IN SUMMARY:
A recent ASIC case against Mayfair 101 is a timely reminder that misleading and deceptive conduct laws apply to marketing materials for wholesale investors, not just retail. Directors and others can also be held personally liable for breaches.
A recent Federal Court decision is a timely reminder that the prohibitions against misleading and deceptive conduct in the Corporations Act and ASIC Act apply to marketing materials which are directed at wholesale investors, not just to retail investor marketing.
The decision also shows that directors and others involved in producing misleading marketing material can be held personally liable and face serious consequences as a result.
ASIC AND MAYFAIR 101 GROUP
The case was yet another part of the long-running saga involving companies in the Mayfair 101 Group, their director James Mawinney, and the regulator. It seems there have been a myriad of Court actions involving Mayfair 101 companies and Mr Mawinney, after ASIC took its first enforcement action against the group, back in 2020.
Mayfair 101 somewhat famously had the ambition of undertaking a large-scale tourism redevelopment of Dunk Island and Mission Beach in North Queensland, and raised capital from investors to help fund these and other activities.
THE ISSUES
ASIC brought legal action, alleging that Mayfair 101 had made a number of misleading representations when promoting its debenture-style, fixed-income investments to investors.
ASIC argued the marketing material included statements misrepresenting the nature and risks of the investments and also left out key information. Two major areas of concern, according to ASIC, were alleged representations that the products were comparable to bank term deposits and that investors’ capital would be repaid in full.
THE DECISION
Ultimately, the Court decided Mayfair 101 had in fact made a number of false or misleading representations in its marketing, including in relation to the repayment of investors’ principal amounts.
It also decided that Mr Mawhinney was associated with and involved in these breaches of the law by Mayfair 101. This opened the door for ASIC to seek Court orders personally against Mr Mawhinney (including injunctions), which the regulator is now pursuing.
TAKEAWAYS
In our experience, there is a misapprehension amongst many in the wholesale investment funds industry, and their advisers, to the effect that wholesale funds, and their promotion, are somehow “unregulated”.
The Mayfair 101 decision shows the dangers involved in this misapprehension. It demonstrates in very real terms that the misleading and deceptive conduct laws apply just as much to wholesale funds as to retail funds. ASIC has strong and broad enforcement powers which it can and does use against wholesale fund managers.
Perhaps even more importantly, the case is yet another reminder of the perils which can face those who are involved in contraventions of the financial services laws and regulations (we have previously written about this topic: ‘Being knowingly concerned’; ‘Court issues $1.25 million penalty to unlicensed property scheme promoter’).
Fund managers and financial product issuers should also note the following points:
- Marketing and promotional material directed at wholesale investors still needs to meet a high standard, and can be subject to legal and regulator scrutiny. In the Mayfair 101 case, the Court rejected an argument that the wholesale investors targeted would necessarily be financially sophisticated and capable of understanding complex product structures. Misleading or deceptive conduct will still be assessed from the perspective of a reasonable member of the actual target audience.
- The overall impression given by marketing matters. For example, in the Mayfair 101 case, the materials suggested that investors’ capital would be repaid at the product’s maturity, however, in reality, the company could exercise a discretion under the product terms whether or not to repay the capital.
- While ASIC’s Regulatory Guide 234 “Advertising financial products and services (including credit): Good practice guidance” is primarily directed at material provided to retail clients, the principles in it are equally relevant for wholesale client marketing; and it is a good source to get an understanding of the approach ASIC will take in all sectors.
At MARQ Trustees, we work closely with fund managers in reviewing their marketing material and use our extensive experience to provide sensible, practical guidance, to help our clients achieve the right balance and approach.
