On Friday (26 November), the Federal Court handed down orders requiring La Trobe Financial Asset Management (La Trobe) to pay a $750,000 penalty for “false and misleading marketing” regarding advertisements in newspapers, magazines and on websites relating to the advertising of some of its investment products in the La Trobe Australian Credit Fund.
The fund is a registered managed investment scheme with over $5.15 billion in assets under management and over 45,000 investors.
The case was first brought by the Australian Securities and Investments Commission (ASIC) in December last year, outlining concerns that some of the products that were being marketed by the fund between 2017 and 2020 may have been “misleading or deceptive, or likely to mislead or deceive”.
Specifically, ASIC alleged that the marketing outlined that investors who invested funds in the 48 Hour Account or the 90 Day Account would be entitled to withdraw their funds within the given time period after giving a withdrawal notice to La Trobe (e.g. 40 and 90 days, respectively).
However, ASIC alleged that, in actuality, the right to withdraw ranged from having no rights to withdraw, to a right to request a withdrawal, which La Trobe had up to 12 months to satisfy.
On Friday, the Federal Court found in favour of ASIC in relation to this 12-month satisfaction period. Moreover, the court found that the company had contravened the Corporations Act by representing that that any capital invested in the fund would be “stable” (in the sense of there being no risk of substantial loss of that capital), when a person who invested in the fund could have substantially lost the capital invested. As such, it ruled that this was a false or misleading representation.
The court ordered that La Trobe pay a pecuniary penalty of $750,000 as well as pay ASIC’s costs of $120,000.
In his decision, Justice O'Bryan stated: “The misleading conduct was serious and had very considerable potential to mislead the public about the characteristics of the investment options – both as to the entitlement to withdraw funds and the risk of loss of capital invested.
“Each of the representations was made over periods ranging from about one year to more than three years, in a variety of different media that were all accessible by the general public. Further, the misleading conduct potentially affected investment decisions involving very large sums of money.”
Speaking of the case, ASIC deputy chair Karen Chester said: “When consumers are considering investments, they need to be provided with accurate information that doesn’t mislead them. ASIC was concerned that these investment products were being sold as stable and more liquid when they were not, and essential detail was being left in the fine print.”
She added that ASIC’s “True to Label” initiative had recently identified promotional material from a number of funds that “could be misleading investors”, which she said was concerning “especially when investors are seeking yield in a low interest-rate economy” and “products are described as having less risk, when in fact, investors could lose some or all of their investment”.
“This case serves as yet another warning that ASIC will take action where investments are marketed to consumers as safer, lower risk or more liquid when they are not,” Ms Chester said.
La Trobe had not issued a statement at the time of writing.
[Related: La Trobe Financial to defend ASIC claims]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.