TO : Tony D'Aloisio, ASIC Chairman
CC : Senator Sherry
CC : The Media
FROM : Graham MacAulay, President, Westpoint Investors Group
P.O. Box 661
Miranda
NSW 1490
gmac@ihug.com.au 02 9525 2396 0411 141 888
DATE : 12-02-2008
Subject Unanswered questions.
Dear Sir,
I write requesting answers to the many questions below relating to ASIC performance.
Having lost $300,000 in the collapse of Westpoint, many might claim I bring personal bias to the following matter. I agree, and add the almost daily emotional impact of supporting those who have lost their homes, their money, and in many cases their physical and emotional health brought on by the collapse of Westpoint has had its effect. In the main, these victims of ASIC's incomptence are Australian citizens of a senior age who have helped build the wealth of this country. Yes, I plead guilty to my anger and disappointment at the manner in which ASIC and the past Liberal-Coalition Government has treated those of us of senior years. However, I would disagree my emotional feelings have interfered with my logic, or with any conclusions I have drawn from information that is freely available in the public domain.
I make no apologies for utilising the Internet to request answers relating to ASIC performance. In order to have the matter discussed as widely as possible (hopefully worldwide), I have chosen to use the communication tool of the modern era. Perusal of the material found on the URL www.wig.org.au will show the questions below are by no means an exhaustive set.
If ASIC had not destroyed so many lives I would find your survey of what people think about ASIC humorous. Are we talking about the same ASIC which first showed formal interest in Westpoint mid-2003, and the same ASIC who's spokesman says it MIGHT charge Norm Carey sometime in the middle of this year? More that four and a half years has passed since mid 2003, and ASIC has still not laid a single charge against a Westpoint director!
Any intelligent person answering the current ASIC survey, given all of the available evidence from the time of ASIC's creation until now, would have to report ASIC has the appearance of having been manned by the Keystone Cops.
I might add that I am not the only person unhappy with past ASIC performance. Investors in Westpoint, ACR, Fincorp, and Bridgecorp are only the latest victims of ASIC's incompetence. Over the years the media have not been kind to ASIC, and even the Auditor General has taken ASIC to task in recent years (2006 and 2007). An excerpt from The Age of 01/02/2008 says it all. But Justice Robert French, in the Perth Federal Court yesterday, rejected ASIC's application to extend the restrictions, saying it was "characterised by generality and uncertainty" about the precise state of investigations into Westpoint. "In my opinion, ASIC has failed to make a case," Justice French said.
I realise many of my questions relate to events that occurred before your appointment as ASIC Chairman. However, I do not see that releases you from the duty of righting the wrongs of past ASIC incompetence that have destroyed the lives of so many Australians. To not provide adequate answers to my questions would make a mockery of the accountability of ASIC in particular, and bring into question the nature of justice in a country that claims it is a democracy.
ASIC had a clear duty since its inception to protect financial investors, yet I can find no evidence of where ASIC ever protected a single investor. In the matter of the meaning of "protection", I refuse to accept Mr. Lucy's idea that protection can be achieved after an event. If the police are charged with giving a witness protection, and that witness is murdered, when years down the track the police bring the murderer to trial, the police cannot claim they protected the witness. All nuances of the word protection conjure up the concept of an aegis warding off an unwanted future action.
You inferred at the meeting of 03/09/2007 I had some sort of alliance with Norm Carey. I share only one common goal with the former Westpoint owner: the calling of a Royal Commission into past ASIC performance.
I look forward to an early reply to my questions. I am sure the world will judge both of us on the answers you provide.
Graham MacAulay
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1. In 2006 the Supreme Court of Western Australia found the Westpoint Mezzanine Model was a Managed Investment Scheme, and not debenture based as ASIC claimed. As Westpoint never submitted any Mezzanine company to ASIC for testing as an MIS, it follows, without exception, Westpoint Mezzanine investors put their money in unregistered MIS's (ASIC prosecutes those who run unregistered MIS's.
The "2000 Freehills letter" that ASIC issued to Westoint's lawyers clearly proves ASIC had every opportunity to examine the Westpoint Mezzanine model, and failed to recognise it as a Managed Investment Scheme.
