Part 2 - The ASIC Prosecution in the Federal Court
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- Published: Thursday, 27 February 2025 09:30
ASIC is the Australian Securities and Investments Commission, the Australian securities regulator. In 2023 they targeted financial institutions making claims about their green or environmental credentials, otherwise known as greenwashing.
Last year they had their first scalp, the Federal Court imposing a penalty of $12.9 million on Vanguard, a financial services company with their own relatively small fund compared to LGSS, quickly followed by a second scalp, with a penalty of $11.3 million on Mercer Superannuation (Australia).
In parallel with these two cases, ASIC had already conducted an exhaustive examination of Active Super’s investment and publications, and on 10 August filed claims in the Federal Court alleging that LGSS Pty Ltd had contravened sections of the Australian Securities and Investments Commission Act 2001 “by making false or misleading representations, and engaging in conduct liable to mislead the public in relation to investments made by the superannuation fund of which LGSS is the trustee, now known as Active Super”. ASIC alleged “LGSS engaged in greenwashing by making false or misleading representations to members and potential members of the fund about their ‘green’ or ‘ESG’ credentials.”
(Please note reference to “LGSS is the trustee, now known as Active Super”, why the prosecution is referred to as ASIC v LGSS Proprietary Limited.)
In considering how to respond to ASIC’s threatened prosecution, Active Super should have been aware of the cases and the likely penalties to be imposed on Vanguard and Mercer but chose to contest all allegations and not advise members that this was happening. Multiple requests made by us that something needed to be said were met with the response they were acting on legal advice. Surely there was something that could be said to members, but nothing was revealed. LGSS should have issued a “Significant Event Notice” to members, Instead they chose to do nothing, only to batten down the hatches.
On 5 June 2024 Justice O’Callaghan found heavily against Active Super and adjourned to determine an appropriate hearing date for ASIC and Active Super to argue an appropriate penalty and costs.
There were significant ramifications. The Fairfax media, both in the Sydney Morning Herald and regional press, described Active Super as the "disgraced superannuation fund Active Super", and two employer-nominated LGSS/Active Board representatives, who were also members of the State Parliament, resigned from the board after being hounded by the Opposition for their failures as company directors to properly oversee the business.
Clearly the standards of propriety for members of Parliament are higher than the other directors of the Board, who remain unchallenged - although the Singleton Argus on 14 June exposed the culprits with the headline "Newcastle directors earning $100K at disgraced super fund". How lucky the other directors were that they were not investigated separately.
The Judgement identified failures in the management of responsible investment - in my view, but I can only guess, let down by a new gungho CEO, a comatose Board, a total failure of governance, management and oversight: a new juvenile website cleaned up to look edgy and modern, and in doing so removing the fine print provisos qualifying how the fund managed responsible investment protections. A complete collapse of risk management protocols and Board oversight after a long proud history of responsible investment. A betrayal of the directors who set it up, like me, with its checks and balances, and proud results. Shameful.
The CEO at the time is no longer there, neither is the person responsible for marketing. The Board is saying nothing, bobbing along like a cork floating in the sewer, thinking they are irrelevant and untouched by the fiasco. It’s hard to know exactly what happened, and Active Super hasn’t said. Active Super won’t say. We all deserve an apology.
Maybe a combination of the Board/Senior Management losing an interest in responsible investment processes; not examining things that would have come across their meetings; processes were weakened or not kept up-to-date with new technology; an increased use of sustainable investment as a marketing tool but without the provisos and checks and balances, and a more vigilant ASIC chasing the greenwashers. No significant fund has had such a high profile committed to a low carbon future. What a great target, an accident waiting to happen.
On 2 December, two weeks before penalties and costs were to be argued on 17 December, Active Super placed a “Notification of Misconduct by Active Super” on their website. Not easily found, not on the homepage, only if you happen to be looking under “Investing with us”, you find a “Notification of Misconduct by Active Super”.
I attended the penalties and costs argument on 17 December. It was an horrific experience, how the mighty had fallen.
LGSS had contested all the allegations, Vanguard and Mercer had cooperated and accepted guilt, and the ASIC SC pointed to both decisions “as being relevant to take into account in assessing whether the penalties that ASIC is seeking are appropriate, and in the circumstances where the figure of $13.5 million would be less than the amounts that would have been ordered in those cases by several million dollars, were it not for the cooperation that was exhibited by Vanguard and Mercer - in circumstances where admissions and cooperation were absent in the case of LGSS - we say that that provides further support for the figure of $13.5 million”. Uh oh …
No admissions or cooperation from LGSS, a lack of contrition, criticisms of the witnesses not providing explanations of how this happened, and who deliberately chose to remain silent.
LGSS has never explained how statements which were inaccurate were made, not addressed it in any evidence, “ASIC is still none the wiser as to precisely why the conduct happened.” He noted that the only contrition was an affidavit from the acting CEO in the costs hearing, the absence of any acceptance that anyone was misled and no public expression of contrition.
That doesn’t bode well for the penalty, but then it got worse. The LGSS SC stepped up to the challenge noting the likely financial impact on members, because “if a penalty more than about two and a half million dollars is payable, there will be an income tax - capital gains tax liability, and as we say it follows, as night follows day, it must be paid by members.” Still no contrition, no acknowledgement, no explanation and, to finish with a humiliating note, said “the pertinent circumstances are this is a very poorly-resourced entity”.
That is a submission of desperation. No one has ever suggested LGSS/Active Super is a very poorly resourced entity. Until now.
As if living with "the disgraced superannuation fund Active Super" wasn't enough. All this explains why, despite having more funds under management than Vision, LGSS/Active will disappear without trace, a CEO from Vision, a CIO from Vision, as if Active Super had nothing to offer.
In a late development, ASIC had also prosecuted Australian Super for failing to merge multiple member accounts, which the court found to be a breach of the fundamental duties and obligations AustralianSuper owed to its members, over nine years, and that it was inexcusable for AustralianSuper not to have had the processes and systems in place to ensure compliance.
Australian Super was fined $27 million... It’s not a greenwashing prosecution but it does show a readiness to levy significant fines even when those members disadvantaged to the tune of $69 million in losses, have had their losses remediated.