Supreme Court New South Wales Medium Neutral Citation: In the matter of Idylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs [2012] NSWSC 1276 Hearing dates: 4-6, 9-13, 16, 17, 19, 23-27 & 30 July, 3, 8-10, 14-16, 21-24 & 29 August, 5-6, 10,12 September 2012 Decision date: 24 October 2012 Jurisdiction: Equity Division - Corporations List Before: Ward J Decision: Judgment for plaintiff against first, third, fourth and eighth defendants on some or all of the claims made against them. Orders to be made following hearing as to penalty. Catchwords: CORPORATIONS - whether various defendants acted as de facto or shadow directors in relation to various of impugned corporations - directors and officers duties - duty of care and diligence - duty to act in good faith and for a proper purpose - duty not to make improper use of position - whether officers were 'involved' in contraventions by others - Corporations Act 2001 (Cth) ss 79, 180(1), 181 and 182 AGENCY - whether illegal acts were within scope of agency - whether independent contractors were acting as agents - consideration of the scope of authority - whether scope of authority limited to the express terms of a contractual document CORPORATIONS - financial services and product - whether business confined to provision of financial education or extended to provision of a financial product or financial product advice - whether business required a financial services licence - Corporations Act 2001 (Cth) s 911A CORPORATIONS - managed investment scheme - whether there was contribution of money or money's worth in consideration for an interest in the benefits produced by the scheme - whether scheme was required to be registered - Corporations Act 2001(Cth) s 601ED(5) MISLEADING AND DECEPTIVE CONDUCT AND FALSE STATEMENT - by directors and officers - by various of the corporate administrators of the various investment funds - whether would lead recipient into error - relevance of contemporaneous disclaimers - Corporations Act 2001 (Cth) ss 1041E, 1041G and 1041H - Australian Securities and Investments Commission Act 2001 (Cth) ss 12DA, 12DB and 12DF EVIDENCE - civil penalty proceedings - whether Jones v Dunkel inferences can be drawn where defendant fails to call particular witness in a civil penalty proceeding Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Evidence Act 1995 (NSW) Foreign Evidence Act 1994 (Cth) Securities Act 1978 (NZ) Superannuation Industry (Supervision) Act 1993 (Cth) Supreme Court Act 1970 (NSW) Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Adler v Australian Securities and Investments Commission (2003) 179 FLR 1; 46 ACSR 504; [2003] NSWCA 131 Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 4) [2011] FCA 578 Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In liq) (1978) 141 CLR 335 Australian Agricultural Co v Oatmont Pty Ltd (1992) 8 ACSR 255 Australian Brokerage Ltd v Australian and New Zealand Banking Corp Ltd (1934) 52 CLR 430 Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472 Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439 Australian Competition and Consumer Commission v Universal Sports Challenge Pty Ltd [2002] FCA 1276 Australian Horticultural Finance Pty Ltd v Jekos Holdings Pty Ltd (Unreported, Court of Appeal of Queensland, 9 December 1997) Australian Securities and Investments Commission v ABC Fund Managers Ltd (No 2) (2001) 39 ACSR 443; [2001] VSC 383 Australian Securities and Investments Commission v AS Nominees Ltd (1995) 62 FCR 504 Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 Australian Securities and Investments Commission v Cyclone Magnetic Engines Inc (2009) 71 ACSR 1 Australian Securities and Investments Commission v Edwards (2004) 22 ACLC 1469 Australian Securities and Investments Commission v Edwards (No 3) [2006] NSWSC 376; (2006) 57 ACSR 209 Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 411 Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 544 Australian Securities and Investment Commission v Emu Brewery Mezzanine Ltd (2004) 52 ACSR 168 Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (1999) 33 ACSR 403 Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd [2006] FCA 1415 Australian Securities and Investments Commission v Great Northern Developments Pty Ltd [2010] NSWSC 1087 Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 284 ALR 734 Australian Securities and Investments Commission v Hellicar [2012] HCA 17 Australian Securities and Investments Commission v IP Product Management Group Pty Ltd (2002) 42 ACSR 343 Australian Securities and Investments Commission v Infomercial Management Group Pty Ltd [2002] VSC 262 Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339 Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714 Australian Securities and Investments Commission v McDougall (2006) 229 ALR 158; [2006] FCA 427 Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488; [2002] FCA 1005 Australian Securities and Investments Commission v Matthews (1999) 17 ACLC 528 Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373 Australian Securities and Investments Commission v Narain (2008) 169 FCR 211 Australian Securities and Investments Commission v Online Investors Advantage Inc (2005) 194 FLR 449; 23 ACLC 1929; [2005] QSC 324 Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553; [2006] VSC 192 Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd (2002) 41 ACSR 561 Australian Securities and Investments Commission v Plymin (No 2) [2003] VSC 230 Australian Securities and Investments Commission v Primelife Corporation Ltd (2005) 54 ACSR 536; [2005] FCA 1229 Australian Securities and Investment Commission v Rich [2005] NSWSC 417 Australian Securities and Investment Commission v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224 Australian Securities and Investments Commission v Takaran (2002) 170 FLR 388; [2002] NSWSC 834 Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617; [NSWSC] 738 Australian Securities and Investments Commission v Woods and Johnson Developments Pty Ltd (1991) 6 ACSR 191 Australian Securities and Investments Commission v Young (2003) 173 FLR 441 Australian Softwood Forests Pty Ltd v A-G (NSW) (1981) 148 CLR 121 Azzopardi v The Queen (2001) 205 CLR 50 Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279; 92 ALR 53; [1990] HCA 11 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Belhaven & Stanton Peerage (1875) 1 App Cas 278 Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) [2008] WASC 239 Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR ¶41-043 Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 Blythe v Northwood [2005] NSWCA 221 Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 Breen v Williams (1996) 186 CLR 71 Bridge v Campbell Discount Co Ltd [1962] AC 600 Briginshaw v Briginshaw (1938) 60 CLR 336 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 Brisconnections Management Co Ltd v Australian Style Investments Pty Ltd (2009) 23 VR 253; [2009] VSC 128 Brooke v Bool [1928] 2 KB 578 Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11; [2009] FCAFC 147 Burton v Arcus (2006) WAR 366; [2006] WASCA 71 Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 C H Real Estate Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37 Cairnsmore Holdings Pty Ltd v Barsden Holdings Pty Ltd [2007] FCA 1822 Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 Circle Petroleum (Qld) Pty Ltd v Greensdale (1998) 16 ACLC 1577 City Bank of Sydney v McLaughlin (1909) 9 CLR 615 Chamberlain v R (No 2) (1984) 153 CLR 521 Chan v Zacharia (1984) 154 CLR 178 Chapman v Luminis Pty Ltd (No 5) [2002] ATPR Digest 46-214; [2001] FCA 1106 Chew v The Queen (1992) 173 CLR 626 Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 Compaq Computer Australia Ltd v Merry (1998) 157 ALR 1 Dalton v Lawson Hills Estate Pty Ltd [2005] FCAFC 169 Darwin Bakery v Sully (1981) 36 ALR 371 Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 Diakyne Pty Ltd v Ralph (2009) 72 ACSR 450; [2009] FCA 721 Dialog Pty Limited v Addease Pty Limited [2003] FCA 1359 Dilose v Latec Finance Pty Ltd (1966) 84 WN (Pt1)(NSW) 557 Director of Public Prosecutions v Boardman [1975] AC 421 Doney v R (1990) 171 CLR 207 Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18 Downey v Carlson Hotels Asia Pacific Pty Ltd [2005] QCA 199 Equuscrop Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 Evergreen Tours Pty Ltd v McLaren [2010] NSWSC 1362 Ex parte Colonial Petroleum Oil Pty Ltd (1944) 44 SR (NSW) 306 Fairmede Pty Ltd v Von Pein [2004] QSC 220 Fame Decorator Agencies Pty Ltd v Jeffries (1998) 28 ACSR 58 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 First Chicago Australia Limited v Yango Pastoral Co Pty Ltd [1977] 2 NSWLR 177 Firth v John Mowlem & Co Ltd [1978] 1 WLR 1184 Fraser v NRMA Holdings (1995) 55 FCR 452 Freeman v Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 Forkserve Pty Ltd v Jack (2000) 19 ACLR 299 Forrest v Australian Securities and Investments Commission [2012] HCA 39 Garsec v His Majesty The Sultan of Brunei [2007] NSWSC 882 Gianni Versace SpA v Monte (2002) 119 FCR 349; [2002] FCA 190 Giorgianni v R (1985) 156 CLR 473 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286 Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; (2012) 287 ALR 22 Grove v Flavel (1986) 43 SASR 410 H C Buckman and Son Pty Ltd v Flanagan (1974) 133 CLR 244 H P Mercantile Pty Ltd v Tumut River Orchard Management Limited (In Liq) [2011] FCA 200 Hall v Poolman [2007] NSWSC 1330 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 Hollis v Vabu Pty Ltd (2001) 207 CLR 21 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 Ibrahim v Pham [2005] NSWSC 246 Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets Limited [2008] NSWCA 206 International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644 J F & B E Palmer Pty Ltd v Blowers and Lowe Pty Ltd (1987) 75 ALR 509 James Hardie Industries NV v Australian Securities and Investments Commission (2010) 274 ALR 85 John G Glass Real Estate Pty Ltd v Karawai Constructions Pty Ltd [1993] ATPR ¶41-249 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 Jones v Dunkel (1959) 101 CLR 298 Joye v Beach Petroleum NL (1996) 67 FCR 275 Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430 Kirkpatrick v Kotis [2004] NSWSC 1265 Kwok v The Queen (2007) 64 ACSR 307 Leferve v White [1990] 1 Lloyd's Rep 569 Lyons v Commonwealth Bank of Australia 28 FCR 597 Lysaught Bros & Co Ltd v Falk (1905) 2 CLR 421 Macdonald v Australian Securities and Investments Commission [2007] NSWCA 304 Macquarie Developments Pty Limited and Anor v Forrester and Anor [2005] NSWSC 674 McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230 Mills v Mills (1938) 60 CLR 150 Morgan v Babcock & Wilcox Ltd (1929) 43 CLR 163 Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; (2011) 83 ACSR 620 Mullens v Miller (1882) 22 Ch D 194 National Australia Bank v Norman (2009) 180 FCR 243 National Exchange Pty Ltd v Australian Securities Investment Commission (2004) 49 ACSR 369 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 New Zealand Netherlands Society "Oranje" Incv Kuys [1973] 2 All ER 1222 Nguyen v Cosmopolitan Homes [2008] NSWCA 246 Orix Australia Corporations Limited v Moody Kiddell & Partners Pty Limited [2006] NSWCA 257 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Palmer v Dolman [2005] NSWCA 361 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Peter Cox Investments Pty Ltd (In liq) v International Air Transport Association (1991) 161 ALR 105 Petersen v Moloney (1951) 84 CLR 91 Pilmer v Duke Group Ltd (in liq) [2001] HCA 31 (2001) 207 CLR 165 Powercor Australia Ltd v Pacific Power [1999] VSC 110 Premier Building and Consulting Pty Ltd (recs apptd) v Spotless Group Ltd [2007] VSC 377; (2007) 64 ACSR 114 Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175; [2004] ATPR 42-010 R v Byrnes (1995) 183 CLR 501 R P S v The Queen [2000] HCA 3; (2000) 199 CLR 620 Raftland Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2008] 238 CLR 516 Re Elizabethan Theatre Trust, Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 ; [2002] NSWSC 171 Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1989) 15 ACLR 416 Rich v Australian Securities and Investments Commission [2004] HCA 42 Riley McKay Pty Ltd v Bannerman (1977) 15 ALR 561 Rothmans of Pall Mall (Overseas) Ltd v Saudi Arabian Airlines Corp [1981] QB 368 Scott v Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265 Scott v Davis (2000) 204 CLR 333 Schultz v Corwill Properties Pty Ltd [1969] 2 NSWR 576 Seamez v McLaughlin [1999] NSWSC 9 Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 Smithers v Beveridge (1994) 14 ACSR 197 Snook v London & West Riding Investments Ltd [1967] 2 QB 786 Southern Resources Ltd v Residues Treatment and Trading Co Ltd (1990) 3 ACSR 207 South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; 177 ALR 611 Stacks Managed Investments Ltd (2005) 219 ALR 532; [2005] NSWSC 753 Stoneman v Lyons (1975) 133 CLR 550 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Thornton v Shoe Lane Parking [1971] All ER 686 Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 38 FCR1 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Tonto Home Loans Australia Pty Ltd v Tavares; Firstmac Ltd v Di Benedetto; Firstmac Ltd v O'Donnell [2011] NSWCA 389 Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 124 Twinsectra v Yardley [2002] 2 AC 164 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; [NSWCA] 75 Vrisakis v Australian Securities Commission (1993) 9 WAR 395; 11 ACSR 162 Watson v Foxman (1995) 49 NSWLR 315 Weitmann v Katies (1977) 29 FLR 336 Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 Wingecarribee Shire Council v Lehman Bros Australia Ltd (in liq) [2012] FCA 1028 Yorke v Lucas (1985) 158 CLR 661 Youyang v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 Texts Cited: J Anderson et al, The New Law of Evidence (2nd ed, 2009) Austin and Black's Annotations to the Corporations Act (LexisNexis Butterworths) H Bennett and G A Broe, "The civil standard of proof and the "test" in Briginshaw: Is there a neurological basis to being "comfortably satisfied" (2012) 86 ALJ 258 S G Coroneo, The Australian Consumer Law (2011) G E Dal Pont, Law of Agency (2nd ed, 2008) Professor P Finn, "The Fiduciary Principle", in Equity Fiduciaries and Trusts, TG Youdan (ed) (1989)Ford's Principles of Corporations Law R Meagher, D Heydon and M Leeming, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (4th ed, 2002) S Odgers, Uniform Evidence Law (10th ed, 2012) Ritchie's Commentary on the Uniform Civil Procedure Rules W A Seavey "The Rationale of Agency" (1919-1920) 29 Yale Law Journal 859 P Watts and F M B Reynolds, Bowstead and Reynolds on Agency (19th edn, Sweet & Maxwell, 2010) Category: Principal judgment Parties: Australian Securities and Investments Commission (Plaintiff) David John Hobbs (First Defendant) Min Hua Li (Second Defendant) David John Collard (Third Defendant) Huimin Wu (Fourth Defendant) Con Koutsoukos (Fifth Defendant) Brian John Wood (Sixth Defendant) Jimmy Truong (Seventh Defendant) Jacqueline Hobbs (Eighth Defendant) Idylic Solutions Pty Ltd ACN 121 960 754 (Ninth Defendant) 888 Management Inc (Tenth Defendant) Geneva Financial Ltd (Eleventh Defendant) Barclaywest Ltd (Twelfth Defendant) Preserved Investment Group Ltd (Thirteenth Defendant) North Wave Ltd (Fourteenth Defendant) G P Global Ltd (Fifteenth Defendant) Representation: J A Halley SC with J R Clarke, A Kuklik (Plaintiff) Ms G Hayden, Solicitor for Australian Securities and Investments Commission (Plaintiff) File Number(s): 07/258119 Judgment 1HER HONOUR: This matter, which was listed before me for hearing in the Corporations List commencing on 4 July 2012, relates to various investment schemes through which funds were pooled for the purpose of investment into the offshore wholesale market. In total, more than AU$50,000,000 was invested in these investment schemes. 2The Australian Securities and Investment Commission contends that the fourteen individual investment schemes the subject of these proceedings constituted (either collectively or individually) a financial product within the meaning of Division 3, Part 7.1 of the Corporations Act (2001) (Cth) for the operation of which an Australian financial services licence was required. Neither Mr Hobbs, nor any of the corporate or individual administrators or operators of the respective investment schemes was (and this is not disputed) the holder of an Australian financial services licence. 3ASIC contends that the individual investment funds (each of which is said to have utilised, or been derived from, a "white label" or generic managed investment scheme developed by the first defendant, Mr David Hobbs, in about 2002), and everything comprising the operation of those schemes (such as the sale of FTC financial education subscriptions and the OEM/KLM process to which I will shortly refer), collectively formed part of a single managed investment scheme, the operation of which required compliance with s 601EB of the Corporations Act. 4ASIC has referred to the generic scheme or product that it contends was developed by Mr Hobbs (and that was able to be adapted or tailored for use by different corporate administrators) as the "Hobbs scheme" or the "Hobbs financial product". Mr Hobbs denies that there is any "Hobbs scheme" or "Hobbs financial product" (but accepts that there was a financial product or scheme of some kind, to which he refers as the "Reisinger product"). Where I use those terms in these reasons it is simply for convenience, as a description of that which ASIC contends amounts to an overall scheme or financial product developed and/or promoted by Mr Hobbs. Structure of these reasons 5The issues in the proceedings cover a range of topics and span activities over a number of years, necessitating a detailed exploration of the facts. For ease of reference, I set out below a table of contents in respect of my reasons for judgment. I have published these reasons in two parts: the first containing an overview, introductory matters and the chronology of events, and my findings as to credibility of Mr Hobbs and the witnesses called by ASIC; the second as to Ms Reisinger's evidence, matters relating to authentication of documents, the submissions made by Mr and Mrs Hobbs on financial matters and my factual findings and findings as to the issues for determination. CONTENTS Structure of these reasons [5] Overview [6] Proceedings [50] Defendants [58] Schemes [122] Dramatis Personae [130] Cadent accounts [239] Manner in which communications were sent [247] DVD Seminar [253] OEM/KLM Process [287] Examples of scheme documents [318] Summary as to the position of the Defendants [360] Mr and Mrs Hobbs [361] Ms Wu [405] Mr Collard [409] Status of Wu and Collard Submissions [422] Summary of findings [423] Chronology [442] Pre 1998-1999 [433] Events in 2000 [454] Events in 2001 [481] Events in 2002 [500] Events in 2003 [557] Events in 2004 [605] Events in 2005 [646] Events in 2006 [679] Events in 2007 [752] Events in 2008 [821] Credibility of Witnesses [830] Mr Hobbs [831] Witnesses Called by ASIC [944] (i) Scheme Administrator [946] Mr Koutsoukos [967] Mr Wood [1008] Mr Truong [1020] Ms Bi Hong Dong [1024] (ii) FTC Executives - Mr Diaz [1033] (iii) Investors [1059] Mr Richard Blow [1064] Mr Nicholas Stavropoulos [1066] Mr Gideon Russell [1086] Ms Lei Huang [1087] (iv) Friends/Relatives/Hobbs office personnel [1111] Mr Craig Dent [1111] Mrs Emma Burnard [1117] Mrs Suzanne Watson [1124] Mr Pierre Mitchell [1127] Mrs Brenda Hobbs [1129] Mr Grant Clements [1133] Mr Robert Fitzgerald [1159] (v) Mr Parsons [1163] (vi) Ms Reisinger [1195] Authenticity of New World Holdings documents [1258] Financial/Accounting Submissions [1279] Legal Principles [1334] De facto/shadow directors [1335] Agency [1344] Financial services contraventions [1375] Section 911A contraventions [1376] Section 601ED(5) contraventions [1386] Misrepresentation contraventions [1423] Directors' duties [1476] Breach of fiduciary duties [1497] Aiding and abetting [1509] Matters raised by Mr Hobbs - relief from liability [1514] Evidentiary Principles Onus [1526] Jones v Dunkel inferences [1535] Authentication of business records [1551] Issues for Determination - Findings [1556] Findings - the Hobbs companies [1568] Findings - FTC/OEM/KLM [1661] Findings - allegations as to the roles of particular individual defendants [1690] Findings - Individual schemes [1706] Principal Issues for Determination [1907] "Hobbs scheme" issues [1908] Misrepresentation issues [2140] Direct contraventions [2316] Breach of directors' or other duties [2347] Aiding and Abetting Breaches of Directors' Duties [2407] Breach of fiduciary duties [2418] Defences/matters pleaded in answer to the claim Limitations defence [2432] Invocation of s 1317S and s 189 Corporations Act [2443] Conclusion [2477] Declarations and Orders sought by ASIC [2490] Annexure A - ASIC's List of Dramatis Personae Annexure B - ASIC's Chronology Annexure C - Aide-memoire re Summary of Schemes (Cadent) Annexure D - ASIC's Summary of Principal Issues for Determination Overview 6Investments in most of the individual schemes were typically made in the name of international business corporations (IBCs) registered in offshore jurisdictions (jurisdictions that Mr Hobbs has himself described, in a seminar he presented in about 2003 and to which I will refer throughout as the DVD Seminar, as "privacy havens", and which were referred to in a Master Fund power point presentation as "privacy heavens"), including Anguilla, Vanuatu and the British Virgin Islands. ASIC contends that for most (though not all) of the individual schemes falling under the umbrella of the Hobbs scheme the incorporation of an IBC was a prerequisite to investment therein (though even where this requirement applied to a scheme it seems not always to have been complied with in practice - as, for example, with the investment by Mr Earl Conroy in his individual capacity of funds in the Smart Money Scheme, on the contract for which Mr Hobbs signed as introducer or broker). 7While ASIC does not dispute the fact that moneys were contributed to the respective funds by way of investment, it contends that the identity of the particular investor (as an IBC) was a sham and that the relevant investments were in truth made not by the IBCs but, rather, by the individuals (who were retail, not wholesale, investors) on whose application the IBC in question was incorporated. In that regard, ASIC points to the fact that the moneys contributed by scheme members to the individual schemes were (with limited exceptions) not paid from an account in the name of the particular IBCs and that, in general, the scheme agreements were completed and executed in a manner and form that demonstrated that the 'investor' or 'scheme member' was the individual rather than the IBC associated with that individual. (In the alternative, ASIC contends that the particular IBCs were the alter egos of the individual investors and/or that the investment by the IBC was in each case as the relevant individual's agent). 8Two of the schemes (the Super Save Superannuation Fund and the 888 (Super Save) Fund) were promoted for investment of superannuation funds by trustees of self-managed superannuation funds (SMSFs). In connection with those funds, a process was put in place (through an entity incorporated in New Zealand, Diligence Discovery Ltd) to monitor the investment of the funds and to confirm to investors both the receipt of funds and the acquisition with those funds (once pooled with other investor funds) of US Treasury Bills or Notes. (I interpose to note that this exercise seems to have been largely, if not wholly, an administrative one; limited to relaying to the investors information received respectively from the relevant scheme administrators and/or from the US clearing house reporting on the acquisition of the US Treasury Notes or T Bills, rather than the independent verification of that information.) Despite the assurances of Mr Hobbs to the contrary, there is no evidence of any independent external oversight or checking of the investment process. 9ASIC contends that Mr Hobbs promoted and offered the Hobbs financial product to unsophisticated retail investors in Australia on the basis that it was an offshore investment into the wholesale market that would enable those investors to obtain investment benefits (at a high rate of return) otherwise available only to wholesale or sophisticated investors and that Mr Hobbs did so through financial education seminars and investor meetings (held in various locations in Australia, including commercial premises in New South Wales, South Australia and Victoria, and at private homes in New South Wales) conducted by himself with one or more others (FTC executives) and/or by word of mouth through his agents (the said FTC executives). The FTC executives were persons appointed or approved by Mr Hobbs (in his stated capacity as International Sales Manager of Future Trading Corporation Limited, an IBC incorporated in Vanuatu). 10ASIC contends that Mr Hobbs recruited the FTC executives (a number of whom were his relatives or friends) not only to market the sale of financial education packages but also to introduce potential investors in Australia and New Zealand to the investment opportunities available through particular schemes or funds (information as to which was provided, nominally at least, by a separate entity known as KLM or KLM Enterprises Ltd). 11The FTC executives who gave evidence in these proceedings appear to have had little or no formal financial qualifications or training. ASIC contends that at all material times each of the FTC executives acted as an agent of Mr Hobbs in conducting the FTC business (including the promotion of investments) in Australia. Mr Hobbs denies that the FTC executives were his agents (but in his defence he makes the positive assertion that they were agents of FTC for the purposes of selling financial education material [24]). 12Broadly speaking, ASIC contends that the process by which individuals in Australia and New Zealand were able to gain access to the opportunity for offshore investment through the various investment funds the subject of these proceedings involved one or more of the steps set out below (not all of which applied, or were followed, strictly in each particular case). (I set out later extracts from the text of the standard communications sent as part of the OEM/KLM process, which illustrate the formulaic nature of the said process.) 13For the most of the individual schemes, the first step was the subscription by a potential investor to an FTC financial education package (most commonly through a "gold" level subscription at a cost of AU$4,000, although there were other levels of subscription - silver and platinum), for which the subscriber received a series of 18 booklets (issued over a 3 year period) on various topics (including "The Art of Arbitrage", "The ABC of IBCs", "Is Your Money Really in the Bank", "Debt Restructuring", "Budgeting") as well as various newsletters and "newsflashes" (in relation to matters such as international investment frauds or scams, including warnings as to "prime bank" scams, Nigerian e-mail scams and, somewhat ironically, "Ponzi" schemes). 14Some, at least, of the booklets (which were not particularly sophisticated in form or content) were written by Mr and Mrs Hobbs. (Mr Hobbs nevertheless contends that a number of booklets were provided to him by a US attorney, Mr Howard (Kip) Becker). The booklets were printed by Mrs Hobbs' sister (Mrs Ngaire Dent) and her husband (Mr Craig Dent) at, and sent to the FTC subscribers from, their home in Queensland. 15At least in relation to the 888 (Super Save) Fund, it seems that the requirement for subscription to FTC may not have been applicable (Ms Bi Hong Dong's affidavit at [110] and [115]). 16The second step was the establishment by an FTC subscriber (and potential investor) (at a cost of around $3,000) of an IBC in an offshore jurisdiction (information as to how to do so having been provided either following a request made by the potential investor by facsimile to an entity known as OEM Limited or in some cases by the FTC executive to the potential investor directly. (In the case of the Super Save and 888 (Super Save) Funds, investors were required to set up an SMSF for the purposes of making the investment.) 17Third, for those schemes to which the OEM/KLM process applied, there was the issue of a letter on OEM letterhead to the "administrator" of the IBC (the administrator usually being the individual who had subscribed to the FTC educational package and who had made application for the IBC) acknowledging receipt of a request for information as to investment funds and advising of the referral of that request to another entity (KLM). The issue of letters on OEM/KLM letterhead generally took place from Mr Hobbs' office in New Zealand (though in relation to one of the funds, Integrity Plus, the scheme administrators in New South Wales at one stage issued the letters themselves). In New Zealand, the OEM/KLM process was administered by Mr Hobbs' personal assistant (Mrs Suzanne Watson) and her daughter (Mrs Emma Burnard), each of whom gave evidence in the proceedings of her understanding of the OEM/KLM process (from which it was apparent that they were doing little more than following instructions that had been given to them). 18Broadly, it seems that, before (in some undisclosed fashion) "referring" to KLM the "request" for information as to investment funds, Mrs Watson and/or her daughter had to be satisfied that the investor "qualified" for the investment (ie, that an IBC had been incorporated in an "appropriate" offshore jurisdiction and that there had been an appropriate response to any information sought from the FTC subscriber in that regard - including that the purpose of the IBC was "educational"). 19There is no documentation evidencing any referral, as such, of such a request to KLM. Seemingly, what happened was simply a change of letterhead for the next step in the process. Although the fax number for OEM/KLM (which was the same number) had a UK prefix, facsimile transmissions to those numbers were diverted by an internet-based fax service provided by a US company (J2) to Mrs Burnard at her email address in New Zealand (the cost of the J2 service being paid by a company operating from Mr Hobbs' office - Tasman Business Consultants). Of the funds the subject of these proceedings, only potential investors in Master Fund, First Secured Bond Unit Trust, Covered Strategies, Smart Money, Elite Premier and Elite Premier Option Two Unit Trust went through the initial OEM fax process. 20The fourth step was that, potential investors were provided, by a letter on KLM letterhead (again generally issued by Mrs Watson/Mrs Burnard in New Zealand), with a list (that varied from time to time) of the funds into which investment could be made (including a brief description of those funds and a risk profile in respect of each fund, with a rating from 010 as to the investment risk associated with that fund). At least in one instance, where the potential investor sought to invest in a fund other than those nominated in the KLM list of funds provided to her, this was permitted. 21Once investors selected a particular investment fund, generally documentation was issued for the acquisition (in the name of the relevant IBC or the SMSF, as the case may be) of units in the particular unit trust (the documentation so issued being a private placement memorandum for the relevant scheme, watermarked or embossed with the particular IBC name and an investor number, and a pro forma agreement to be entered into between the IBC and the corporate administrator of the particular investment scheme). In some of the funds, investment was effected (in some or all instances) through the acquisition of shares in the corporate administrator of the scheme (the Enhanced Fund and the Good Value Fund). 22The material terms of each scheme memorandum and scheme agreement were in strikingly similar form. (I set out later in these reasons extracts from the text of a typical memorandum and agreement.) ASIC contends that the documents were drafted by Mr Hobbs or otherwise supplied by him (or his assistant, Mrs Watson) to the scheme administrators. Mr Hobbs denies that he drafted or supplied memoranda or fund documents to scheme administrators. (I interpose to note that it defies commonsense to suggest that disparate scheme administrators, and particularly scheme administrators with no previous experience in operating investment funds, would independently have created documents in such similar terms and format (even down to adopting the same process of watermarking the memoranda) without some common denominator. The evidence points overwhelmingly to Mr Hobbs as being the relevant common denominator between the various schemes.) Mr Hobbs says that the template for the scheme memorandum for Smart Money, the initial fund administered by Geneva Financial, was provided to his wife by Mr Becker. This is not consistent with the chronology of events. 23For the period from 2001 to around 2007, much of the scheme documentation was printed and dispatched by Mr and Mrs Dent from their home in Queensland but at a later point (in about 2007), the printing and dispatch of such documentation was carried out by an IBC called Swiss First Security (or Swiss First Securities) from Tonga (or one of the Pacific Islands). In some instances potential investors would be provided with the scheme memorandum and agreement by the scheme administrators themselves (such as, for example, by Mr Koutsoukos, Mr Wood or Mr Truong with respect to investments in Integrity Plus and Super Save). 24In one of the funds (the Good Value Fund), investment through the fund was limited to shareholders of the corporate administrator (North Wave Ltd). However, for most of the individual schemes funds were solicited more broadly. 25Unit certificates (and/or letters confirming the investment) were issued in respect of the investments. Those certificates were in the name of the IBCs, but usually sent to the address (in Australia or New Zealand) of the person on whose behalf or at whose request the IBC had been established. (On the scheme agreement investors nominated the relevant address for correspondence and bank account details for payment of returns. The nomination of those details care of the individuals is one of the factors relied upon for ASIC's sham argument.) 26Each scheme was administered by a corporate administrator, which (with one exception for a short period) was an offshore incorporated IBC. The corporate administrators were operated or managed by individuals (usually FTC executives) who variously described themselves as administrators, principals, directors, beneficial owners or consultants of the corporate administrator. ASIC contends that each of the individual scheme administrators was a de facto director or officer of the respective corporate scheme administrators and that none had any relevant experience or qualifications to offer interests in, or to operate, managed investment schemes in Australia. 27(In these reasons where I refer to scheme administrators, I am referring to the individuals, as opposed to the corporate entities named in the scheme agreements as administrator of the relevant funds to whom I refer as corporate administrators. References to the "fund administrators' are non-specific - largely because, where I so refer to them, this is using the term given to them by Mr Hobbs.) 28It is contended that Mr Hobbs directed or otherwise procured the corporate administrators of particular individual schemes (with the exception of 888 Turks & Caicos, Geneva Financial, Preserved Investments and ISPL) to open (non interest-bearing) bank accounts with Technocash Pty Limited, a company incorporated in New South Wales that provides multi-currency facilities. ASIC contends that the corporate administrators of the relevant schemes used the Technocash accounts to accept the deposits of funds sent to the account by telegraphic transfer in various currencies; to pay funds by telegraphic transfer to other accounts in any of those currencies; and to transfer funds within the account from one currency to another. 29For some (but not all) of the individual schemes some (but by no means all) of the investment moneys were transferred (through a broker in the United States - mostly, Ms Lisa Reisinger, the branch manager of a company in Illinois called New World Holdings LLC) to investment accounts held with a futures commission merchant in the United States (Cadent Financial Services LLC) for trading on the US wholesale market by particular commodity traders (or CTAs) with whom the corporate administrators had entered into trading agreements. 30In the period between December 2004 and March 2007, the scheme administrators of each of the Super Save Fund, Master Fund, Pinnacle Fund, 888 (Super Save) Fund, Enhanced Fund, Prestige Unit Trust, Elite Premier Option Two Unit Trust, Good Value Fund and Best Fund, opened and operated derivatives trading accounts with Cadent in the names of the respective corporate administrators of those funds. ASIC contends that this was at the direction of Mr Hobbs and that he (either personally or by his agents, Ms Li and Mr Collard) introduced various of the scheme administrators to Ms Reisinger for that purpose. Ms Reisinger had formerly been an employee of an entity known as Refco (Refco being described by Mr Hobbs at the DVD Seminar as an "international clearing house", in terms that conveyed the clear impression that he had previously had dealings with or through Refco). 31In the case of Integrity Plus, it invested funds with Cadent through accounts opened in the name of ISPL (the only corporate scheme administrator that was incorporated in Australia), which was for a short time one of the administrators of the Super Save Fund. 32ASIC contends that it was pursuant to the instructions or advice of Mr Hobbs (or his agents, New World Holdings and Ms Reisinger) that various of the corporate administrators entered into the Cadent trading agreements (or sub-accounts) for the investment of the funds deposited to their Cadent accounts (and allocated an amount for each of the Cadent traders appointed by them and the leverage, if any, to be applied to that account). 33The earlier funds - First Secured Bond Unit Trust, Smart Money, Elite Premier (ie the first Elite Premier Fund) and Covered Strategies did not invest funds with Cadent (though there was an application pending for a Cadent account to be opened by the corporate administrator of the Covered Strategies Fund in 2007, when the ASIC investigation that led to these proceedings, came to Cadent's attention and thereafter that application did not proceed). In due course, the respective Cadent accounts were frozen. 34As part of the investment of funds through Cadent, the corporate administrators of various of the funds that had opened or operated Cadent accounts (other than Secured Bond, GP Global and North Wave) gave instructions for the purchase of United States Treasury securities or STRIPS ("Separate Trading of Registered Interest and Principal of Securities") using investors' funds from the relevant Cadent account. Those US Treasuries were credited to the Cadent account from which the funds for their purchase had originated (and, in the case of Preserved Investments, were utilised for the purpose of bond trading). Those securities (together with funds held in cash in the respective Cadent accounts) were utilised as security to meet margin calls on derivatives trading conducted by the Cadent traders appointed to the particular Cadent account. ASIC contends that this was, again, something that was done pursuant to the instructions or advice of Mr Hobbs (or his agents, New World Holdings and Ms Reisinger). 35(US Treasury STRIPS were purchased for Integrity Plus (Ex A Table 171), Super Save (Ex A Table 171), Pinnacle Fund and 888 (Super Save) (Ex A Tables 172/173), Enhanced Fund (Ex A Table 176), Best Fund and Prestige Fund (Ex A Tables 174 and 175) and the Elite Premier Option Two Unit Trust (Ex A Table 177).) 36Apart from the investment of funds with Cadent, ASIC contends that Mr Hobbs directed or otherwise procured various of the scheme administrators: to disburse investor funds in a broad range of speculative and unsecured investments (many of which generated no returns) and to cause corporate administrators to transfer funds to other individual schemes or to the scheme administrators themselves (or to related parties, other scheme administrators and companies or entities controlled by Mr Hobbs), none of which was authorised under the respective scheme memoranda (or disclosed to investors in the various schemes). 37The "cross-pollination" of funds from different schemes is one of the factors from which ASIC submits it can be inferred that the individual schemes formed part of one collective scheme. ASIC further submits that this demonstrates the extent to which Mr Hobbs was directing or controlling the operation of these investment schemes. 38As to the commissions or other amounts paid or payable at various stages of the investment process, they were as follows: * the FTC executives (who, in reality, seem to have been little more than salespersons and regarded as such by Mr Hobbs) received a 10% commission for each subscription received for FTC financial education packages (paid out of the Tasman Business Consultants' account); * the person identified as the introducer or "broker" in the scheme agreements entered into by investors with the corporate administrators for the respective schemes (commonly being the FTC executive who had sold the FTC subscription packages in the first place, though in the case of agreements where Mr Hobbs was the named broker or introducer it is not clear whether there was a prior FTC sale) obtained commissions from the introduction of the investors to the fund (generally a 12% commission out of the "profit" or return from the scheme, according to Mr Koutsoukos); * scheme administrators themselves seem to have charged a higher percentage (20%) commission (and in the case of scheme administrators who introduced clients to the investments they received the 12% commission plus the introducer's or broker's commission); where the scheme administrator himself or herself had personally invested in the fund or done so through an IBC controlled by him or her there was still an administrators' and an introducers' fee taken out before the distribution of "profit" to that investor, as I understand it. (In the case of Mr Clements and Mr Fitzgerald, they understood that a portion of their commission as scheme administrators (namely 20% of the 20%) was payable to Mr Hobbs as "rent" for the space they occupied in Mr Hobbs' Nelson office); * various agreements or arrangements were also entered into pursuant to which Mr Hobbs (or his wife) was entitled to (and ASIC contends, though this is disputed, was paid) commissions, fees or other amounts of money in connection with: the operation of the Cadent accounts; the purchase, sale, marketing and/or management of US Treasuries for the corporate administrators of the individual schemes; the provision (or purported provision) of research reports to corporate administrators; as well as a share of the commission paid to New World Holdings (as its broker's fee in relation to the Cadent accounts). Mr Hobbs also received payments referable to the investment by one or more of the schemes with an entity known as NCCN (through a US attorney, Mr Donald Caffray). 39In all, ASIC claims that Mr Hobbs had a financial interest in the various investment management schemes in five ways: first, through the sale of the FTC subscriptions (on the basis that moneys received by FTC were treated by Mr Hobbs as his own moneys); second, by receipt of commissions payable as an introducer or broker for some of the investors (in particular, two of the investors in the Smart Money Fund of which Mrs Hobbs was a co-scheme administrator); third, by the receipt of commissions and other amounts with respect to the investment of the funds with Cadent (including a share of each of the: incentive or profitability fees payable to CTAs, management fees charged by CTAs; round turn commission on the trades in each account; and float, namely the interest paid to Cadent on the cash held in the Cadent accounts) as well as sums referable to the commission for the purchase of the US Treasuries (from MLN), a share of the ROF consulting fees; a share of the payment for 'research reports' provided to scheme administrators; and a share of the New World Holdings' commission from Cadent (none of which payments being disclosed, it is said, to investors) (ASIC has calculated the payments received into the Hobbs bank accounts pursuant to these arrangements as totalling in excess of NZ $450,000); fourth, by the sale to particular FTC executives (namely, Mr Koutsoukos, Mr Wood and Mr Truong, to whom, from time to time, I refer collectively as the J&B Financial officers) of intellectual property in a 'white label fund' (or worldwide contacts he had in relation thereto); and, fifth, through the use of investors' funds in the acquisition of assets by or for the benefit of Mr Hobbs (or those associated with him) (such as the property in which Mr Hobbs presently has an office). 40Mr Koutsoukos has deposed to the making of a statement by Mr Hobbs in about mid December 2007 (when ASIC's investigations into the Super Save and/or Integrity Plus schemes were underway) to the effect that this was putting at risk "$50,000 a month income from all of the funds that [he] had introduced to Cadent". I have not sought to calculate the average total of the monthly commissions and other payments received by or to the benefit of Mr Hobbs (since precise quantification of this amount is not necessary for present purposes). I note, however, that it is contended by ASIC that sums totalling some US$867,840.04; AU$50,481.47 and NZ$1,569,028.99 were paid to Mr Hobbs and the Hobbs interests out of the fourteen individual managed investment scheme funds. This is disputed by Mr Hobbs, who contends that he received no commissions in respect of any of the investment schemes the subject of these proceedings and that his income was derived from FTC and from commissions received on a separate Global Funeral Services investment. (Mr Hobbs contends that the amounts paid to him are far less than those to which he was entitled from the Global Funerals transaction.) 41For certain of the funds (Integrity Plus, Super Save, Master Fund and Enhanced Fund), ASIC contends that corporate administrators withdrew amounts from Cadent accounts (on the instructions or advice of Mr Hobbs, or his agents New World and Ms Reisinger) and paid all or part of those amounts to scheme members by way of purported profit or returns on investment but that these payments were in fact out of capital not profits (as demonstrated by Tables 162, 163, 164 and 165, which were admitted in evidence as summaries pursuant to s 50 of the Evidence Act 1995 (NSW)). 42In respect of the three largest schemes (Integrity Plus, Super Save and Master Fund), ASIC contends that, over the relevant period, returns (including substantial amounts paid out of capital invested by other scheme members) were paid to investors: in the Integrity Plus Fund totalling A$8,177,132.57, US$2,379,170.68, NZ$69,211.14 and £17,004.54 (and commissions were paid to FTC executives out of the Integrity Plus Fund totalling US$152,639.38 and A$727,568.57); in the Super Save scheme totalling US$97,164.05 and A$855,594.98 (and commissions were paid to FTC executives totalling US$6,922.43 and A$70,151); and in the Master Fund scheme totalling US$69,984.93, A$71,317.75 and NZ$3,625 (with commissions to FTC executives totalling US$7,930.68 and A$13,451.57). 43ASIC contends that each of Mr Hobbs, FTC and the respective scheme and corporate administrators for Integrity Plus, Super Save, Master Fund and First Secured Bond Unit Trust made various representations to potential investors in the Hobbs scheme (or alternatively in each of the individual schemes) that were false and misleading: namely, representations to the effect that the Hobbs scheme could lawfully provide investors with access to offshore investment products and opportunities; that the principal advanced by the investors would be secured or otherwise protected; that investors could expect to receive returns in the vicinity of 3 to 4% per month; that, with respect to Integrity Plus, Super Save, Master Fund and First Secured Bond Unit Trust, funds would be invested in AA+ or A+ securities; that, with respect to Integrity Plus and Super Save, investors would be able to redeem or withdraw their capital upon giving 60 days notice from the first anniversary of their investment; and that each of Integrity Plus, Super Save and Master Fund was generating profits or sufficient profits to enable returns to be paid to investors in each fund. 44ASIC also contends that Mr Hobbs and Mr Collard made false and misleading representations to potential investors in Barclaywest (or the Enhanced Fund) concerning a project in China and to potential investors in the 888 (Super Save) Fund concerning an alleged commercial bond investment of $207 million. 45Mr Hobbs was not himself the titular administrator of any of the individual schemes nor was he formally appointed as a director or officer of any of the corporate administrators (though he signed at least one document as the duly elected secretary of one of the corporate administrators, Geneva Financial, when an application for a Cadent account was lodged by that company). However, ASIC contends that Mr Hobbs was a de facto director and officer of FTC and a de facto, or alternatively shadow, director and officer of each of the corporate administrators (as a de facto director/officer on the basis that he acted in the position of a director or officer of both FTC and each of the corporate administrators; as a shadow director/officer on the basis that the scheme administrators (themselves being said to be de facto directors of each corporate administrator) were accustomed at all material times to act in accordance with the instructions or directions of Mr Hobbs). (In the event that the individual scheme administrators are found not to be de facto directors (and are simply officers, agents or employees) of the respective corporate administrators, it is said that Mr Hobbs must be the de facto director, as there is no one else who could fit that role.) 46Liability on the part of Mr Hobbs for the misleading and deceptive conduct contraventions is alleged both in his own right and, as principal, for the conduct of those who it is alleged acted as his agents in relation to the schemes. 47As to Mrs Hobbs, Mr Collard and Ms Wu (each of whom is also joined as an individual defendant to the proceedings) ASIC contends that Mrs Hobbs and Mr Collard were at all material times de facto directors or alternatively officers of one or more of the corporate administrators (being someone who acted in a position of a director of the said company or companies; made or participated in the making of decisions that affected the whole or a substantial part of the business thereof; and a person who had the capacity to affect significantly the financial standing thereof), and that Ms Wu was solely an officer of the particular corporate administrators with which she as associated. 48In summary, the contraventions contended to have been committed by the respective defendants fall within the following categories: (i)financial services contraventions: of s 601ED(5) of the Corporations Act (operating an unregistered managed investment scheme in Australia): by FTC, the corporate administrators and by each of Mr Hobbs, Mr Collard, Mrs Hobbs and Ms Wu (in respect of the Hobbs scheme) or, alternatively, by those involved in the Integrity Plus, Super Save and Master Fund schemes (if there is not found to be one overall "Hobbs" scheme); and of s 911A of the Corporations Act (carrying on an unlicensed financial services business in Australia by each of those entities and individuals); (ii)misleading and deceptive conduct contraventions (variously, by Mr Hobbs and one or more of the corporate and scheme administrators) of s 1041E of the Corporations Act, (making statements or disseminating false or misleading information); s 1041G of the Corporations Act (engaging in dishonest conduct in relation to a financial product or service); s 1041H of the Corporations Act (engaging in misleading or deceptive conduct in relation to a financial product or a financial service); s 12DA of the ASIC Act (engaging in misleading or deceptive conduct in relation to financial services); s 12DB of the ASIC Act (falsely representing that financial services were of a particular standard) and s 12DF of the ASIC Act (misleading the public as to the characteristics or suitability for purpose of financial services). (iii)breaches of directors' (and/or officers') duties: (a)owed by Mr Hobbs (as a de facto or shadow director or officer of FTC, PJCB, ISL and Secured Bond) involving contraventions of both s 180(1) of the Corporations Act (failure to exercise care and due diligence) and s 181 of the Corporations Act (failure to act in good faith) arising from the financial services contraventions by each of FTC, PJCB, ISL and Secured Bond; (b)owed by Mr Hobbs (as a de facto or shadow director or officer of each of the corporate administrators to PJCB, ISL, ISPL, Secured Bond, 888 Vanuatu, Geneva Financial, Preserved Investments, Ultimate Investments, Barclaywest and GP Global) by causing the respective companies to make payments that led to him gaining an advantage for himself or others and causing detriment to each corporation (in contravention of s 182 of the Corporations Act); and (c)owed by Mr Collard (in respect of Secured Bond, Barclaywest and 888 Vanuatu), Mrs Hobbs (in respect of Geneva Financial) and Ms Wu (as an officer only) (in respect of Barclaywest and 888 Vanuatu) (in contravention of ss 181 and or 182 of the Corporations Act respectively). (iv)as an alternative to the principal contraventions, aiding and abetting claims: against Mr Hobbs in respect of contraventions by Messrs Wood, Truong and Koutsoukos, Ms Li and Ms Wu of ss 181 and 182 of the Corporations Act; and against each of Geneva Financial and Mrs Hobbs in respect of the contraventions of s 182 alleged against Messrs Wood, Truong and Koutsoukos and in respect of the contraventions of ss 181 and 182 alleged against Mr Hobbs. (v)(if they are not found to have been acting as directors/officers of the respective entities) breaches by each of Mr Hobbs, Mr Collard and Ms Wu of fiduciary duties allegedly owed to investors in the "Hobbs scheme" or one or more of the individual schemes (by placing himself or herself in a position where there was a real and substantial risk that his or her interest would conflict with those of investors; by obtaining an advantage for himself or herself by reason of their position or from an opportunity gained by reason of that position; and by failing to account to investors in the said scheme for benefits and gains obtained by him or her in breach of his or her duties). 49Contraventions of directors' and officers' duties are alleged against Messrs Wood, Koutsoukos, Truong and Ms Li only for the purpose of establishing the aiding and abetting claims against Mr Hobbs (and in one instance Mrs Hobbs). (Similarly, contraventions are alleged against various of the now de-registered IBCs for the purpose of establishing the breach of directors' duty allegations against Mr Hobbs and others.) Proceedings 50The present proceedings are a consolidation (by order made by Palmer J on 27 August 2010) of three separate sets of proceedings each brought by ASIC in relation to a particular investment scheme (the Super Save, Integrity Plus and Master Fund schemes respectively). 51The first two sets of proceedings were commenced in late 2007 (the first, being 5864/07, was commenced on 5 December 2007 in relation to the Super Save scheme, and the second, being 6021/07, was commenced on 14 December 2007 in relation to the Integrity Plus Unit Trust or the Integrity Plus scheme), after ASIC had conducted compulsory (s 19) interviews with various of the persons associated those schemes. In 2008, ASIC commenced the third set of proceedings (4532/08), in relation to the Master Fund scheme. 52ASIC sought and obtained asset preservation orders under s 1323 of the Corporations Act in relation to the Super Save and Integrity Plus schemes (orders being made on an ex parte basis on 2, 14 and 18 December 2007, respectively). On 5 February 2008, freezing orders were made restraining additional defendants (including Mrs Hobbs) from removing assets from Australia and orders were made for the remission to this Court of the outstanding balance then held in the Cadent accounts. (Amounts totalling AU$19,383,475.20 and US$1,580,593.02 have been paid into Court representing sums then held in various of the Technocash and Cadent accounts as well as moneys held by various of the corporate administrators. Following various payments authorised to be made out of some of those moneys, there presently remain the sums of AU$738,484.36 and US$616,759.28 held by the Court.) 53In mid 2009, ASIC conducted compulsory interviews of various persons resident in New Zealand (including Mr Hobbs, although his interview was not completed due to health issues at the time) pursuant to requests made by ASIC to the Financial Markets Authority of New Zealand under the May 2002 International Organization of Securities Commissions Multilateral Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information (MMoU). Those interviews (referred to in these reasons as the s 10 interviews) were conducted pursuant to s 10 of the Securities Act 1978 (NZ) following the issue of summonses to the respective witnesses. 54In January 2010, again following a request under the MMoU, ASIC (in conjunction with the Commodity Futures Trading Commission in the United States), conducted a compulsory examination of Ms Grace Elizabeth (Lisa) Reisinger. (I refer to this as the CFTC examination.) In May this year, I granted leave to ASIC (over the objection of Mr and Mrs Hobbs, then represented by Counsel, and having heard submissions also by the solicitor then appearing for Mr Collard) to adduce as evidence in the proceedings (and to be admitted if so adduced) the transcript of that examination pursuant to Part 4 of the Foreign Evidence Act 1994 (Cth). (I note that the application was also made under Part 5 of the Supreme Court Act 1970 (NSW) and s 63, or alternatively s 64, of the Evidence Act 1995 (NSW).) The leave so granted was subject to any objection that might be taken by the defendants at the hearing as to relevance or form and subject to weight. (At the hearing, the transcript and exhibits of Ms Reisinger's CFTC examination were admitted, subject to weight, as Ex AO.) 55In the period from commencement of the respective proceedings in 2007/08 to their consolidation by Palmer J in 2010, there were various changes to the parties joined as defendants thereto. By the time that the hearing of the consolidated proceedings commenced on 4 July 2012, there had been further changes to the constitution of the proceedings. In particular, shortly before the commencement of the hearing I granted ASIC leave to discontinue proceedings against three of the named defendants in the consolidated proceedings (the fifth to seventh defendants), on the basis that it had then commenced a criminal prosecution against them. (Those three defendants swore affidavits that were read in ASIC's case and each was in due course cross-examined by Mr Hobbs.) 56The proceedings against the second defendant, Ms Li, were the subject of a stay ordered by Barrett J (as his Honour then was) on 11 June 2010 until further order. In addition, various of the corporate defendants had been deregistered prior to the commencement of the proceedings (and there has been no application for the revival of those companies). 57As a result of the above (and the stance that at that stage had been taken by the third and fourth defendants, to which I will shortly refer), as at 4 July 2012, when the hearing before me commenced, the position was that the proceedings were actively contested only by the first defendant (Mr David Hobbs, to whom I will refer throughout as Mr Hobbs, as distinct from his brother, Mr Robert Hobbs) and the eighth defendant (Mr Hobbs' wife, Jacky, to whom I will refer throughout as Mrs Hobbs, as distinct from Mrs Brenda Hobbs, her sister-in-law). To some extent this position changed late in the course of the proceedings when both the third defendant (Mr David Collard) and the fourth defendant (Ms Huimin Wu) sought to take an active role in the proceedings. I refer to this below, when outlining the position in relation to each of the respective defendants. Defendants 58Mr Hobbs is the first defendant in the consolidated proceedings. (He was not initially joined as a defendant to either of the first two sets of proceedings but was joined as the twelfth defendant to the 5864/07 proceedings and as the seventeenth defendant in the 6021/07 proceedings by orders made by Austin J on 11 July 2008.) 59Mr Hobbs represented himself in the hearing before me. He has, however, had the benefit of legal representation and advice at various times both before and during the course of these proceedings (including when he attended his s 10 interview in New Zealand in May 2009; at the time of the filing of his defence in these proceedings (at least to the extent that such an inference can be drawn from the fact it was then witnessed by the solicitor in New Zealand who had acted for him for some time, Mr Phillip Bellamy); in April 2012, when various interlocutory applications brought by ASIC came before the Court for hearing; and shortly prior to the commencement of the hearing, when I was informed that both a semi-retired barrister and a law student in New Zealand were providing some assistance to Mr and Mrs Hobbs). Prior to the commencement of the hearing there was also some evidence (on which reliance was placed for the Hobbs' interests in resisting an interlocutory application by ASIC for leave to issue a subpoena to Mr Bellamy) that Mr Hobbs had had the benefit of legal advice from Mr Bellamy in the period from 2007-2011 in relation to the matters the subject of the proceedings (and I infer that Mr Bellamy's familiarity with the matter was not a passing one, since it was put to me that it would take him a considerable time to pass on his knowledge to other lawyers). 60No defence was filed by Mr Hobbs to the Second (or Third) Further Amended Statement of Claim (the former being the version of ASIC's pleading as at the commencement of the hearing before me; the latter being the final version which I gave leave to be filed at the close of the evidence in these proceedings in order to incorporate certain errata that had been noted by ASIC in the pleading as it then was and to enable alternative allegations to be made as to the place of incorporation of two of the corporate entities referred to in the proceedings, OEM and KLM, to accord with the evidence that had emerged in the proceedings of possible multiple entities with those names). 61An Amended Defence had, however, earlier been filed by Mr Hobbs (to the then Further Amended Statement of Claim) on 30 May 2011 (to which on 15 June 2011, ASIC had filed a Reply). That pleading was verified by Mr Hobbs, whose attestation of the affidavit was witnessed by Mr Bellamy. (I note in passing that the affidavit verifying the defence bears a computer footer that reads, relevantly, "clients/4296 [tasman business consultants limited]/002 (australian litigation)", which on its face suggests that at least at that stage Mr Bellamy had some retainer in relation to the Australian litigation (Tasman Business Consultants being an entity associated with Mr Hobbs and his wife and in whose name one or more client files had been opened in the firm by which Mr Bellamy was then employed, Fletcher Vautier Moore). 62As to the amendment to the pleaded allegations in relation to the date and place of incorporation of each of OEM and KLM, I had in mind that it has been recognised as appropriate (where no issue of procedural fairness is involved) for leave to be given to amend the pleadings to accord with evidence that has emerged during the trial. In Ingot Capital Investments Pty Limited v Macquarie Equity Capital Markets Limited [2008] NSWCA 206 Ipp JA (considering the authorities and principles relevant to the question whether a party would be allowed at trial to depart from its pleaded case) noted that at trial "there may be a departure from the pleadings where adherence to them would be unjust or unfair" citing Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279; 92 ALR 53; [1990] HCA 11 per Mason CJ and Gaudron J at CLR 286-7; ALR 58-9). In Banque Commerciale, Dawson J had observed that: But modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties. Special procedures apart, cases are determined on the evidence, not the pleadings. 63In the present case, evidence as to the existence (or likely existence) of at least two different OEM/KLM entities was put before the Court during the hearing (to which I will refer in due course) without objection. Mr Hobbs had neither denied nor admitted the allegations as to the incorporation of OEM/KLM as had then been pleaded, thus putting ASIC to proof thereof. There was (and remains in my view) uncertainty as to which was the particular corporate entity (if any) on behalf of which Mrs Watson and Mrs Burnard sent correspondence when implementing the "OEM/KLM" process (a process of which Mr Hobbs had previously purported, at the very least at the 2003 DVD Seminar, to have knowledge). 64Those matters, coupled with the fact that no allegations were made in the proceedings of any breach of duty in relation to the OEM/KLM entities, led me to conclude that it was appropriate to allow this particular amendment. (On ASIC's case, as I understand it, little if anything turns on whether the steps carried out in the names of OEM and KLM were on behalf of companies incorporated in any particular one of the possible jurisdictions.) I indicated that I would give Mr Hobbs leave to adduce any further evidence he might wish to call in relation to the place of incorporation of the respective companies but no such evidence was forthcoming. 65I understand that Mr Hobbs raises the same matters in defence to the final version of the pleading against him as are pleaded in his filed defence to the earlier version of that pleading (other than that he now invites me to accept ASIC's alternative case against the fund administrators as correct). (Similarly, I understand that Mrs Hobbs in substance maintains her earlier defence to the now revised pleading.) 66By way of general summary as to Mr Hobbs' background, Mr Hobbs has worked for a number of years in the finance industry, though he has no formal degree qualifications (at the DVD Seminar he is recorded as saying that he "honoured in financial planning" and at least one witness referred to Mr Hobbs having said he had studied financial planning at Harvard - Mr Blow). In his affidavit of 3 August 2012, Mr Hobbs deposes (at [2]) to having "a background in life insurance and financial planning in New Zealand" and to having worked at various times for NZI, Colonial Mutual and Norwich Union (during which time Mr Hobbs says that he became aware of the wholesale investment market - [3]). 67In correspondence over the period from 2000/2001 onwards, Mr Hobbs has described himself variously as a Certified International Financier (CIF) and as a member of the International Society of Financiers (ISF). As I understand it, the former is in the nature of an honorific title and the latter an indication of membership of the society in question (which membership Mr Hobbs no longer holds, having not renewed it at some unidentified time). It was not suggested that membership of the ISF was restricted to those with any particular academic qualifications. 68Mr Hobbs has described himself in a number of different capacities for entities associated with one or more of the schemes: as authorised officer of FZF Vanuatu (when he signed a proxy on 4 August 2012 for use in an investors meeting in the liquidation of the Master Fund scheme to be held on 8 August 2012); in various correspondence as consultant, and on at least one occasion as a "director", of FZF Anguilla. He admits that he occupied the position as International Sales Manager of FTC. On at least one occasion he signed a letter as "director" of FTC. He has also signed documents as administrator of Trans Management Corporation (the IBC named in the private placement memorandum as the outside trustee for various of the schemes) (Ex AU 3921) and as the secretary of Geneva Financial. 69The second defendant is Ms Min Hua Li (referred to by various of the witnesses as Lili). Ms Li was described by Mr Hobbs (at the DVD Seminar) as a surgeon from China (which makes Mr Hobbs' derision during the hearing, of Mr Parsons' reference to Ms Li as a doctor or brain surgeon somewhat remarkable). I was informed at various interlocutory hearings, and again at the commencement of the hearing, that Ms Li is presently incarcerated in China. There has been no order lifting the operation of the stay ordered by Barrett J on 11 June 2010 of the proceedings against her. ASIC therefore seeks no relief against Ms Li (though findings as to her conduct will be of relevance to various claims made against the other defendants). 70Ms Li is identified by ASIC as the scheme administrator or co-scheme administrator of a number of the schemes the subject of these proceedings (those being the Master Fund, First Secured Bond Unit Trust, Pinnacle Fund, 888 (Super Save) Fund, Enhanced Fund and Best Fund schemes). 71After the commencement of the hearing, a bundle of material was forwarded by facsimile transmission to the Court Registry comprising a handwritten letter in English, purportedly (though I have no reason to doubt this) signed by Ms Li, together with a number of pages of handwritten Chinese characters (that I cannot read and that no party has sought to have translated). That material was forwarded to me in chambers and I made arrangements for my staff to provide copies of that material to Mr Hobbs, to Mr Collard and to ASIC. That material is not in evidence but has been retained on the Court file. On the morning of 5 September 2012, my chambers received from the Registry a further bundle of correspondence (an original handwritten letter and a photocopy of another letter) again purportedly signed by Ms Li. Copies of that material were provided to the parties. Again, the material has been retained on the Court file but it is not in evidence and has not been read. 72The third defendant is Mr David Collard. Mr Collard is identified by ASIC as the scheme administrator or co-scheme administrator of each of the Master Fund, First Secured Bond Unit Trust, Pinnacle Fund, 888 (Super Save) Fund, Good Value Fund and Enhanced Fund (those schemes being grouped together, for descriptive purposes, by ASIC as the "Li/Collard" schemes, and referred to on one occasion in opening as the "Li/Collard/Wu" schemes). The reason for that collective description is that it is contended that one or both of Ms Li and Mr Collard was associated with each of those schemes (and that Ms Wu was associated, as an officer of the relevant corporate administrators, with a couple of those schemes - the 888 (Super Save) and Enhanced Fund schemes). 73Although Mr Collard initially filed a defence in these proceedings (in November 2010, at which time he was unrepresented), in April 2012 an unconditional submitting appearance was filed on his behalf (at which time he was represented in the proceedings by Mr Hartnell of Atanaskovic Hartnell). Mr Collard was in attendance in Court throughout most of the hearing (and communications to Mr and Mrs Hobbs through the course of the hearing were made via Mr Collard's email address). Other than as set out below, Mr Collard played no active role in the hearing. 74On no less than four occasions during the course of the hearing before me Mr Collard sought to intervene and to take a more active role (leaving aside the occasions on which Mr Collard intervened from time to time (always politely) to make observations or comments on matters of evidence or the like). 75On the first occasion (on 30 July 2012, the seventeenth day of the hearing), Mr Hobbs indicated that Mr Collard wished to address me. When I sought to clarify with Mr Collard the precise nature of the statement he wished to make (having explained - from T 1152.20 - that the consequence of the filing of an unconditional submitting appearance was that he had elected to abide by the decision of the Court and not to take an active role in the proceedings), Mr Collard's response was to the effect that he wished to address me as to the impact these proceedings had had on him over the past four years (not as to the evidence in the proceedings as such nor as to the question of what findings should be made on the allegations that had been made against him). I indicated that he would have an opportunity, if the occasion arose for a hearing on penalty, to make such submissions at that later stage of the proceedings. 76On the second occasion, after the close of evidence from both ASIC and Mr Hobbs, but before the commencement of ASIC's oral closing submissions, Mr Collard handed up to me a defence that he had filed in the Registry (without leave) on 15 August 2012. (Any application for leave to file the defence would, at least implicitly, have encompassed an application for leave to withdraw the unconditional submitting appearance that had been filed on Mr Collard's behalf in April this year.) 77Mr Collard's then stated position was that, having been in Court for some six weeks during the course of the hearing to that date, he had heard things he believed that were not correct and he said that he was seeking an opportunity to correct some of those matters. He informed me that the defence he had filed in the Registry the day before had been prepared after discussion with Mr and Mrs Hobbs (and that it had been typed by Mrs Hobbs). That defence was a mixture of broad denials and assertions (including commentary as to the perceived oddity that a particular company had not been joined as a defendant and the statement that "I am now of the understanding that by poor legal advice I do not have the right of natural justice"). 78In its form, the proposed new defence was in my view liable to be struck out as an embarrassing pleading within the meaning of that expression as used in Part 14 of the Uniform Civil Procedure Rules 2005 (NSW). It did not purport to respond to particular allegations of fact or law contained in ASIC's pleading (unlike the defence that had been filed by Mr Collard dated 18 November 2010, which had pleaded to each of the paragraphs of the then Further Amended Statement of Claim - in the most part either denying or not admitting the respective allegations, though in some instances admitting particular allegations). 79In support of his (informal) application to rely on the latest filed defence, Mr Collard invoked in general terms the principle of natural justice. He filed no evidence in support of that application. 80With a view to the expeditious conduct of the proceedings, I did not require the filing by Mr Collard of a formal motion for leave to withdraw the submitting appearance and to file (out of time) the defence that had been handed up to me. For the reasons that I briefly outlined at the time, as recorded on the transcript, I dismissed that application. As I did not publish written reasons at the time, I set out briefly below the basis on which I was not prepared to accede to Mr Collard's application at that stage of the proceedings. 81Leave to withdraw an appearance may be appropriate in circumstances where the appearance has been entered by mistake or where a solicitor has acted without proper instructions in entering the appearance (I refer in this context to the authorities cited at [12.5.5] of Ritchie's Commentary on the Uniform Civil Procedure Rules - Firth v John Mowlem & Co Ltd [1978] 1 WLR 1184; Evergreen Tours Pty Ltd v McLaren [2010] NSWSC 1362), though not limited to such circumstances (Rothmans of Pall Mall (Overseas) Ltd v Saudi Arabian Airlines Corp [1981] QB 368). However, it was not apparent that Mr Collard's position fell within the category of case in which it has been seen as appropriate to permit the withdrawal of an appearance. 82Although (as Senior Counsel for ASIC, Mr Halley SC, pointed out) there was no evidence in support of the application by which Mr Collard's assertions from the bar table could be tested, I considered it relevant that, even taking into account those assertions, Mr Collard did not go so far as to suggest that there had been any mistake at the time the submitting appearance was entered on his behalf. At that time (as I understand had also been the case when ASIC sought s 1323 relief in relation to the funds with which Mr Collard was involved) Mr Collard had had the benefit of legal assistance from Mr Hartnell (a lawyer presumably not unfamiliar with at least some of the background to the issues in the proceedings, given the reliance placed by Mr Hobbs on the giving of advice by Mr Hartnell in 2002 relation to matters related to the sale of FTC educational material and offshore investment, to which I will later refer). 