ASIC bans former financial advisor and consultant for seven years


Australian regulator ASIC has just announced that it has banned Mark Damion Kawecki of Frankston, Victoria from providing financial services for seven years.

The banning follows an ASIC investigation into Mr Kawecki’s conduct when applying for shares under the initial public offerings (IPOs) of companies that subsequently listed on ASX between 2015 to 2017. A company must meet the ‘minimum spread requirement’ (a minimum number of unrelated shareholders in the company) under the ASX Listing Rules before its shares can be quoted and traded on ASX.

The ASIC investigation found that in relation to at least three IPOs, Mr Kawecki:

  • provided false information regarding the identity of the beneficial holders of shares that he applied for in the name of entities he owned and controlled;
  • submitted share applications in which he deliberately inserted false addresses for applicants;
  • knew that the false information and addresses he supplied would be provided to ASX;
  • did so to ensure his share applications would count toward meeting the minimum shareholder requirement for the companies to be listed; and
  • received a fee per application that he provided.

Following a hearing, the ASIC delegate found that Mr Kawecki had failed to comply with a financial services law by knowingly engaging in conduct that was likely to mislead, in contravention of s1041H(1) of the Corporations Act.

Cathie Armour
Cathie Armour

ASIC Commissioner Cathie Armour said:

Attempts to achieve the minimum spread requirement through artificial means is inconsistent with the fair and orderly operation of the market. ASIC will take action to ban people from providing financial services if they engage in conduct that undermines the integrity of our markets.

Mr Kawecki has a right to apply to the Administrative Appeals Tribunal for review of ASIC’s banning order.

The ASIC investigation into Mr Kawecki and related conduct concerning the provision of spread through artificial means is ongoing.

Background

The ASX Listing Rules set out requirements that must be satisfied for a company to have its shares listed on the ASX. One of these conditions includes a requirement that a company must have at least a minimum number of unrelated shareholders (the minimum spread requirement).

The purpose of the minimum spread requirement is to demonstrate that there is sufficient investor interest in the company to justify its listing. This operates to ensure some level of liquidity at the time the company is initially listed and keeps poorer quality applicants that are not able to attract sufficient investor interest to meet the minimum spread requirement from being admitted to the ASX official list.

ASX has published Guidance Note 1 to assist entities wishing to apply for admission to the official list on ASX. The Guidance Note states:

ASX will not accept security holdings obtained by artificial means as counting towards minimum spread. Without limitation, ASX regards the following as ‘artificial’ for these purposes:

  • fictitious applications;
  • giving securities away;
  • offering loans to prospective investors to acquire securities that are non-recourse or expected to be repaid a short period after listing;
  • having investors pre-complete transfers of their securities to a third party ahead of listing;
  • having investors enter into purchase agreements or call options that allow a third party to acquire their securities after listing;
  • having investors enter into repurchase agreements or put options that allow them to dispose of their securities to a third party after listing;
  • brokers, financial advisers or other intermediaries completing applications for clients without their knowledge or consent;
  • brokers, financial advisers or other intermediaries allocating securities to discretionary managed accounts without the knowledge or consent of the client for whom those accounts are managed;
  • lead managers, brokers, financial advisers or other intermediaries being incentivised to procure spread through the payment of abnormally high fees, brokerage or commission; and
  • splitting what is effectively one beneficial holding of securities across multiple family members, family companies or family trusts or across multiple entities in the same corporate group.

In addition to contravening s1041H of the Corporations Act, dishonest conduct relating to the minimum spread requirement may also fall within criminal offence provisions under the Corporations Act and punishable by a fine of up to $945,000 and/or imprisonment for up to 10 years for an individual, or a fine of up to $9,450,000 for a corporation. State based fraud offences may also apply.

ASIC reminds market participants of their obligations when acting on behalf of companies seeking admission to the official list of ASX Limited, pursuant to both the ASX Listing Rules and the Corporations Act 2001.

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ASIC bans former financial advisor and consultant for seven years

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