I asked you, at the meeting of 05-07-2007, if ASIC had misled Westpoint investors, when it failed to recognise the Westpoint Mezzanine model as a MIS, and why ASIC wasn't responsible for investor losses. You chose not to answer my questions.
Q1a. As a result of the 2006 WA Supreme Court decision [ ASIC_Media_Release_06_198 ] did every Wespoint Mezzanine investor put their money in an unregistered MIS?
Q1b. As the regulator, ASIC should know the law much better than those it controls. Given Westpoint's query to ASIC on the legality of the promissory notes, ASIC's issue of the letter to Freehills (the Westpoint lawyers) in 2000, and Denise Brailey's warning, why did ASIC fail to recognise the Westpoint Mezzanine model was a Managed Investment Scheme?
Q1c. How many Westpoint investors would have parted with their money had they known they were investing in an unregistered (therefore illegal Managed Investment Scheme?
Q1d. By its failure to recognise the Westpoint Mezzanine model as a Managed Investment Scheme, did ASIC mislead both planners and investors?
Q1e. If a planner misleads an investor (by accident or otherwise) are they not responsible for the losses of the investor?
Q1f. Why is ASIC, which has a duty to ensure planners obey the law, not responsible for the losses of investors in the Westpoint Mezzanine products?
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2. On 05-06-2007 Denise Brailey stated on the Channel Ten's David & Kim morning TV show she flew to Brisbane in 2001 where she spoke with the Queensland ASIC Commissioner and his senior legal advisers. They told her that they knew Westpoint Mezzanine Schemes were MIS's. Further, she claimed they told her the Westpoint Mezzanine products were issued without prospectuses, and the investors would lose their money. If the Queensland Commissioner knew the schemes were MIS's, he must have known they were unregistered MIS's.
Q2a. If the Queensland Commissioner knew Westpoint Mezzanine Schemes were unregistered MIS's, why wouldn't the other ASIC Commissioners have known they were?
Q2b Why didn't the Queensland Commissioner (and the other ASIC Commissioners) take action to rectify the original error of ASIC's belief Westpoint Mezzanine products were debentures?
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3. On the point of the Westpoint Model, at the Senate estimates Committees on 16-02-2006 the then ASIC Chairman, Mr. Lucy claimed ASIC was very concerned with the Westpoint model. At the following Senate Estimate Committe meeting on 13-06-2006 he claimed ASIC wasn't concerned with the model [Lucy _self_contradiction].
Q3a. Can there be any argument Mr. Lucy did not contradict himself under oath?
Q3b. Could the proximity of the WA Supreme Court's Decision on whether the Westpoint Mezzanine Schemes were unregistered (and therefore illegal) have had any bearing on Mr. Lucy's change of mind?
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4. Hansard records ASIC's Mark Steward admitting at the Senate Estimates Committee meeting of 31- 05-2006 that ASIC and the WA Government had carried out extended discussions on Westpoint as far back as 2001.
4a. As both prospective and then current Westpoint Investors were never given warning of these discussions, what happened to ASIC's duty to protect financial consumers?
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5. The following is an extract from a letter sent by the office of Graham Edwards (MP).
Labor has made repeated attempts to get adequate answers from the Government, the Australian Securities and Investment Commission (ASIC), and the ATO about how a disaster like the Westpoint collapse was allowed to occur. It is vital we gain an understanding of why this occurred, firstly to keep pressure on the various parties for the recovery of monies for victims, and secondly and equally important, to make any changes to our regulatory system to ensure these events do not occur again.
Both the Howard Government and ASIC were informed in writing, about concerns relating to investors in mezzanine schemes like Westpoint by the West Australian Minister for Consumer and Employment Protection, Mr. John Kobelke on five occasions - in August 2002, January 2003, May 2003, June 2003, and March 2004. A written response to Mr. Kobelke in February 2003 made the commitment: "If required, the Government will make any recommendations ASIC makes to improve consumer protection in this area" and "the Government will consider legislative change should ASIC identify any regulatory gap".