83From what Mr Collard said to me, it seemed that he had subsequently formed the view (whether this was before or after discussion with Mr and Mrs Hobbs as to his proposed new defence, I do not know) that the advice he had earlier received in relation to the filing of the unconditional submitting appearance had been "poor legal advice" and that he would now be denied natural justice if not permitted to raise the matters contained in the new defence. There was no evidence of what Mr Hartnell's advice in that regard had been. ASIC's position (which I accepted as clearly correct) was that if Mr Collard wished to withdraw the submitting appearance on the basis of allegations as to the quality of the legal advice he had received at the time then it would be incumbent on him to adduce evidence in admissible form as to those matters. (Had Mr Collard sought to adduce such evidence I would have been concerned to ensure that, before waiving legal professional privilege in the content of that advice, Mr Collard appreciated precisely what consequence such a waiver would be likely to have, in terms of opening up the content of his instructions to Mr Hartnell in relation to the issues in the proceedings or on which the advice in relation to the filing of a submitting appearance had been given.) 84As I understood it, Mr Collard's position (as articulated in the course of discussion on this application) was simply that he wanted to reinstate the denials/non-admissions contained in his November 2010 defence (particularly in relation to the denial that there had been a distribution of returns out of capital not profits in relation to the fund administered by Secured Bond - see [186] of the Second Further Amended Statement of Claim) and to make submissions as to the evidence already before the Court, but that he was not seeking to adduce any new evidence in his defence. 85As to what ASIC's position would be if Mr Collard were to be permitted to withdraw his submitting appearance, Mr Halley submitted that, even if Mr Collard did not seek formally to adduce evidence in his defence, the prospect of Mr Collard then seeking to take an active part in the proceedings (by the making of submissions) had the potential to cause significant delay and confusion in the timely disposition of the proceedings (having regard to the fact that Mr Collard was unrepresented and might well not appreciate the distinction between submissions and evidence - a concern that in my view had no little foundation having regard to the content of Mr Collard's proposed new defence and which was borne out by the submissions subsequently handed up by Mr Collard). 86Mr Halley made it clear that ASIC accepted that, on any view, it bore the onus of proving each of the allegations that it had made against Mr Collard and that ASIC would have to prove the facts it alleged against Mr Collard independently of any defence that might have been mounted against its case, on a basis akin to a summary judgment application. (Subject to final instructions, Mr Halley also indicated in response to a query from me that he considered that ASIC's position would be that, if Mr Collard's submitting appearance were not withdrawn, ASIC would not be seeking to rely on any admissions contained in his earlier filed defence. I have proceeded on the basis that this is the case.) 87It was further submitted, as I understood it, that (unless Mr Collard wished to put a positive defence beyond that which was contained in his November 2010 defence) in practical terms there was no denial of procedural fairness in Mr Collard not being given leave to withdraw his submitting appearance, since ASIC would have the burden of proving the allegations that Mr Collard had previously denied or not admitted in any event (and particularly since it had been Mr Collard's presumably informed election to file the submitting appearance at the relevant time). 88As to the effect of the filing of a submitting appearance after the filing of a defence in the proceedings, in First Chicago Australia Limited v Yango Pastoral Co Pty Ltd [1977] 2 NSWLR 177, Sheppard J seemed to proceed on the basis that a subsequent submitting appearance would override an earlier filed defence and it seems to me implicit in the filing of a submitting appearance that reliance is no longer being placed on any earlier filed defence. 89It is suggested in Ritchie's Uniform Civil Procedure Rules NSW (by reference to Garsec v His Majesty The Sultan of Brunei [2007] NSWSC 882, where an application for leave to withdraw an appearance was rejected in circumstances where the applicant had previously applied for summary judgment in the proceedings) that leave to withdraw will be particularly inappropriate where the applicant has previously taken an active part in the proceedings. Here, it should be noted that Mr Collard had not sought to avail himself of the opportunity given by the leave granted by Palmer J in March 2010 to apply to contest the order made for his joinder to the proceedings and, at least to the extent that Mr Collard had filed a defence, he had taken an active part in the proceedings before the filing of a submitting appearance (and Mr Hartnell had appeared for him on at least one occasion when ASIC's interlocutory applications in April this year were before me). 90Furthermore, not only was Mr Collard physically present in Court during most of the hearing of the evidence but Mr Hartnell, though by then not appearing for Mr Collard, had also been present in Court throughout a large part of the opening of ASIC's case (and, it might be assumed, would have had the opportunity to advise Mr Collard had he thought the advice to file a submitting appearance should be revisited having regard to anything said in opening at least while Mr Hartnell was in Court). 91On the basis that there was no evidence as to the circumstances in which the submitting appearance was filed (and Mr Collard's indication of what his evidence might be in that regard did not suggest that there was any operative mistake on Mr Collard's part at the time that had led to the filing of the submitting appearance), I considered that the statutory objective set out in s 56 of the Civil Procedure Act 2005 (NSW), for the just, quick and cheap resolution of the real issues in dispute in the proceedings would not be met by permitting the withdrawal of the submitting appearance at such a late stage of the proceedings. (In that regard, I had in mind that the new defence then sought to be filed would have been liable to be struck out as embarrassing in any event.) While Mr Collard had expressed a concern, in hindsight, as to the quality of the legal advice that he said he had been given, the fact remained that the appearance had been entered with the benefit of legal advice and there was no basis established for the suggestion that whatever advice Mr Collard had been given was in any way unsound. 92I was also of the view that if (as it seemed to me to be) the real concern by Mr Collard in seeking to withdraw the submitting appearance was so as to be able to reinstate the earlier defence (as opposed to bringing a new positive case in defence) and to make submissions as to the evidence (as opposed to adducing any new evidence), there was no denial of natural justice in refusing that application. Mr Collard had already had (and had elected not to take) an opportunity to mount a defence to the ASIC case and it did not seem to me (having regard to the content of the earlier filed defence) that Mr Collard would be in any materially different position if leave were not given to reinstate that defence, in the sense that ASIC would still have to prove its case on the evidence already before the Court whether or not regard was had to Mr Collard's earlier denials/non-admissions. 93I also considered that, in a practical sense, Mr Collard was likely to have the opportunity to provide input into the submissions that would be made by Mr Hobbs (in circumstances where Mr Collard had clearly been involved in discussion with Mr Hobbs throughout the hearing and some of Mr Hobbs' cross-examination of ASIC's witnesses seemed to me to be directed at matters concerning Mr Collard). Mr Hobbs' defence of the allegations made against him was, as then put by him, not inconsistent with the denials/non-admissions previously made by Mr Collard and there was no suggestion at that stage that Mr Hobbs was adopting or proposing to adopt any different position from Mr Collard in relation to matters relating to the funds of which ASIC contends that Mr Collard was a scheme administrator. 94When I gave my ruling on the oral application that had been made (unsupported by any evidence) by Mr Collard for leave to file the defence, I indicated that if there were to be a formal application made by Mr Collard then it would need to be supported by admissible evidence that it would then be open to ASIC to test. No such application was made. 95The third occasion when Mr Collard sought to intervene was at the conclusion of the oral closing submissions made by each of Mr and Mrs Hobbs on 6 September 2012. Mr Collard had earlier prepared and served some written submissions, to which ASIC objected on the basis that they largely contained assertions as to matters in respect of which there was no foundation in the evidence that was before me. Mr Collard then wished to address me on the matters contained therein - in particular to deny any dishonesty or misleading conduct on his part and to submit that the six funds with which he was associated were operated differently from those operated out of the J&B Financial office by the fifth to seventh defendants. I explained again to Mr Collard that he had made an election to file the unconditional submitting appearance (at a time when he had legal advice) and that it was not appropriate for me to take into account in closing submissions matters which were not the subject of evidence before me (though I note that where his written submissions could properly be characterised as submissions, and not evidence, I have considered the matters contained therein as noted in these reasons). 96Finally, in the course of Mr Halley's oral reply submissions, Mr Collard again sought to provide his version of events (when asked to assist Mr Hobbs in pointing to the evidence for some of Mr Hobbs' closing submissions). I refused to permit him to do so. 97The fourth defendant is Ms Huimin Wu (also known as Ms Nancy Wu). Ms Wu is identified by ASIC as the co-scheme administrator of the schemes administered by Barclaywest and 888 Vanuatu (the Enhanced Fund and the 888 (Super Save) Fund respectively). 98Ms Wu was joined as a defendant to the 6021/07 proceedings in March 2010. No appearance was filed by or on behalf of Ms Wu in the proceedings (nor was there any application by or on her behalf to set aside the order made for her joinder as a defendant within the time specified by Palmer J in March 2010). 99Prior to her joinder as a defendant, Ms Wu had filed an affidavit and had sought to appear as an interested party in the 6021/07 proceedings (seeking relief in relation to the disbursement out of Court of moneys in relation to another investment scheme, the Procash scheme, which is not a scheme the subject of the consolidated proceedings). Therefore, it could not be said that Ms Wu was not aware at least of the existence of proceedings in relation to the Super Save scheme (albeit that she may not have understood the import of the allegations made against her when she was joined as a defendant to those proceedings). 100On 26 March 2010, after her joinder as a defendant to the consolidated proceedings (though it is unclear whether there is any association between the two events), Ms Wu filed a notice of discontinuance as an interested party. 101When the hearing of the proceedings before me commenced, a query was raised by Mr Halley as to whether Ms Wu might be seeking to pursue a strike out application. The matter was called outside Court but there was no appearance by or for Ms Wu and I confirmed that I was not aware of any such application (no such application being on the Court file so far as I could tell). The following morning, Mr Hobbs raised the position of Ms Wu and, relevantly, referred to an affidavit of Ms Wu that he said he would be happy to read because he believed that she needed a defence. (Mr Hobbs informed me that he had paid the court filing fee for the filing of an affidavit by Ms Wu. Why the affidavit had not reached the Court file by that stage is a mystery but it had not done so. I suspect that this may be because the affidavit was attached to the Notice of Motion and that did not bear a filed stamp.) 102Mr Halley informed me that, on 30 June 2012, ASIC had received, by facsimile transmission from Mr Hobbs' secretary in New Zealand (Mrs Doreen Andrews), a copy of an affidavit of Ms Wu and a Notice of Motion signed by Ms Wu (but not apparently filed with the Court) seeking an order in the following terms: We seek from the Court to remove me from these proceedings. There were no such things as Wu schemes. I was not an officer or in any official capacity for any of the companies. I dealt with approximately ten people and their offshore companies who were close friends. My involvement constitutes a waste of taxpayers money. I have not breached any corporations law. I only sent letters on instructions of Ms Min Hua Li. [In Ms Wu's 28 August 2012 submissions she asserts that she signed documents as "Per administrator" on the instruction of Ms Li and Mr Collard; though she acknowledges that on at least one template letter signed by her the word "per" did not appear; she also maintains that she always acted on the direction of Mr Li or Ms Dong.] Mr Halley noted that the affidavit (which he confirmed ASIC was neither tendering or reading) consisted of a number of comments on statements contained in the Statement of Claim. ASIC's position was that if Ms Wu wished to make any application she would need to do so in person or with legal representation on her behalf. 103On that occasion (5 July 2012) I indicated to Mr Hobbs that, as far as I was aware, Ms Wu had not filed a notice of appearance in these proceedings and (in the event that he were to be in communication with her) that if Ms Wu did wish to make some form of application in relation to her position as a defendant to the proceedings then she would need to file a Notice of Appearance and a Notice of Motion so that her application could be dealt with in a proper fashion. (I also indicated that Ms Wu would be advised to seek legal advice if she wished to defend the proceedings.) 104Nothing then happened until a document was filed in the Registry by facsimile on 30 July 2012, that being a Notice of Motion dated 27 June 2012 by Ms Wu seeking by way of relief for the Court to remove Ms Wu as a party (thus, relief of the kind indicated in the facsimile transmission sent to ASIC a month earlier). The first indication I had that any such document had been filed was the receipt by my staff of an email communication from ASIC, copied to Mr Hobbs, on 31 July 2012 in which objection was taken to the filing of an affidavit with the Notice of Motion by Ms Wu (on the basis that it included material the subject of without prejudice privilege). My staff made enquiries as to the filing of any such documents and when those documents were retrieved from the Registry, the affidavit in respect of which ASIC had foreshadowed an objection was placed, unread, into a sealed envelope. I considered it best, in the interests of expeditious case management, to vacate the then listing of Ms Wu's Notice of Motion that was before the Registrar and to list the Notice of Motion before me on 3 August 2012 (when the matter was otherwise before me for directions). 105There was no appearance for or on behalf of Ms Wu on 3 August 2012. On that occasion Mr Halley informed me that ASIC had communicated with Ms Wu by email on 1 August 2012 as to the listing of her motion on 3 August 2012 and had asked that she inform ASIC whether Ms Wu or her legal representative intended to appear on that occasion, to which ASIC had received no response. By this stage, ASIC's evidence in chief had concluded and it had closed its case in chief. Mr Halley also reiterated ASIC's concern that a without prejudice statement of agreed facts that was served in draft had been included in the affidavit. 106As there was no appearance for Ms Wu on that occasion I asked my staff to forward an email communication to Ms Wu to advise that the Notice of Motion had not been dealt with in her absence and that if Ms Wu wished to move on that motion then she would need to attend in Court by no later than 10am on 8 August 2012 to do so. There was no attendance on that occasion by or on behalf of Ms Wu. 107On the morning of 15 August 2012, I received in chambers a copy of an affidavit sworn 2 August 2012 by Ms Wu and a defence that had been signed and verified by Ms Wu (both documents having been filed, without leave, in the Registry the afternoon before). On that occasion, Ms Wu's husband (Mr Yuan Ming Zhang) was in attendance in Court. He confirmed that his wife wished to proceed on the basis of the defence that had been filed. His explanation from the bar table for his wife's delay in filing the defence was that no order from the Court requiring his wife's attendance in Court had been served (and his, or perhaps her, belief that she could not attend Court without such an order for fear of breaching conditions attached to what he referred to as her CentreLink entitlements). 108I indicated to Mr Zhang that as there had been no compliance with the orders that were made for the filing of a defence by his wife it would be necessary for her to obtain leave to file the defence out of time (and that the fact that the Registry had accepted the document was not sufficient). I also indicated that his wife would need, at that late stage in the proceedings, to give an explanation as to why there was no compliance with the earlier orders and why it was that she was only then seeking to file the defence. 109ASIC's concern was that the participation of Ms Wu in the proceedings at that stage would have significant ramifications for the management of the case (given Ms Wu's alleged involvement in the Li/Collard schemes). ASIC also objected to a defence being filed in the form of that which had been accepted by the Registry. 110I directed that if Ms Wu wished to pursue the application for leave to file the defence she should attend (or to have legal a representative in attendance) at 10am on 16 August 2012. On that occasion Ms Wu attended in person. Having heard her explanation from the bar table as to the delay in filing the defence, I rejected her informal application for leave to file the defence (and published short reasons for that decision in due course) but made an order for the referral on an urgent basis of Ms Wu to the pro bono panel for the purpose of her being provided with pro bono advice to explain the difference between the making of submissions (which is what Mr Hobbs informed me from the bar table was all that Ms Wu wished at that stage to do) and the giving of evidence in relation to the matters the subject of the allegations made by ASIC against Ms Wu. 111When the hearing resumed (after an adjournment to permit the preparation by ASIC of written closing submissions) on 21 August 2012, there was a further application by Ms Wu (represented on a pro bono basis by Ms Campbell of Counsel) for leave to file an amended version of the defence and an affidavit sworn by Ms Wu on 20 August 2012. For the reasons I gave on that date, I gave leave for the filing of the defence (with the deletion of those paragraphs or parts thereof that I considered to be embarrassing) and for the filing and reading of the affidavit of 20 August 2012 (subject to various evidentiary rulings), though I imposed certain conditions on that leave (including a limitation in relation to the filing of any further evidence by Ms Wu). Both Mr Hobbs (on his and, as I understand it, his wife's behalf) and Ms Wu (through her Counsel) had confirmed that, if Ms Wu were permitted to file a defence and read the affidavit she had prepared (with the rulings that I had indicated I would make in that regard), then if ASIC chose not to cross-examine Ms Wu (on the matters in her affidavit or otherwise) they would not ask me to draw any inference adverse to ASIC's case by reason of the fact that it had not cross-examined Ms Wu. 112Ms Wu served two sets of submissions: the first on 22 August 2012 and the second (after she had been notified that there was objection taken to the bulk of the first as constituting evidence not submissions) on 1 September 2012 (though dated 28 August 2012). Both were largely in the nature of unsworn evidence not submission. I have not taken into account in deciding the issues for determination those portions of the submissions that amount to unsworn (and untested) evidence or assertion by Ms Wu but I accept that she denies the allegations that she was an officer of the relevant companies and she maintains that some of the evidence of Ms Dong is incorrect or should be read as confirming that Ms Dong obtained instructions directly from Ms Li. 113The fifth, sixth and seventh defendants (Mr Con Koutsoukos, Mr Brian Wood and Mr Jimmy Truong) are the three defendants in respect of whom I granted leave to ASIC on 18 May 2012 to discontinue these proceedings (ASIC having by then commenced criminal proceedings against them). They have been identified by ASIC as the co-scheme administrators of the schemes descriptively referred to as the Burwood schemes (being administered from the J&B Financial office in Burwood), those being the Integrity Plus and Super Save schemes. 114The eighth defendant is Mrs Jacqueline (Jacky) Hobbs, the wife of Mr Hobbs. Like her husband, Mrs Hobbs was self represented at the hearing but had earlier filed a defence both in her own right and on behalf of the (by then already deregistered) eleventh defendant (Geneva Financial Limited). In general, Mrs Hobbs relied on Mr Hobbs to speak for her in Court but where there were issues relevant to Mrs Hobbs' personal position (such as the decision whether or not to adduce evidence in her own defence) I asked Mrs Hobbs to inform me directly as to what her position was. 115In due course Mrs Hobbs elected (after having taken the opportunity to obtain advice as to her position) not to adduce evidence in her own defence (as a consequence of which ASIC did not seek any adverse inference to be drawn from the fact that Mr Hobbs did not call evidence from her in his case). Mr and Mrs Hobbs in effect made joint submissions at the close of the hearing (though there was a differentiation in one respect - namely as to whether there was acceptance that the alternative case put by ASIC against the fund administrators, of which Mrs Hobbs was one, was correct). 116Mrs Hobbs is identified by ASIC as the co-scheme administrator of the Smart Money Fund and the Prestige Unit Trust Fund (the corporate administrator of each being Geneva Financial). (Mrs Brenda Hobbs, who is married to Mr Hobbs' brother, Robert, is identified as a co-scheme administrator of the Smart Money and Prestige Funds. She was at one stage joined as a party to one or more of the earlier proceedings but is not a defendant to the consolidated proceedings.) 117The ninth to fifteenth defendants are corporations, of which all but two have been de-registered. The two companies which remain registered are the ninth defendant (Idylic Solutions Pty Ltd, to which I refer as ISPL), which is registered in New South Wales and which was for a short period the corporate administrator of the Super Save Fund, and the fourteenth defendant (North Wave Ltd), which was incorporated in Vanuatu and is the corporate administrator of the Good Value Fund. Each of the other corporate defendants was incorporated in an offshore jurisdiction and deregistered at various dates. (It seems likely these entities were deregistered for non-payment of annual registration fees in the offshore jurisdiction of their incorporation.) (ISPL is a different entity from Idylic Solutions Ltd, ISL, which succeeded ISPL as the corporate administrator of Super Save.) 118One of the deregistered companies is Geneva Financial Limited (the eleventh defendant). It was incorporated in Anguilla in 1999. It appears from the evidence before me that it was struck off the register of companies in that jurisdiction (for non-payment of fees) on 11 May 2011. Nevertheless, a joint defence was filed in the proceedings on behalf of both Mrs Hobbs and Geneva Financial (and verified by Mrs Hobbs) after that date (on 30 May 2011). Insofar as Geneva Financial no longer existed as a legal entity at the time of the filing of a defence purportedly on its behalf on 30 May 2011, logically that defence can have no effect vis a vis the company. (Although it appears that Mrs Hobbs was still taking some steps in the name of that company after its deregistration, it is not clear when Mrs Hobbs became aware that the company had in fact been deregistered.) 119Defences have also been filed by Mr Collard for the tenth defendant, 888 Management Inc (a company incorporated in Vanuatu and referred to in these proceedings as 888 Vanuatu to distinguish it from other companies of the same name), the corporate administrator of both the Pinnacle Fund and the 888 (Super Save) Fund, and the twelfth defendant, Barclaywest Limited (a company also incorporated in Vanuatu), the corporate administrator of the Enhanced Fund. Mr Collard's contact details were included on both defences and Mr Collard signed and verified the respective pleadings as "Administrator". Again, those defences can have no effect vis a vis those companies given that the companies were deregistered and had no legal existence at the relevant time (but it is relevant to note that Mr Collard was still prepared to sign as administrator of the companies at that time, though, again, it is not clear whether he appreciated that they had been deregistered at the time). 120On the application of ASIC on 11 February 2011, I ordered that the ninth (ISPL), fourteenth (North Wave) and fifteenth (GP Global) defendants be taken to have admitted each of the allegations made against them in the then Further Amended Statement of Claim unless, in each case, a defence was filed by the respective defendant by 18 February 2011. (Insofar as that order related to a deregistered defendant, it could logically have no application. However, it does operate as against each of ISPL and North Wave, neither of which filed a defence by the date specified in the order and both of which are therefore taken to have admitted the allegations made against them.) 121Mr Halley informed me that the various deregistered corporate defendants have been named as defendants on the basis that (to the extent that they are corporate administrators) orders or directions may need to be made for the re-registration of those companies in order for distributions to be made (out of the moneys held in Court) to investors in the schemes administered by them. (By way of example, reference was made to the mixing of funds from investors in the Integrity Plus scheme and the Super Save scheme. The liquidator of those schemes, Mr Barry Taylor, has characterised moneys paid to investors in those two schemes as returns of capital as opposed to the payment of interest on capital, for the purpose of determining the distribution of the balance of the funds. It is anticipated by ASIC that there might need to be a similar allocation amongst other funds where there has been a mixing of moneys.) Schemes 122The details of the fourteen individual schemes the subject of these proceedings may be summarised as follows: * the "Burwood schemes" (i)Integrity Plus Unit Trust (which received investments from investors for the period from 24 December 2004 to 30 December 2007). The corporate administrator of Integrity Plus was PJCB International Ltd. The scheme administrators of Integrity Plus were Mr Koutsoukos, Mr Wood and Mr Truong. On 20 June 2008, orders were made by Austin J that the Integrity Plus Unit Trust scheme be wound up. Mr Barry Taylor was appointed as the liquidator of the scheme pursuant to s 601EE(1) of the Corporations Act. In the period between 24 December 2004 and 31 December 2007, scheme members invested capital of US$28,501,428.53, AU$860,088.38, £9,996.78 and €45,915.50 in Integrity Plus. Integrity Plus was one of the funds that invested in Cadent and from which ASIC contends returns were paid out of capital not profit (Ex A Table 165). From February 2005 to December 2006 some of the funds invested in this scheme were transferred to a bank account in the name of Mr Donald Caffray (a US attorney) then transferred by Mr Caffray to an account held by NCCN with Cadent (for which account the introducing broker was an entity referred to as TraderView/TraderVest - see Ex AO p485 - entities owned or controlled by a Mr Theodore (Ty) Andros); thereafter any Integrity Plus funds invested through Cadent were invested through the ISPL Cadent account (including, after ISL took over the administration of the scheme, funds invested through ISL since the ISPL Cadent account was not changed when the role of corporate administrator changed from ISPL to ISL). The subsequent introducing broker was New World Holdings (Ex AO p485). Treasury STRIPS were purchased for this fund (Ex A Table 171). (ii)Super Save Superannuation Fund (which received investments from investors for the period from 10 July 2006 to 6 December 2007). There were successive corporate administrators of this scheme: 888 Management Incorporated (referred to by ASIC as "888 Turks & Caicos" as it was there incorporated); ISPL (which, as noted earlier, was incorporated in Australia); and ISL (which was incorporated in Vanuatu.) The scheme administrators were Mr Koutsoukos, Mr Wood and Mr Truong. Similar winding up orders were made in relation to the Super Save Superannuation Fund scheme in 2008, with Mr Taylor appointed as the liquidator of the scheme. In the period between 10 July 2006 and 6 December 2007, scheme members invested capital of US$6,332,482.26 with Super Save. Again, Super Save was one of the funds that invested in Cadent and from which ASIC contends returns were paid out of capital not profits (Ex A Table 163). Investment was through ISPL's Cadent account and New World Holdings was the introducing broker. Treasury STRIPS were purchased for this fund (Ex A Table 171). * the "Li/Collard schemes" (iii)Master Fund (which received investments from investors for the period from 14 October 2004 to 7 May 2008), the corporate administrator of which was Secured Bond Ltd. ASIC contends that the scheme administrators were Ms Li and Mr Collard. In the period between 13 October 2004 and 7 May 2008, scheme members invested AU$1,214,190.58 and US$1,499,162.57 in Master Fund. On 28 May 2012, on the application of ASIC, I appointed a liquidator to Secured Bond and ordered that the Master Fund scheme be wound up pursuant to s 601EE of the Corporations Act, on the application of ASIC. Mr Barry Taylor was appointed the liquidator of the Master Fund scheme. Again, Master Fund invested through Cadent and ASIC contends it paid returns out of profit (Ex A Table 162). From November 2004 until November 2005, some of the funds invested with Master Fund were transferred to the Caffray account and then invested with Cadent through Mr Caffray's NCCN Cadent account; subsequently, funds invested in the Master Fund scheme were invested with Cadent through the Secured Bond Cadent account. TraderView/TraderVest was the initial introducing broker for both accounts; subsequently the introducing broker for the NCCN was changed to New World Holdings. Treasury STRIPS were not purchased for this fund (Ex AO p419). (iv)First Secured Bond Unit Trust (which received investments from investors for the period from 10 December 2003 to 31 December 2004), the corporate administrator of which was Secured Bond. ASIC contends that the scheme administrators were Ms Li and Mr Collard. In the period between 10 November 2003 and 31 December 2004, scheme members invested US$800,402.23 in the First Secured Bond Unit Trust. It did not open a Cadent account nor did it invest in Cadent. Some of the funds invested in this scheme were transferred to KJB Trust Foundation, with which Mr Hobbs informed me Mr Lynn Caswell was associated. (According to Ms Xu, this is the account that Ms Li told her had been the subject of mismanagement by Mr Caswell, at which time she says Ms Li offered to arrange a transfer of funds from this account to Master Fund.) Between February 2004 and September 2004, funds were transferred from this scheme to Preserved Investments for investment in the Elite Premier Option Two Unit Trust. (v)Pinnacle Fund (which received investments from investors for the period from 18 July 2007 to 4 December 2007). The corporate administrator of this fund was 888 Vanuatu. ASIC contends that the scheme administrators were Ms Li, Mr Collard and Ms Wu. In the period between 18 July 2007 and 4 December 2007, scheme members invested US$511,935 and AU$232,800 in the Pinnacle Fund. Moneys invested in the Pinnacle Fund were invested through 888 Vanuatu's Cadent account with New World Holdings. Treasury STRIPS were purchased for this fund (Ex A Tables 172 and 173). No returns were paid to investors. (vi)888 (Super Save) Fund (which received investments from investors for the period from 24 November 2006 to 27 September 2007). The corporate administrator of this fund was 888 Vanuatu. ASIC contends that the scheme administrators were Ms Li, Mr Collard and Ms Wu. In the period between 24 November 2006 and 27 September 2007, scheme members invested US$128,000 and AU$420,311 in the 888 (Super Save) Fund. Moneys from this fund were invested through the 888 Vanuatu Cadent account. New World Holdings was the introducing broker. Treasury STRIPS were purchased for this fund (Ex A Tables 172 and 173). No returns were paid to investors. (vii)Good Value Fund (which received investments from investors for the period from 6 December 2006 to 19 September 2007). The corporate administrator of this fund was North Wave Ltd. ASIC contends that the scheme administrators were Mr Collard and Mr Bernard Moore (Mr Bernard Moore gave evidence in the proceedings and admits this). Solicitation for investment in this fund was limited to the scheme administrators. New World Holdings was the introducing broker. In the period between 13 December 2006 and 19 September 2007, scheme members invested US$50,087.39 in the Good Value Fund. Moneys from this fund were invested through North Wave's Cadent account. Treasury STRIPS were not purchased for this fund (Ex AO p419). No returns were paid to investors. (viii)Enhanced Fund (which received investments from investors for the period from 31 August 2007 to 27 September 2007). The corporate administrator of this fund was Barclaywest Ltd. ASIC contends that the scheme administrators were Ms Li, Mr Collard, Ms Wu and Ms Bi Hong Dong. (Ms Dong gave evidence in the proceedings and admits this.) In the period between 31 August 2007 and 27 September 2007, scheme members invested AU$317,092.72 and US$15,725 in the Enhanced Fund. At least some of the moneys invested in this fund were through acquisition of shares in Barclaywest. Moneys from this fund were invested through Barclaywest's Cadent account. New World Holdings was the introducing broker. Treasury STRIPS were purchased for this fund (Ex A Table 176). ASIC relies on Ex A Table 164 as establishing that for this fund (in all but one instance) returns were paid out of capital. (ix)Best Fund (which received investments from investors for the period from 24 January 2005 to 8 March 2007). The corporate administrator of this fund was GP Global Ltd. ASIC contends that the scheme administrators were Ms Li and Mr Guo Ping Zhang. (Mr Zhang gave evidence in the proceedings and admits this.) In the period between 24 January 2005 and 8 March 2007, scheme members invested capital of US$164,189.41 in the Best Fund. This fund invested with Cadent. Initially this fund invested with Cadent through its investment through the Master Fund (via its Secured Bond Cadent account) in November 2006. Then GP Global Cadent account was established. The introducing broker was TraderView/TraderVest then New World Holdings. Treasury STRIPS were purchased for this fund (Ex A Table 176). No returns were paid to investors. (ASIC notes that Mr Zhang placed the funds received from Best Fund scheme members either through GP Global into Secured Bond for investment in the Master Fund or directly to Secured Bond for investment in Master Fund. It is submitted that GP Global was effectively operating as a subset of the Master Fund operated by Mr Collard and Ms Li.) * the "Hobbs office schemes" (x)Prestige Unit Trust (which received investments from investors for the period from 23 February 2005 to 20 December 2006). The corporate administrator of this fund was Geneva Financial. ASIC contends (and it is not denied) that the scheme administrators were Mrs Jacky Hobbs and Mrs Brenda Hobbs. In the period between 29 March 2005 and 1 October 2007, scheme members invested capital of US$187,287.46 and AU$300,000.00 in the Prestige Unit Trust. This fund invested through Cadent, through the Geneva Cadent account. The introducing broker was TraderView/TraderVest. Treasury STRIPS were purchased for this fund (Ex A Tables 174 and 175). Returns were paid to investors. (xi)Smart Money (which received investments from investors for the period from 15 October 2002 to 8 July 2005). The corporate administrator of this fund was again Geneva Financial. ASIC contends (and again it is not denied) that the scheme administrators were Mrs Jacky Hobbs and Mrs Brenda Hobbs. In the period between 15 October 2002 and 8 July 2005, scheme members invested AU$767,582.94 in the Smart Money Fund. The fund did not invest with Cadent. Some of the funds invested with this scheme were transferred to Bizcards Inc, an entity associated with Mr Malcolm Carr. (xii)Elite Premier Unit Trust (which received investments from investors for the period from 13 September 2002 to 20 August 2004). The corporate administrator of this fund was Preserved Investments Group Ltd. ASIC contends that the scheme administrator was Mr Grant Clements, who worked out of the Hobbs office in Nelson (and who gave evidence in the proceedings and admitted this). In the period between 13 September 2002 and 20 August 2004, scheme members invested US$118,679.50 in the Elite Premier Unit Trust. This fund did not invest with Cadent. Some of the funds invested in this scheme were transferred to Magny-Cours for (or purportedly for) investment in the Cash Builder fund. (xiii)Elite Premier Option Two Unit Trust (which received investments from investors for the period from 17 June 2003 to 8 November 2007). The corporate administrator of this fund was again Preserved Investments Group. The scheme administrator was Mr Clements. In the period between 17 June 2003 and 8 November 2007 scheme members invested US$2,482,886.88 in Elite Premier Option Two Unit Trust. From November 2003 through to December 2004, there were transfers of moneys invested in this fund variously to Refco Capital, KJB Foundation, Keystone International Ltd, Global Forex Trading, FX Direct Dealer and Mr Caffray. After the Preserved Investments Cadent account was opened some of the moneys invested in this fund were invested with Cadent through the Preserved Cadent account. The initial introducing broker for that account was TraderView/TraderVest, then this was changed to New World Holdings. Treasury STRIPS were purchased for this fund (Ex A Table 177). Returns were paid to investors (out of profits). Between 21 November 2007 and 29 February 2008 moneys invested in this scheme were also invested with an entity named Boston Trading. (xiv)Covered Strategies Unit Trust (which received investments from investors for the period from 15 May 2003 to 12 November 2004). The corporate administrator of this fund was Ultimate Investments Ltd. ASIC contends that the scheme administrator (for the relevant period) was Mr Robert Fitzgerald, who also worked out of the Hobbs office in Nelson. (Mr Fitzgerald gave evidence in the proceedings and accepted this.) In the period between 15 May 2003 and 12 November 2004, scheme members invested US$2,915,176.50 in Covered Strategies. (While there was a pending account application for Cadent at the time of the ASIC investigation into the schemes, no such account was ever opened.) From October 2003 to November 2005, some of the funds invested with Ultimate Investments were transferred to an Optionz NZ bank account. Between May 2003 and May 2004, those funds were transferred by Mr Parker to an account with Options Xpress/Legend Clearing Co and on 22 August 2003 funds held in the Optionz NZ account were transferred by Mr Parker to an entity known as Interactive Brokers. 123It can therefore be noted that, of the schemes the subject of these proceedings, the earliest schemes in operation were the (first) Elite Premier scheme (in operation from September 2002) and the Smart Money scheme (in operation from October 2002), both of which were run out of the Hobbs office. 124In 2003, the operation commenced of the Elite Premier Option Two Unit Trust, the Covered Strategies Unit Trust (although that may have been a new iteration of an earlier fund operated by Mr Parker) and the First Secured Bond Unit Trust, respectively (the first two being run out of the Hobbs office, the last being the first of the schemes operated from Australia by Ms Li and Mr Collard). 1252004 saw the commencement of operation of the Master Fund and Integrity Plus Unit Trust (both operating from Australia; the first being a Li/Collard scheme and Integrity Plus being the first of the Burwood schemes); 2005, the Best Fund (run by Ms Li and Mr Zhang out of Australia) and Prestige Unit Trust (the second Geneva Financial fund operated from New Zealand); 2006, the Super Save Superannuation Fund (a Burwood scheme), and the 888 (Super Save) Fund and Good Value Fund (both Li/Collard schemes); and 2007, the commencement of the Pinnacle Fund and the Enhanced Fund (both Li/Collard schemes). (Ms Wu was involved in each of the Pinnacle, Enhanced and 888 (Super Save) Funds.) 126The two schemes in which superannuation funds were invested were Super Save and 888 (Super Save), both of which were set up in 2006. 127Of note from the above short chronology is that there was a marked increase in the establishment of schemes operating from Australia from 2004 onwards, consistent with the statement by Mr Hobbs to attendees of the October 2003 DVD Seminar that "we want to build up a larger team to manage funds in Australia". 128Various other funds or schemes were referred to in the course of the evidence. Most of these seem to have been earlier funds, for example a fund run by Mr Robert Diaz (the Express Fund, to which Mr Hobbs made reference in the DVD Seminar); the Solid Gold fund (to which Mr Hobbs again made reference in the DVD Seminar and which was said to be run by solicitors out of Maroochydore); the Cash Builder Unit Trust scheme (a scheme of which Mr Pierre Mitchell, an accountant working in Mr Hobbs' office, was the scheme administrator and the corporate administrator of which was Magny-Cours Ltd); the Procash scheme (with which Ms Wu accepts that in some fashion she was associated); and funds called the Platinum Fund, the Emerging Technologies Fund and the Mozart Fund, respectively (scheme memoranda for which were provided to Mr Koutsoukos for use as a basis for later scheme memoranda - something that casts doubt on Mr Hobbs' recollection that the initial template was that used for the first Geneva Financial scheme memorandum and was provided by Mr Becker to Mrs Hobbs). 129Other funds seem to have been in operation during part or all of the period in which the fourteen above schemes were operated (such as the UniFund scheme, to which reference is made, inter alia, in Ms Reisinger's CFTC examination (Ex AO), and in Mr Koutsoukos' affidavit, as a fund with which Keele University was associated; a Global Funerals scheme (with which Mr Hobbs was involved); and Infinity Fund, a fund said to be associated with Mr Stanton, a barrister who acted (at least at one stage) for ISL (or ISPL) in the 5864/07 proceedings). None of those schemes or funds is the subject of the claims made in these proceedings (though the existence of a Global Funerals transaction or scheme is something on which Mr Hobbs places great weight as explaining the receipt by him of moneys from Secured Bond). Dramatis Personae 130Attached as a schedule to these reasons is the list of the dramatis personae handed up by Mr Clarke of Counsel (who appeared with Mr Halley for ASIC) in the course of submissions on 16 August 2012. I do not propose to make separate reference at this stage to all of the entities and individuals there noted (and, as Mr Clarke made clear, I note that in part it includes what ASIC contends or understands to be the case in relation to certain of the entities). However, in order to enable the chronology of events to be more readily understood, I briefly note the following: * Hobbs' family members 131A variety of Hobbs' family members have had some involvement in one or more of the schemes the subject of these proceedings. I have already referred to Mr and Mrs Hobbs. (Mr Hobbs is contended by ASIC to have been the "mastermind" behind the various schemes.) Mr and Mrs Hobbs (and/or Tasman Business Consultants) traded at times as "Business Solutions" and maintained a joint (J&D Hobbs) bank account (to which ASIC contends various commission payments were made) as well as a Business Solutions bank account. 132Mr Hobbs' younger brother, Mr Robert Hobbs, who lives in New Zealand and is married to Mrs Brenda Hobbs, worked from time to time in the Hobbs Nelson office. According to Mr Hobbs' letter dated 22 November 1999 to Sovereign Trust International (an entity which provided registered office services for Mr Hobbs in Hong Kong in relation to Magny-Cours), Mr Robert Hobbs was employed by Mr Hobbs "on a full time basis". 133Mr Mitchell (the accountant who worked in that office over the period in question) gave evidence that Mr Robert Hobbs performed tasks directly for Mr Hobbs (Mitchell [5]). Mr Clements (who also worked out of the Hobbs office for a period) gave evidence that Mr Robert Hobbs' role included running errands (T 677.29-31). Mr Hobbs said his brother processed new subscriptions for FTC. According to Mr Mitchell, wages for Mr Robert Hobbs were paid by Tasman Business Consultants (on instructions from Mr Hobbs) (Mitchell [25], [38]). 134Mr Robert Hobbs was an authorised signatory to the Hong Kong bank account of, and nominated as "a" (and later purportedly the sole) beneficial owner of, Magny-Cours Ltd (the IBC in respect of which Sovereign Trust provided services for Mr Hobbs and the corporate administrator for Cash Builder Unit Trust, as well as, relevantly, the entity into whose bank account payment for the sale of "IP" in a white label fund was made by J&B Financial in 2007). 135Mr Hobbs did not call his brother to give evidence in his defence. ASIC submits that a Jones v Dunkel inference should be drawn in that regard in relation to evidence going to the particular issue as to the disbursement of certain funds out of the Magny-Cours account (namely, the issue as to what happened to the sum of $200,000 paid by J&B Financial in November 2003 for the purpose of acquisition of the intellectual property in the white label fund or funds referred to in an invoice issued on KLM Enterprises letterhead). ASIC submits that it can be inferred that the $200,000 was a payment referable to the sale by Mr Hobbs personally of IP in relation to a white label fund (though the invoice was on KLM letterhead) and that the payment of funds into the Magny-Cours account supports that conclusion. 136Mr Hobbs disputes that KLM was his alter ego and maintains that the moneys were paid to Magny-Cours at a Mr Chen's request. He was initially unable to recall what had happened to that money but later insisted in the witness box that it was invested. I consider in due course what inference, if any, should be drawn from the fact that Mr Robert Hobbs was not called to give evidence by his brother (though on Mr Hobbs' own evidence he was in regular communication with him throughout the hearing). 137Mr Robert Hobbs' wife, Mrs Brenda Hobbs (who was subpoenaed to give evidence in these proceedings by ASIC), was the co-scheme administrator of the Prestige and Smart Money Funds. In some documents signed by Mrs Brenda Hobbs she has described herself as a beneficial owner and controller of Geneva Financial, in others as a principal of the company. Mrs Brenda Hobbs was an introducer for some of the investors in the funds administered by Geneva Financial (and obtained commission in that role as well as a half share of the administration fees payable to Geneva Financial). Mrs Hobbs submits that her sister-in-law shared equal responsibility for the running of Geneva Financial (an inference said to be available from the evidence that an equal payment of administration fees was made to Mrs Brenda Hobbs). 138Mrs Hobbs' sister, Mrs Ngaire Dent, who lives in Queensland and did not give evidence in the proceedings, was involved in the printing and distribution (within Australia) both of FTC educational material and, for some time, private placement memoranda and contract documentation in relation to investment in the various funds. Her husband, Mr Craig Dent (Mr Hobbs' cousin) assisted her in that task. He was subpoenaed by ASIC to give evidence. He was adamant that he did no more than provide assistance for his wife and (as he told me more than once) that the role of he and his wife was solely that of "publishers and distributors". He maintained records of FTC subscribers (with the assistance, he says, of his then young daughter) and reported thereon to Mr Hobbs. 139In the DVD Seminar, Mr Hobbs broadcast a short promotional film of what was described as the "Nelson office" of FTC (though Mr Hobbs acknowledged in cross-examination that it also showed footage of the Dents' home in Queensland). Mrs Dent appeared on that promotional film and Mr Hobbs confirmed that she was included in the description (on that film) of the "highly trained personnel" involved in the distribution of the financial education material (though it is not clear what qualifications she had to support such a reference). * "Hobbs" Companies 140Tasman Business Consultants was incorporated in New Zealand on 10 March 1998 (Ex AX 15374). It is admitted that Mr Hobbs is the sole director of that company and that he and his wife each hold 50% of the shares of the company. Mr Hobbs described the business of Tasman Business Consultants, in his letter dated 22 November 1999 to Sovereign Trust, as "solely investment" and said that All money transferred to [the entity that ultimately became Magny-Cours] will be profit from current investment with the above companies and from my personal consulting business, Tasman Business Consultants Ltd, of which I conduct business appraisals, insurance, estate planning, financing, etc. (my emphasis) 141Tasman Business Consultants was the entity to which all FTC subscription payments were made (paid into an ANZ bank "trust" account in its name). It was also the entity from which payment of various expenses and wages was sourced (including expenses in relation to FTC, expenses in relation to the work carried out by each of Mrs Watson and her daughter Mrs Burnard in relation to the OEM/KLM process, expenses in respect of the work carried out by Mr Robert Hobbs, and payments for the rent and other bills related to Mr Hobbs' office) via a transfer of funds by Mr Hobbs to the second (BNZ) bank account. Mr Mitchell says that this was on Mr Hobbs' instructions ([25], [38]) (and there seems no one else who the evidence discloses gave, or was in a position to give, such instructions). 142According to Mr Mitchell, the second bank account opened in Tasman Business Consultants' name (a BNZ account) was a business account (Mitchell [29]-[30]). (As I understand it, there were only relatively few payments relating to the schemes the subject of these proceedings paid into that BNZ account.) 143At all material times, Mr Hobbs maintained an office at the registered office of Tasman Business Consultants (the address of which changed over the period in question). From June 2001 until July 2004, its registered office address was at the BNZ Building in Trafalgar Street, Nelson, New Zealand; from July 2004 to 5 August 2011, it was at the State Building in Bridge Street, Nelson, New Zealand. Its registered office is now at a property at Echodale Place, Stoke, Nelson, New Zealand owned by Legend of Bathurst Limited (a company incorporated in New Zealand on Mr Hobbs' instructions - Mr Nicholas Moore's affidavit at [31]). Mr Mitchell confirmed (and this is consistent with the way in which various of the witnesses referred to the Tasman Business Consultants' office) that the Tasman Business Consultants' office was referred to as Mr Hobbs' office. 144The Tasman Business Consultants' Nelson address (then the State building) is noted on the letterhead of at least one of the IBCs (Trans Management Corporation (Ex AU 3921 - 2005). Tasman Business Consultants also maintained a post office box address in Stoke, Nelson, New Zealand (the details of which appear on the letterhead of various other entities to which reference is made in these reasons). 145Magny-Cours Ltd (to which I have already referred in passing above) is an IBC that was incorporated in the Turks and Caicos Islands (presumably as a shelf company of some kind) on 27 July 1999. Mr Hobbs applied in 1999, through an entity in Hong Kong (Sovereign Trust International), to acquire an offshore IBC. Magny-Cours (initially expected to be called Edgewood International) was the IBC that was eventually so acquired. In his application form, Mr Hobbs instructed Sovereign to provide nominee directors, shareholders, email and telephone forwarding services and a company bank account. Renewal fees indicate that registered office and agency services were also provided by Sovereign. 146The nominee shareholder of Magny-Cours was identified as Midland Investments Ltd and the nominee director was Sovereign Managers Ltd. A share certificate was issued in the name of Midland Investments on 23 November 1999. Midland Investments signed a Nominee Declaration on 23 November 1999, declaring that it held its issued share in Magny-Cours Ltd as nominee for Mr Hobbs. 147Mr Hobbs was thus the beneficial owner of Magny-Cours at least as at November 1999. By letter dated 25 November 1999, Sovereign Secretaries (TCI) Limited confirmed to the HSBC bank that Mr Hobbs was the beneficial owner of the company (and attached his passport details, therefore presumably had been instructed to do so). 148In around May-June 2000, Mr Hobbs authorised Mr Mitchell to be a signatory to operate the Magny-Cours' bank account (by faxes dated 26 May 2000 and 6 June 2000). (At that time, Mr Mitchell was the administrator of the Cash Builder Unit Trust.) Mr Mitchell deposed (at [10]-[11]) that funds from investors in that scheme were forwarded to the Magny-Cours bank account at HSBC in Hong Kong (and that Mr Hobbs later said they had been stolen). 149In September 2000, Mr Hobbs "as the ultimate beneficial owner" sent a fax to Sovereign Trust authorising Mr Mitchell to discuss and arrange for the issue of shares in Magny-Cours to Mr Robert Hobbs as a cobeneficial owner of Magny-Cours and it appears that a further share was issued to Mr Robert Hobbs. 150In February 2001, Mr Hobbs sent a fax to Sovereign Trust advising that he wished to "withdraw" as a beneficial owner of Magny-Cours, leaving his brother "the sole beneficial owner of the company (the fax transmission imprint has a 13 February 2001 date). The letter stated that a nominee declaration was being forwarded by post. Whether or not it was so forwarded is unclear. 151Mr Hobbs seems at least to have retained some degree of control in respect of the company insofar as he issued various directions for the disbursement out of that company's account (countersigned by his brother) by letters dated 23 September 2004, 21 December 2004, 16 March 2005, 2 May 2006, 27 November 2006 (and signed other directions solely in his own name - 20 January 2008 and 5 July 2008). Mr Hobbs accepted in cross-examination (when pressed) that he had treated Magny-Cours as his (and/or his brother's) personal company (to the extent that payments for various personal expenses were paid out of that company on his instructions). This continued after February 2001. 152Trans Management Corporation is an IBC that was incorporated in Vanuatu. It is identified in the respective private placement memoranda of each of the schemes the subject of the proceedings as the trustee of the scheme. (It was also described as the trustee of other schemes not the subject of these proceedings, such as the Cash Builder Unit Trust, Platinum Fund and Mozart Fund). 153Correspondence in relation to renewal of the fees for provision of registered agent's services in respect of Trans Management was sent to the Hobbs office. Mr Jim Cable (who worked in or out of the Hobbs office around then) stated in an email dated 12 July 2001 (relating to services for IBCs) that the ownership of Trans Management Corp had been transferred to OEM (describing OEM as "a Nevis-based company"). There is no evidence of any such transfer of ownership. (I note that insofar as this suggests that OEM was based in Nevis, and the correspondence is at a stage when the OEM entity in the British Virgin Islands had not yet been incorporated, this might provide some support for the inference that over the relevant period of time there were multiple OEM entities, assuming that OEM had actually been incorporated anywhere at that stage and was not simply a business name being used in some loose fashion.) 154A letter dated 4 May 2005 signed by Mr Hobbs in the stated capacity as administrator of Trans Management (and nominating the "nasl" email address as his contact email address) was on letterhead nominating the then registered office address of Tasman Business Consultants (the State building) as the address of Trans Management (Ex AZ 3921). 155I interpose to note that the apparent connection between Trans Management and the Hobbs office (from which a number of the funds for which it was the nominated trustee were administered) and the lack of any evidence to suggest that there was any independent function carried on by Trans Management, belies the suggestion that Trans Management was an external trustee in any sense of being independently accountable to investors in the schemes. The only scheme administrators who suggest that they reported (in any sense) to Trans Management were Mr Grant Clements (in relation to the two Elite funds) and Mr Fitzpatrick (in relation to the Covered Strategies fund). Mr Clements gave evidence that he reported to Trans Management through Mr Hank Parker (Ex AQ), though Trans Management was (according to its 2005 letterhead) based in the same office as Mr Clements himself. Mr Fitzgerald could not recall to whom he emailed his reports (T 933.13-14) but appeared surprised in the witness box to hear it suggested (and said he did not know) that Trans Management was an IBC for which the registered office and agency services were being renewed by Mr Hobbs (T 940.16-18, T 942.25-29). (Mr Hobbs maintained that his understanding was that the "outside trustee" role was by Mr Becker, Mr Chen, Mr Parker and others. There is no evidence that any of those individuals took any steps to perform the role of an external trustee in relation to the schemes.) 156International Management Incorporation is an IBC that was incorporated on 17 August 2005 in Vanuatu. The certificate of incorporation for this company was sent to the Tasman Business Consultants office marked to the attention of Mr Hobbs. On 4 May 2007, International Management Incorporation was struck off the register of companies in Vanuatu. It was the entity through which Mr Hobbs held 25% of the shares in Barclaywest. 157First Zurich Financial Ltd is the name of an IBC that was incorporated in Anguilla on 19 August 2002 (and later deregistered on 21 July 2006). (I refer to it as FZF Anguilla to distinguish it from the IBC of the same name that was later incorporated in Vanuatu on the application of Ms Li and Ms Dong on 22 March 2007.) There is a question as to which of FZF Anguilla or FZF Vanuatu was the entity through or with which Mr Hobbs entered into a facilitation agreement with Global Funerals in 2006, on which as already noted he relies heavily for the submission that he received no commission referable to the funds the subject of these proceedings and that any commission he did receive was referable to Global Funerals. (The agreement itself refers only to First Zurich Financial Ltd, so on its face it is not clear whether it was FZF Anguilla or FZF Vanuatu.) Mr Hobbs wrote a great deal of correspondence (mainly as consultant but once as director) on the FZF Anguilla letterhead. 158As adverted to above, First Zurich Financial Ltd is also the name of an IBC that was subsequently incorporated in Vanuatu (to which I will refer as FZF Vanuatu). This IBC was one that, according to Mr Hobbs in the witness box, was set up for him (and that he regarded as being beneficially owned by him). It may or may not be the entity that is party to the Global Funerals commercial bond facilitation transaction. 159Swiss Financial Security (or Securities) is an IBC that, from 2007, commenced the printing and distribution of private placement memoranda and scheme agreements from one of the Pacific islands (probably Tonga). * Hobbs' office 160As noted above, Mr Hobbs maintained an office in Nelson at the registered office address of Tasman Business Consultants over the relevant period. References in these reasons to the Hobbs office or the Nelson office are references to the registered office of Tasman Business Consultants at the relevant time. 161Working in the Hobbs office over part or all of the period from 2000-2008 were various people: Mrs Doreen Andrews (Mr Hobbs' secretary); Mrs Suzanne Watson (Mr Hobbs' personal assistant); Mr Robert Hobbs (Mr Hobbs' brother); Mr Jim Cable (who carried out some administrative tasks such as organising the renewal of IBCs and who was in the office for the period around 2001-2003); Mr Pierre Mitchell, an accountant (and administrator of the Cash Builder Unit Trust) who was in the office from around 1999 to 2008; Mr Robert Fitzpatrick, (administrator of the Covered Strategies scheme) who was in the office from about September 2003 to early 2005; and Mr Grant Clements, (the administrator of the two Elite Premier schemes) from around 2000. (Mrs Emma Burnard, Mrs Suzanne Watson's daughter, visited the Hobbs office from time to time but mainly worked from her own home.) Each of those (other than Mrs Andrews, Mr Robert Hobbs and Mr Jim Cable) gave evidence in the proceedings either having been subpoenaed by ASIC to attend for that purpose or, in the case of Mr Mitchell, having sworn an affidavit shortly before the hearing. 162According to Mr Hobbs, when questioned as to the reference in the DVD Seminar to others in his office who were "running funds", there were others who also worked in the Nelson office at various times, including an accountant (Mr Mills), a solicitor (Mr Mark Wheeler) and another accountant (Mr Alistair Wilkins). No other witness referred to those persons having been working in the Nelson or Hobbs' office during the period in question. (Mr Clements' diagram of the office layout in the respective buildings (Ex AR) did not indicate any office occupied by persons of those names.) Mr Hobbs conceded that at least one of the three persons named above had not been in the office for very long. (The relevance of this is to indicate Mr Hobbs' apparent propensity to overstatement and imprecision, in that the impression conveyed by what he said at the DVD Seminar about others in his office "running funds" was not that of persons there for a short time who had nothing to do with FTC or KLM.) 163Mrs Suzanne Watson is a hairdresser by occupation (though she stated her occupation as a broker on at least one Smart Money scheme agreement - something she described as just an "anomaly"). She acted as (an unpaid) personal assistant to Mr Hobbs in the Nelson office over a period of years, performing work of an administrative nature (T 429.48, T 430.14, T 440.45-T 441.13). (Although there had been an issue raised at an earlier interlocutory application as to her role in the Hobbs office, at T 1233.46-49 in cross-examination Mr Hobbs accepted that Mrs Watson was his personal assistant.) 164Mrs Watson did not have her own office at the Hobbs office, according to Mr Clements (T 675.46-676.6), but worked variously in Mr Hobbs' own office or in the office forecourt area. Mrs Watson's work included filing documents (in what she herself referred to as an "ad hoc" fashion - T 472.10), sending and receiving correspondence relating to FTC executives, coordinating the dispatch of FTC materials to FTC executives, and undertaking work in connection with OEM/KLM and Diligence Discovery. Mrs Watson's expenses were reimbursed by Mr Hobbs by way of cheques drawn on the Tasman Business Consultants account (T 465.3-7, 41-45). 165Mrs Emma Burnard (nee Watson) is Mrs Watson's daughter. She carried out tasks on a paid basis (from her home) in relation to the OEM/KLM procedure and she incorporated Diligence Discovery Ltd in New Zealand (according to Mrs Watson, at Mr Hobbs' suggestion or direction) to perform the due diligence work in relation to the Super Save and 888 (Super Save) Funds. 166Mrs Doreen Andrews is Mr Hobbs' secretary or assistant (as so described by Mr Mitchell at [5] and Mr Clements T 674.36-40, T 677.48-49). According to Mr Clements (T 678.1-3), Mrs Andrews took instructions directly from Mr Hobbs. (Some of Mr Hobbs' evidence suggests, implausibly in my view, that Mrs Andrews exercised a great degree of autonomy in the making of decisions on matters dealt with in the Hobbs office. In this regard, his failure to call Ms Andrews to give evidence to that effect gives me comfort in drawing the inference otherwise available on the evidence before me that Mrs Andrews fulfilled no more than a secretarial role, reporting to and taking instructions from Mr Hobbs.) 167Mrs Andrews and her husband owned and controlled Nelson Administration Services Ltd (NASL), from which it appears that the initials "nasl" in the email address used for many of Mr Hobbs' email communications were derived. NASL provided secretarial services to businesses in Nelson, New Zealand. (According to Ex AX, a New Zealand company search, it was struck off in 2007; the liquidator's report disclosing that it ceased trading in about 2004.) 168As noted above, Mr Hobbs did not call evidence from Mrs Andrews. ASIC submits that an adverse inference can be drawn that her evidence would not have assisted Mr Hobbs' defence on two issues: first, as to the authorship by Mr Hobbs of a book titled "The Art of Arbitrage" (which he contended in cross-examination was prepared by him for NASL and not the same as the FTC booklet of the very same name that in previous evidence he said was provided to him or written by Mr Becker - evidence given in the face of glaring inconsistency between his affidavit reference to the provision of the books and his evidence in the s 10 examination as to his authorship of that book; and second, as to the issue of access by Mr Hobbs to "nasl" emails (namely, the rather remarkable suggestion by Mr Hobbs that, as his secretary, Mrs Andrews would make her own decision as to what emailed documents addressed to Mr Hobbs would be printed and/or shown to him). I consider those matters in due course. 169Mr Jim Cable worked in the Nelson office at least for some period around 2001-2003. His work appears to have included administrative work relating to the renewal of IBCs such as FTC and Trans Management Corporation (Exhibit AU p 1543 being an email dated 12 July 2001 in relation to renewal fees). Mr Cable was appointed as a director of Global Visions Ltd in July 2003, that being a company incorporated in New Zealand of which Mr Hobbs was a shareholder. (According to Mr Diaz ([128]), Mr Cable had a role administering a fund called Covered Calls for a period prior to about late 2003, which fund appears then to have been restyled the Covered Strategies fund that was administered for a time by Mr Fitzgerald.) Mr Cable also operated an IBC called New Millennium Opportunities out of Mr Hobbs' office (Ex F tab 41 being a reference by Mr Cable on New Millennium Opportunities letterhead). (Mr Cable's email address had the prefix "nmo".) 170Mr Pierre Mitchell is an accountant who worked part-time from the Nelson office as a bookkeeper for the period from about 1999 to 2008 (having previously worked for Mr Hobbs at Colonial Mutual in Nelson - Ex F tab 41 p3). He was the administrator of the Cash Builder Unit Trust fund for a time up to 2003 and he was for a time an authorised signatory of the bank account for Magny-Cours. He says he acted in those capacities on instructions from Mr Hobbs ([8]-[10]). 171Mr Mitchell performed accounts payable and bank reconciliation work for the Tasman Business Consultants BNZ account for Mr Hobbs ([24]) but says (and I accept) that he never made any transaction on that account unless authorised he do so by Mr Hobbs ([27]). Mr Mitchell's wages were paid out of the Tasman Business Consultants account (he says on instructions from Mr Hobbs) ([25] and [38]). 172Mr Grant Clements is a truck driver by trade. He accepted, in examination in chief by Mr Clarke, that he regarded Mr Hobbs as something of a "father figure" (T 671.47-T 672.1). He worked in the Hobbs' office for some time from around 2000. At the time Mr Clements commenced work in the Nelson office, he was seemingly at a loose end from an employment perspective. Mr Clements says he initially shared an office with Mr Mitchell (when Tasman Business Consultants was in the BNZ building) (T 674.26-27; T 676.45-46). Mr Clements said that he had no financial qualifications but he did his own research. Questioned by Mr Hobbs, Mr Clements agreed that he had written an ebook on finance (40 Questions to ask your Investment Broker). (There was no copy of that book in evidence from which to assess the degree of financial knowledge Mr Clements had gained while doing the research he said he did in Mr Hobbs' office.) 173Mr Clements applied for the incorporation of the IBC named Preserved Investment Group, which was the corporate administrator of both the Elite Premier funds (T 683.27). He was not paid by Mr Hobbs or Tasman Business Consultants (T 673.47-674.5) but received commission as administrator of the Elite Premier Option Two Unit Trust (Ex A tab 109; T 725.30-48). Mr Clements says that he paid rent to Mr Hobbs from around 2006 for his occupation of space in the Hobbs office (T 728.44-729.44). (Mr Halley notes that this rent arrangement was not in writing and that it was referable not to the area occupied but, on Mr Clements' evidence, to a share of profits from the fund.) 174Mr Robert (Bob) Fitzgerald is a retired supermarket operator and owner. He worked in the Hobbs' office from about September 2003 to early 2005 (T 899.4-9, T 989.19-31; Mitchell [5]). 175Mr Fitzgerald incorporated the IBC called Ultimate Investments, through which he administered the Covered Strategies fund (T 899.43-900.12). Mr Fitzgerald received commission in that capacity and (like Mr Clements) understood that he was to pay rent to Mr Hobbs referable to a percentage of profits earned by the fund - that agreement again not being in writing and not referable to the area occupied (T 951.46-952.3; T 952.34-43; T 952.49-953.21; Ex AT tab 3; T 976.50-977.4). Mr Fitzgerald says he ceased working as administrator of Covered Strategies in late 2004 but that, when he found nothing was being done about the clients' investment for the six-month period thereafter, he formally resigned as "director" in mid 2005. 176Relevantly, Mr Fitzgerald saw his role as administrator as an administrative one and sought Mr Hobbs' assistance when Mr Fitzgerald was having difficulty obtaining a response from Mr Parker in relation to funds that had been invested with him. * FTC 177FTC is an IBC that was incorporated and registered in Vanuatu on 30 November 1999. According to the Vanuatu Financial Services Commission, its records show that the company was struck off the register on 7 November 2007 (and that its registered office address, and registered agent, in Vanuatu "is no longer active"). 178The FTC Financial Education brochure (Ex AU 8239) describes FTC as an "innovative provider of financial education" and says that "The program takes novice and experienced investors alike and transforms their financial results through continuously expanding their knowledge and awareness of finance". The application form for FTC subscription included a document headed "Confidentiality Agreement - Non-Disclosure and Non-Circumvention Agreement" containing an agreement that there be no "contact with any institutions, clients, individuals, or parties introduced by" FTC. 179At the opening of the session on day one of the DVD Seminar, Mr Hobbs said: The company[ies] we're going to discuss this morning is Future Trading Corporation Limited. Future Trading Corporation Limited is incorporated in Vanuatu, it's owned by the international company OEM limited. Future Trading Corporation does not sell or offer investments or give financial advice. Future Trading Corporation is a financial education company, and you will probably hear me reiterate that a number of times. By law in Australia we can [share] financial [education] information by education, but the moment you make an investment offer, in Australia, you must have either the twelve twenty rule or have a registered prospectus. ... (my emphasis) (P 3 lines 30-39) [Pausing there, the last sentence clearly goes to the lawfulness of the making of the investment offer.] 180Registration fees for FTC appear to have been invoiced to Mr Hobbs. (At least as at 29 May 2003, correspondence advising as to the schedule of fees due for FTC and Trans Management Corporation, being the annual government registration fee and an annual registered agent and office fee payable to the Vanuatu Financial Services Commission in relation to those companies was sent by a Mr Roger Jenkins B.Fin.Admin FCPA in Vanuatu, addressed to Mr Hobbs at Mr Jim Cable's New Zealand "nmo" email address - Exhibit AU 1543.) 181Mr Hobbs concedes in his closing submissions that he has given conflicting accounts as to how FTC was set up (and I consider later the explanation he has provided for those conflicting accounts). 182In his written closing submissions, Mr Hobbs maintains that Mr Kip Becker "arranged for [FTC] to be set up". However, in the DVD Seminar Mr Hobbs is recorded as saying (inconsistently with his evidence in the witness box, and also his closing submissions) "I sold I formed Future Trading ...I formed Future Trading and bought all the investment products there". In cross-examination he suggested that this statement related only to the formation of the investment products (though that of itself seems inconsistent with Mr Hobbs' present submission that it was Mr Becker and Ms Reisinger who had developed the investment products). In cross-examination Mr Hobbs said: A. I didn't incorporate it [FTC], I formed the products of FTC. Q. Do you deny that you formed FTC? A. Absolutely. Q. Have you ever told anybody that you formed FTC, Mr Hobbs? A. Let's make sure of the difference of incorporated and formed. Formed products, yes. Incorporated the company, no. (my emphasis) [In fact Mr Hobbs had told the attendees at the DVD Seminar that he had "formed" FTC.] 183Mr Hobbs, taken in cross-examination to the DVD Seminar transcript, noted that on the video he had used the verb "formed" not "incorporated" but then said: "I formed the company, the products. And I was to be paid, which I was never paid". Although Mr Hobbs maintained that he was to be paid something (if and when the company was sold) he said he did not know whether the company was ever sold. Later in cross-examination, Mr Hobbs said that FTC "was sold between Mr Chen and Becker. At one stage I was supposed to have ownership of FTC, but that never happened". 184When pressed on the sale to which he was there referring (and out of which he had said that he "was supposed to get paid for a portion of FTC, which I never did"), Mr Hobbs said that Mr Chen and Mr Becker were selling part of FTC to another person (and that Mr Chen had said that Mr Hobbs was going to get paid from it). (Somewhat testily, Mr Hobbs suggested that Mr Halley would be welcome to check the register of companies to confirm that he, Mr Hobbs, did not have any interest in FTC, a rather disingenuous answer given that Mr Hobbs seems to have understood that IBCs were typically incorporated in "privacy havens" and it might be expected that it would not necessarily be a simple matter to determine beneficial ownership of such companies. While I might otherwise have attributed this response to the pressure of cross-examination, it is noteworthy that Mr Hobbs' attitude when faced with seemingly inconsistent propositions in the witness box was often to treat them dismissively in that fashion.) 185Turning to the contemporaneous documents, on at least one occasion Mr Hobbs signed a copy of a letter on the letterhead of FTC (to a Mr Keith Callins) above the words "David J Hobbs CIF Director" (letter dated 7 June 2002, Ex AU 1218, giving the "nasl" email address as his contact address). When asked how he came to sign a letter on the letterhead of FTC which described himself as director, Mr Hobbs' response was "I obviously didn't check it" and said that "I guess nobody's past making a mistake". Then at T 1235.05, Mr Hobbs said (tellingly in the context of the multiplicity of corporate personas involved in the operation of the investment process in respect of the various schemes): A. ... Mrs Andrews [his secretary] wrote on a number of different letterheads for me and that's obviously just a mistake. 186I consider in due course the conclusions that ASIC submits should be drawn as to Mr Hobbs' involvement with FTC. * OEM and KLM 187ASIC contends these companies are or were in effect controlled by, or alter egos of, Mr Hobbs. 