Regulators send a message

WHEN Charles Dickens wrote the famous phrase “the law is an ass”, he should have broadened it to include Australia’s corporate watchdog ASIC and sharemarket supervisor ASX.

In the past few days two incidents occurred that again highlighted the increasing lack of transparency among the watchdogs and the lack of consistency when it comes to imposing fines, banning individuals and pursuing criminal action.

The first incident involved the fine of $1.35 million on Friday to Tricom Equities for serious breaches of ASX rules, including market manipulation and failed settlement.

The second was ASIC’s decision on Monday to ban for life a Perth stockbroker from providing financial services due to dishonest conduct and misleading clients at former stockbroker Hogan & Partners Stockbroking, which resulted in the loss of more than $9m.

ASIC is reportedly pursuing a criminal investigation.

A phone call to ASIC on Friday led this columnist to understand ASIC’s investigations into Tricom had concluded.

For ASIC’s part, Tricom’s multitude of sins resulted in additional licence conditions and banning an employee for six years for market manipulation.

For the ASX, an 18-month investigation into Tricom uncovered 10 breaches, including market manipulation and 27 incorrect statements about its capital adequacy.

Reports yesterday suggest ASIC has changed its mind or was always continuing the investigations. ASIC will not confirm or deny. But given the amount of vitriol in the broking community, it would not surprise if investigations into the breaches took place.

The reason is simple: the Hogan and Tricom cases reveal significant inconsistencies in the penalties.

The decisions have triggered questions about how decisions are being made and who is making them.

In the case of the ASX, each tribunal is made up of three panel members drawn from a list of more than 50 industry peers, none of whom are current ASX employees.

The list of tribunal panellists is on the ASX website but as a matter of policy the tribunal does not disclose, except to the parties before it, the individual panellists that hear each case.

Keeping their names secret after a decision has been made adds to the secrecy that surrounds these decisions.

It also explains the lack of consistency surrounding some of the decisions being made.

ASIC has also been the subject of criticism in terms of who it investigates and who it doesn’t.

In the case of Perth stockbroker Jonathan Kur, of Dianella, ASIC banned him for life and said Kur had induced clients to trade in options “by publishing a statement he knew was false”, acting contrary to his clients’ instructions and engaging in dishonest conduct. It took it six months to make the decision.

In Tricom’s case, ASIC has been looking at the case since January last year, has worked closely with the ASX and took a year before it banned former Tricom authorised representative Peter Gordon Cameron of Unley Park, South Australia, for six years, and outlined a series of conditions that various Tricom entities had to comply with as part of its licence conditions.

The Australian broke the story of Hogan Stockbroking in January, and revealed at the time that former Perth Stock Exchange chairman Terry Hogan had been forced to shut down his broking firm because of the scandal.

He blamed the closure on the change in the ASX’s liquidity requirements introduced earlier this year to minimise risks surrounding stock settlement, after the disastrous delay in settlement by none other than Tricom Equities in January last year.

Kur’s banning for life was justified but, unlike Tricom, the damage he did had little impact on the market’s integrity.

The amount of damage Tricom caused the market last year cannot be underestimated.

The Tricom debacle led to a review by the Reserve Bank of Australia that recommended overhauling the ASX’s settlement arrangements, calling for significantly higher penalties for failed settlements and for the ASX to guarantee all trades.

The 16-page findings from the ASX investigation into Tricom reveal a series of breaches of the Corporations Act and ASX operating rules, some under the nose of the ASX when it was monitoring the company in 2008 after it almost brought the stockmarket to its knees more than once.

“The substantial sanctions imposed by the tribunal constitute a real punishment on Tricom and send a strong deterrent message to other market participants,” the ASX statement says.

The message it sends out is that being big or having big connections pays.

Big players have lawyers and that seems to deter the ASX or ASIC from taking tough decisions.

In its document, the ASX mentions one of the market manipulations occurred between December 2007 and October.

It was during this period that the ASX went into Tricom with all guns blazing, installed its officials and followed up with close scrutiny of Tricom’s activities.

The ASX wrote to Tricom in June last year indicating that it was conducting preliminary inquiries into possible price ramping of stocks, including DKN and ARP Data, and asked for a copy of Tricom’s scrip ledger for each stock.

It also invited Tricom to make some comments, which Tricom declined the offer.

In the ASX Tribunal’s own words: “It is clear that in spite of the notification by ASX, the orders continued to be placed by Tricom in circumstances similar to those which had pertained before ASX wrote to Tricom.”

Put simply, Tricom turned a blind eye to this “suspicious” trading for a further four months.

So in spite of notice from the ASX, the tribunal decided not to impose the maximum fine. The reasons?

“The considerable weight in the early assistance and co-operation given by Tricom’s new management and the time and expense saved by the fact that the proceedings were not contested.

“Second, the tribunal accepts that where conduct of a similar nature straddles two periods in which different penalty provisions apply, there may be some confusion as to which is the appropriate regime.

“Although the tribunal is of the view that both regimes are appropriate and that the higher sanction can be taken into account, in this case Tricom’s co-operative approach has outweighed the significance of the increase in the sanction and for that reason a penalty of $250,000 was imposed.”

Throughout it all was Tricom founder Lance Rosenberg, a major shareholder and until recently its managing director. He is still there. He has a 10 per cent shareholding and still works for the newly named Stonebridge. He is also a director of a couple of associated companies.

Rosenberg is in Israel this week celebrating the Maccabiah Games.

He is probably also celebrating his apparent victory over the ASX and ASIC for the fact that to date neither has given him any rebuke for his role in this torrid affair.