In a decision that restores one’s faith in humanity, the Administrative Appeals Tribunal of Australia has overturned a penalty that the Australian Securities and Investments Commission imposed on a wealth manager at the beginning of last year.

In the case of Gerard McCormack, the tribunal in Melbourne decided to set aside ASIC’s decision of 10 February to ban the applicant from providing any financial services for a period of five years and, instead, decided that the banning order should not have been made. It ruled that McCormack’s name should be removed from the register of miscreants that ASIC keeps in accordance with s922A Corporations Act 2001 and that he should be treated as never having been banned.

The reasons for the banning order are complex. In 2006 National Australia Financial Planning, an arm of the National Australia Bank Ltd (NAB), took McCormack on as a wealth manager (financial planner). It was a condition of his employment that he should hold a letter of authority issued by NAB. He was required to comply with National Australia Financial Planning Licensee Standards and with the NAB’s policies and procedures in general.

Ten years later, ASIC served McCormack with a banning order under ss920A and 920B Corporations Act. It was concerned that he may have failed to comply with s1041H(1) which is entitled "Misleading or deceptive conduct (civil liability only)." It also thought that he may have been involved in conduct in which another person, Mr John William Wright (JWW), did not comply with s1041H(1) either and that it had reason to believe that he was “likely to contravene a financial services law.”

Turning wrong into Wright

McCormack did not disagree with the evidence presented against him at the hearing. In October 2011 he obtained a new client, JWW, who told him that he was unhappy with his previous adviser, a Mr Malcolm Bell, and thought that his funds should not have been as low as they were. In 2013, while sorting through the client’s documents, McCormack came across an account he did not recognise. The account (called an MLC MasterKey Custom – Pension account) was in the name of John Wright and it covered the period of 1 January to 31 March 2010. McCormack knew that JWW did not have a pension account. Rather than making enquiries of JWW, assuming that this account belonged to his client JWW, McCormack contacted MLC. This is when his troubles began.

MLC told McCormack that the account had been closed and the balance rolled over into a so-called Maritime Super account. McCormack asked for the documents that dealt with the rollover and MLC handed them over. Unknown to McCormack, the account did not belong to JWW but rather to a Mr John Ian Wright (JIW). JWW had been erroneously provided with those documents by Mr Bell, the reason undoubtedly being that the name on the account was simply John Wright.

The documents showed that the balance in the account had been rolled over into two accounts held with Maritime Super, referring to the client simply as John Wright and providing a date of birth and residential address that McCormack realised was incorrect. McCormack was also concerned by some oddities in the documents, including a Post Office Box address for the account rather than Mr Wright’s residential address. The signature on the documents was not that of JWW.

At that stage, Mr McCormack suspected that a fraud had been committed against his client. He telephoned JWW and asked him if he had a Maritime Super account and was told that he did not. He sent JWW some documents that indicated that a Mr John Wright had such an account and JWW came into his office where they discussed the matter. In cross-examination, McCormack said that JWW was ‘in a rage,’ obviously believing that to be the reason why his super funds had been dissipated. As a consequence, rather than put the matter in the hands of the police or ASIC, McCormack decided to try to recover those monies for his client.

McCormack’s noble subterfuge

On 24 June 2013 McCormack contacted Maritime Super by telephone for the purpose of obtaining the balance of the two accounts into which he believed his client’s money had been transferred. In doing so, he falsely claimed that his name was John Wright. He said that he wanted to withdraw the balances from the two accounts held with Maritime Super and to deposit the balances into his NAB account for the benefit of JWW. In cross-examination during the recent case, he agreed that he was in breach of the NAB code of conduct and that his conduct was reckless.

While visiting McCormack in his office at NAB on that date, JWW, impersonating the John Wright who held the account, called the offices of Maritime Super in an attempt to obtain withdrawal forms so that the money could be withdrawn. A recording of that conversation was played at the hearing. McCormack then helped JWW download some withdrawal forms from the website and JWW completed those forms using information that McCormack provided. JWW completed two withdrawal forms which resulted in the withdrawal of $260,000 from one Maritime Super pension account in the name of John Wright and $15,000 from another superannuation account in the name of John Wright. Mr McCormack witnessed JWW signing the forms. JWW forged the signature of John Wright using the forms previously provided to McCormack by MLC. The balances of the two accounts were deposited into JWW’s NAB account on 26 and 27 June 2013.

On 26 June 2013 JWW received two calls from Maritime Super confirming the receipt of the withdrawal forms. During these calls, JWW impersonated the John Wright who held the accounts with Maritime Super. The very next day, JWW called Bell’s office and was told that Mr Bell had two clients with the name John Wright. He was one of them and the other a John Wright with the middle name Ian – evidence the that accounts were not in the name of a fictitious John Wright. JWW informed McCormack of this on the same day.

When JWW told McCormack this, McCormack made enquiries about returning the funds in JWW’s NAB accounts to the Maritime Super accounts. However, rather than explaining the error to Maritime Super, McCormack again held himself out to be JIW. When asked at the tribunal hearing why he had not told the truth, he said that his primary concern at that time was to rectify the accounts prior to the end of the financial year so as to avoid causing JIW any further damage, perhaps out of a fear that JIW would breach his concessional caps. McCormack also said that he was not thinking clearly at that time.

McCormack arranged for the funds to be returned to JIW’s Maritime Super accounts in two payments, $125,000 on 28 June 2013 and $150,000 on 1 July 2013 and posted a cheque to JIW for an amount equal to the interest lost as a result of what had occurred. He committed further subterfuge, however, when he rang JIW and told him that his name was Craig Watson, the better to obtain JIW’s residential address and satisfy himself that he had previously used Bell as his advisor.

McCormack’s downfall

Then McCormack confessed all to a Mr Looby, an account manager at NAB, who initiated an investigation of the issue with NAB Fraud and NAB Client Services. He also visited JWW and they decided to visit JIW as McCormack wanted to apologise personally. Apparently JIW had noticed that his accounts were incorrect and had called Maritime Super. He was very angry at first but McCormack’s explanation mollified him and they parted on good terms.

Later, McCormack told investigators that he did not escalate the matter to NAB Fraud or other management bodies in the intervening seven-week period as he was embarrassed. Soon afterwards he resigned from NAB, apparently to avoid the humiliation of his expected dismissal.

A year later, Westpac Banking Corporation took McCormack on as a financial planner. By all accounts, nobody complained about his work at Westpac and his performance was rated as ‘high.’ When ASIC’s banning order materialised, however, he felt that he had to resign from Westpac.

Guilty but not punishable

The tribunal found that McCormack was indeed in breach of s1041H Corporations Act because he engaged in misleading and/or deceptive conduct in relation to a financial product or financial service, but it shrank from approving of a banning order. This was because, in the very unusual circumstances of the case, it decided that such an order would not do anything to protect the public. Nor would it serve to deter like conduct because of the very remote possibility of such circumstances arising in future.

The tribunal also thought that such an order would have no effect in maintaining investor and consumer confidence in financial markets which, according to the evidence, was not in any event affected by McCormack’s conduct. It noted that no person had suffered any financial ‘detriment’ (and therefore no loss or damages claim could arise) and that McCormack had admitted that his conduct in attempting to recover his client’s money for him was wrongful and an aberration on his part. It concluded: “The only purpose a banning order could serve in these circumstances is to penalise Mr McCormack. That, by itself, is plainly an inappropriate purpose.”