Pershing Securities sentenced for breaching client money obligations

Pershing Securities Australia Pty Ltd (PSAPL) has been sentenced in Sydney’s Downing Centre Local Court to pay a total penalty of $40,000 after pleading guilty to breaching client money obligations.

PSAPL pleaded guilty to breaching s993C(1) of the Corporations Act 2001 (the Act) and Regulation 7.8.01(1) of the Corporations Regulations 2001 by transferring sale proceeds from international trading in client’s securities from trust accounts into PSAPL’s general bank account, over a period of approximately 424 days between 1 March 2016 and 20 December 2017.

PSAPL also pleaded guilty to breaching s993B(1) of the Act by failing to ensure that some client money it received was held in segregated client money trust accounts on a total of 707 days between 25 January 2016 and 31 December 2018.

Additionally, PSAPL admitted guilt to a second breach of s993B(1) of the Act, which occurred when PSAPL failed to transfer $1,044.65 into a trust account on 21 August 2017.  PSAPL was not sentenced for this breach, but it was taken into account during sentencing.

Magistrate Atkinson sentenced PSAPL to pay a fine of $15,000 for breaching s993C(1) and $25,000 for breaching s993B(1), taking into consideration the second breach of s993B(1) of the Act.

In delivering sentence, Magistrate Atkinson said, ”There is a strong need for general deterrence. Even though the Defendant is unique in the marketplace, it [PSAPL] must understand that the legislative requirements are important and must be adhered to.”

Magistrate Atkinson also noted that it was PSAPL’s responsibility to ensure that there were systems in place that reflected what was required by law. Furthermore, her Honour drew attention to the importance of the regulatory requirements that are put in place to safeguard and protect client money.

PSAPL is the first company in Australia to be convicted of criminal offences for breaching client money provisions, which are designed to protect the interests of AFS licensee clients by ensuring that client money is kept separate from licensee money.

ASIC Commissioner Cathie Armour welcomed the decision.

‘This outcome sends a strong message that client money breaches are serious. Client money obligations protect investors, bolster investor confidence and underpin the integrity of Australian financial markets. If licensees don’t take them seriously, they risk criminal conviction. ASIC will continue to closely supervise compliance with these laws and take action against any breaches,’ Commissioner Armour said.

The Commonwealth Director of Public Prosecutions prosecuted the matter.

Background

In addition to being convicted of criminal charges as a result of ASIC’s investigation, PSAPL has accepted additional licence conditions imposed by ASIC on its AFS licence (19-344MR).

In addition to keeping separate client money from money belonging to licensees, the client money provisions also protect the interests of clients of AFSL licensees by:

  • limiting the uses of client money;
  • limiting the circumstances in which client money may be withdrawn from client money accounts;
  • imposing sanctions on licensees who fail to comply with the client money provisions.

Note:

Earlier on 5 August 2020 ASIC published a media release that stated PSAPL had pleaded guilty to breaching s993B(1) of the Act by failing to ensure that “a total of $5.78 billion of client money received on behalf of third party clients was held in segregated client money trust accounts” between January 2016 and 5 October 2018.  This statement was inaccurate. The Agreed Statement of Facts before the Court contained no reference to the total value of client money attributable to the breach. The reference to $5.78billion referred to the value of trading conducted through the accounts between 25 January 2016 and 31 December 2018.

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