ASIC institutes 4-year ban on funds manager with ties to disgraced creditor

Corporate regulator ASIC has cancelled the Australian financial services (AFS) licence of Guildfords Funds Management and banned its sole director for four years after its dealings with and failed oversight of disgraced lender and managed investment scheme operator Magnolia.

The Magnolia Capital Group of companies, formerly headed by Mitchell Atkins, collapsed in 2022 owing unsecured creditors more than $40 million. Atkins was disqualified for five years by ASIC last November from managing corporations and banned for 10 years from providing financial services and engaging in credit activities.

Guildfords served as trustee of the Magnolia Head Fund, which was found by ASIC to have dealt in high-risk derivatives, or contracts for difference (CFD), without an Australian Financial Services (AFS) licence.

CFDs are leveraged derivative contracts that allow a client to speculate on the change in value of an underlying asset, such as foreign exchange rates, stock market indices, single equities, commodities or crypto-assets. ASIC has long warned investors of the inordinately high risk of CFDs as investment vehicles.

Robert Payne, Guildford’s responsible manager, key person and sole director, has been banned by ASIC from providing financial services, performing any function involved in the carrying on of a financial services business, and controlling an entity that carries on a financial services business.

ASIC, which confirmed the ban and cancelling of Guildford’s licence today, said it identified “significant and systemic failures of oversight and compliance in Guildfords’ provision of financial services”.

Guildfords provided advisory and dealing services in interests in managed investment schemes and securities, and custodial and depository services to wholesale clients.

Along with its role as an AFS licensee, Guildfords also provided trustee services to unregistered managed investment schemes, including the Magnolia Capital Opportunities Fund II (also known as the Magnolia Head Fund).

From 19 September 2018 to 7 October 2022, former Magnolia Capital Group director Mitchell Atkins was an authorised representative of Guildfords. Magnolia Capital Group entities, Magnolia Investment (MIM) and Magnolia Asset Management (MAM) were also corporate authorised representatives of Guildfords.

Between 30 August 2018 and 13 July 2022, Payne and Atkins were also directors of MAM, a clear conflict of interest.

ASIC found that Guildfords failed to adequately supervise Atkins (and MIM), breaching his obligations under the Corporations Act. This enabled the unauthorised trading of high-risk derivative products, specifically CFDs, which resulted in clients losing millions.

ASIC, in its findings, noted that Guildfords:

• as trustee of the Magnolia Head Fund, dealt in CFDs when it did not hold an AFS licence to do so and failed in its breach of reporting obligations to report a reportable situation to ASIC;
• did not take reasonable steps to ensure that its representatives complied with financial services laws, and was involved in its representatives’ unauthorised CFD trading given Guildfords;
• did not take reasonable steps to ensure that its representatives complied with financial services laws given Guildfords failed to have oversight over documents which included misleading or deceptive representations;
• did not comply with the conditions of its AFS licence as it failed to maintain measures to ensure compliance with financial services laws and failed to maintain training registers of its representatives;
• did not have adequate arrangements in place to manage the conflict of interest arising from Payne being a director of MAM while also a responsible manager of Guildfords.

In handing down its decision to ban Payne, ASIC stated that he:

• lacked the competence and diligence required of a Responsible Manager, lacking control or oversight over Atkins, MIM and MAM;
• did not understand the extent of Guildfords’ failures to comply with its duties as a licensee and he sought to minimise the significance of, and his responsibility for, them; and
• was involved in Guildfords’ contraventions of financial services laws.

ASIC confirmed that Guildfords has a right to apply to the Administrative Appeals Tribunal for a review of its decisions.

The regulator has also permitted Guildfords to operate with restricted licence conditions until the end of this year “for the purpose of…  providing services that are reasonably necessary for, or incidental to the day-to-day operation of the schemes” in order to minimise the impact of the cancellation on its current clients.