As a small business owner for 30 years, Irons was hailed as one of the few Liberals who doesn’t come from one of the elitist schools, who could bat for the underprivileged. Having some understanding of the capital markets he was made the President of the ASIC oversight Committee. Irons put forward some pretty strong questions to ASIC’s Warren Day at one Joint Committee between the Committee and ASIC. The questions were in relation to the fraud of a company called LWP Technology and why ASIC weren’t taking any action. ASIC's responses tell us a lot.
In LWP there was Director insider trading, free issue of shares to director family members, a dubious fracking technology that didn't work that was acquired from the Chairman's private company and a high tech battery lab in Thailand that was not stocked with batteries but old ice cream machines. If you think about why we even have laws, it was as jailable a crime as you can get.
Steve Irons asked the following questions to Warren Day and got the following answers.
Steve Irons: I've got some questions for Mr Day, if you'd like to come to the table. Mr Day, I wrote to you earlier this year about an issue which I know is paramount to a lot of mum-and-dad investors around Australia. The type of activity that I wrote to you about was about a particular company called LWP Technologies, and I presented with that letter a raft of evidence that had been submitted to me by several people around Australia who'd been caught up in, potentially, losses we saw through a public company of $47 million. That company still to this day is under suspension—it has been for some time—on the stock exchange. It might be self-imposed, but it's still under suspension. In your response to me you stated that there were privacy conditions and you couldn't disclose what the situation was with LWP. Unfortunately, I can't accept that as an answer, and I think that the mum-and-dad investors and people around Australia need to have confidence in our financial system and that you as, corporate cops on the beat, are prepared to pursue people, particularly the gentleman who was mentioned in a lot of correspondence which I forwarded, a Mr Corbin, who will also be reflected in our franchising inquiry. Can you give an answer to at least—and I know a lot of people are listening to my questions because I told them I was going to ask you, and they'll be interested to hear your response about what ASIC is doing and where they're at with it, particularly in relation to the fact that your previous response was inadequate. I'll pass it over to you, and I might have some more questions depending on your answer.
Warren Day: Yes, we have received information from you. We've also received a lot of information in relation to LWP Technologies from a number of other parties, so there's information there that we've been going through. As you point out, LWP's market capitalisation was $50 million in mid-2015. It went into a trading suspension in August 2017. It's still in that trading suspension at the moment, and, just before that trading suspension, its market capitalisation was $6 million. A range of issues have been raised with us. Those relate to certain joint ventures and certain technologies that the company was involved with and also the development of new products that were supposedly being developed by LWP as part of that. From the sort of information that's been provided to us at the moment, the allegations surround things such as insider trading, undisclosed related party transactions, manipulation of the share price, financial reporting irregularities, and misleading statements, certainly regarding research and development claims.
So we have received a lot of information. We're continuing our inquiries in that respect, and we're looking at those at the moment. We're also collecting, as I say, further information, as we need to, about that. We're not in a position at the moment to give any further information. We don't really want to talk about that further, as you'd appreciate, for a whole range of reasons. Our surveillance and considerations in matters such as this are confidential. And, again, we have an enforcement guidance note on our website that says why that is. There are a lot of good reasons for that. As I said, this is not a matter that we have, if you like, finalised; this is a matter that we're still considering at this time. I would like to be able to provide you with more information at the first opportunity, but, at this stage, I don't think I can.
Irons: Considering that they've been suspended since August 2017, surely that's some sort of indication. And there must be some sort of time line that you can give us. What's the expected response time when you'll be able to say whether or not you're going to take any action?
Day: I want to be clear that, in relation to the suspension, that's a matter for the Australian Stock Exchange. That's not a matter for us. It's the Stock Exchange that has put them under suspension. But, in relation to that, we expect that, within about the next four to six weeks, we'll be close to completion of our inquiries and consideration of that matter. Certainly by the time we're here before you again, we will be able to give you an update, but I would hope to be able to provide you with a response in that time frame.
It is now several years later and LWP shareholders have received the following response from ASIC.
As you know, ASIC conducted inquiries in relation to LWP to determine whether we had sufficient grounds to commence an investigation and take regulatory action in the public interest to respond to the alleged misconduct. ASIC found that there were insufficient grounds to warrant further inquiries in relation to LWP. Any action taken by ASIC will generally aim to punish and deter misconduct or ban directors from managing companies and will not result in shareholders recovering compensation. Shareholders can enforce their rights through private litigation, including through a class action.
Since then also, Minster Irons has done nothing to follow up. Further to this, Qld Fraud police have made charges in relation to the LWP fraud, a fraud which ASIC said they had no evidence of.
In the same parliamentary meeting, Irons asked some further questions to ASIC’s Cathie Armour.
Irons: As an example you gave a $50 million capitalisation down to a $6 million capitalisation, with a lot of mum-and-dad investors in that particular company. Say it's any company that suddenly reduced its company and its capitalisation has gone down very quickly. Surely at some point those mum-and-dad investors who are all around Australia, whether it be in the company we're talking about or any company, have got to have some sort of sense of security that there's a body that can pursue drastic decapitalisation or insider trading situations that they might experience. Is ASIC that body, or does it have to be someone else?
Armour: There are a couple of issues. Has there been a breach of the law? Obviously people make investments knowing—
Irons: Let's say it's established there is a breach of the law. What happens then?
Armour: Obviously if there's a breach of the law it may be something that we are best placed to deal with. It may be something, depending on the particular facts and circumstances, that private litigants could well effectively deal with.
Irons: But they've lost all their money; they've got no money to do that.
Armour: To be fair, we actually have a very effective class action system in this country which does provide a mechanism for people to commence litigation. Where there are cases of insider trading we are absolutely there taking the action. Similarly with continuous disclosure or misleading or deceptive conduct, we are there taking action. So we will be there if there is that case. I'm not talking about your particular situation, but the prima facie—someone's lost money, but it doesn't mean there's necessarily been a wrong. So we'll generally have a look and see the cause and whether it is the sort of issue that we absolutely need to take action on. You're right; it's really important that investors have real confidence in investing in our markets.
This is a very important conversation. ASIC is pretty much telling the Oversight Committee that they are not regulating the market and those investing in the ASX need to lawyer up.
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