01/02/2013

The ‘Dynamic Duo’ of ASIC and the ACCC continue to fight misleading advertising in their own areas, making it doubly hard for villains marshalling misleading mendacity.

Both the Corporations Act (regulated by ASIC) and the Australian Consumer Law (regulated by the ACCC) contain provisions prohibiting a person from engaging in conduct that is misleading or deceptive, or is likely to mislead or deceive, giving both regulators the super powers necessary to fight the scourge of the innocent victim – misleading advertising.

Two recent cases show the Dynamic Duo in action.
 
In ASIC v Camelot Derivatives Pty Ltd (in Liquidation) Camelot, an options trading company, made a large number of representations to clients and potential clients, including:
• On average, client accounts had increased by 150% during 2008
• Camelot’s clients make considerable returns and much more than trading in ordinary shares
• Clients make anywhere from 10% to 50% a year of consistent income generation
• Returns of 2% to 6% per month net of costs are probable
• Potential clients could earn superior returns in a high risk market using Camelot’s time-tested risk management method
• Potential clients could have their trading account managed exclusively by a professional management team that made money while they slept  
• Clients would be in the safest possible hands when engaging Camelot to assist them in generating income via options trading.

Despite these claims, the court found the reality was markedly different, in that:
• Camelot’s “condor” based trading strategy involved a commission structure that was completely inappropriate
• During the period from March 2008 to October 2010, clients of Camelot had not earned significant returns from options trading and Camelot did not have reasonable grounds for believing potential clients could expect to earn significant returns from options trading.
• Between January 2008 and December 2009, Camelot’s 50 clients suffered losses of $2.47 million, while Camelot deducted $2.45 million in commission
• In 2010, 16 clients who traded lost $982,000 while Camelot deducted $1.03 million in commissions. 
Unsurprisingly, based on the representations and the client losses involved, the court had little difficulty in finding that the Camelot representations were misleading or deceptive, or likely to mislead or deceive. 

In addition, the court found that Camelot was guilty of “churning” (where a broker engages in excessive buying or selling of securities for a customer chiefly to generate commissions for the broker). In doing so, Camelot had breached section 912A of the Corps Act by not ensuring that the financial services covered by its licence were provided “efficiently, honestly and fairly”. 

For financial planners and others who recommend investments, the obvious lesson is to do proper due diligence on proposed investments before making recommendations to clients. For potential investors, the obvious lesson is to get advice from a good financial planner or accountant before investing in investments you are not familiar with. 

Not to be outdone, the ACCC showed that it can deliver a knock-out blow to a serial misleader in the case of ACCC v Jewellery Group Pty Ltd (No. 2). That case held that Jewellery Group, in advertising jewellery for sale using “dual pricing”, had engaged in misleading conduct in breach of section 52 of the Trade Practices Act (now section 18(1) in the Australian Consumer Law, which is Schedule 2 of the Competition & Consumer Act 2010).

The court found that Jewellery Group’s conduct was misleading or deceptive by publishing and distributing promotions for the sale of jewellery items which contained:

• a statement of a higher price with a line striking through that price and a larger lower price (eg $169 $89.95); or
• a statement saying the price “Was” and a lower price in larger typeface saying the price “Now” (eg Was $189, now $99).

JG promoted the sales by national letter box drop, in store, on a website and in various catalogues.

In fact, some or all of the customers who purchased in the relevant period would not have paid the higher price if they purchased before the relevant sale period. Therefore, those customers would not have achieved the savings represented by JG by purchasing during the relevant sale period. Accordingly, the representations by JG were misleading. In fact, they were simply untrue.

As a result of its misleading conduct, among other things JG had to:
• pay penalties totalling $250,000;
• publish at its cost numbers of corrective advertisements; and 
• establish a ‘compliance and education/training program’ for its employees and others involved in its business. 

One interesting point in this decision is that JG sought legal advice on its proposed campaign. The legal advice given was that actual sales should be used when identifying the appropriate “strikethrough” or “was” price for items. That advice was, unfortunately for JG, not heeded.   

We are experienced in dealing with issues arising in connection with misleading or deceptive conduct. It can be very easy to be caught. We can help you to ensure your company doesn’t engage in conduct that is misleading or deceptive. We can also establish a compliance policy and training programs to ensure compliance.  

Don’t be caught out if one of the Dynamic Duo come knocking!

If you need assistance or have any questions in relation to this article, please contactTOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.