188I have already noted the amendment to the pleading that was made in relation to the details of incorporation of these companies. ASIC had pleaded (at [26] and [27] of the Second Further Amended Statement of Claim) that both OEM and KLM companies were incorporated in the British Virgin Islands. Mr Hobbs' verified defence (to the same allegation in the Further Amended Statement of Claim as appeared in the Second Further Amended Statement of Claim) contained a non-admission of that allegation on the basis that he did not know and could not admit that allegation. The verified defence filed for Mrs Hobbs (and Geneva Financial) similarly pleaded to a lack of knowledge in relation to that allegation. 189As now pleaded, the relevant allegations in the Third Further Amended Statement of Claim are that: 26. O.E.M. Ltd was a company incorporated in British Virgin Islands on 12 December 2003 up to the date of its deregistration on 1 May 2007 and further or alternatively: (a)a company incorporated in Anguilla; (b)a company incorporated in the Federation of Saint Kitts and Nevis; (c)a company incorporated in the Bahamas; (d)an entity known as O.E.M.Ltd or OEM Ltd ... 27. KLM Ltd was a company incorporated in British Virgin Islands on 11 February 2002 up to the date of its deregistration on 1 November 2004 and further or alternatively K.L.M. Ltd or alternatively K.L.M. Enterprises Ltd was: (a)a company incorporated in Anguilla; (b)a company incorporated in the Federation of Saint Kitts and Nevis; (c)an entity known as K.L.M. Ltd or KLM Ltd or K.L.M. Enterprises Ltd ... 190A company named KLM was recorded as having been incorporated in the British Virgin Islands on 11 February 2002. Similarly, a company by the name of OEM was recorded as having been incorporated in the British Virgin Islands on 12 December 2003. There is, therefore, evidence from which I accept that companies by the name of KLM and OEM were incorporated in the British Virgin Islands as at February 2002 and December 2003, respectively. 191On 1 November 2004, the KLM entity that was incorporated in the British Virgin Islands was deregistered and on 1 May 2007, the OEM entity incorporated in the British Virgin Islands was also deregistered. (The apparent lack of attention paid to the payment of fees for renewal of KLM/OEM's respective registration might perhaps suggest that these were entities in little more than name; alternatively, it might suggest that the companies were by then no longer serving a particular purpose, though the OEM/KLM process, according to Mrs Watson, continued "well after" Mr Becker's death in 2004. Since the deregistration of IBCs for non-payment of fees was a common feature, perhaps the more likely explanation is that at some point no one bothered to attend to such niceties.) 192As noted earlier, back in July 2001 Mr Cable had referred to OEM as a "Nevis-based" company and some of the OEM letterhead used by Mrs Watson and Mrs Burnard is consistent with OEM being a company as based in Nevis. I accept therefore that there is some evidence to suggest that an earlier IBC by the name of OEM may have been in existence and being based in Nevis. (Similarly, some of the KLM letterhead used by Mrs Watson and Mrs Burnard described KLM as an entity in Nassau, the Bahamas though there is no evidence of incorporation in that jurisdiction). 193More conclusively, there is also evidence to suggest that registration fees were paid for companies of those names in Anguilla (and in 2006, after the deregistration of those Anguillian companies had been confirmed, Mr Hobbs applied to revive the registration of companies of those names in Anguilla). I would infer from this that there were also, at some stage, entities known as OEM and KLM incorporated in Anguilla. 194I was informed by Mr Halley in opening that ASIC had been unable to obtain confirmation of any corporate registration of OEM/KLM other than in the British Virgin Islands but that it acknowledges the possibility that a company of the OEM name was also incorporated in Anguilla and/or the Bahamas (and/or Nevis, as the letterhead stated) and that a company of the name KLM was incorporated both in the Bahamas and the British Virgin Islands (and possibly also in Anguilla). 195Mr Hobbs said in cross-examination that he did not know the ownership structure for OEM as at 2002/2003 other than that he knew "it was owned by a number of people". He said that he had not looked at the register for OEM; did not know in what country OEM was incorporated; and did not know when it was incorporated. His evidence was that the only knowledge he had of OEM was what other people had told him (but indicated that he had not seen any difficulty in relying on that when telling others about the company, saying "Yes; but I had a lot of trust in Mr Becker"). 196In his written closing submissions, Mr Hobbs maintains that it was "Ms Reisinger/Mr Becker" who "established the OEM/KLM arrangements" (though this may be a reference to the putting in place of the process to be followed under the OEM/KLM names and not incorporation of the companies as such). 197When questioned at the DVD Seminar as to the structure of the ownership of FTC and the OEM/KLM companies, Mr Hobbs responded (with no apparent reticence) as follows: Right. Future Trading Corporation is a Vanuatu registered company. ... Future Trading is owned by OEM Limited, which is a Nevis registered company I believe. ... Now, OEM is owned by attorneys, licensed security advisers and fund managers from the US, and there's an accountant there as well. 198When asked whether he was part of that company (OEM) as well, Mr Hobbs said: I sold - I formed Future Trading. ... And I didn't form OEM or KLM, but I formed Future Trading and bought all the investment products there, but when I developed the multiple sclerosis I had to make sure that the structure was put in place internationally, if anything happened to me, everything continued in a normal fashion. So we have people around the world, in the high places only in the companies that are running - running the operations. We also - one of the people that owns OEM - and KLM actually I must say - is a gentleman who lectures on finance at the Kentucky University in Kentucky, a Mr Parker, and that allows us to also use the whole Kentucky University's as - when we're doing research, which is pretty good because we get it for nix, you know. So no I am not the owner any more, and that's simply for medical reasons. ... KLM is a completely stand-alone identity. KLM is owned by an attorney, a licensed security adviser, fund manager and an accountant, and the gentleman, Mr Parker, who works at the university, and that manages all the investment products. The investment products are run by Merrill Lynch, Rothchilds, Refco, SocGen Bank, and two of them are run here in Australia by solicitors in Brisbane [this being a reference to Solid Gold] and also a options trader here in Australia. Tomorrow I'll name some of the board - some of the people that own the identities. No they are not listed. And I don't think they will ever - they will ever float. Some of the funds we have a capping on, so when we reach that level, which is a pretty low level, obviously they will be capped at that. There's a property fund that I hadn't touched on which I will - if you'll just remind me tomorrow, I will touch on a property fund that's quite interesting coming up and - and a few others. Does that help? (my emphasis) 199Neither Mrs Watson nor Mrs Burnard was able to assist in relation to the details of the companies on whose letterhead they communicated with investors. Mrs Watson's evidence, when taken to changes in the letterhead used by OEM over time, was that she could remember doing it but did not know why. She agreed that initially the OEM letterhead had an address in Charleston, Nevis and that the letterhead subsequently changed to an address in Nassau in the Bahamas. She knew nothing about any office in Charleston in Nevis and did not know where Nevis was; similarly she knew no details of any OEM office in Nassau in the Bahamas, though she knew where Nassau was. 200Mrs Watson then said, when asked if she recalled seeing any payment to J2 for the work that it did in diverting faxes to an email address of her daughter in New Zealand: A. No, and I find it awkward, now that I'm seeing it like this, that there's Nassau in The Bahamas and England on the same address. It really was of no consequence to me. I didn't take any notice of it. 201Mrs Watson confirmed that it was not possible that she herself had come up with those address details. She also said that Mrs Burnard had not suggested the use of those addresses. 202In that regard, Mr Halley notes that the evidence discloses a practice throughout the relevant period in which companies with the same names were incorporated in different jurisdictions (so, for example, a company by the name of 888 Management Inc was incorporated variously in each of Vanuatu, the Turks and Caicos Islands and Australia; similarly there were two companies incorporated with the name First Zurich Financial Ltd, one in Anguilla and one in Vanuatu). (Mr Hobbs himself seems to have regarded the process of incorporation as involving simply a transfer of the same name to another jurisdiction, at least having regard to his evidence as to the potential incorporation of FTC in Australia.) 203On the evidence before me I find that there were companies known as OEM and KLM incorporated in both British Virgin Islands and Anguilla at some stage during the relevant period. (I am not satisfied that there is sufficient evidence to conclude that there was also an OEM in Nevis or the Bahamas or a KLM in the Bahamas.) 204There is therefore some uncertainty as to which particular OEM or KLM company or entity (if any) was involved as part of the process by which investment in offshore funds was made possible to FTC subscribers. (It seems to me that there is also the possibility, having regard to the lack of any corporate presence of OEM/KLM at the supposed registered address shown on the letterhead of those companies, and the general imprecision shown in the use of titles by Mr Hobbs and others associated with him, that the reference to the OEM/KLM on the letterheads was itself a sham and that there was no separate entity involved in the process at all). 205At the very least, it can be confidently concluded that no (or little) attention was paid by Mrs Watson or Mrs Burnard to the details of where and when the companies (on whose letterhead they were issuing documents) were incorporated or where they were based. There is no suggestion that either Mrs Watson or Mrs Burnard was responsible for setting up the particular companies. Nor is there any evidence to suggest that either of Mrs Watson or Mrs Burnard obtained instructions or directions from anyone other than Mr Hobbs in relation to the tasks performed by them on behalf or in the name of OEM/KLM. * FTC Executives 206From May 2004, various individuals executed FTC Executive Agreements (in what seem to have been a standard form); including Ms Paulina Dabelic on 11 May 2004; Ms Li on 16 May 2004; Mr Collard on 28 May 2004; Mr Diaz on 1 June 2004; Mr Wood on 26 August 2004; Mr Truong on 22 September 2004; Mr Koutsoukos on 13 October 2004; (it appears that at least Messrs Wood and Truong had earlier executed other FTC agreements that were seemingly treated as having been superseded when they set up business with Mr Koutsoukos from the J&B Financial offices). Mr Hobbs accepts that the persons listed at [45] were FTC executives (but maintains that they were not his agents). A number of FTC executives gave evidence on affidavit or orally in chief in these proceedings. Their evidence was consistent on the fundamental aspects of the case, though some had better recall than others. * Corporate administrators of the respective funds/IBCs 207Over the period from December 1999 through to around 2006, the entities that ASIC contends were the corporate administrators of the respective investment schemes the subject of the present proceedings were incorporated in various offshore jurisdictions (and in one case - ISPL - in Australia). The relevant corporate administrators that were incorporated as IBCs (and other IBCs who feature in the relevant events) are set out below. (For chronological context I have included some of the IBCs to which relevance has already been made.) * Magny-Cours Ltd (administrator of the Cash Builder Unit Trust) was incorporated in the Turks and Caicos Islands on 27 July 1999 (and "acquired" by Mr Hobbs in November 1999); * FTC was incorporated in Vanuatu on 30 November 1999 (deregistered on 7 November 2007); * Preserved Investments Group Limited (administrator of the two Elite Premier Schemes) was incorporated in Vanuatu on 16 December 1999; * a company called KLM Ltd was incorporated in British Virgin Islands on 11 February 2002 (and deregistered on 1 November 2004) (on 2 August 2006, Mr Hobbs applied to have KLM's Anguillian registration revived, nominating the beneficial owner as Ms Li); * FZF Anguilla was incorporated in Anguilla on 19 August 2002 (and deregistered on 21 July 2006); * Geneva Financial Ltd (administrator of Smart Money and Prestige) was incorporated in Anguilla on 20 August 2002 (and deregistered on 11 May 2011); * Secured Bond Ltd (administrator of First Secured Bond Unit Trust and Master Fund) was incorporated in Anguilla on 14 July 2003 (and deregistered on 30 June 2009); a document was signed appointing Ms Li and Mr Collard as directors of the company in November 2006 (it would seem that this was in order to establish what was necessary for the opening of the Cadent accounts); on 12 April 2007 a Consent to Act as director was signed by Mr Emori Tunaosara Tolio in Fiji; on 25 May 2008 documents were signed recording the acceptance of Ms Li's resignation as an administrator and the appointment of Mr Collard as sole administrator with effect from that date (Ex AU 15493; Ex AU 15496); * Ultimate Investments Ltd (the administrator of Covered Strategies Unit Trust) was incorporated in Anguilla on 1 October 2003 (and deregistered on 6 January 2009); * a company known as OEM Ltd was incorporated in the British Virgin Islands on 12 December 2003 (and deregistered on 1 May 2007); * PJCB International Ltd (the administrator of Integrity Plus Unit Trust and the Super Save Superannuation Trust) was incorporated in Anguilla on 14 September 2004 (and deregistered on 30 June 2009); * North Wave Ltd (the administrator of Good Value Fund) was incorporated in Vanuatu on 21 July 2005; * International Management Corporation (the entity through which Mr Hobbs held shares in Barclaywest Ltd) was incorporated on 17 August 2005 (and deregistered on 4 May 2007); * 888 Turks & Caicos (one of the three administrators of the Super Save Superannuation Fund) (that being one of three companies whose name was 888 Management Inc) was incorporated in the Turks and Caicos Islands on 19 August 2005; * Destiny Holdings was incorporated in Anguilla on 21 September 2005 and deregistered on 30 June 2009; * Barclaywest Ltd (the administrator of the Enhanced Fund) was incorporated in Vanuatu on 22 February 2006; * 888 Vanuatu (the administrator of the Pinnacle and 888 (Super Save) Funds and the second of the three 888 Management Inc companies) was incorporated in Vanuatu on 20 April 2006; Equity Holdings Ltd was appointed as nominee director of the company on its incorporation; it resigned on 21 April 2006 and a Quiang Li of China was appointed in its place (Ex AX 15492) as confirmed by Moores Rowland Vanuatu to Cadent on 14 November 2006 (Ex AX 15495); * ISL (the third of the three administrators of Super Save Superannuation Fund) was incorporated in the British Virgin Islands on 27 July 2006 (but presumably not acquired by the J&B Financial officers until later, since in the meantime ISPL was incorporated in New South Wales on 28 September 2006) (ISL was deregistered on or before 10 June 2008); * the Anguillian OEM Ltd/KLM Ltd companies were, at some stage before August 2006, registered in Anguilla and as at August 2006 had been deregistered (on 2 August 2006, Mr Hobbs applied to have KLM's registration revived, nominating the beneficial owner as Ms Li); * FZF Vanuatu (which may or may not be the entity associated with the Global Funerals transaction) was incorporated in Vanuatu on 22 March 2007. 208As to other companies: * 888 Management Australia Ltd (now Serenity Management Ltd) (the Australian 888 Management entity) was incorporated in New South Wales on 26 June 2006; * Diligence Discovery Ltd was incorporated in New Zealand on 27 April 2006, and deregistered on 31 March 2009; and * Legend of Bathurst was incorporated in New Zealand on 29 October 2007. 209Also referred to in the evidence (and featuring briefly in the Hobbs closing submissions) was Wyndom Enterprises, an IBC with which Mrs Hobbs (and perhaps others) was associated. (Wyndom Enterprises was described in oral submissions by Mrs Hobbs, tellingly having regard to the way IBCs seem to have been treated as emanations of the individuals associated therewith, as "my IBC", though Mrs Hobbs suggested the next day that there might be other beneficial owners with a share in the company). * US persons/ entities 210Mr Kip Becker was a US securities attorney. ASIC does not dispute that someone of that name existed. Mr Hobbs adduced evidence of his death on 12 April 2004. Mr Becker features heavily in Mr Hobbs' account of the circumstances in which Mr Hobbs became involved in investment into the wholesale market in the United States. Mr Hobbs contends that the investment product represented by the various investment schemes the subject of these proceedings (ie "pooled" or blended investment) was one that was developed jointly by Mr Becker and Ms Reisinger. 211Mr Hobbs maintains that it was Mr Becker who wished to set up FTC; who prepared or provided some of the FTC booklets; who (though his evidence on this was inconsistent) wanted legal advice to be obtained in Australia (from Mr Miles and then again in 2002) as to the activities of KLM; who (himself or with Ms Reisinger) made the arrangements for the OEM/KLM procedure; who advised as to the US requirements for investment in the products in question; who drafted or provided the template for the Geneva Financial private placement memorandum (and/or scheme agreement); and who was one of the owners of OEM/KLM. 212Mr John Chen (sometimes referred to by Mr Hobbs as Chan) is someone to whom Mr Hobbs says he was introduced by Mr Becker shortly after Mr Hobbs met Mr Becker in about late 1989/1990. According to Mr Hobbs, Mr Chen told him that he was involved with a business called Investors International LLC and referred to people paying up to US$250,000 to attend educational seminars in the United States (something to which Mr Hobbs referred when it was suggested to him in cross-examination that $4,000 was a lot to pay for the FTC educational package). 213It is suggested by Mr Hobbs that Mr Chen: had some ownership interest or association with FTC (and that it was Mr Chen who was initially to develop the business of FTC in China); may have prepared some FTC booklets; and sold the IP in a "white label" fund to J&B Financial in 2007 and then requested the money be deposited to Mr Hobbs' Magny-Cours account. 214Mr Donald Caffray is (or was at the relevant time) an attorney in California in the United States, through whom some of the funds invested in various of the schemes were placed. Both Integrity Plus and Master Fund moneys were initially invested with Donald Caffray through NCCN Cadent's account. (According to Mr Koutsoukos (at [230]), when the J&B Financial officers asked Mr Hobbs, in or about September or October 2004, while they were setting up PJCB and Integrity Plus, where they should send the Integrity Plus money, Mr Hobbs told them to send it to Mr Caffray "because he controls the account" and that Mr Hobbs had been dealing with him for many years.) 215Mr Lynn Caswell was a businessman or banker who, according to both Ms Reisinger (Ex AO 194) and Mr Hobbs (in his submissions), had been on the US Federal Reserve Board. According to Ms Reisinger, at one stage he had a share in ROF Consulting (to which I refer shortly) through a company called Sun Coastal. Ms Reisinger says either she or Mr Matthews had introduced Mr Hobbs to Mr Caswell (Ex AO 194) in early 2003. (Mr Hobbs informed me, during Mr Halley's opening, that KJB Foundation was associated with Mr Caswell.) 216Mr Hank Parker, according to Mr Hobbs, is (or was) an academic at a University in Kentucky. Mr Hobbs, in cross-examination, placed his first meeting with Mr Parker as probably in about 1995 (T 1400.50). Mr Diaz gave evidence that Mr Hobbs had said to him that Mr Parker owned OEM/KLM but that Mr Parker disavowed this (Mr Diaz' evidence suggests, though this is perhaps unclear, that this disavowal was made in a meeting at which Mr Hobbs was present). 217Mr Parker provided Mr Hobbs (in about July 2003) with information in relation to a proposed LEAPS strategy. I would infer that this information formed the basis of instructions shortly thereafter given by Mr Hobbs to Mr Fitzgerald as to the administration of what became the Covered Strategies fund (although Mr Hobbs maintained in cross-examination that the source of those instructions was Mr Kip Becker). 218Cadent Financial Services LLC was a limited liability company in the state of Illinois. It was registered as a Futures Commission Merchant on 10 January 2003 and it was approved as a member of the National Futures Association on the same date. A broker dealer notice was registered in its name on 11 May 2003. (Its NFA membership and broker dealer registration were subsequently withdrawn in 2010 and its Futures Commission Merchant registration withdrawn in 2011. It has no current status on the National Futures Association Register in the United States and no currently listed principals). For the funds that invested in Cadent accounts, its role was as a futures commission merchant (or FCM) that solicited or accepted orders to buy or sell futures contracts or options on futures and accepted money or other assets from customers to support such orders. 219Mr Paul Fry was a principal of Cadent. Ms Cheryl Fitzpatrick was the General Counsel of Cadent. 220New World Holdings LLC was registered as an introducing broker on 10 August 2003, approved as an NFA member on the same date, and was registered as a commodity trading advisor (or CTA) on 7 September 2004. As I understand it, New World Holdings therefore solicited or accepted orders to buy or sell futures contracts or commodity options but did not accept money or other assets from customers to support such orders. 221It is noted as an active company on the register of companies noted (Ex AU 3431) on the Illinois Secretary of State website. (It has almost the same address as that of Cadent.) According to a printout from the National Futures Association Register, the current status of New World Holdings LLC is that of a commodity trading adviser, a member of the NFA and an introducing broker. Its listed principals are currently Mr Erdman, Mr Fritz and Mr Gaus. 222Mr Steve Erdman was one of the managing members of New World Holdings LLC. (He had previously worked with an international clearing house called Refco.) 223Ms Lisa Reisinger was a broker at Refco with Mr Erdman before becoming a broker employed as a branch manager by New World Holdings as a branch manager in Illinois. Her evidence is that it was in her capacity as a broker at Refco that she first met Mr Hobbs (in about September 2002). 224Ms Reisinger says that the Geneva Financial account was introduced to Cadent prior to she and Steve Erdman at New World becoming involved (Ex AO p17.1-5). Ms Reisinger says (Ex AO at 19.17) that a broker at Refco (Chris Hardin) had introduced her to Mr Diaz and that, within two days of that introduction, Mr Hobbs called her.) Ms Reisinger said she had no personal knowledge of what business Mr Hobbs was doing at Refco (but said she was told he was opening up commodity accounts and Forex accounts). (This is consistent with Ms Reisinger's email communications at the time, to which I refer in due course.) At p20.17/18 of her examination transcript [Ex AO], Ms Reisinger says that she was (only) "just licensed" in March 2002 as an "Associated Person" (meaning that she could introduce accounts or business to a broker) and she was registered with the NFA (National Futures Association). 225ROF Consulting LLC is a limited liability company that was incorporated on 2 May 2003 in the United States in Alaska (Ex AU 1504, 1497). According to Ms Reisinger (Ex AO p117) it was formed to become an introducing broker (but she says the decision was made probably by September 2006 that it would not fill that role on the Cadent accounts). It was operated by Ms Reisinger, Mr Alan Matthews, Mr Jim Green and Mrs Nancy Dadey (who had equal shares in the company according to Ms Reisinger), to whom Ms Reisinger referred as her business partners (Ex AO 1195). Ms Reisinger said that Mr Alan Matthews was a managing member and the treasurer and secretary of ROF Consulting. Ms Reisinger says she was a shareholder and a director or officer of ROF. (It appears that there was a falling out between Ms Reisinger and Mr Matthews at some stage - Ms Reisinger's evidence being that she considered that Mr Matthews had not acted appropriately insofar as he had worked outside ROF Consulting (with TraderView/TraderVest) for or on account of Mr Hobbs and Ms Li (EX AO 117.8-16).) 226The purpose of ROF's formation, according to its articles of organisation, was to provide services to investment managers and other financial institutions. The primary business of "ROF Consultant LLC", according to an executive summary at (EX AU 276), was to "research emerging fund managers, alternative investments, commodity financial future, insurance products and banking products on behalf of [its] clientele" and to provide "manager due diligence, expansive quantitative and qualitative analysis and in depth perusal on trading strategies... ." Its mission was "to provide reliable timely and accurate date to help our clientele make solid investment decisions". 227From at least around August 2006 there was an arrangement in place whereby ROF Consulting and Mr Matthews were to perform "consulting, research, price negotiating and purchase of treasury STRIPS" for the Geneva Financial, preserved Investments and NCCN Cadent accounts (see Ex AO tab 80). Mr Matthews 'verified' whether there were opportunities to trade the treasury STRIPS in these accounts. A fee was charged to the Cadent accounts and was then split between the shareholders of ROF Consulting and Business Solutions equally (Ex AO pp726-727). 228NCCN LLC is a limited liability company that was incorporated on 14 October 2004 in the United States, in Nevada (Ex AU 3228; 3027, 2994, 11833). (The North Carolina Department of Security State records at 21 August 2008 show the NCCN as active and having been "formed" on 14 December 2004.) According to EX AU 2994, the managers or members were ROF Consulting LLC and Sun Coast Investments & Consulting Inc. Mr James E Green signed as "organizer" for the company. This confirms Ms Reisinger's evidence in her CFTC examination that ROF Consulting and Sun Coast Investments (an entity associated with Mr Caswell) had merged together to form NCCN. Ms Reisinger says that this was in order to do bond trading at brokerage firms. Ms Reisinger said that the ownership of NCCN LLC was held equally by Ms Reisinger, Ms Dadey, Mr Matthews and Mr Green. 229Ms Nancy Dadey (now deceased) was Ms Reisinger's mother and a shareholder or member of ROF Consulting. She is named as an Associated Person on at least one of the Cadent account applications and was regularly copied with email correspondence in relation to the Cadent investments. 230Mr Alan Matthews was associated with New World Holdings (and regularly copied with email correspondence relating to the Cadent accounts) and a member of ROF Consulting. 231TraderView/TraderVest, according to Ms Reisinger, were associated with or owned Mr Ty Andros and did "custom blended portfolios using CTA's historical trading results, blended them all together and created a portfolio". Ms Reisinger says she introduced Mr Hobbs to TraderView (Ex AO p18) (referring there, it seems, to a meeting in 2004) but later learnt that Mr Hobbs had already had a Cadent account (for Geneva Financial) with TraderView (though NCCN) for about six months at that time. (The NCCN TraderView Cadent account for Geneva Financial was one that Ms Reisinger says was opened in February 2005.) Ms Reisinger's understanding of the role of TraderView (or TraderVest) was that it was an introducing broker and CTA (and that it was the introducing broker for the NCCN accounts) (Ex AO p121). 232Mr Ty Andros was identified by Ms Reisinger in her CFTC examination (Ex AO tab 36 p17.21) as someone who owned a company (or companies) called TraderView/TraderVest and who had been introduced to her by Mr Paul Fry from Cadent. Commission on some of the Cadent accounts was shared with Mr Andros. 233MLN LLC was a limited liability company incorporated in Nebraska. MLN was a company established as at around 11 April 2006 (Ms Reisinger thought it was September 2007 but see Ex AV 5820), the members of which were Ms Reisinger, Mr Carper, and Ms Dadey. Ms Reisinger's evidence was that MLN had an agreement with Mr Hobbs in relation to the sharing of marketing fees from the sale of the T-STRIPS in a four-way split (ie Mr Hobbs' share was 25%). The Acknowledgement of Filing for this company was addressed to a Michael D Carper (as was a certificate of dissolution or revocation as at 2 June 2009 for non-payment of biennial fee and failure to file a biennial report in 2009 (due before 1 April 2009). Ms Reisinger was identified as holder of one third of the company's stock as at 2006 (EX 5205). 234Mr Chuck Weed was a securities broker at a firm known as Morgan Keegan & Cutter Co (or Cutter & Co). At EX AO, Ms Reisinger explained that Cadent ordered T-STRIPS from Mr Chuck Weed and that there was a marketing agreement between MLN and Mr Weed for payment to MLN of a marketing fee in relation to the sale of those T-STRIPS. (There were separate agreements between each of Mr Hobbs ("dba", or doing business as, Business Solutions) and Mrs Hobbs with MLN to share in those commissions. * Others 235Mr Malcolm Carr, according to Mr Hobbs affidavit of 8 August 2012, was an options trader trading as Bizcards Inc. Mr Hobbs says (at [2]) that Mr Carr came to Nelson in mid 2002 "following Mr Diaz's telephone call to Jacky and I in regard to Mr Carr's trading business" and that Mr Carr spoke to Brenda, Jacky, Robert and he before Geneva made its first investment. Mr Hobbs points out that Ms Reisinger's CFTC examination transcript refers to a Mr Carr who travelled to New York with Mr Diaz in 2002. 236Mr Richard (John) Parsons is a computer programmer whose firm (HelloPages Ltd) was retained to develop websites for various of the corporate administrators (on the instructions of Mr Hobbs). There was clearly a serious falling out between the two. Mr Parsons gives evidence (among other things) as to his understanding of the interrelationship between the various schemes based on what Mr Hobbs and others in the Hobbs office told him. (That evidence is damning of any suggestion that Mr Hobbs was not associated with or involved in the overall Hobbs scheme.) 237Mr Nicholas Moore is a solicitor and partner of Fletcher Vautier Moore in the Nelson office in New Zealand, who opened various client files in the name of Tasman Business Consultants and Legend of Bathurst Ltd on the instructions of Mr Hobbs. 238Mr Phillip Bellamy is a solicitor who was at the relevant times employed by Fletcher Vautier Moore in the Nelson office in New Zealand and who acted on the various client files for Tasman Business Consultants and Legend of Bathurst Ltd on the instructions of Mr Hobbs. Cadent accounts 239Paragraphs [80][128] plead to the establishment by various of the corporate or scheme administrators of Cadent trading accounts and the investment of some of the funds through Cadent in the United States. 240Not all of the schemes the subject of the present proceedings had funds invested with Cadent. Of the schemes where funds were not invested into Cadent (namely the First Secured Bond, Smart Money, Elite Premier and Covered Strategies funds), Mr Clarke notes that those funds had either ceased, in effect, to operate by that stage or no further funds were being invested into those funds for investment at that time. Furthermore, only a proportion of the investment funds in particular schemes were transferred to a Cadent account (for example, for the Integrity Plus scheme only some $4 million out of around $21 million invested in that fund was actually invested with Cadent). 241Handed up to me by way of an aide memoire by Mr Clarke on 6 July 2012 (and attached as a schedule to these reasons for ease of reference) is a summary of the investment by the various schemes in Cadent and the manner by which that investment was made. 242The first Cadent account that was opened for any of the schemes the subject of the proceedings was the Geneva Financial account opened by Mrs Hobbs and Mrs Brenda Hobbs, each of whom executed a Cadent Agreement for Geneva Financial on 10 December 2004. Relevantly, this scheme was not opened through New World Holdings. 243Thereafter, on 3 May 2005, Mr Clements executed a Cadent Agreement for Preserved Investment; on 7 June 2006, Ms Li and Mr Collard executed a Cadent Agreement for Secured Bond; on 28 July 2006, Mr Collard and Ms Suzan Fi Ou executed a Cadent Agreement for 888 Vanuatu; on 23, 25 and 28 September 2006, respectively, Cadent Agreements were executed by each of Mr Zhang (for GP Global), Mr Collard and Ms Ou for 888 Vanuatu and Mr Collard and Mr Bernard Moore for North Wave (the latter's evidence being that he signed on instructions from Mr Collard and Mr Hobbs); and on 21 March 2007, Ms Dong and Ms Wu executed a Cadent Agreement for Barclaywest. (As already noted, there was a Cadent account application pending for Ultimate Investments at the time that Cadent became aware of the ASIC investigations into the Burwood schemes.) Reference was also made by Ms Reisinger to another Cadent account in the process of being opened at that stage (through a company named TITL), this being a company to which reference was made by Mr Hobbs in his cross-examination of Mr Koutsoukos. I consider this in due course. 244Some of the earlier investment schemes the subject of these proceedings invested funds in the US through Mr Caffray and the account that he had opened with NCCN (through a broker called TraderView or TraderVest). Mr Clarke notes that the funds transferred from some of the schemes in Australia to Mr Caffray's trust account in the United States were placed in the NCCN pooled account with Cadent. 245Over the period 2005 through to 2006, the introducing broker for all of the schemes that invested through Cadent became New World (though for some schemes there was a periodic handover of the introducing broker role from TraderView/TraderVest). (Mr Clarke notes that for some of the accounts, the handover period from Trader View/Trader Vest to New World took between one and two years to complete, presumably while open trading positions were progressively closed.) By mid 2007, it seems that it was anticipated that most of the NCCN Cadent accounts opened through TraderView/TraderVest would have been closed (by reference to the communications between Ms Reisinger and Mr Erdman around that time as to the payout for commission on Mr Caffray's former accounts). 246The associated person with respect to every account for which the scheme in respect of which funds were invested with Cadent was noted (in the New World Holdings' business records) as Ms Reisinger. Mr Hobbs was identified in the New World Holdings' records as the foreign introducing broker with respect to each of the schemes that had accounts for investment with Cadent. (Mr Hobbs disputes this and maintains that he was only the foreign introducing broker for the Global Funerals Cadent account that was opened in 2006.) Manner in which communications were sent 247I raise two matters by way of general comment as to the correspondence in evidence. 248First, communications to and from a variety of email addresses were in evidence in the proceedings. Many of the emails to and from the "nasl" email address (to which Mrs Andrews had access in the Nelson office when working for Tasman Business Consultants) were emails addressed in the body of the message to Mr Hobbs or signed in his name. On at least one occasion (as noted earlier) Mr Hobbs gave the "nasl" email address as his contact email (for Trans Management). Mr Hobbs confirmed at T 1396 from line [41] that he did not recall anyone other than Mrs Watson and Mrs Andrews being authorised by him using the nasl email address. There were also at least two other email addresses used by Mr and Mrs Hobbs, a "hobbs clear.net" email address and "hobbs tasman.net" address. Mr Cable had his own email address commencing with the prefix "nmo" (which seems to be a reference to the initials of the IBC incorporated by or for him). Mr Robert Hobbs used an "rmh" email address. Mrs Brenda Hobbs seems to have used a "Hobbs Family" email address. Mrs Burnard had an email address at her home. Facsimile transmissions from the Tasman Business Consultants office seem to have been sent on a machine with the fax header of "FTCL" or "nasl" or Tasman Business Consultants. 249Mr Hobbs' evidence was that (at the relevant time) he was not particularly skilled in using computers. (He relies on this to dismiss as implausible the evidence that he himself typed amendments to the Super Save memorandum in the J&B Financial offices). From the evidence he gave, it suggests that Mr Hobbs was content for others to send and open email communications on his behalf (and to sign off under his name), whether or not he had given instructions for them to do so and whether nor not he had approved them. (Indeed, if his explanation of some of the communications received in the Court during the course of the hearing were to be accepted, his secretary was not only authorised to send correspondence in his name but also to make formal requests of ASIC on his behalf without his knowledge. As already noted, ASIC invites me to draw Jones v Dunkel inference that the evidence of Mrs Andrews on the issue as to her practice in drawing emails to Mr Hobbs' attention would not have assisted her case.) 250Second, it is evident (from even a cursory review of the correspondence and communications) that either little attention was paid or care given as to the use of the titles ascribed to persons associated with various of the investment schemes (whether as director, beneficial owner and controller, principal, consultant, administrator, secretary or authorised officer) or there was little understanding of, or intention to distinguish between, the various corporate roles. (Mr Hobbs' evidence in cross-examination suggested that he had paid little regard to the capacity in which he signed documents, even as during the course of proceedings when he signed as proxy as recently as an authorised officer of FZF Vanuatu though there was no suggestion of any formal resolution so to appoint him, or the letterhead used when so doing. This reinforces the conclusion that the respective entities were treated as alter egos or extensions of Mr Hobbs.) 251So, for example, Mr Hobbs (who denies being a director of FTC) has on at least one occasion signed a letter on FTC letterhead (being the letter to Mr Callins) in that capacity. On 3 September 2004, he signed a fax to Mr and Mrs Brock as "director" of FZF Anguilla (that bearing a notation "cc Rob Diaz") with a fax transmission header from Tasman Business Consultants. Mr Hobbs signed the Cadent account application by Geneva Financial as its "acting" secretary and he signed the Cadent foreign broker application as a director (though there is no suggestion that he has ever actually been appointed to either position). Similarly, Mr Fitzgerald resigned as a "director" and yet there is no suggestion that he was ever made a director of Ultimate Investments. Others have also signed documents in varying capacities (such as Mrs Hobbs and her sister-in-law Mrs Brenda Hobbs, who have described themselves variously as principal, beneficial owner and controller, and administrator of Geneva Financial). 252While nothing may turn on this in most instances, it reflects a lack of understanding of corporate roles and responsibilities on the part of many of those involved in the various schemes consistent with a lack of sophistication by the individuals involved. In Mr Hobbs' case, I can only assume it reflects a lack of care or precision in how he expressed matters (evident also in the manner in which he expressed himself in correspondence and in his affidavit). (I note this because it is of relevance in assessing whether, in particular instances where he has selectively or inaccurately quoted from documents or transcript (for example by reference to the extracts provided to ASIC of the Hartnell advice or by reference to his reliance on statements taken out of context in the Reisinger examination transcript) this is indicative of a deliberate attempt to misstate matters or is due to an habitual imprecision in his written or spoken language. I suspect the latter.) DVD Seminar 253Mr Diaz gave evidence that this was taken as a promotional video (which perhaps begs the question as a promotion for what or to whom). The particular seminar that was filmed seemed to be attended by a number of FTC executives (or persons who worked with FTC executives) and persons with a role of some kind in the finance industry. Although, as Mr Halley notes, many FTC executives were also investors, the content of the presentation conveyed to me the impression that this was mainly a seminar for FTC executives or potential executives. 254The video footage of this seminar was described by Mr Halley (in my view with no exaggeration) as a defining moment in the hearing. It was certainly a defining moment in that it enabled me to see and hear Mr Hobbs addressing a group of existing and/or potential FTC executives (whether or not they were also potential investors) as to various matters in terms consistent with those that a number of witnesses have described as being said at other seminars and meetings presented or attended by Mr Hobbs and indisputably inconsistent with the dogmatic denials by Mr Hobbs in his affidavit as to the making of any such statements or as to his practice in that regard (such as references to specific investment funds - that he says in his affidavit he made a point of not making [19] - and references to rates of return). 255Mr Halley submits that the DVD not only gives contemporaneous insight into events at that time (around 2003) but provides corroboration for the evidence of the individual investors and scheme administrators as to what they witnessed Mr Hobbs say at other seminars or meetings (on the basis that there is little difference in substance between their recollection of what was said to them at meetings they attended, at which Mr Hobbs was present, and what was recorded on the DVD). 256The significance of the DVD Seminar footage, in my view, is not simply that it lends credence to the recollection of other witnesses who have deposed to the making of statements by Mr Hobbs to the same effect on other occasions but that it casts real doubt on the reliability of Mr Hobbs' recollection. 257Reliance is placed by Mr Halley on the DVD Seminar transcript as making clear: the interrelationship between FTC, OEM and KLM (and particularly between FTC and KLM); the extent to which the specific investment funds were identified in the course of discussions with potential investors; the extent to which representations were made as to the very high level of returns that could be achievable; and the use to which Mr Hobbs deployed the advice from Mr Hartnell to make representations concerning the lawfulness of the proposed investment. Mr Halley submits (and I agree) that the seminar also made clear the central role played by Mr Hobbs in promoting the investments in the scheme. From the video footage it is apparent that Mr Hobbs exercised control over the meeting, was the main presenter and dealt with questions from the attendees. Emphasis is also placed by Mr Halley on the identification by Mr Hobbs with the scheme and the investment opportunities he there described (in his frequent use of "we" and "our" that Mr Hobbs sought to explain a way as a mere figure of speech). 258Briefly, by way of the content of Mr Hobbs' presentation, I note the following matters. 259Mr Hobbs gave an example (with reference to the Art of Arbitrage booklet and assistance from Mr Diaz) of how arbitrage could be used in relation to a home mortgage; he later also used the example of leverage and arbitrage with car clubs. He emphasised the various scams and frauds in the market place (such as at p4.21-47; p9.7-11; pp11.8-10, p13.35-39, p14.13ff as to fraudsters' use of prime bank, p15.33-35), the most common of which he said was in relation to off balance sheet activities (p11.15ff). Enlighteningly, perhaps, at p13.34-39, Mr Hobbs explained how "like all things that are real, people who go out and want to create a Ponzi or a scam, they take a little bit of truth from everything, and because you people want to research what we've discussed here this morning already, every part of that is easily researched so you can actually make that stand up and look correct, but they take that sort of information and they create a scam from it". (It seems to have been part of Mr Hobbs' modus operandi to emphasise his own credibility by pointing out scams of others.) 260At p15.24, referring to a particular kind of investment (that he said was only for "a Refco"), Mr Hobbs commented that "it's not a product that KLM have, I must make it very clear on that". At p14.37, Mr Hobbs posed the rhetorical question as to why banks would use a trust or a foundation to raise funds around world from sophisticated investors and said that it was "because if they did it themselves they would have to put to [a] prospectus and it's reportable" and at p16.15, Mr Hobbs emphasised that: ...it's not a retail product that we talk about, I mean the products that we talk about are options, commodities, foreign exchange, arbitrage mutual funds and so forth. All cleared by major banks and securities. 261What was made clear by Mr Hobbs was that what he was talking about at the seminar was: ...taking the process to [bits] of what future trading does, how it educates people, what that education can lead to and what the opportunity somebody can participate in from that education (my emphasis) (P 16.33-36) 262Ironically, in light of the allegations now being made against Mr Hobbs, when asked to clarify where the scam came into the example that he had given earlier, Mr Hobbs said: ...they give their money to somebody or you know, they send it onto some individual or some company and that's the last they see of their money (P 17 line 6) 263As to what FTC did ("what's the bottom line and what it does and what it offers and where the people end up and what they get for that subscription"), Mr Hobbs emphasised that one of the areas for subscribers was a due diligence area (and that "we have on file" thousands of companies and individuals from around the world that are inappropriate finance houses or investment houses available for checking by subscribers) saying that "our educational process is all about educating individuals, showing them what is real, what is not real, and having back-up for them" (see from Ex R p18.17-36). 264At p17.37-43 of the DVD Seminar transcript, Mr Hobbs is recorded as saying: The real level is for sophisticated individuals and institutions and very, very few people in the world can ever show you where to go. And that's - how do I put this, that's - it's not a product we would ever, ever recommend as a retail, it's just too difficult and sure enough some time over the next two days, somebody's probably going to ask, do we know where to go, let's just put it this way, yes, we do, but it would only be to absolutely select people we introduce them to a bank or to where they can conduct that business because they have to be that style of person. (my emphasis) 265Resuming after the lunch break on the first day of the seminar, Mr Hobbs moved onto the business of FTC: Why do we have future trading corporations? We have future trading corporations here as a financial educational material, it does not sell or offer investments. Future trading corporations are there so we share all manner of financial information on wholesale investments, retail investments and different concepts that people can put together using opportunities that they previously were unaware of, maybe that's differing structuring, arbitrage, this style of operation. And we can legally share by manuals and newsletters what is real in the world. We can identify people who act in an inappropriate manner. And we can show people how they can legally structure themselves to take an advantage of what is being offered amongst funding which is worldwide, without making any offer here in Australia. And so because we're not giving financial advice, we're not selling or offering investments, we do not require the licensing and we do not require the indemnity insurance. So that's a very, very important aspect of why the financial education is in place. (p19.19-23) 266Mr Hobbs explained the debt restructuring product that he said he had been involved with the group that developed it and that he said "we have sold a huge amount of business, based on this product", referring to the debt restructuring booklet. He contrasted this product with the mortgage arbitrage example and then said that: So again, we have the copyright on this product here. We've had a major insurance company in Australia via a solicitor make noises about wanting to buy the product from us, we're not going to sell the product, it is for our subscribers. And we'll help them through the situation. (p21.31-34) (my emphasis) 267Mr Halley emphasises that, in the context of the discussion of what FTC did, Mr Hobbs juxtaposed the position of KLM: So the opportunity from Future Trading's point of view: we do not offer investment, we do not offer investment advice, but we will lead people to a position where they can access real things. And the investment products is not owned by Future Trading, it's owned by KLM Enterprises Limited. So when somebody takes what we call an executive agreement with us with Future Trading, that is to sell financial subscriptions, and then they wish to sell investments, that contract for investment sale is with [KLM] Enterprises. Now, some of the investment opportunities with KLM Enterprises are: you can have monthly income producing funds, quarterly income producing funds, annual income producing funds. Remember that 98 per cent of the funds are profit based funds. ... Future Trading have a position with the printers that the moment we receive that subscription, we hold it for 30 days, because we offer a 30-day money back guarantee. And at the end of the 30-day period we pay three years of printing up front. Obviously we can obtain it a little cheaper that way. And we pay three years postage up front. There's not a lot of money that's left behind in the subscription. Subscription is a legal means to an end. The investment products. All the investment products carry a commission. The average commission, it works out about 2 per cent. So if it's paid monthly, it's about 2 per cent. If it's paid quarterly, it's about 2 per cent of the quarterly result, and same annually. That's the rule of the thumb. So there's significant earnings for a client, and there's also significant earnings for an introducer. Now, there's two different terminologies. A person selling financially education subscription is called an executive. A person that's selling investment product is called an introducer. But an introducer cannot sell an investment product until the client has formed a company in a legal jurisdiction offshore and has made a request from offshore for investment information and wants specific investment information. So you don't make any offer of selling an investment or legal advice here in Australia. And I can't emphasise that enough. ... ...We have a number of solicitors around the world that can form the correct companies for them to operate from, give them the legal advice and so forth. An introducer also receives a commission directly from those solicitors if you send them to that client for - to form a company. Some of the solicitors used is: Sovereign. Well you can go on the net and have a look at Sovereign Group.com. Sovereign Group is UK tax barristers, out of the UK of course, that specialise in international finance and tax. They advise countries on tax matters. They form companies and teach the clients how to do the transfers and manage those companies for clients. They manage companies for some very, very prominent people around the town - around the world, including here in Australia. (my emphasis) 268Pressed by Ms Wool on the question as to the structure of FTC and the relationship with OEM and then KLM, Mr Hobbs gave the answer that I have earlier extracted. 269On the second day of the seminar, Mr Hobbs referred to returns of 30% or 20%; to hundreds of funds doing anywhere from 50% to 200% per annum and referred again to the top performing fund "this is not a fund we have anything to do with, because we cannot get an audited set of accounts for it - but the top return on a compounded fund for a 12-month period last year was 2028 per cent, and that was on a highly leveraged futures trading fund". Mr Hobbs recapped the position as to the security laws to which he had referred the day before: If a product does not have a registered prospectus here in this country, we cannot make a financial offer, an investment offer or give financial advice. So the only way we can share that information is by education, which is why we have Future Trading Corporation, which prints manuals on a variety of financial subjects, prints newsletters, also those newsletters cover financial planning, the booklets cover the art of arbitrage,... (my emphasis) [this again going to the lawfulness of the making of an offer] and referred again to the example of arbitraging the purchase of a motor vehicle "especially for the two gentlemen just arrived today". (Conceivably, those two could have included Dr Gray, who Mr Hobbs said had made a presentation about cardiovascular issues at this seminar, though there was no indication that such a topic would be discussed). Mr Hobbs explained: Now, a company such as that is called an IBC, which is an international business corporation. And you can elect to be as simple or as complex with that type of arrangement as what you wish. Our philosophy is keep it simple, you know. There's no reason to be expensive and complicated. Keep it as simple as possible. It's there to do a purpose, and that's it. But the procedure is where the client has an IBC, that its the IBC that requests either financing or investment information. And they receive that from offshore. So we can give you a fax number, for example. You can fax to a company offshore in the IBC's name requesting investment or finance information. (my emphasis) [this squarely contradicts Mr Hobbs' evidence that he did not know the OEM fax number and that subscribers might be able to find it out from the FTC material] 270At Pt 2 p16.15 of the transcript of the DVD Seminar, Mr Hobbs said: Moving on to the product managers. And lets again clearly identify the difference between Future Trading Corporation and KLM Enterprises Limited. Future Trading Corporation does not sell, offer or give financial advice. It's education only. KLM Enterprises is a company that manages all the investment products around the world. It's registered in Nevis. It's run by attorneys, accountants, licensed securities advisers and a fund manager from the US. Now, each fund that is under their umbrella, and sometimes it takes two to three years during their due diligence process before they add a fund to their portfolio. And currently I think there's around 20 different funds, ranging from monthly income type products to quarterly to annual compounding. Returns from 2 or 3 per cent a month up to funds that are very, very high performing style funds. Risk is spread across different markets. And we can go into the actual funds a little bit later. [The suggestion that there was sometimes 2-3 years due diligence on funds is ludicrous in light of the speed with which funds seem to have been set up and to have commenced accepting investments.] But each fund has its own manager. So if we have a fund trading in foreign exchange, for example, there is one particular fund that we've been offered a capital guarantee on that trades in foreign exchange. Now, yesterday I showed you some of the returns since 1988 up to this year on that particular fund. I think the worst year was about 29 per cent and the best year was about 118 per cent. And it showed you month by month the returns. That particular trader, which is again is cleared through Refco, which is the largest clearing house in the world, we have been offered a capital guarantee, a AAA rated guarantee, on those particular funds. Now, that is a first in the foreign exchange market. And, I mean, you can take - you could take a fund like that anywhere and be hard pushed to compete. Now, that particular fund, the manager in Australia for that fund there is Rob. It's called the Express Fund. Express Fund is a unit trust, and that means there is outside trustees. Every transaction has outside trustees overseeing it, the clients issued units, the money goes into Refco, and the profits come out of Refco directly. So it's overseen by Refco, overseen by trustees, overseen by independent accountants, and also the traders' trading profiles overseen by additional independent auditors and Refco themselves as well. So there's a huge amount of checks and balances on every transaction. Now, you may say that that's gone a little bit overboard. Perhaps it has, but you can never be too secure, you know. The greater transparency and the greater number of checks and balances you have, the better something can be. ... (my emphasis) 271Again at Pt 2 p17.17: ...But - but every product also has a local manager. So when somebody - a client wants information, contracts or whatever, you can go to the local manager to obtain the information, providing the client has followed the procedure, providing the client has a company, and that company has requested the information from offshore. If they haven't requested the information from offshore - and we're going to go through what that information looks like a little bit later - can't deal with them simple as that. (my emphasis) 272Later, Mr Hobbs said: So that's just another little quick overview on that. But each investment has its own manager. Now, in New Zealand we have two accountants, we have a solicitor that comes in three days a week, we have an ex-bank manager of 30 years, all running different funds. [This seems to have been an overstatement at best, since the evidence given by Mr Hobbs in the witness box was that the persons to whom he was there referring were not running funds connected with the KLM listed funds. Moreover, there is no evidence to corroborate that those persons were in fact in or working out of the Hobbs office as at October 2003]. 273In the witness box Mr Hobbs denied that he had represented to FTC executives and introducers that they could generate significant profits if they were able to attract investors to invest in the funds that KLM made available. That denial is impossible to accept having regard to what was said in the DVD Seminar (whether or not that was a "one-off" seminar, as Mr Hobbs contends). As to the commission payable to introducers, Mr Hobbs said: I can tell you commission-wise for introducers to that the most I've ever paid an introducer, which is paid directly from the company by the way, was 228,000 for a days work. I went and sat down with the accountants for this introducer and came out at the end of the time and handed him the forms and he just earned 228,000, which is not a bad days work. (p22.28-32) 274Pressed on this in the witness box, Mr Hobbs answered as follows: Q. Do you remember suggesting to FTC executives and potential introducers of funds that they could expect to receive 20% off any profit that might be generated by a fund? A. I think 20% of profit was the figure that Becker had said. Q. I am asking about what you said to FTC executives? A. The executives didn't sell investment. Q. Who sold investments, as you understood it? A. They'd have introducers of whatever company it was. Q. As you understood the position, the person who was the FTC executive was also the KLM introducer, wasn't it; he or she? A. As I read through the information, yes. (my emphasis) 275Mr Hobbs did accept that the KLM "introducer" "probably" gave the OEM fax number to the investor so that the investor could then send a fax to OEM to receive the list of KLM funds, but did not accept that the introducer was the same person who had been the FTC executive until the investor incorporated the IBC. Again, having listened to the DVD Seminar, it is impossible to accept that (at least as at 2003), Mr Hobbs had no idea as to the manner in which the FTC executive/KLM introducer structure operated. It may well be that his short term memory has been affected by his medical condition (as he said in the witness box); it is difficult to see how he could seriously suggest that he had only become aware of the executive/introducer role having read through the information in these proceedings. Q. So who were the introducers, then, Mr Hobbs? A. Well, you'd got to be listed in each of the companies that you owe in these proceedings. I wouldn't know them. 276The content of the DVD presentation seemed to me to be directed at training persons how to present the FTC financial package (and the potential for investment in the 'KLM' funds) to others. I reach that conclusion by reference, among other things on the DVD footage, to the introduction by Mr Hobbs, which suggests that there is a business agenda to the seminar (namely the reference to there being a lot to go through over the next two days); to the reference to discussion of a "sales track" to go through; to the explanation as to how an FTC executive who wishes to sell investments can do so through an investment sale contract with KLM; to the emphasis placed on the enormous amount of money Mr Hobbs paid to one introducer on one occasion for one day's work (no doubt calculated to encourage others to become introducer's); and to the guidance given as to how to answer questions from investors or to explain things to investors (one of the attendees praising Mr Hobbs at one stage for a good answer). 277In that regard, Mr Halley emphasised that there was significant evidence from investors and from scheme administrators (many of whom were also investors) such that there was not a clear distinction between someone who was an FTC executive (or introducer) and someone who was an investor. He also pointed to the evidence that Mr Hobbs conducted not only seminars that were principally addressed the training of executives but also seminars principally addressed to investors who were not currently FTC executives (and submits that the accounts given at both types of seminar bear the same striking similarity). 278I accept that there is a striking similarity between some of the statements by Mr Hobbs that may be heard on the DVD and those to which various persons attending other seminars or meeting (whether in the capacity of potential investors or otherwise) have deposed. Particularly significant in that context is that the handwritten notes of Mr Blow at the meeting on 15 February 2003 contain very similar statements (down to high rates of return for some funds and the 7 out of 10 rule of thumb for profit that Mr Hobbs referred to at the DVD Seminar). 279Mr Hobbs was adamant that the DVD Seminar was a "oneoff" situation. In light of Mr Blow's evidence alone, Mr Hobbs' characterisation of this as a one-off situation cannot be correct. It may well be that this is the first and only occasion on which a seminar of this kind was video-taped but that does not make the content of the seminar unique. Even if that were to be the case, and even if the only attendees were FTC executives or potential FTC executives (not investors), it seems to me unlikely in the extreme that examples of the kind given at the DVD Seminar were not being given (to people who were or might become FTC executives) for the purposes of those people subsequently making similar statements to others in relation to the matters the subject of the presentation. 280The suggestion that this was simply a gathering of people who were interested in hearing about discussion on a range of topics (including diet and cardiovascular issues - of which there is not a hint on the DVD) seems to me fanciful (particularly having regard to the way in which the attendees introduced themselves by reference to their position as financial advisers or the like). 281As to what inferences I should draw from the fact that statements made on that DVD are statements that are very similar (and sometimes the same) as statements that individual investors say they heard Mr Hobbs or other FTC executives make at other seminars, I considered whether this raised an issue as to the probative value of similar fact evidence, noting what had been said by Gummow J (then sitting in the Federal Court) in Lyons v Commonwealth Bank of Australia 28 FCR 597 as to similar fact evidence in civil proceedings (there relating to alleged representations in respect of foreign currency loans agreements). His Honour, noting that Lord Wilberforce in Director of Public Prosecutions v Boardman [1975] AC 421 at 444 had said that "experience plays as large a part as logic" in judging whether one fact is probative of another, was considering (during the course of cross-examination of the director of the plaintiff company and on the eighth day of the trial) whether to admit statements by three others who had had dealings with the bank officer in question. 282The evidence there sought to be introduced was as to conversations that took place after the entry into the first currency loan agreement and was sought to be relied upon to corroborate the veracity of the evidence of the director concerned and as circumstantial evidence from which one might infer the making of representations to that director. 283His Honour concluded that the case was one where the facts the subject of the then application, though similar in the wider sense (in that they possessed a common characteristic, but not one where the common characteristic was the significant for the enquiry at hand) were nevertheless irrelevant in the legal sense and hence inadmissible (such that it was not there necessary to deal with the restrictions imposed by the similar fact doctrine). His Honour considered that while there had been dealings with various customers in relation to foreign exchange loans over the relevant period, the dealings with particular customers varied with the particular circumstances as they arose and that the nature of the causes of action propounded meant that the applicants were required to establish the specific representations pleaded. His Honour said that "As a matter of ordinary experience of human behaviour, the evidence which the applicants seek to lead would not tend to prove the making of the representations upon which the applicants rely". 284The significance ASIC attributes to the DVD footage (as noted above) is that it is consistent both with the extensive evidence given by various witnesses as to meetings at which Mr Hobbs addressed FTC executives and with the evidence given as to meetings at which Mr Hobbs addressed people who were not FTC executives (but at which FTC executives were present) or in more private discussions he had with individual investors at the conclusion of the meeting. 285It is submitted by Mr Halley that even if the DVD were the only evidence of the representations that were made by Mr Hobbs (and/or FTC executives) (which I accept it clearly is not), the representations there made as to how the system worked and how people were able to obtain access to investment funds, would be sufficient to establish the conduct by Mr Hobbs/FTC of a financial services business in Australia (and the need for it to be registered as a managed investment scheme). 286The DVD is in my view significant in that it establishes beyond any doubt that some of the evidence so dogmatically given by Mr Hobbs (such as his evidence that he made a point of not saying things that, on the DVD, he is clearly heard to be saying) cannot be accepted. That (and the numerous other inconsistencies between his evidence and contemporaneous documents or records to which I refer later) has led me to conclude that I cannot safely rely on Mr Hobbs' recollection of events unless otherwise corroborated. OEM/KLM process 287I have referred earlier to OEM/KLM. The process referred to as the "OEM/KLM process" involved the purchasers of the FTC education package (or the IBCs they had incorporated, in accordance with information given to them by or through FTC executives) receiving information in relation to various investment funds through which they could invest funds offshore in the wholesale market. The OEM/KLM process involved the issue of correspondence, variously on the letterhead of "OEM" or "KLM", which ultimately led to the provision of information to potential investors in relation to the investment schemes the subject of these proceedings. 288It was described by Mrs Watson as part of a "seamless" process. She gave evidence that Mr Hobbs had first told her about OEM/KLM and when asked what he had said, Mrs Watson said: A. Well, people wanting to, further information on funds et cetera, they could work through the OEM system, which was to identify whether they were in a correct jurisdiction. 289Mr Watson confirmed that she had not spoken to anyone other than Mr Hobbs and her daughter about the OEM system at the time. 290Letterhead used by Mrs Watson and Mrs Burnard (which from time to time used different logos) described OEM as incorporated in the Federation of Saint Kitts & Nevis (in the British West Indies). Letterhead used by Mrs Watson and Mrs Burnard described KLM as an entity in Nassau, the Bahamas. 291As noted earlier, although the facsimile number for each of OEM and KLM was shown on the letterhead as having a UK prefix, faxes sent to that number were diverted to an email address in New Zealand, where they were received and dealt with by Mrs Watson and/or Mrs Burnard. The explanation for this (proffered by Mrs Watson) was in my view implausible: Q. So, you say for convenience, the potential inquiry for the IBC was to be faxed to a UK number and then what happened to it then? A. Then converted into an email to Emma. It was a system that was it was just for convenience. I don't know of another way that it could have been done. I'm sure it could have been done another way, but the J2 system suited and that was used. So, people from China or the UK or Australia, wherever, as long as they were in could establish that they had an IBC, could pursue this line. Q. Did anyone suggest to you that you set up a UK fax number through J2 for investors to use? A. I can't remember how that was set up. Q. Had you yourself had any dealings with J2 before this was established as part of the OEM, KLM process? A. No. Q. Did it ever occur to you at the time that it might have been just a little bit easier to have faxed the material directly to Emma in New Zealand rather than via a United Kingdom fax number? A. Well, it was a new system to me. I was just fitting in with whatever. I don't recall how it happened, but it certainly was convenient. It meant that Emma didn't have to pick up the phone every time a fax came through or whatever. It meant that she could pick up the email and respond to it in her own time, which was usually on a daily or, you know, if there was a long weekend there would be that break, but she could respond to it in her own time. 292It was not suggested how this system would have been any more convenient than advising FTC subscribers of Mrs Burnard's email address in the first place. It seems to me almost inconceivable that the purpose of this process was not to create the false impression of an international persona for OEM/KLM. 293(Documents on OEM/KLM letterhead were later also issued directly by persons in the J&B Financial office in Burwood, though still with the international details noted for the companies.) 294The content of the OEM standard form letter does not readily lead to the conclusion that it was part of a sophisticated business operation. The version received by Ms Xu, for example, and signed by her on receipt on 19 June 2006, contains repetition ("O.E.M is a referral company", a description of which Mrs Watson said, as at 2006, she had no understanding), spelling and grammatical errors ("invest only what you can afford to loose" [sic]; "Investment referral can only be made available to persons or company's [sic] situated in the correct jurisdiction"); and what can only be described as broad 'motherhood' statements (which I set out below), concluding with the following warning: Warning: Beware of fraudulent investment, such as prime Bank Instruments, pyramid companies and Nigerian Letter scams 295The letter is dated in accordance with the American practice of putting the month first (though it was issued from New Zealand). (While this might suggest that the template for this letter was taken from a document prepared in America, there is no basis for any finding that it was provided to Mrs Watson or Mrs Burnard by anyone other than Mr Hobbs). The letter sought information as to the name of the company; country of registration and "dominant purpose" of the company (the evidence being that subscribers were told to complete this by specifying "Education" as the dominant purpose). The letter contains the following: Please read carefully. Key points to consider before any investment is undertaken. (a)The Sleep Test: If you cannot sleep peacefully at night don't invest. (b)Greed: Do not invest for greed. It can obscure your vision. (c)Past Performance is not a guarantee of future projections of investments. (d)Spread Investment Portfolio over different markets both onshore and international. (e)Invest only what you can afford to loose, no more than 20% of your portfolio in any one investment. (f)Declare all profits and pay taxes due. (g)Read as much as possible on the style of investments. 296This letter was followed by a letter to the administrator of the IBC (sent usually to a fax number in this jurisdiction) as follows (the text of this being taken from the letter received by Ms Xu (who named her IBC Midea Ltd, after a rice cooker in her kitchen): Please confirm, that the O.E.M. Limited Referral Information for Midea Ltd, has stated to O.E.M. Limited the jurisdiction in which Midea Ltd is registered is in Vanuatu. Midea Ltd has stated to O.E.M. Limited the dominant purpose of Midea Ltd is Education. O.E.M. Limited does not accept any liability for the information supplied by Midea Ltd. Midea Ltd agree that no investment offer or issues of interest of any kind have been made to Midea Ltd in the USA, UK, Australia or New Zealand. I confirm all information was sourced by Midea Ltd from an offshore-incorporated Midea Ltd in the appropriate jurisdiction. 297After the administrator's signature there is the statement: O.E.M. Limited does not guarantee or offer any form of assurance as to the investment performance or safety of capital invested. 298Again, the statements in this letter do not convey the impression of a sophisticated financial operation. Apart from being almost meaningless, the statement as to the source of the information is remarkable given that at the time this letter was signed (on Mr Hobbs' case) no information as to any investments should have been given to the FTC subscriber. 299The next step in the "referral" process was the issue of a letter generally on the letterhead of "K.L.M Enterprises Ltd". Mrs Watson's evidence in this regard was instructive: Q. Do you have any understanding as to who at OEM Ltd may have referred these types of matters to KLM Enterprises Limited? A. It was just a seamless followon from the OEM that fulfilled what OEM required and this fund information was then automatically released by KLM. (my emphasis) ... Q. When you say "automatically", what do you mean by that? A. Exactly what I said. Q. Was any human intervention involved? A. No, Emma would have the documents showing that they were an authentic IBC and were quite entitled, therefore, to receive this information, if they wanted it. 300Furthermore, it is apparent from some of the evidence that the "seamless" process extended to the issue of letters even if the wrong information had been provided. Mrs Watson, taken in the witness box to the correspondence by which Mr Jouravlev had sought information as part of the OEM/KLM process ( having earlier explained that the process was that "once a person had authenticated that they had a genuine IBC by providing an IBC certificate and signed their name to verify that that existed, then their name was given to the KLM system and those funds, information, or overviews, that research could be extended to that person or that entity") was quick to point out a problem with the request that Mr Jouravlev had made: Q. Is that a type of document that you're familiar with? A. Well, I can see straight away that it is an incorrect document and if OEM had received this, they would have replied that they were not able to work with this person because they wouldn't have they need to authenticate that they are an IBC requesting information. Q. You don't suggest you recall this particular document, do you? A. Well, I probably have, but there was a standard letter that went out in reply to. Nobody could just request to OEM for a list of funds. OEM didn't have that function. OEM was designed to establish that the person was in the correct jurisdiction. ... A. This person should have written that they were requesting further information or educational material. There should be no mention of any list of funds or anything. 