Q5a. Given Mr Kobelke's five letters to ASIC, which covered a period of two years, why did ASIC not do something to protect financial consumers of Westpoint products?Q5b. Was the Minister informed of these discussions? If not, why not?
Q5c. What propositions did ASIC put forward to the Minister in order that Parliament might legislate better consumer protection?
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6. The matter of Mr. Lucy's self contradiction on the Westpoint model has been mentioned above in item 3. Another significant variation in a Lucy claim occurs when he says ASIC became concerned about Westpoint. At a Senate Estimates Committee in 2006, Mr. Lucy claimed ASIC first became concerned about Westpoint in 2004, yet the documents from Norm Carey, the Westpoint owner, states ASIC was harrying Westpoint in mid 2003. Norm Carey's documents provide documentary evidence of a presentation made to ASIC in August of 2003, plus other information. Mr. Lucy states his concerns about Westpoint did not relate to its financial situation until April 2004.
Q6a. The nature of the presentation by Westpoint to ASIC at the Freehills Office in WA leaves little doubt ASIC had concerns about Westpoint, so why did Mr. Lucy claim otherwise?
Q6b. A substantial sum of money was invested in Westpoint Mezzanine products after April 2004. What action did ASIC take to protect Westpoint investors? ___________________________________________________________
7. In 2004 ASIC took Westpoint to Court using Emu Brewery and Bayshore Mezzanine as test cases for all Westpoint Mezzanine products. The judge ordered ASIC to write to investors to see if they wished to co-join the case. ASIC wrote a letter to the 256 investors of the two named companies, and ignored the other almost 4000 Westpoint Mezzanine investors who would be directly affected by the case. The letter was of such a technical nature that the targeted investors did not understand the consequence of the proposed action.
Q7a. Keeping in mind ASIC's legislated duty to protect financial consumers, why didn't ASIC inform all Westpoint Investors of the case?
Q7b. Why didn't ASIC send a simple letter to the EMU Brewery and Bayshore Mezzanine companies rather than the technical document only understood by the legal fraternity.
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8. In October of 2004 the then Acting ASIC Chairman, Ian Johnstone, flew to Mumbai (India) to give a one-hour lecture at the Fifth Annual Conference of the AIOFP. Official documents from that conference state the AIOFP thanked Mr. Johnstone for his soft approach to regulation and his promise to go back to the Minister to have SOA's (Statement of Advices) removed from planners to bring them into line with the ASX.
Q8a Why would an acting ASIC Commissioner fly to India to give a one-hour lecture to a group of planners?
Q8b. Was it the Australian public or was it the AIOFP who paid for Mr. Johnstone's expenses to attend the conference?
Q8c. If the answer to Q8b was the Australian public, can ASIC give any reason for this expense, and how many other junket trips of a similar nature have occurred since the creation of ASIC?
Q8d. If the AIOFP paid for his expenses, and he went as the acting ASIC Commissioner, would that not place Mr. Johnstone in a position of owing the AIOFP a favour?
Q8e. Why would any ASIC personnel adopt a "soft" approach to regulation? Is it not the duty of ASIC to apply the law as set down by Parliament in an impartial manner?
Q8f. Is it normal ASIC policy that the head of ASIC approach the Minister on behalf of planners in a matter that could jeopardise consumer protection?
Q8g. Having brought the matter of Mr. Johnstone's Mumbai jaunt to your attention at the ASIC/Westpoint Investors Group meeting of 08/11/2007, what action have you taken on this matter?
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9. The following Hansard extract refers to the Senate Estimates Committee hearing of 31/05/2006.
Mr Steward -- There was an exclusion. Senator
WATSON -- that is the impression you have given me, so I am giving you the opportunity to clarify as to whether you believe there was a gap or there was not a gap.
