FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v iSignthis Limited (Penalty) [2025] FCA 917

SUMMARY

In accordance with the practice of the Federal Court in cases of public interest, importance or complexity, the following summary has been prepared to accompany the orders made today. This summary is intended to assist in understanding the outcome of this proceeding and is not a complete statement of the conclusions reached by the Court. The only authoritative statement of the Court’s reasons is that contained in the published reasons for judgment which will be available on the internet on the Court’s website. This summary is also available there.

On 21 June 2024 the Court delivered judgment on liability in this proceeding in Australian Securities and Investments Commission v iSignthis Limited [2024] FCA 669 (Liability Judgment).

It will be recalled that the events giving rise to the allegations made by ASIC against iSignthis (now Southern Cross Payments) and its former chief executive officer and managing director, Mr Nikolas John Karantzis, arose from two separate periods and sets of circumstances. The first centred on certain representations and disclosures made by iSignthis and Mr Karantzis during an analyst briefing on 3 August 2018 in relation to the breakdown of the company’s one-off as opposed to recurring revenue (One-off Revenue Period). The second concerned the termination by Visa Inc of its relationship with iSignthis and the disclosure of information related to that termination to both the ASX and the market in the period April to August of 2020 (Visa Termination Period).

In the Liability Judgment the Court concluded that iSignthis had engaged in conduct that was misleading or deceptive in relation to a financial product during the One-off Revenue Period pursuant to s 1041H of the Corporations Act 2001 (Cth). The Court also concluded that iSignthis had breached its continuous disclosure obligations pursuant to s 674(2) of the Act both on and from 3 August 2018 during the One-off Revenue Period, and also in relation to the Visa termination in 2020.

The Court concluded in the Liability Judgment that Mr Karantzis had breached his duty under s 180(1) of the Act by his conduct during the One-off Revenue Period and the Visa Termination Period. In addition, the Court concluded that Mr Karantzis also contravened s 674(2A) by reason of his involvement in the company’s contraventions, and that in May 2020, during the Visa Termination Period, Mr Karantzis contravened ss 1309(2) and (12) of the Act by giving information to the ASX that was false or misleading and which omitted matters that, by their omission, rendered the information misleading.

On 26 July 2024 the Court made declarations that iSignthis and Mr Karanztis had contravened civil penalty provisions of the Act, giving effect to the findings in the Liability Judgment. These included declarations that each of iSignthis and Mr Karantzis’ contraventions were “serious” within the meaning of s 1317G(1)(b)(iii) of the Act.

At the penalty stage of this proceeding ASIC sought orders that Mr Karantzis be disqualified from managing corporations for a period of ten years, and that he pay a pecuniary penalty of $1.5 million for his contraventions. ASIC also sought an order that the company pay a pecuniary penalty of $12.5 million. It was iSignthis and Mr Karantzis’ position that it was not appropriate for Mr Karantzis to be disqualified from managing corporations for any period at all, and that modest pecuniary penalties in the amount of $250,000 for Mr Karantzis, and $350,000 for iSignthis would be sufficient.

Having regard to all the circumstances, and the findings in the Liability Judgment, the Court will make orders that Mr Karantzis is to be disqualified from managing corporations for a period of six years, and that he is to pay a pecuniary penalty to the Commonwealth of $1 million. The Court will also order that the company pay a pecuniary penalty to the Commonwealth of $10 million.

With respect to Mr Karantzis, the Court has concluded that a period of disqualification is justified and appropriate, having regard to the objectives of protecting the public and deterrence. It is of particular relevance to the Court’s determination that Mr Karantzis’ contravening conduct was serious, not inadvertent, deliberate (much of it knowing) and that it continued for lengthy periods of time, including after ASIC had commenced an investigation into iSignthis and Mr Karantzis in 2019. The relevant misrepresentations and non-disclosures concerned matters centrally relevant to the company and to the Australian share market. Mr Karantzis knew of their central importance, and was aware of his and the company’s disclosure obligations under the Act at the time of the contraventions. Mr Karantzis’ serious breaches of his non-disclosure obligations under the Act during both the One-off Revenue Period and the Visa Termination Period improperly inflated iSignthis’ share price and had a corrosive effect on market efficiency. It is also relevant to the Court’s determination that Mr Karantzis is an experienced company director and that, in addition to engaging in contravening conduct himself, he was directly involved in the company’s contraventions. The Court has also concluded that Mr Karantzis has not demonstrated any genuine contrition or insight into his conduct. He is not entitled to any credit in relation to penalty for co-operating with ASIC.

As has often been observed, market efficiency, upon which consumer confidence rests, relies on reliability, good faith, fairness and honesty of conduct (the latter of which can be taken to include conduct which is not apt to mislead). These obligations are of fundamental importance, and they underpin the efficient functioning of the Australian economy in all its sectors. It is important never to lose sight of them. The community is entitled to expect that investors will not be misled, the market operator will be respected, and that questions asked by the market operator will be answered accurately and devoid of spin and obfuscation. It is not for particular corporations or individuals to arrogate to themselves the right to impugn the motivation and content of enquiries made by the market operator in the discharge of its functions. It must be made clear to market participants that their conduct must be consistent with the regulatory regime which Parliament has legislated. Where it is not, the public is entitled to be protected from their actions by appropriate restraints on market participation.

In determining that a period of disqualification of six years is appropriate, the Court has accepted that there was no positive finding of dishonesty made against Mr Karantzis in the Liability Judgment and that his contraventions involved essentially two courses of conduct. The first occurring in 2018 during of the One-off Review Period, the second occurring during the Visa Termination Period in 2020. The Court has also taken some limited account of the interests of shareholders in the iSignthis companies, the absence of significant financial loss caused by the contraventions, and that the relevant conduct did not obviously seem to enrich Mr Karantzis at the expense of others.

As for the pecuniary penalty ordered against Mr Karantzis, bearing in mind the seriousness of Mr Karantzis’ conduct, and also the maximum penalties prescribed by Act, the Court has determined that the aggregate penalty of $1 million is appropriate and proportionate in the circumstances which have been summarised.

With respect to iSignthis, the Court has determined that the company should be ordered to pay a substantial pecuniary penalty for its serious contraventions of the Act. It is relevant to the Court’s conclusion that senior executives (and members of the board) of iSignthis were involved in the contraventions, there is no evidence of any systemic remedial steps having been taken, and that the contraventions caused harm to the market and had the consequence of artificially and improperly inflating the company’s share price. As with Mr Karantzis, the Court has concluded that the company has not demonstrated any genuine contrition or insight into its serious conduct, and that it should be given no credit for any co-operation with ASIC.

It is for these reasons that the Court has determined that it is appropriate and proportionate that iSignthis pay a pecuniary penalty in the amount of $10 million, and that such a penalty would give effect to the objectives of specific and general deterrence.

MCEVOY J
8 August 2025
Melbourne