301(Despite Mrs Watson's adamance on that point, in fact the KLM letter had issued notwithstanding the incorrect response from Mr Jouravlev, indicating that the information itself can hardly have been important in the scheme of things and was more likely to have been a formality). It was clear from Mrs Watson's evidence that the only person who told her the requirements of the system in that regard would have been Mr Hobbs. 302There were in evidence copies of letterhead purporting to be that of KLM Enterprises Ltd (which stated that the company had an office address in the Bahamas) (Ex AM tabs 11,12,15) (sometimes also with the Stoke, Nelson post office box address of Tasman Business Consultants) (Ex AM tab 15). Mr Halley notes that for each of the versions of KLM Enterprises Ltd documents (with either an office address in the Bahamas or with the PO Box address in Stoke, Nelson) there was again a document arranged to be sent to persons in Australia by Mrs Watson or Mrs Burnard. 303The letter received by Ms Xu, for example, starts by saying: Thank you for the information provided. [By this point the only "information" provided was the signed letter stating the name of the company, country of registration and dominant purpose of the company] O.E.M. Limited has obtained an overview of Midea Ltd and referred your request to us. The following information is provided by K.L.M. Enterprises Limited 304The addressee is asked "Please select the fund or funds you require further information [sic]" and to fax that request to a UK fax number (the very same fax number as that on the OEM letterhead). A risk scale is provided and funds are listed by reference to that scale. There is a statement as to funds that "will be available shortly". In the case of the letter to Ms Xu, she was advised that "The bond underwriting funds have been withdrawn until the trading of these funds commences". 305There is a disclaimer at the foot of each page of the letter: DISCLAIMER:RESIDENTS OF THE UNITED KINDGON [sic], UNITED STATES OF AMERICA, AUSTRALIA AND NEW ZEALAND CANNOT APPLY 306The letter then sets out information in relation to various of the funds (including the statement in relation to Integrity Fund that "All funds are protected by way of United States treasury notes which on maturity yield 100% of the invested capital" and again in relation to Master Fund that "All funds are capital protected by United States treasury notes" (my emphasis). 307The standard form response from Ms Xu (not in conformity with the process it would seem) was addressed to "Dear OEM" and requested "contract and information for" the specified fund. A response to that issued on KLM Enterprises letterhead stating that: The information you have requested is currently being collated A KLM introducer will be in touch with you shortly regarding your request. 308In the case of Ms Xu's investment in Master Fund, a private placement memorandum was issued in English and a contract dated 13 July 2006 was signed, Mr Collard signing as broker and Ms Li witnessing his signature. The declaration as to source of funds was completed (not in Ms Xu's writing) as "Re-Finance" (consistent with her evidence that she raised the $220,000 funds from drawing down on her home loan). Two days after the contract was signed (though seemingly before moneys had been transferred from Ms Xu to the Technocash account), Ms Xu received a letter from the "Administrator for Secured Bond Ltd" on Secured Bond letterhead (at what I understand to be Mr Collard's post office box) advising that it had been noted that under the declaration of source of fund it said "re-finance" and stating: The Master Fund wishes to advise Midea Ltd any money invested should be discretionary capital advice that by then would seem to be too late to make any difference to the investor. 309Ms Xu, who speaks, reads and writes almost no English, was provided with various documents that were written in English. She deposes that she signed various documents without having read them (and as they were in English she would not have been able to read them). She was introduced to Ms Li and Mr Collard through a friend of hers (Ah Bi). Her evidence was that Ms Li and Ah Bi assisted her to complete the application forms for FTC subscription. Ms Xu was sent various documents in relation to the incorporation of her IBC that she says, and I accept, she has never read and no one ever read or explained them to her. She had no understanding as to the legal relationship between Midea (the IBC incorporated on her instructions) and herself. Not surprisingly, she was also unable to read the FTC booklets. This is of relevance in that the request letter sent to OEM (in accordance with the OEM/KLM process) was in English. Her evidence is that it was faxed to her and she signed it (after Ms Li had told her that "There is a certain format. Nancy [Wu] will help you. Ask Nancy about the letter, about the contents. If you don't know how to do the letter, ask Nancy. She will help you". Ms Xu also deposes to a conversation with Ms Wu in which she says Ms Wu agreed to help her (and would fax the letter to her). 310Ms Xu's explanation of the process by which the OEM/KLM letters were prepared for her, signed (and where necessary completed on instructions from either Ms Li or Ms Wu) is a telling illustration of the mechanical nature of the so-called referral process (and shows that Ms Wu's involvement in that process was at more than an administrative level). 311For completeness, I note that, during the course of Mrs Watson's oral evidence, she did suggest that Mr Becker had had some involvement with OEM and KLM, evidence that led to the application by Mr Halley (to which I acceded) for leave to cross-examine Mrs Watson: (Examination in chief) Q. Did you have any understanding, as at 2006, as to what a referral company was? A. No. Q. And at any other time that these letters were sent by OEM to IBCs? A. No, they weren't I mean, I just know that OEM didn't handle any investments whatsoever. They were simply establishing that a person was in the correct jurisdiction to receive any information that they might wish to get, pertaining to fund information. Q. And how do you know OEM wasn't handling any investments? A. Well, insofar as I was involved with it, it simply wasn't. Q. And were you aware of anybody, other than your daughter Emma, having any involvement with OEM? A. No. Q. By that I mean in the process of sending out these letters to IBCs. Just you and Emma were the only two involved in that process? A. Well, the original the principals of OEM and KLM in China and the US. So, I know that Kip Becker had advice or whatever. I know he had involvement with this. (Cross-examination) Q. The fact is, Ms Watson, you, at no time, spoke to anybody other than Emma and Mr Hobbs in relation to OEM and KLM? A. That is correct. Q. And to the extent that you are suggesting that anybody other than Mr Hobbs had any involvement with OEM or KLM, that is based solely on what Mr Hobbs might have told you, isn't it? A. Yes. 312Significantly, Mrs Watson not only said that originally the wording of the OEM non-solicitation statement (and overall wording) would have been "set up by Mr Hobbs", but she also said in relation to the KLM funds information letter that: Q. Did you ever discuss with Mr Hobbs whether that material should be included? A. No, I don't think so. Mr Hobbs usually would give me the risks scale which I assume he'd discussed with the fund manager, but, other than that, it was just a mechanical thing really to send up to Emma and then be included in this printout. ... Q. So, you recall Mr Hobbs would give you that? A. Yes. Q. And you would include that in the document? A. Yes, and I'm sure sometimes those risk scales were in the material received, but I do recall sometimes that David had an input to that. Where he arrived at that, I don't know. (my emphasis) 313I also note that Mrs Watson seemed unconcerned at subsequently deleting material in relation to the OEM process once it had ceased to operate (not consistent with the existence of overseas owners of the company to whom there might have been an obligation to report). Tellingly, in my view, Mrs Watson's evidence was that at some stage the OEM/KLM process just "dried up" and, as to the documents that she had been keeping for OEM and KLM, she said: A. Well they were of no particular use. I just got rid of all the surplus material. There was quite a lot of it and it began from the OEM requests through to the fund advice. It was taking up a lot of room in my place and I was happy to destroy it. I think I probably kept the relevant page on the IBC and that was the end of the matter. 314Mrs Watson was unable to say what had happened to the documents that she had retained other than that she supposed she took them into the Nelson office. (That is consistent with Mr Hobbs being the person from whom instructions were given or to whom she reported in relation to matters relating to OEM/KLM. Had Mrs Watson been of the understanding that the owners of OEM/KLM were persons in the US it would not have made sense for her to consider herself free to dispose of documents of that kind - particularly when her evidence elsewhere was "I wasn't able to just biff a document because I didn't think it was important.") 315As to whether Mrs Watson had been the person who set up the OEM/KLM process or who set out the requirements in relation to OEM and KLM, Mrs Watson said: A. The framework would have been set up by Mr Hobbs and Emma and I made it work. 316Mr Hobbs put to Mrs Watson in cross-examination whether she recalled Mr Hobbs having conversations with Mr Becker. While her immediate response was that she did, Mr Halley notes that there was no evidence that Mrs Watson had ever met Mr Becker or would have recognised his voice (or was in a position to hear the other side of the conversation in any event). Mr Hobbs then asked: Q. Did you ever recall seeing a file in my office with Mr Becker's name on it? A. Yes. Q. Did you ever recall seeing an email I sent to all parties when Mr Becker passed away? A. Yes. Q. Following Mr Becker's passing away, which was in 2004, I believe after that time the OEM, KLM system started to dry up, did it? A. Yeah, not long after. [But Mrs Watson then corrected this to note that "... it was well after"] 317Therefore, on Mrs Watson's evidence the OEM/KLM process continued well after Mr Becker's death. Example of scheme documents 318ASIC submits, and a cursory review reveals, that there is a remarkable similarity between the relevant scheme memoranda and private placement agreements. I set out below the salient features of the respective documents (noting that there are variations as between the different funds, particularly in relation to the types of investment to which reference is made in the scheme memoranda and the rates of return identified therein). * Scheme Memoranda 319The Private Placement Memorandum issued by Geneva Financial for the Prestige Unit Trust followed the same broad template as the memoranda for various of the other investment schemes. The footnote of each page stated that "This is not a solicitation for funds nor is it to be construed as such". It comprised a series of sections (respectively headed Legal Warning; What is Prestige Unit Trust, Geneva Financial Limited and Trust Deed; Investment Statement; Disclosure Statement; Administration Services; Investment Objectives and Fees; Investor Suitability; Risk; Redemptions; Funds' Objectives; Taxation). 320The memorandum was replete with statements that it did not constitute an offer, solicitation, recommendation to buy or sell any securities for investment, and did not contain investment or other advice or opinion; as well as disclaimers as to the provision of any warranty or guarantee of any kind (including as to accuracy, reliability or completeness of the information). The memorandum also contained considerable repetition of statements such as those relating to the role of Geneva Financial and to the nature of the investments as being by private placement. 321The memorandum described the Prestige Unit Trust as a "pooled investment vehicle", stating that "When you invest in Prestige Unit Trust, you pool your money with all other investors. Your investment amount is defined by contract". Elsewhere, under the heading "Administration Services", the memorandum stated that "All money paid into Geneva Financial Limited's account will be pooled and the investor's amount will be qualified by a contract". (It is by no means clear that any distinction is being drawn when there are similar statements expressed with slightly different wording, such as in the example just noted - "defined" as opposed to "qualified".) 322Geneva Financial was described as the "administrator" of the pooled investment. The memorandum noted that Geneva Financial did not retain investor's money during the term of the investment and that "Your investment is forwarded to an account held by the issuing fund manager" (though it also contemplated that funds might be held in Geneva Financial's bank awaiting sufficient funds to be accumulated for investment, and noted that no interest would be paid thereon). (There is no suggestion in this part of the memorandum that funds could be dealt with other than by investment as part of a pooled investment or retention in the bank account pending such an investment.) 323Trans Management Corporation was identified as the trustee company. Its role was stated to be "to safeguard the investor's rights". (There is no evidence that Trans Management Corporation ever did anything in a trustee role in relation to any of the investment schemes for which it was named as trustee, though in two schemes the scheme administrators recalled sending some sort of reporting material to it.) 324The Investment Statement noted (as was repeated more than once elsewhere in the memorandum) that the investment was by "Private Placement". For Prestige Unit Trust the nature of that investment was stated to be: A blend of licenced [sic] investment trading companies. The commodities traded include the S&P 500, FX, bonds, options, interest rate swaps and other macro commodities 325The memorandum noted that an Offshore Fund Manager contracted to Geneva Financial was providing the investment. (Presumably, that offshore fund manager, for the funds that invested with Cadent, was Cadent Financial. However, there is no definition of the entity in the memorandum) 326In the section headed "Administration Services", the memorandum stated: Geneva Financial Limited has the right to invest the pooled funds at its own discretion [though earlier the investment into which the funds were to be placed had been specified by reference to particular types of investment as extracted above] and the benefits Geneva Financial Limited receives are returns above the projected best efforts return pro rata as set out in the Private Placement Memorandum and contract. Brokers are rewarded by commission by Geneva Financial Limited. This reward to the broker can be paid direct by the Fund Managers Marketing Company for a particular Fund manager, or the commission may be forwarded to Geneva Financial Limited to reward the brokers. (my emphasis) 327Even though the above provides for a discretion in the administrator as to the investment of the funds, it still contemplates that the investment is to be part of a pooled investment (relevant when considering the investment by the administrators of the Master Fund of investor funds in "private investments" or payment of moneys to entities associated with Mr Hobbs). 328Under the heading "Investment Objectives and Fees", the memorandum also contemplated the retention by Geneva Financial of a broad discretion as to the selection of investments into which the moneys contributed by an investor may be placed: The objective is to offer an opportunity to invest into bond trading or any other opportunity outlined in this memorandum. Geneva Financial Limited reserves the right to spread the pooled investment over all, selected or a single fund. Geneva Financial Limited can exercise this right at any time, without consulting the investors. (my emphasis) 329Later, under the heading "Funds' Objectives" (which I assume to be a case of the errant apostrophe rather than a global statement as to the objectives of this and other funds), it is noted that "The Funds' [sic] objective is to provide profit and preservation of capital" and that: Other opportunities may become available to the Fund Manager [I note that the memorandum has elsewhere been at pains to note that Geneva Financial is not the Fund Manager, so in context this is presumably a discretion on the part of the offshore fund manager] without consulting investors. The requirement for utilising any other investment is as follows: a)Risk profile similar or lower b)Profit return similar or greater c)Funds held in a more liquid manner 330As to returns, the "Investment Statement" stated that these were to be: Best efforts basis paid on a performance basis in arrears. Ie, at times profit may be paid monthly. At other times depending on investment performance, profit may be paid following a greater period of time. 331"Best efforts" was (somewhat unenlighteningly) said in that section to mean: To the greatest degree of determining effort to produce returns based on a realistic track record basis. [not "whatever", as Mr Hobbs said in the witness box] 332Under the "Administration Services" heading, there was the statement that The majority of fund managers perform on a "best efforts basis" whereas profit returns can rise or fall against any projections, meaning there is no set guarantee of rate of return. 333Again, under the heading "Investment Objectives and Fees", it was said that The Prestige Unit Trust fund return objective is best efforts. 334The memorandum stated, in more than one place, that the investment was a 12 month contract "which cannot be altered". Under the heading Redemption, it was noted that redemption of capital was not possible for twelve months and further that "[n]o partial redemption is available in the first twelve months" and that thereafter "[f]or partial redemption the investment must maintain a minimum of USD$10,000. 335There were somewhat inconsistent statements as to what was to happen at the expiry of the 12 months. First, in the "Investment Statement" section, there was a statement that the investor is required to give 60 days written notice before withdrawal of capital. In the Administration Services section there is a statement that all capital invested will be returned to Geneva Financial bank account at maturity of the contracts Geneva Financial holds with fund managers (or the fund managers' marketing companies) and then that "[a]ll contracts will automatically roll over unless the investor advises otherwise" followed immediately by the statement that the investor's funds "will be returned" after the expiry date of the contract "providing 60 days notice in writing has be [sic] submitted to Geneva Financial Limited". Under the "Redemptions" heading, it was said, again, that after the initial twelve months a total or partial redemption "is available upon receipt of a 60 days written notice from the investor to Geneva Financial Limited, otherwise the investment term is renewed for another twelve months". (I note these statements having regard to the suggestion put in closing submissions by Mrs Hobbs as to the ability of investors at seemingly any time to direct the withdrawal or disbursement of funds from the Master Fund scheme if those funds had not already been invested as part of a pooled investment. Strictly speaking, that would require a redemption of the capital for that purpose.) 336As to risk, the "Investment Statement" (at [6]) stated: Because the Fund Manager does not have a registered prospectus an investor must consider the style of investment as high risk as the Fund Manager is domiciled internationally. If an investor wishes to do due diligence he or she would find this process extremely difficult. Geneva Financial Limited wishes to make investors aware that they should consider this investment high risk. and at [14] that investors should only invest discretionary capital. Pausing there, the risk being here identified is that an investor will have difficulty carrying out "due diligence" on the internationally styled Fund Manager, not that the nature of the investments into which fund moneys will be invested would of itself be high risk. 337Reference to risk is also to be found in the section headed "Investor Suitability", where the statement was made that the opportunity is suited only to investors "who can bear the material risk involved and can bear the loss of their entire investment" and can commit their funds "for a minimum of twelve (12) months". Again, there was the following reference to risk, described as a due diligence difficulty but coupled with the suggestion that for some investments there would be a capital guarantee, under the heading "Risk": While most international investments have insurance against theft or misappropriation of capital and while some carry a guarantee from the fund for capital invested, it should be noted that International Funds are domiciled internationally and are relatively difficult for any party to conduct due diligence. Also, changes in market conditions around the world can affect Fund Managers' performance. It must be accepted that this administration opportunity [which in passing seems to me an odd way to describe an investment opportunity] carries a high risk as trading in the bond market is considered a high risk area and only suitable for those investors who can afford to lose the money invested. It should be stressed that all investments carry risk and Geneva Financial Limited do not hold any privileged position with any Managed or Mutual Funds or Fund Managers. The invested capital is "capital protected" by the use of a US Treasury note. On maturity of this note the invested capital is matured in full. (my emphasis) 338It can be seen from the extract above, that statements as to risk are followed immediately by the assurance that the invested capital is "capital protected". * Private Placement Agreements 339As this featured in the oral closing submissions by Mrs Hobbs, I refer to the Private Placement Agreement entered into between Geneva Financial (as Administration Company) and Wyndom Enterprises Ltd (variously defined as the Investor and the Client) dated 14 January 2003. It was headed "Smart Money Agreement", from which I infer that the particular investment scheme to which these funds were directed was the Smart Money scheme. Again, the terms of this agreement are strikingly similar to the terms of the agreements entered into for other investment schemes. 340Under this agreement, Wyndom Enterprises (the IBC which Mrs Hobbs described as "my IBC" and with which she accepts she was at least a beneficial owner or otherwise associated) agreed (by clause 1) "to grant Limited Power of Attorney to Geneva Financial Limited to pool the sum of $5,858.57 to a Private Placement Investment". The monetary sum and the details of the Investor/Client were handwritten by Mrs Hobbs. 341Wyndom Enterprises agreed in clause 2 that Geneva Financial offered no guarantee on capital or return of any profit; indemnified Geneva Financial for any loss of Wyndom Enterprises' capital or profits; and acknowledged that "All investment returns are on a best efforts basis from the Private Placement funds or groups". Pursuant to clause 7, Wyndom Enterprises confirmed that the funds invested were "good clean/cleared funds not subject to any conditions or restrictions". 342Wyndom Enterprises confirmed in clause 8 that it fully understood "the risk of this investment" and had initialled the Geneva Financial private placement memorandum. It agreed "to abide by the contracts Geneva Financial Limited enters into regarding pooled investments" (clause 9) and stated its understanding that "our funds will be pooled with other investors' funds" (clause 10). 343Clause 11 contained an agreement to keep confidential all transactions with Geneva Financial and an acknowledgment that "These transactions Are not Public Offerings, but by Private Placement only". Clause 12 contained an acknowledgement that Geneva Financial "is not a Fund Manager or an Investment Advisor, but an Administration Company only, designed to pool clients' Investments and to receive the profit and disburse the profit to clients". 344Clauses 14 and 15 (perhaps somewhat inconsistently with the proposition that Geneva Financial was no more than an administration company) contained 'suggestions' (the contractual status of which is unclear) by Geneva Financial (namely, that all investors' portfolios should be spread over a variety of investment options and that all investors should only invest discretionary capital). Clause 16 stated the Investor's understanding that it was provided with "general advice on this particular investment" and of the "risks associated with the investment, including performance". 345Clause 18 contained an acknowledgment that no registered prospectus, current or past, was offered or shown for this investment and that the Investor "have had the principles of Private Placement explained". (Presumably, at least on Mr Hobbs' case, that explanation and the "general advice" referred to in clause 16 were as contained in the private placement memorandum to which reference was then made on clause 20 - since the only other source for such explanation or advice, in the circumstances in which the private placements seem to have occurred, would be directly from the introducing broker or FTC executive as the case may be or at an earlier FTC seminar or meeting. This is particularly apparent in the case of investors who signed the private placement agreements at the same time as the scheme memorandum was provided to them - and for those in the Pinnacle Fund who invested moneys and signed temporary contracts before the scheme memorandum and private placement agreements, the only feasible source of advice can have been the introducer or FTC executive.) 346Clause 19 stated an acceptance that Geneva Financial "has completed the necessary steps to the best of its ability and knowledge to conform to the Private Placement standards" (though how an investor would be in a position to acknowledge this is beyond me) and clause 20 specified "the compliance Geneva Financial Limited has adhered to" as including (c) the production of an investment statement, (d) the production of a private placement memorandum, (e) the employment of a reputable accountant to review all transactions on a regular basis, and (somewhat oddly as a description of a compliance step by Geneva Financial) included in (f) that "[t]he investor confirms the funds invested are discretionary funds and could accept without hardship, full loss of funds". 347Clause 21 contained an agreement by the Investor (Wyndom Enterprises) that it was "not a resident of the USA, UK, Australia or New Zealand nor has any expression of interest, offer or promotion arrived from [a] person or company from" those countries. The basis for the statement of residence of Wyndom Enterprises was presumably that it was incorporated offshore (though the address of Wyndom Enterprises was noted throughout the document as an address in Nelson that was then, as I understand it, the Hobbs' residential address, so that presumably correspondence with Wyndom Enterprises would be within the jurisdiction). (In at least one of the Smart Money contracts (Mr Conroy) where no IBC was named and where the residential address was stated to be in New Zealand, the statement as to residence was on its face incorrect - that being an agreement on which Mr Hobbs is named and signed as broker.) 348Mrs Hobbs signed the document on behalf of Wyndom Enterprises. Her signature was witnessed at various places by Mr Hobbs, whose occupation (if I read his writing correctly, was stated as "Business Consultant"). The document was not signed on the attestation page for Geneva Financial. 349Following the signed agreement (and seemingly appended to it) were a succession of separate signed statements or agreements, those headed "Non-Solicitation Statement and Legal Warning", "Confidentiality Agreement - Non-Disclosure and Non-Circumvention Agreement", "No Advice Acknowledgement" (at the foot of which is a section headed "Confirmation by Geneva Financial Limited Broker"), each witnessed by Mr Hobbs, and (after two appendices containing bank account details for the client and an instruction to the client to forward the investment directly by bank transfer to Geneva Financial's WestpacTrust account) a Release and Waiver and a Declaration of Source of Funds. (Interestingly, as indicative of the degree of attention paid to the execution of such documents, Mr Hobbs witnessed the section for the Broker's Signature even though that was designated as N/A (which I read as meaning Not Applicable).) 350It seems clear on the face of this agreement that what Wyndom Enterprises was authorising Geneva Financial to do was to pool the specified sum to a Private Placement Investment (not to hold those funds on behalf of Wyndom Enterprises to be disbursed as it might in the future direct and not to invest other than as a pooled investment, though there was a discretion, qualified to some extent, reserved both to Geneva Financial and to the unidentified Offshore Fund Manager as to the type of investment into which pooled moneys might be placed). 351In those circumstances, until the moneys contributed by an investor were in fact invested as part of a pooled investment, a question could well arise as to the basis on which the corporate administrator of the scheme held the funds and what contractual or other entitlement the investor had to withdraw those funds or to direct them to be applied to a different purpose. 352As noted above, the terms of the private placement agreements provide that the investor is not permitted to withdraw those funds within a twelve month period. It would presumably be open to the corporate administrator to consent to an earlier redemption of the funds (though in so doing it might need to take into account the interests of other investors - say, if this were to cause detriment in relation to funds already invested or would prejudice the ability of the corporate administrator to make an investment of pooled funds at a particular time). 353However, in the absence of an actual redemption of the funds there might well be an argument (relevant to the characterisation of some of the payments disbursed by Secured Bond out of the Master Fund accounts, which ASIC contends were investments or payments not authorised or disclosed under the scheme memorandum for that fund) that until such time as the funds were invested in accordance with the private placement agreement (and scheme memorandum to the extent that this was incorporated by reference into the agreement), the corporate administrator would hold those funds pursuant to what is commonly referred to as a Quistclose trust; in other words, the corporate administrator would hold them for the particular purpose for which they were invested with it (and, if that purpose became unattainable, it would hold them on trust for the payer) (see Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; Re Elizabethan Theatre Trust, Lord v Commonwealth Bank of Australia, (1991) 30 FCR 491, at 502-503; (1991) 161 ALR 105; Peter Cox Investments Pty Ltd (In liq) v International Air Transport Association (1991) 161 ALR 105, at [32]-[39]; Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In liq) (1978) 141 CLR 335, at 353; Twinsectra v Yardley [2002] 2 AC 164, Lord Millett (at 185)). 354Whatever the status of the funds in the hands of the corporate administrators (before such time as the offshore investments were made with the pooled funds), it seems to me that the terms of the private placement agreement make it clear that it was not open to an investor (once it had paid funds to the corporate administrator of an investment scheme) to direct that the funds should be paid elsewhere than for the purposes of the pooled investment (even when those funds had not yet been used for the purposes of the proposed investment) without there being a redemption of the funds from the scheme (something that as a matter of contract was not permitted within the twelve month period). 355The same form of Smart Money contract was used for the investment by a Mr Earl Conroy on 4 July 2003 of funds in the Smart Money scheme (with a Smart Money Contract number of SM019) (Ex AU 1604). This contract, to which I have adverted above was (inconsistently with the IBC procedure) not in the name of an IBC but on its face directly with the named individual, whose address was noted as being in New Zealand (despite the statement in clause 21 that he was not a resident of that country). Mr Hobbs witnessed the execution of the agreement by Mr Conroy, Mrs Brenda Hobbs signing for Geneva Financial (with her signature witnessed by her husband Mr Robert Hobbs). On the Non-Solicitation Statement and Legal Warning, Mr Hobbs' occupation is stated as "Finance". Relevantly, Mr Hobbs signed the Confirmation by Geneva Financial Limited Broker as the broker (and Mr Hobbs is shown in the Geneva Financial records as the introducing broker for this investment and entitled to commission accordingly). I note this because it demonstrates the incorrectness of Mr Hobbs' unqualified assertion in these proceedings that he was never the introducer of investors to the funds administered by Geneva Financial. 356In passing I also note that at Ex AU 3433, there is a Geneva Financial record of January 2005 headed "Smart Money Profit Distribution for January 2005", to which Mrs Brenda Hobbs was taken during the course of her examination in these proceedings, which records contract SM019 as "Conroy/D Hobbs" and the monthly profit and commission payable on the investment of funds under that contract (after the deduction of sums described as direct profit for Jacky and Brenda); the net profit to be shared being divided up as to 44% client share, 44% administration expenses and 12% introducer commission. (The investment by Wyndom Enterprises under contract SM010 appears at the foot of the page with the reference "Hobbs J/Hobbs J" but showing no amount for commission.) On this document Mr Hobbs is also shown as the broker for the Clifford contract SM 027. The assertion by Mr Hobbs that he did not ever receive commission for investments other than in respect of Global Funerals is not credible in light of records of this kind. 357The standard form agreement for the Prestige Unit Trust was in almost identical form as that for the Smart Money fund (so, for example, I refer to the 21 February 2005 Prestige Agreement between PJCB as Investor/Client and Geneva Financial as Administration Company - Ex AU 3635 - pursuant to which US$200,000 was invested by PJCB in the Prestige Unit Trust through Geneva Financial). 358There are some minor differences between the PJCB/Geneva Financial contract that the Wyndom Enterprises/Geneva Financial contract, including that the confirmation appearing at the foot of the No Advice Acknowledgement is here headed Confirmation by Geneva Financial Introducer, not Broker as appeared in the confirmation used on the Smart Money agreement. Appendix 1 in this version of the agreement gave the investor the ability to indicate the preferred option for profit return as between telegraphic transfer of USD to any bank; on-line transfer of NZD to a selected NZD account in an NZ bank; or NZD cheque posted to address. There was also the addition of an Appendix 3, which directed the investor to fax every page of the completed agreement to Geneva Financial after the funds had been transferred and to post the original to Geneva Financial at a New Zealand address and stated that the agreement would then be signed by Geneva Financial and posted back to the client address. The investor was also directed to sign the "associated Private Placement Memorandum" and post a copy to Geneva Financial at the stated New Zealand address. 359In the case of the PJCB investment into the Prestige Unit Trust, the declaration signed by each of Mr Wood, Mr Truong and Mr Koutsoukos was that the currency represented "the proceeds or monies obtained by" PJCB. (Even if the source of those moneys was, as Mr Hobbs contends he was told, the sale of Mr Koutsoukos' properties, on the face of the documents signed by the J&B Financial officers this was an investment by PJCB (and accepted as such by Geneva Financial). There is no basis in my opinion to treat this agreement as a sham, whatever the arrangements between Mr Koutsoukos and PCJB might have been as to the funding for the investment.) Summary as to the position of the defendants 360Before turning to the chronology of events, I summarise briefly the position of those defendants who took any form of active role in the proceedings. Mr and Mrs Hobbs 361Although separately joined as defendants (and notwithstanding the potential for their interests to conflict, as became apparent in relation to the position taken by Mr Hobbs in relation to ASIC's pleading against the fund administrators), Mr and Mrs Hobbs provided me with joint written submissions (save as to the one paragraph that relates to the alternative claim against the fund administrators to which I will turn shortly). Each addressed me orally on particular issues (though I understood them to have been made on behalf of both). (Where the written submissions are expressed in the first person singular, I have understood them to refer to Mr Hobbs personally.) 362Mrs Hobbs largely addressed me on the matters relating to Smart Money and Prestige (the funds administered by Geneva Financial) and on concerns she (and I understand Mr Hobbs) have as to the provenance and reliability of the business records on which ASIC relies for the contention that Mr Hobbs received commissions other than by reference solely to his involvement with Global Funerals. 363Mrs Hobbs was, and I say this with no criticism of her, at pains to point out that moneys distributed to her (and to members of her family) out of the Geneva Financial accounts were moneys that she believes represented returns on investments made into the funds administered by Geneva Financial (and/or, in the case of herself and Mrs Brenda Hobbs, for administration fees due for their work in relation to the operation of the funds administered by Geneva Financial) and that the returns were not made out of capital. In that regard, Mr Halley made it very clear that ASIC does not contend that Geneva Financial (unlike various other corporate administrators) paid returns to investors out of capital. 364As to the point at which Mr and Mrs Hobbs' submissions diverge, it is that Mr Hobbs submits that ASIC is correct where it pleads an alternative case against each of the fund administrators (those fund administrators including not only his wife, but also Mr Collard). (In this regard, Mr Hobbs, having pleaded in his defence that he does not know and cannot admit certain matters - thus putting ASIC to proof thereof - now submits that I can accept them as correct.) 365The relevant paragraphs of the Third Amended Statement of Claim that Mr Hobbs now submits can be found to be correct are, in essence, various paragraphs that contain allegations against Mr Hobbs in respect of identified conduct "by himself or his [therein named] agents" or allegations that are made expressly further or in the alternative to allegations of the same conduct by Mr Hobbs, by himself or his agents. What Mr Hobbs invites me to find is that the conduct so alleged by the "fund administrators" (presumably both individual and corporate) occurred but was not conduct as his agent. 366Some of the conduct alleged is what one might think to be otherwise non-contentious (so, for example, [66] alleges that each of the individual scheme administrators, and further or in the alternative each of the individual scheme administrators and the corporate administrators, caused investors to be sent a certificate and/or letter confirming their investment); other conduct may be more contentious (for example, [67] alleges that some of the individual scheme administrators (Ms Li, Mr Collard and Ms Wu) directed or procured some investors to sign a scheme agreement in respect of the Pinnacle and Master Funds after the date of deposit of moneys). 367The particular paragraphs identified by Mr Hobbs as allegations that he now accepts as correct (but limited to the involvement on the part of "fund administrators" not acting as his agents) are as follows: * [66] (issue of a certificate or letter confirming investment); * [67] (back-dating of scheme agreements); * [88] (opening and operation of Cadent accounts); * [90] (deposit of funds from Super Save investors with other funds from PJCB for investment in ISPL Cadent account); * [92] (deposit of funds from Master Fund investors into Secured Bond Cadent account); * [94] deposit of funds from investors in Pinnacle Fund and 888 (Super Save) Fund into 888 Vanuatu Cadent account and deposit of funds from investors in Enhanced Fund into Barclaywest Cadent account); * [96], (deposit of funds from investors in Prestige into the Geneva Cadent account); * [98] (deposit of funds received from investors in Elite Premier Option Two into Preserved Investment Cadent account); * [100] (deposit of funds received from investors in Good Value into North Wave Cadent account); * [102] (deposit of funds received from investors in Best Fund into the GP Global Cadent account); * [105] (entry into Trading Contracts for the Cadent accounts); * [107] (allocation of an amount for the Cadent Traders to trade and extent to which the amount could be leveraged); * [111] (purchase of US Treasuries using funds deposited by investors to the relevant Cadent accounts); * [116] (withdrawal of amounts from the Cadent accounts); * [118] (payment of amounts to investors by way of purported profit on their investments in the Schemes); * [136] (opening and operation of Integrity Plus Technocash account); * [137] (receipt of funds from investors in Integrity Plus); [139] (Integrity Plus Global Forex account); * [143] (transfer of Integrity Plus funds purportedly for investment in various ways); * [155] (making of payments (in addition to Integrity Plus Return Payments) from the Integrity Plus account to named persons and entities); * [160] (transfer by Destiny, purportedly by way of investment, of funds received from PJCB); * [167] (opening and operation of Super Save Technocash and other accounts); * [177] (making of payments (in addition to Super Save Return Payments) from the Super Save Accounts to named persons and entity); * [180] (opening and operation of Master Fund Technocash and other accounts); * [183] (making purported investment of funds to Mr Caffray); * [189] (making Master Fund Return Payments and payment of purported commissions by Secured Bond); * [191] (making defined Master Fund Payments); * [194] (opening and operation of First Secured Bond accounts); * [197] (making particular payments by way of purported investment of funds by Secured Bond); * [201] (making particular payments other than by way of purported commission from the First Secured Bond Account); * [204] (opening and operation of Pinnacle Fund Technocash and Sovereign Bank accounts); * [207] (making particular payments by way of purported commission from the Pinnacle Fund accounts); * [209] (making particular payments other than by way of commission from the Pinnacle Fund accounts to certain persons and entities); * [212] (opening and operation of 888 (Super Save) Technocash account); * [215] (making particular payments by way of purported commission from the 888 (Super Save) Technocash account); * [217] (making particular payments other than by way of commission from the 888 (Super Save) Technocash account to Ms Li's wholly owned corporation); * [220] (opening and operation of Prestige account); * [223] (making particular payments other than by way of commission from the Prestige account, including to ROF); * [226] (opening and operation of Smart Money accounts); * [229] (making purported investment of funds to Mr Carr and/or Bizcards Inc); * [231] (making particular payments by way of purported commission from the Smart Money accounts); * [233] (making particular payments other than by way of commission from the Smart Money accounts to certain persons and entities); * [256] (opening and operation of North Wave account); * [259] (opening and operation of Enhanced Fund accounts); * [262] (making particular payments by way of purported commission from the Enhanced Fund accounts); * [264] (making particular payments other than by way of commission from the Enhanced Fund accounts to certain persons and entities); * [267] (opening and operation of Best Fund Technocash account); * [270] (making purported investment of Best Fund investor funds to Master Fund and then withdrawal and investment of those and other Best Fund investors' funds with Cadent); * [272] (making particular payments by way of purported commission from the Best Fund account); and * [274] (making particular payments other than by way of commission from the Best Fund account to certain persons and entities). 368Where acceptance of the allegations in any of those paragraphs is inconsistent with the defence that Mrs Hobbs has filed in the proceedings, Mrs Hobbs has informed me that she maintains her position in relation to those paragraphs. 369Mr Hobbs' acceptance of the allegations in the above paragraphs is that it suggests to me that he accepts (or would not dispute) in broad terms the steps taken in relation to the accounts (such as the opening of Cadent or Technocash accounts), whether because this is consistent with his general understanding of what occurred at the time or otherwise; but that his defence rests in this regard on the denial of the proposition that those individuals or entities were acting on his behalf (together with the further matters raised in answer to the claim, which I consider in due course). Ultimately, however, nothing turns on Mr Hobbs' acceptance of the alternative claim (since I am persuaded that the agency allegations are correct). The fact that an alternative claim might succeed on the facts does not preclude a finding on the basis of the principal facts for which ASIC contends. 370(Mr Hobbs appears to concede that representations might have been made in relation to the funds by himself or by others, insofar as he submits that regardless of any comments "I might have made" at the seminars, in choosing a fund in which to invest investors must have had regard to the information received from the administrators; and he also explains that others may have referred to his financial expertise as part of their salesmanship. 371Turning to the balance of their submissions, on which Mr and Mrs Hobbs are ad idem, broadly speaking Mr and Mrs Hobbs squarely place responsibility for the development of the financial product comprised by the relevant schemes and the operation of the investment schemes on Ms Reisinger. The Hobbs' central proposition is that "Ms Reisinger was the principal behind this, having originally set up the product with Kip Becker" (and that she did not do so as Mr Hobbs' agent) and that it is she who is therefore responsible for any contraventions by "fund managers". 372Mr Hobbs submits that the Securities Exchange Commission "got it right" in bringing certain charges against New World Holdings and Ms Reisinger (to which I refer later) and that ASIC is correct when it alleges that Ms Reisinger directed things to occur (referring to paragraphs [87], [89], [91], [93], [95], [97], [99], [101], [104], [106], [110] and [115] of the pleading) but incorrect when it alleges that Ms Reisinger was acting as Mr Hobbs' agent ([86], [87], [89], [91], [93], [95], [97], [99], [101], [101], [106], [110] and [115] in so doing). I consider those submissions in due course. 373As to the allegation that FTC executives were his agents, Mr Hobbs submits that the FTC executives were, at most, agents of FTC (or, he seems to accept, himself) for the purpose of selling educational materials and not an agent for FTC for all purposes. In essence, Mr Hobbs submits that to the extent that a person who was an FTC executive is found to have been a director or officer "of an alleged scheme" and to have made representations or statements about a fund, and that fund pays them commission, then that person is the agent of the fund. 374Mr Hobbs' contention in relation to the agency allegations in general, as I understand it, is twofold: first, that as the FTC executives were precluded by their contract of employment with FTC from soliciting investments or giving financial advice, then to the extent that they acted in a way contrary to their contractual obligations (or that was unlawful) that was unauthorised conduct not within the scope of the agency relationship or illegal conduct (and hence not conduct for which the principal should be found liable); and second, that the relationship of principal/agent can be determined by reference to the question whether payment for the agent's services was received and, if so, by whom. As to the position of Ms Reisinger Mr Hobbs submits that the agency arrangement is between Ms Reisinger and New World Holdings (and not between Mr Hobbs and New World Holdings); and that Ms Reisinger dealt directly with the scheme administrators. I consider the agency submissions in due course. 375Mr Hobbs has emphasised that he was only engaged in the business of FTC, which was that of selling of educational packages; that this was his business and that he was paid by FTC for this; that this was his principal source of income (though there is no evidence as to his overall income or any income tax or other records from which this could be assessed); that the only "substantive" payments he received were in respect of a Taiwanese company (Global Funeral Services) "and to the extent that there was anything else, [he] was unaware of it". Mr Hobbs placed emphasis on his assertion that his reason for having entered into any agreement "with either Cadent, New World, ROF or any other party", was that he understood this to be in relation to Global Funeral Services and that he understood any payments from these parties were also in relation to Global Funeral Services. 376Mr Hobbs submits that ASIC has wrongly included in its schedules the Global Funerals payments (as if they were from one of the alleged managed investment schemes the subject of these proceedings). Mr Hobbs refers to the contract between Global Funeral Services and himself and other entities setting out the agreement for Global Funeral Services to pay a fee of $1.5 million and refers to clause (I) that provides that "Commission payments are to be administered by Min Hua Li of Secured Bond Ltd"; clause (j) "Commission and fee payments are to be paid to the Secured Bond Master Fund account for the facilitator". It is submitted that, in accordance with these clauses, Ms Li did in fact administer the payments when they were received (reference being made to FZF's Statement of Account included with other Global Funeral Services details which it is said shows the amounts transferred via Technocash being recorded on the statement) and that payments were made to the Secured Bond Master Fund account (FZF) for the facilitator, which payments it is said were held on investment in the Master Fund until required by the facilitator (who Mr Hobbs identifies as himself). 377Mr Hobbs challenges the authenticity of the documents relied upon by ASIC, maintaining that the source of the documents relied upon by ASIC "is not really known" (and that as the authors of the documents are not available for cross examination, the Court should be sceptical in according those documents any weight). (In part this submission seems to rely on an assertion that the underlying source documents for the s 50 summaries were not provided to Mr and Mrs Hobbs, although Mrs Hobbs frankly conceded that she and her husband had not personally reviewed the CD material served by ASIC in that regard (but that Mrs Andrews had and had told her that there were no Cadent source documents therein). 378Mr Hobbs also emphasises the defence he has raised by reference to his belief in the legality of the activities (which might be thought to sit somewhat uncomfortably with his denial of any involvement in the activities beyond the sale of FTC subscriptions if, by this submission, he is referring to the legality of offshore activities). (Mr Hobbs further maintains that he is not aware of any law "that says you cannot educate people about financial products" (submission at [21]).) 379Mr Hobbs variously points to advices he says he received from Mr Becker as to the US requirements; from Mr Miles that what he was doing was all "perfectly legal"; and from Mr Hartnell (and tendered evidence as to a later advice from Ms Maroun) as to the Australian requirements; from Fletcher Vautier Moore as to the New Zealand position (a reference, it seems, to an opinion issued by Mr Bellamy to Cadent on his behalf). (ASIC's position is that to the extent to which the advice proceeded on a manifestly false premise with respect to the activities of FTC and to the activities of OEM and KLM, any attempt to rely on that was not reasonable (and in all likelihood is more consistent with dishonest conduct and certainly misleading or deceptive conduct.) 380(Mr Hobbs accepted in cross-examination that when he received and read the Hartnell advice he understood that what Mr Hartnell was saying was that, provided everything was offshore, it was outside the reach of the Corporations Act.) Mr Halley submitted that Mr Hobbs also understood that even if there was an offer or issue to an investor in Australia, then provided that investor was a wholesale client there may not be an issue under the Corporations Act. It is not clear that Mr Hobbs accepted he understood that at the time, though in the witness box he accepted that that was what para 3.5 said. 381Mr Hobbs accepted that when he read that advice he appreciated that what Mr Hartnell was saying would not constitute a contravention was an investment where everything with respect to that investment (the application, the request, the offer) was done offshore but he was unsure as to the proposition that that advice would not cover a situation where somebody in Australia had made a request for information concerning an offshore investment (nor as to whether the advice would cover a situation where an offshore entity sent private placement memorandums and investor agreements to investors in Australia). As to the latter, Mr Hobbs said "If it was an offshore company I don't see any reason why not". Mr Hobbs' understanding was tested in the following exchange: Q. I am talking Mr Hobbs, so we are not as crosspurposes, about the dispatch of a private placement memorandum and an investor agreement from offshore to an investor in Australia, you understood that Mr Hartnell's advice didn't cover that situation, did it? A. No, I am not sure about that. I believe that if it was sent to an IBC in the name of an IBC it didn't constitute anything. Q. Mr Hartnell doesn't give you any of that advice in his letter, does he, Mr Hobbs? A. That's as I understood it. Q. Where does Mr Hartnell say in his advice on which you rely of the 7 June 2002 that it's all right if it's sent to an IBC in Australia? A. Well that's exactly as Mr Becker described it as well as so Q. Mr Hobbs we are talking about Mr Hartnell's advice. Where does he say in that advice that it's all right if you send it to an address in Australia but write an IBC name on the cover? A. I don't see it. Q. It's not there, is it? A. I don't read it, no. Q. And where does Mr Hartnell in his advice cover a situation where the private placement memorandum and investor agreement is printed in Brisbane and sent to an investor in New South Wales? A. I don't see anything about that in here. Q. You wouldn't suggest for a moment that that situation would be covered by Mr Hartnell's advice, do you? A. Well I thought it would be. Q. Mr Hobbs what part of the advice do you think covers that issue? A. An offshore company. Q. Mr Hobbs I am talking about the printing of a private placement memorandum in Brisbane and the dispatch of that private placement memorandum in Brisbane to an address in New South Wales, do you follow me? A. I do not know. I would have thought that would have been covered, that would have been fine. (my emphasis) 382Seemingly, for good measure, Mr Hobbs also invoked Mr Stanton's name in support of the contention that offshore investment through an IBC was covered by Mr Hartnell's advice: Q. You would agree that Mr Hartnell doesn't address that situation, does he? A. I cannot read it here. Also Mr Stanton never raised an issue about this either. Q. Did you receive written advice from Mr Stanton, did you, Mr Hobbs? A. No, Mr Stanton was, he worked for the J&B gentlemen. He never said anything that was incorrect. Q. So you told him everything you did, did you, Mr Hobbs? A. No, he knew what they did. 383There was no evidence from Mr Stanton and the evidence from the J&B Financial officers, particularly Mr Koutsoukos, suggests that Mr Stanton at least by 2008 had expressed concern about the legality of the investment schemes (though I place no weight no this given the fact that Mr Stanton gave no evidence in the case). 384Although Mr Hobbs denied setting up the "system" in question, he accepted that he had understood, at all times between 2002 and 2007, that the system that was in place involved an investor in Australia sending a fax offshore typically in the name of an IBC asking for information as to what funds might be available for that investor to invest in. He also accepted that after the fax asking for information as to investment funds was sent that facsimile was diverted to Mrs Burnard in New Zealand and he seemed to accept that the position then was that Mrs Watson and her daughter (Mrs Burnard) then ran a system which qualified the investor by asking them to confirm that they had an IBC. Q. And the IBC wasn't allowed to say that the purpose for the IBC was that it was created for investment purposes? A. Oh I am not sure. Q. You just can't remember one way or the other? A. I don't recall, I don't know. 385This is inconsistent with the dogmatic nature of Mrs Watson's evidence as to the qualification process. 386Mr Hobbs submits that, as he did not personally ("other than by association with his wife" - a statement that was crossed out on subsequent submissions) operate any fund, he "really had no reason to take any further steps to ensure the legality of what was being done" and that "[i]ndeed in as far as activities in New Zealand and America were concerned I had no idea an Australian court might claim jurisdiction". (To the extent that those submissions are made to support a defence based on reasonable reliance on legal advice, they seem to suggest that it would be reasonable for Mr Hobbs to be indifferent as to the legality of what was being done in respect of the various funds to which, at the very least, he had directed potential investors' attention in the seminars - a proposition that seems to me to be difficult for Mr Hobbs to maintain.) 387As to the New World Holdings documents, two broad submissions are made: first, that the accounts are incomplete, inaccurate and cannot be verified from the underlying source documents (that have not been provided) and, secondly, that there is doubt as to their reliability and reason to suspect these documents were "reverse engineered" by reference to the fact that claims or charges have been laid against Ms Reisinger and New World Holdings in the United States (Mr Hobbs also making reference in this context to the settlement of claims made by regulators against Cadent overseas). As to the latter, there is no evidence and the only document sought to be tendered (which I rejected) appeared to be on a no-admissions basis. As to the former, the charges laid against Ms Reisinger and New World Holdings are no more than charges and, as I understand it, are being defended. 388Mr Hobbs submits that, even if the New World Holdings documents were to be correct, New World Holdings has itself directly attributed a large portion of the fees ($41,601,85 in November 2006) to the Global Funeral Services Cadent Accounts and that any and all amounts relating to Global Funeral Services need to be extracted from ASIC's compilations because Global Funeral Services is not one of the funds the subject of these proceedings. It is submitted that the amount paid to Mr Hobbs "allegedly for the funds the subject of these proceedings is very small and is a very small percentage of the Total Net "Commissions (Fees)". (As to the last point, the quantum of the commissions received, at least so far as that not been seen to be de minimis, is not the issue - the question is whether Mr Hobbs had a financial interest in the operation of the schemes, which he clearly did on the evidence before me, and whether (as a director or alternatively, if he be one, as a fiduciary) he received a benefit or advantage for himself out of the companies to the detriment of the company or alternatively in conflict with his interest as a fiduciary.) 389I should note at this point that Mr Hobbs has staunchly criticised ASIC, among other things, for the fact that it has "chosen not to investigate" the involvement of Ms Reisinger (or others in the United States) and seems to have suggested some impropriety in that regard insofar as he has submitted that: The proceedings have been conducted to keep Ms Reisinger from being cross examined by me and this combined with my lack of access to exhibits has severely prejudiced my ability to defend these proceedings. ... 390I raise this in part because Mr Hobbs on various occasions throughout the hearing made submissions suggesting improper conduct on the part of ASIC or its officers, which submissions were then withdrawn (generally when the lack of an evidentiary foundation for them was raised by Mr Halley). The above submission was not withdrawn and thus needs, in fairness to ASIC, to be addressed. 391First, as to the accusation that Mr Hobbs' "lack of access to exhibits" had severely prejudiced his ability to defend the proceedings, when I clarified with Mr Hobbs what was meant by this reference I was advised that it related to the lack of source documents underlying the New World business records. I comment on this when addressing the question of the weight to be attached to those documents that are in evidence. Suffice it to note that there was evidence (on the occasion of ASIC's interlocutory application for leave to admit summaries as evidence pursuant to s 50 (the s 50 summaries)) of the voluminous amount of underlying documents. Those documents were contained on a disc served on Mr Hobbs in late March or early April this year at a time when he was represented by legal counsel (and, indeed, Mr Southwick of Counsel adduced some evidence and made some submissions as to the content of some of those documents). There is nothing to suggest that any documents have been kept from Mr Hobbs nor is there evidence as to any inability by Mr Hobbs at the relevant time to access those documents. (It seems that Mr and Mrs Hobbs have relied on Mrs Andrews to review some or all of the documentary material, Mrs Hobbs submitting that if Mrs Andrews had seen underlying Cadent source documents she would have told her.) 392The other accusation contained in the above submission was as to the suggestion that ASIC had improperly chosen not to investigate the position with Ms Reisinger (and I note that Mr Collard similarly emphasises that Ms Reisinger was not a defendant). 393From the material before me it is apparent that ASIC has conducted compulsory examinations in Australia, New Zealand and the United States, invoking the MMoU procedures to which I have referred above. Documents were obtained under subpoena in those countries (in the case of the documents from the United States, these being referred to in the material relied upon for the application to adduce in evidence the s 50 summaries). 394It is not for me to express any view as to whether Ms Reisinger (had she otherwise been amenable to the jurisdiction) could or should have been joined as a defendant in the proceedings (nor, for that matter, is it to the point that other persons involved in similar schemes might have been joined as defendants). 395That said, there is certainly nothing from which I could draw the conclusion that ASIC had conducted its case so as to "keep Ms Reisinger from being cross-examined" by Mr Hobbs or, as elsewhere asserted, has in some way sought to keep relevant information in relation to the Global Funerals scheme away from the Court's scrutiny. Mr Hobbs submitted that ASIC had resisted whenever he raised the topic of Global Funerals. In that regard, to the extent that objection was raised to evidence or questioning about the Global Funerals account at the outset, it was on the basis of relevance (and it was not clear at that stage what reliance Mr Hobbs sought to place on the Global Funerals account - ie, that he would in his evidence assert that all commissions received were referable to that account). In any event, ASIC has conceded that there were commissions received referable to the Global Funerals account (and the evidence in relation to the facilitation agreement was admitted) so that it is difficult to see that anything flows from this complaint. 396(In the context of Mr Hobbs' submissions as to Ms Dong's evidence, he also made the submission (that frankly I can make little sense of) that the information he gave to the liquidator on behalf of his brother Robert had "triggered" the information as to Cadent numbers for ASIC to use.) 397To my observation, in the conduct of the hearing ASIC has complied with its obligations as a model litigant. Its officers and legal representatives have been helpful and courteous to the various self-represented defendants in the proceedings during the course of the hearing. Both Mr Halley and Mr Clarke were assiduous in ensuring that ASIC's position on numerous issues was made clear in advance to Mr and Mrs Hobbs (such as whether adverse inference would be sought to be drawn on particular matters) so as to permit them to take a considered view of the course they should adopt in their own interests in the hearing and ASIC's legal officers were, to my observation from their conduct in Court, scrupulous in providing Mr and Mrs Hobbs with copies of all relevant material and in communicating matters concerning the conduct of the proceedings. 398The decision to admit the Reisinger transcript in evidence (subject to weight and to any evidentiary objections that might be made by Mr Hobbs in relation to the transcript), was mine (as for that matter was the decision to admit the s 50 summaries in evidence). It was based on the evidence that was before me on those applications and after consideration of the relevant factors, including the potential prejudice to the defendants. Mr and Mrs Hobbs had the benefit of legal representation by Counsel at least at the outset of those applications (and Mr Collard had the benefit of submissions from Mr Hartnell on the Reisinger transcript application). 399I do not accept that ASIC can fairly be criticised for the circumstances that led to Ms Reisinger not being available for cross-examination nor is there any basis to suggest that the application to admit the transcript of her examination into evidence was motivated by a desire to keep Ms Reisinger from being cross-examined by Mr Hobbs. Mr Clarke, on the hearing of the interlocutory application, candidly acknowledged that it would be preferable from ASIC's point of view if Ms Reisinger were available for cross-examination but indicated the obvious difficulties in seeking to compel her attendance (she being a resident of the United States). 400As to the allegation that ASIC had made a decision not to investigate or prosecute other defendants, I refer in due course to the question whether that might be said to have infringed any duty of fairness of the kind recently considered (but not affirmed) by the High Court in the Hellicar case (although Mr Hobbs' submission was not put expressly on this basis). 401As to the question of misleading and deceptive conduct, Mr Hobbs implicitly concedes in his submissions that representations were made by others as to his financial expertise (insofar as he submits that there is no doubt that the representation that he was a financial expert "in the context of the selling of the education packages" was utilised by the fund administrators "as also amounting to my endorsement of their funds" and goes on to accept that "indeed the process of telling people about what is possible and what exists is very close on occasion to advising people as to what they should invest in") but maintains that "there is no law that says you cannot educate people about financial products". 402As to the last proposition, if (as here) the process of education about financial products is part of, or coupled with, the solicitation of investments in those or other financial products, then Australian Securities and Investments Commission v Chase Capital Management Pty Ltd (2001) 36 ACSR 778 shows that in certain circumstances this may amount to contravention of statutory provisions of the kind that ASIC contends have been breached in the present case. Similarly, if there is misleading and deceptive conduct in the context of such seminars in the course of promotion of financial services or products then there is no reason to exclude the possibility of liability for such conduct. 403As a general matter, I note that Mr Hobbs, in his submissions, has made various assertions as to matters not the subject of evidence before me (and based on what he says others have told him). I cannot take those untested assertions into account, nor was it obvious what conclusion would be able to be drawn therefrom in any event. So, for example, he made submissions as to the derivation of particular company names in the proceedings, seemingly to distance himself (and/or perhaps Mr Collard) from the naming of the particular funds (such as the Pinnacle Fund, that he said Ms Li had named after a visit to a Buddhist temple, and the Enhanced Fund, as to which he said neither Mr Collard nor Ms Wu could recall its derivation). He also referred to another fund (said to be by the name of Toptop) about which he said he had no further details. There was no evidence before me at the hearing about these matters and (although it was put to Mr Hobbs in cross-examination that the 888 Management companies might have been linked to Mr Hobbs' interest in motor car racing) I draw nothing from the naming of the funds. 404As to Mrs Hobbs' position, in particular, Mr Hobbs submits: that he always believed that it was open to his wife to conduct these "Reisinger Products" in accordance with the Hartnell advice (the significance of Mr Hobbs' belief being is relevant to whether Mrs Hobbs was in breach); that there is no evidence that his wife ever came to Australia for this business or that she participated in any of the seminars or did anything other than run the funds from NZ; that Mrs Hobbs was acting outside of the jurisdiction and, accordingly, not subject to Australian rules; and that if she was subject to Australian rules then she had done nothing wrong (referring to Mr Hartnell's advice, though then querying whether that was even provided to Mrs Hobbs). (As to the size of the Geneva Financial Fund, I note that ASIC accepts that, unless it comprises part of the overall collective Hobbs scheme, no liability under s 601ED would arise.) Ms Wu 405Very late in the proceedings, as referred to earlier, Ms Wu sought to file a defence. That defence, as filed by my leave, denies various of the allegations as they relate to Ms Wu, admits that she did not hold an Australian Financial services licence, and otherwise contains a non-admission as to the remaining parts of the claim insofar as they relate to her. 406In answer to the parts of the Third Further Amended Statement of Claim that relate to Ms Wu, the defence goes on to make various statements, including that she was an investor in Master Fund and Barclaywest Ltd [7]; that she was "introduced to these investments by Bi Hong Dong (who she met in 2005) and Min Hua Li (who was introduced to her by Bi Hong Dong in 2006) ([9]; that she did not know any of the defendants prior to investing [10]; that she was asked by Ms Li in 2006 to do some book keeping [14] and that she did this on a voluntary basis for no reward [15]; and that she allowed a number of meetings to take place at her house in or around 2006 to 2008 at the request of either Ms Li or Ms Dong (either of whom facilitated the meeting) and that sometimes Mr Collard also attended) [18]. 407Ms Wu served two sets of submissions. Both contained numerous factual assertions about matters as to which there was no evidence before me. In essence, her position is that she denies being an officer of the relevant companies, says that moneys received by her were in relation to investments made in the relevant funds, says that she acted on instructions from Ms Li and Ms Dong (for no reward) and denies the allegations made against her. 408Ms Wu's affidavit 20 August 2012 (read in support of her application for leave to file the defence) deposes to Ms Wu having been introduced to Secured Bond, Barclaywest, 888 Vanuatu by Ms Dong and Ms Li. Ms Wu deposes that "I am just a subscriber". She denies being an officer or employee; denies any decision-making role; says that she did receive commission in relation to a Pinnacle Fund contract (with a company she established Hao Ting Corp) and admits to the receipt of some other moneys. Otherwise, her position is that she helped do paperwork at the request of Ms Li on a voluntary basis for no reward. Ms Wu asserts that she signed documents at the direction of Ms Dong or Ms Li; says that she had a number of meetings at her house at the request of Ms Li or Ms Dong but did not organise them. Ms Wu deposes that she did not make representations but admits that she did tell friends about her investments (and she seemed to accept in submissions that she had introduced approximately 30 people to FTC). Ms Wu takes issue with evidence given by Ms Dong and with the evidence of Ms Gao (and makes reference to a strong relationship between Ms Li and Ms Dong). Mr Collard 409Mr Collard, as already noted, filed (though later wished to withdraw) a submitting appearance. Through Mr Hobbs he provided submissions (to which ASIC objected) as to various aspects of the schemes the subject of the proceedings. Those submissions suffer from the same vice as the submissions served by Ms Wu. They contain, in effect, Mr Collard's version of events (that being a version that could have been put forward had he chosen to defend the proceedings and adduce evidence in his defence - he did not). 410In summary, Mr Collard's submissions address various funds, each of which he asserts was a "Reisinger Product". 411Mr Collard asserts that 888 (Super Save) was controlled by Ms Li controlled; that in September 2007 a small profit was paid and that Ms Li liquidated the fund in November 2007 at which time "the Super Save fund capital was lost with all the open trades". Mr Collard further asserts that the amounts were also lost due to insider trading by an unidentified employee of Cadent (taking profitable trades for that person's own account and passing less profitable or negative trades to clients). Save for the evidence of Ms Li's role in relation to the fund (and I interpose to note that there seems no evidentiary basis for the assertion that Ms Li was the principal controller of the fund, Mr Collard also being a scheme administrator of the fund) and as to the payment out of returns of capital (as disclosed in the s 50 summaries), neither of which supports Mr Collard's assertions, there is no evidence of insider trading or other misconduct within Cadent nor that it (or conduct of Ms Li) produced losses as asserted. In any event, the claims made by ASIC do not depend on proof that losses were made in the Cadent trading. 412Mr Collard submits that no commissions were paid to administrators from the 888 (Super Save) fund. The payments out of that fund are as itemised in the s 50 summaries. 413As to the Pinnacle Fund, Mr Collard submits that there were two profit payments (on 10 April 2007 and in January 2008, respectively) that he contends were calculated by Ms Reisinger "on the request of the administrator or one of the owners of the company". Again, Mr Collard asserts that the liquidation of open trading positions and/or loss caused by the alleged insider trader makes it very difficult to determine the loss sustained in this fund. Mr Collard submits that there were four investors in that fund. 414Mr Collard further notes that the Cadent opening accounts for the Pinnacle Fund, 888 (Super Save) Fund and the Enhanced Fund were all opened by Ms Li (though I note that Mr Collard witnessed various of the account opening documents). He submits that he and Ms Dong were "used" by Ms Li and that at all times the controlling person was Ms Li. I note that this submission supports at least in part the evidence of Ms Dong in relation to her role in the schemes. However, as between Mr Collard and Ms Li, it is impossible on the evidence to attribute a primary role to Ms Li. 415In relation to the Enhanced Fund, Mr Collard submits that the difference between the original invested capital and the sum of money returned to the Supreme Court (which he quantifies at approximately US$100,000) is due to the same two factors. He says that the fund paid two profit payments (on 10 December 2007 and 5 May 2008) and also commission to the shareholders/investors of 12% and 10% respectively on those dates. 