Category: Law

ASIC concerned over misleading use of past performance information in ads

ASIC has cautioned investment funds against the misleading use of past performance information in advertising and promotional aterial.

Today’s warning follows concerns by ASIC that an advertisement for an investment product offered by BT Financial Group (BT) included past performance information which was potentially misleading. The advertisement’s headline asked the rhetorical question: ‘Past performance isn’t a reliable indicator of future performance, is it?’ followed by past performance information showing strong returns.

In ASIC’s view, the advertisement was misleading because it encouraged consumers to believe that the past performance of the product was a reliable indicator of future performance.

‘Past performance is not a reliable indicator of future performance. An undue emphasis on past returns can lead to consumers having unrealistic expectations and making poor investment decisions’, ASIC’s Executive Director of Consumer Protection, Mr Greg Tanzer said.

Mr Tanzer said ASIC was particularly concerned that the BT advertisement reflected a flippant approach to guidelines detailed in its Guide on the Use of Past Performance in Promotional Material.

‘ASIC expects that industry will take a responsible approach to its marketing activities. If you’re going to use past performance information in your advertising, you must do it responsibly and without being misleading’, he said.

BT has agreed to stop its existing advertising and refrain from using similar wording in future advertisements. BT is now also implementing measures to improve compliance in its advertising and other communications.

In 2003, ASIC commissioned a review of Australian, UK, and US academic studies into the correlation of past performance with future performance. The review concluded that good past performance is, at best, a weak and unreliable predictor of future good performance over the medium to long term.

From ASIC media release

Super to be recoverable by bankruptcy trustees

The Attorney-General announced revised proposals* on 27 July 2006 to amend the Bankruptcy Act 1966. Superannuation contributions made prior to bankruptcy with the intention to defeat creditors will now be recoverable by bankruptcy trustees. The proposals will apply to superannuation contributions made after 27 July 2006.

Previous proposals in 2003 and 2005 were abandoned prior to certain defeat in the Senate.

Current proposal
The Government decided in July 2006 not to proceed with earlier proposals to allow for recovery of ‘excessive’ superannuation contributions as these would have unduly complicated both the bankruptcy and superannuation systems. The July 2006 announcement is consistent with the Government’s plan to simplify and streamline superannuation.

The amendments to the Bankruptcy Act will prevent unscrupulous debtors from transferring assets into superannuation when bankruptcy is looming. However, genuine contributions to superannuation for retirement income purposes will be protected from recovery.

Proposed amendments to the Bankruptcy Act
An announcement from the Insolvency and Trustee Service Australia has stated that the amendments will:

  • allow a bankruptcy trustee to recover the value of contributions made by the bankrupt to defeat creditors, where the contributions were made to the bankrupt’s own superannuation plan and that of a third party (along the lines of the current section 121)
  • allow the trustee to recover contributions made by a person other than the bankrupt for the benefit of the bankrupt where the bankrupt’s main purpose in participating in the arrangement is to defeat creditors,
  • provide that consideration given by the superannuation trustee for the contribution will be ignored in determining whether the contribution is recoverable by the bankruptcy trustee
  • allow the Court to consider the bankrupt’s historical contributions pattern and whether any contributions were ‘out of character’ in determining whether they were made with the intention to defeat creditors,
  • provide that the superannuation fund will not have to repay any fees and charges associated with the contributions or any taxes it has paid in relation to the contributions, and
  • give the Official Receiver the power to issue a notice to the superannuation fund or funds that are holding the contributions that will put a freeze on the funds in order to prevent the bankrupt from rolling them over into another fund or otherwise dealing with them in circumstances where the trustee is entitled to recover them (the notice will be based upon the notice issued pursuant to section 139ZQ).

The effect of these amendments will be that payments to superannuation plans to defeat creditors would be recoverable in the same way as other payments or transfers to defeat creditors.

The amendments, once legislated, will apply to any contributions made after 27 July 2006.

Thanks to Colonial First State for this news based on Attorney-General, Philip Ruddock’s, Press Release 138/2006, 27 July 2006 ‘Government closes superannuation loophole in bankruptcy’.

Three arrested over tax evasion

Three people have been arrested by the Australian Crime Commission and charged with tax evasion offences.

Three company directors were arrested at the Southport Police Station on the Gold Coast and were charged with Conspiracy to Defraud the Commonwealth. It is alleged that between 1999 and 2005, the benefit that the trio received through defrauding the Australian Taxation Office (ATO) was $6.6 million.

Conviction on these charges carries jail terms of up to 10 years and fines totalling up to $110,000 each. Proceeds of Crime Action has also been used in respect to this specific investigation and $10 million in assets are currently restrained.

“The charging of three directors of a Queensland company with conspiracy to defraud the Commonwealth is a significant step in this multi-agency project,” the Treasurer said.

“The ACC and its partner agencies have vigorously pursued promoters and participants allegedly involved in concealing substantial taxable income through falsifying documents and transactions. This particular case has involved extensive investigations in Australia, Switzerland, the United Kingdom and China,” Senator Ellison said.

Project Wickenby is a multi-agency taskforce set-up in 2004, with funding of $305.1 million over seven years, to investigate internationally promoted tax arrangements that allegedly involve tax avoidance or evasion, and in some cases large-scale money-laundering.

It is further evidence of the Government’s determination to defend the integrity of the Australian tax system. On 6 April 2006, laws came into effect to penalise promoters of tax avoidance or evasion schemes.

Project Wickenby is being managed at the cross-agency level, with the ATO being the lead agency. The five agencies involved are the ATO, the Australian Crime Commission (ACC), the Australian Federal Police (AFP), the Australian Securities and Investments Commission (ASIC) and the Commonwealth Director of Public Prosecutions (CDPP). This is the first time that these five agencies, supported by AUSTRAC, the Attorney-General’s Department and the Australian Government Solicitor, have brought their expertise and considerable powers together, to deal with tax avoidance and evasion.

When fully resourced, well over 350 officers from these agencies will be working on Project Wickenby, the majority from the Tax Office.

“Investigations are continuing into a number of similar complex cases with a view to laying criminal charges and taking proceeds of crime recovery action,” the Treasurer said.

From the Treasuruer’s press release