Klusman and Australian Securities and Investments Commission [2010] AATA 709 (10 September 2010)

Last Updated: 17 September 2010

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 709

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2010/3857

GENERAL ADMINISTRATIVE DIVISION )

Re WILLIAM KLUSMAN

Applicant

And AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

DECISION

Tribunal Justice Downes, President

Date 10 September 2010

Date of written reasons 16 September 2010

Place Sydney

Orders Until the determination of these proceedings or further order, pursuant to section 41(2) of the Administrative Appeals Tribunal Act 1975, the Tribunal stays the decision under review subject to the following conditions:

1. The applicant is not to provide financial services for or on behalf of any Australian financial services licensee save ANZIEX Limited (A.C.N. 073 633 664) or its corporate authorised representatives;
2. The applicant is not personally to place an order for the sale or the purchase of a financial product onto a trading platform operated by a financial market operator; and

100. No order for the sale or the purchase of a financial product is to be placed at the applicant’s request onto a trading platform operated by a financial market operator unless first approved in writing by a director, the head of compliance or a designated trading representative of Investorfirst Securities Limited (A.C.N. 135 332 240).
     

....................[sgd]......................
Garry Downes
President

CATCHWORDS

PRACTICE AND PROCEDURE – Corporations – banning order – stay of implementation – non-publication and confidentiality orders sought – strength of case – banning orders to be public unless exceptional circumstances – need for informed market – no exceptional circumstances

RELEVANT ACTS:

Corporations Act 2001 ss 1041A, 1041B, 1041H

Administrative Appeals Tribunal Act 1975 ss 35, 41

Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130

REASONS FOR DECISION

16 September 2010	Justice Downes, President
SUMMARY

1. William Klusman is employed by Investorfirst Securities Limited, which is part of the ANZIEX Limited Group. On 7 September, 2010, the Australian Securities and Investments Commission made a banning order against Mr Klusman for a period of three years. The banning order was made on the basis that Mr Klusman had contravened ss 1041A, 1041B and 1041H of the Corporations Act 2001 (Cth).
2. The delegate who made the banning order did so on two grounds relating to two separate activities. The first relates to an alleged statement which Mr Klusman made in the trading room in which he operated, relating to the likelihood of a rights issue by a large public company. The delegate found the statement was misleading. The second matter relates to trading in shares in Regional Express Holdings Limited. It seems that that company was engaged in an on-market buyback of its shares in respect of which it had retained Mr Klusman. Mr Klusman bought shares in the company on behalf of two relatives and later sold those shares, through the on-market buyback, to Regional Express. It seems that a profit of $6,600 was made. I note that Mr Klusman says that, at the time of the purchase on behalf of his clients, there were no outstanding orders with him from Regional Express for on-market purchases. The delegate of ASIC found that this conduct of Mr Klusman warranted a three year banning order.
3. Mr Klusman very promptly made application to the tribunal for review of the decision and sought orders from the tribunal under ss 41 and 35 of the Administrative Appeals Tribunal Act 1975 (Cth) which would have the effect of precluding publication by ASIC of the existence of the banning order and would further ensure that the hearing of the matter took place in private and that the name and details of Mr Klusman were not otherwise made available. I will together call these proposed orders “the confidentiality orders”.
4. There is no doubt, having regard to the recent decision of the Full Federal Court of Australia in Australian Securities and Investments Commission v Administrative Appeals Tribunal [2009] FCAFC 185; (2009) 181 FCR 130, (the Confidentiality Case) that the tribunal has power to make each of these orders. The question is whether it is appropriate that the orders should be made.
5. Mr Klusman gave evidence as to his circumstances. He is employed by Investorfirst Securities on commission and he has a number of institutional clients as well as a significant number of retail clients. He has worked in the financial services industry since he was 18 and he has had no previous problems. He says, and I have no reason to doubt this, that he has a very good reputation.
6. In seeking the confidentiality orders Mr Klusman says that, even if he is ultimately successful in these proceedings, the publication of the making of the banning orders will have an adverse effect on his reputation and may result in institutions removing him from their adviser list. He says that if the orders are not made there may be a material impact on his income. I think, in his view, there certainly will be such an impact. He points to the fact that publicity relating to the banning order against him may affect his company and, in turn, other employees of the company.
7. It is in these circumstances that I need to determine whether the confidentiality orders that are sought should be made. The first matter in considering such an application is always the strength of the case. However, in the present matter there is to be, by consent of ASIC, a stay of proceedings on the order. This will enable Mr Klusman to continue to work pending the hearing of the application, although under some limitations which have been proposed by ASIC and agreed to by Mr Klusman. In these circumstances it does not seem to me to be particularly appropriate to analyse for myself the strength of the case against him. The better course for me, in circumstances in which I do not have to consider whether a stay is appropriate, seems to be to proceed on the basis, as I do, that the strength of his opposition to the banning order is significant. I proceed on the basis that if there are particular circumstances relating to the issues concerning confidentiality then I should act on those as if Mr Klusman had demonstrated a strong to very strong case before the tribunal. That is not to say that I accept that the case is strong or very strong, because I have not seen sufficient facts to enable me to do this, but it is the basis upon which I now go on to consider the other matters.
8. It is appropriate, first, however, to take note of the fact that a stay of the banning order is to be made. This is because the presence of such a stay is itself something that is relevant to the question of whether confidentiality orders should be made. The Full Federal Court made this point in its recent decision in the Confidentiality Case. I begin, therefore, with the proposition that Mr Klusman will be free to continue to carry out his occupation pending the hearing of his application.
9. Exactly the same kinds of confidentiality orders, namely, a stay on publication by ASIC under s 41 and the making of confidentiality orders under s 35 of the Act, were the subject of consideration by the Full Federal Court in the Confidentiality Case.
10. In the joint judgment of Downes and Jagot JJ the following was said with respect to an application under s 41:
    53. The structure of the scheme also indicates Parliament’s assessment of the appropriate resolution of the competing interests of persons who may be affected by a banning order. Other than in limited circumstances a banning order cannot be made without giving the proposed recipient a right to be heard and to make submissions in private to ASIC (s 920A(2)). A banning order must be accompanied by a statement of reasons (s 920F(1)). If, and only if, ASIC makes a banning order is it required to make public that fact (ss 920E(2) and 922A). For the AAT to form an opinion under s 41(2) of the AAT Act (that it would be desirable and in the “interests of any persons who may be affected by the review” to make an order staying or otherwise affecting the operation or implementation of ASIC’s decision) these elements of the statutory regime, and the balance between the competing interests that they represent, must be treated as a fundamental element in the weighing of the competing considerations.
        