416Mr Collard submits that this fund is "not like" the Idylic fund (being owned, operated and managed "very differently") and that these funds should not be grouped together as they are "individually owned and operated". 417Mr Collard denies the allegations against him of misleading or deceptive conduct and asserts his belief that he complied with all the laws of Australia. The basis for his asserted belief as to the legality of his actions is by reference not only to the Hartnell advice but also his asserted association (of which there is no evidence) with a barrister (Mr Stanton) who it is asserted "spent a lot of time with Mr Collard and offered his opinion and approval of the business Mr Collard was undertaking". In this context, Mr Collard makes assertions as to another fund of which he says that he, Ms Li, Mr Stanton and another were "the owners" and which he asserts was operated in the same way as the Master Fund, Pinnacle Fund and Good Value Fund. Mr Collard takes issue with the fact that "ASIC has chosen not to include" that fund or Mr Stanton in these proceedings. (As clarified with Mr Hobbs, this is a submission that relates to the parties against whom ASIC has commenced these proceedings, not any suggestion that ASIC should have called Mr Stanton or the other person identified by Mr Collard in relation to that other fund to give evidence.) 418Mr Collard emphasises, in relation to Ms Reisinger, that she was not joined as a defendant in the proceedings and asserts that it was "Ms Reisinger who gave all the advice, set up the traders, clarified and made available profit when Ms Reisinger stated profit has been made on all these funds". 419Mr Collard asserts that he did not receive a financial gain over and above the other shareholders in Barclaywest (stating that his "additional income" from the Enhanced Fund was by the sale of some of his shareholding to other shareholders). Mr Collard then makes various assertions as to support he says he has received from more than 50% of the owners of companies "that had invested with the alleged Li/Collard schemes" as evidence of his sincerity and belief that he conducted all things correctly. There is no evidence of such support (nor is it relevant to the issues to be determined in the proceedings at least at this stage). Similarly, the statements by Mr Collard that he has made himself available to investors, has "never been a flight risk" and has "conducted himself in accordance with all the ASIC orders" (whatever that might mean); as well as the submission that he became the administrator of Barclaywest at the request of the other (Chinese) shareholders who called for the resignation of Ms Dong and that he has received emails of support from (unidentified) individuals who have sworn affidavits in these proceedings; are unsupported by evidence and irrelevant to the issues presently being determined. 420As to what he describes as "the Reisinger product Secured Bond Master Fund", Mr Collard submits that this fund is "more complicated". He asserts that this fund was owned by two shareholders (Ms Li's company and his company) and that Secured Bond was used for two different purposes (running the Master Fund and receiving the income from the separate Global Funerals Cadent account). He submits that "Secured Bond Master Fund" also received other moneys for share purchases (which money he says came from shareholder profits) and that "at other times investors instructed payments to purchase share in other companies which would have come from either investors profit or their own profit". Mr Collard points to no evidence to support those submissions, simply asserting that the bookkeeping "and authorities for this" is held by ASIC. 421Mr Collard submits that the allegations that payments were made out of returns of capital (and that "Secured Bond Master Fund allegedly ponzied money") are incorrect. He asserts that Mr Hartnell is holding copies of the company documents "as security" and that if he (Mr Collard) had been able to access all the documents for Secured Bond Master Fund he would have been able to reconstruct the account and show all incoming and outgoing moneys "as opposed to investment funds". (To the extent that he submits that ASIC holds all that material, it would seem that the very exercise of reconciliation to which Mr Collard says he could have undertaken had he had access to the company transactions is the exercise that the liquidator of the Master Fund has undertaken and which forms the basis of the s 50 summaries adduced in evidence in the hearing before me). Status of Wu/Collard submissions 422I have read the Wu and Collard submissions carefully. Where I am satisfied that they amount to submissions (rather than an attempt to adduce unsworn evidence through the submissions) I have taken them into account. Where they do not (and regrettably that constitutes the bulk of the submissions) I am unable properly to take into account the matters asserted. I should add that the weight that could in any event be placed on unsubstantiated assertions of events (in the face of evidence to the contrary from witnesses in the proceedings whose version of events was able to be challenged and tested and in the face of often conflicting contemporaneous documents) would be extremely low. Summary of findings 423Handed up to me by Mr Halley on 15 August 2012 was a 22 page list of the issues that ASIC contends fall for determination in the proceedings (some 195 issues in all). Mr Hobbs did not suggest that any further issues fell to be determined, although the specific issues pleaded by way of further answer to the claims in his defence (including the limitations issue raised by him - as to which there were no submissions) will be addressed in due course. 424In summary, for the reasons set out below, I find as follows in respect of the various categories of alleged contraventions. 425As to the financial services contraventions I find that Mr Hobbs (and his agent or alter ego, FTC), as well as the respective corporate and scheme administrators were involved in the period between 2002 and 2008 in the marketing and/or implementation of a financial product within of the Corporations Act (namely the white label investment schemes that were adapted from a model developed and/or modified for use in Australia and New Zealand by Mr Hobbs). Mr Hobbs' involvement in the development of that product is the only logical explanation for his various references to having intellectual property in the funds; his ability to set up such funds; his offer to sell or set up funds for others; and the time and money he said he had spent establishing the investment opportunities, about which he spoke at the DVD Seminar, various FTC seminars and meetings and, according to Ms Reisinger, when he met with Cadent representatives). 426I find that there was a contravention by Mr Hobbs (and by FTC and the respective corporate and scheme administrators) of s 911A of the Corporations Act by reason of the provision of financial services within this jurisdiction without an Australian financial services licence. 427I further find that the fourteen individual managed investment schemes (together with the steps that formed part of the process of such investment including the sale of FTC subscriptions and the interposition of the OEM/KLM process) constituted a collective managed investment scheme, the operation of which occurred partly within this jurisdiction and which required the issue of a product disclosure statement. I find that Mr Hobbs and each of the corporate and scheme administrators were in breach of s 601ED(5) of the Corporations Act, having operated an unregistered managed investment scheme within the jurisdiction. (Had I found that the individual schemes did not together comprise an overall scheme, then I would have held that the Integrity Plus, Super Save and Master Fund Schemes required the giving of a product disclosure statement and that there were breaches of s 601ED(5) by the persons involved in the operation of those schemes, including Mr Hobbs). 428I find that at all material times the FTC executives were agents of FTC (and that FTC was in turn an agent or the alter ego of Mr Hobbs) and that the corporate and scheme administrators were the agents of Mr Hobbs in the promotion and marketing of the overall Hobbs scheme (including the promotion of investment opportunities in the offshore wholesale market). As to the submission by Mr Hobbs that I should find for ASIC's alternative case (but not that the relevant persons acted as Mr Hobbs' agents), I consider that the agency allegations have been made out and that Mr Hobbs is principally liable for the contravening conduct of the agents in question. 429I find that the representations alleged in paragraphs [279][291] were made by Mr Hobbs (and the corporate administrators of each of the individual schemes through the relevant scheme administrators, acting on his behalf or as his agents): namely, that the investment of the funds was lawful in Australia; that investors' funds would be capital protected; that the likely rate of return would be in the order of 3% or 4% per month on a regular basis (or somewhat less in relation to the Pinnacle Fund); that investors' funds would be invested in A++ or A+ securities; that the capital would be available on redemption; and that the proceeds would be invested in United States Treasury STRIPS or notes. I further find that those representations were false and misleading or likely to mislead and deceive in a material particular (and that Mr Hobbs, and relevantly Mr Collard, must have been aware that this was the case or reckless and indifferent to the truth of the representation). 430I find that the specific profits representations alleged in paragraphs [292][296] were made in respect of each of the Integrity Plus, Super Save and Master funds (namely, that the distribution of purported profits to investors in those funds represented to the investors, and potential investors, that those schemes were making significant sums of money permitting those schemes to pay significant returns) and that those were false and misleading or likely to mislead in a material particular. 431I find that the specific misrepresentations alleged in paragraphs [297] - [300] were made in relation to the purchase of shares in Barclaywest and 888 Vanuatu concerning the existence of bonds in the order of $200 million and that those were false and misleading or likely to mislead in a material particular. 432I find that each of Mr Hobbs, FTC, PJCB, ISL, Mr Collard, Ms Wu and Secured Bond breached the various statutory provisions prohibiting misleading and deceptive conduct (ss 1041E, 1041G, 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act) as more particularly set out in due course. 433I find that Mr Hobbs was a de facto director of FTC, OEM and KLM and was a shadow director of each of the corporate administrators (and of Diligence Discovery). I find that the scheme administrators were de facto directors of the relevant corporate administrators with whom they were associated (and that Ms Wu a de facto officer of the relevant scheme administrators - Barclaywest and 888 Vanuatu). 434I find that the contraventions of ss 180, 181 and 182 alleged against Mr Hobbs (as a de facto director and officer of FTC and shadow director of the corporate administrators) have been established (being satisfied that the corporate administrators contravened the respective sections of the Corporations Act) and that Mr Hobbs gained for himself and others an advantage and caused a detriment to the respective corporate administrators. 435I find that Mr Collard, as a de facto (or shadow) director and officer of Secured Bond breached his duties (having regard to the contraventions by Secured Bond of the Corporations Act) under ss 180-181 and that he contravened s 182 contravention having obtained a benefit for himself and to the detriment of the corporation (having regard to the source of funds and to whom the funds received from the investors were transferred). I similarly find that Mrs Hobbs and Ms Wu were in breach of s 182 of the Corporations Act. (I do not accept that the payments made to or for the benefit of each of those individuals can be characterised as no more than investment by them into the respective funds). 436I find that the allegations in paragraphs [342]-[365] of contraventions of the Corporations Act and ASIC Act against each of Messrs Wood, Truong and Koutsoukos have been established. (I note that those findings are only relevant, having regard to the discontinuance of the proceedings against them) for the purposes of the aiding and abetting claims made against Mr Hobbs ([429(a)], Mrs Hobbs ([451]) and Geneva Financial ([447]).) 437As against Mr Hobbs I find that he was knowingly involved in the contraventions of each of Mr Koutsoukos, Mr Wood, Mr Truong, Ms Li and Mr Collard. As against Mrs Hobbs, I am satisfied that she was knowingly involved in the contraventions of Mr Hobbs. (As Geneva Financial is deregistered, no orders could be made against it in any event.) 438As to the fiduciary duty claims, these were put essentially as alternative claims in the event that Mr Hobbs, Mr Collard and Ms Wu were at all times relevantly acting not in a corporate role but personally. On that hypothesis, as I understand it, no duties would have been owed by them as de facto or shadow directors or officers and the question would be whether fiduciary obligations had nevertheless arisen in their capacity as operators of one or more of the schemes. 439While I accept that that an operator of a managed investment scheme may well owe fiduciary duties to investors, if the hypothesis on which this claim is made is that Mr Hobbs was not involved in the operation of the various schemes through the corporate administrators to be a de facto or shadow director or officer of those entities (and his role had been limited to the sale of financial education or establishment of investment funds for others to operate) then I would have had difficulty in concluding that Mr Hobbs owed fiduciary obligations to the ultimate investors. I would, however, have found that Mr Collard and Ms Wu, who were more closely involved in the day to day dealings with investors, did owe such obligations and were in breach thereof. 440Thus, had this issue arisen for determination I would have found that each of Mr Collard and Ms Wu owed (and was in breach of) fiduciary obligations to investors not to put himself or herself in a position of conflict of interest and not to obtain an advantage for themselves and to account for any benefit or gain obtained in breach of those duties. I would have had more hesitation as to the position of Mr Hobbs up to the point at which his role extended beyond that of presentation of the FTC seminars. As it is, this issue does not arise. (I note that the allegations in paragraphs [366] to [371] relating to alleged breaches of fiduciary obligations by Messrs Wood, Truong and Koutsoukos were not pressed by ASIC.) 441As to the matters raised by Mr and Mrs Hobbs in their defence, I am not satisfied that the claims are statute barred. Nor do I consider that the requirements for relief under s 1317S or s 189 relief have been satisfied. Chronology 442Attached to these reasons is a chronology prepared by ASIC with dates of payments in and out of the respective funds. Insofar as the allegations made by ASIC as to the involvement of Mr Hobbs and others in relation to the funds (and particularly the contention as to the collective nature of the individual schemes) turn on findings as to disparate events that must be understood in their broad chronological context, I summarise below the events relevant to an understanding of the context of this dispute, as have emerged from the evidence before me. (I do not attempt to record all of the relevant events over the period from 1998, as time and space do not permit.) Events pre 1998-1999 443Mr Hobbs has given evidence (in his 3 August 2012 affidavit at [2]) in broad terms of his background in the life insurance and financial planning industry in New Zealand. This is consistent with the account given by various of those who attended at seminars where Mr Hobbs himself spoke of his experience (and with the accounts given by various FTC executives at these meetings as to Mr Hobbs' background). Indeed in the video footage of the DVD Seminar (a seminar attended by, inter alios, FTC executives in around 2003), Mr Hobbs makes reference to his experience with Colonial Mutual as follows: In the insurance industry I was with Colonial Mutual, I managed Colonial Mutual, and we had to be very careful about how much money of our own portfolio, of our main fund, that we invest it back in our local communities and in local countries. A very, very small percentage of our funds were international. (my emphasis) [I emphasise at the outset Mr Hobbs' use of the first person plural as it indicates the manner in which Mr Hobbs seems to identify himself with organisations or entities through which or with whom is carrying on business - relevant when assessing what conclusions should be drawn from the manner in which he spoke of FTC and of matters relating to the OEM/KLM process.] 444According to Mr Hobbs ([3]-[5]), he became aware of the wholesale investment market during his time working with the above companies and, in late 1989/1990, he was introduced to Mr Becker, who shortly afterwards introduced Mr Hobbs to Mr Chen. Mr Hobbs says (at [6]) (in a paragraph that I read only as to the fact of the communication and not its truth) that he subsequently attended some meetings with Mr Chen and Mr Becker and that the latter told him that: We have decided to establish an education company called Future Trading. Its sole purpose is to provide educational materials. ... We would be looking for you to sell the product and build Future Trading into as big a company as possible. I will be selling it in America and Mr Chen will target the Chinese market. 445There is nothing more than Mr Hobbs' assertion that this was the case. There is no evidence of any involvement by Mr Becker (or, for that matter, Mr Chen) in the incorporation of FTC in Vanuatu (or in the operation of the FTC business conducted in Australia and New Zealand). True it is that Mr Hobbs notified FTC executives in 2004 of Mr Becker's death but that notification simply referred to Mr Becker's involvement as an "attorney". Significantly, there was no replacement announced for Mr Becker's position (which seems to indicate that any involvement by him was in a supportive not principal role). 446If, indeed, Mr Becker had spoken with Mr Hobbs and Mr Chen some time around 1990 as to a decision to establish an education company called Future Trading, then there was no little delay between that decision and the incorporation of FTC in 1999. There is no explanation as to why it would have taken until 1999 for the company to be established. It may be, of course, that Mr Becker and/or Mr Chen had set up a Future Trading entity in the US (and/or China) at an earlier date and that the Vanuatu incorporated company was a separate entity later set up for the purpose (consistent with the conversation that Mr Hobbs recounts and with some of the statements made in the DVD Seminar) of Mr Hobbs selling the financial education product outside the US and China. However, this is mere speculation and would, in any event, suggest that the Vanuatu entity was under Mr Hobbs' control (or was his part of the tripartite operation that he says was discussed). 447On 10 March 1998, Tasman Business Consultants Limited was incorporated in New Zealand. As noted earlier, Mr Hobbs is the sole director of that company; he and his wife are the two 50% shareholders of the company. Two separate bank accounts were subsequently opened in New Zealand in the name of Tasman Business Consultants (one with BNZ, that being described by Mr Mitchell as a business account, and the other a trust account opened with ANZ). 448In November 1999, Mr Hobbs applied to Sovereign Trust International, an entity based in Hong Kong, to purchase an offshore registered company. (Initially the company was proposed to be named Edgewood International but in fact the company so acquired was named Magny-Cours Limited.) 449Interestingly, in the DVD Seminar, Mr Hobbs referred to a group called Sovereign Group, (which may well have been a reference to Sovereign Trust International) as being able to assist in the incorporation of offshore companies: We have a number of solicitors around the world that can form the correct companies for them [the client] to operate from, give them the legal advice and so forth. An introducer also receives a commission directly from those solicitors if you send them to that client for - to form a company. (my emphasis) Some of the solicitors used is: Sovereign. Well you can go on the net and have a look at Sovereign Group.com. Sovereign Group is UK tax barristers, out of the UK of course, that specialise in international finance and tax. They advise countries on tax matters. They form companies and teach the clients how to do the transfers and manage those companies for clients. They manage companies for some very, very prominent people around the town - around the world, including here in Australia. 450In November 1999, a bank account was opened in the name of Magny-Cours with HSBC in Hong Kong. The signatory to that account was nominated by Sovereign Trust but Mr Hobbs accepted in the witness box (though only when pressed) that instructions in relation to the withdrawal of moneys from that account (including for a variety of personal expenses) were given by he and by his brother Robert. 451From about 1999 (to 2003), Mr Mitchell administered the Cash Builder Unit Trust from the offices of Tasman Business Consultants. He said that he did so on the instructions of Mr Hobbs ([8] - [10] of Mr Mitchell's affidavit). The corporate administrator of that trust was Magny-Cours (Ex F, tab 24). Funds received from investors were sent to a bank account at HSBC in Hong Kong in the name of Magny-Cours (Mr Mitchell's affidavit at [10]-[11]). Mr Mitchell was authorised to give instructions in relation to that account for a time up to around June 2003 (which seems to be around the time that he ceased to be involved in the Cash Builder scheme - Mr Mitchell deposing to a conversation with Mr Hobbs in 2003 in which the latter said that the moneys invested with Magny-Cours had been "lost" or stolen.) Mr Hobbs ultimately accepted in cross-examination that he and his brother were the beneficial owners of Magny-Cours. 452On 30 November 1999, FTC was incorporated in Vanuatu. Mr Hobbs agreed in cross-examination that he knew FTC was incorporated in Vanuatu (because he paid the renewal fees for it) but said that he did not know when it was incorporated. 453To Mr Hobbs' knowledge, FTC did not ever have its own bank account. FTC subscription payments were paid into Tasman Business Consultants' ANZ account (as provided for in the FTC application form). Moneys for payment of FTC Executives' commission, for the expenses of those working in Mr Hobbs' New Zealand office, such as Mrs Watson, or for expenses otherwise in relation to the funds, such as the payment of Mrs Burnard's fees for the Diligence Discovery work were drawn from Tasman Business Consultants' account. (Mr Hobbs, in the witness box, said that payment of Mrs Watson's expenses and Mrs Burnard's fees in connection with the OEM/KLM and Diligence Discovery processes was in compliance with a request made by Mr Becker, though there is no evidence of this request and the payments continued after Mr Becker's death in 2004.) Events in 2000 * Hobbs' employment contract with FTC 454In September 2000, Mr Hobbs signed a document headed "Individual Employment Agreement" (Exhibit AU 1161), which was apparently executed on behalf of both FTC and OEM (though there is no evidence of OEM Limited, as an entity, having been incorporated in any jurisdiction as at that stage and OEM was not described as a party to the agreement as such). The parties to Mr Hobbs' FTC "Individual Employment Agreement" are identified at clause 1.0, namely FTC (defined as the employer) and Mr Hobbs (defined as the employee). 455In cross-examination, Mr Hobbs identified his signature on the document (that having been witnessed by Pierre Mitchell "Company Director, Nelson, Justice of the Peace for New Zealand"). Mr Hobbs said he did not recognise the signature appended to the document on behalf of FTC (or OEM). He said that when the document came to him it had already been signed by FTC and that he had dated the contract himself. (From a lay perspective, the signatures for FTC and OEM appear to me to be the same.) Mr Hobbs said in the witness box that he assumed that the contract of employment was signed on behalf of both FTC and OEM by someone "out of Mr Becker's office" in the United States (though he could not recall where that office was). 456In passing, I note that the documentation of Mr Hobbs' employment arrangement is thus almost a year after the incorporation of FTC and some time after the commencement of operation of at least one investment fund out of the Hobbs office (the Cash Builder Unit Trust). Moreover, it was some ten years after Mr Hobbs says Mr Becker was expressing his desire for Mr Hobbs to build FTC into as big a company as possible. 457Pursuant to clause 2.1, Mr Hobbs was appointed to the position of "International Sales Manager". Clause 2.4 provided that "the position is located at the Employers [sic] premises at Vanuatu but effective performance of the responsibilities of this position may require the Employee to travel away from that location. The Employee will be given as much advance notice as possible of any travel that may be required". (Pausing there, there is no evidence that Mr Hobbs was at any time after 12 September 2000, when the agreement was signed, working from an office in Vanuatu, nor is there any evidence that FTC actually maintained an operational business office in Vanuatu, as opposed to having a registered office address there.) 458Clause 10 of the FTC Individual Employment Agreement imposed confidentiality obligations on the employee. Clause 11.1 obliged the employee to devote his full time and attendance during working hours to the employer's business and not to undertake "any other employment, business or other interest" during the term of the agreement "than otherwise previously agreed". (The term "Employers' business" was not defined.) Clause 11.2 provided that during the term of the agreement without the prior consent of the employer, the employee agreed not to be directly or indirectly interested, engaged or concerned in any business "involving the activities of [FTC]" in any capacity nor directly or indirectly to assist financially any entity carrying on the business of activities similar to FTC. (These clauses are of some relevance when considering the plausibility of Mr Hobbs having undertaken the task of writing financial education booklets for NASL (the company incorporated by his secretary), at the same time as he was bound by the confidentiality and non-competition provisions of the FTC contract. When this was raised with Mr Hobbs in the witness box Mr Hobbs asserted that he had done so with the knowledge and consent of Mr Becker though again, there was no evidence of this.) 459Clause 15 provided that the agreement was to come into effect on the date it was signed by the parties (presumably this can be taken to be 12 September 2000, although on Mr Hobbs' evidence it was signed by the parties on different dates) and "shall continue in force until it is terminated". 460The schedule to the agreement (to which the contract referred for the list of the employee's duties and remuneration provisions) seems not to have been completed. However, following the page headed "Schedule", there was a page headed "Contract of Employment", setting out the terms and conditions for the appointment of Mr Hobbs to the position of International Sales Manager. Those terms and conditions included: * David John Hobbs is to develop and promote Future Trading Corporation Limited by way of recruiting and training Executives for Future Trading Corporation Limited and selling educational material of Future Trading Corporation Limited internationally. * Educational material is to be developed under guidance of David John Hobbs. * David John Hobbs is required to ensure that Executives do not offer, promote or sell investments from Future Trading Corporation Limited. [ASIC points to this as indicating an understanding of the danger of being seen or being taken to be promoting or selling financial products, though whether that understanding be attributable to FTC or to Mr Hobbs or both may be a moot point.] * David John Hobbs is permitted to claim and be refunded all costs and expenses incurred in the development, training and operation of Future Trading Corporation Limited ... * David John Hobbs's disability is recognized and all reasonable costs incurred by the requirement of help is accepted. This will include travel, training, document preparation, accommodation and entertainment but not limited to the previous. * David John Hobbs is permitted to pay all costs and authorize loans from Future Trading Corporation Limited income. All costs are assessable and or deductible for tax purposes for David John Hobbs or a nominated identity, and not for Future Trading Corporation Limited. * The performance of David John Hobbs will be reviewed by OEM Limited and David John Hobbs must make available immediately on request of OEM Limited all material, accounts, transactions and income details. ... * The review date is set for January 20, 2004. The target for the number of subscribers at this dated [sic] for Future Trading Corporation is 5,500 paid Gold members. Upon the successful completion of this target David John Hobbs is entitled to a one off payment of $AUD250,000.00. 461There was no evidence of any performance review having been conducted in January 2004 (nor did Mr Hobbs adduce any evidence of any communications between himself and either FTC or OEM in relation thereto or otherwise to indicate that this was an arms' length arrangement with an employer not associated with himself). In cross-examination, Mr Hobbs denied that there had been any such payment. The emphasis that Mr Koutsoukos says was placed by Mr Hobbs on the achievement of targets for the number of FTC subscribers would be consistent with Mr Hobbs having an interest (under the FTC agreement) in achieving this target. (At paragraph [511], Mr Koutsoukos gives evidence that Mr Hobbs usually asked for about 6 to 8 new clients per month. Mr Koutsoukos exhibited to his affidavit communications from Mr Hobbs pointing out that "currently we are five subscriptions behind" and, later, pointing out the target for the balance of a particular month.) 462Insofar as OEM was nominated as the entity to carry out a review of Mr Hobbs' performance (and remuneration), it would somewhat be surprising (if it were in fact an entity independent of Mr Hobbs) for Mr Hobbs to have (or have had) so little knowledge of that entity. One might expect the prospect of a large performance bonus would have made it more likely that Mr Hobbs would have had an interest in communicating his performance to OEM but there is no evidence of any communication between Mr Hobbs and OEM in that regard. 463There is also no evidence (merely the assertions made by Mr Hobbs) of any practical involvement by anyone other than Mr Hobbs (or those associated with and reporting to him in the Nelson office) in the administration of FTC. The moneys due to FTC for subscriptions were paid into the Tasman Business Consultants' bank account (and were seemingly treated as Mr Hobbs' own funds). Although Mr Hobbs asserts that the moneys were disbursed on Mr Becker's instructions, there is no evidence of this (and, relevantly, no account seems to have been made by Mr Hobbs to any superior or other officer (or owner) of FTC as to what he was doing on behalf of the company). (Moreover, if Mr Becker had held an ownership interest in the company, there is no explanation for the lack of any attempt by an executive or administrator of his establishment to realise that asset (nor any evidence of payments from FTC to any owner.) * FTC seminars 464Mr Hobbs does not dispute that from some time in 2000 he was involved in FTC presentations and seminars in Australia. Mr Hobbs deposes (at [11]) that he commenced marketing the educational packages for FTC from about 2000 and that this was done by holding seminars. He also accepts that he attempted to recruit sales executives to sell the educational packages. (ASIC's contention is that the evidence establishes that the seminars were also for the marketing of offshore investment funds to potential investors. Mr Hobbs denies this.) 465Mr Hobbs has deposed that the payments made to him 'by FTC' in relation to the marketing of the educational packages were his principal source of money at the time ([11]). (As Mr Hobbs' employment agreement does not state the remuneration payable by FTC, and the FTC commission payments, as I understand it, went to the FTC executives not Mr Hobbs himself (unless he sold the subscriptions), it is not clear precisely what is contemplated by that evidence unless it involves an admission by Mr Hobbs that the moneys paid for subscription to the FTC financial packages, less the commission for FTC executives, were moneys that he could treat as his own. (That would be consistent with there being no evidence of any disbursement of moneys back to FTC from the Tasman Business Consultants bank account. Moreover, although Mr Hobbs suggested at the DVD Seminar that the $4,000 subscription was largely exhausted by the costs of production of the FTC, it seems difficult to see how that could be the case at least having regard to the manner in which the FTC educational material seems to have been prepared and distributed.) 466Mr Hobbs' recollection as to the holding of FTC marketing seminars from about 2000 accords with the evidence of two of the FTC executives (Mr Diaz and Mr Truong) each of whom deposes to having attended FTC seminars in Australia around late 2000 at which Mr Hobbs was in attendance. 467Mr Diaz says that he first met Mr Hobbs at a seminar held at the offices of an investment firm in Sydney in the latter half of 2000 ([11] of his affidavit, as amended by Mr Diaz in the witness box). Mr Diaz said that he had earlier been provided with a copy of the book entitled "The Art of IBCs" (that being the title of one of the FTC educational booklets) by a business partner of his. Mr Hobbs confirms (at [23]) that he had known Mr Diaz from about 2000. 468Mr Diaz deposes that at that seminar in late 2000 he had a conversation with Mr Hobbs in which the latter told him that he had a company called Future Trading Corporation. Mr Diaz says that Mr Hobbs said words to the effect "I have a number of funds that people can invest in" and referred to the ability to obtain bigger returns if "you set yourself up offshore in a unit trust using an International Business Company". 469Mr Diaz has also deposed (at [13]) to what Mr Hobbs said to the group of people at that seminar, including that: I don't sell investments, I sell financial education. The education I sell will enable you to set yourself up with investments of your own. I have a number of different funds and unit trusts that provide returns of between four and ten per cent per month. ... I have private placement documents for the investments that I can show you. One of the funds is called Magny-Cours ... In order to find out more about how to invest, you should join FTC and receive the financial education package ... FTC is a key to acquire knowledge of various investments. But FTC does not promote investments. FTC is owned by a company called OEM Limited and a separate company called KLM Enterprises Ltd which offers investment opportunities... Through OEM and KLM we have various investment opportunities available returning very high returns per annum, some in the order of 3 to 10 per cent per month. One of the things that FTC does is report on fraud. FTC has a legal team based at the University of Kentucky that investigates all of the funds and makes sure that your money is protected. In order to utilise these opportunities you need to have registered a company in a foreign jurisdiction such as the Dominican Republic then send a fax to OEM and acknowledgment that you are seeking investment information for educational purposes. After this you receive a list of available investments from KLM. You need an IBC, as this is to own the investment, and because you're not the owner then you are not breaking any laws here in Australia. (my emphasis) 470I have extracted the above (which is only part of what Mr Diaz recalls was said to the group of people at that seminar) not only because those statements bear a remarkable similarity to statements that other persons who attended seminars at which Mr Hobbs spoke over the period recall he said (as well as a remarkable similarity to what was said by Mr Hobbs himself in the DVD Seminar in about 2003) but also because these statements were being made (according to Mr Diaz) at a time some 18 months or so before Mr Hobbs says in his affidavit that he was being pressed by Mr Becker to issue private placement memoranda for investment in KLM funds (and before Mr Hobbs says he obtained advice from solicitors in Australia as to the legality of the investment process then contemplated); some 12 months or so before the incorporation of KLM in the British Virgin Islands and about three years before the incorporation of OEM in that jurisdiction; and (though the time disparity on this point is not as stark) shortly before Mr Hobbs recalls he received advice from Mr Becker as to the need to incorporate an IBC in order legally to offer private placement opportunities in America (see [8] of Mr Hobbs' affidavit). 471(I place little weight on the timing differences between the events Mr Diaz recalls happening in late 2000 and Mr Hobbs' recollection of the conversation with Mr Becker about IBCs in early 2001. On either version, it is clear that Mr Hobbs was talking to Mr Diaz about the OEM/KLM process at a much earlier time than he contends Mr Becker was suggesting it to him.) 472Mr Diaz' recollection of events is consistent with the incorporation by him of an IBC in the later half of 2000 (something he says he did with Mr Hobbs' assistance - "We can do that for you. No problem" - by filling in a form for the incorporation of the IBC, which he completed and sent to Mr Hobbs in New Zealand by facsimile transmission ([21]-[24]) and with his investment in the Cash Builder Unit Trust in about the beginning of 2001 to which he deposed ([26]-[27]). * Mr Diaz' involvement with FTC 473Mr Diaz (who formed his own mortgage lending business called MortgageXpress in about late 2000, operating from an office in Bankstown) says that after that first FTC meeting he applied to become a "member" of FTC and began receiving FTC booklets and other material. 474Mr Diaz deposed that towards the end of 2000 he began referring the FTC education package to people that he knew and that he generally sold the package to his family and friends ([30]). Mr Hobbs disputes the timing of this and says in his affidavit that prior to Mr Diaz signing the executive agreement on 7 July 2001, Mr Diaz was not involved in selling FTC educational packages ([23]). 475The FTC executive agreement (Ex DJH 5) signed on 7 July 2001 by Mr Diaz is, interestingly, countersigned by Mr Hobbs under the attestation "Accepted by Future Trading Corporation Ltd as agent" (my emphasis), Mr Hobbs there seemingly understanding that he was taking that step as FTC's agent. The commission there provided for included AU$200 once per Gold Level Subscription and was to be paid "from" FTC on receipt and clearance of subscription funds, paid once per month. (The subscription commissions later increased to 10%, or $400, on gold packages.) 476As noted earlier, the FTC educational package which was marketed by Mr Hobbs, involved (and this is not disputed) the payment of a sum for which subscribers received a succession of 18 booklets over three years, plus periodic newsletters and newsflashes. Mr Hobbs, tellingly, seems to have regarded the sale of the FTC "product" as a sale of his "expertise" (see Mr Hobbs' submissions para 1(g)(a)) and to have felt free to engage in some "puffery" in that regard (Mr Hobbs emphasising in submissions the difference between saying things in the context of the sale of a product or expertise and giving evidence under oath, as an explanation in part for the differing accounts he has given as to the setting up of FTC). 477There is conflicting evidence as to the provenance of the FTC booklets. Mr Hobbs deposes (at [7]) (following his evidence at [6] to the statement by Mr Becker as to the decision for the establishment of an education company called Future Trading to which I have referred above) that: I was provided with a number of booklets which I believe were prepared by either Mr Chen or Kip Becker. Eg The Art of Arbitrage and the other booklets in these proceedings. (my emphasis) 478Fairly read, this suggests that all the FTC booklets in evidence or referred to in these proceedings were prepared by either Mr Chen or Mr Becker and simply provided to Mr Hobbs. However, in both his s 10 examination in New Zealand and his evidence in cross-examination here, Mr Hobbs referred to the writing of books by himself and by his wife (and Mrs Hobbs' own email correspondence forwarding one of the books to Mr and Mrs Dent is couched in terms that suggest she was writing more than one book). I consider the import of this inconsistency on Mr Hobbs' credibility as a witness in due course. * Magny-Cours 479In May-June 2000, Mr Hobbs authorised Mr Mitchell to be a signatory to, and to operate, the Magny-Cours Hong Kong bank account (by facsimile transmissions dated 26 May 2000 and 6 June 2000, respectively). The relevance of the timing of this may be linked to the operation of the Cash Builder Unit Trust at that stage. That said, it was clear from his evidence that Mr Mitchell did not regard the Magny-Cours account as his own and that instructions from that account largely came from Mr Hobbs. 480By facsimile transmission to Sovereign Trust on 13 September 2000, Mr Hobbs authorised Mr Mitchell to discuss and arrange for the issue of shares in Magny-Cours to Mr Robert Hobbs as co-beneficial owner. Events in 2001 481In February 2001 (by an undated document that, on its face, was sent on 13 February 2001) Mr Hobbs instructed Sovereign Trust International to arrange for him to withdraw as a beneficial owner of Magny-Cours (leaving Mr Robert Hobbs as the sole beneficial owner). It is not clear whether this instruction was ever formally implemented and ASIC points to subsequent authorisations by Mr Hobbs for payments out of the Magny-Cours bank account as indicating a continuing involvement by Mr Hobbs with the company account. (ASIC further notes that in later correspondence in 2005 Mr Robert Hobbs referred queries by Sovereign Trust as to the account to Mr Hobbs to address.) * KLM Enterprises 482Mr Hobbs deposes (at [8]) to a conversation in early 2001 with Mr Becker in which he says Mr Becker spoke to him about a private placement fund that Mr Becker said he and a Mr Ian Renert would be operating. Mr Hobbs says that Mr Becker told him that the fund had to be set up correctly to comply with Securities Exchange Commission requirements. In that conversation, Mr Hobbs says that Mr Becker said: ...The idea is that I will establish a company, KLM Enterprises, to act as a broker to offer private placement opportunities. To conduct that legally the client has to have an international business corporation (IBC) registered in a jurisdiction that allows them to participate. ... and that Mr Becker likened this to the registration of ships in certain parts of the world (an example Mr Hobbs himself used in the DVD Seminar) and to the setting up of major banks and insurers having offices in those jurisdictions without the need for a registered prospectus. (It is not clear why Mr Becker would have thought it necessary to give the example of major banks and insurers setting up offices in other jurisdictions if he was talking to someone he understood to be himself familiar with the insurance and financial planning industry, but nothing turns on this.) According to Mr Hobbs, Mr Becker said that Mr Chen wanted to register the IBCs in Hong Kong and that Mr Becker also said he wanted to get advice from an Australian lawyer as to whether this could be done in Australia (referring Mr Hobbs to a Mr Robert Miles who he said worked with Fay & Cannon investment bankers and telling him that it was proposed that Fay & Cannon would become "shareholders" in Future Trading). 483I note that insofar as Mr Hobbs' written closing submissions seems to attribute the requirement for the use of IBCs (in order to meet "SEC requirements") as being one imposed by Ms Reisinger/New World Holdings, this reflects what seems to me to have been a shift, during the course of the hearing, from the attribution by Mr Hobbs to Mr Becker of responsibility (or principal responsibility) for the establishment of FTC and the OEM/KLM process, to the attribution of responsibility (or principal responsibility) for such matters to Ms Reisinger/New World Holdings. (To that extent, it seems an example of what Mr Halley characterised as incremental change in Mr Hobbs' evidence when faced with the difficulty of explaining facts or events inconsistent with a particular hypothesis or version of events). (That said, Mr Hobbs elsewhere in his affidavit evidence includes Mr Becker with Ms Reisinger as the persons who established the OEM/KLM "arrangements" and his defence largely attributes responsibility for the investment schemes to Ms Reisinger, so perhaps in this instance there is less of an incremental change and more of a change in emphasis). 484In any event, there is no evidence (other than Mr Hobbs' statements to that effect) to suggest that the proposal to set up a private placement fund (or funds) with the requirement that clients incorporate IBCs for investment therein was one that had emanated from Mr Becker in early 2001. (Of course, insofar as Mr Hobbs had an understanding that the need for an offshore IBC was to satisfy SEC requirements in the United States, it would not be implausible that such an understanding had been conveyed to him by a securities attorney in the US (or even, for that matter, a broker trading in the US, although at this point in the chronology, there is no suggestion that Mr Hobbs had yet met Ms Reisinger). What does not, however, follow therefrom is that it was any such overseas adviser who was responsible for the implementation of the schemes the subject of these proceedings. 485Mr Hobbs deposes (at [9]) that he subsequently obtained oral advice from Mr Robert Miles (who he identified as an Australian solicitor) to the effect "As far as I am aware all of this is perfectly legal" and that Mr Miles also advised him that Future Trading should appoint "executives" rather than brokers or consultants. (Though Mr Hobbs says he does not remember the explanation for the latter advice, in his closing submissions he places weight on a perceived distinction between "executives" and "agents".) Mr Hobbs was not aware whether any written advice was ever received from Mr Miles though he believed that FTC paid for the advice. (If the payment was made in Australia, that in effect must mean that the payment was from Tasman Business Consultants' bank account since that is the only account through which FTC payments were made.) 486Mr Hobbs has deposed that he had (more recently) attempted to contact Mr Miles "who I believe now works at Equius Legal to see whether he has any recollection of the matter" but had been unable to do so "in the time available". (There is no explanation of what attempts Mr Hobbs had made in that regard or as to why there had been insufficient time to do so. The Law Society's public records disclose a firm by the name of Equius Legal Pty Ltd, with an email address for an 'rmiles'. One would have thought a simple phone call to that firm would determine whether this was the Robert Miles in question and whether he recalled, or had a record of, giving any such advice.) In any event, when assessing what weight could reasonably have been placed on any such advice it would be necessary to know what instructions had been given to Mr Miles (on which any such advice was based). Suffice it is to note that Mr Hobbs' recollection of the advice is that it was in such broad terms as to have made it in my view unwise for anyone to have placed much weight on it as evidencing the legality of the proposed conduct. 487Mr Hobbs further deposes to a draft agreement having been drawn up (I gather at around this time) setting out the terms and conditions for executives of FTC (though by then he had already signed his own employment contract). Mr Hobbs placed emphasis on clause 1 of that document (which provides that "Executives of Future Trading Corporation Ltd agree not to offer or sell investment from Future Trading Corporation Ltd") as indicating that any other activity by an FTC executive (such as the sale of investment products) was unauthorised. I consider the import of this in due course. * FTC Executives 488As noted earlier, Mr Diaz and Mr Hobbs (as "agent" for FTC) signed a document on 7 July 2001 headed "Terms and Conditions for Executives of Future Trading Corporation Ltd". 489Mr Diaz deposes that he also, on 7 July 2001, signed a document headed "The Agreement Between Introducers And Companies & Entities Listed in Appendices" (a copy of which is at Ex F tab 27). On its face the document does not appear to have been signed by any other person or entity (and Mr Hobbs in his affidavit asserts that neither he nor FTC was a party to that document). There were five appendices to that document, each listing one or more Unit Trusts, Funds or other so-called entities and setting out the "details of returns and commissions as pertaining to the Companies and Entities and applicable investment" (clause 2 of the document). So, for example, appendix one listed the Cash Builder Unit Trust, Platinum Fund and the Emerging Technologies Unit Trust - "commission" on the first two being stated to be 2% per month "best efforts" paid monthly or at the end of the "profit period". The appendix noted that commission payments for those three investment funds would be made by Magny-Cours Ltd (and, in the case of the third, a "settlement company nominated at the end of a client contract"). 490Appendix two listed the Executive Fund (Mutual Fund) with commission payments to be made from New Millenium Opportunities Ltd; appendices three, four and five listed investments for which Global Visions Ltd was to pay the relevant commission. The respective appendices variously noted that all "clients" or "investors" (as the case may be) must be domiciled in the "correct jurisdiction". 491The document contemplated the receipt by an "introducer" (in this case Mr Diaz) of monies on behalf of the Companies and Entities listed in the appendices and provided that these must be remitted to the respective Company(s) and/or Entity(s) as soon as practicable but not later than a maximum of 5 days (clause 6). Clause 13 stated that the Companies and Entities own all property rights and intellectual properties and entities listed. 492Accordingly, this document seems to have contemplated that, as an "introducer", Mr Diaz would be entitled to receive commission on profits earned by investors introduced by him to specified funds (and suggests that those funds were already in existence). Mr Diaz has deposed (at [46] that at or about the time of the signing of this agreement, Mr Hobbs said to him words to the effect: The difference between an FTC executive and an FTC introducer is one is a representative of KLM and the other is a representative of OEM. 493The drawing of a distinction between FTC executives and introducers is consistent with the description of those roles given by Mr Hobbs in the DVD Seminar (though Mr Hobbs would say that FTC executives were not representatives for either OEM or KLM). Relevantly, the timing of entry into this document suggests that the offshore investment process was in contemplation (and/or operation) at least a year before the Hartnell advice. * Diaz/Wood/Truong 494Mr Diaz gave evidence as to the promotion by him of the FTC education packages (and says that he obtained FTC application forms for that purpose from Mr Dent), as well as his usual practice when signing clients up to FTC ([30]-[37]). 495Mr Diaz says that he met both Mr Truong and Mr Wood, through his MortgageXpress business, in about 2001 or 2002 and that he arranged for them to meet Mr Hobbs at a seminar in the MortgageXpress boardroom (as part of his practice of arranging for groups of employees of MortgageXpress who were interested in becoming FTC executives to meet with Mr Hobbs) ([49]-[58]). There is no dispute that both Mr Truong and Mr Wood worked for a time in Mr Diaz' then mortgage broking business (Mortgage Xpress). 496At about that time, Mr Hobbs appointed Mr Diaz as an Area Manager for FTC (Diaz [57]). Mr Truong says he became an FTC executive in about 2001. Mr Wood signed an FTC executive agreement (in largely the same form of that of Mr Diaz) on 4 July 2002 (by which time the commission payable for gold level subscriptions had increased to $400). * Distribution of FTC material 497From around 2001, Mrs Ngaire Dent, with the assistance of her husband (Mr Craig Dent), printed the FTC booklets for the purpose of distribution to those who had subscribed for FTC financial education packages. They also printed and distributed, from 2001 through to about 2007, Private Placement Memoranda and investment agreements for various investment funds, which they distributed to scheme administrators for those funds. (Mr Dent later set up the FTC website (according to him, on Mr Hobbs' instructions) (see Ex AP 37).) 498A promotional video prepared in relation to FTC (featuring Mr Hobbs, as well as his secretary, Mrs Doreen Andrews, and his sister-in-law, Mrs Ngaire Dent) was broadcast at the DVD Seminar, to which I will refer later, on which reference is made to the "highly trained" staff involved in the distribution of material (that being a reference to Mr and Mrs Dent.) * OEM/KLM process 499From around 2001, Mrs Watson (Mr Hobbs' personal assistant), with the assistance of Mrs Burnard (her daughter), became involved in the operation of what I have referred to (and described above) as the OEM/KLM process. Events in 2002 * First Zurich Financial, Anguilla 500Mr Diaz has deposed that, in about early 2002, he and Mr Hobbs had a conversation about forming a single business ([73]). Mr Diaz says that at that time he was using a business card referring to his business MortgageXpress and that Mr Hobbs was using a business card referring to Nelson Administration Services Ltd. Mr Diaz says that, following this, FZF Anguilla was set up by Mr Hobbs (and that the two shared the expenses of that company equally). 501An IBC by the name of First Zurich Financial Ltd was incorporated in Anguilla in August 2002. Annual fees were paid to First Anguilla Trust Company Ltd for services including the provision of registered office and agent nominee shareholder and director (Ex F tab 54). (In evidence was a copy of an invoice for renewal of those services dated 23 May 2003, which was addressed by the First Anguilla Trust Company to Mr Hobbs at Tasman Business Consultants.) Mr Hobbs signed documents variously describing himself as a consultant and (or at least one occasion) as a director of that company. * Diaz trip to US in March 2002 502Mr Diaz deposes to a trip that he made to America in about March 2002. Mr Diaz says that this was at Mr Hobbs' request in order to meet a Mr Manfred Schillingier [perhaps Schillinger] and to meet some of the fund managers ([74]) (though when he arrived in the US no appointments with fund managers had been arranged). Mr Diaz says that he spoke with Mr Schillingier who said he would arrange for him to meet Ms Lisa Reisinger when he was in Orlando (but says that this meeting also did not occur). (Mr Hobbs, in his affidavit, refers to para [74] of Mr Diaz' affidavit in terms that seemingly suggest that this is no more than assertion by Mr Diaz but without contradicting the statement there made by Mr Diaz.) Mr Hobbs places some weight on Mr Diaz having met Ms Reisinger before he, Mr Hobbs, did, but any such meeting was not during this trip. Mr Diaz understood the purpose of the trip was to discuss investment opportunities for Mr Hobbs ([78]). (As at 2002, Ms Reisinger was working as an Associated Person for an entity called International Futures Group LLC, of which Mr Erdman was one of the owners. International Futures Group was then an introducing broker for Refco (Ex AO, pp20-21).) * ASIC enquiry/Hartnell advice - 2002 503On 30 April 2002, an enquiry as to the business operations of FTC was made by ASIC (by letter addressed to a Mr Arthur Bryce Cowern in Queensland). ASIC's letter (a copy of which is part of Ex BB) expressly referred to Mr Cowern's position as 'director' of FTC. 504In that letter, ASIC took issue with the use of the company name "Future Trading Corporation Limited" in Mr Cowern's business operations on the basis that there was no such company registered in Australia according to ASIC's database (noting that this appeared to be in breach of s 156 of the Corporations Act 2001). The letter also pointed out that it was an offence under the Act for any person or group to offer securities in Australia unless they were licensed in accordance with the Act (and that no-one associated with FTC was so licensed). ASIC's letter expressly noted that "anyone who carries on a business, which includes providing advice in relation to investments in securities, is likely to require a licence". 505Mr Hobbs (who, in the witness box, was unable to recall anyone by the name of Mr Cowern) had responded to that letter by facsimile transmission on 8 May 2002 (and did so expressly on behalf of Mr Cowern). The fax was sent on "Future Trading Corporation Limited" letterhead with an address shown as Port Vila, Vanuatu. As Mr Halley notes, Mr Hobbs (in his letter to ASIC) did not demur from the proposition that Mr Cowern was a director of the company. 506Mr Hobbs (writing to ASIC as the "International Sales Manager" of FTC) on the letterhead of FTC in May 2002 (a letter that on its face was noted as being copied to Mr Cowern) stated that: Future Trading Corporation Ltd is a Vanuatu registered company producing education material, this material explains Budgeting, Succession Planning, Mortgages, and Debt Restructuring etc. [Mr Halley submits that it is significant that there was no reference here to the Art of Arbitrage booklet, though that was included in the list of books to which Mr Hartnell's attention was later drawn.] Also by newsletter subscribers are warned against scams such as prime bank, ponzi schemes, individuals etc. The majority of our information is collated from around the world. Future Trading Corporation Limited does not sell or offer investments.... Future Trading Corporation Limited would be very concerned if any person was using our material to promote investments. (my emphasis) 507The letter attached an extract from Mr Cowern's agreement ("to highlight" the point made in the first sentence of the second of the two paragraphs set out above); noted that Mr Hobbs would give instructions "immediately not to use the term "Limited" on any material" (from which one might infer that Mr Hobbs considered himself to be in a position where he was able to give directions to those within FTC who were or might otherwise be using the material in question); and attached a recent newsletter as an example of the newsletters issued by FTC. 508On 13 May 2002 (and, having regard to its contents, seemingly prompted by the ASIC enquiry), a document was issued on FTC letterhead (without the disclaimer that appeared on later documents as to the sale by that company of information not investments) addressed to "all Executives" and signed by "DJ Hobbs CIF - International Sales Manager" (Ex AU 1206), in which it is said, inter alia: We have received an enquiry from ASIC... The enquiry related to whether FTC should be incorporated in Australia ... FTC has taken the steps to incorporate in Australia anyway. 509The letter referred to the making of a number of "minor changes" including the change of the FTC logo to refer to Vanuatu and the inclusion "on all material" that FTC "does not offer or sell investments or give financial advice". One of the minor changes was said to be "applying to incorporate FTC in Australia" (though that did not ever occur). 510Mr Hobbs said that he did not recall the 13 May letter specifically but accepted that it was his signature on the document. Mr Hobbs recalled that there was an enquiry from ASIC though he could not recall the date. Insofar as the letter referred to FTC having "taken the steps to incorporate in Australia anyway", in the witness box Mr Hobbs said those steps were to go to the office of a solicitor (Mr Hartnell of Atanaskovic Hartnell), although there does not seem to be any evidence that Mr Hobbs did go to Mr Hartnell's office before sending the 5 June 2002 letter of advice. (Mr Hobbs also said in the witness box that he was going to get Atanaskovic Hartnell to incorporate FTC in Australia but that Mr Hartnell "told us not to even consider it; it wasn't worth it", although that is not what Mr Hobbs conveyed to ASIC and it is not what Mr Hartnell's letter stated.) 511By letter dated 4 June 2002, Mr Hobbs further responded to ASIC (this time on letterhead that included, under the logo, the words "Future Trading Corporation Limited Incorporated in Vanuatu" and, under the footer, a disclaimer as to the company not giving investment advice), stating that: I am writing to advise, as of today's date Future Trading Corporation has not received a completed legal opinion from our Australian solicitor as to whether a company should be incorporated in Australia. Hopefully we will receive this opinion in the near future. 512It is perhaps not surprising that, as at 4 June 2002, a completed legal opinion as to incorporation had not yet been received, since there is no evidence that any request for such advice had by then been made (the first evidence of any such request for advice being a letter dated 5 June 2002 from Mr Hobbs, on the letterhead of FTC, to Mr Hartnell of Atanaskovic Hartnell). 513Interestingly, Mr Hobbs' affidavit of 3 August 2012 deposes (at [13]) to the circumstances in which he came to seek advice from Mr Hartnell in terms which suggest that this was to satisfy concerns Mr Hobbs himself had had as to the legality of what had been proposed by Mr Becker (and without any reference either to the ASIC enquiry that had been made the month before that advice was requested or to any request by Mr Becker for the provision of such advice). Mr Hobbs' evidence in cross-examination was inconsistent insofar as he varied between the position that he had sought the advice (for the benefit of FTC) on his own account and the position that he had been requested by Mr Becker to obtain that advice. At T 1291.11: Q. But you were the person wanting this advice, weren't you, Mr Hobbs? A. Yes. Q. And that's why you wrote this letter to Mr Hartnell, wasn't it? A. Correct. But at line 32: Q. Why did it occur to you that if a company registered offshore did something offshore to somebody else offshore it would have anything to do with Australia at all? A. I am just exactly repeating what Kip Becker told me. 514At [13] of his affidavit, Mr Hobbs says: In 2002 Kip Becker began to press me with respect to possible private placement investments of the kind discussed above. I was not particularly comfortable with those proposals. I decided that I wanted some form of written advice confirming the advice I had previously received orally from Mr Miles. I did some research and it appeared Mr Hartnell as a former chairman of ASIC would be the best person to obtain advice from. (my emphasis) 515Mr Hobbs goes on in his affidavit to say that on 5 June 2002 he sought advice from Mr Hartnell and that his letter to Mr Hartnell set out his "understanding of what Kip Becker was proposing". 516Whether or not the advice was sought in order to give Mr Hobbs comfort as to what Mr Becker was proposing (as his affidavit suggests) or because Mr Becker had asked him to do so (as he suggested at one stage in cross-examination), what is undeniable is that Mr Hobbs had responded to ASIC's enquiry by referring to anticipated legal advice and that he thereafter conveyed to ASIC a portion of the advice so obtained. (Hence it is difficult to see the request for legal advice from Mr Hartnell other than as being intended, at least in part, to address the concerns that had been raised by ASIC.) 517The letter requesting advice commenced: I am inquiring as to whether you would act for Future Trading Corporation in the capacity of advice. 518The signatory to the 5 June 2002 letter requesting advice is noted as being "David J Hobbs, CIF, International Sales Manager". The letter stated that FTC was "a Vanuatu incorporated company selling financial information worldwide" (that financial information being said to comprise a number of manuals "covering subjects such as Budgeting, Succession Planning, Debt Restructuring, Mortgages, ABC of IBCs, Introduction to Financial Statements etc", as well as a newsletter by which a "subscriber" is "taken through an introduction to financial planning" and in which "[f]rauds and scams are also exposed, such as prime bank, ponzi, etc"). A recent news article was attached for Mr Hartnell's reference. 519In the letter Mr Hobbs asserted unequivocally that "Future Trading Corporation does not sell/offer investments or give financial advice". 520The letter sought advice on two matters: the first being as to whether FTC was required to be incorporated in Australia and the second being as to the legality of offshore investment in the circumstances there set out. The first question was expressed as follows: The question is, as Future Trading Corporation Ltd subscriptions are sold in Australia and pays a commission to the retailer, should Future Trading Corporation also be required to be incorporated in Australia? (my emphasis) 521The second question posed of Mr Hartnell was: The second opinion being sought is an area we have described to subscribers, that area is should an Australian resident seeking a prospectus or memorandum of an investment product not registered in Australia be able to legally obtain [sic] the investment based on the following criteria. (my emphasis) If the person seeking the investment owns an IBC (International Business Corporation) and the request and offer is offshore to offshore and should the prospectus memorandum be acceptable, then the IBC can invest. It is our opinion that this did not contravene any securities laws of Australia but we would like to be sure of this point. 522Mr Hobbs' contact details were given care of, inter alia, Tasman Business Consultants' post office box. 523Mr Halley emphasised that the circumstances in which the investment, the subject of the second question, was postulated were that the "person seeking the investment owns an IBC" (present tense) and that "the request and offer is offshore to offshore" and notes that the use of the past tense indicates that such investment may already have occurred. (The last would be consistent with an imprecision in the use of grammar that seems apparent in much of the correspondence emanating from Mr Hobbs or in relation to the schemes and I do not place much weight on this). In any event, what is clearly indicated by the letter is that the type of investment about which Mr Hobbs is seeking advice on behalf of FTC (whether or not, as he said in evidence, at Mr Becker's request) is an investment by an offshore IBC where the steps relating to the investment all occur offshore. (That, indeed, seems to have been Mr Hobbs' understanding of the scenario about which advice was given, having regard to his evidence at [18] of his affidavit, which refers to the investment being totally offshore.) (What is apparent in the present case is that, whether or not the "true" investor is the offshore incorporated IBC, a number of the steps in the investment process occurred on-shore, even leaving aside the information given at FTC or investor seminars or meetings (receipt of the information as to the KLM funds available; (issue and receipt of the private placement memorandum and contract); signing of the contract for investment; payment of the moneys to be invested; receipt of the unit certificate; and receipt of payments from the fund administrators). 524As to the reference in the letter to "our opinion", Mr Hobbs was asked in cross-examination at T 1291: Q. So you say it's our opinion and I take it the "our opinion" includes you in that context? A. No, I am referring to the opinion from Mr Becker. Q. So when you say it's our opinion that this did not contravene any security laws of Australia, "but we would like you to be sure of this point", that's not a reference to you seeking the opinion, or referring to an opinion, it's a reference to somebody else's opinion, is that your evidence? A. Again it's my figure of speech. 525By letter dated 7 June 2002, Atanaskovic Hartnell responded to the request for advice. Relevantly, that letter stated: We refer to your fax dated 5 June requesting our advice in relation to the extent that our securities laws contained in the Corporations Act 2001 regulates certain activities conducted by Future Trading Corporation incorporated in Vanuatu if at all. 526The advice referred to the legislative requirements for registration of a foreign company carrying on business in Australia (noting the prohibition on a foreign company carrying on business in Australia unless registered as a foreign company) and to s 601CD(1) of the Corporations Act. The letter went on to state that "The principal issue is whether or not your company is carrying on business in Australia". 527There was a reference in paragraph [1.2] of the letter to "retailers" selling the business in Australia and the author notes "You do not inform us of any other link with Australia and we assume there is none". The letter also referred (at [1.4]) to the existence of law to the effect that "the act of an agent are [sic] attributable back to the principal, in the context of determining whether the principal is carrying on business in the location", but observes that this is "old law and there is also contrary authority". 528On the first question, the letter concluded that: In the circumstances, on the scarce factual information we have, we believe it more likely than not that the company is not carrying on business in Australia solely by selling subscriptions through a 'retailer' but abundant caution would suggest that the company should register as a foreign company in Australia. Particularly would this be so if the company wished to have the ability to at any time to bring legal proceedings in Australia. (my emphasis) 529Under the heading "Sale of Financial Information" advice was also given as to the operation of a new regulatory regime dealing with the provision of financial services and the letter stated at [2.5]: It is our view that financial information of the kind provided by you is not a financial product in itself and, further, does not constitute financial advice of a personal or general nature in relation to any financial product. Therefore, the sale and distribution of such financial advice through magazines, newsletters, etc, does not, in itself, constitute the carrying on of a financial services business as defined. As a result Future Trading Corporation is not required to hold an Australian financial services licence in relation to this part of its activities under the Corporations Act. (my emphasis) 530In relation to the question of the legality of investment by an IBC in the circumstances set out in Mr Hobbs' letter, at [3.1], the Atanaskovic Hartnell letter stated: You have asked us to confirm whether our securities laws (contained in the Corporations Act) permit an Australian resident to invest in an investment product which is not registered in Australia in circumstances where any request for, and offer and issue of, that product is made totally offshore, generally through an international business corporation (IBC) established by the Australian resident and located offshore. (my emphasis) 531(In the present case, whether or not the investments were in truth made by an offshore incorporated IBC, it is contended by ASIC that the offer and issue of the financial product were not made totally offshore. I agree.) 532The Atanaskovic Hartnell advice proceeded on the stated assumption [3.2] that the foreign investment was "in the nature of a pooled managed investment" and made reference to the statutory provisions relating to managed investment schemes (noting the prima facie requirement for registration if the scheme had more than 20 investors (whether wholesale or retail and whether located inside or outside Australia) and the express prohibition on opening such a managed investment scheme in Australia if it was required to be, but not in fact, registered.) At [3.4] the author commented as to the inappropriateness of the jurisdictional reach of the legislation "to foreign investments where there are no offers or issues of interests of any kind made in Australia" (though noting at [3.5] an exception for foreign schemes making offers and issues in Australia provided all such Australian investors are wholesale clients). At [3.7], the letter stated: Separate to the question of the foreign fund, the product disclosure regime contained in the Corporations Act provides that there is no requirement to give the investor a disclosure statement where no offers or issues of foreign products are made or received in Australia (note that there is no such obligation where the investor is a wholesale client in any case). (my emphasis) and concluded at [3.8]: Therefore it is our view that the proposal outlined in paragraph B of your fax would not contravene the relevant provisions of our Corporations Act. 533On 10 June 2002, Mr Hobbs wrote to ASIC noting that advice had been sought from Mr Hartnell "in regard to Future Trading Corporation incorporating in Australia" and stating that: The opinion Future Trading Corporation has received from Mr Hartnell on this issue is that "It is more likely than not that the company is not carrying on business in Australia". The opinion did state should Future Trading Corporation wish "to have the ability at any time to bring legal proceedings in Australia" it would have to be incorporated in Australia. As this situation could probably only be relevant should a party in Australia attempt to duplicate our product, we should consider this carefully. 534ASIC submits that it is not coincidental that Mr Hobbs sought advice from Mr Hartnell (having regard to the query that ASIC had made and, in particular, to the evidence as to the way Mr Hobbs later deployed that advice in seminars with FTC executives or potential investors by reference to Mr Hartnell having "written the ASIC Act") on the basis that it might have been thought that the advice would carry particular weight with ASIC coming, as it did, from Mr Hartnell. Mr Hobbs denied this (although in his affidavit he deposed that "I did some research and it appeared Mr Hartnell as a former Chairman of ASIC would be the best person to obtain advice from"). 535In any event, the timing of the advice (having regard to the ASIC query to which Mr Hobbs was responding in relation to the Cowern correspondence) makes it likely that the advice was sought, as a minimum, as a means of satisfying ASIC (at least if Mr Hartnell's advice was to that effect) that the company did not need to be registered in Australia as a foreign company because it was not carrying on business here. 536Relevantly, the extracted portion of Mr Hartnell's advice that was conveyed to ASIC in Mr Hobbs' 10 June letter included neither the qualification by Mr Hartnell that it was based on the "scarce" information available to him nor Mr Hartnell's advice as to the possibility that the company might be said to be carrying on business through agents in the jurisdiction. Furthermore, there was no suggestion in the letter to ASIC that the advice from Mr Hartnell had addressed any question as to the legality of offshore investment. * Ms Li and Mr Collard's introduction to Mr Hobbs 537Meanwhile, in May 2002 Mr Diaz was introduced to Ms Li and Mr Collard by another FTC executive ([152]). He deposes that he introduced them to Mr Hobbs and each became an FTC executive. * Geneva Financial - Smart Money 538Mr Hobbs has deposed (at [16] of his 3 August 2012 affidavit) that at about the time he received the Hartnell advice he discussed with his wife the prospect of establishing a fund "of the kind discussed by Mr Becker" and that he and his wife had discussions with Mr Becker as to how to set up such a fund. (By this time, of course, there were already various investment funds that had been established and of which Mr Hobbs seems to have had knowledge (having regard to his comments at the DVD Seminar), making the timing and/or content of this discussion somewhat unlikely (given the similarity of some of the other scheme documents to those of Smart Money). Mr Hobbs nevertheless deposes that a template document was subsequently emailed to his wife that she showed to him. 539In his affidavit (at [16]), Mr Hobbs deposes to his understanding that at around this time Mr Diaz introduced his wife to Mr Malcolm Carr (who was an options trader trading at BIZcards Inc). (Mr Diaz describes Mr Carr as a friend he knew from Mr Diaz' time at Southern Cross Consultants prior to 2001.) As I understand it, Mr Hobbs relies on this as showing that the investment operations were not at his direction or instruction. 