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ASIC announced earlier today that the Supreme Court of Queensland has disqualified from managing corporations and imposed financial penalties on four former officers and the funds manager of MFS Investment Management Limited (MFSIM), now known as ACN 101 634 146 (in liquidation), whom the court found did not act honestly in carrying out their duties in managing MFSIM, the responsible entity of the Premium Income Fund (PIF), a managed investment fund holding millions of dollars of investors’ funds. It also ordered them to pay compensation.
The court disqualified the former officers and the funds manager of MFSIM from managing corporations for various periods, ranging from a permanent ban down to five years, and imposed total pecuniary penalties ranging from $90,000 to $650,000. The court also ordered that the former officers pay various amounts up to $205,755,601 in compensation to PIF and the majority of ASIC’s costs.
In May 2016, the court found that Michael Christodoulou King, Craig Robert White, David Mark Anderson, Guy Hutchings and Marilyn Anne Watts had collectively committed 217 contraventions of the Corporations Act.
The breaches were committed in relation to their involvement in the misappropriation of $147.5 million of funds that had been held by the managed investment scheme known as the Premium Income Fund (PIF) on behalf of unitholders. The misappropriated funds were used to pay debts owed by other related entities in the MFS Group (which was subsequently known as Octaviar). The MFS Group collapsed in 2008 owing $2.5 billion.
Today the court ordered:
- Michael Christodoulou King (former Chief Executive Officer (CEO) and Director of MFS Ltd) be disqualified from managing corporations for 20 years, pay a pecuniary penalty of $300,000, pay $177,017,084 compensation to PIF and 60% of ASIC’s costs.
- Craig Robert White (former Deputy CEO (and for a short period, CEO) and director of MFS Ltd and MFSIM) be permanently disqualified from managing corporations, pay a pecuniary penalty of $650,000, pay $205,755,601 compensation to PIF and 70% of ASIC’s costs.
- Guy Hutchings (former CEO and director of MFSIM) be disqualified from managing corporations for 25 years, pay a pecuniary penalty of $350,000, pay $28,738,517 compensation to PIF and 70% of ASIC’s costs.
- David Mark Anderson (former CFO and Company Secretary of MFS Ltd) be disqualified from managing corporations for 25 years, pay a pecuniary penalty of $500,000, pay $205,755,601 compensation to PIF and 80% of ASIC’s costs.
- Marilyn Anne Watts (former funds manager of MFSIM) be disqualified from managing corporations for five years, pay a pecuniary penalty of $90,000 and 40% of ASIC’s costs.
Justice Douglas endorsed ASIC’s view that legal requirements ‘were flagrantly ignored’ and that the penalties ‘should reflect the complete disregard which these defendants had to to their duties under the Corporations Act.’
(ASIC’s) submissions were justified. The insouciant attitude of the defendants to this misuse of money intended to be used for PIF’s investors beggars belief,’ Justice Douglas said.
ASIC Commissioner John Price added:
The substantial disqualifications from managing corporations and pecuniary penalties imposed by the court reflect the seriousness with which courts view abuses by directors and senior managers of corporations who occupy positions of substantial trust in the investment community – in this case their obligations to protect the assets of the PIF. To say the least, the court’s judgment demonstrates that this trust was most seriously abused in this case.
As the responsible entity for the PIF, MFSIM and its directors and officers, were required to operate the fund with care and diligence and in the best interests of the members of the fund. In breach of their duties, the directors and officers of MFSIM attempted to justify the use of the misappropriated funds by falsifying and backdating company documents during the period between November 2007 and February 2008.