Is ASIC rogue?

I had started on a paper looking at ASIC and the rule of law earlier in the year. Unfortunately I haven’t finished it off but a comment by Rococo Liberal inspired me to post this sample.
There is a widespread view that the Australian Securities and Investment Commission (ASIC) had a horror period at the end of 2009. ASIC lost three high-profile court cases in quick succession with damning judgements made against it. It is not at all clear that this indicates that ASIC had a horror period; if the courts are condemning the regulator’s actions then the regulated must be having an even worse time. As Matthew Stevens argued in the Australian, ‘either the Corporations Law is far too complicated to effectively enforce, or … ASIC is simply not up to the job’.

Eugene Fama and Michael Jensen argue that a good decision making process consists of four stages; initiation, ratification, implementation and monitoring. Initiation and implementation are described as being decision management and ratification and monitoring are decision control. Looking at ASIC there is little difference between decision management and decision control. There no explicit mechanism to ensure that effective control is exercised over management decisions. While the accounts of ASIC will be audited by the Auditor-General to ensure compliance with accounting conventions and annual reports will detail the activities of ASIC there is no mechanism to determine the value that ASIC adds, nor any mechanism to ensure effectiveness, and no mechanism to ensure on-going relevance.

As a government authority ASIC is required to answer questions at Senate estimates committee hearings. These hearing are held three times per year and form part of the budget process. The current ASIC chairman Tony D’Aloisio appeared before this committee on Thursday February 11, 2010. Quite understandably the committee members were somewhat concerned about the spate of court cases that ASIC had lost. These cases were actions against directors at AWB, One.Tel and Fortescue Metals. Chairman D’Aloisio made a long statement defending ASIC. His argument was to point out that litigation is adversarial, and in the face of a vigorous defence, the regulator may expect to lose cases from time to time. Overall ASIC has a high success rate and is committed to learning from its mistakes. At face value this seems quite reasonable. Yet Chairman D’Aloisio made two comments that are problematic.

ASIC is properly discharging its regulatory responsibilities, that ASIC has acted, and continues to act, responsibly in the way that it selects and runs litigation and that it approaches those cases in a focused way, with considerable due diligence.

In running those cases we comply with the Attorney-General’s model litigation rules.

There is no reason to doubt that he thinks ASIC is acting responsibly and with due diligence, or that ASIC doesn’t comply with the Attorney-General’s guidelines. Yet the outcome of the cases suggest otherwise. ASIC initiates, ratifies, implements and monitors the outcomes of the regulatory actions it undertakes. The same people make, and ratify, and implement, and monitor decisions. Where is the due diligence in that process?

Similarly, it must be the case that the Attorney-General’s model litigation rules are in need of some review. According to media reports a judge in the Victorian Supreme Court found that an action against former AWB chief executive Andrew Lindberg was an abuse of process.

He agreed it was oppressive, an abuse of process and would bring the administration of justice into disrepute “in the minds of right-thinking people”.

In the case against Andrew Forrest of Fortescue Metals, a judge of the Federal Court made the point

“It is important that allegations of dishonesty should be made only where there is a reasonable evidentiary basis for them,” Justice Gilmour said. “It is my opinion that, on the totality of the evidence available to ASIC, there was no such basis in this case.”

It is difficult to imagine that the Attorney-General’s model litigation rules promote abusive processes and don’t include the need for evidence when making allegations in a court of law.

But it must the action against the directors of the failed Telco One.Tel that is the most damaging to ASIC. That case had been running since 2001 and in November 2009, a judge of the NSW Supreme Court ‘reached the conclusion that ASIC has failed to prove any aspect of its pleaded case against either defendant’. Speaking before the Senate estimates committee Chairman D’ Aloisio made this extraordinary comment

In the OneTel case, with the vigorous defence, that vigorous defence clearly added to the length of the case.

Should the directors not have conducted a ‘vigorous defence’? As it turned out four directors of One.Tel had been pursued by ASIC, two of those directors did not conduct a vigorous defence while two did. Matthew Stevens, writing in the Australian, has summed up the situation and is worth quoting in full.

On November 18, ASIC’s civil action against One.Tel’s Jodee Rich and Mark Silbermann was sensationally dismissed by a NSW Supreme Court apparently thoroughly unimpressed by the regulator’s management of its case.
What made that decision so harmful to ASIC was that Rich and Silbermann were found to have no case to answer, even though two colleagues, Brad Keeling and John Graves, had actually pleaded guilty and sought a settlement in 2003 and 2004 respectively.
Why anyone with money enough to defend themselves would not settle with ASIC is hard to imagine. Keeling and Grave must believe they are victims of rough justice. Keeling, for example, ended up accepting liability for $92 million of compensation owed to One.Tel, paid ASIC $750,000 of costs (and his own) and ended up being banned from acting as a director for 10 years.

If anything events such as this bring the law into disrepute; not to mention ASIC. Individuals who, we now know, had no case to answer settled their disputes with ASIC and have been severely penalised. Writing in the Australian Financial Review, Bob Baxt and Alan Peckham make a basic yet important point.

Regulators should pursue parties in the courts for alleged breaches of the major provisions of the relevant legislation.
We do not support a regime under which the regulators can force parties to either pay a fine or agree to correct certain behaviour – which has not been found to be illegal by a court – if they wish to avoid court action.