540Geneva Financial was incorporated as an IBC in about August 2002 and the Smart Money fund was set up, of which Geneva Financial was the corporate administrator. Mr Hobbs says nothing about any suggestion that a significant sum was required in order to set up a fund of this kind - contrary to what others, such as Mr Koutsoukos, said he told them as to the cost of so doing. Nor is there any suggestion that any sum was payable for intellectual property in relation to the fund (in contrast to the payment that Mr Koutsoukos, Mr Wood and Mr Truong said was made when the Integrity Plus fund was offered to them). As at the time the Smart Money Fund began operation, in around August 2002, it would seem unlikely that Mr Hobbs did not already have some experience in relation to private placement funds (since the Cash Builder Unit Trust had been operated by Mr Mitchell out of his office since 1999 and the first of the Elite Premier funds was by then also operating out of the Hobbs office with Mr Grant Clements as administrator). * Other investment opportunities available by August 2002 541There is evidence that by August 2002 there were other investment opportunities available for FTC subscribers of which Mr Hobbs is likely to have been aware. By email dated 6 August 2002, Ms Karen Strong (an FTC executive) communicated with a number of other FTC executives confirming arrangements for Mr Hobbs to see "prospective clients" (Ex BC). That email notes that: With regard to obtaining contracts and prospectuses, David wants to ensure that IBC Administrators have firstly been through the OEM/KLM process which will then enable them, upon receipt of information on the funds from KLM, to request further information and/or contracts etc on a particular fund or funds through their IBC. I'm clarifying a couple of minor details on this process but, in the meantime, I understand contracts are now available for Express, Elite Premier, Mixed market and, possibly, Solid Gold. For information purposes a copy of all contracts and prospectuses will be held by Area Managers and I hope to have the new contracts shortly. 542This reference to the OEM/KLM process is consistent with the way in which Mr Hobbs later described it at the DVD Seminar. Further, although it does not appear that the email was copied to Mr Hobbs (and hence it could not be said that he had in some way adopted its contents), to the extent that Mr Hobbs has admitted that FTC executives were agents of FTC for the purpose of marketing or selling financial education packages, this is relevant as a communication indicating what FTC executives understood of the OEM/KLM process and its connection to the business of FTC. * September 2002 visit by Mr Diaz to USA 543Mr Diaz has deposed ([100]) that in September 2002, he went to the United States at the request of Mr Hobbs to meet with some traders and to discuss an investment proposal in relation to about $20 million (a suggestion that Mr Hobbs dismissed with no little scorn on the basis that "With the greatest respect to Mr Diaz, I would never have (and did not) send an unsophisticated Cleaner ... to negotiate a US$20million transaction" - [27]). However, Mr Diaz' account of a then proposal for a large investment in the United States is not inconsistent with later email communications from Ms Reisinger and her mother (Ms Dadey) complaining about over-commitment and under-delivery on the part of Mr Diaz (to which I refer below). 544Nothing ultimately turns in my view on whether or not Mr Hobbs had asked Mr Diaz to assist in the negotiation of such a transaction. However, as pointed out by Mr Halley, Mr Hobbs' dismissal of Mr Diaz as an unsophisticated cleaner is inconsistent with the description he gave to FTC Executives when appointing Mr Diaz to the National Sales Manager role in August 2003 (and in marked contrast with the offence taken by Mr Hobbs in the witness box to Mr Halley's reference to Mrs Watson as a hairdresser). 545Mr Diaz' evidence is that he met Ms Reisinger (then a broker working to introduce accounts to Refco) on that trip. Ms Reisinger's evidence corroborates this (Ex AO p 17-20). * Hobbs meeting with Ms Reisinger/Mr Erdman 546Mr Hobbs deposes (at [28]) that he met Ms Reisinger following an introduction by a Mr Chris Hardin (who he says had in turn been introduced to him by Mr Becker on 11 September 2002). Ms Reisinger corroborates the evidence that she was introduced by telephone to Mr Hobbs by Mr Hardin (who was at Refco) on 12 September 2002 (Ex AO 17,29-30). Ms Reisinger says that Mr Carr was at the meeting with Mr Diaz. She also says that Mr Hobbs said that he wanted exposure to the commodity markets in the United States by way of access to commodity trade advisers (CTAs) trading in those markets (Ex AO p 20). 547Mr Hobbs, in his written submissions, emphasises that Mr Diaz had met Ms Reisinger before he himself had done (although on either account both Mr Diaz and Mr Hobbs had met Ms Reisinger in September 2002), saying: Ms Reisinger came to Australia and gave at least ten presentations. Each of the fund administrators were present and indeed Mr Diaz met Ms Reisinger before I did. (Transcript page 357 lines 4-23, Diaz cross examination) 548Mr Hobbs deposed to what he says Ms Reisinger told him in that conversation (which I admitted, over ASIC's objection, only as to Mr Hobbs' recollection of the conversation not as to the truth of what he says he was told), including that she had been speaking with Mr Becker for some time working out a product called investment blends and that "An investment blend involves the pooling of money and having it traded by various traders in securities and foreign exchange". (Mr Hobbs recalls Ms Reisinger referring to a "Ty Andros" in that context; Ms Reisinger appears to put her first meeting with Mr Andros as occurring in 2001.) 549Mr Hobbs says that Ms Reisinger told him that the product had to be set up to comply with SEC requirements and that no Americans could invest unless they met some very specific requirements. In particular, Mr Hobbs says that Ms Reisinger told him that "In order to make sure we would require them to set up an IBC so that there is no doubt the investor is a company and not American". (Mr Hobbs elsewhere has suggested that Mr Becker told him this at a much earlier time.) Mr Hobbs also deposed to Ms Reisinger having introduced him to Mr Steve Erdman. 550Mr Hobbs denies the account of the meeting given by Ms Reisinger in her CFTC examination (Ex AO Tab 36 p17.6ff). (In his written submissions he suggests that Ms Reisinger put her first meeting with him as being in 2004 but at line 6 Ms Reisinger says she was introduced to him in 2002 at Refco and I consider a more complete reading of the transcript puts Ms Reisinger's recollection of the date of the first meeting at September 2002). Ms Reisinger is recorded as saying: And at that meeting, he was - - he said that he was very involved in the commodities market. The executive at Refco had introduced me to David Hobbs. He was already currently doing quite a bit of business with Refco. (my emphasis) 551Mr Hobbs denies that he ever had any business with Refco. This seems to be flatly contradicted by his comments at the DVD Seminar in relation to funds conducted through Refco. For example: But each fund has its own manager. So if we have a fund trading in foreign exchange, for example, there is one particular fund that we've been offered a capital guarantee on that trades in foreign exchange. Now, yesterday I showed you some of the returns since 1988 up to this year on that particular fund. I think the worst year was about 29 per cent and the best year was about 118 per cent. And it showed you month by month the returns. That particular trader, which is again is cleared through Refco, which is the largest clearing house in the world, we have been offered a capital guarantee, a AAA rated guarantee, on those particular funds. Now, that is a first in the foreign exchange market. And, I mean, you can take - you could take a fund like that anywhere and be hard pushed to compete. Now, that particular fund, the manager in Australia for that fund there is Rob. It's called the Express Fund. Express Fund is a unit trust, and that means there is outside trustees. Every transaction has outside trustees overseeing it, the clients issued units, the money goes into Refco, and the profits come out of Refco directly. So it's overseen by Refco, overseen by trustees, overseen by independent accountants, and also the traders' trading profiles overseen by additional independent auditors and Refco themselves as well. 552Mr Hobbs says (at [5] of his 7 August 2012 affidavit) that he understood from his conversation with Ms Reisinger that the Securities Exchange Commission had requirements "that had to be complied with". (I interpose to note that whether or not Ms Reisinger or Mr Becker may have been the source of the belief by Mr Hobbs that it was necessary for investment to be through an IBC, any such conversation seems to go to the requirements in the US, not to the question whether investment, if conducted through an offshore IBC, would be legal or illegal in Australia or New Zealand). 553Ms Reisinger's account of the position when she met Mr Hobbs in September 2002 was that she was "new to the business" and did not have a whole lot to offer him. She went on to say: So he would send his executives over to the United States when Steve [Erdman] and I were looking for different CTAs and managers to manage product to see if there was anything that was a fee. 554The thrust of that evidence seems consistent with the fact that on 26 September 2002, Ms Reisinger sent an email to the email addresses of Mr Diaz and Mr Cable (the latter at the "nmo" email address to which I have referred earlier and to an "insl" email address) but the text of the message commenced "David, Jim and Robert". The email (Ex AU p1252) referred to a product that Ms Reisinger said she and Steve [Erdman] had for them "a principal forex program thru Refco" and described this as a "Steve product through Refco". Ms Reisinger said in the email "Please see that David gets this email" (perhaps seen as necessary because the email had been sent to the email addresses of Mr Diaz and Mr Cable). Whether or not it was in fact passed on to Mr Hobbs (and there seems no reason to think it would not have been), this communication (like many others) is indicative of an understanding on the part of Ms Reisinger that Mr Hobbs had understanding of (if not in fact already having done business of some kind through) Refco. (It is also consistent with Mr Diaz having been included in discussions in relation to proposed investment products, despite Mr Hobbs' statement that he was "an unsophisticated cleaner" and "just learning" at the time.) 555Mr Diaz gives evidence of a telephone conference call he and Mr Hobbs had on that day with Ms Reisinger, Ms Dadey, Mr Erdman and Mr Matthews in which he says that Mr Hobbs stated that he had a potential customer base of $20 million and that "we" were looking for capital protection and multiple traders to manage the investment portfolio for "our" clients ([102]). Mr Diaz also gives evidence of a trip he and Mr Carr made to the United States in October 2002 to meet with Mr Lynn Caswell and refers to a meeting at the office of Refco Capital to discuss investment portfolios ([104], [108]) as well as a meeting with a Mr Phillip Harris from Plimsoll Capital ([110]). 556On 19 December 2002 (Ex AU 3407), an email was sent from the "nasl" address (and therefore presumably from Mr Hobbs or sent on his behalf) to Mr Diaz (and copied to Ms Reisinger), in relation to money that was said not to be available until the New Year from a client who had promised $3.2m. The email read: Dear Lisa ... I suggest we start transferring some of the smaller amounts to Refco, and over the holiday period I will meet with another client to seek US$1million to transfer. 557This (at the very least) suggests that as at late 2002 Mr Hobbs had contemplated doing business with Refco (and strongly suggests he had already done so, contrary to what was said (at [28]) of his affidavit, as Ms Reisinger understood him to have said). Events in 2003 * Visit to Australia by Mr Lynn Caswell 558Both Mr Diaz and Mr Hobbs give evidence that in March 2003 Ms Reisinger and Mr Lynn Caswell visited Australia and spoke at some of the FTC seminars in Australia (Hobbs [34]; Diaz [113]). Mr Hobbs asserted that this was arranged by Mr Becker (though there is reference in later communications between Mr Diaz and Ms Reisinger/Ms Dadey to the trip having been paid for by Mr Hobbs; and Mr Hobbs seemed to accept, as I understand it, that he had paid for at least some of the internal flights during that visit). Mr Diaz says that it was arranged by Mr Hobbs. Ms Li and Mr Collard attended the seminar at North Sydney according to Mr Diaz. Mr Diaz says that at the conclusion of the seminar Mr Hobbs said that if the audience wished to find out more about the fund he had spoken about they should contact OEM ([115]). Mr Hobbs denies this. 559Mr Hobbs says that he thought it would be interesting "for educational purposes" to have a board member of the Federal Reserve (presumably there referring to Mr Caswell) speaking to attendees at the seminars and that it would be interesting to hear Ms Reisinger's explanation of commodities trading in the US. He deposes that at the conclusion of the meeting there was no suggestion that people could obtain further information by contacting himself "or Future Trading nor OEM or KLM" ([38]). 560The suggestion that this trip was arranged by Mr Becker is not supported by anything said in the subsequent exchange of correspondence between Ms Reisinger and Mr Diaz in relation to the trip, to which I refer in due course. As to Mr Hobbs' recollection that there was no suggestion made at the meeting that people could obtain further information from himself, FTC, OEM or KLM, in light of the glaring contradiction between some of the statements made in his affidavit and what Mr Hobbs can be heard to have said at the DVD Seminar, and Mr Hobbs' inconsistent memory of various events put in issue in these proceedings, I can place little reliance on this broad assertion.) April 2003 visit to US 561Mr Diaz deposes that in April 2003 Mr Hobbs visited the United States and met with Mr Caswell. This is corroborated by a later email from Ms Dadey, though Mr Hobbs did not accept that the "red carpet" had been rolled out for him on that occasion. * Optionz NZ 562In mid 2003, Mr Diaz entered into what seems to have been an investment contract with Optionz NZ (of Kentucky, USA) (not in the standard form template of the investment contracts used by the corporate administrators in relation to the schemes the subject of the present proceedings) in which he agreed that no one connected with Optionz NZ had given or offered financial advice and that there was no guarantee on capital or profit for that investment (Ex AU 1660). It seems not to be disputed that Optionz NZ was an entity associated with Mr Parker. * Loss of Cash Builder Unit Trust funds 563Mr Mitchell (at that time the administrator for the Cash Builder Unit Trust) says that in around June 2003 he was informed by Mr Hobbs that the funds invested in the Cash Builder Unit Trust (of which Magny-Cours was the corporate administrator) had been stolen. Faced with this (presumably alarming) news, Mr Mitchell seems to have done no more than that he ceased to be a signatory to the Magny-Cours Hong Kong bank account. Thereafter, Formula Investments Ltd (a company of which Mrs Doreen Andrews was the sole director, according to Mr Diaz at [236]), was the corporate administrator of the Cash Builder Unit Trust. (ASIC contends that in this regard Mr Mitchell followed Mr Hobbs' instructions, referring to the document at Ex F tab 90, a fax from Mrs Andrews on 28 January 2004). * LEAPs strategy 564On 25 June 2003, Mr Hank Parker sent an email to the "nasl" address forwarding a message to "David" (Ex AU 1582), in which Mr Parker gave an explanation of the LEAPS strategy (that acronym standing for "Long Term Equity Anticipation Security"). In that email he noted that this strategy involved the sale of a short term option for a higher strike price and the purchase (by inference at a lower strike price) of a long term option and said that there was an opportunity to make significant gains on covered calls using "Blue Chip" stocks by employing leverage without margins. Subsequently (on 16 July 2003), Mr Parker sent a further email to the "nasl" address (with the subject header being "Options as a way of life") commencing "David, ... few things you should know when discussing LEAPS and calls" - my emphasis, noting that this indicates a contemplation that Mr Hobbs might be discussing LEAPS and calls in one capacity or another. 565The timing of the above emails is relied upon by ASIC as evidencing Mr Hobbs' involvement in the Covered Strategies scheme, having regard to the instructions that Mr Hobbs gave shortly thereafter to Mr Fitzgerald in relation to the LEAPS strategy. 566On 4 August 2003, by letter endorsed "David J Hobbs CIF, Director" (my emphasis) to Mr Fitzgerald, reference was made by Mr Hobbs to the "decision" to form a unit trust investing in Covered Calls using the LEAP strategy, and that strategy was explained in terms consistent with the Parker emails. Instructions were provided as to what was to be done in relation to the investment process for such a fund. Whatever "instructions" Mr Becker may separately have given (and there is no evidence of these), it is difficult not to conclude that what Mr Hobbs was there relaying to Mr Fitzgerald was Mr Parker's explanation of the process. 567In any event, this letter is clear evidence of Mr Hobbs giving instructions for the conduct of an investment scheme. Significantly, Mr Hobbs later intervened when issues later arose as to the fund between Mr Fitzgerald and Mr Parker and then stepped in (and assumed control) when Mr Fitzgerald made it clear that he was not continuing as "director" of the corporate administrator. * Appointment of Mr Diaz as National Sales Manager 568On 27 August 2003, by email from the "nasl" address to FTC, with the sender being described as David J Hobbs CIF "International Sales Manager" (Ex AU 1723), Mr Hobbs announced the appointment of Mr Robert Diaz CIF to the role of National Sales Manager for Australia, stating that "Rob comes to the position with a very successful background in building a solid financial business in Sydney". The email stated that Mr Wood had filled Mr Diaz' previous position as Area Manager. (As already noted, Mr Hobbs' description in his affidavit of Mr Diaz as an "unsophisticated cleaner" is inconsistent with the glowing terms in which his appointment as National Sales Manager was announced to FTC executives, a matter that caused Mr Hobbs some difficulty in attempting to reconcile the two statements in cross-examination.) 569Mr Diaz was provided by Mr Hobbs with a certificate confirming his appointment. He exhibited to his affidavit a copy of an FTC chart that he says Mr Hobbs also provided to him in August 2003. That chart included, inter alios, Ms Karen Strong (as an FTC executive in Nowra) and Mr Ian Evans as an FTC executive (in North Avalon) (confirming the positions of those two - reference to whom has already been made earlier). * Issue re Refco account 570It seems that at some time prior to 10 September 2003 a suggestion was made by Ms Reisinger that an account with Refco (in which Mr Hobbs and others had some involvement) be closed (and that this was due to an issue that Ms Reisinger had as to the non-fulfilment of promises or commitments in relation to the investments to be made through Refco of client funds). I say this because Ms Reisinger sent an email addressed to Mr Cable, Mr Diaz and Mr Hobbs on 10 September 2003, referring to a request she had made to close the "Refco" account. In that email she complained as to the "over-stating [of] a position and under-delivering it" (in terms that seem to have encompassed both Mr Diaz and Mr Hobbs in that conduct) and referred to her concerns as to possible repercussions for her licence and for Refco as a result. 571Her mother, Ms Nancy Dadey, sent a similar email (though less vehement and more supplicatory in tone) on 11 September 2003 (in which she referred to a first meeting when "David and Jim [who I understand to be Jim Cable] came over" to meetings in Chicago; and then to meetings between Mr Malcolm Carr and Mr Diaz with Mr Caswell in California; meetings they had in Chicago and New York; and meetings with Ms Reisinger in Omaha. (The email also referred to meetings of groups in Australia although it is clear that this cannot have been from Ms Dadey's own knowledge as it is not suggested in the email that she was there.) (This supports Mr Hobbs' recollection that there was at least one trip to Australia by Ms Reisinger - though whether she made ten presentations is not clear on the evidence.) 572Mr Diaz drafted a heated response to the emails from Ms Reisinger and Ms Dadey and, tellingly, sent that draft to Mr Hobbs for comment. In that email, Mr Diaz said that he had not been able to answer bankers' queries until he had spoken to Mr Hobbs. (He also referred to Malcolm Carr as someone who "works with us and he is loyal to David and myself"). Mr Hobbs made some handwritten amendments to the draft response but did not amend the references to Mr Carr (nor did he amend the statement by Mr Diaz as to Mr Diaz not being able to answer the bankers' queries until he had spoken with Mr Hobbs). In a handwritten comment at the end of the draft letter, Mr Hobbs made reference to an issue as to Plimsoll Capital (an entity of which he disavowed knowledge during cross-examination). 573This email exchange (and Mr Hobbs' failure to dispute parts of it that one might have thought would readily have been corrected had Mr Hobbs not accepted the account there given) is consistent with Mr Diaz' recollection of Mr Hobbs' involvement (and inconsistent with Mr Hobbs' denial of such involvement) in relation to the opening of the Refco account that Ms Reisinger was requesting should be closed). * DVD Seminar 574Mr Diaz gave evidence that Mr Hobbs conducted training for FTC executives ([31]-[33]). (Mr Hobbs' evidence is limited to "recruitment" not training per se.) He deposed to having filmed a seminar (with assistance from others, including Mr Wood or Mr Truong) conducted by Mr Hobbs in about October 2003 ([175]-[176]). The DVD footage of that seminar (and a transcript taken by Auscript of that footage - Ex R) was in evidence (and I refer to it as the DVD Seminar). 575It is not disputed by Mr Hobbs that he appears on that DVD footage. Nor does he dispute that there was a seminar or meeting of some kind that took place in Australia, whether in a hotel behind the Queen Victoria building in Sydney (as Mr Diaz says), or in an office in Bankstown, (as Mr Hobbs says). Nor does he dispute that he at least recruited FTC executives (which might fairly be seen to be part of the purpose of the presentation recorded on the DVD). Mr Hobbs does, however, dispute the nature of the meeting that was filmed on that occasion, describing it as a one-off seminar (and asserting that it addressed a variety of issues including diet and vascular issues). 576As to the timing of that seminar, it must have taken place after mid-2002 (since there is a reference during the seminar to the comparative position of international currencies as at that time - Mr Hobbs suggesting that an earlier prediction of his had been vindicated). It seems likely to have taken place after the Bali bombing on 12 October 2002 (assuming the reference to the events in Bali having an impact on exchange rates is a reference to those events). 577If the reference by Mr Hobbs to a Bankstown office is a reference to the MortgageXpress office from which Mr Diaz then carried on business, then that would presumably place the seminar as occurring before the falling out between Mr Diaz and Messrs Wood and Truong (who left the MortgageXpress business in 2004 but who was still in communication with Mr Hobbs at least as at September 2004). It might be expected that Mr Diaz would have been well placed to identify whether the location of the seminar was his own office, had that been the case. In any event, the location of the seminar is not material. 578Mr Hobbs accepted that he appeared on the video (with Mr Diaz beside him at the front of the room). The DVD (parts of which were shown in Court during Mr Hobbs' cross-examination but the whole of which I later viewed outside Court) records the attendees as having identified themselves, at Mr Hobbs' invitation, at the start of the seminar. From this, it is evident that the seminar was attended by a number of people who Mr Hobbs accepts were, at the time, existing FTC executives (Mr Diaz, Mr Wood, Mr Collard, Ms Li, Mr Morrow). A number of other attendees identified themselves as working with Mr Diaz. 579Mr Diaz gave evidence that Mr Truong had attended the seminar and (although Mr Hobbs was unable initially to identify Mr Truong's voice on the parts of the DVD that were shown during his cross-examination), Mr Hobbs ultimately confirmed that Mr Truong could be seen in a later part of the DVD footage as having been in attendance at this seminar. 580Mr Hobbs' affidavit deposes to the video having been taken without his knowledge. It is difficult to see how that could be the case, in circumstances where the room in which the seminar took place does not appear to be large and it is evident from the sound recording that there was more than one person in the room involved in changing the videotapes at least at one point (which suggests that there was some activity at the back of the room when that occurred). 581Mr Diaz says that he had been asked by Mr Hobbs to film the seminar for use as a promotional video; that he recorded it on his camcorder and then transferred it onto a VHS tape; that in December 2003 he made two copies of the VHS tape; and that he gave one copy to Mr Hobbs in about early 2004. Mr Hobbs' real complaint, it might be thought, is therefore that the tape was provided to ASIC (not that it existed in the first place.) 582As to the seminar itself, Mr Hobbs in his closing submissions suggests that the seminar was of 3 days' duration. It does not seem to me that this is necessarily consistent with the reference made by Mr Hobbs at the opening of the seminar to what would be discussed "over the next two days". (That seems to me consistent with the proposition that the seminar would occupy two, not three, days in total, including the day on which Mr Hobbs was speaking and the next.) 583The information that Mr Hobbs indicates will be covered in the seminar is "financial education and what financial education can lead to in the way of income, and enhancing the lives of clients here in Australia". He states that: We are very particular in the different companies that we will discuss over the next two days, of how business is conducted and the law of advice and no offerings so we will be spending a lot of time on that particular fact ... (my emphasis) 584Having carefully viewed the whole of the DVD Seminar footage and cross referenced it to the Auscript transcript, it seems to me unarguable that Mr Hobbs was the principal presenter at the DVD Seminar (although Mr Diaz did assist in the demonstration of some calculations when Mr Hobbs was giving an example as to the concept of arbitrage of a mortgage). That said, it is possible that one or more others spoke on the afternoon of the second day (assuming the seminar continued after lunch on that day), as there appears to be no footage after the adjournment for lunch on the second day. 585As to the purpose of the seminar, it is relevant to note the manner in which the attendees introduced themselves on the first day. Apart from those who specifically introduced themselves as FTC executives or area managers (Mr Diaz, who said "like Dave ...I'm also a certified international financier"; Mr Wood; Mr Morrow) there were a number who introduced themselves by reference to their involvement in financial or related matters (Mr Hayes, who said he was involved in finance; Mr Baker, who said he was in finance brokering; Messrs Kalikouroulos, Geoghan and Watson in mortgage brokering; Ms Wool, who said she was involved in training in the area of financial services (in particular, insurance) (and who, to my observation, was the only participant who sought during the seminar to pin Mr Hobbs down to specifics); Messrs Tecarelli, Gaira and "Sammy", who said they were consultants or employees for Mr Diaz' MortgageXpress business; Mr Smith, who described himself as a small businessman; and Mr Fay, who said he was an investment banking businessman. Also present were Mr Collard, who described himself as having "been involved in investments and plantations", and a woman who identified herself as "Lilli, I am just operating in success managing centre" (of whom Mr Hobbs said on the tape and essentially confirmed in cross-examination she was a surgeon from China). (After watching the DVD outside Court, Mr Hobbs confirmed that Mr Truong was also in attendance.) 586Mr Hobbs said in cross-examination that at this seminar a doctor from New Zealand (Lewis Gray) also spoke. There was no introduction by a Dr Gray on the DVD footage at the start of the first day and it seems unlikely that he was there at least at that stage since, after Ms Wool introduced herself, Mr Hobbs referred jovially to the fact that "there's two Kiwi's in the room", including himself in that reference. However, it is possible that Mr Gray was one of the two new attendees referred to on the second day. 587A number of topics were covered in Mr Hobbs' presentation (and in some instances repeated more than once) over the course of those two days, including: warnings as to various investment scams and frauds; the role of FTC; the opportunities for legal participation in the offshore wholesale market; historic rates of return (and the amount that introducers could make by way of commission); the performance of particular funds (with emphasis on whether those were funds to which there was access); and the due diligence carried out on funds. Various examples were given of arbitrage (whether in relation to a home mortgage or a car club) and other types of investment, with comment as to the suitability of one or other type of investment. More than once, Mr Hobbs referred to the performance of particular funds (including one fund in which on-line access to trading was said to be available; one in which a share of the "pips" on all trading was available; and one with a capital guarantee.). 588A short video of FTC was shown, Mr Hobbs referring to the video as showing "just our New Zealand offices" (in fact the video showing both Mr and Mrs Dent's house in Queensland and the office in Nelson), and describing his role in FTC as "International Sales Manager". Mr Hobbs said, by way of introduction to the video: As I said, it's [FTC] owned by OEM Limited. OEM is owned by attorneys, accountants, and fund managers, in the US. (P 5 lines 35-36). 589Mr Hobbs spoke about historic returns and some products coming with a capital guarantee (some guarantees said to be triple A rated and some issued by Citibank, Bank of America, Jefferson Pilot, which Mr Hobbs described as "extraordinary in some measures"), and about the "styles" of returns (some monthly, some quarterly, some annually). 590Mr Hobbs, throughout the seminar, regularly uses the first person plural "we" or "our" (as I have emphasised in the extracts set out above). So, for example, from P 6 line 13 where he says: The top performing compounding fund for last year, and I wish to emphasise very clearly this is not a fund that we have access to because we cannot obtain audit[ed] set[s] of accounts for the fund, but the top performing fund last year produced 2,028 per cent, I mean that's a significant return. It's a highly leveraged futures trading style fund. Again, it's not a fund that we have access to. [Well] Sorry, It's not a fund that we would recommend on any form because we cannot do enough due diligence on it, ... (my emphasis) 591It might be thought that the penultimate sentence in the above extract is a Freudian slip (namely that it was a fund to which whoever was comprised by the pronoun "we" did not have access) being quickly corrected to it not being a fund "that we would recommend on any form". The link between recommendation of a fund and the carrying out of due diligence on it is also interesting, given that most (if not all) of the schemes the subject of these proceedings could not have been the subject of any (or any prolonged) due diligence by KLM or anyone, since they seem to have been set up and to have started almost immediate operation (so, for example, the Super Save scheme and the various Li/Collard schemes). Nor is there any evidence of the carrying out of, or product received from, the due diligence or extensive research generally said to be carried out (other than as can be discerned from in the very general newsletters and news flashes). (While it might be possible that there was due diligence carried out on the US traders or funds associated with them, the DVD Seminar makes clear that the funds to which Mr Hobbs was referring were funds such as Mr Diaz' Xpress Fund.) 592Mr Hobbs makes reference to various funds in the course of the seminar: for example at P 7 line 1 to "a fund that is available, a unit trust fund that's available that's cleared through a major bank in the world". This example (repeated the following day) is said to be one that permits the client to watch the daily trading online and where "the introducer earns a commission that one, is under contract from the bank, and two, it's just been incorporated they now share in the bank's trading commission". He goes on to say that "The fund managers we have incorporated in one of the unit trusts in trade [in] foreign exchange have now just developed a contract with the bank that the introducers not only receive commission, they also share in the pips that are paid as commission per trade". 593Mr Hobbs emphasised the difference between profit (a share in the profit of the business, up or down) and "retail" (a set interest rate) and supported that by way of an example to when his wife (who he described as an accountant) was doing her degree and to the information "that was being fed back from a group of accountants". (He also referred to himself having "honoured in financial planning".) 594Relevantly, Mr Hobbs contrasted Ponzi and prime bank investment scams on the one hand with dealing with "Chase Manhattan or Citibank or Merrill Lynch, or Refco": I mean it's highly reputable people, and the difference being you can come in on the wholesale rate, and we'll talk about how KLM are able to negotiate the same institutional rate of investment as the banks and insurance companies (my emphasis) (P 9 lines 14-15) 595The message clearly being conveyed at the DVD Seminar was that it was possible for an investor to obtain "the wholesale rates, from the same institutional levels". Mr Hobbs emphasised the difference "between what is real out there in the world and what is not" and spoke time and again of high rates of returns, saying that he had "resigned from an extremely well paid job in the insurance industry to travel the world to try [to] bring these same opportunities back to the average person that you receive from the wholesale return" - an excise that he said was fraught with a lot of difficulty because "to participate in the wholesale arena you had to have hundreds of millions of dollars because you were dealing in the same league as the major insurance companies and banks". 596Mr Hobbs said that: Over a period of time we were able to negotiate contracts with the major banks and major security firms and so forth that allowed us, by way of contract, to bring in smaller parcels of money, you know, like in the one and two million, so we were able to accumulate under contract smaller amounts of money to piggy back if you like on the wholesale markets. (P10 lines 12-16). (my emphasis) 597In cross-examination Mr Hobbs sought to explain away the use of "we" and "our" as a mere figure of speech. While I accept that use of the first person plural is likely to have been Mr Hobbs' way of associating himself with those involved in the matters he was talking about (as he says he used to speak of the team when he was with Colonial Mutual), what emerges very clear is that Mr Hobbs was including himself in some fashion in a proprietorial way with the incorporation of funds and the ability to access investments through those funds. * October 2003 trip to Miami 598Mr Diaz gives evidence that in October 2003, he, Mr Hobbs, Mr Cable, Mr Fitzgerald and others attended a seminar in Miami, during which trip they met with Mr Parker. He says that Mr Parker handed out a paper setting out predicted returns on the investment strategy for Covered Strategies (but that Mr Hobbs had torn up the papers) ([186]-[189]). Tellingly, however, from October 2003 (until about November 2005) some of the funds invested in the Covered Strategies fund were transferred to the Optionz NZ account controlled by Mr Parker. * First Secured Bond Unit Trust 599The First Secured Bond Unit Trust was set up around about November 2003; an NZ dollar bank account having been opened in the name of Secured Bond around September 2003 and a US dollar account also in Nelson (both with Mr Collard's son as the initial account signatory). There is evidence of the promotion of the fund at FTC seminars and meetings from around October 2003 by each of Ms Li, Mr Collard and Mr Hobbs (see Huang [86], [89], Zhang [107], [110], Jouravlev [22], [92]). * Further Enquiry by ASIC 600By letter dated 18 December 2003 (part of Ex BB) a further complaint was raised by ASIC with Mr Hobbs in relation to the activities of FTC in Australia. Significantly, the letter refers to previous correspondence in relation to FTC and to "undertakings" that had been given by Mr Hobbs that FTC "is not conducting any business that would contravene the Corporations Act 2001". The letter refers to information that a person in North Avalon (Mr Ian Evans) had represented that he was an executive sub-area manager of FTC and had offered potential investors a 90% pa return for certain investments. 601In this letter ASIC expressed concern, first, that "[a]s discussed previously, if FTC is carrying on business in Australia it is required to be registered or recognised as a company within the jurisdiction" and, secondly, as to the allegation that there had been a solicitation of funds for investment and/or deposit in offshore business operations without a licence under the Act. It is noted that these were serious issues. 602Mr Hobbs did not have a clear recollection of the making of this query but it is consistent with the accounts given by Mr Koutsoukos, Mr Woods and Mr Truong that Mr Hobbs had told them about this incident (and that he had told them not to talk publicly about investments). The recollection of Mr Koutsoukos was that some time after December 2003 Mr Hobbs had told the J&B Financial officers that: "Ian Evans has got in some strife with ASIC because he was doing some meetings at the Mosman town hall" and "He was on stage talking about selling investments" (and had said that Mr Evans had to go and front ASIC, but he got off with a warning on this occasion). Mr Koutsoukos said that Mr Hobbs had said: "You can't talk publicly about the investments. You should do it oneonone wherever practical." 603Mr Hobbs' response when tested on this in cross-examination was: A.Mr Halley, I don't recall that. And, with due respect to the three gentlemen at J&B and the business they've conducted, and you would've seen under crossexamination, it's just dubious any evidence they would give. (a comment that I treated as a submission). It is relevant to note that the ASIC letter corroborates the evidence that there was an issue as to Mr Evans behaviour at around this time. 604In any event, receipt of this letter must have put Mr Hobbs on notice as at December 2003 (if he had not already appreciated it) that there might be a requirement to be licensed if the conduct in this jurisdiction amounted to a solicitation of funds for offshore investment or deposit. (It does not appear that Mr Hobbs referred this issue to Mr Hartnell for advice.) In cross-examination, however, Mr Hobbs sought to dismiss the significance of the concern that had been expressed by ASIC: A.Well, yes, but that doesn't mean - that could be this gentleman's first reaction, I don't know. Events in 2004 * Death of Mr Becker 605As adverted to earlier, Mr Hobbs exhibited to his first affidavit copies of documents recording the death of a Mr Howard (Kip) Becker on 12 April 2004. It does not seem to be disputed by ASIC that such a person existed nor that he died on that date. However, ASIC does dispute the role that Mr Hobbs suggests Mr Becker played in relation to the schemes the subject of these proceedings. 606Mr Hobbs advised FTC executives of Mr Becker's death by email from nasl on 26 May 2004 stating that: You may have heard the sad news of the passing of Mr Kip Becker, an attorney involved with OEM Ltd and Future Trading Corporation Limited. ... The position of Mr Becker's replacement will be announced shortly. 607Mr Hobbs' evidence was that a replacement was not ever announced for Mr Becker and that he had confirmed that after Mr Becker's death there was no longer an attorney appointed for the purposes of providing assistance for OEM and FTC. 608Relevantly, the email does not suggest that Mr Becker was an owner of the companies, simply that he was an "attorney involved" with them, and the email makes no reference to KLM. Significantly, there is nothing to suggest that the operation of any of the funds (or of FTC/OEM/KLM for that matter) changed following the death of Mr Becker. Further, even though I note that KLM was deregistered in May 2004 (presumably, as with similar deregistrations, due to non payment of fees) Mrs Watson's evidence was that the OEM/KLM process finished (or "dried up") well after 2004. 609Had Mr Becker indeed held an interest in one or more of the companies (or in any intellectual property represented by the development of the investment products made available through one or more of FTC/OEM/KLM) then one might have expected the executor or administrator of his estate to seek to realise value from those assets for the benefit of the estate. Global Forex Trading 610Mr Diaz gives evidence that in about May 2004, he and Mr Hobbs commenced discussion with Ms Reisinger and Mr Matthews in relation to the opening of an account with a US based foreign exchange dealer, Global Forex Trading ([25]), which proposal included the purchase of US Treasury strips with a proportion of investment funds and leveraging the remaining portion of the funds for investment in various foreign exchange instruments. He refers to an email of 13 May 2004 setting out that proposal. (Between May and September that year, some of the funds that had been invested in the Elite Premier Option Two Unit Trust were transferred to Global Forex Trading.) * Advice from Rout Milner Fitchett 611By letter dated 6 May 2004 addressed to the directors, Global Futures & Forex Ltd Qld, Rout Milner Fitchett of Vanuatu stated: We have been consulted by Grant Clements of the above company (Preserved) ... As requested by you, we advise (as solicitors to Preserved Investments and Mr Clements) A.Preserved Investments is acting as an entity pooling third parties' moneys for investment purposes; A.when operating in New Zealand, Preserved Investments operates under anti-money laundering legislation similar to the USA Patriot Act as described in your letter of 21st April; A.Ithe writer is not a solicitor or legal counsel admitted to practise in Vanuatu. 612It is not clear the purpose for which this letter was obtained. * Queries by potential investors 613At least as at July 2004, Mr Diaz was still in the role of National Sales Manager of FTC. In that role, he apparently liaised with Mr Hobbs on at least one occasion in relation to the proposed response to be given to enquiries from potential investors. Relevantly, Mr Hobbs seems to have directed Mr Diaz what to say in response to a query relayed to Mr Hobbs by Mr Anthony Gahan (an FTC executive). 614By fax on FTC letterhead (showing a Queensland address for FTC), Mr Gahan had forwarded to Mr Hobbs on 21 July 2004 a series of questions put to him by a Mr Morris Fink (in relation to potential investment in the Elite Premier Option Two fund or other funds). Mr Gahan described these as being "very typical questions I am being asked" and suggested to Mr Hobbs that "If we can show people like Morris Fink that the mechanisms used provide complete security and accountability of funds then many referrals will come". Mr Gahan's letter had indicated that he would telephone Mr Hobbs on a particular day "as David Collard suggested". Whether he did or not is unclear from the text of the response. 615On 22 July 2004, under a fax coversheet on Tasman Business Consultants ("trading as Business Consultants") letterhead, on which the "nasl" email address and a post office box address at Stoke, Nelson, appear, Mr Hobbs forwarded to Mr Diaz a copy 'for his information' of what seems to be a response to the questions that had been conveyed to Mr Hobbs. The response, unsigned on the copy in evidence, is on FZF Anguilla letterhead (showing the address of FZF Anguilla as c/- First Anguilla Trust Co in Anguilla, British West Indies) and bears a facsimile transmission imprint from Tasman Business Consultants fax number. It provides to Mr Anthony Gahan an answer to the "quality questions" raised by Mr Fink. 616Relevantly, the questions (and the answers given to them) included: Q1.From what Robert [Diaz] has said to him the client receives 80% of the profits and administration received the other 20%. Is this correct? A1.The administration company does retain 20% of the gross, which pays for trustees, commissions and overheads. Q2.For accountability reasons a quarterly statement from the Trust is given to the Unit Holders in the Trust. Is this correct? Can a sample copy be provided? A2.If the fund pays profit monthly, a monthly statement is produced and of course if it is quarterly the same procedure takes place. I will provide a sample for you. Q3.Is a statement or document of any form distributed from the trader stating the percentage/amount earned for the period by the trust? Or what document proves the actual earn from the investment by the trust? A3.The clearinghouse forwards daily an activity statement and monthly account balance. [inconsistent with Mr Hobbs' assertion that he did not receive Cadent daily statements] Some of the funds operate a different style. We can't distribute this to clients as we must protect the clearing house/traders from a small investor attempting to circumvent us an [sic] more importantly as we invest at an institutional level the clearing house/security firm do not wish to know about a small investor as the unit trust is the client. [The truth of this is illustrated by the concern by Cadent when it later received a number of small wire transfers from J&B Financial and when Mr Koutsoukos sent correspondence suggesting the funds were not from a single source.] Q4.Who are the auditors for the trust? A4.Different funds use different accountants, the majority of the funds use [certain named firms] [I note that there is no evidence that any audit as such was carried out in respect of the funds - simply a suggestion that accounting services of some kind may have been provided] Q5.Procedure of paying client returns? Who is the administrator, is there an outside administrator appointed for this task? If not why not? By using an arms length administrator this would demonstrate security and provide an inbuilt form of accountability? A5.Each fund has their own administrator who reports all transactions to outside trustee (trustee being Trans Management Ltd.) [It seems that only one or two scheme administrators ever reported to Trans Management and there is nothing to suggest that it ever performed an oversight role. Moreover, to the extent that Trans Management was associated with the Hobbs office (and the investment funds were promoted through the Hobbs office - at the very least in the sense that Mrs Watson and Mrs Burnard provided the investment information out of that office - then the description of an "outside" trustee seems disingenuous] Q6.If the administrator is not an outside administrator have you ever considered co-administrator appointments? A6.Each administrator is specific to each fund [It is difficult to know what to make of this answer. If it suggests that the fund-specific administrators were independent of the "introducers" then, on the evidence before me, nothing could be further from the truth] ... Q8.If there is single administrator to the trust used for safe keeping of investor funds, is that person the only signature to the money? How can you show investors their money is safe in this case? For a system/mechanism to be accepted, the trusting of a party(s) cannot be part of it. The system has to be designed so that one person does not have to put his trust in another?. A8.No the trustees have the ultimate control and the system double checks it all the way. [There is no evidence of any "double-checking" or control by Trans Management. For two funds there was a system later set up in which Diligence Discovery purported to verify certain matters but the extent of any audit control in the sense that this question seems to test was extremely limited] Q9.Where are these trust(s) which are used to hold investor funds set up (country)? A9.In a British Colony country usually Anguilla ... Q11.How long has Future Trading Corporation and associated companies been operating? A11.Future Trading Corporation Ltd has been operating for 8 (eight) years, prior to this we [my emphasis] did not retail education material, so investment funds have been operating approximately 12 years [There are a number of points to note about this response, apart from the fact that the use of the pronoun "we" suggests that the writer is identifying himself at the very least with FTC. The juxtaposition of the sale of educational material and the earlier operation of investment funds, through the use of the word "so", suggests that there is some connection between the two - perhaps that time gap being the period that Mr Hobbs in his seminar to FTC and other executives in about October 2003 suggested was the time that research was taken before a fund was recommended. Further, FTC was only incorporated in Vanuatu in 1999 - therefore at the time of this response had been in existence only 5 years, yet the suggestion here seems to be that it had been operating for a longer period. There is no reference to any associated company.] Q12What value of funds do you hold under management? A12This is ifficult [sic] to answer as we [my emphasis] have one-off clients with amounts of 100-300 million which is treated separately. [Mr Hobbs was unable satisfactorily to explain how such an answer could be correct. In any event, the suggestion that FTC, in some capacity linked with FZF Anguilla on whose letterhead the response was written, had clients with significant funds "under management" belies the role of FTC as solely an education provider.] Q13How many Australian investors do you act for? How many investors in total do you act for? A13The funds do not deal with Australian investors, they deal with international corporations, some of which are owned by Australians. I am unsure of how many Australians would own international companies that utilize the funds. [This is a somewhat surprising answer given the apparent requirement that any Australians who wished to invest (other than through self-managed superannuation schemes when that system was later set up) were required to do so through IBCs and since there were records readily available from which Mr Hobbs could have answered this question] 617This exchange is significant in my view in that it shows the involvement of Mr Hobbs in the overall process of the offer of investment opportunities for FTC subscribers - and the referral to Mr Hobbs of questions of this kind indicates that FTC executives such as Mr Gahan and Mr Collard looked to Mr Hobbs for answers as to the mechanics of the investment process. It is also relevant to note that there is a reference to the clearing house activity at a time when the first Cadent accounts opened directly by corporate or scheme administrators had not yet been opened. New World Holdings had only relatively recently been set up as at September 2004 when Ms Reisinger says she first met Ty Andros (from TraderView/TraderVest). Therefore, the reference to clearing houses must be a reference to investment through brokers other than New World Holdings (and is consistent with Ms Reisinger's understanding that Mr Hobbs had already been doing business (with Refco) before she met him). 618Cross-examined as to what he understood to be the position of the outside trustee, there was the following evidence by Mr Hobbs: A.What did you understand an outside trustee was Mr Hobbs? A. Well I believed it was Mr Becker, Chen and Parker and two or three others that were- ... A.My question was what you understand an outside trustee to be, not who was the outside trustee? A. I believe it would be somebody, a trustee, who could verify what the information was. Q. And the use of the adjective 'outside', did that mean anything to you as at July 2004? A. I am sorry I don't, it doesn't mean anything, I am sorry. Q. Surely Mr Hobbs an outside trustee, as you understood it in July 2004, was somebody independent of the fund managers or people that were otherwise involved in the investment of the clients' money? A. Well people that controlled and owned those investments were the people that owned the companies and the administrators. Q. But you appreciated that an outside trustee would be somebody, as you understood it, who would be at arm's length from the people that controlled the clients' funds and invested it on their behalf surely? A. Well they would have been because they didn't own; the people that owned the funds and controlled them were the people that owned and controlled the companies, which wasn't Becker, Chen and others. Q. So do you say the people that owned and controlled the companies made all the investment decisions with respect to their clients' funds? A. Yes, with Ms Reisinger. 619There is simply no evidence that Mr Becker, Mr Chen or Mr Parker adopted any monitoring role in relation to the investment schemes. Mr Hobbs was, however, quite sanguine as to this (even though he had been at pains to stress on the DVD Seminar, and in his response to Mr Gahan, the overly zealous nature of the checking of transactions): A.Do you suggest that an investor or potential investor asking you, were there any checks and balances, would not be concerned to hear that the outside trustee was an IBC in Vanuatu where you didn't even know who the directors of it were? A. It's as it was. * Setting up of J&B Financial 620Mr Wood and Mr Truong gave evidence that in about June 2004 they told Mr Hobbs that they were thinking of leaving Mr Diaz' office. (At this time, each of Mr Wood and Mr Truong was an FTC executive in his own right.) (It is not clear whether by this stage the falling out between Mr Hobbs, on the one hand and Mr Diaz on the other, had occurred. In any event, it is interesting that Mr Wood and Mr Truong sought Mr Hobbs' views, and perhaps his approval at least insofar as that might affect their position as FTC executives, for the move.) 621In or about August 2004, Mr Koutsoukos was introduced to Mr Hobbs. (Ms Dabelic seems also to have been involved in the Diaz business at that stage.) 622On 1 September 2004, J&B Financial was incorporated in NSW. Mr Wood was the sole director. (Mr Wood says that he, Mr Truong and Mr Koutsoukos were equal partners in the J&B Financial business which operated from September 2004 to December 2007.) J&B Financial set up office in leased premises in Burwood. It opened a bank account with NAB in Australia on 16 September 2004 and a Technocash account on 24 September 2004. 623Each of Mr Wood, Mr Truong and Mr Koutsoukos entered into FTC executive agreements (in the case of Messrs Wood and Truong those being new agreements) in the period from around August to October 2004. So, for example, in September 2004, Mr Koutsoukos signed an FTC executive agreement and received a letter from Mr Hobbs on FTC letterhead welcoming him as an FTC executive. 624Meanwhile, in around August/September 2004, the Best Fund was set up following a meeting Mr Zhang had with Ms Li. * Opening of Geneva Financial Cadent account 625The first account opened with Cadent for any of the schemes involved in this case was the account opened by Geneva Financial for the Prestige scheme (administered by Geneva Financial) as at 10 December 2004 (though I note that the copy of the document in evidence bears two date references in the fax header - 10 December 2004 and 3 February 2005). 626There was in evidence an incomplete copy of an application form for the opening of the Cadent account by Geneva Financial. Ms Reisinger's evidence is that this was an account that was opened originally by TraderView/TraderVest and that when she was later provided with the documentation she received only the incomplete copy. (The opening of the account through someone other than Ms Reisinger is supported by the fact that the New World Holdings' business records disclose a sharing of commission between New World Holdings and Mr Andros in relation to some of the earlier Cadent accounts.) 627The Geneva Financial application was signed on pp 12, 13 and 14. Page 20 of the document contains a corporate resolution and indemnification statement which states: I, David John Hobbs, do hereby certify that I am the duly elected and acting secretary of Geneva Financial Limited. 628Relevantly, the section requiring details of the experience of the applicant are completed to suggest that the applicant had 20 years experience in each of the various market areas (an answer that could only be truthful if the applicant were there referring to Mr Hobbs' expertise - as the J&B Financial officers said he had told them to do in relation to their applications). Significantly, also, in light of Mr Hobbs' denial that he had previously done business with Refco, the question as to firms with whom the applicant had traded is answered Refco and Merrill Lynch (a similar answer being given in the personal guarantee provided to Cadent in the body of the document). This belies Mr Hobbs' denials of involvement in the Cadent account for Geneva Financial (or at least in its opening) as does later correspondence with Ms Reisinger in relation to decisions in respect of the account or querying commissions in relation to the account. 629As noted earlier, Ms Reisinger's evidence was that Trader View/Trader Vest was associated with a Mr Ty Andros. It appears to have been both an introducing broker and a CTA (and hence was able to operate both as a broker and as a trader). At p 165.20 of her SEC examination, Ms Reisinger identified Mr Hobbs as the foreign introducing broker for each of the Cadent accounts. (Mr Hobbs challenges this, among other things, on the basis that Ms Reisinger accepted that this was a "made-up" title. I consider this assertion in due course. Suffice it to note that this submission is not based on a fair reading of Ms Reisinger's examination in my view.) * Financial advice to Mrs Brock 630In evidence was a copy of a letter dated 13 September 2004 from Mr Hobbs to Mrs Brock sent by facsimile to a fax number in Australia (to a city where Mr Hobbs knew Mrs Brock lived), to which ASIC points as illustrating the giving by Mr Hobbs of financial advice. Mr Hobbs, remarkably, resisted the notion that the letter contained investment advice: A.You are giving her advice as to which is the investment product most commonly used for arbitraging a mortgage, aren't you? A. That's a pretty open statement. Q. Well, that's a statement that you are making, isn't it, Mr Hobbs? A. I do not believe that that is investment advice. Q. And you're giving specific advice as to how such a fund might have its capital protected, aren't you? A. Yes; because we're talking about Treasury bills. (my emphasis) Q. There are many funds out there that don't have their capital protected by Treasury bills, aren't there? A. Yes. 631Mr Hobbs did not accept that use of the Treasury bill by way of capital protection was something that he himself had developed in consultation with others to provide capital protection for investment funds. He also denied that part of the process, or the explanation provided to executives and potential subscribers in Australia, was that the funds could be protected through the purchase of a Treasury bill (saying that "You are taking things totally out of context there, I'm sorry"). The answer to the above, however, seems to indicate that Mr Hobbs equated the acquisition of Treasury bills as equivalent to capital protection, no matter how they were used. * PJCB - Integrity Plus 632Each of Mr Koutsoukos (at [73]-[74]) and Mr Truong (at [120]) deposes that, in about mid to late 2004, Mr Hobbs offered an investment fund for them to operate (Mr Koutsoukos' recollection is that he offered them more than one such fund). Mr Truong recalls that Mr Hobbs said that he would set the fund up for them. Mr Wood recalls that in about September 2004, he, Mr Koutsoukos, Mr Truong, Ms Dabelic and Mr Wood had a telephone conversation with Mr Hobbs during which Mr Hobbs assured them that a fund was being set up for them. 633Each of Mr Truong and Mr Wood travelled (with Ms Dabelic) in about September 2004 to meet with Mr Hobbs (and gave evidence as to what Mr Hobbs had said to them in relation to the fund that was being set up for them. (Mr Koutsoukos gave evidence that he had to cancel his trip at the last moment (but also as to what was later conveyed to him in relation to the meeting).) (Mr Hobbs disputes the account of this meeting - and puts it later in about 2006, though by then Ms Dabelic was no longer involved with J&B Financial or FTC so a meeting attended by her cannot have happened that late in the course of events.) 634Mr Wood's evidence was that he understood that the fund would be protected by Treasury STRIPS and the funds would initially be invested through Mr Caffray, who would be the conduit to the broker (Wood at [241]). Relevantly, the three understood (they say from what was conveyed to them by Mr Hobbs) that the fund would be "their own" but that investors would need to join FTC and that the fund would be offered by KLM and OEM operated through the OEM process. Mr Wood deposed to Mr Hobbs having said that the fund would be like "the other funds" (at [241]). Mr Wood also deposed to being told by Mr Hobbs that he would design the necessary memorandum and would provide guidance as to the running of the fund (and that it would cost around $1 million to set up the fund, which costs Mr Hobbs would bear, to be repaid from future commissions) (Wood at [241], [243]). 635Mr Wood says that Mr Hobbs spoke to them on that occasion about an investment fund that would be a Merrill Lynch fund ([305]); Mr Koutsoukos' recollection of the discussion as it was later conveyed to him was that it was to be a fund investing in wheat, soy and bank commodities at the Chicago Board of Trade ([74]). The three say they began promoting the Integrity Plus fund to investors from mid to late 2004. (The reference to two funds may well include reference to an Integrity Fund to invest through Global Forex, given that an account with that entity was set up on 16 November 2004 but funds were never invested in it.) In any event following the 2004 meeting the three understood that there would be an Integrity Plus Fund set up for them. 636A payment of $150,000 was made to Magny-Cours in November 2004. Mr Koutsoukos' evidence was that he understood this to be the amount payable for the acquisition of the Integrity and Integrity Plus funds ($200,000) less the sum of $50,000 that Mr Hobbs allowed the J&B Financial officers to retain to keep the office going [315]-[320]). (Mr Koutsoukos deposed that he had paid $200,000 to J&B Financial by way o his personal contribution to the purchase of the funds.) 637Mr Hobbs, after the conclusion of the hearing, forwarded to my chambers an email in which he asserted that the moneys paid to Magny-Cours out of the J&B Technocash account (referred to in Mr Koutsoukos' affidavit at [315]-[320] and [836]-[840], the latter being a payment of $200,000 paid to Magny-Cours in November 2006 in respect of an invoice by KLM for intellectual property in a white label fund, to which I refer in due course) were initially paid by Mr Koutsoukos by a cheque from his own funds but not accepted by Magny-Cours in that form so that there was a transfer from the J&B Technocash account. There is no evidence to support this assertion. In any event, there seems to be no dispute that a sum of $150,000 was paid to Magny-Cours in November 2004 from J&B Financial's account. The only explanation proffered for this is that given by the J&B Financial officers that it was referable to the acquisition of the initial fund they operated. 638The evidence of Messrs Koutsoukos, Truong and Wood as to their roles within PJCB (which they say were as assigned to them by Mr Hobbs) was broadly that: Mr Koutsoukos was the business development manager; Mr Wood was the director of J&B Financial responsible for overseeing finances, incorporating IBCs and preparing letters to OEM/KLM; and Mr Truong was involved in the administration of the fund (in setting up bank accounts for the IBCs). Mr Truong and Ms Dabelic also carried out some mortgage broking work for J&B Financial clients. 639The Integrity Plus Unit Trust fund was administered by PJCB (Integrity Plus Fund Private Placement Memorandum Prospectus, EX P tab 41), PJCB having been incorporated in Anguilla in 2004. Mr Wood's evidence is that Mr Hobbs directed he, Mr Truong, Mr Koutsoukos and Ms Dabelic to set up that company (naming the four of them as beneficial owners) and suggested Anguilla as a good place to set up IBCs as it had "very good privacy" (Wood at [251] -[256]). 640Mr Wood gave evidence as to Mr Hobbs' involvement in the process of setting up the IBC (including reference to the managing director of First Anguilla Trust Company, Mr John Dyrud, and assistance given in relation to the provision of answers to questions as to the details of the proposed IBC (Wood at [128], [129], [131]-[135]). Mr Koutsoukos gave evidence that he and Mr Truong were also involved in the setting up of the company [218]-[219]).Both Mr Koutsoukos and Mr Truong gave evidence as to how the name of the company was chosen (Koutsoukos at [223]; Truong at [135]). The company was set up on the basis that each of Mr Koutsoukos, Mr Wood, Mr Truong and Ms Dabelic beneficially owned 25% of the company (Koutsoukos at [221]; Wood at [251]-[256]). (I note that in the private placement memorandum subsequently issued in relation to Integrity Plus, the reader is directed that any enquiries about the investment are to be made to PJCB International Limited with a head office address nominated at a building in Lugano, Switzerland. There is no evidence to suggest any association by any of the persons involved with PJCB (Mr Koutsoukos, Mr Truong, Mr Wood or Mr Hobbs) with that address in Switzerland, though it appears to be an address noted on some of the Magny-Cours documentation.) 641Each of Mr Koutsoukos, Mr Wood and Mr Truong gave evidence as to their management of the day to day business of PJCB (Koutsoukos at [222], [704]-[705]; Wood at [217]-[222]; Truong at [155]). Each signed memoranda, agreements and other documents on behalf of PJCB. (By way of example of those matters, ASIC points to the evidence of Mr Koutsoukos at [376]; Ex P tabs 50-59; Ex P tab 44,45; Ex AU 8569; and Ex AG tab 32; Ex P tabs 26, 62,18,182 and 258). 642In October 2004, it is said that Mr Hobbs visited the J&B Financial Burwood office and gave Messrs Koutsoukos, Truong and Wood a memorandum in the name of Integrity Plus to them to use for the purposes of the Integrity Plus fund. On 14 October 2004, PJCB opened an account for Integrity Plus with Technocash. (On 16 November 2004, PJCB opened and began operating a derivatives trading account with Global Forex.) 643Mr Wood says that in November 2004 he gave to Mr Koutsoukos a cheque (made out to Magny-Cours) for $150,000 to give to Mr Hobbs. This payment was understood by Mr Wood and Mr Koutsoukos to be the payment for the investment fund Mr Hobbs had established for them (less an amount of $50,000 that they explained to Mr Hobbs was needed to cover rent). 644In November 2004, Mr Truong was appointed by Mr Hobbs to the role of Sub-Area Manager, FTC. * Master Fund 645In around October 2004, arrangements for the establishment of the Master Fund took place. (In late 2004, when Mr Zhang said he wished to get his money back from Elite Premier, he says that he was told by Ms Li that it would be better to transfer the money to Master Fund ([186]). There is evidence as to the promotion of the Master Fund by Mr Collard and Ms Li (including Dong at [28], [69]-[70], [80], [98], Bernard Moore at [39], Hogno [74], Huang [155], Xu [17],[20],[23], [47],[78], Zhang [147], [186], [205], [223], [226]. Ms Dong gives evidence also as to Mr Hobbs' awareness of the arrangements for the operation of the Master Fund ([85]). Events in 2005 * Ms Dabelic 646According to Messrs Truong, Koutsoukos and Wood, in around January/February 2005 they decided to dismiss Ms Dabelic. They say that they spoke with Mr Hobbs about that decision and that he told them to make a payment of $50,000 to Ms Dabelic (which they did). ASIC relies on this as showing the deferral by those three to Mr Hobbs in the making of decisions in relation to the operations of PJCB. (Mr Hobbs does not accept this.) The timing of this event is, however, significant in assessing the reliability of Mr Hobbs' recollection of events - since in his affidavit he suggests that a meeting took place with Ms Dabelic in 2006. * Investment by PJCB in Prestige 647Money invested in the Integrity Plus fund was disbursed (by way of investment or otherwise) in a variety of ways. However, for present purposes I note that on 17 February 2005, Geneva Financial opened a USD account for its then new Prestige Unit Trust with WestpacTrust in New Zealand and on 23 February 2005, funds from PJCB (representing, according to ASIC, Integrity Plus investment funds) were transferred to Geneva Financial for investment in the Prestige Unit Trust. Mr Koutsoukos says that when he, Mr Truong and Mr Wood complained to Mr Hobbs in January 2005 that they were running short of funds [388] he encouraged them to seek clients to invest in Prestige, through Integrity Plus. (This is of relevance, amongst other things, because Mr Hobbs has deposed that he did not refer any FTC subscribers or executives to Geneva Financial and that he never marketed Geneva Financial to FTC subscribers or executives [17] a proposition belied by Mr Hobbs signing as broker on at least two Smart Money contracts, those of Conroy and Clifford, in 2003.) 648Mr Hobbs deposes to an understanding that the investment made by PJCB in Geneva Financial came from the sale of some property held by Mr Koutsoukos ([56]) and in submissions noted that the moneys came from a personal bank account of Mr Wood. Insofar as he deposes to the former, the conversation in which he says Mr Koutsoukos referred to such moneys (and in which Mr Hobbs says he referred to an investment fund his wife was setting up) is placed by Mr Hobbs as occurring in about July 2006 when Ms Dabelic, Mr Trong, Mr Koutsoukos and Mr Wood visited him in New Zealand "to discuss Future Trading's business". That cannot have been the case as the investment in question was in February 2005 (even apart from Ms Dabelic's departure before 2006). (Mr Halley submits that this is no more than an attempt to shift the jurisdictional location of the offer made in relation to investment to New Zealand.) Whatever the source of the funds, the documentation clearly records the investment as one made by PJCB out of funds held for the Integrity Plus scheme. * NCCN LLC - account with Cadent 649In about May 2005, NCCN LLC opened an account with Cadent. Ms Reisinger, in her SEC examination said that Mr Hobbs had introduced the NCCN accounts through Mr Lynn Caswell and that Mr Hobbs had introduced Mr Don Caffray. Ms Reisinger confirmed that she (and Mr Matthews) had signed the Cadent account application on behalf of NCCN and that she was the operator of that account (along with Mr Matthews). (Ms Reisinger said that Mr Hobbs was the foreign introducing broker with respect to the NCCN account.) (Mr Hobbs takes issue with this evidence, as I discuss when considering the weight to attach to Ms Reisinger's transcript generally.) 650A copy of a Cadent account application form for the NCCN account, signed by Ms Reisinger (both as managing partner and elsewhere in the document as secretary of NCCN LLC) and by Mr Alan Matthews (as member) was in evidence. The document was signed by Ms Reisinger on 2 May 2005 and Mr Matthews on 30 April 2005. Ms Reisinger signed the corporate resolution and indemnification portion of the account application as the duly elected of secretary NCCN LLC and was identified in the document as a member of NCCN LLC. There was a guarantee provided by Mr Matthews. * May 2005 Preserved Investments account 651In about May 2005, Mr Clements opened the account with Cadent for Preserved Investments. Ms Reisinger said that all the Cadent accounts were opened as proprietary accounts (Ex AO p183) except the Preserved Investments account, which was opened as a pooled fund. (The opening of the other Cadent accounts as proprietary accounts seems to be the basis for the regulatory charges brought in the United States.) 652On 3 May 2005, Mr Paul Fry of Cadent sent an email to Mr Clements (copied to Ms Reisinger's email address) attaching account documents to open a non US corporate account. On receipt of that email, Mr Clements forwarded it on to the "nasl" email address for Mr Hobbs. (Ex AU 3917), something unnecessary if Mr Hobbs had not been involved in the decision to open the account. 653In relation to the opening of that account, a series of questions were raised by Cadent's General Counsel (Ms Fitzpatrick) to Mr Fry. It seems that Mr Fry prepared some answers to the first two questions (noting that the customer would sign CTA Advisory agreements and a power of attorney for each trader). The questions to be referred to Mr Clements related to the registration. Mr Fry then forwarded the email to Ms Reisinger for other answers to be provided by Mr Clements (namely to provide the document which states that Grant Clements is the "director of Preserved Investments Group and authority to open" and (question 3) that Mr Clements "In the CPO exemption for foreign entities, namely that he had stated no other Investors or Shareholders and funds not solicited for deposit into this account". Reference was made to a letter from Rout Milner Fitchett, Barristers in which it stated that "Preserved Investments was acting as an entity pooling third parties' moneys for investment purposes". 654By email from the nasl email address to Mr Fry at Cadent (copied to Ms Reisinger, by Mr Clements), said: I am faxing you the Exemption for foreign entities again and it does state that there is a third party involved and we do pool funds of other investors. Preserved Investments Group is opening this account and Cadent will only know Preserved Investment Group Ltd as the only investor. (hardly an answer likely to satisfy a query as to whether pooled funds were being used - nevertheless the account was opened, albeit as a pooled not proprietary fund). 655Ms Reisinger gives evidence (EX AO p192) that the Preserved Investments account which was opened in about May 2005 was the first account opened by Ms Reisinger for Mr Hobbs with Cadent. * Chicago meeting July 2005 656In Ms Reisinger's CFTC examination she gives evidence of a visit by Mr Hobbs to Chicago in about July 2005 (Ex AO p179) and a meeting with the Cadent, New World and Trader View/Trader Vest executives, attended by Mr Hobbs at which there was discussion about the opening of accounts with Cadent and of FTC. Of the Geneva Financial account, Ms Reisinger said: It was opened in February of '05, I believe, and I was not made aware of it until July of '05. I didn't even know it existed. 657Ms Reisinger says that at that meeting Mr Hobbs explained FTC and how it worked. Ms Reisinger's account of what was said (T 180ff) is consistent with the description Mr Hobbs gave at the DVD Seminar and with the accounts of the OEM/KLM process by others (though not by reference to the company names). Relevantly, the understanding Ms Reisinger gained of the process was one that limited the sale of the financial education with the opportunity to purchase units in an investment trust through an IBC. * Establishment of Good Value Fund 658The establishment of the Good Value Fund occurred from around July 2005, following a meeting at which Mr Hobbs made reference to a new overseas investment opportunity for which the vehicle was North Wave (B Moore at [52]-[53]. Mr Moore says that he received the documentation from Mr Collard. It was in the same form in essence as for other schemes. * Appointment of Mr Koutsoukos as National Sales Manager FTC 659By July 2005 it seems that there had been a falling out between Mr Hobbs and Mr Diaz (Mr Hobbs in his submissions explains the reason for this but there is no evidence of the dispute between the two, nor any basis for concluding that it reflected adversely on Mr Diaz' credit in the witness box), though Mr Diaz was still copied in on correspondence as at September 2005. In any event, Mr Koutsoukos was appointed the National Sales Manager of FTC at that time in place of Mr Diaz and on 12 July 2005, he signed a document setting out the Terms and Conditions of his employment. * Payment for sale of white label funds 660Mr Hobbs accepted in the witness box that he (and his brother) had treated the Magny-Cours account as their personal account. Sovereign Trust International, however, appears to have been concerned to ensure that there was proper authorisation for deposits into and disbursements out of that account. 