to counsel’s suggestion, is what prejudice would be caused by an order for the appointment of a provisional liquidator or interim receiver to the company, its creditors, its employees or shareholders.

141    Fifth, it may be speculated that Ozifin’s opposition was to avoid the appointment of a provisional liquidator to delay or even avoid (if ultimately successful) the investigation of potentially void or voidable transactions.

142    At all events, I am satisfied that at present I should not appoint a provisional liquidator or interim receiver. Ozifin has undertaken not to operate any business until the present proceeding is resolved. Further, there is no continuation of any activity or risk of the resumption of any activity of the type that ASIC is concerned with. In this context, the CAR Agreement between Ozifin and AGM Markets has been terminated. Ozifin has stopped operating its business and all clients’ positions were cleared by 30 April 2018. Further, there are already interim measures in place to protect the assets of Ozifin and the rights of aggrieved clients, including the freezing orders that are in place.

143    There is one other matter. It would seem that discussions are taking place between Ozifin, AGM Markets and OT Markets that may result in a client complaint handling mechanism. That being the case, to appoint at this time a provisional liquidator or interim receiver to Ozifin or OT Markets may not be conducive to facilitating that objective.

144    In summary, at this time I consider that I should not disturb the status quo by an external appointment, subject to Ozifin making information disclosure of the type that I propose to order should be made by AGM.

145    In relation to OT Markets, ASIC has a stronger case for the appointment of a provisional liquidator. No material was filed in opposition by OT Markets. Further, its solicitor told me that OT Markets was being “wound down” in any event, although OT Markets would prefer to do this under its own control and timing.

146    Now ASIC pressed for a winding up order, but such an application is not before me at the moment for final disposition. And as to its application for a provisional liquidator or interim receiver, as with the position of Ozifin I do not see a present need to appoint a provisional liquidator or interim receiver to OT Markets, subject to it giving information disclosure of the type that I propose should be made by AGM Markets and Ozifin. OT Markets is not carrying on business. Freezing orders are also in place. Further, I see advantage for the moment at least in facilitating discussions between Ozifin, AGM Markets and OT Markets concerning a client complaint handling mechanism by not making the order sought.

CONCLUSION

147    At the present time I decline to make orders for the appointment of a provisional liquidator or interim receiver to AGM Markets, OT Markets or Ozifin. But I will make relevant information disclosure orders.

148    On the question of costs, it seems to me that it is appropriate that the parties’ costs of the present application should be their costs in the cause.

Associate:

Dated:    27 July 2018

SCHEDULE OF PARTIES