This paper accompanies a presentation given by Justin Brereton of the Victorian Bar in 2009. Both the presentation and the paper consider some current and common issues that arise in the context of Australian Securities and Investments Commission (“ASIC”) investigations and litigation.
Justin Brereton is a Victorian Barrister who specialises in both commercial and regulatory matters. He regularly appears for ASIC and has done so in some of the largest investigations and litigation of recent times. This has included appearing as counsel for ASIC in its investigation into the directors and officers of the Australian Wheat Board; the committal of property spruiker Henry Kaye and numerous other pieces of civil, administrative and criminal litigation.
Justin also appears regularly against ASIC. Examples include investigations and litigation arising from the Westpoint collapse; litigation relating to the giving of allegedly unlicensed financial product advice and investigations into alleged stock market manipulation.
Prior to joining the Bar, Justin was a senior lawyer in the enforcement directorate of ASIC. In that role, he was responsible for numerous high profile matters including ASIC’s action against the NAB following the rogue traders scandal. Whilst at ASIC, Justin also worked in the United States during joint investigations with the Securities and Exchange Commission.
Part 1 - Before the case begins
ASIC enquiries can be overwhelming. The numerous possibilities created by ASIC’s vast array of evidence gathering powers often leaves those on the receiving end of such enquiries confused about ASIC’s objectives. Indeed, for this reason, people often assume the worst about what it is that ASIC is trying to achieve.
The purpose of the first part of this paper is to consider some of the evidence gathering tools commonly used by ASIC. In considering these tools, the paper will demonstrate how it is possible to avoid being overwhelmed by the possibilities and gain an insight into ASIC’s litigation objectives. It will also demonstrate how it is possible, in certain circumstances, to influence the use ASIC can make of the evidence it collects, through the use of some of its compulsory powers.
Investigation process and ASIC's litigation objectives
The most common evidence gathering tool used by ASIC is the notice to produce books. Such notices are used in the course of both informal enquiries and once a formal investigation has been commenced. Furthermore, documents obtained under such notices can be used in all forms of ASIC based litigation.
For those reasons, notices to produce books are a valuable means of collecting evidence for ASIC. Importantly however, once served, notices to produce books are also a valuable source of information about ASIC’s litigation objectives. In that regard, by thoroughly analysing a notice to produce books, it is often possible to answer a number of questions relevant to any future litigation. That will include answers to questions such as:
- Has a formal investigation commenced? and
- is subsequent litigation likely to be criminal, civil or administrative?
- who is the likely defendant in that litigation?
- what is the likely subject matter of any litigation?
Has a formal investigation commenced?
In analysing a notice to determine whether a formal investigation has commenced, it is firstly necessary to appreciate that notices to produce books are used by ASIC during both formal investigations and as a means of conducting less formal preliminary enquiries. ASIC is able to do this because of section 28 of the Australian Securities and Investments Commission Act 2001 (“ASIC Act”). The effect of section 28 is that it is not necessary for ASIC to commence a formal investigation in order to use most of its powers to compel the production of books under part 3, division 3 of the ASIC Act.
Identifying whether a formal investigation has commenced is critical in allowing you to make an assessment of how advanced ASIC is in its enquiries. It will also allow you to make an assessment of whether your client is likely to be subjected to ASIC’s other evidence gathering tools. That is the evidence gathering tools that are only available to ASIC after a formal investigation has been commenced.
In order to determine whether a notice to produce books has been served as part of an investigation or less formal preliminary enquiry it is necessary to pay close attention to the words used in the notice. In that regard:
1. notices served in the context of a preliminary enquiry will always use the words which appear in either subsections (a), (b) or (c) of section 28 of the ASIC Act as being the basis upon the notice is served. That is to say, that the notice will state that it is:
i. for the purpose of “ASIC exercising its functions;”
ii. “to ensure compliance;” or
iii. "in relation to an alleged or suspected contravention”;
investigation notices for the production of books on the other hand will use the words which appear in subsection (d) of section 28 as the being the basis upon which ASIC is exercising the power to compel production. That is to say the notice will state that it is served in relation to, or “for the purpose of an investigation under Division 1” of Part 3 of the ASIC Act.
Having analysed a notice to produce books in this way, you will have now determined whether a formal investigation has commenced. Having done that, you will then be in a position to further analyse the notice for the purpose of identifying whether the matters under investigation and therefore any subsequent litigation is likely to be criminal, civil or administrative.
*To read the remainder of Justin Brereton's paper on ASIC deterrence and its approach to securities litigation please click here.
 “Books” is defined by section 5 of the ASIC Act as being, inter alia, a register, financial reports, a document, a bankers book and any other record or information.
 ASIC Act sections 30, 31, 32A and 33.
 ASIC Act section 28
 See generally ASIC Act, part 3, division 3.
 ASIC Act subsection 28(a).
 ASIC Act subsection 28(b).
 ASIC Act subsection 28(c).