Mr Steward --I am not sure about the word 'gap'. There was an express exclusion for promissory notes over $50,000 from the definition of 'debentures'; that was the problem. We looked at what could be done given that is what the situation appeared to be, that these were not covered by the legislation that we are tasked to regulate. We developed an argument that we thought had some merit and we thought we needed to raise directly with Westpoint to persuade them that what they were doing, which purported to rely upon the exclusion, did not in fact do so. That occupied several months in 2003. It would be fair to say there was a lot of toing-and-froing between ASIC and Westpoint and in particular their lawyers, Freehills --they might say 'toing-and-froing'; we might say 'cat and mousing' -- over this issue. We eventually realised by the end of 2003 that we were being stalled, we were being given the run around, and we delivered an ultimatum to Westpoint to either comply with the argument that we had put forward about the Corporations Act or we would take court action. We ended up taking court action to force Westpoint to comply with the Corporations Act, based on a very difficult technical argument that in part relied upon an interpretation of the Bills of Exchange Act rather than the Corporations Act. Nonetheless, we had to fight for our jurisdiction and that is what we did.
Senator WATSON -- if there was uncertainty, why did you not approach the minister to introduce an amendment to clarify the law?
Mr Steward -- I think the issue we were facing, as a practical pragmatic matter, was that we were dealing with the here and now; we had to do something. It was not a matter of waiting for law reform through the normal processes. I am not sure how long that would have taken. We had to deal with something in the here and now and that is what we did.
Q9a. Where in the legislation laid down by Parliament pertaining to ASIC does it state anything about "persuading" a company rather than applying existing laws?
Q9b. My understanding is ASIC applies the laws as legislated by the Parliament. Does it contain any directions involving "catting and mousing"?
Q9c. ASIC had known about the Westpoint model involving promissory notes since the year 2000, and had "discussions" with the WA government as far back as 2001. Why didn't ASIC go to the Minister before 2003 to have the legislation changed to "close the Gap"?
Q9d. Mark Steward states the argument in the case, not based on the Corporations Act, was a very difficult argument. It would later be described as "weak". Is it the practice of ASIC to go to court without a strong argument in the hope of forcing companies to obey the spirit of the law?
Q9e. Either Westpoint was breaking the Corporation Law, or it was not. Logic dictates that if Westpoint was breaking Corporations law, then ASIC should prosecute Westpoint under Corporations Law, not under some other Act. Mark Steward's statement shows ASIC's befuddlement on its legal duties. Where is the error in my logic in this matter?
Q9f. The above testimony of Mark Steward proves ASIC's concern about the model, and raises serious doubts about why Mr. Lucy's contradicted himself [Lucy_contradiction] under oath .
Q9g. Does the above Hansard passage, together with the Carey Documents, raise doubts about when ASIC first became concerned about Westpoint?
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10. At a meeting between ASIC and the Westpoint Investors Group on 23/02/2005, I asked ASIC's Ms. Jan Redfern how ASIC could take action against Westpoint on the matter of promissory notes when ASIC had deemed them legal in 2000 with the issue of "2000 Freehills letter", and there had been no changes in legislation on the matter in the intervening period. Her reply was, "So we could take them to court".
Q10a. The Freehills letter of 2000 clearly states ASIC wil not take action on the matter of the promissory notes, yet even though there had been no change of legislation in this area, ASIC issued a demand to Westpoint not to issue any new products based on PN's, and took them to court. What sort of standard does the rgulator set for the legal profession and the financial industry?
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11. "We don't have any concrete answer we can say at this stage." (Mark Steward). He said, generally, investors who invest via promissory notes are not covered by the protection of the Corporations Act. [2006_06_15_TheAge].
Q11a. If ASIC didn't know if the Corporations Act would cover investors, why did it issue the Westpoint lawyers with the Freehills letter of 2000?
Q11b. What does Mark Steward's comment say about ASIC's attention to financial consumer protection?
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12. Hansard records Mr. Lucy, the ASIC Chairman, as claiming ASIC first became aware of Kebbel Investment Bank in April 2005 and passed the matter over to APRA. In July of that year APRA visited Kebbel NSW, and on not finding any signage deemed the matter trivial. APRA told Kebbel not to do it again.
There is evidence that "Kebbel Bank" was operating in 2002 and the Westpoint Power Point presentations from March 2003 all opened with Kebbel Investment Bank (I personally gave ASIC copies of presentations from 2003 and 2004]. Although "Kebbel Investment Bank" did not even possess a registered business name it operated openly under the noses of APRA and ASIC for the best part of four years before APRA intervened.
