ASIC v ISX Hearing, page-3415

https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2024/2024fca0669

Above is the link to the judgement.

Here are some of my favourite parts:

Mr Karantzis not only failed in that duty but that he either knowingly misrepresented facts or intentionally or recklessly acted to prevent the truth from being disclosed. In this sense Mr Karantzis’ breach of s 180(1) of the Act must be regarded as serious. It cannot be regarded merely as a careless mistake. Mr Karantzis mis-stated a matter that he knew the market was interested in, in circumstances where he knew the correct position. He then failed to correct his mis-statement for more than a year, knowing that the market had been misled.

In so far as the contravention of s 674(2A) of the Act is concerned, I am satisfied that Mr Karantzis intentionally participated in the relevant conduct, in the sense of having actual knowledge of the essential elements constituting the contravention. I base this conclusion on the matters set out above at [282]-[285]. That is, that Mr Karantzis was well aware of the significance of the One-off Revenue/Costs Information to the market, he knew it was not generally available, and he knew that had it been generally available it would have had a material effect on the price or value of iSignthis’ shares.

Having accepted that Mr Karantzis contravened ss 674(2A) and 180(1) of the Act, there will be declarations that Mr Karantzis was involved in the company’s contravention of s 674(2) of the Act as set out above and that he thereby contravened s 674(2A) of the Act, and that he also contravened s 180(1) of the Act.

There can be no doubt that, having regard to its terms, iSignthis’ letter to shareholders of 24 May 2020 did not, in substance, make disclosure of the Visa Termination Decision or the Reasons for Visa’s Termination. The letter plainly does no such thing. As Mr Seyfort accepted, a fair reading of the letter conveys the impression that it was iSignthis that had severed the relationship with Visa because of difficulties that iSignthis had with changes in Visa’s rules. In my assessment the letter was more than merely a public announcement of information to control the narrative, as iSignthis contended. With respect to the guiding minds involved, it was effectively corporate spin by iSignthis of critical aspects of Visa’s decision to terminate its relationship with iSignthis. That is to say, it was essentially corporate spin of problematic information that was not generally available to the market. In reality, iSignthis’ letter to shareholders of 24 May 2020 sought to create a new narrative, rather more than to control the existing narrative.

I accept also that it was not until the 17 August 2020 response that iSignthis acknowledged explicitly to the ASX that Visa had terminated the relationship, and that the Reasons for Visa’s Termination appear never to have been disclosed by iSignthis.

Mr Karantzis had an obligation to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person in his position would exercise. His conduct in relation to the non-disclosure of the Visa Termination Decision and the Reasons for Visa’s Termination in the period after 12 May 2020 failed to meet this standard.

Mr Karantzis’ central role in this contravention is the basis upon which I have found that he has failed to discharge his duty as a director of iSignthis with the degree of care and diligence that a reasonable person in his position would have exercised.

I note, finally, that my conclusion that Mr Karantzis has breached s 180(1) of the Act has been formed in circumstances where Mr Karantzis has not appeared to give evidence in defence of his position. I accept that in these circumstances this provides a proper basis for the court to infer that whatever evidence he might have given would not have assisted his case.

It follows from my reasons for concluding that Mr Karantzis has breached s 180(1) of the Act that it is not open to find that his contravention was not “serious” within the meaning of s 1317G(1)(b)(iii) of the Act. Nor, in the circumstances, can it be accepted that at all material times Mr Karantzis acted honestly and ought fairly to be excused for the contravention.

ASX Query Letter responses:

For the reasons that follow I have determined that Mr Karantzis contravened s 1309(2) and (12) of the Act insofar as his impugned responses in the 25 May 2020 response are concerned.

I observe, at the outset, that to the extent that Mr Karantzis says that the company was obliged, by reasons of its ongoing dispute with the ASX, to be other than fully candid in its responses, this argument is misconceived and must be rejected. Having regard to the clear language of the statute it can never be reasonable to decide not to respond, or not to respond openly and candidly, to questions from the operator of a financial market. As senior counsel for ASIC submitted, this argument provides a strong indication that, in fact, all reasonable steps were not taken by Mr Karantzis to ensure that the information provided was not false or misleading. With this in mind I turn to Mr Karantzis’ various responses to the ASX’s questions.

Question 1(b) Mr Karantzis’ purported justification of his answer to question 1(b) is contrived to the point of being a virtual non sequitur. The question concerning the Visa Audit and what it concerned was a relatively simple one. The answer that Mr Karantzis gave was more than merely “circumspect” – it was plainly non-responsive. I accept that it omitted to explain that iSignthis had been required to provide information to Visa in relation to AML issues which had been raised, and that this omission rendered the response false or misleading in contravention of s 1309(2)(e) of the Act.

Question 1(e) Mr Karantzis’ elaborate justification of his answer to question 1(e) cannot be accepted either. The answer was plainly wrong and it was also obfuscatory. Mr Seyfort accepted that the question was understood by him and by Mr Karantzis, and in circumstances where the company well knew that Visa had communicated its intention to terminate the relationship, this is what should have been communicated in response. To refer to an audit that the company had commissioned gives the appearance of an attempt to distract the ASX. I accept that the failure of the answer to reveal the results of the Visa Audit in response to a direct question was false or misleading in contravention of s 1309(2)(e) of the Act. Further, the reference to the impact of COVID in the answer to the question was disingenuous and also has the appearance of an attempt to distract the ASX.

Question 2(b) Mr Karantzis’ purported justification for his answer to question 2(b) is little more than sophistry. The answer was plainly misleading. Visa’s queries were the basis for the company’s suspension, and it is no answer to say that it was open to Mr Karantzis to advance his own narrative about what had happened at the expense of communicating what Visa had actually said. I accept that the failure to disclose Visa’s reasons for the suspension as set out in the 6 March letter was false or misleading in contravention of s 1309(2)(e) of the Act.

Question 2(d) Once again, Mr Karantzis’ purported justification for his answer to question 2(d) cannot be accepted. Mr Karantzis well knew that the primary reason given by Visa in the 6 March letter for the suspension of iSignthis was AML concerns. I accept that to answer the question on the basis of brand risk was to omit information known to the company, rendering the response false and misleading in contravention of s 1309(2)(e) of the Act.

Question 2(e) Mr Karantzis’ justification for his answer to this question cannot be accepted either. The question was plainly directed to whether Visa had any AML concerns in relation to iSignthis. In effect, Mr Karantzis chose to ignore the question and promote his own narrative on the AML issue in circumstances where he well knew that Visa did have AML concerns. I accept that his response was thus false and misleading in contravention of s 1309(2)(d) of the Act.

Question 2(f) Once again, I do not accept Mr Karantzis’ purported justification for this response. Mr Karantzis well knew that Visa had suspended iSignthis because of AML concerns. I accept that to feign no knowledge of what “SUSPENDED BY AML” meant, in the circumstances, was false and misleading in a material particular in contravention of s 1309(2)(d) of the Act. To parse the question in the way that Mr Karantzis does provides no answer to the allegation.