    54. Moreover, information is the key to effective trading in any market. It takes the place of regulation in ensuring fairness. A market which is not fully informed is not operating properly. Is not an investor who is about to deposit funds with a person providing financial services entitled to know that a banning order has been made against the person? If the order has been stayed on substantial grounds the person is also entitled to know that. The informed investor may continue with the proposal. If the investor does not, then that is just an example of the operation of the market place. The critical matter is that the market is fully informed. If the banning order is not disclosed, but subsequently upheld, is not the investor entitled to complain that all the circumstances should have been made public?
        
11. When the Full Court turned to s 35 they said this:
    75. Suppression orders are rarely made in courts, even though publicity undoubtedly disadvantages the parties. Criminal proceedings are a good example. In the AAT itself facts which parties would not wish to be published and which may disadvantage them are frequently published. Social security applications are a good example. The reason these matters are not kept secret is the overriding importance of justice being administered openly and in public. It is not readily apparent why persons in businesses should be treated differently even when, for example, employees may be disadvantaged.
        
    76. When measured against the existence of the norm of a public hearing and the scheme established by the Corporations Act with respect to banning orders, it is apparent that the AAT would need some cogent reason by reference to the particular case to depart from the ordinary requirement of a public hearing. It is difficult to accept that harm (even serious harm) to the recipient’s reputation resulting from public awareness of the banning order will be a sufficiently cogent reason to justify the grant of a stay in most cases. This is because the risk of harm of this type is inherent in the nature of a banning order.
        
12. Mr Klusman has relied upon the following particular matters in support of his claim for the confidentiality orders:
    1. The strength of his case.
    2. The speed with which this application was made.
    3. The irreversible damage to his reputation.
    4. The personal financial disadvantage he will suffer.
    5. The protection the public will have from the conditions of the stay.
       
13. While I have a good deal of sympathy for all of the matters that Mr Klusman has raised, and I am conscious of the fact that he has a close relative who is unwell, it does not seem to me that the matters that are relied upon sufficiently put Mr Klusman into a different category to those situations described in the Confidentiality Case in which the Court indicated that orders of the kind sought here would only rarely be made.
14. It seems to me, as I said in the decision in the Full Federal Court, that a very important matter that must be placed in the scales in cases such as the present is the right of persons operating in a market to be fully informed about the circumstances in which they are trading. I think that one of Mr Klusman’s clients would be very disappointed to hear in some months in the future that a banning order had been made against him, but that the client was not allowed to know about it pending the resolution of an application for review in the Tribunal.
15. As the Full Federal Court pointed out in the Confidentiality Case, persons who may be subjected to a banning order are given an opportunity to be heard by ASIC. It is not as though a decision has been made without Mr Klusman having any opportunity to put submissions before the decision-maker. The reality is that the first executive decision-maker who came to consider the case against Mr Klusman found it to be made out. I do not see anything in the circumstances of this case which make it appropriate that that fact should not be known by clients of Mr Klusman and, most importantly, the market generally, because the decision will be reviewed by a second executive decision-maker, namely this Tribunal.
16. I, accordingly, decline to grant the interlocutory relief sought relating to confidentiality, but I do propose, as agreed by the parties, to grant a stay of the implementation of the decision. That will not, however, prevent publication. As I have said to the parties, the tribunal will expedite the hearing of this matter. It will, I assume, take at least some little time for the matter to be prepared for hearing, but when the matter has reached a stage at which it is ready for hearing it can be fixed without delay. I see no reason, provided the parties can satisfy the Tribunal that they will certainly be ready on a date selected now, why the date should not be fixed immediately giving such time for preparation as is necessary.
17. The stay is to be made subject to three conditions. I have no difficulty with the first and second condition, but I have raised with Mr Lloyd SC for ASIC the suggestion that the third of the conditions is not sufficiently certain as to its meaning. If I have to I will determine the precise form it should take, but I consider that a much better way of this being resolved is by agreement between the parties.
    

I certify that the 17 preceding paragraphs are a true copy of the reasons for the decision herein of Justice Downes, President.

Signed: ..................[sgd]....................................................

Joselyn Lakin, Associate

Date of Hearing: 10 September 2010

Date of Decision: 10 September 2010

Solicitor for the Applicant: Sarvaas Ciappara Lawyers

Counsel for the Applicant: Mr D R Pritchard SC

Solicitor for the Respondent: Australian Securities and Investment Commission

Counsel for the Respondent: Mr S Lloyd SC