The Federal Court of Australia has delivered judgment in ASIC’s favour in proceedings against Gallop International Group Pty Ltd (In liquidation) (GIG), Gallop Asset Management Pty Ltd (GAM), Stumac Pty Ltd (Stumac) and former director Mr Ming-Chien Wang.
Justice Charlesworth has proposed orders and given the parties time to apply to the Court about the proposed orders, but if no party applies, the Court will make the proposed orders on 26 September 2019, including:
- declarations of contraventions of financial services laws by GIG;
- declarations that Mr Wang was knowingly concerned in the contraventions of GIG;
- permanent injunctions restraining Mr Wang from carrying on a financial services business;
- an order disqualifying Mr Wang from managing a corporation for 10 years;
- an order that Mr Wang pay a civil penalty of $3 million; and
- the winding up of GAM and Stumac.
The proposed civil penalty against Mr Wang will be the highest civil penalty awarded against an individual in an ASIC proceeding.
Charlesworth J declined to make the declarations of contravention sought by ASIC against GAM.
ASIC had earlier obtained interim injunctions against the companies and Mr Wang, effectively shutting down the Gallop business, as well as freezing orders over Australian bank accounts (17-372MR).
Charlesworth J found GIG operated a financial services business without holding a financial services licence, published statements which were false and misleading and engaged in misleading and deceptive conduct. Charlesworth J also found that Mr Wang, being the controlling mind and architect of the scheme, was knowingly concerned in GIG’s contraventions., and that GIG was in the process of transitioning its business to Stumac.
In her judgement, Charlesworth J found that GIG caused or permitted investors’ funds to be transferred from GIG’s Australian bank account “for purposes unrelated to the investments and that GIG did not hold investors’ funds in a designated trust account. Accordingly, the financial products and services provided by GIG did not have the benefits and characteristics represented on the GAM website and the GIG website”, and that representations to potential investors that GIG was authorised under Australian law to provide the financial products and services promoted on its websites were “clearly intended to lure investors into the belief that the services promoted by GIG were subject to the regulatory regime established under Australian law. The falsity of the representation wholly undermines the protective purpose of the comprehensive regime established … for the proper regulation of the financial services sector.”
Charlesworth J also found that “a large number of investors have lost the whole of their capital invested and that they have been unsuccessful in obtaining a satisfactory explanation from GIG as to those losses”, that “It is more likely than not that the funds were misapplied, so explaining the magnitude of the losses”, and that Mr Wang “demonstrates the utmost disregard for Australia’s financial services laws.”
The proposed orders include an order that Mr Martin David Lewis of KPMG be appointed liquidator of GAM and Stumac. Mr Lewis is also the liquidator of GIG.
GIG and GAM each held an Australian Financial Services licence and operated the Gallop business, which promoted and provided services for trading in various financial products including foreign exchange, precious metals, derivatives and contracts for difference. The business facilitated access to an online trading platform accessed through websites accessible in Australia and overseas.
Investors in financial products offered by GIG and GAM are predominantly residents of mainland China and Taiwan. Investors deposited funds into Australian bank accounts to invest in the financial products offered by the Gallop business. Between May 2016 and May 2017 more than $36 million was deposited, primarily by investors, into GIG’s Australian bank account. Over that same period almost all of that money was withdrawn and paid into overseas bank accounts held by entities related to GIG or otherwise having connections with Mr Wang, his family or associates.
Investors complained to ASIC and the Financial Ombudsman Service that their investment funds and, in some cases, earnings from investments (including interest and commission payments), had not been returned on demand or as required under the terms of their investments.
On 22 June 2018, GIG was wound up in insolvency in a separate proceeding before the Court and Martin David Lewis, now of KPMG, was appointed liquidator.
The trial took place on 10 September 2018. Mr Lewis, as liquidator of GIG, did not oppose the orders sought by ASIC and adduced no evidence at the hearing. There was no appearance at the hearing by GAM, Stumac or Mr Wang.
The judgment is available here.