661By email on 7 October 2005 (signed in the name of Mr Hobbs), referring to correspondence from Ms Li, Mr Hobbs had stated that MagnyCours did not conduct any business. Ms Li responded as follows on 25 October 2005: Dear David, further to your email below, our compliance officer is questioning your comment with regards to the company not conducting any business. If this is the case, then please can you advise the source of funds arriving in the account. Also I note Robert has requested a payment to be made for his boat canopy. In the absence of any formal agreement between the company and Robert, there is no commercial reason for the company to pay Robert's bills or expenses. We suggest a consultancy agreement be put in place between the company and Robert. I look forward to hearing from you soon. 662Mr Hobbs responded to that email on 26 October 2005, with regard to the payment for the boat canopy, requesting that a consultancy agreement be prepared between the company and Robert. Not surprisingly perhaps, this caused some difficulty for Ms Li, who wrote on 1 November 2005: In order for us to prepare such a consultancy agreement, we would need to know what exactly is the business of the company and what is Robert and your role is in the company. Without a full description we are unable to prepare same. You did mention that the company was not doing any business but if this is the case then where is all the money coming from? 663It seems that it was this that led to the letter dated 3 November 2005 from or on behalf of Mr Hobbs to Ms Penny Li (or Lee) of Sovereign Trust International in Hong Kong (Ex AU 5133), in which Mr Hobbs stated: In relation to money received by Magny-Cours Ltd, it is from sale of intellectual property personally. I am currently selling off my worldwide contacts for the setting up of white-labelled funds, ie investment funds spread over a blend of registered traders and the opening of an account with a licenced [sic] clearing house. Also this intellectual property comprises of the clients being able to obtain a new stripped US Treasury Bill to capital protect their money. The client then has their own accounts with the traders clearing house and treasury purchase of which is on-screen directly to the clients [a concept about which Mr Hobbs had spoken at the DVD Seminar]. While the sale is not made in Magny-Cours Ltd name I have had the payment transferred to Magny-Cours Ltd account. For the consultancy agreements for Robert and myself, together we operate a financial education company, an international company conducting project financing and institutional investment for sophisticated clients. Again there is no relationship between any of these companies and Magny-Cours Ltd. For a consultancy agreement we would like to be able to have Magny-Cours Ltd receive personal income and pay accounts etc .... (my emphasis) 664Questioned as to this in cross-examination, Mr Hobbs said that the moneys had been paid into the Magny-Cours account at the request of Mr Chen (and that he knew that they had been disbursed for investment but was unable to recall anything about the investment). (Mr Halley points out that there was no suggestion in the letter to Ms Li that the payment related to a sale by anyone other than Mr Hobbs of his intellectual property in relation to white-label funds.) The explanation by Mr Hobbs is not consistent with the evidence given by Mr Koutsoukos, Mr Woods and Mr Truong regarding moneys that they understood were due by them for the sale of funds. 665Furthermore, the suggestion that it was Mr Chen, not Mr Hobbs, who was selling rights in relation to a white label fund is inconsistent with the fact that Mr Hobbs, writing on FZF Anguilla letterhead, on 26 May 2005 had written to a Mr Raymond Pakalns of Technocash suggesting to him that he would be in a position to set up a white label fund for him to "own and control". In the letter Mr Hobbs said that "this would enable you to develop your own funding pool using institutional profits and offset existing interest components as well". (In the witness box, Mr Hobbs was unable to recall this but the letter bears his signature and a Tasman Business Consultants fax header imprint of that date.) * Authorisations re round turn commissions 666On 23 November 2005, Mr Clements sent an authorisation (Ex AU 5209) to Cadent Financial, in his stated capacity as "Fund Administrator", in the following terms: I (Preserved Investment Group) hereby authorise Cadent Financial to debit my account one dollar per complete transaction as a transaction fee to be paid to David John Hobbs, as the introducer of my account (my emphasis). The authorisation stated that it was to be effective 1 October 2005 "until further notice". The fax header imprint is 23 December 2005 from "FTCL" (therefore infer it was sent from Hobbs office). (Mr Clements notes this is consistent with what Ms Reisinger said as to round turn agreements.) 667At around the same time pro forma typed letters were sent (with details of the party signing the particular authorisation added in handwriting) by Mr Guo Ping Zhang on behalf of GP Global (dated 17 October 2005 and bearing a fax transmission imprint of 23 November 2005 from FTCL) (Ex AU 5036) to which common seal attached and by Mr Collard and Ms Li on behalf of Secured Bond (dated 21 November 2005 (Ex T 210) and bearing fax transmission imprints from an Australian number and then a New Zealand number on 21 and 23 November 2005 respectively). (A similar authorisation was sent from Geneva Financial on 15 March 2006 though with different type face and content, to which I refer in due course Ex AU 5745.) 668Mr Hobbs disputes the receipt of any "additional" round turn commissions (or any round turn commissions at all). * Mr Hobbs' application as foreign broker to Cadent - Global Funerals 669On 29 November 2005, on the letterhead of Tasman Business Consultants "trading as Business Solutions", a facsimile transmission was sent to Cadent Financial in which application was made by "David Hobbs Director" (those words inserted in Mr Hobbs' handwriting), whose principal occupation was said to be "Finance" (again in Mr Hobbs' handwriting), to be paid compensation for the referral to Cadent of a non US person who wished to open a trading account. (Ex AU 5223). The covering letter states "My principal business is not the solicitation of customers or clients for trading. However, I have referred to Cadent a non-US person who would like to open a trading account, and I would like to be compensated re such referral." Attached to that letter was signed a Cadent Financial Services LLC Foreign Broker Execution Agreement signed by Mr Hobbs. (Ms Reisinger forwarded this documentation by email dated 28 November 2005 to Mr Erdman of (New World Holdings), Mr Hobbs (at nasl) and Mr Paul Fry (of Cadent) the previous day with the comment "This is David's FIB [which I infer to be foreign introducing broker] paperwork".) 670The attached 29 November 2005 Foreign Broker agreement, signed by Mr Hobbs, recited that the foreign broker (FB) (defined in the preface to the agreement as Mr Hobbs, though he was defined in the agreement (Clause 1 set out the services to be provided by Cadent with respect to such accounts; Clause 2 the services not provided) as the introducing broker) desires to introduce accounts (plural) "on behalf of its customers" to Cadent "on a fully disclosed basis") and obtain services relating to transactions in commodities, contracts for the future delivery of commodities, and options thereon". Clause 3 dealt with his obligations as foreign broker. 671Clause 9 dealt with the compensation payable. During the term of the agreement, FB had the sole right to establish commissions to be paid to Customers (generally not to exceed $99.00) all commissions established by the foreign broker and paid on transactions executed and cleared for Customers, Cadent (the futures commission merchant) was to pay all commissions (less appropriate deductions) "as mutually agreed to" between Cadent and the foreign broker. Mr Hobbs provided an indemnity in that document and signed a special personal guarantee to Cadent. 672Mr Hobbs places considerable weight on the opening and operation of the Global Funerals account as providing the explanation for any moneys received by him from Cadent. As ASIC notes, however, this agreement was not in terms limited to the introduction of Global Funerals as a Cadent account, the compensation provision referring to "funds". Furthermore, the evidence does not support any conclusion that trading commenced on the Global Funerals account until May 2006. 673Mr Hobbs informed me that the account purpose was for hedging of the US dollar against exchange movement on future sales of products (it is not apparent that there is any evidence of the stated purpose of these accounts). (Mr Hobbs in his submissions gave me an explanation for the setting up of the hedging arrangement put in place for those companies - namely that the companies used their own funds that were leveraged to offset the risk of exchange movement of the sale of products rather than purchasing expensive hedging insurance - although again that was a matter of assertion not evidence that was before me.) * Zhang Cadent account 674By email dated 2 December 2005 (Ex AU 300) from Mr Zhang to Mr Hobbs, Mr Zhang forwarded a message from Ms Fitzpatrick referring to receipt of faxes from someone she assumed was "Lily's guy" but had not received Cadent account forms. (I note that Mr Zhang saw fit to send this communication also to Mr Hobbs.) * December 2005 675In Mr Hobbs' supplementary 7 August 2012 affidavit (admitted subject to relevance) (at [6]), Mr Hobbs deposes to discussions he says took place in mid 2005 and later in relation to a commercial bond raising to purchase life insurance companies in mainland China. Mr Hobbs deposes that he entered into agreements in December 2005 providing for payment of fees but they were in Chinese (and he does not have copies of them) (though they could be part of DJH10 because he cannot read Chinese). The agreement document in Mr Chit's affidavit is in English. 676On 12 December 2005 a Cadent account application was signed in the name of Global Funeral Services by Lin, Wan-Chu (President). The copy in evidence bears a fax transmission imprint of 28 December 2005. (Mr Hobbs seemed to rely on this date as suggesting that Global Funerals trading started in about late 2005 (perhaps to explain receipt of commissions before September 2006). However, the contemporaneous evidence (in the form of emails from Cadent and New World Holdings) suggests that trading only began in mid 2006 (to which I refer shortly). 677The evidence shows that a managed account authorisation document was signed for Global Funerals with a particular trader (Diamond Capital Management) on 12 December 2005. No further sub accounts were opened for Global Funerals until June 2006. 678(As to other Cadent account applications, I note that Mr Hobbs relies on the fact that the opening of the Cadent account for Barclaywest was signed by Ms Dong and Ms Li as showing that Mr Collard had incorporated the company under the instruction of Ms Li - a conclusion that does not seem to me logically to follow - and submits that he, Mr Hobbs, had no involvement in the opening of the Cadent account (referring to the affidavit of Ms Dong [147]-[151]). I consider this in due course.) Events in 2006 * Round Turn Agreement re Geneva Financial 679On 15 March 2006 (as adverted to earlier), a similar round turn authorisation (to those signed by Mr Clements, Mr Zhang, Mr Collard and Ms Li) was signed on Geneva Financial letterhead by each of Mrs Jacky Hobbs and Mrs Brenda Hobbs (designating themselves as "Beneficial Owner and Controller") for the payment of a US$1.00 "round turn" (commission) "on our Geneva Financial account for introducer David Hobbs effective 1 January 2006 or prior"). * IT websites 680From around April 2006, HelloPages Limited (a company run by Mr Parsons) commenced work developing websites for a number of the schemes including Integrity Plus, Master Fund, Elite Premier Option Two Unit Trust and the Best Fund. Mr Parsons says that he was engaged to do so by Mr Hobbs following a meeting with Mr Hobbs at the Nelson office in around April 2006. He described the process that he had followed in structuring the fund websites (after he had structured a Hobbs website which Mr Hobbs reviewed). He deposed that the company had always invoiced FTC for the work in creating the fund web sites, on the instructions of Mr Hobbs. 681Mr Parsons exhibited to his affidavit a copy of an email of 27 June 2006 to Mr Hobbs in which he had reported on his progress in creating various of the websites including the Elite Premier, Best Fund and Master Fund websites. Among others, he developed a J&B Financial website, on instructions from and with information provided by Mr Hobbs, and a website for Integrity Plus. 682(Mr Parsons explains that he subsequently signed separate web site hosting and development agreements for each of the fund websites with the administrators or with Mr Hobbs - for example, at EX AD tab 26 there is a copy of a hosting agreement for the development of the Integrity Plus website that was signed by Mr Wood on 9 February 2007 (it having been signed by Mr Parsons on behalf of HelloPages Limited on 1 November 2006).) * Cadent accounts/traders 683I refer later to the communications between Ms Reisinger and Mr Hobbs in relation to the opening and operation of the various Cadent accounts. In the context of the present timeline, however, it is relevant to note that, as at 18 April 2006 (a time at which the Global Funerals account had not commenced trading and seems not yet to have been funded), Ms Reisinger had written to Mr Hobbs (via email addresses for both Mr and Mrs Hobbs) in relation to traders for Geneva Financial: David Here are the traders you asked for for [sic] three and pick out which ones you think are best. Keep in mind that there is no leverage on the results so you will need to times it by three to get results. (Ex AU 5831) 684The suggestion that Mr Hobbs had no involvement in that process strains credulity. 685On 28 June 2006 (Ex AU 6196), Ms Reisinger sent an email to her mother (Ms Dadey) and Mr Hobbs in relation to "Pending Accounts", the text of which message read: David - attached is a spreadsheet on the accounts and what is still remaining to be done on them. 686The spreadsheet showed First Secured Bond Ltd as a new account (querying whether there was a "POA"), as well as International Management Corporation (an IBC established by Mr Hobbs). In relation to International Management Corporation, Ms Reisinger advised that she needed an official document or resolution stating that Mr Hobbs could sign off on behalf of the corporation and she queried why Mr Mitchell and Mr Hobbs were authorised to act with regard to the account. 687(ASIC's submission is that it can be inferred that the pending accounts were being arranged directly by Mr Hobbs with Ms Reisinger. It seems to me that such an inference is open to be drawn. Certainly, if (as Mr Hobbs asserts) he had nothing to do with the opening of the Cadent accounts, this communication is inexplicable.) * Establishment of 888 (Super Save) Fund 688Steps in relation to this fund commenced in about April 2006 with the incorporation of 888 Vanuatu. The private placement memorandum was provided by Mr Hobbs by email sent from the "nasl" address on 2 May 2006. A revised memorandum was issued by Mr Hobbs on 17 May 2006. (The fund was set up by November 2006 and promoted by Mr Collard, Ms Li, Ms Wu and Mr Hobbs. (888 Vanuatu also administered the Pinnacle Fund that received investments from around 2007. Also in 2007, the Enhanced Fund was set up - a Li/Collard scheme.) * Global Funerals account trading 689In relation to Global Funerals Cadent account, by email of May 2006, (Ex AU 6019) is Ms Reisinger confirmed to Mr Hobbs and Lili that trading started "that day" with Diamond (on the Global Funerals account). That trading account had been opened in December 2005 (but as at May 2006 there was no other such account). Therefore a statement that trading had started in May 2006 makes it difficult to accept the account had been funded at an earlier stage. 690By email on 10 May 2006 (Ex AU 5927) Ms Reisinger had forwarded to Mr Hobbs a copy of an email message she had sent to Mr Fry of Cadent requesting that Mr Hobbs be added to the list for distribution for the account statements. (Part of that email chain was a message from Ms Reisinger to Ms Li, referring to instructions received from Mr Hobbs in relation to that account.) 691On 11 May 2006, Mr Fry emailed Ms Reisinger and Mr Hobbs at the "nasl" email address saying "Congrats again on the account funding" (Ex AU 5934). (From this ASIC submits it should be inferred that the account had at that stage only recently been funded. I agree. That is consistent with the May 2006 Cadent statements (showing a substantial amount in the Global Funerals cash account on 9 May 2006; albeit that the date on which it was deposited to the account is not clear) and then that amount being split between two accounts for trading in accordance with Mr Hobbs' instructions.) * Meeting in New Zealand in mid 2006 692Each of Mr Koutsoukos, Mr Truong and Mr Wood says that the three travelled to New Zealand in around mid 2006 to meet Mr Hobbs and that they there had a discussion in relation to the establishment of a fund to receive investments from superannuation funds. While there is some inconsistency as to the timing of this meeting, the accounts of the three are broadly consistent as to what was discussed. It was around that time (late July 2006) that Mr Hobbs is said to have advised Mr Wood, Mr Koutsoukos and Mr Truong that it was necessary to put in place an audit entity (Diligence Discovery) for the purpose of monitoring and reporting in relation to the superannuation investments. 693In cross-examination, it was put to Mr Hobbs that it was this meeting to which he was referring when he deposed in [56] of his 3 August 2012 affidavit to a meeting that occurred in New Zealand in about July 2006. Mr Hobbs' account of the mid 2006 meeting is that Ms Paulina Dabelic was present at that meeting and that the visit was to discuss FTC's business, which he is adamant did not include investment of superannuation or any other funds. At the very least, Mr Hobbs recollection that Ms Dabelic was present at the meeting must be incorrect if he is recalling a meeting in mid 2006, since Ms Dabelic had left J&B Financial's offices by around February 2005. There is, therefore, a real possibility that what Mr Hobbs recalled as a meeting to discuss FTC's business was the meeting in 2004 (not attended by Mr Koutsoukos) in which Mr Wood and Mr Truong say that the Integrity Plus fund was discussed. 694Insofar as Mr Hobbs has deposed that the four met with him in July 2006 "to discuss Future Trading's business", he was unable to recall precisely what had been discussed (but thought it "would have been" production). From T 1206.50 there was the following exchange: Q. What future trading business do you recall that they were discussing with you, Mr Hobbs? A. It's 2006. I don't actually recall. Q. Future Trading Corporation had been operating for some time with these three gentlemen, prior to July 2006; hadn't it? A. Yes. Q. No reason those three go all the way to New Zealand to talk to you about selling your financial brochures; would they? A. Yes. Q. Can you give any explanation for what they were doing, as you say, talking in New Zealand to discuss future tradings business in July 2006? A. We'd probably been discussing what the production was. Q. You see, you don't remember any discussion about future tradings business with any of Mr Truong, Koutsoukos and Mr Wood in July 2006 at all; do you? A. No. That's not entirely correct. Q. What did you discuss with them about future trading in July 2006 in New Zealand? A. We [w]ould have discussed production. 695(Mr Hobbs' use of the expression "would have" seemed to indicate that he did not have a precise recollection of this, consistent with his initial answer that he did not "actually recall" what was discussed.) The cross-examination continued: Q. You said "we would have"; do you have any recollection of discussing it with them? A. We would have and I would have discussed production. Q. You aren't able to say what you discussed because you don't remember discussing it with them, do you, Mr Hobbs? A. That's not true. Q. You said a couple of minutes ago you don't recall any discussion about FTC in July 2006 with the three of them, didn't you? A. You drew my attention to the line, paragraph. And yes, that's what the discussions would have been about. Q. But you don't remember what it was; do you? A. We would have discussed production. Q. You're using the expression "would have", do you have any recollection of discussing future trading business with the three of them in July 2006? A. It would have been about production. 696By email on 17 May 2006 (EX AU 5956), (the metadata for which discloses that it was sent by email from the "nasl" email address from Mr Hobbs), a "Supersave revised version doc" was attached and "blind copied" to each of Mr Truong, Mr Wood, Ms Li and Mr Koutsoukos. It seems reasonable to infer that this was a revised version of an earlier Super Save private placement memorandum or investment contract template (or perhaps both). That is consistent with Mr Koutsoukos' evidence that in mid 2006 Mr Hobbs attended the offices in Burwood and provided amendments to a memorandum to be used for the Super Save fund. 697Given that: a company (Diligence Discovery) was set up in New Zealand in late April 2006, which then was used to perform monitoring services in connection with the superannuation investment fund (Super Save) and another fund (888 (Super Save) Fund); that the Super Save fund (offering opportunity for investment of superannuation funds) was set up at around that time; that Mr Hobbs' recollection of a meeting with Ms Dabelic would place the meeting to which he was referring as sometime before February 2005; and that if, as Mr Hobbs suggests, the topic of discussion at the meeting was "production", that seems more likely to have been dealt with at an earlier stage in the business of FTC rather than to have required a trip to New Zealand in mid 2006 (when the 3 persons involved in J&B Financial had been FTC executives and the Integrity Plus fund had already been up and running for some time), it seems to me likely that there was a meeting with Messrs Koutsoukos, Wood and Truong in mid 2006 in which the proposal for a new superannuation investment fund was discussed. In other words, the account given by Messrs Koutsoukos, Wood and Truong of this meeting fits more readily with the chronology of events discernible from the contemporaneous documents than does Mr Hobbs' account of the meeting. 698Certainly, from around August - November 2006, Diligence Discovery seems to have undertaken responsibility for the provision of monitoring and reporting services for the benefit of Super Save investors (from 1 August 2006) and 888 (Super Save) Fund investors (from November 2006). (In evidence was a copy of an agreement dated 1 August 2006 between Diligence Discovery and 888 Vanuatu in that regard Ex AG tab 48.) * Super Save 699The role of corporate administrator for Super Save was one that passed through various corporate hands. Initially, it seems that the administrator was 888 Turks & Caicos (an entity which was incorporated as an IBC in the Turks and Caicos Islands). (ASIC contends that from July to November 2006, 888 Turks & Caicos acted as Super Save trustee and 888 Management Australia acted as the agent of 888 Turks & Caicos. On 26 June 2006, 888 Management Australia was incorporated in New South Wales.) 700Mr Truong deposes (at [319]) that in August 2006, on a visit by Mr Hobbs to the Burwood office, Mr Hobbs directed that the name 888 Turks & Caicos be changed as it was too close to "a company I've already got". (While that is consistent with the existence by this time of other 888 Management Inc companies, this might perhaps be thought not likely to have troubled Mr Hobbs, since there were other companies with the same or similar names by that time or thereafter). In any event, I accept that Mr Truong understood from Mr Hobbs that there was a need to change the company name from 888 Turks & Caicos. 701ISPL was incorporated in New South Wales on 28 September 2006 (with Mr Truong as the sole director and shareholder). From October to December 2006 ISPL seems to have acted as the trustee or administrator of the Super Save Fund. So for example, on 3 October 2006, a Cadent Agreement for ISPL was signed by the J&B Financial officers and on 4 October 2006, ISPL opened two separate bank accounts for Super Save with ANZ in Australia. 702From around mid 2006 the promotion of Super Save to investors commenced. Mr Koutsoukos and Mr Wood both say that there was a training seminar conducted by Mr Hobbs in relation to Super Save with about 15 FTC executives. * Update to Mr Hobbs on NCCN account with Cadent 703By email on 26 June 2006 (Ex AU 6177) Ms Reisinger wrote to Mrs Hobbs and Mr Hobbs, stating "I wanted to update you as to progress on several fronts". This event referred to Lili's accounts (noting that "We were able to return profit to Global Funeral Services this month", the rest of the traders were on trading and she had another trader she would like to put in the blend) and to Geneva (saying that she would start Diamond trading again and "I will check on your round turn commissions for that account. Jacky informed me that you had not got that on this account") and NCCN LLC profit ("We did get buy/sell done and I have sent profit to Don..."). 704ASIC contends that this constitutes a report to Mr Hobbs concerning the operation of the NCCN account and confirming that a profit that has been derived on that account and sent back to Mr Caffray. (In passing I note that in her CFTC examination Ms Reisinger referred to a visit by Mr Hobbs to Chicago in 2006 in which she says that Mr Hobbs met with officers of Cadent and talked about having introduced several accounts to Cadent and the possibility of other arrangements with Cadent (Ex AO p16).) * Global Funeral Services 705Mr Hobbs tendered in evidence a copy of a document signed by him on 9 June 2006 for First Zurich Financial Ltd (which I had assumed must have been a reference to FZF Anguilla, since FZF Vanuatu had not then been incorporated, although the document does not make that clear and I note that in Mr Hobbs' evidence in the s 10 examination in New Zealand, to which Mr Hobbs was taken in cross-examination, he said that the Global Funerals transaction was through FZF Vanuatu). 706The document relates to a proposed Commercial Bond transaction involving a Taiwanese company (Global Funeral Services Co Ltd). Mr Hobbs, in his defence, read an affidavit sworn by a Mr Chau Chung Chit on 6 August 2012 in which Mr Chit, whose occupation is not identified, explained the steps taken to obtain a copy of what he describes as "the original Contract and a copy of the original Confidentiality and Non-Circumvention Agreement documents between Global Funeral Services Co Ltd of Taiwan and First Zurich Financial Ltd, David John Hobbs and Tasman Business Consultants Ltd of New Zealand". 707The annexed contract appears not dissimilar (in its layout or format) to some of the investment contracts entered into between corporate administrators and investors in schemes the subject of the proceedings. It was signed for FZF on 9 June 2006. The agreement on its face relates to the facilitation of a commercial bond in mainland China, the facilitator being defined (collectively) as First Zurich Financial Ltd, David John Hobbs and Tasman Business Consultants Ltd and the company "wishing to effect the listing of the Commercial Bond being Global Funeral Services Co Ltd". 708The facilitator was to arrange the supply of US Treasury Notes as a backing to the commercial bond offering. The funding purpose was stated to be the acquisition of a shareholding in a life insurance company in mainland China. 709The projected funding to be raised was US$150 million. Commission was to be 1.5% of that amount (US$1.5m). The fee payer agreed to invest $US 20m "minimum" in a futures trading investment via Clearing House Cadent Financial Services LLC and (despite the success or otherwise of the listing of the commercial bond) that amount was to be used "for the payment of fees". All profit generated from the invested amount was to be payable to the facilitator and not refundable. Commission and fee payments were to be paid "to the Secured Bond/Master Fund account" for the facilitator and commission payments were to be "administered" by Ms Li of Secured Bond. 710A Confidentiality and Non-Circumvention Agreement was entered into by the same parties (and, in the case of Global Funeral Services Co "other associated Companies"). This agreement refers throughout (in one might be forgiven for thinking was unnecessary repetition) to "highly sensitive" and confidential information and "highly sensitive commercial business relationships" and a "highly sensitive commercial transaction". 711Insofar as Mr Hobbs has placed emphasis on his involvement with Global Funerals, Mr Halley made clear that ASIC does not suggest that Global Funerals was illusory or did not exist, nor that it did not have an account with Cadent, nor does it suggest that every payment made into the Business Solutions accounts from Cadent or otherwise was from the schemes that are the subject of these proceedings. However, it is submitted that to the extent that Mr Hobbs has maintained that he at no time received any commission with respect to any of the scheme corporations (and that all the commission he received was from Global Funerals with the exception of payment of rent by Mr Clements), this is inconsistent with the evidence (to which I was taken in some detail by Mr Clarke). I accept that submission for the reasons set out later when dealing with the issue of commission. * Update of accounts 712By email on 11 August 2006, addressed to "Lilli and David" (at various email addresses, including for David Hobbs at nasl and Mrs Hobbs), (the reference being to "Global Funeral and Secured Bond"), Ms Reisinger referred to discussions with Mr Hobbs not just in relation to Global Funerals but also Secured Bond (about which she referred to David being excited and asked him to fill in all the gaps for Lilli on the trader in question (Chuck Reeder)). * Renewal of registration of OEM 713Prior to August 2006, each of OEM and KLM had been struck off the register in Anguilla for non-payment of registration fees. On 2 August 2006, following an email to Mr Hobbs confirming the companies had been struck off, Mr Hobbs sent an email to Mr Mervyn Esdaille of First Anguilla Trust Company Limited, instructing Mr Esdaille that OEM and KLM should be revived and that "Beneficial owner will be Ms Li". Mr Hobbs forwarded that email to Mr Wood (consistently with the evidence of Mr Wood that he was responsible for dealing with renewals of all IBCs incorporated in Anguilla). (Ex F (tab 52) to Mr Diaz' affidavit is a list of the IBCs maintained by Mr Wood.) 714Mr Hobbs maintained in his submissions that the reason for the revival of the registration of OEM/KLM was that Ms Li had asked him whether she could use those companies. (Interestingly, given Mr Hobbs' denial of knowledge as to the OEM/KLM process or the ownership of OEM/KLM, if Mr Hobbs' account of the reason for the revival of registration of those companies is correct then not only did Ms Li seem to have some basis for thinking that Mr Hobbs was the one who would be in a position to revive the companies but also he took it upon himself to do so. Furthermore, there was no suggestion that this was something that required approval from Mr Chen or any other beneficial owner of the companies, and is inconsistent with Mr Hobbs assertion at the DVD Seminar that Mr Parker was the beneficial owner or a beneficial owner of KLM.) There is nothing other than Mr Hobbs' assertion, other than whatever inference might be drawn from the nomination of Ms Li as beneficial owner, to suggest that the reason for revival of the companies was something that had nothing to do with Mr Hobbs. * Issues concerning the operation of the Cadent accounts 715In August 2006, an issue arose within Cadent as to a number of small transfers of funds that had been made direct from 888 Turks & Caicos (the 888 Management Inc entity operated by the J&B Financial officers) to the Cadent account (the concern apparently being that this would trigger a review of its operations or would breach anti-money laundering requirements in the US). 716The General Counsel at Cadent (Ms Cheryl Fitzpatrick) sought information (as to what accounts the 6 wires were from, the owners of the accounts, whether commission was paid on the accounts and other information that was sought by Cadent in relation to due diligence on those accounts) from Ms Reisinger who (tellingly) then conveyed that query to Mr Hobbs. 717Responding to that query, on 2 August 2006, there was an email from the Tasman Business Consultants "nasl" email address to Mr Dennis Reisinger (the husband of Ms Reisinger) (Ex AU 6448). That email was copied to each of Mr Wood, Mr Truong and Mr Koutsoukos. Mr Hobbs' email of 2 August 2006 to Ms Reisinger (signed DJ Hobbs ISF) referred to an email of the same date from 888 Turks & Caicos (in which to 888 Turks & Caicos sought to prove that the money came from its Australian account and had stated that the wire transfers were sent separately "to allow for in-house accounting"). Similarly, there was a document from "DJ Hobbs ISF Consultant" on FZF Anguilla letterhead to Ms Cheryl Fitzpatrick-Smith (there described as the General Counsel at Cadent so presumably the same person as Ms Fitzpatrick) in relation to 888 Turks & Caicos, stating that the reason for the 6 wires was: ...under instructions from myself as to diligence company set up to oversee all transactions should 888 Management Inc Australia draw money from one account to their wiring account it must be reported and wired separately with the copies forwarded to the diligence company for auditing, while this process may seem overzealous it does give a very thorough check as to bank transfers and purchase of treasury notes for each transfer. (my emphasis) [I also note the similarity with the language used by Mr Hobbs in the DVD Seminar and the suggested response provided by Mr Hobbs to the enquiries made via Mr Gahan by Mr Morris Fink, in relation to the zealous nature of the checking said to be carried out in relation to the investments] 718On 11 August 2006 there was a letter (seemingly issued after Mr Hobbs had already responded to Cadent in relation to the query) on the letterhead of FZF Anguilla (signed by Mr Hobbs as consultant) to J&B Financial, restating the request for information as to the accounts and ownership of the accounts (but not the request as to the due diligence that had been carried out). (The use of FZF Anguilla letterhead is somewhat ironic since, from 21 July 2006 it seems that this company had itself been struck off the relevant company register.) * Queries as to Mr Hobbs' application for registration as a foreign broker with Cadent 719I have noted above that on 29 November 2005, Mr Hobbs had made an application for compensation as a foreign introducing broker to Cadent. (Although noted by Ms Reisinger on New World Holdings' records that he was the foreign introducing broker on all the scheme accounts with Cadent, this was the first and only occasion when Mr Hobbs formally applied for registration with Cadent as a foreign broker entitled to receive compensation for the introduction of a non US person account.) It seems that subsequently there were queries raised as to aspects of that application or at least that further information was required since on 23 August 2006, Ms Reisinger sent an email to Mr Hobbs (and to Ms Fitzpatrick, Ms Dadey and Mr Erdman) attaching a foreign broker checklist that had been forwarded to her by Ms Fitzpatrick at Cadent setting out "the information we are looking for in a letter from legal counsel for the foreign broker". Attached was the "IB profile that we require of all foreign brokers" (Ex AU 6659, 6660, 6662). 720Promptly in response to the queries that had been raised by Cadent, Mr Bellamy wrote on the letterhead of Fletcher Vautier Moore to Ms Fitzpatrick (on Mr Hobbs' behalf) on 25 August 2006, setting out his opinion as to various matters related to the foreign broker application by Mr Hobbs. 721By letter dated 1 September 2006, Ms Fitzpatrick responded to that letter (which she described as addressing "registration issues pertaining to Mr Hobbs") (Exhibit AU 6739). This letter was forwarded by Ms Reisinger to Mr Hobbs at the "nasl" email address on that date as being the "letter I was talking about for your attorney to answer to Cheryl" (Ms Reisinger thanking Mr Hobbs for his "continued business and support", thus indicating that Mr Hobbs had had some business with Ms Reisinger prior to the issue arising as to his registration as a foreign broker entitled to compensation from Cadent - of relevance in light of Mr Hobbs' submission that his only business with Cadent was in relation to the Global Funerals account, funding for which arrived in around May 2006, and the two mainland China accounts.) 722Ms Fitzpatrick's letter opened with the statement that "we are looking forward to establishing and further developing a relationship" with Mr Hobbs. (At least by the reference to "further developing" this suggests that there was an existing relationship of some kind with Mr Hobbs, though this seems inconsistent with the reference to "establishing" a relationship). In that letter Ms Fitzpatrick sought to ascertain "more about the regulations potentially applicable to David John Hobbs in relation to commodity futures accounts being introduced to Cadent by Mr Hobbs". 723Ms Fitzpatrick posed three "follow-up questions", stating her understanding that: 1.We understand that Mr Hobbs develops educational material pertaining to investing in scurities [sic] and futures, including a periodic newsletter, and that he distributes these to subscribers who pay for the materials. ... 2.We understand that Mr Hobbs assists persons in forming corporations or other entities in various jurisdictions, and understand some of the accounts which he is introducing are formed by the aggregating of funds from multiple investors (pooling) or by the purchase of interests in unit trusts. 724As to the first activity, Ms Fitzpatrick wished to know if it required registration or licensing in New Zealand as a securities investment adviser or commodity trading adviser "or in any other capacity (like personal financial planner)" and, if so, what registration or licence was required (or, if not, what the registration or licensing requirement was for investment or trading advisers in New Zealand and how Mr Hobbs' activities were excluded or exempted from the requirement. Clarification was also sought as to whether Mr Hobbs currently received any direct or indirect compensation from this activity on a transaction basis. 725As to the second activity, Ms Fitzpatrick whished to know whether Mr Hobbs' activities in assisting investors in forming entities and possibly pooling money and offering unit trust investments were subject to regulation in New Zealand and if so what that regulation was (and if not what it was about Mr Hobbs' activities that prevented them from being subject to the regulation), Ms Fitzpatrick having noted that in the United States activity of the nature described in 2 above could be construed as selling securities. 726As to the 3rd question, Ms Fitzpatrick considered that the earlier response from Mr Bellamy was confusing (in that it said there was no registration required to solicit and conduct futures business but also said that the law required appropriate authorisation for futures dealers). Ms Fitzpatrick asked: 3....whether, if Mr Hobbs solicited or referred customers from New Zealand to trade futures on US markets, and is paid for such solicitation or referral (and how such compensation is being paid), he is required to have any license, registration or authorisation in New Zealand. If so, please let us know what that requirement is, and id not, please explain how Mr Hobbs is excluded or exempted from whatever requirement exists. 727By letter dated 14 September 2006 (Ex AU 6810), Mr Bellamy responded to that further query. In summary, as to the first question, he stated (somewhat surprisingly if this is meant to suggest that no qualifications whatsoever were necessary for that role) that in New Zealand "anyone can be an investment adviser" (but went on to qualify the breadth of that statement by linking it to the fact that there was no need for any "special qualification" or for investment advisers, other than share brokers, to be licensed). Mr Bellamy noted that all investment advisers were required to comply with specified disclosure legislation. He went on to say in the second paragraph of [1.4]: As I understand it the educational material produced by Mr Hobbs is generic in nature without making specific recommendations in respect of any particular investment or organisation in which to invest. Similarly the newsletter does not make specific recommendations, but even if it did, the fact that this advice is being passed on in writing does not require the investment adviser to be licensed. This does not change even should the subscribers to the educational material and newsletter pay a subscription fee. 728As to the second query in relation to the aggregation of funds, Mr Bellamy said: 2.1 The basis process that has been discussed with me is that Mr Hobbs has around Australia, the United States and England various investment advisers. These advisers qualify investors and refer them to Fund Managers. The investor enters into a contract with the fund and the fund invests money in the futures market through Cadent. (my emphasis) (Pausing there, the people whose role it seems was to "qualify" investors and refer them to fund managers were Mrs Watson and Mrs Burnard, who would hardly be aptly described as "investment advisors" around Australia, the United States and England and who seem to have disclaimed any such role in the witness box.) 729Mr Bellamy's opinion was therefore based on what he was told in the discussions referred to in the above paragraph. (Furthermore, in the context of the Cadent accounts, the letter proceeds on the basis that investment has already occurred, not simply being a prospective or potential activity.) 730Mr Bellamy concluded [at 2.2] that: Therefore Mr Hobbs and the people and corporations to which he is affiliated would all be operating outside of New Zealand and no funds will be solicited within New Zealand. Assuming these circumstances to be true, I do not think the laws of New Zealand would apply to Mr Hobbs in respect of these matters, as all the transactions occur outside the jurisdiction. 731Neither of the assumptions on which Mr Bellamy's advice was predicated seems to be sustainable on the facts of this case, insofar as Mr Hobbs (and at least those FTC executives based in New Zealand) acted in New Zealand as introducing brokers for investment in various of the investment schemes (whether that investment be truly an investment by the offshore IBC or whether in truth it was an investment by the individual associated with the IBC) and accepted funds into accounts in New Zealand for investment in various of the investment schemes. 732After giving some advice as to the extreme width of the definition of "security" in New Zealand, at [2.4] Mr Bellamy summarised his opinion as being that: ...Mr Hobbs' activities are not regulated in New Zealand because - (a)the activities are taking place outside the jurisdiction; and (b)while Mr Hobbs is associated with various entities and companies, his involvement with the whole process is too far removed for the regulatory duties or requirements that attach to the investment activities to apply to him. 733At section 3 of his advice, Mr Bellamy clarified the confusion that had arisen from his earlier letter and expressed his understanding that Mr Hobbs would only have to be an authorised futures dealer if he were actively involved on behalf of the investor in the conduct of futures trading as set out in [3.2(a), (b) and (c)] of his advice. He stated the opinion that: 3.6Given that Mr Hobbs only gives generic advice about the futures market, does not qualify the investor as a sophisticated investor, is not a Fund Manager and may never meet or ever speak to the investor, it is my view that it cannot be said that he deals in futures and accordingly he does not need to be an authorised dealer as defined by the Securities Markets Act 1988. 734Mr Bellamy again stated his view that Mr Hobbs was not soliciting funds in New Zealand in support for the conclusion that the Securities Markets Act 1988 and regulations relating to the solicitation of funds to be put on the futures market did not apply. (Reliance is placed by Mr Hobbs on this advice in the context of Mr Hobbs' submission as to the reasonableness of his opinion in relation to the legality of what he was doing.) 735An indication of the instructions on which Mr Bellamy's advice was given is provided in Mr Hobbs' email to Ms Reisinger on 12 September 2006 (Ex AU 6800), in which he said "These are the answers that I sent to the lawyer": Dear Phil 1.Financial Education, this education does not offer or sell investment nor give financial advice. The material does not name any institution or product. Financial education that does not offer or sell investment nor give financial advice does not require any regulation. Mr Hobbs does receive remuneration from the sale of subscriptions as the International Sales Manager. 2.Mr Hobbs does not assist in the forming of international companies. This activity is conducted by an independent company that has no relationship with Mr Hobbs. 3.Mr Hobbs does not solicit or receive commission to trade futures 736Ms Reisinger considered that response "perfect except for the 3rd answer" noting that "I am sending you commissions off of [sic] futures business which according to our lawyer is legal for me to send to an offshore party. What they need to know is how does NZ authority view that". (Relevantly, in the context of Mr Hobbs' submissions that the requirement for incorporation of IBCs was a requirement imposed by Ms Reisinger, this email does not suggest that the investment through Cadent's accounts be in the name of an IBC nor even that commission could be paid only to an IBC; rather it focusses on whether the recipient of the commission is offshore.) * Legend Services Ltd 737For completeness, I note that after the conclusion of the hearing Mr Hobbs forwarded material (by email on 13 September 2012) apparently in support of some of the oral closing submissions he had made as to the characterisation of some of the payments shown to have been made out of some of the investment schemes, including material in relation to the a company by the name of Legend Services Ltd. (ASIC contends that this material is not in evidence and there is no suggestion to the contrary by Mr Hobbs). As I understand it, Mr Hobbs wishes to rely on those documents to show that Legend Services Ltd (a company apparently incorporated in New Zealand on 17 October 2006, the company secretary of which was recorded as Mr Lewis Brock and Mr Hobbs) was a company in which J&B Financial Group was a shareholder. Included in the material was a shareholders' consent form for Legend Services Ltd (apparently signed by Mr Wood in the stated capacity of director and member). Mr Hobbs submits that $20,000 was wired to Fletcher Vautier Moore "for the shareholding in this company". 738The material forwarded by email after the close of the hearing is not in evidence. To the extent that this represented some form of informal (and unstated) application to reopen the hearing to admit such evidence, I reject it. ASIC did not have an opportunity to test that evidence in any way and its relevance seems to be limited to the characterisation of a payment of $20,000, which, in the scheme of things, is not material to the determination of the issues in the proceedings. * KLM invoice for acquisition of IP re clearing house account 739On 1 November 2006, Mr Koutsoukos and Mr Truong signed (for J&B Financial) a Deed Poll (apparently by way of acceptance of the invoice appearing on that document) a document on KLM letterhead (that letterhead identifying KLM as an entity in Nassau, the Bahamas - the letterhead also stating the disclaimer that KLM "is not an investment company" and "is an information company") in relation to the payment of a sum of AU$200,000 said to be "Due for the facilitation and the opening of a clearing house account using intellectual property" and said to be "payable immediately" (Ex AU 13514). 740Payment for the above amount seems to have been effected by the transfer by PJCB on 6 November 2006, of US$200,000 to the J&B Financial Technocash account and then the transfer on 8 November 2006, from J&B Financial's Technocash account of that amount to Magny-Cours. 741On 10 November 2006, Mr Robert Hobbs wrote to Ms Penny Li at Sovereign Trust (Ex AU 7489), (the document bearing a fax transmission imprint showing that it was received from FTCL), advising that a deposit of $200,000 was being made to the Magny-Cours bank account and that: This payment is made by J&B Financial Group Pty Ltd who have purchased the intellectual property rights to open an institutional account with Cadent Financial Services LLC, Chicago USA. (my emphasis) * Further Cadent account application 742On 7 November 2006, Mr Mitchell sent to Ms Reisinger an account application for Cadent in the name of International Management Incorporation. The application was signed by Mr Hobbs as "beneficial owner of International Management Incorporation". (Again, this is inconsistent with Mr Hobbs' assertion that he did not sign any Cadent account documents.) Mr Hobbs also gave a personal guarantee in that document in favour of Cadent and signed to the statement that there had been a directors' resolution of the company authorising him to act as signatory to the Cadent account in all manners required. * Purchase of T-bills 743By email dated 16 November 2006 (Ex AN) Mrs Burnard, on the letterhead of Diligence Discovery, wrote to Mr Truong, Mr Wood, Mr Koutsoukos (and Ms Trinh) attaching a "T-bill Purchase Check doc". The letter relevantly, noted: Have been talking to Suzanne this morning and she is going to run my letter from the accountants past David as soon as she can. Please find attached advise [sic] for clients. I would like to get this off today if possible to keep them in the loop. [my emphasis] 744The attached draft standard form letter referred to a T-bill purchase and said: The Clearing House statement has arrived showing receipt of your funds. Diligence Discovery Ltd is aware you will require documentation and is currently seeking advise [sic] on how to release this to you. 745Mrs Burnard was unable to say in the witness box what a clearing house was and says she did not know at the time (T 409). * Amendment to Super Save private placement memorandum 746In late November 2006, correspondence was received from Cadent requiring the removal of Cadent's name from the memorandum for the Super Save fund (Mr Koutsoukos [851]). By letter dated 21 November 2006, Ms Fitzpatrick, the General Counsel of Cadent, wrote to Mr Koutsoukos, Mr Truong and Mr Wood as to the use of Cadent's name (Ex P 248/249; Ex A 52/53). Mr Hobbs also communicated in relation thereto. (This is an instance of Mr Hobbs' involvement in the ISPL Cadent account, not explicable on Mr Hobbs' version of events.) * Agreements with New World Holdings 747By agreement dated 21 December 2006 (Ex AU 8166), signed by Mr Hobbs, there was recorded an agreement between Mr Hobbs "d/b/a Business Solutions (a New Zealand proprietorship)" and New World Holdings LLC. (It bears a fax headed imprint Tasman Business Consultants 25 January 2007.) That agreement stated (in what appear as paras [A] and [B] of the "Statement of Background") that Business Solutions wished to provide account introduction services to New World Holdings and that the latter wished to compensate Business Solutions. (Mr Hobbs points out that the copy of the agreement in evidence was not signed by New World Holdings. While that might well go to its enforceability as between Mr Hobbs and New World Holdings, for present purposes it is relevant to note that Mr Hobbs admits he signed a document to the effect there contained.) 748The agreement provided: 1.Business Solutions Services Services to be provided by Business Solutions under this Agreement shall consist of (a) introducing potential brokerage accounts to NWH and (b) consultation in connection with the foregoing. [It went on to note that Business Solutions may engage employees agents independent contractors "including Jackie Hobbs" to assist it in generating the introductions referred to in this Agreement 2.Compensation Compensation will be paid to Business Solutions only on accounts which NWH acknowledges in writing as having been introduced by Business Solutions prior to generation of commissions. NWH shall pay Business Solutions one third of net commissions that would be otherwise paid to Lisa Reisinger on such accounts. Commissions will be paid by 15th day of month following the month in which the commissions were generated. 749The agreement contained (in 3(b)) a representation and warranty by Business Solutions to NWH that Business Solutions would carry on its business as an independent contractor and not as an agent or employee of NWH. 5(d) provided that neither the agreement nor the provision of services thereunder was to be construed as creating a joint venture or partnership between the parties. 750An agreement in what seems to have been almost identical form (though the copy in evidence was incomplete and, relevantly, was missing the page on which, on Mr Hobbs' version of the document, the compensation clause had been) was signed by Mrs Hobbs (again described as "d/b/a Business Solutions"). That agreement include provision for Mrs Hobbs to engage the services of independent contractors "including David Hobbs". The agreement was dated 3 September 2007 and signed by Mrs Hobbs (and by New World Holdings' President (Mr Erdman) on 25 September 2007 (Ex AU 9997). An unsigned copy of Mr Hobbs' agreement is Ex AU 5518 (containing the missing second page). 751Ms Reisinger's explanation for the two agreements was that they were not cumulative but that the agreement with Mrs Hobbs was to enable her to receive commission in place of Mr Hobbs if anything happened to him. Events in 2007 * Mr Hobbs' February 2007 advice to FTC Executives 752By letter dated 27 February 2007, signed by Mr Hobbs on FTC letterhead and addressed "To Whom It May Concern", Mr Hobbs issued a notice in its terms directing that the message that FTC did not sell investments was to re reinforced. Given that this letter was sent or given to Ms Xu, who was not an FTC executive (and could not read English anyway), I would infer that this was a standard form letter sent to FTC subscribers. It stated: I have received two phone calls to the Nelson office recently. Stating that a friend referred this person to myself, and the friend had an investment, and this person wished to make an investment. To both calls I explained Future Trading Corporation Ltd does not sell investments or have investments. On both occasions the caller has asked for Future Trading Corporation Ltd website, and would not provide any personal details, this seems unusual. I replied Future Trading Corporation Ltd does not sell or have investments. Could we please reinforce to any person we speak to, Future Trading Corporation Ltd does not sell investments or give any form of financial advice. OEM Ltd the company that owns Future Trading Corporation Ltd is concerned that subscribers or potential subscribers may be misinformed as to the subscription of financial education Future Trading Corporation Ltd provides. (emphasis in original) 753There is nothing to suggest that anyone other than Mr Hobbs was responsible for this missive. There is no communication to Mr Hobbs or FTC, for example, from someone at OEM expressing concern about the events mentioned (nor of Mr Hobbs informing any of the people he says were the overseas owners of OEM of the communication). At the very least this suggests that Mr Hobbs saw himself as able to speak for OEM. * FZF Vanuatu 754On 22 March 2007, a company by the name of First Zurich Financial Ltd was incorporated in Vanuatu by Ms Dong and Ms Li (see Ms Dong's affidavit [58]-[59]). Ms Dong says that this followed communications in 2006 between herself, Ms Li and Mr Hobbs [53]-[56]. Ms Dong says that she completed an application form provided to her by Ms Li who said Mr Hobbs would open the bank account. Ms Dong says that she understood the forms were to be sent to Moores Rowland in Vanuatu by Ms Li [59]. Ms Dong did not pay for incorporation of company. 755Mr Hobbs, in cross-examination, said he was the owner (or beneficial owner) of FZF Vanuatu on the basis that it was incorporated for him (T1385.12-14 ff [34]-[37]). After Ms Dong ceased to be the administrator of that company, he assumed the role (and issued a proxy in August this year as "authorised officer" of the company for the purposes of a liquidators' meeting (though in cross-examination he said that was a mistake and he had signed the proxy without looking at it). * Further amendment to Super Save documents 756On 21 April 2007, an email was sent from Mr Hobbs' office to each of Mr Wood, Mr Koutsoukos and Mr Truong attaching details in relation to Super Save and on 17 May 2007 revised documents re Super Save were forwarded. * Incorporation of ISL 757Mr Koutsoukos gives evidence as to the circumstances in which ISL was incorporated (from [969]). Mr Koutsoukos deposes that in about early to mid 2007 he had a meeting with an accountant, Mr Papaioannou, in which the latter told him (complete with expletives) that as he had over 20 investors (presumably referring to the J&B Financial funds) Mr Koutsoukos was breaking the law. Mr Koutsoukos said that he passed this on to Mr Hobbs and that, at a subsequent meeting between Mr Hobbs, Mr Papaioannou and the J&B Financial officers, Mr Hobbs told them to close the bank account, set up an IBC, "get all the memorandums off the clients and get them all re-signed". This provides an explanation for the establishment of ISL (and there is evidence from Mr Koutsoukos and others, including investors, as to the re-signing of contracts that had been in the name of ISPL to corroborate Mr Koutsoukos' evidence in that regard). Mr Wood also gives evidence that the change of administrator/trustee of the Super Save fund to ISL was because Mr Hobbs said that the company had to be incorporated offshore. (On 2 April 2007, ISL opened an account for Super Save with Technocash.) * 2007 meetings in Miami/Chicago 758In April 2007, Mr Koutsoukos, Mr Truong and Mr Wood travelled to Miami and Chicago. Various others (including Mr Hobbs, Mr Collard, Ms Li, Mr Stanton and Mr Clements) were in attendance at one or more of the meetings on that trip. Relevantly, there was what was described as a due diligence seminar in Miami; a visit to Cadent's office in Chicago; and a meeting with traders of Cadent. Much weight is placed by Mr Hobbs on the inconsistent accounts of what, if anything, was said by the traders as to their returns (when making submissions as to the credibility of the evidence given by Mr Koutsoukos in particular). I consider these in due course. I note, in passing, that neither Mrs Hobbs nor Mrs Brenda Hobbs attended these meetings with traders. * Research reports agreement 759At some time in mid to late 2007 an arrangement was put in place whereby payment of a monthly US$600 fee was to be made to Mr Hobbs (or to the joint account of Mr and Mrs Hobbs) by New World Holdings as a fee said to be referable to the costs of distribution of "research reports" containing material prepared by the Cadent traders to the corporate administrators. New World Holdings charged the fee to the corporate administrators and then was to pay that monthly amount to Mr Hobbs. The first such payment was made in September 2007. * Transfer of shares in Barclaywest to International Management Incorporation 760Notwithstanding that on 4 May 2007 International Management Incorporation had been struck off the register in Vanuatu, on 28 June 2007 Mr Hobbs transferred his 26 shares in Barclaywest to International Management Incorporation. 761Later, on 27 August 2007, Mr Hobbs signed a temporary contract for Pinnacle Fund purportedly on behalf of International Management Incorporation (Ex AU 9845), the address of International Management Incorporation being noted as the same as that for the registered office of Tasman Business Consultants. (The 888 Vanuatu business records - Ex AU 207 - show Mr Hobbs as the administrator of International Management Incorporation). (I note that Ms Wu referred in her submissions to a "temporary" contract she witnessed for the Pinnacle Fund. Extraordinarily, that temporary contract states an agreement to invest in the fund (A) and an agreement that "... the Pinnacle Fund is controlled by 888 Management Inc and I/we agree to abide by the full contract to be supplied at a future date" (B) - a remarkably trusting proposition. The temporary contract also agreed that "I/we were not solicited for this investment and I/we sought the opportunity". A "No Advice Acknowledgement" was also signed. Ms Wu signed this document as broker.) 762The explanation for events occurring in the name of or on behalf of the company after it had been deregistered presumably lies in the fact that deregistration apparently occurs in the offshore jurisdictions in question where there is a failure to pay annual registration fees and it may be that, when Mr Hobbs took steps relating to International Management Incorporation in May and August 2007 he was not aware of the fact that it had been deregistered. (That may also be the explanation for the verification by Mrs Hobbs of a defence in the name of Geneva Financial at a time when it had also been deregistered.) * Issue re payment of introducer fees from Cadent/New World 763On 7 May 2007, an issue apparently arose as to a suggestion that Mr Koutsoukos or others might become entitled to introducer fees from Cadent/New World. On that date, an email was sent from the Tasman Business Consultants email address to Mr Erdman and Ms Reisinger (Ex AU 36), headed "Introducing Broker", saying: ... I just spoke with Steve [Erdman] to get a heads up on Lili's fund before I speak with her. Also I just received a call from Con [Koutsoukos], whom [sic] discussed an introducing broker for this phone call he had with Lisa, no he is not or anyone else to because an introducing broker as a tight control must be held on each and everyone. We have set in place stringent rules for 2007 in making everybody accountable for their own place, from brokers and extending to traders. Con said Lisa would phone me to discuss it, any change to the system that lead to money being pulled and taken elsewhere should a broker or administrator get their knickers in a knot over the smallest thing, which is something we don't want to happen. The Tongan reporting office will be running late next week, which I am very excited about. Again thank you for all you did to make the trip the success it was. (my emphasis). 764The response to this on 5 July 2007 from Ms Reisinger was: Good afternoon David ...no side agreements for any type of compensation with Con or anyone else pertaining to any accounts introduced or managed by Con, Jimmy or Brian that have been introduced to Steve or myself. ... David Hobbs is the only foreign broker to receive such compensation. * Tonga account 765By email on 7 May 2007 from the Tasman Business Consultants nasl email address, Mr Hobbs wrote to Ms Reisinger, Mr Erdman and Messrs Koutsoukos, Truong and Wood (Ex AU 8993), "Re Commissions - Con, Brian and Jimmy", advising that to enable commissions to be received "I will open a bank account in Tonga in my name with the signing rights for that account to be in the name of Con, Brian and Jimmy or which two of them, they choose" and that it "may be easier if my portion of commission is forwarded to this account also" and then for J&B Financial "to split my commission and pay myself". (Given that the J&B Financial team had no involvement in the Global Funerals transaction, the inescapable conclusion from this is that Mr Hobbs was anticipating an entitlement to commission in relation to some other fund in which those people were involved.) 766On 8 May 2007 (Ex AU 38) Mr Hobbs emailed Ms Reisinger and Mr Erdman re Tonga "As discussed and agreed in Chicago, the payment for services for the Tongan office is set at US$300.00 per week paid fortnightly. The question is how do you deduct this from the funds and forward it through?" (my emphasis) 767On 1 June 2007 references were provided to the Prime Minister of Tonga (by Mr Thomas J Konopiots Chief Operating Officer of Cadent and by Mr Steve Erdman the President of New World Holdings) as to the respective relationship between Cadent and New World Holdings with Mr Hobbs (Mr Konopiots describing Mr Hobbs as a direct customer of Cadent and someone who worked closely with New World Holdings, that entity being an introducing broker to the Cadent accounts; some of which accounts being for over 2 years).) 768On 10 June 2007 (Ex AU 9179) Mr Hobbs emailed Ms Reisinger re "various matters", including: Good news last week the Tongan office received two reports from Colm Cronin [C3 Trader]. Now when the balance of reports flow from the other traders the Tongan office will be able to forward them to the administrators involved. (my emphasis) Just a few other areas; Nancy kindly emailed me to keep informed the contract for the transactions had to be changed, could you also forward a copy of the old one I signed along with the new one. ... The Tongan office is now due for its first monthly payment, details attached .... Account name Swiss Financial Security Ltd. [I note in relation to the timing of this email that the New World Holdings statements show that in May 2007 there was a payment of $840 in commission] Could you please give me a list of the funds and what trades are attached to each. (my emphasis) * Agreement with MLN 769On 1 June 2007, Mr Hobbs (in his name as "consultant") and MLN entered a Consulting and Marketing Agreement with Mr Charles (Chuck) Weed (the agreement being signed by Mr Hobbs above his name but under the name "First Zurich Financial", even though that entity was not named as a party to the agreement) for the payment of remuneration by Mr Weed to MLN and Hobbs for their "marketing and consulting services" (Ex AU 9141). 770The recital to the agreement provided that Weed agreed to accept and remunerate MLN and Hobbs for the consulting and marketing services". The term of the agreement was stated to be one year (commencing 1 June 2007) unless extended or otherwise terminated. Clause 3 set out the "Consulting and Marketing Compensation", as follows: Weed hereby agrees to compensate MLN and Hobbs jointly for their marketing and consulting services which directly produce new assets under management for Weed . The initial compensation will consist of $4.25 per $1,000 of face value of a bond until the total value of bonds purchased exceeds the value of $134,000,000. Upon the attainment of bonds purchased exceeding $134,000,000, Weed agrees to increase the compensation to $4.50 per $1,000. ... 771The copy of this agreement bears a fax header transmission imprint for Tasman Business Consultants (25 September 2007). (ASIC points to the Business Solutions cheque account details that show receipt of fees from New World Holdings - Ex 10136, that includes amounts received from ROF Consulting.) * Ponzi letter 772By letter dated 17 October 2007 ("the Ponzi letter"), signed by Mr Koutsoukos on J&B Financial letterhead (and with logos at the bottom for FTC and denoting that the company is a member of the ISF) to Mr Hobbs: You have raised the question today whether any of our funds trade as ponzi. We want to assure you none of our funds trade as a ponzi and all returns come from profits. 773This is an extraordinary letter in that it is difficult to see what forensic purpose it could have served. Either the Integrity Plus and Super Save schemes were operating as ponzi schemes or not; the assertion to the contrary goes nowhere unless Mr Hobbs was seeking to rely on it for the making of some decision - and even then if he was on notice of facts that gave rise to a reasonable apprehension that the funds were trading as ponzi, it would be hard to see how any reliance could be placed thereon. 774Mr Koutsoukos says the letter was signed by him at a meeting with Mr Hobbs and Mr Truong in the boardroom. He says Mr Hobbs dictated the letter, Mr Truong typed it and printed it. He said Mr Hobbs said: I need a letter off you guys to protect my name. I need a letter from your company to protect my name. My name needs to be clear, it has to be protected, because if my names gets muddied, none of us have a business. 775Mr Koutsoukos says Mr Hobbs told them that to someone who did not know "our business", it looks like a ponzi because the returns had been consistently 4% a month. Mr Koutsoukos says this occurred some time after his ASIC examination on 8 November 2007 and before he found out about the proceedings on 5 December (ie on his evidence the letter was backdated). 776Mr Truong, instead, recalls that the document was provided in the boardroom on an occasion when Mr Wood was also present. However, he says that there were two documents and that the second one was signed by Mr Wood as well. He does not recall ever signing a document with the wrong date on it. 777At [432] Mr Truong deposes to the signing by each of he, Mr Wood and Mr Koutsoukos of the Ponzi statement. He says it was around the time he received notice of the compulsory examinations to be conducted by ASIC. He says at [431] that he met with Mr Hobbs at a hotel in Sydney's CBD with Mr Wood and Mr Koutsoukos and that Mr Hobbs said to him that he was "a bit worried about you going in there, Jimmy". * Upton Ltd transaction 778On 19 October 2007, PJCB transferred AU$1,000,000 of Integrity Plus investor funds to Destiny. The evidence of Messrs Wood, Koutsoukos and Truong is that Mr Hobbs told them to transfer that amount of money to Upton Ltd to start a new fund to replace money missing from the Covered Strategies investments (or, as Mr Koutsoukos contends Mr Stanton referred to it, as capital enhancement of the fund). (In December 2007 Mr Hobbs prepared statements to be signed by the J&B Financial office and Mr Mitchell as to this transaction to which I refer later.) * Legend of Bathurst Ltd 779Legend of Bathurst Ltd was incorporated in New Zealand in October 2007. A partner of Fletcher Vautier Moore (Mr Nicholas Moore) was its sole director and he and Mr Bellamy were the sole shareholders (each as to 50%). Both Mr Nicholas Moore and Mr Bellamy gave evidence that they held their shares in the company on trust for Mr Hobbs (N Moore at [21]; Bellamy at [27]). Mr Moore has deposed (and was not challenged in cross-examination on this) that the company was set up on instructions from Mr Hobbs and that all relevant decisions in relation to the company were made by Mr Hobbs. 780In November 2007, Legend of Bathurst, on instructions from Mr Hobbs to Fletcher Vautier Moore, purchased the property at Echodale Place (now Tasman Business Consultants registered office) and a residential property that is now Mr and Mrs Hobbs' home in Nelson. The Agreement was dated 5 November 2007 (Ex Y, N. Moore, tab 24). 781On the date of its incorporation (29 October 2007) of Legend of Bathurst, Destiny transferred NZ$443,990 to Fletcher Vautier Moore on behalf of Legend of Bathurst, this payment being recorded in the Echodale trust account ledger at the firm as being "Technocash Pty Ltd loan advance". (It is said by Mr Hobbs in his submissions that this was a loan from Destiny to Legend of Bathurst.) Mr Nicholas Moore deposed that prior to this occasion he had not heard of Technocash and he assumes that he provided the narration to his accounts staff in relation to the payment consistent with Mr Hobbs' earlier advice that there would be a loan made for the purchase ([28]). 782On 1 November 2007, Secured Bond transferred NZ$655,342.45 (at least some of which ASIC contends represented Master Fund investor funds) to Fletcher Vautier Moore for the benefit of Legend of Bathurst. This payment was also recorded in the trust account ledger as a loan advance. 783Mr Nicholas Moore deposed (at [36]-[37]) to his concern at the time (understandable in my view from the perspective of a partner of a law firm with no personal interest of his own in the purchase) to a concern as to the incurring of what seemed to him to be a significant debt liability by Legend of Bathurst. He deposes to a conversation he had with Mr Hobbs in which he says Mr Hobbs said: I hold money in Australia which I have earned as commission from my business activities in Australia. I want to lend that money to Legend of Bathurst to fund the purchase of the Echodale property. 784Mr Moore says that he told Mr Hobbs that he was concerned as a director and shareholder of the company about the loan arrangements and did not want to be held responsible for the repayment of a loan, to which he said that Mr Hobbs said there were tax advantages for the money to be treated as a loan and that he would arrange for a loan agreement to be sent to Mr Moore. A loan agreement was provided to Mr Moore on about 13 November 2007. He says that the lender was named as Destiny and that prior to this he had not heard of Destiny. 785The draft loan agreement was between Destiny Holdings Limited and Legend of Bathurst. The amount of the loan was expressed to be in two tranches and the stated purpose of the loan was to enable the borrower to acquire property. The security for the loan was identified to be in the form of US treasury bills. (Mr Halley submits that the language in which this is expressed suggests that the security had been taken in advance of the loan insofar as it records that security "is held by Destiny Holdings in the form of US treasury bills purchased by party B".) The stated term of the loan agreement is 10 years and the governing law is said to be the British law of the British Virgin Islands (with a corresponding choice of jurisdiction clause). 786Mr Moore said that he reviewed the draft but was not happy with its terms and was not happy signing it and that Mr Hobbs said "Well, I suppose it doesn't have to be a loan. I can arrange for it to be my own funds". 787Mr Moore also said that he had not issued any invoice from Legend of Bathurst to Master Fund, Secured Bond Ltd (dated 29 October 2007) and had not heard of those before receiving a bundle of documents from Mr Hobbs around the time of the above conversation. Nothing further seems to have happened in relation to the proposed loan. After the transaction there were excess funds of about $580,000 which Mr Hobbs directed be invested into the Capital Mortgage Income Trust partly owned by Fletcher Vautier Moore. Various withdrawals of those moneys were made on Mr Hobbs instructions. 788This was the subject of submissions made by Mr Hobbs in closing (in which he said that some of that amount had been the subject of a loan). Following the close of the hearing, on 13 September 2012 Mr Hobbs forwarded certain documents in support of that submission, not all of which were in evidence (and some of which, namely two documents entitled "Loan Agreement", ASIC communicated to my staff that it did not believe it had previously seen). (Mr Hobbs did not point in his submissions to any evidence of that kind in relation to the alleged loan.) 789The submission by Mr Hobbs that the funds were the subject of a loan has a number of difficulties not the least of which is that the documents entitled loan agreements were not in evidence. First and foremost, the contemporaneous evidence does not support the submission that, in the hands of Legend of Bathurst, the moneys were the subject of a loan (since Mr Nicholas Moore had made clear his concern as to the exposure for the firm if there were to be an obligation to repay such moneys). 790There are receipts showing the receipt by Destiny of moneys said by Mr Hobbs (as I understand it) to be repayments of some or all of the moneys provided for the purchase of the properties (referred to in Mr N Moore's affidavit at [52]-[54]). Mr Hobbs also refers to the evidence in relation to the alleged repayment of the loan from Destiny contained in an earlier affidavit of the liquidator, Mr Taylor at [2249]-[251]. 791Even assuming, in Mr Hobbs' favour, that the moneys provided for the Echodale purchase by Legend of Bathurst were the subject of a loan made to him or for his benefit, (part or all of which was later unpaid) that does not alter the position that the initial payment of funds to Destiny does not seem consistent with the investment objectives of the fund out of which the moneys originally came. (I refer in due course to the loan submissions.) * Further legal advice in relation to the FTC and other activities 792Paragraph [79] of Mr Hobbs' 3 August 2012 affidavit deposes that a letter of advice that Mr Hobbs in his supplementary affidavit sworn 7 August 2012 identified as the relevant advice: On 6 November 2007 I sought further advice in relation to FTC's business and as to whether the funds being operated by Mr Koutsoukos and others permitted an Australian to invest in those products. 