ASIC Appeal Against Fortescue Disclosure Decision Upheld
In Australian Securities and Investments Commission [ASIC] v Fortescue Metals Group Ltd  FCAFC 19 (18 February 2011), the Full Court of the Federal Court has upheld ASIC’s appeal against the original decision in ASIC v Fortescue Metals Group Ltd [No 5]  FCA 1586 (23 December 2009), in which the Federal Court dismissed ASIC’s application against Fortescue Metals Group (FMG) and its chief executive Andrew Forrest. The original proceeding arose out of a series of announcements made by FMG concerning certain framework agreements with three major state-owned Chinese companies, relating to the development of a mine and associated infrastructure for the mining and export of iron ore. ASIC claimed that these announcements overstated the substance and effect of the agreements, resulting in the markets being misled over the true status of FMG’s projects until the true content of the agreements was disclosed six months later.
According to ASIC, the appeal was made because the case raised important issues concerning:
- “a listed entity’s obligations to disclose information under the continuous disclosure provisions of the [Australian Securities Exchange] Listing Rules and the [Corporations Act 2001 No. 50 (Cth) (the Act)];
- the operation of the misleading and deceptive conduct provisions of [the Act], particularly statements concerning the contents, effect or enforceability of commercial agreements; and
- the role and duties of directors and officers in making statements to the ASX and the investing public, particularly those concerning the contents, effect or enforceability of commercial agreements”.
The Full Court ultimately agreed with ASIC’s allegations that:
- FMG’s announcements were misleading and deceptive (in breach of s. 1041H of the Act);
- that FMG failed to correct these statements (in breach of s. 674(2)); and
- that Mr Forrest breached his director’s duties (under s. 180(1)) and was involved in FMG’s contraventions of the Act (in breach of s. 674(2A)).
ASIC’s media release (18 February 2011)
Meanwhile, according to The Australian, the unanimous decision has been well received by legal experts, in particular as it “[provides] much-needed clarity about listed companies’ continuous disclosure obligations”.
The Australian: Experts hail Forrest ruling on continuous disclosure (19 February 2011)
Related news items:
Sydney Morning Herald (SMH): ASIC scores Fortescue victory (19 February 2011)
The Courier-Mail: ASIC spoils Fortescue announcement (19 February 2011)
ABC News: ASIC boss says regulator vindicated over Fortescue (22 February 2011)
(Source: AustLII; ASIC; The Australian; SMH; The Courier-Mail; ABC News; Lawlex Legislative Alert & Premium Research)
Madoff Says Banks Were “Complicit”
The Age reports that Bernard Madoff has told a newspaper that banks and hedge funds “had to know” of his Ponzi scheme that defrauded at least 16,000 victims of billions of dollars. Madoff reportedly stated that institutions that did business with him ‘failed to conduct proper scrutiny”, however he did not specify particular banks or hedge funds that knew of his fraud.
The Age: Banks had to know of fraud, Madoff says (17 February 2011)
Related news item:
Bloomberg: Citigroup Executive Knew of Madoff Fraud, Trustee Suit Says (23 February 2011)
(Source: The Age; Bloomberg)
Fraudulent Trader Turns Himself in
The US Federal Bureau of Investigation (FBI) has announced that options trader Kent Whitney has pleaded guilty to involvement in an investment scheme that defrauded approximately ten victims of more than US$600,000. The investments were sought “for a purported commodity pool investment, and for trading in futures accounts to be held jointly between Whitney and the victims”. Whitney reimbursed US$200,000 as “investor redemptions” and kept the rest for his personal use. Among other things, Whitney made several misrepresentations to investors relating to the use of investors’ funds, returns on investments and the risk involved with investments.
FBI’s media release (16 February 2011)
Claims of Whistleblower Retaliation Filed Against Tesoro Corporation
Kevin Wallace, formerly a vice president at Tesoro Corporation, filed a federal whistleblower lawsuit against the company, claiming he was fired for uncovering financial irregularities at the company. Wallace alleged Tesoro violated antitrust laws by setting certain prices illegally and that they inflated financial results which were then reported to Tesoro shareholders and the S.E.C. Wallace claimed he made his supervisors aware of these indiscretions and claimed that he selected “yes” when asked if he had experienced retaliation in two separate company surveys. Wallace was fired in March of 2010.
San Antonio Express-News: Former executive sues Tesoro in whistle-blower case
(8 February 2011)
Firms Give Unsuitable Advice to Pensioners
Europe, Middle East and Africa
The UK Financial Services Authority (FSA) has announced that it has imposed penalties totalling £143,500 on Perspective Financial Management (PFM), Cricket Hill Financial Planning Ltd (Cricket Hill) and its director Jeremy Sheard for recommending customers to switch pensions to a pension fund risk management service without checking the suitability of such advice. The investigation also revealed that Cricket Hill and Mr Sheard failed to appropriately manage conflict of interest matters and that PFM did not provide sufficient information pertaining to the service costs of new pensions.
FSA’s media release (16 February 2011)