Case Study: Financial Advice and Regulatory Breaches of Wealth Pty Ltd

This case study examines a scenario involving Wealth Pty Ltd, a financial services company, and its client, Morgan. The analysis focuses on whether Wealth Pty Ltd and its representative, Rick, fulfilled their obligations as financial service providers under the Australian Securities and Investments Commission Act 2001 (ASIC Act). The case explores issues such as the duty of care, misleading conduct, and breaches of regulations in providing financial advice. Rick advised Morgan to invest in Ependysi Ltd, which later faced liquidation, leading to financial losses for Morgan. The case highlights the importance of providing suitable financial advice, the consequences of misrepresentation, and the legal responsibilities of financial service providers. It also discusses the application of relevant sections of the ASIC Act and other legal precedents, such as Ali v Hartley Poynton Ltd, to determine the liabilities of Wealth Pty Ltd and Rick. The analysis considers the consumer's rights and the potential for legal action against the financial service provider for failing to act in the client's best interest.

I. ISSUE
Rick means the authorized representative and broker of a finance company named
Wealth Pty Ltd. Rick has represented this company at a seminar on financial
investment, he is also the person who has provided financial advice and investment
advice to Morgan. The first legal issue here is whether Wealth Pty Ltd. is a
financial service provider or not?
Wealth Pty Ltd. contracted to provide financial services to Morgan. The issue here
is whether Wealth has a responsibility to care for Morgan or not?
Rick examined Ependysi Ltd's profit reports and results. and affirms that this
company will bring profit up to 30% in this financial year. Rick advised Morgan to
invest $100,000 in Ependysi Ltd. instead of $50,000 because he thinks $50,000 is
not enough to provide a substantial return on investment. Ependysi paid
commissions to its licensees and advisors to attract investors instead of disclosing
real company information. The legal issue here is whether Rick is considered
cheating?
Wealth Pty Ltd. recognizes that they have been declared wrongly or cause
misunderstanding with customers that they have appropriate systems and
procedures to give the appropriate advice. Moreover, misjudgements about
investment in Vanguard that Representative of the company have been wrong. Is
the legal problems raised as Wealthy that violate the regulations on deception,
causing misunderstanding to customers?
As a financial company, Wealthy Pty Ltd. have never trained representatives, they
are not qualified to provide financial services. The dispute resolution department is
not organized at Wealth Pty Ltd. The Company has not maintained the
organizational capacity or resources necessary to provide the licensed financial
services. The legal issue that arises in this situation is whether Wealth Pty Ltd.
breach the obligations of a licensed financial service provider?
II. RULING
Item 12BC(1) Australian Securities and Investments Commission Act 2001
provides for the conditions for a subject to become a consumer when participating
in financial service relations.

Section 911A of the 2001 Group law prescribes that any person, when conducting
business activities, that is providing financial services, must obtain financial
service licenses.
Section 766A of the 2001 Law on Group, on subjects considered to be financial
service providers. Accordingly, the supplier is considered as the financial service
provider, unless the financial advice is made by a secretary or the cashier.1
Consultancy on financial products prescribed in Section 766B of this Law means a
recommendation or a statement of view or a report that affects a decision on
financial products of an individual or several persons.
Section 916A(1) Law on EVN stipulates that the representative of the person who
is granted the financial service license may represent the person who is granted the
license to provide a specific financial service.
Section 12ED(1) Australian Securities and Investments Commission Act 2001
requires that a party providing financial services to a client under a financial
service contract must ensure that the contract is performed with appropriate care
and skill.
Item 12DB(1) Australian Securities and Investments Commission Act 2001
provides that acts of presenting wrongly or causing misunderstanding about
standards, quality, value or specific level of services provided by financial service
providers are prohibited. In addition, any misrepresentation that causes
misunderstanding of the testimony of a person, as well as creating a false or
deceptive claim about sponsorship, approval, performance qualities, uses, or
advantages of services shall be also regarded as a fraudulent act.
The result of the case Ali v Hartley Poynton Ltd. shows that predicting the
possibility of a high return of an investment causing the client to lose is considered
a deceitful and misleading practice for the client.
Under Section 961B of the 2001 Law on Group, client's best interests must be
served, and respected.
The financial service providers licensed for financial services must fulfill the
obligations specified in Section 912A of the 2001 Law on Group, including the
following obligations:
1Corporation Act 2001, section 916A(3).