In was not until March of 2006 that ASIC began to take a formal interest in Kebbel Investment Bank.
At the ASIC-Westpoint Investors Group meeting of 23/02/2006, ASIC's Ms. Jan Redfern told the meeting that the first she heard of Kebbel Bank was on the previous evening when I spoke to her. Mr. J. Lucy gave no indication that he had heard of Kebbel Investment bank. It should also be noted that Mr. Lucy would later state the first time ASIC had heard of Kebbel Bank was in April 2005 and that ASIC had passed the matter on to APRA.
Q12a. There were any number of references to Kebbel Bank on the Internet, and ASIC had shown sufficient interest in the Westpoint products to take Westpoint to court. Where were ASIC's fundamental monitoring processes?
Q12b. What other reasons could an entity masquerading as a bank have other than to obtain money by false pretences?
Q12c. When someone finally walked in off the street and made a complaint to ASIC concerning Kebbel Investment Bank and found they did not have the power to prosecute those responsible for the Kebbel Investment Bank caper, why didn't ASIC pass the matter on to more than one relevant authority? It was surely clear Kebbel had gained advantage by falsely presenting itself as a bank.
Q12d. Given the information by ASIC, how could APRA make such a decision based on the fact that the Kebbel office did not contain signage containing the word "Bank"?
Q12e. Why did APRA not recognise the truth of (12b) and pass the matter on to the relevant authorities?
Q12f. What does it say about internal communications within ASIC when neither the ASIC Chairman or the Head of Prosecutions stated they were not aware of Kebbel Bank before February 2006 - or is there more to it?
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13. The Supreme Court had directed ASIC to write to Westpoint Investors in the 2004 case, asking if they wished to co-join the case. It was not generally known ASIC had written to the 256 investors of Bayshore mezzanine and Emu Brewery.
On 16/02/2006 Senator Sherry asked Mr. Lucy if ASIC had written to Westpoint Investors as directed. Mr. Lucy did not know, and took the question on notice. I asked the same question at the ASIC-Westpoint Investors Group meeting on 23/02/2006, and Mr, Lucy expressed surprise at the question. He said it was the second time in a week that he had been asked the question, but indicated he knew nothing about it. When asked the same question on Channel 2's 7.30 report that night he still didn't know. ASIC indicated late next day on their website that they had written to the 256 investors.
Q13a. A judge ordering ASIC to write to investors inviting them to co-join a case is a rarity. Once again we have the Head of ASIC and the Head of Prosecution not knowing anything about an unusual and important event. What does this lack of knowledge say about those running ASIC?
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14. I wrote to you on 12/12/2007 and received an answer from Ms. Redfern. Her reply was dated 11/01/2008. I can only say that it more than disappointed me.
The incident involving Karen Carey caused me concerns for the following reasons.
i). Karen Carey claimed she could not provide ASIC with the demanded reports because ASIC had taken all of the books required to produce them.
ii). ASIC's decision not to go ahead with the case on the morning of the court hearing because they had insufficient evidence.
iii). Ms. Redfern's reply did not answer a single question I requested. The natural conclusion from her answer in respect of costs implies ASIC does not record the costs of investigations (including court costs), complete with dissections.
14a. What made ASIC decide it did not have a winnable case between the opening of the court and the close of business on the previous day?
14b. Did ASIC possess the books as stated by Karen Carey?
14c. If the answer to (14b) was yes, where is the proof Karen Carey had sufficient information to complete ASIC's demands?
14c. i. Has ASIC received the reports to date?
ii. If the answer to (14ci) was no, what action has ASIC taken to obtain the reports, which were of sufficient importance to launch a prosecution.
iii. If the reports have been completed, from where did Karen Carey obtain the necessary financial records?
14d. Why did ASIC launch a prosecution in the first place when it did not have the necessary evidence to obtain a successful prosecution?
14e. Does ASIC keep dissected costs of investigations and legal proceedings?
14f. If they do, then why wouldn't Ms. Redfern supply me with the figures?
14g. If ASIC doesn't record costs, then how can it forecast for future budgeting?
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