This demonstrates a great inequality of legal weaponry in the regulatory process.
The problem with ASIC and the ATO and the ACCC and most government agencies whose name begins with ‘A’ is a lack of good governance. They are unaccountable because the parliament has failed to create mechanisms to enforce accountability and the parliament itself cannot, or will not, provide sufficient oversight. Of course, rather than restrain its own agents our parliamentarians prefer to restrain the private sector and wage war on banks and the like. I still like Ludwig von Mises’ point, let’s not (always) blame public servants for the failings of politicians.

This entry was posted in Uncategorized. Bookmark the permalink.

16 Responses to Is ASIC rogue?

  1. C.L.

    Don’t forget the other ‘A’ – the Australian Crime Commission – totally humiliated by Paul Hogan.

  2. Rafe

    Politicians can bankrupt the nation and retire happily on their pensions while Hogan makes a lot of money with his talent and hard work (some work done gratis to promote tourism) and he ends up in court. wtf?

  3. Tillman

    ASIC is not just incompetent, it’s corrupt.

    Wish I could say more.

  4. Sinclair Davidson

    Tillers – that’s a bit harsh.

  5. Tillman

    Harsh but fair.

    Not corrupt in the sense of taking cash in brown paper bags, but corrupt in the sense of wilfully ignoring/acquiescing in violations of the law, for improper reasons.

  6. Rococo Liberal


    We agree for once.

    I have been dealing with ASIC and the ATO for years, and the problem is that the people employed by these organisations don’t understand how private enterprise works. They thus take the view that all private enterprise is somehow tainted and dishonest.

  7. pedro

    The problem is believing in the mission as compared to rigorously administering the legislation. What’s missing in govt is a dedication to black-letter law and the social benefits that follow from that.

    Don’t forget that there is a lot of pressure on ASIC and others to bring to justice the perps that the media just knows are out there. Not that this is an excuse, but when I stop being human I’ll have higher expectations of others too.

  8. Rococo Liberal

    Good point Pedro

    Just about every year we hear a politician claim that a crackdown on ‘tax cheats’ will bring so many hundreds of millions in extra revenue. It never does. Operation Wickenby is a classic case in point. It has generated nowhere near the money we were told to expect, and it has taken up thousands of man hours in the ATO.

    Parliament needs to bring in legislation that forces the ATO and ASIC to pay damages and full party/party costs when they lose a case in court or settle out of court. That mat persuade these authorities to think more carefully before trying to shake down taxpayers.

  9. JC


    Don’t the ATO and ASIC have money socked away for legal entrepreneurship in the sense that they try to test the farther reaches of the law through court cases?

    Have you been watching the equivalent stuff happening in the US right now where the SEC and the FBI are attempting to conduct a class war against hedge and so refine what insider trading means.

    It’s truly disturbing. They are suggesting that even by talking to industry insiders to gain information that doesn’t even related to earnings etc. … it ought to be seen as insider trading.

    these are agencies now running amok.

  10. Tillman

    At least the SEC takes shit to trial promptly and (usually) gets a conviction. If it doesn’t, it moves on.

    ASIC just fart-arses around, ignoring flagrant violations of all sorts and then arbitrarily deciding to launch a major litigation, which it will probably lose.

    Bernie Madoff will be out on parole before ASIC brings charges over Allco/Rubicon, Storm, ABC, B&B etc.

    Meanwhile, the relevant execs are neither brought to trial nor told they are free to go.

    It’s shameful incompetence and stupidity.

  11. .

    The ACCC were bullshitting about petrol prices almost a decade ago. The real theft is bloody excise tax.

  12. Rococo Liberal


    Isn’t ‘excise tax’ a tautology, like ‘PIN number?’

  13. .

    It would be except that GST is levied on it 😉

  14. Ole Ritter

    I fully agree with Tillman, especially on the statement of incompetent. If you would like to know about my experiences with ASIC, contact me under [email protected] – Yes, I am from Switzerland.

  15. Hon Peter Lewis

    ASIC is prosecuting me for failing to lodge an annual return for Mawson Gold N/L of whIch I am Chairman of the nominal Board of three directors,the other two of which hold one share each in Trust for me AND which has not traded in ten years since I bought it.
    The so-called offence relates to two transactions worth a total of less than $1350 which were undertaken by the previouds owners of the company in the first six monthd of the financial year 2003 before I bought it.

    My late CPA (a sole practitionerwho died of chronic diabetes in last 2007) wrote nunerous letters to the former Chairman & Secretary over three years before his death) BUT whilst he was repeatedly promised the two receipts & other paper work for the transaction, nothing ever came. He repatedly advised ASIC that he could not complete the said Annual Return without the evidence of the transactios the previous owners had told him they had made. Moreover, we were never told who the other entity was in each of the transactions.

    The WORST part of this abuse of process is that the person agitating for the prosecution & (apparently) complaing is one of the former directors who is pursuing a vendetta against me in conjunction with the Liberal Party in an action intended to discredit my reputation & good name out of vengeance for my decision as an Independant Member of the SA House of Assembly, to enable the Labor Party to form a Government in 2002, and in Watkin’s case, because he is part of a small group of disgruntled BUT very greedy Shareholders with Very small (in percetage terms it is less than 4% in total) Shareholders in another Company of which I hold a beneficial interest in of over 67%.

    Thete IS NO VICTIM, NO PARTY with a legitimate Grievance & NO ABUSE of PUBLIC TRUST by me or anyone else. Yet he has been able to criminally abuse & publicly defame me in Court & AND outside with completer impunity!

    In peace, love & harmony

Comments are closed.