The Federal Court has found four current and former directors of Endeavour Securities and Linchpin Capital Group breached their duties as the officers of a responsible entity of a registered managed investment scheme and did not act in the best interests of members.
The court found that, between 2015 and 2018, Endeavour directors Ian Williams, Paul Raftery, and Paul Nielsen, along with Peter Daly, who acted as an officer of Endeavour:
- did not take all reasonable steps to ensure that Endeavour complied with its compliance plan, obtain member approval for related party loans and issue Product Disclosure Statements that complied with the law;
- failed to exercise care and diligence;
- did not act in the best interests of members of the Investport Income Opportunity Fund.
The court found that Mr Daly and Mr Raftery improperly used their positions by receiving unsecured loans from the unregistered Investport Income Opportunity Fund for their personal use. Mr Daly received loans totalling $130,000 and Mr Raftery took a $40,000 loan.
“These individuals were officers of an investment scheme that raised $17 million. They were responsible for large sums of money but did not take the proper steps to ensure they complied with the law,” said Australian Securities and Investments Commission (ASIC) deputy chair Sarah Court.
“Disclosure statements did not reflect the true position and two of the directors were found by the court to have made improper use of their positions to gain advantage for themselves.
“Investors expected a level of compliance that was not delivered. For ASIC, it was critical that these officers were held accountable.”
In a statement, ASIC explained that Endeavour was the responsible entity of a registered managed investment scheme called the Investport Income Opportunity Fund.
Linchpin operated an unregistered managed investment scheme which was also called the Investport Income Opportunity Fund. Both funds were placed into liquidation in 2019.
In handing down judgment, Justice Cheeseman said: “The circumstances in which and the way in which Endeavour transferred the funds to Linchpin, markedly departed from the standard that one would expect between unrelated parties, each acting in their own best interests. In short, the Endeavour transfers were uncertain, uncommercial and improvident.
“I am satisfied that a clear conflict existed between the interests of unit holders in the Registered Scheme and the interests of Linchpin and the borrowers under the Unregistered Scheme Loans. That conflict was not recognised and was not mitigated by the respondents in their respective roles as officers of Endeavour.
“The conduct of Mr Daly and Mr Raftery respectively in entering into the Daly Loans and the Raftery Loan (as varied) fell short of the standards of conduct that would be expected of individuals in their position by reasonable persons with knowledge of the duties, powers and authority of officers of responsible entities of a registered managed investment schemes.”
Mr Nielsen, Mr Raftery, and Mr Williams did not contest ASIC’s case at trial. ASIC said that it would now seek orders from the court imposing pecuniary penalties and periods of disqualification against the current and former directors from managing corporations.
At the time of the misconduct, breaches of officers’ duties (under s601FD of the Corporations Act) attracted maximum penalties of $200,000 per contravention for individuals.
ASIC previously banned Mr Williams, Mr Nielsen, Mr Daly, and Mr Raftery from providing any financial services each for a period of five years in 2019.
Mr Williams and Mr Raftery remain directors of Endeavour and Linchpin, while Mr Nielsen is a former director of Endeavour and Linchpin, and Mr Daly is a current director of Linchpin.