- Ensuring that all necessary actions for financial services are provided in an
effective, truthful and fair manner;
- Maintaining the capability to provide the licensed financial services;
- Ensuring that the representatives are trained fully and qualified;
- There must be a dispute settlement system;
Section 912D(1D) of the 2001 Group Law stipulating that the person who is
granted the financial service license must notify the ASIC of any violation of
obligations under Section 912A within 10 working days after being informed of
the violation.
Section 915C(1)(a) of the Law on Group 2001 considers ASIC's competent
authority to suspend or cancel financial service licenses of any financial service
providers that fail to fulfill obligations specified in Section 912A after the hearing.
III. APPLICATION
Item 12BC2 shows that the model is a consumer when participating in the financial
service contract with the Wealth by Morgan, has used the inherited money and is
invested to gain more profits as well as to detoxify the gambling suspect. Although
the contract value is $150,000 (beyond the standard for the value of goods/services
in the Consumer Law 2010), the investment is used for personal purposes of
Morgan is money saving and the gambling center. With this in mind, Morgan has
right to sue Wealth if they violate the provisions of the ASIC Act 2001.
According to Item 911A3, as a financial company, Wealth is required to have a
financial services license provided by the Australian government to be able to do
business legally.
Pursuant to Section 916A(1) 4, as a representative of Wealth, Rick will, on behalf
of this company, provide a financial service to the customer who has signed the
contract with Wealth.
It is necessary to apply Section 766A5, Wealth Pty Ltd (Wealth) to hold investment
consultation seminars, and then Wealth, the Wealth is also required to sign
contracts to provide financial consultation services for Morgan with Rick
2Australian Securities and Investments Commission Act 2001, Section 12BC(1).
3Corporation Act 2001, 911A.
4Corporation Act 2001, section 916A(1).
5Corporation Act 2001, section 766A.

representing the Company to provide direct financial consultancy for Morgan.
According to which, Rick raises investment advice, as well as the opinions of Mr.
in the capacity as a financial expert. These characteristics are in accordance with
the term of "consultancy on financial products" stipulated in Section 766B6.
Moreover, Rick is the broker's representative not holding the post of secretary or
cashier of Wealth7. Therefore, in this case, the Wealth is a company that provides
financial services for the representative of Rick, the person that directly brings the
quintessence to Morgan. Rick may also be considered as financial service provider
for Morgan.
Rick violated Section 12ED(1)8 related to ensuring the provision of financial
services for Rick has not examined the wrong financial information. Rick Morgan
investment with false testimonies without any target, he does not care about
Morgan's desire to invest profitably.
- Morgan depended on his competence and judgment since, as an
inexperienced investor, he recognizes Rick's superior investing understanding.
Furthermore, Wealth is a real financial services organization, and Rick was
the sole trustworthy advisor at the time.
- Morgan was honest and candid about his financial burden and emotional
difficulty after accepting the contract with Rick in a dangerous position. As a
result, it's evident that Rick understands Morgan's confidence and reliance on
him to make an investment judgment.
- Morgan had every reason to trust Rick's opinion in light of the
circumstances.
For these reasons, Rick owed Morgan a duty of care based on his wealth, which
was not met by Rick's actions, which included not caring about his client's needs,
circumstances, or the best solutions for their circumstances, resulting in Morgan's
financial loss of $50.000 inheritance and $100.000 mortgage his house. All of
Morgan's assets have been lost, which will be an invisible economic pressure on
Morgan as he has no money left to pay off his mortgage. Furthermore, the court
might conclude that Wealth owed and breached a duty of care by failing to ensure
that financial advice from their authorized agent was correct.
6Corporation Act 2001, section 766B.
7Corporation Act 2001, section 916A(3).
8Australian Securities and Investments Commission Act 2001, Section 12ED(1).

