OTC derivative issuers fined $75m
The Federal Court of Australia has imposed a $75 million penalty on over-the-counter (OTC) derivative issuer AGM Markets and former authorised representatives OT Markets and Ozifin.
Justice Beach handed down the penalty following his February 2020 decision that the three companies had engaged in systemic unconscionable conduct while providing OTC derivative products to retail investors.
On 16 October, 2020, AGM had been ordered to pay $35 million, while OTM and Ozifin were each ordered to pay $20 million.
It was noted by Justice Beach that derivatives were complex instruments and risky investments, and that as a result of the contravening conduct, clients of the three firms lost approximately $32 million.
“The account managers engaged on behalf of OTM were instructed to ‘kill your customers’, which was a reference to the purpose of the defendants to encourage deposits and trades and ultimately for those clients to lose their funds,” Beach said.
“And in advancing such a purpose, the account managers engaged by or on behalf of the defendants explicitly sought to and did win the trust of vulnerable investors.
“The serious nature of the contraventions and the need to send a clear message to the limited number of licensees who are dealing in OTC derivatives justifies high penalties.”
Justice Beach said the penalty for AGM was higher, noting its failure to discharge its obligations as the holder of an Australian financial services licence (ASFL).
AGM, OTM and Ozifin were ordered to pay refunds to approximately 10,000 former clients, with the exact refund dependant on each client’s individual circumstances and the amount of money available, as each of the defendants are now in liquidation.
Within 28 days, former clients of OTM and Ozifin should receive a refund notice from the relevant liquidator with further information and a pre-populated “proof of debt” form estimating the amount of their net deposits. If clients do not receive a notice in that time, they should contact the relevant liquidator.
Daniel Crennan QC, Australian Securities and Investments Commission (ASIC) deputy chair, said the penalties handed down demonstrated the consequences for firms who engaged in this sort of misconduct.
“The retail OTC derivatives sector remains a focus for ASIC, given misconduct identified across the sector,” Crennan said.
“Where misconduct is detected, ASIC will continue to take strong enforcement action and hold wrongdoers to account.”
The Court also ordered AGM, OTM and Ozifin pay ASIC’s costs.
AUTHOR
Chris Dastoor
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