As a financial service provider, in addition to the Corporation Act 2001, Wealth
must comply with Australian Securities and Investments Commission Act 2001.
Their financial services activities will be regulated by the Securities and
Investments Commission (ASIC).
For acts of misleading and fraudulent understanding, both Rick and Wealth that
have violated the provisions in Section 12DB(1)9 because they have supplied
financial services, giving out financial advices to Morgan with wrong and false
information, specifically:
- Wealth violates Section 12DB(1)(a)10 when this company always declares
that they provide low risk investment services and their advertisement
samples do not state the information about the financial product. Those
webalth may not provide training in writing or lack a dispute management
system or maintain service quality but they always receive them with a
complete system and process to provide consultancy to their customers.
- Based on Section 12DB(1)(d)11, Rick has given sufficient testimony to false
declarations. Rick speaker has carefully read and self-check the reports of the
Ependysi and confirms that this company has profitable. While this company
causes losses and is put into liquidation. In addition, Rick is affirmed that the
Vanguard is not safe and does not guarantee the Vanguard to be broadcast in
the next year. However, the Vanguard is a safe investment fund and generates
profits for investors.
- Under Section 12DB(1)(e)12, Rick was guilty of misleading Morgan into
thinking that Ependysi's potential interest for this year was very high despite
the fact that it was not.
- Rick has forecasted that Ependysi Ltd. will bring return for investors at 30%
this year, but the reality is that this company has fallen into liquidation. Under
the case of Ali v Hartley Poyned Limited (2002), it is concluded that the
profit may be reached in the year in order to attract investment customers, but
the customers have suffered from major losses, which is a fraud or misleading
customer.13
9Australian Securities and Investments Commission Act 2001, Section 12DB(1).
10Australian Securities and Investments Commission Act 2001, Section 12DB(1)(a).
11Australian Securities and Investments Commission Act 2001, Section 12DB(1)(b).
12 Australian Securities and Investments Commission Act 2001, Section 12DB(1)(e).
13Ali Hartley Poynton Limited [2002] VSC 113.

This is analogous to the case law in ASIC v Dover Financial Advisers Pty Ltd
[2019]14, which involved deceptive and misleading behavior. Dover Financial
Advisers Pty Ltd ('Dover') and its sole director Terrence McMaster had misled and
deceived their customers by included a document called "Client Protection Policy"
in their statement of advice, which had the potential to reduce or eliminate their
legal duties. Clients' legal safeguards were taken away as a result of this. Dover
had violated sections 12DA 31 and 12DB(1) 32 of the ASIC Act as a result of this
violation, according to the court. This means that Wealth and Rick, as financial
service providers like Dover, will be held liable for violating section 12DB(1)
because their actions caused Morgan to be misled, resulting in his receiving
unsuitable investment advice. In both situations, the clients' rights were violated by
the misleading and dishonest behavior. Given these conditions, Morgan was
subjected to Rick's dishonest and misleading behavior, for which he will be held
liable under both statute and common law.
Thus, both Rick and Wealth have committed deceitful and misleading acts to
Morgan that leads to a loss of the Morgan's investment in Ependysi. As a protected
consumer, Morgan has every right to sue Wealth under the ASIC act 2001.
Furthermore, Wealth also violates Section 961B15 because of Rick for benefits
received from the Ependysi but giving adverse advice. Hence, still reject desire to
invest in Vanguard of Morgan in order to direct Morgan investment in Ependysi.
- Section 961B(2)(a): Despite Morgan's candor about his stressful condition,
Rick failed to accurately assess his customers' investment goals and provide
the best approach. Then he gave his erroneous counsel in the form of a
perplexing instruction and documentation.
- S 961B(2)(e): After losing all his money to gambling, Morgan has only
$50,000 left in his inheritance, his need is to have a savings, long-term
investment and also to quit gambling addiction. However, Rick mis-analyzed
Morgan's attitude towards this investment, so he asked Morgan to borrow
another $ 100,000 to invest without considering whether Morgan would be
able to repay the debt or not. This is risky because no one can be sure whether
the company will lose or prosper, but when Ependysi has to liquidate Morgan
it will be difficult to get the money back. At this point Morgan will run out of
savings and the mortgage on the house is also very dangerous.
14 Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd [2019] FCA 1932.
15Corporation Act 2001, section 961B.

- S 961B(2)(f): Morgan's circumstances were completely ignored when Rick
gave his counsel, as a result of the aforementioned conducts;
- S 961B(2)(g): There was no vital step for assuring Morgan's best interests
based on the provided circumstances.
At the end of the Rick's skull, the Morgan has not helped achieve the investment
objectives but has suffered from losses. Rick and Wealth do not guarantee the
maximum benefits of Morgan when they use its investment services. Morgan is a
person who does not know what investment, who how happens and is careful in the
elasticity of Rick.
Being a company licensed for financial services, Wealth must comply with the
regulations on their responsibilities in Section 912A16. However, Wealth has not
committed acts of complying with the obligations they must comply with the
provisions of law, specifically:
- Wealth violated Section 912A(1)(a) where they also provided unscrupulous
advice to Morgan, false investment statements were made suggested to
Morgan without guaranteeing the advice would do his best to make him
successful. Wealth advises customers to invest in Ependysi not that this
company is really good, but that it has promised to distribute commissions
and unprecedented benefits to those who attract investors to them. This has
caused loss of investment by the Morgan which has not successfully carried
out for the Morgan.
- According to Section 912A(1)(e), Wealth is not capable of maintaining the
capacity to provide the licensed financial services by the representatives that
are not qualified for training. They often make mistakes but the company does
not take any remedial measure.
- Pursuant to Section 912A(1)(f), Wealth representatives did not have the
necessary qualifications to practice. Advisors do not conduct investigations
into the client's personal circumstances, they do not know how to do the job.
They can't even distinguish which assets are in the client's portfolio and which
are not. Despite its poor qualifications, many mistakes have been made, but
Wealth has not organized any human resource training program for the
company's representatives and advisors.
16Corporation Act 2001, section 912A.

- According to Section 912A(1)(g)(i), Wealth has cannot have a dispute
settlement system, which leads to the complaint of Morgan and is not
promptly and properly settled by Wealth.
Thus, Wealth has committed acts of breaching obligations of the licensed financial
service providers.
Based on Section 912D(1D)17, upon detecting the above violations, Wealth must
notify to ASIC within 10 working days. However, Wealth has not fulfilled this
notification obligation to ASIC. Wealth from the addition of opportunities is
considered not to suspend or cancel the permit for financial services of Australia.
Based on Section 915C(1)(a)18, with regard to Wealth's misconduct, ASIC has the
sole authority to suspend or revoke its financial services license after holding a
private hearing.
IV. CONCLUSION
As financial service providers, Rick and Wealth Pty Ltd violated the ASIC Act by
disregarding Morgan's business goals and failing to provide advice that was truly
reasonable and beneficial to the business. he. In addition, they also engaged in
misleading and deceptive behavior when they tricked Morgan into investing in
Ependysi causing him to lose money and suffer economic losses. As a result,
Morgan can sue Rick and Wealth for protection under the ASIC Act 2001. Then,
Rick might face compensation under section 12GF19 and 1041L20, as well as as as
injunctions and other specific performance from the court under section 12GD21 if
this happens.
Under the provisions of the 2001 Corporations Law, Rick and Wealth engaged in
activities that violated an important licensee's obligation such as failure to provide
services efficiently, honestly, and fairly; Unable to maintain the capacity to provide
licensed financial services; has no responsibility to train representatives who do not
yet have sufficient capacity and professional skills; does not build a dispute
resolution system within the company. The financial service provider's breach of
obligations was not promptly notified by Wealth to ASIC, they hid such
information and continued to commit violations. Therefore, ASIC fully reserves
17Corporation Act 2001, 912D (1D).
18Corporation Act 2001, section 915C(1)(a).
19Australian Securities and Investments Commission Act 2001, Section 12GF.
20Corporation Act 2001, section 1041L.
21Australian Securities and Investments Commission Act 2001, Section 12GD.

the right to suspend or cancel Rick and Wealth's financial services license after
holding a hearing on both sides. Besides, they also could be responsible for the
court for compensation under section 961M22 or 1317E23, as well as common law
remedies, including injunctions and specific performance of rectify or compensate
for the economic damage.
REFERENCE
Australian Securities and Investments Commission Act 2001.
Corporation Act 2001.
Ali Hartley Poynton Limited [2002] VSC 113.
22Corporation Act 2001, section 961M.
23Corporation Act 2001, section 1317E.