793The actual letter of advice was not annexed but I later admitted (subject to weight and over the objection of ASIC) (Pausing there, I note that on 7 November 2007, FTC was deregistered. Hence the need for advice on the part of FTC the day before deregistration might be thought to be moot. That said, it is not clear that Mr Hobbs was aware at that time of the deregistration of the company.) 794The advice covered the same two topics as that of the earlier Hartnell advice, though with a further query as to the operation of "DIY Super Funds in relation to the same". Ms Maroun had clearly been provided with a copy of the Hartnell opinion. She reached the same conclusions. There is, however, no evidence as to what instructions or information she received other than as appears in the advice. (Mr Hobbs gave evidence that Ms Maroun was an investor.) 795As to the need for incorporation in Australia "for the purposes of selling subscriptions in Australia and paying commissions to retailers", Ms Maroun noted the provisions of s 601CD; stated that "with reference to the background information provided by you, and the fact that the Trading Corporation does not offer or sell investments nor does it give financial advice, it is arguable that "your company" is not carrying on business". 796As to "selling financial advice" Ms Maroun expressly reiterated the Hartnell advice on the assumption that the sale of letters was conducted through an independent contractor. Ms Maroun referred to the "new" regulations in relation to financial services referred to in the Hartnell advice of some five years earlier; concluded that a financial services licence was not required "to continue [FTC's] practice of educating people". The advice then turned to the question of offshore investments. 797After considering the definition of wholesale clients, Ms Maroun restated and agreed with the earlier advice (without emphasising the need for the investment process to be totally offshore (unless to wholesale clients)). More attention was paid to the superannuation question, the author apparently seeking to provide "an insight into the operation of DIY Super funds in Australia. * Further MLN agreement 798On 13 November 2007 (Ex AU10598) Mr Charles Weed wrote to Ms Dadey revising the MLN marketing agreement (this communication being copied to Ms Reisinger, Mr Carper, Mr Christopher Swiecicki and Mr Hobbs) terminating the 1 June 2007 MLN agreement and offering a new contract with "updated numbers" after November 2007. (Mr Weed noted that the June agreement was countersigned in October and delivered to him in October 2007.) * Loan Agreements re Destiny Holdings 799After the conclusion of the hearing, Mr Hobbs pointed to copies of two receipts (that ASIC concedes are in evidence) apparently issued by Destiny Holdings: the first, dated 27 November 2007, is to "Legend of Bathurst Ltd" recording receipt by electronic transfer of the sum of AU$181,046.00 with the note "This payment was paid to Destiny Holding Ltd for repayment to Destiny Holdings Ltd for Legend of Bathurst Ltd"; and, the second, dated 29 November 2007, records the receipt of US$147,261.20, again with a note that "This payment was paid to Destiny Holdings Ltd for Legend of Bathurst Ltd". Mr Hobbs relies on these as evidencing the repayment by Legend of Bathurst to Destiny Holdings of the moneys that had been paid in relation to the acquisition of the Echodale Place and other property in 2007 (and, seemingly, in support of his contention that the moneys provided for the purchase of those properties were by way of loan, although no loan agreement was entered into by Legend of Bathurst at the time for the reasons explained by Mr Nicholas Moore). 800While ASIC concedes that these receipts are in evidence, what it maintain were not in evidence (and which I understand ASIC contends it has not previously seen) were copies of documents that Mr Hobbs forwarded with those receipts - on their face being loan agreements between Mr Hobbs as borrower and each of Ms Sophie Li and Ms Christine Li as lenders in respect of those amounts. 801The first, is a copy of a loan agreement dated 26 November 2007 by which Ms Sophie Li is recorded as agreeing to lend to Mr Hobbs as borrower US$147,259.20, providing for an agreed interest rate of 6.5% pa on 60 days' notice; the loan to be for 10 years; payment of interest to be made to a bank the details of which were to be forwarded by Ms Li; the loan was to be confidential and the document stated the understanding that the money was to be paid to Legend of Bathurst "a New Zealand Company". The document provided that it was agreed that Ms Li would pay the amount directly to Destiny Holdings Ltd on behalf of Legend of Bathurst. The document was not signed by Mr Hobbs. It seems to be in the same or similar format as the Global Funerals facilitation agreement, suggesting that it may have emanated from the same source. 802The second is a similar document recording an agreement with Ms Christine Li of the same address, for the sum of AU$181,046.00. This document seems to have been signed by Mr Collard on 26 November 2007. 803The circumstances in which these loan agreements were purportedly entered into are not explained. At first blush, it would seem that Mr Hobbs was putting in place an arrangement whereby he was in a position to put Legend of Bathurst in funds to repay the amounts it had received from Destiny Holdings in relation to the purchase of the Nelson properties (perhaps because there was an issue around this time as to the source of those funds in the hands of Legend of Bathurst). In any event, the loan agreements are not in evidence; the receipts are in evidence. What I can draw from the above is that, whether as a loan or otherwise, it appears that moneys paid to Legend of Bathurst from Destiny Holdings in relation to the property purchases appear to have been repaid (though this does not address the question as to the legitimacy of the payments made to Legend of Bathurst in the first place of funds from Destiny Holdings but which emanated initially from investor funds in the schemes operated by the J&B Financial officers). * Letter to Hobbs' legal representative 804Exhibited to Mr Woods affidavit is a document he received (and that each of he and Messrs Truong and Koutsoukos signed, complete with typographical errors) addressed to Mr Hobbs' legal representative. Like a number of documents apparently prepared by or on Mr Hobbs' behalf for the J&B Financial officers to sign, it seems self serving in the extreme and consists of little more than bald assertions and denials: The Legal Representative Mr. David Hobbs SOTKE NELSON [sic] NEW ZEALAND Dear Sir. RE: CONDUCT OF INTEGRITY PLUS FUND We, Con Koutsoukos, Jimmy Truong and Brian John Wood hereby acknowledge and confirm (the following matters In relation to the management and conduct of the Integrity Plus Fund:- 1.At all times and under all circumstances the immediate and ultimate decision as to the percentage, best effort average, profit to be paid on each month to the various investors connected with the Integrity Plus Fund has been our decision entirely and exclusively. 2.At no time was the decision referred to above taken either before during or after any consultation, advice, or input, (written or verbal) of Mr. David Hobbs. 3.At no time was the decision, referred to above made following any direction, directive, suggestion or guidance counseling [sic] or advice by David Hobbs either as to the manner or as to the extent of the profit that should be paid, best effort average. 4.At no time and under no circumstances was any person either in a legal, financial, accounting or other capacity said to be connected or associated with David Hobbs consulted about or advice sought from prior to during or following the making and implementation to the decision referred to above. At time [sic] was any person or company said to be associated with David Hobbs a party or a person who proffered for reward or otherwise advice guidance or direction as to the manner in which the decision referred to above be taken and implemented. 5.At no time during the conduct of the integrity Plus Fund were its books of record, specifically which evidenced the payment of best effort average profit either sought by David Hobbs either directly or indirectly nor were the said books of record made available to him or any representative acting on his behalf under any circumstances at all. 6.We the undersigned accept and take unto ourselves the full and complete responsibility, liability and consequence for the fashion in which the conduct of the Integrity Plus Fund has been carried out by and during the period in which it has operated and acknowledge and state clearly that David Hobbs has never played either an active or passive role in the conduct of that fund and most specifically has never directed, advised or counselled us in the fashion in which the payment of best effort average profit should be made. * ASIC investigations 805On 5 December 2007, ASIC commenced s 1323 proceedings in relation to Super Save (and on 14 December 2007 in relation to Integrity Plus). 806On 12 December 2007, an email was sent from the "nasl" Tasman Business Consultants email address to each of Mr Truong, Mr Wood and an email address with the initials "ftc" (which I infer would have been Mr Koutsoukos' address given the description in the header of the attachment), attaching a document described as "Affidavit J&B.doc" as follows: This affidavit refers to J& B Financial and individuals Con Koutsoukos, Jimmy Truong, Brian Wood. * Introduced 2003 to Lisa Reisinger. * Introduced 2005 to Steve Erdman of New World Holdings. * David Hobbs does not have any part of any company, be it investment company or otherwise. * David Hobbs does not have any part in procuring investment business or payments that be investment or otherwise. * My only involvement is as the International Sales Manager for Future Corporation Limited which retail financial education material [my emphasis - a Freudian slip given that it was Mr Hobbs who held that role at all relevant times, so the "my" must refer to him, which indicates that it was he who prepared or caused to be prepared this document] * David Hobbs is not a director, shareholder, or owner of any companies that J&B Financial have or may have had. Neither was David Hobbs involved in the setting up of any company involved with J&B Financial. 807This curious document (EX AU 10894) appears to be an instruction as to what should be put in an affidavit by the operators of J&B Financial in the context of the then ASIC enquiries. Messrs Truong, Koutsoukos and Wood say that they received communications from Mr Hobbs at that time in relation to the ASIC enquiry. (The generality of the propositions stated in the draft bullet point affidavit document is reminiscent both of the document signed by Mr Mitchell in December 2007 in relation to the Upton $1m payment and of the "Ponzi letter", the subject of evidence in reply by each of Mr Koutsoukos and Mr Truong, to which I refer below.) 808Mr Truong then swore an affidavit before a Justice of the Peace (with no formal heading to indicate any proceedings in which it was to be used) deposing to the following: 1.I am a Finance Director of J&B Financial Pty Ltd ... 2.I know David John Hobbs by reason of connection with Future Trading Corporation. 3.I have for five (5) years been an executive of Future Trading Corporation. 4.In that capacity I have sold an education package concerning retail financial education material. 5.I know that know David John Hobbs is the International Sales Manager of Future Trading Corporation. 6.The Future Trading Corporation education package offers no financial or investment advice nor does it offer any financial product or investment for sale. 7.I was introduced to Lisa Reisinger in 2003. 8.I was introduced to Steve Erdman of New World Holdings in 2005. 9.To the best of my knowledge and belief David Hobbs is not a director, office bearer or shareholder of any company involved in finance, trading or investment. 10.To the best of my knowledge David Hobbs is not involved directly or indirectly in the procuring offering or facilitating of investment business or payments representing investment or profits in any capacity. 11.David Hobbs is not a director, shareholder, or office bearer of J&B Financial nor was he involved in any capacity or fashion in the setting up of that company. 809An affidavit in similar terms was sworn by Mr Wood on the same day, Mr Wood describing his occupation as mortgage broker and signing as a director of J&B Financial. * Upton statements 810On 20 December 2007, Mr Koutsoukos, Mr Wood and Mr Truong signed a joint statement concerning the $1m that had been deposited by PJCB into Destiny's Upton Ltd account in October that year (the purpose of which, at the time, seems to have been understood by the J&B Financial officers to be to replace moneys missing from Covered Strategies or to enhance that fund). 811As to the signing of those statements, Mr Koutsoukos ([1201]) says that there was a meeting in or about mid December 2007 with Mr Hobbs and Mr Stanton at J&B Financial's offices, in the course of which he says that Mr Hobbs said that he was "...risking $50,000 a month income from all of the funds that I have introduced to Cadent" and that they needed to sign something to "fix everything". He says that shortly thereafter (on 20 December 2007) they received by email from Mr Hobbs a draft statement about the Upton payment. (Pausing there, by this stage the income that ASIC contends Mr Hobbs was receiving out of the various commission agreements included not simply a portion of the introducers' commissions from introducers such as Mr Clements, but the New World Holdings commissions, the round turn commissions from Cadent, the additional $1 round turns authorised by some of the scheme administrators, the 'marketing' fees in relation to the purchase of T-STRIPS through Mr Weed's company, and the research report fees through New World Holdings.) 812The attached statement (Ex 102/103; Ex P 317,318) was as follows: Con Koutsoukos, Brian Wood, Jimmy Truong state the following matter, on the 19th October 2007 a sum of one million dollars (Australian $1,000,000.00) was deposited by P JCB International Ltd to a company Destiny Holdings Ltd. On that same day 19th October 2007 a payment of $1,000,000.00 was made to Upton Ltd in account number [...], that was described as a business investment and believed it to be a legitimate exercise of discretion as an investment pursuant to the Private Placement memorandum The deposit into Upton's account was not made with the knowledge, consent or approval of Upton Ltd. We had become aware of the Upton Ltd through a discussion with Pierre Mitchell. The deposit into the Upton Account was at no time directed, suggested, otherwise done with the knowledge or consent of David Hobbs. As best as we are aware David Hobbs has no direct association with Upton Ltd. 813The statement refers to the money transmitted by PJCB to Destiny as a "business investment". (The format and content of the document is strikingly similar to the bullet point draft affidavit prepared for the three J&B Financial officers to sign at around the same time, disclaiming any involvement by Mr Hobbs in J&B Financial and any investment products offered by that company.) 814A similar statement was signed by Mr Mitchell on 20 December 2007 (and relied upon by Mr Hobbs in the course of his cross-examination of Mr Mitchell). Again, it is in similar format to a number of documents that were forwarded by or on behalf of Mr Hobbs for others to sign, expressly disclaiming any involvement by Mr Hobbs in matters relating to one or more of the schemes. 815The statement signed by Mr Mitchell related specifically to Upton Ltd's Technocash account and was as follows: 1.In my capacity as the in-house account (Independent Contractor): (a)The application to commence the abovementioned [Upton Technocash] account was signed by me on 31 July 2007, the fees were paid by an American Express card number .... in the name of in David John Hobbs. (b)That account was not opened by nor was it intended to be utilized by David John Hobbs either personally or in a corporate capacity. (c)I am authorized to use the American Express card (noted above) for various sundry purposes. (d)The opening of the Upton Ltd account was one such purpose. (e)I am a signatory of the Upton account. (f)To the best of my knowledge and belief neither the account nor has the corporation Upton Ltd ever been used or associated with David John Hobbs. 2.I have become aware of a transaction set out in an affidavit of Mark Richard Howard dated 17 December 2007 that a deposit was made to the Upton Ltd account on the 19th October 2007 for Australian $1,000,000.00. 3.The Howard affidavit records that deposit as having been made from Destiny Holdings Ltd, that is a company about which I have no knowledge or information. 4.Until today's date I have no knowledge that the Upton Ltd account was utilized in this fashion or at all. 5.I can state categorically that since the date of the opening of the account I have had no dealing in any fashion with the Upton Ltd Technocash account. 6.No access has ever been gained to the Upton Ltd Account from these offices from the computers or otherwise. I do not have the password nor do I have any means by which it can be accessed. In the absence of the password I still cannot as at today's date ascertain the account balance of that account to verify or challenge the content of the Howard affidavit. 816(Given the last sentence, it is difficult to see how Mr Mitchell would have been in a position to make the categorical assertion that no access had ever been gained to the account from "these offices" (presumably the Hobbs office). However, broad conclusions based on unstated facts seem to be a feature of the documents prepared by or on behalf of Mr Hobbs for others to sign at around this time.) 817In the witness box, Mr Mitchell denied knowledge of the purpose of the $1m payment but gave evidence that he was aware of its receipt. * Cancellation of FTC executive agreements 818On 20 December 2007, Mr Hobbs sent a letter to Mr Koutsoukos advising that FTC had made the decision to cancel all executive agreements in Australia and instructed him to remove all signs and information relating to FTC. * Instructions to destroy records 819Troubling evidence was given both by Mr Truong and Mr Koutsoukos as to what occurred after the ASIC notices were received in late November 2007. At [434] Mr Truong says that he, together with Mr Wood and Mr Koutsoukos, had a conversation with Mr Hobbs in which Mr Hobbs said words to the effect "Just get rid of the information so ASIC can't find anything at all" and at [435] Mr Truong confirms that he destroyed some of the documents that had been kept at the Burwood office (such as memoranda, contracts and any paperwork involving Mr Hobbs), and that he saw Mr Wood and Mr Koutsoukos do the same. From [1177ff], Mr Koutsoukos deposes that he, Mr Wood and Mr Truong had a telephone conversation with Mr Hobbs to the following effect: In order for us to keep having a business, my name must be protected. Shred anything with my name on it. I've got all the contacts. Without my good name, there's nothing. You've got to get all of that paperwork out of your office. Whatever you've got in your office relating to investment, get rid of it! Only keep material that's got to do with the education. and that when Mr Koutsoukos queried how they could shred people's signed memoranda (that he said "We need [...] to run our business"), he says that Mr Hobbs said: Shift them. What you need is to get another place. Use it for storage. None of you three can rent this place. Get someone that you know to rent it. Put that stuff in there. Get rid of the rest. Especially anything relating to offering someone investment. If you've just got information about an investment, leave it in there and say, "That it's all part of the education process. I am not offering an investment to someone." What's caused this problem is the superannuation money. 820Mr Koutsoukos deposes that arrangements were then made for Mr Truong's wife to rent a room in an office building and that he (and to his observation the others did the same) went through all the documents in his office and shredded various documents; left those relating to FTC subscriptions; and moved others to the new office. He said that the process took about two days to complete (which presumably indicates the volume of material with which he was dealing). (Mr Koutsoukos was not cross-examined on this evidence.) Events in 2008 * Cadent/New World meeting - January 2008 821On 28 January 2008, Mr Hobbs and Mr Collard met various representatives of New World Holdings in a conference room at Cadent. Also in attendance was a barrister, Mr Stanton. Mr Konopiots of Cadent made a statement in 15 April 2008 in which he said that at that meeting Mr Stanton said that he represented Idylic in connection with ASIC proceedings and Mr Hobbs said that he had been misled by Mr Koutsoukos, Mr Truong and Mr Wood. * Cadent due diligence requirements 822It appears that at some point in early 2008 Mr Hobbs sought advice from solicitors in Vanuatu as to whether there was a requirement for registration of the Vanuatu incorporated IBCs (with a view to providing that advice to the scheme administrators for provision to Cadent). The advice, obtained from Geoffrey Gee & Partners in Vanuatu, seems to have been a pro forma or generic advice (in that it did not identify the particular company or companies in respect of which the advice was being given and left a space for the company name or names to be inserted). There only appears to have been one letter issued (or else all the letters were in identical form). It seems that Mr Hobbs provided a copy of the letter to the administrators of various of the funds for provision by them to Cadent. (The funds in respect of which the same letter was used were First Secured Bond Unit Trust, Master Fund, 888 (Super Save), Good Value and Best Fund (all being Li/Collard schemes). 823The letter of advice was dated 1 April 2008 and was addressed to Mr Hobbs. It was headed "Due Diligence Requirements". It referred to "your letter" of 27 March 2008 and stated I understand these [unidentified] Vanuatu Companies hold accounts with brokers in the United States who then manage/invest those funds through Futures Trading etc I believe these companies would be classified as International Companies under the International Companies Act currently in force in Vanuatu and are not local companies. Whilst there are general regulations covering the promotion of and dealing in securities by companies to the public there is no bar on International Companies registered in Vanuatu holding accounts with licensed clearing houses then being contracted to Futures Traders overseas. Accordingly such International Companies do not require registration within the Vanuatu jurisdiction to invest in the United States. 824(The issue of such a letter to Mr Hobbs, and its use in relation to funds other than Global Funerals, is a significant indication that Mr Hobbs was involved in the operation of the schemes in question - since there is otherwise no explanation for Mr Hobbs obtaining such a letter for the purposes of those other funds.) * Threat to withdraw Cadent funds 825On 7 May 2008, Mr Hobbs (by email from the "nasl" email address) sent an email to Ms Reisinger (copying the email to Mr Erdman) headed "Commission" and stating: I need to make some tough decisions as it is not possible to have money with Cadent and no commission. To this end can you communicate when the commission is released. What the plan is, should the commissions not be sorted out as soon as possible the clients will give notice to the traders to trade out and state a period to do so. Is this the right way, eg, request what trades they have and finish those contracts and not enter any further for the account balances. 826Mr Hobbs submits that in February 2008 payment commissions on those accounts stopped "as Mr Erdman made a decision that stopped paying commissions to fund the legal expenses of New World Holdings and Lisa Reisinger in regard to the cost associated with UniFund which was caught up in the Integrity Plus and J&B scheme". 827Pausing there, there was no evidence in Mr Hobbs' affidavits as to this issue, nor any other evidence to which I was taken to establish either that there was a cessation of payment of commission on these particular Cadent accounts or the stated reason therefor. (There was some reference in the evidence to UniFund - in relation to the payment of expenses of Mr Stanton who it was said had travelled to Keele University UK to promote such a fund or to advise in relation to a proposed investment through such a fund. Mr Hobbs, perhaps tellingly, described UniFund in his submissions as a "stand alone" fund - if this is intended to be by contrast to the other funds the subject of these proceedings then it suggests he viewed the others as related or connected in some way.) (Mr Hobbs also referred to there being a reference to commissions on treasuries for this fund in the transcript of Ms Reisinger (p 139.8-24), though again it is not clear to me what significance Mr Hobbs sought to draw from this.) 828Insofar as Mr Hobbs submits that this email related only to the withholding of commissions from the Global Funerals or other Chinese mainland accounts (and that the funds had been withheld in order to fund legal costs in relation to UniFund), there is no evidence from which I can form a view as to the reason for cessation of commissions, nor does it seem to me that it can be assumed that the withheld commissions related solely to Global Funerals. (I note that the commissions for that account seem to have ceased after December 2006 through at least until mid July 2007, having regard to the Cadent and New World Holdings records in evidence. If so, the lapse of time through to a threatened withdrawal in May 2008 seems surprising. In any event, as this is not the sole evidence to support the contention that Mr Hobbs was receiving commission from more than one fund, nothing ultimately turns on this email.) * Further documents prepared by Mr Hobbs 829At [442], Mr Truong gives evidence that in or about 2008, after the Burwood office had closed, he received an email from Mr Hobbs with an attachment relating to a purported loan to Mr Hobbs. He says that at about that time he then had a conversation with Mr Hobbs in which Mr Hobbs said to him words to this effect, "Tell ASIC that you lent me some money" and that he needed Mr Truong to do it urgently. Mr Truong said that he did not sign that document because he then had a discussion with Mr Stanton who told him not to do so. (This is consistent with the pattern of behaviour of Mr Hobbs from late 2007 drafting various documents for others to sign in which they were in effect being asked to absolve him from responsibility for various matters.) Credibility of Witnesses 830Before turning to the issues for determination, I consider the submissions made as to the credibility (or reliability of the evidence) of various of the witnesses. Mr Hobbs 831As Mr Hobbs' conduct is central to many of the allegations on which ASIC's case rests, I will address first the criticisms made of Mr Hobbs' reliability or credibility as a witness. 832Mr Halley submitted that no reliance could be placed on any evidence of Mr Hobbs concerning any disputed issues (except to the extent that there might be an admission against selfinterest made by him). Mr Halley quite squarely put to Mr Hobbs on various occasions throughout cross-examination that Mr Hobbs evidence was dishonest and he submits that (although such a finding is not necessary for ASIC's case) a finding of dishonesty could comfortably be made in relation to Mr Hobbs' evidence in the proceedings in a number of respects. 833Those submissions are predicated on the inconsistencies between Mr Hobbs' version of various events (whether given in his affidavit or in his evidence in cross-examination) and that which can be gleaned by reference to contemporaneous documents and/or the evidence given by other witnesses. Mr Halley submitted that, when confronted in cross-examination with material that made his stated position untenable, Mr Hobbs tended to change his evidence or blame his medical condition or profess an inability to recall events. I think there is considerable force to that submission. I also note that at various points, when confronted with propositions that seemed unarguable (such as the meaning that would be conveyed by things that had been written or said by him), Mr Hobbs seemed to seek to shut down the questioning with statements such as "It is what it is" or to justify his conclusions as to particular matters based on his asserted knowledge (of which there was no independent corroboration). As an example of the former: Q. So, how are we to determine, Mr Hobbs, when it's a case of instant recollection and when it's a case of denial, Mr Hobbs? A. It is what it is, whatever it is. 834As to the suggestion that Mr Hobbs resorted to an inability to recall matters when faced with evidence inconsistent to that he had given elsewhere, somewhat ironically Mr Hobbs himself has criticised the inability of another witness (Mr Parsons) to recall events and has treated that in submissions as being synonymous with the unreliability of Mr Parsons as a witness. 835In that regard, I am conscious of the fact that some of the events in issue in the proceedings took place quite some time ago. It is well recognised that the memory of witnesses is likely to become more unreliable over time (hence the presumptive prejudice recognised as flowing from delay in the determination of proceedings). In Brisbane South Regional Health Authority v Taylor, McHugh J (at 552-553) considered the difficulty posed by the lapse of time between relevant events and the ultimate hearing, saying that: .... Sometimes the deterioration in quality is palpable, as in the case where a crucial witness is dead or an important document has been destroyed. But sometimes, perhaps more often than we realise, the deterioration in quality is not recognisable even by the parties. Prejudice may exist without the parties or anybody else realising that it exists. As the United States Supreme Court pointed out in Barker v Wingo, "what has been forgotten can rarely be shown". So, it must often happen that important, perhaps decisive, evidence has disappeared without anybody now "knowing" that it ever existed. Similarly, it must often happen that time will diminish the significance of a known fact or circumstance because its relationship to the cause of action is no longer as apparent as it was when the cause of action arose. 836In those circumstances, what is relevant is not so much whether Mr Hobbs does or does not now recall particular details or events (such as, for example, the name of Mr Cowern, who was the subject of the ASIC enquiry in 2002) but to compare the matters that Mr Hobbs does profess to recall with confidence (such as a telephone conversation with Mr Becker in 2003 in which he says the latter instructed him as to the operation of the LEAPS strategy that he then conveyed to Mr Fitzgerald) with those matters that Mr Hobbs says he does not recall (such as the ownership of OEM/KLM) particularly where the latter are matters about which Mr Hobbs has previously been far more expansive in the context of selling his expertise (or the FTC product) and might be expected to be matters that Mr Hobbs would be unlikely to forget. 837Mr Halley characterised Mr Hobbs' evidence as falling into one of three categories: evidence that was inconsistent with contemporaneous documents; evidence that was internally inconsistent; and evidence that Mr Halley submits was inconsistent with evidence of other witnesses (the veracity of whose evidence there was no reason to doubt and/or who were persons who might be expected to be or were transparently sympathetic to Mr Hobbs' position, such as the evidence of Mrs Watson concerning the operation of the OEM and KLM "system"). 838Mr Halley pointed to a number of matters as demonstrating the unreliability of Mr Hobbs' evidence: the inconsistency in his evidence on various occasions as to the authorship of Art of Arbitrage booklet that formed part of the FTC educational materials; his refusal to accept that he had told people that FTC would give them access to the "real things" (and that, by that, he was referring to the opportunity to invest moneys in offshore investments for higher returns); his refusal to accept that at one stage he considered Mr Diaz to have had a successful background in building a solid financial business in Sydney (though this is how he had himself described Mr Diaz when appointing him to the role of National Sales Manager of FTC); his reluctance to accept that he had overstated Mrs Hobbs' qualifications to others; his insistence that instruction as to the LEAPs strategy was provided by Mr Becker; his denial of knowledge as to the ongoing updating of manuals issued to KLM introducers; his denial of knowledge in relation to OEM and the inconsistency between his evidence as to the formation of FTC and the ownership of OEM/KLM; his evidence as to the investment by PJCB in Geneva Financial; and, significantly, the evidence given by Mr Hobbs in relation to the DVD Seminar and as to the returns that might be achieved from investment in the offshore wholesale market. * Art of Arbitrage 839As to the Art of Arbitrage evidence, Mr Hobbs (at [7] of his 3 August affidavit) deposed to the provision to him of a number of booklets which he said he believed were prepared by either Mr Chen or Mr Becker and gave as an express example the Art of Arbitrage "and the other booklets in these proceedings". What this clearly conveyed was that not only had that particular booklet been prepared by Mr Chen or Mr Becker but also that the other booklets in the proceedings had been similarly prepared. There was certainly no suggestion in that paragraph of the affidavit that Mr Hobbs or his wife had prepared or written any of the booklets. 840Mr Halley characterises this as a deliberate attempt by Mr Hobbs to suggest that he had nothing to do with the preparation of the FTC booklets. Whether or not that be the case (and I note that this may simply be an instance, common throughout the evidence in the proceedings, where Mr Hobbs seems to have been inaccurate or infelicitous in his choice of language or use of grammar and may not necessarily have been an attempt by Mr Hobbs to convey a misleading impression in his affidavit), the cross-examination on this issue led to the quite implausible evidence that there were two Art of Arbitrage books - one being the book that Mr Hobbs said in his s 10 examination in New Zealand that he had written and the other being the book he said in his affidavit in these proceedings had been prepared by Mr Becker or Mr Chen. 841In the s 10 examination, Mr Hobbs (having been asked what sort of educational materials or financial materials he was preparing for FTC and having said that he wrote some aspects of the books) quite clearly said "I wrote the book on the Art of Arbitrage". Taken to this evidence in his cross-examination, Mr Hobbs insisted that the booklet to which he had referred in the s 10 examination was not the book that formed part of the FTC materials and that there was another book on the "Art of Arbitrage" that he had written for Mrs Andrews for sale by NASL. (There is no evidence that NASL was in the business of selling financial information). Again, whether or not that be the case, the answer that Mr Hobbs gave in the s 10 examination (in its context) clearly conveyed that the Art of Arbitrage book written by Mr Hobbs was one of the books that was part of the FTC series of 18 books and the explanation proffered by Mr Hobbs for the inconsistency between his affidavit and that evidence was unsupported by any evidence. 842As indicated earlier, Mr Halley submits that a Jones v Dunkel inference can be drawn that, had Mrs Andrews given evidence, that evidence would not have assisted Mr Hobbs on the particular issue as to who wrote the book on the Art of Arbitrage that formed part of the FTC materials. (Mrs Andrews availability to give such evidence being something I would infer from the plethora of communications received from her before and during the hearing - communications that Mr Hobbs suggests were not sent on his instructions or with his approval). Ultimately, Mr Hobbs accepted that what he had written in his affidavit (ie that Mr Becker of Mr Chen had provided the books including the Art of Arbitrage was incorrect insofar as it suggested that he, Mr Hobbs, had not written any) but he maintained that he had not written the FTC book of that name. 843It seems to me that an inference is open (having regard to Mr Hobbs' FTC appointment contract and, in particular, the obligation to develop the educational materials and the non-compete and confidentiality provisions contained therein) that Mr Hobbs would not have been likely to have been writing a book for sale by NASL with the same title as that of a book in the FTC series. (Mr Hobbs' response to that suggestion in cross-examination was that Mr Becker had approved this but there is no evidence of any such approval - nor is there any evidence of the provision of the FTC materials by Mr Becker to Mr Hobbs in the first place). The fact that Mrs Andrews was not called on to corroborate Mr Hobbs' version of events would lead to an inference that she would not have assisted his case in that regard (and would mean that I could more comfortably conclude that Mr Hobbs had written the Arbitrage book for FTC and not NASL). 844Ultimately, it is not necessary to draw any such inference because nothing turns in my view on who in fact wrote the FTC Arbitrage book. What is more significant is that the inconsistency in the different versions of the evidence Mr Hobbs has given points to the caution I should exercise before accepting the version of events set out in Mr Hobbs' recent affidavits (which, on either view of the authorship of the Arbitrage book, was unreliable). 845Moreover, the transcript of the cross-examination on this issue is a good example both of the incremental changes in Mr Hobbs' evidence when faced with inconsistent documentary or other evidence and of Mr Hobbs taking refuge in the pressure of the s 10 examination (T 1244.4): Q. Having reread those lines, you represented, did you not to Miss Hayden, that the FTC book on the Art of Arbitrage was written by you? A. If that was how it was presented it's incorrect and I think it's important to note when you are under crossexamination by a number of people you do make mistakes. 846Mr Halley submits, in effect, that if the pressure of such an examination was so great as to cause Mr Hobbs to give mistaken answers, then reliance cannot be placed on his evidence in the present proceedings for similar reasons. (In that regard, I accept that the pressure on Mr Hobbs as a witness in court proceedings of the present kind, particularly where he is self-represented, must be at least as great as that experienced in the s 10 examination in New Zealand where Mr Hobbs did have legal assistance and where the proceedings were not held with the same formality as court proceedings.) 847ASIC's main submission, arising out of this evidence was that Mr Hobbs was here seeking to accommodate his evidence to fit the objective facts put to him in light of the discrepancy between [7] of his affidavit and the evidence given in his s 10 examination. I think that submission has great force. * FTC - access to 'real things' 848The second example to which Mr Halley pointed in support of his submission as to the unreliability of Mr Hobbs' evidence in general was the evidence given by Mr Hobbs concerning the proposition that FTC would lead people to a position where they could "access the real things". Surprisingly, Mr Hobbs resisted at first the proposition that this was the purpose or aim of FTC, nor could he recall having made such statements to people (even though it was in effect a statement that Mr Hobbs had deposed in his 3 August affidavit (at [32(j)]) that he would make in the ordinary course of presenting a "Future Trading Seminar"). 849The significance of this evidence is that ASIC's case is that FTC was an integral part of the scheme, being the conduit by which investors were led into the scheme. (ASIC's contention is that the benefit obtained by subscription to FTC was in substance not the booklets, those being general in content and sent out over a three year period, but the opportunity to have access (through a collective or pooled investment scheme), wholesale investments offshore with the represented potential of significant returns of interest.) 850Mr Hobbs deposed in his affidavit to having ordinarily made in the course of an FTC seminar the statement that "Future Trading does not offer investment, we do not offer investment advice but will lead people to a position where they can access the real things". This is consistent with what Mr Hobbs is recorded as having said in the DVD Seminar: ...So the opportunity from Future Trading's point of view: we do not offer investment, we do not offer investment advice, but we will lead people to a position where they can access real things. And the investment products is not owned by Future Trading, it's owned by KLM Enterprises Limited. So when somebody takes what we call an executive agreement with us with Future Trading, that is to sell financial subscriptions, and then they wish to sell investments, that contract for investment sale is with [KLM] Enterprises. Now, some of the investment opportunities with KLM Enterprises are: you can have monthly income producing funds, quarterly income producing funds, annual income producing funds. Remember that 98 per cent of the funds are profit based funds. Here are some funds that are just new on the market. ...(my emphasis) 851Mr Halley submits (and I agree) that, taken in context (ie, immediately followed by the words "And the investment product is not owned by Future Trading, it's owned by KLM Enterprises Limited", the statement as to "access" to "real things" must be seen as a reference to the investment products "owned by KLM" (those being products that Mr Hobbs himself said could be sold through a contract for investment sale with KLM by someone who takes an executive agreement "with us [FTC]" (ie an FTC executive) and then wishes to sell investments). 852In cross-examination (at T 1222.43), inconsistently with his own statements at the DVD Seminar and inconsistently with the thrust of his own affidavit evidence, Mr Hobbs was not prepared to accept the proposition that FTC's aim was to lead people to a position where they could access "the real things". Tellingly, the way in which Mr Hobbs sought to distance himself from that proposition was to emphasis that FTC was an education company and then to say: Q. Mr Hobbs, the purpose of FTC, I suggest, was to lead people to a position where they can access the real things, wasn't it? A. I have heard that said, but FTC was an education company. (my emphasis) 853As I noted during the course of closing submissions, the answer " I have heard it said..." conveyed to me at the time that Mr Hobbs was suggesting that someone other than he, himself, had said this (just as in other parts of his evidence he had said that he had read things in affidavits, suggesting that this was the first time he had been aware of the particular matter). My impression of Mr Hobbs' evidence in this regard was that Mr Hobbs' overriding concern was to emphasise that FTC was restricted to the sale of financial education (and that his unresponsive answer to the precise questions posed of him was due more to his desire to communicate his own version of events rather than to avoid answering the question). 854Mr Halley submits that the evidence that Mr Hobbs gave in the course of crossexamination that he did not recall making statements as to "access to real things" is difficult to accept in light of the fact that he deposed to this as recently as 3 August 2012. I agree (subject to the question mark there as to Mr Hobbs' short term memory, to which I will refer in due course). 855While Mr Hobbs was not the only person involved in the drafting of his affidavit (and other evidence, such as the review of the accounting records, and some of his submissions, such as to the alleged lack of Cadent source documents, seems to have been based on what others did or said, namely his wife and his secretary), there is no reason to think that the statement at [32](j) was not one that Mr Hobbs had considered as at 3 August 2012 accurately represented his recollection of events. It is, however, flatly contradicted by contemporaneous evidence (particularly the DVD Seminar). 856Again, Mr Halley points to this as casting doubt on the accuracy of Mr Hobbs' affidavit evidence. I agree. 857In the witness box, Mr Hobbs pointed to the absence of specific reference in the FTC educational material as to investment opportunities (just as he had when providing Mr Bellamy with the answers for the Cadent legal opinion) - there being the following exchange at T 1276: Q. Do you deny the purpose of Future Trading was to lead people to a position where they could access real things? A. That's just not correct. Future Trading, there's nowhere in the Future Trading information you will find anything like that. without regard to what was said to people in seminars about FTC and what opportunities (such as the potential for investment) could follow therefrom. Mr Hobbs sought to explain the reference in the DVD Seminar to access to "real things" as meaning the provision of such access "[b]y education": Q. Now, what were the real things that you were referring to? A. It's education. It's understanding what is right and wrong. Q. So the real things that you were leading them to was education, is that what you say? A. Well, if you read the newsletters from Future Trading it would become quite obvious. 858From my review of the DVD Seminar footage, it seems to me inconceivable that someone in attendance at that seminar would have understood that the "real things" to which it was being said that an FTC subscriber could have access were limited to education (laudable as the aim of educating people between what is right and wrong may be). There was a clear link between the educational message and the funds that Mr Hobbs consistently referred to as funds "we" have or to which "we" did or did not have access. (In that regard, Mr Hobbs' response in cross-examination that he used the expression "we" when he was part of the "team" at Colonial Mutual confirms the impression I gained on viewing the DVD Seminar footage, which was that Mr Hobbs was including himself as part of the "we" at the DVD Seminar - and, to the extent that there was a reference to "we" have funds, that could only sensibly have conveyed the meaning that he, as part of FTC and/or KLM or whatever entity was part of that overall team had those funds or access to those funds.) * Mr Hobbs' regard (or otherwise) for Mr Diaz 859As to the evidence in relation to Mr Diaz' appointment in August 2003, Mr Halley points to Mr Hobbs' adamant refusal to accept that (at least as at August 2003) he had significant respect for Mr Diaz' financial skills, notwithstanding that the email by which Mr Hobbs announced the appointment of Mr Diaz to the role of National Sales Manager stated that: Rob comes to the position with a very successful background in building a solid financial business in Sydney. He enjoys undivided loyalty from staff. 860(Mr Halley contrasted this with the dismissive description by Mr Hobbs (in his affidavit of 3 August 2012 at [27]) of Mr Diaz as an "unsophisticated cleaner", that being in the context of Mr Hobbs' evidence as to the trip Mr Diaz said he had made to America to meet Ms Reisinger for a proposed US$20million transaction, and with the offence taken by Mr Hobbs during his cross-examination to the description by Mr Halley of Mrs Watson as a "hairdresser".) 861When cross-examined, from T 1413, as to the view he had held at the relevant time of Mr Diaz' skills, Mr Hobbs refused to accept that at the relevant time he had had significant respect for the financial skills of Mr Diaz; he said "I liked Mr Diaz. He was learning. He didn't have high skills, I'm sorry" and was prepared to concede only that Mr Diaz "did very well in mortgages and mortgage brokering". 862(Tellingly, he described the appointment of Mr Diaz to the role of national sales manager of FTC for Australia as giving Mr Diaz an "opportunity", conveying to me that he was doing him a favour - much as Mr Clements' evidence suggested that Mr Hobbs had put him into the role of administrator of the Elite Premier Funds as a means of giving him an opportunity when he was unemployed.) 863Mr Hobbs resisted answering the question whether he thought Mr Diaz appropriately qualified for the role to which he had appointed him ("He was learning"). Somewhat remarkably, given Mr Hobbs' role as International Sales Manager and the fact that he seemed to have had the responsibility for making or confirming appointments to the position of FTC executives, when I sought to clarify whether his answer to that question was a "yes" or a "no", Mr Hobbs responded that he was "not sure what he had to be qualified for, ... for that role". 864Mr Hobbs accepted that the distinction he was drawing in this evidence was between a solid financial business and a solid financial mortgage brokering business, though it is by no means clear what relevance Mr Hobbs thought lay in such a distinction (whether generally or when promoting Mr Diaz to FTC executives). 865Mr Halley submits that Mr Hobbs' denial of the proposition that at any time he had thought that Mr Diaz had built a solid financial business (as opposed to a solid "mortgage brokering business") is significant because of the extent to which Mr Hobbs sought to cavil with a proposition that he had himself earlier espoused (and as an example of his evidence changing incrementally during the course of crossexamination). (Here, and in other instances, Mr Halley's observation was that the demeanour of Mr Hobbs was more co-operative when answering questions from the bench as opposed to answering questions in cross-examination. As to that issue, while I accept the force of Mr Halley's observation, I draw little from this.) 866Other than again highlighting a disparity between Mr Hobbs' present evidence and what is contained in a contemporaneous document, Mr Halley submits that Mr Hobbs' dismissal of Mr Diaz as an "unsophisticated cleaner" is consistent with his characterisation of Mr Koutsoukos, Mr Wood and Mr Truong as "fraudsters". (In relation to that last point, it seems to me that there is a distinction between Mr Hobbs seeking to downplay Mr Diaz' experience (in the context of submitting that it is not likely that he would have asked him to negotiate a multi-million dollar proposal) and his submission that I should not accept the evidence of persons against whom criminal liability in relation to the schemes has been alleged.) * Mrs Hobbs' book-keeping/accounting skills 867As an example of what was submitted by Mr Halley to be Mr Hobbs' inability to make an obvious concession was the evidence concerning Mrs Hobbs and her bookkeeping (or accounting) skills. At the outset, I note that Mr Halley made clear that there was no criticism of Mrs Hobbs in this regard. Rather, the issue was as to whether (as the contemporaneous record confirmed, but as Mr Hobbs was reluctant to concede) Mr Hobbs had represented to others that she was an accountant who had undertaken some kind of degree course. 868At the DVD Seminar, Mr Hobbs clearly referred to his wife as "an accountant" and spoke of the time when she was "doing her degree". In cross-examination, Mr Hobbs confirmed that his wife was not a chartered accountant and did not have a formal degree, but was vague as to what her qualifications were and was not prepared to concede that he had previously described her as an accountant or that, if he had done so, this would have been incorrect (T 1249ff). 869(In passing, I note that Ms Reisinger's understanding as gleaned from her CTFC examination transcript, consistent with what had been conveyed at the DVD Seminar, was that Mrs Hobbs was an accountant but I accept that that understanding may not necessarily have derived from anything Mr Hobbs, but may have been an assumption based on what she regarded as Mrs Hobbs' ability to ask pertinent questions about the account statements.) 870Another example of what I consider to be Mr Hobbs' tendency to gloss over the details, or to be imprecise in his language, is that when asked to describe the difference between a chartered accountant and an accountant Mr Hobbs said: A. A chartered accountant is qualified and belongs to the Society and anybody can be an accountant who is good at bookkeeping. (my emphasis) (a surprising statement for someone who said at the DVD Seminar he had "honoured" in financial planning). 871I see this evidence as indicating Mr Hobbs' tendency to put a gloss on statements made by him in the context of what he describes as selling his expertise (in the FTC seminar context), a tendency that Mr Hobbs himself seemed to confirm in closing submissions when explaining the inconsistencies he concedes there were in his account of how FTC was incorporated or formed as referable in part to the difference between selling one's expertise and giving evidence under oath. 872This is but one of a number of statements in the DVD Seminar that seems to be a far stretch from the truth (other examples being the reference to FTC's offices on the promotional video, when the only office of which there is any evidence is the office in Nelson; the reference to thousands of people researching and carrying out due diligence on the funds, when there is no evidence of that kind; the reference to doing 2-3 years diligence on a fund, when it seems that funds such as the Super Save superannuation fund and the later Li/Collard schemes were set up and made available for investment almost immediately; the reference to the people running funds or otherwise connected with FTC in the Hobbs office at the DVD Seminar (none of whom was referred to by anyone else as being there and whose connection with the running of "KLM" funds or funds in which investment might be possible was by no means evident); the statements as to the extent of outside scrutiny and transparency of the investment and as to the accountability of the investment process - made at the DVD Seminar, recorded in the notes taken by Mr Blow and in the response to the questions conveyed to Mr Gahan; to name but a few). 873Tellingly, having regard to the value of the education being delivered through the FTC educational process, Mr Hobbs expressed the opinion that "I guess anybody could research and write a book like this [namely the "Is Your Money Really in the Bank?" (that Mrs Hobbs' email to Mr Dent indicated she had written) Mrs Hobbs there suggesting that "Dave should start paying me for writing them"]. * LEAPs Strategy 874The fourth issue to which Mr Halley referred in this context was the evidence as to the source of the information in relation to the LEAPs Strategy that Mr Hobbs provided to Mr Fitzgerald. (Significance is also placed on this communication, whatever the source of the information, as a contemporaneous record of a written instruction that Mr Hobbs was providing to a scheme administrator (Mr Fitzgerald) as to how the investment scheme (Covered Strategies) was to be conducted.) 875Mr Hobbs seemed implicitly to accept that the letter of 4 August 2003 to Mr Fitzgerald involved the giving of instructions as to how to operate the fund, though he sought to dismiss the significance of the letter as being merely "a letter sent to Mr Fitzgerald on his request after we had discussions one time" and he insisted that this was simply following Mr Becker's instructions: Q. So what you were doing in this letter was telling him how he should be operating his fund, weren't you, Mr Hobbs? A. Well, it's exactly what Mr Becker said, so I did exactly as he said. 876Having given that explanation for the letter, it was then put to Mr Hobbs that the contemporaneous documents suggested that the relevant information had in fact come from Mr Hank Parker. In that regard, Mr Hobbs accepted that it was possible that he had received the two documents sent from Mr Parker as to the LEAPs strategy, the fax headers on which indicated that they had been forwarded to Mr Diaz' office from the Hobbs office at a time when Mr Hobbs was working in the Diaz office but Mr Hobbs maintained that the information was provided to him in a telephone conversation that he recalled having with Mr Becker. As to the likelihood that it was Mr Becker, a securities attorney, rather than Mr Parker, a trader who had been running the Covered Calls fund at around that time who gave that information, while it seems more likely to have been the latter I would not necessarily discount the possibility that it was the former. However, the timing of the Parker letters (and the obvious assumption on the part of Mr Parker that Mr Hobbs would be communicating this information to others, having regard to the content of the letters) means that if Mr Hobbs' recollection is correct it seems an incredible coincidence that, just at the time Mr Parker was suggesting the use of the LEAPS strategy (and instructing Mr Hobbs as to how that should operate), Mr Becker would also raise that means of investment. (Mr Halley points out that this was attributed by Mr Hobbs to a telephone conversation of which Mr Hobbs had no record and could now give no account of what had been said therein.) 877Mr Halley relies on this as an illustration of the "mantra" he submits Mr Hobbs had adopted throughout his evidence (namely that, to the extent that Mr Hobbs was provided with any information or instructions, it was Mr Becker (and after Mr Becker died, Mr Chen) who provided that information) notwithstanding that contemporaneous documents suggested otherwise. In that regard, I consider that there is some force in the observation that Mr Hobbs sought to attribute responsibility for a variety of matters to persons such as Mr Becker, Mr Chen and Mr Parker (and often in an unspecific way - "Mr Becker and Co" without being able to point to any contemporaneous evidence of their involvement) and, on one occasion, started to attribute conduct to Mr Becker at a date after Mr Becker's death, though immediately correcting that mistake. 878While I accept that the information contained in the letter to Mr Fitzgerald could have come from someone other than Mr Parker, it seems to me significant that the LEAPs instruction to Mr Fitzgerald was given only shortly after Mr Parker gave advice as to how to communicate that advice and in terms consistent with Mr Parker's advice. 879In any event, (wherever Mr Hobbs obtained the information about the LEAPs strategy) it is significant that this was an instance in which Mr Hobbs was clearly giving instructions to a scheme administrator (Mr Fitzgerald) as to how the fund was to operate (and whether he did so on instruction from Mr Becker is irrelevant when considering Mr Hobbs' role, vis a vis that of Mr Fitzgerald, in relation to that scheme). (Also relevant in that regard is the fact that Mr Fitzgerald clearly saw himself as having only an administrative role in relation to the fund and that Mr Hobbs assumed responsibility for the fund when Mr Fitzgerald resigned as "director" in early 2005.) * KLM Introducers' manual 880As to the next issue to which Mr Halley points in relation to the unreliability of Mr Hobbs' evidence, this relates to Mr Hobbs' denial that he was aware of KLM introducers being issued with manuals that were updated annually (inconsistently with what he was recorded as saying on the video of the DVD Seminar). At the DVD Seminar, in the context of a discussion as to particular funds, Mr Hobbs is recorded as saying: ... Another type of fund that is - and again when somebody becomes an introducer for KLM Enterprises, they get equipped with a manual that's updated annually with all the latest reports from the different fund managers, showing the performance for that year and so forth. So they see all the inside information. They see who the fund managers are, you know, you get all the information required. (my emphasis) 881At T 1278.33, Mr Hobbs first said that he was not sure but believed that KLM "introducers" were provided with information of that kind and then disclaimed any such knowledge. When taken to what he had told the attendees at the DVD Seminar, Mr Hobbs said "That's completely what I understood" and seemed to draw a distinction between a manual and any "ongoing introducer's manual". He said that it was his understanding that KLM introducers received a manual listing the funds that were available but could not say that he had ever seen that manual updated on an annual basis. There was then the following exchange: Q. Now, what I want to suggest to you, Mr Hobbs, is that you were well aware of what material was provided to KLM introducers at the time you were speaking to these FTC executives and potential FTC executives in October 2003, that's the case, isn't it? A. I was aware of only what I knew. [An answer akin to "it is what it is"] ... A. Well, I was aware that they received a manual and I was told it was updated. ... Q. You were confident that you had sufficient knowledge to pass on to FTC executives the fact that if they became KLM Enterprise introducers, as you understood it, they would get access to a manual that was updated annually with information concerning funds made available by KLM? A. I was under the understanding, yes, with an introducer that that's what they would receive. Q. And that was all part of the system that you understood was to enable retail investors in Australia to get access legally, as you understood it, to offshore funds? A. Yes, but you can't draw FTC into that. [my emphasis - this indicates the distinction that Mr Hobbs consistently sought to emphasise between FTC and the investment process] 882Again, this is an example of Mr Hobbs' recollection being far more vague in his evidence than in the account that he gave of the process at the DVD Seminar (though I accept that the lapse of time may have dimmed his memory in that regard). The suggestion that he did no more than parrot information received from Mr Becker or others to FTC executives or potential executives (and did not have any personal knowledge of what he was telling the attendees at the DVD Seminar) is surprising and difficult to believe in the absence of anything to corroborate Mr Hobbs' account of his dealings with Mr Becker. * OEM/KLM process and formation of FTC 883While some of the other examples to which Mr Halley pointed in the evidence might be considered to be of less weight in the overall scheme of things (such as who wrote the FTC Art of Arbitrage booklet), the inconsistency in Mr Hobbs' evidence as to the formation/incorporation of OEM and KLM (and of FTC) is in my view highly significant given the role of OEM/KLM in the investment process. (I regard that role as significant because if, as seems to me to be the case, there was no relevant separation between OEM/KLM and Mr Hobbs/FTC, then the reason for the interposition of the OEM/KLM process can only have been an attempt to convey the, on this hypothesis, false impression of some international involvement in the investment process and an attempt artificially to distance FTC and the provision of educational material from that process.) 884At T 1280, Mr Hobbs denied any knowledge of the identity of the OEM directors, where OEM was incorporated, where (or when) KLM was incorporated and who its directors were. (Disingenuously, having regard to his knowledge of the operation of IBCs and his description of them in the DVD Seminar, Mr Hobbs suggested, as he did more than once to Mr Halley, that reference could be made to the company register to see who the directors were or to confirm that he had no interest in the company.) 885Mr Hobbs' inability to recall any of this information is in marked contrast to the information Mr Hobbs provided at the DVD Seminar where, as set out earlier, he gave an immediate response to the request by Ms Wool for information as to "a clearer structure of FTC and the relationship with OEM Limited and then KLM ... who owns what and, you know, is it floated and - or where you can get some additional information". 886There is no doubt that Mr Hobbs' evidence on the formation of FTC and on the ownership of OEM and KLM has been inconsistent. In the handwritten notes made by Mr Blow of the meeting he attended on 15 February 2003 (at which he clearly identified Mr Hobbs as present), there is reference to FTC as an offshore company and to the "intermediary KLM - Research education material". The notes later record the meeting being told that an entity (which must in the context refer to FTC as this is noted on the following line with a series of points: Vanuatu; sell educational material (no prospectus)) was "formed by David Hobbs (still own a % thru a trust)"; then with the words "share the investment info" and an arrow to "owned by OEM Ltd" and a further arrow to "Based n London". (Pausing there, there is absolutely no evidence to suggest that either OEM or FTC was ever based in London.) 887Also in Mr Blow's notes there is a list headed Individuals and the following "Georgia in US"; "Securities trader US New York"; "Fund Mger US New York" and "ACCTT [presumably accountant] Canadian Bahamas" bracketed by the words "Due Diligence"; as well as the line "Not using in this fund" and "Kentucky University US". 888(There is also reference in Mr Blow's notes to "Trustee company trans capital mgmt"; "All the investment funds have a different mgr (80% of each fund); OEM owns 20% of each fund"; "Trustees check each transaction (all over - Australia, NZ, US)"; "Audited accountants"; "Fund mgrs - Merrill Lynch Barclays Soc gen"; "Lots of safeguards in place - 2-4 year process to research a fund; analysts on contract from different major firms; a number of people" - all later repeated at the presentation that Mr Hobbs is recorded on the DVD Seminar as giving at the later October 2003 conference.) 889Cross-examined as to the reference to "forming" FTC, Mr Hobbs sought to draw a distinction between formation and incorporation (though interestingly, various of the material relating to the US corporations also uses the word "formation" rather than incorporation). Cross-examined as to the ownership of FTC, there was the following exchange: Q.Did you sell FTC to somebody else at some stage? A.FTC was sold between Mr Cheng [Chen] and Becker. At one stage I was supposed to have ownership of FTC, but that never happened. [cf his statement at the DVD Seminar that he no longer owned the company] Q.So, what was the sale that you referred to [on the DVD], Mr Hobbs? A.The sale was supposed to be the I was supposed to get paid for a portion of FTC, which I never did. Q.So, it was the sale you selling FTC to Cheng [Chen] and Becker; is that what you say? A.No. Q.What was the sale then? A.Cheng Mr Cheng and Mr Becker were selling part of FTC to another person. Q.And how was it proposed that you have anything to do with that sale, as you understood it, Mr Hobbs? A.Mr Cheng said I was going to get paid from it. Q.Why would you get paid for the sale of an interest in FTC unless you had an interest in FTC, Mr Hobbs? A.Well, you would be welcome to check the register of companies. I didn't have any interest in it. (my emphasis) ... [Having been taken to the DVD footage and asked if this had refreshed his memory], Q.What were you to be paid, Mr Hobbs? A.They said I was to be paid something from the company when they were selling it. Q.And, as you understood it, did they sell it? A.I don't know. Q.So, you were to be paid something if they sold the company, as you understood it, but you don't know whether they ever sold the company; is that your evidence? A. No, I don't, no. * PJCB initial investment in Geneva Financial 890A further example to which Mr Halley pointed as demonstrating the unreliability of Mr Hobbs' evidence was the statement made by Mr Hobbs as to the initial investment by PJCB into the fund administered by Geneva. At [17] of his first affidavit Mr Hobbs had said, in unconditional terms: Although my wife and sister in law were involved in Geneva I did not refer any Future Trading subscribers or executives to them. Neither I nor to my knowledge anyone else at Future trading ever marketed Geneva to subscribers or executives in Future Trading. 891Later, Mr Hobbs at [56] deposed to a meeting that he said occurred in about July 2006 in New Zealand with Ms Dabelic, Mr Truong, Mr Koutsoukos and Mr Wood "to discuss Future Trading's business" at which he says there was some discussion as to his wife starting an account with Cadent to trade futures and Mr Koutsoukos said that he had sold some flats and wanted to invest the monies "in your fund". (Mr Hobbs deposed that his understanding was that this had in fact occurred and that investments were made with Geneva Financial but that this was the only investment of this kind "although I believe they invested further funds after the first instalment".) 892Mr Hobbs emphasised in his written submissions this conversation and the belief of he and his wife that the investment in Geneva Financial was of personal funds of Mr Koutsoukos. I have referred earlier to the difficulties with Mr Hobbs' version of this meeting (in terms both of the time at which it occurred and the context of the discussions that there occurred). One of the stated attendees (Ms Dabelic) cannot have attended any such meeting in July 2006 as she by then no longer had anything to do with the J&B Financial or FTC business; furthermore, the suggestion that in July 2006 Mrs Hobbs was starting an account with Cadent is contrary to the evidence that the Cadent application forms for Geneva Financial were signed in December 2004 and that account was opened by January/February 2005. In addition, the first PJCB private placement agreement with Prestige was dated 21 February 2005. Therefore any discussion of the kind Mr Hobbs suggested must have taken placed some time before February 2005. 893As to the content of any discussion occurring in mid 2006, it seems implausible that the three J&B Financial officers would have travelled all the way to New Zealand just to discuss "production" when they were having regular telephone calls with Mr Hobbs and it might be thought to have been far easier and cheaper to discuss production in one such call. ASIC's contention is that the mid 2006 meeting (that required a trip to New Zealand) was to discuss the establishment of the Super Save superannuation fund and that Mr Hobbs has confused the two meetings (or deliberately reconstructed the latter in order to place any discussion about investment in the funds operated by Geneva Financial as occurring outside of Australia). Mr Hobbs refused to accept that this was the case. 894Relevantly, in terms of the manner in which Mr Hobbs gave evidence, at T 1206.50, when Mr Halley put to Mr Hobbs that at the meeting in 2006 the discussion was not about FTC business, Mr Hobbs first response was "It's 2006. I don't actually recall". Pressed on this, he said "We'd probably been discussing what the production was" and this then became "We would have and I would have discussed production", ... "It would have been about production". 895At least in relation to the timing of the discussion about investment by PJCB in the Prestige fund contract with PJCB (which self-evidently must have occurred prior to the entry into the agreement), Mr Hobbs ultimately conceded that paragraph [56] of his affidavit might be wrong to the extent that it suggested that the introduction of Geneva Financial to Mr Truong, Mr Koutsoukos and Mr Wood took place in or about July 2006, but was quick to add "I'm not to say. I didn't control Geneva". 896ASIC cites this as an example of Mr Hobbs' refusal to make obvious concessions unless or until driven to do so. I consider there is force to that submission. I note that, on this occasion, even after being taken to evidence that seems to me to have been compelling against Mr Hobbs' stated recollection of events, Mr Hobbs still qualified his answer (just as he had qualified his concession as to his wife's accounting qualifications by saying that he would have to ask her first before conceding that it was incorrect to refer to her having done a degree). * DVD Seminar 897I have referred elsewhere in some detail to the DVD Seminar video. It provides one of the most stark examples of the inconsistencies between Mr Hobbs' affidavit evidence and the contemporaneous record of what occurred. At [19] of Mr Hobbs' first affidavit he deposes (in unqualified terms) that he made a point of never giving specific references to funds and further says that "While it is correct that I mention funds could be capital guaranteed I made no such representation about any specific fund". 898Cross-examined as to this, Mr Hobbs (at T 1210) stood by that evidence but immediately qualified this by saying that he could not recall ever giving specific references to funds. There was the following exchange: Q. Mr Hobbs, you don't say in your affidavit "I can't recall"; do you? A. No. Well, I don't recall it. Q. Did you make a point of never giving specific references to funds when you spoke at FTV seminars? A. I was under strict instructions not to. [here, seemingly, invoking Mr Becker or some absent controller of the process] 899Mr Hobbs was taken to the DVD of the DVD Seminar, which he agreed he recalled was taped at an FTC seminar in about October 2003. (Though on its face this answer appears inconsistent with his evidence that the seminar was taped without his knowledge, it might conceivably be that he was unaware of it at the time and later found out it had been taped. Certainly at the hearing Mr Hobbs said that he had watched the DVD but then appeared to contradict this since he made comments as to no attendees' faces appearing on the DVD and questioned whether Ms Li and Mr Truong were there, when those matters were evident on a complete viewing of the DVD.) 900It is apparent that Mr Hobbs made numerous references at the DVD Seminar to particular funds, some at least of which by name: including the Express fund that he accepted was run by Mr Diaz and that he acknowledged he had been aware of at least as at October 2003 (though at first he had suggested in cross-examination that he only recalled it by reading it in his affidavit) and the Solid Gold product: ...So then we have a third foreign exchange product which is called Solid Gold. It's a unit trust as well. It's run by accountants out of Maroochydore. And they use Refco, which is a clearing house, as well. But that's on exchange spot transactions only. (my emphasis) 901Mr Hobbs nevertheless refused in cross-examination to concede that he had made specific references to individual funds in the course of the FTC seminars, dismissing the DVD Seminar by saying that "That wasn't a seminar as you are providing in other evidence" and describing it (both in cross-examination and in submissions) as a "oneoff totally different operation". 902Mr Hobbs also did not accept that in the course of the DVD Seminar he was providing instructions to FTC executives as to how they were to promote FTC and its business (though that is what I would infer from the suggestion at the end of the first day's taping that they would discuss the "sales track" tomorrow) and said that "This was a very unusual oneoff seminar that we discussed a number of topics". He was only prepared to concede that it was "possible" that some of the people at the DVD Seminar were FTC executives, even though it was apparent that at least some of them were (such as Mr Diaz and Ms Li) and even then maintained that this "Doesn't mean it's an FTC seminar". 903Mr Hobbs was adamant that the DVD needed to be seen in total context. Pressed on this, he accepted that the context was that at that seminar he was discussing FTC and its operations with those present and that for the first half he was doing so for the purpose of telling those present about how FTC worked. He said that in the second part of the seminar "we spoke about KLM". He denied that he described how FTC gave access to offshore investment: Q. And you also took it upon yourself to describe how Future Trading Corporation gave investors, that is retail investors in Australia, access to wholesale funds offshore, didn't you? A. That's not correct, because FTC didn't do that. 904There is a clear inconsistency between what Mr Hobbs deposes was his practice of not referring to specific funds and what he is recorded at least at this one seminar as doing. (Moreover, the fact that some of the funds are not named on the DVD Seminar is not to the point insofar as Mr Hobbs described in some detail the operation of funds and the returns they made.) 905Mr Blow's notes of the February 2003 meeting, for example, refer to comments on funds where payments are made monthly and the types of funds (arbitrage mutual (an AA ratings fund), bond, currency (main ones) options, futures (not a lot) with the comment against options "insured against loss". Tellingly, much of the content of the notes taken by Blow is consistent with the thrust of the examples and comments noted in the DVD Seminar (which thus provides two contemporaneous records inconsistent with the evidence given by Mr Hobbs in this hearing). * Other matters 906In addition to the above matters, I note that there are examples of communications by Mr Hobbs that flatly contradict the insistence by him that he did not give investment advice. For example, the 13 September 2004 (Ex AU 2809) fax sent on the FZF Anguilla letterhead (signed by Mr Hobbs ISF as "consultant" and bearing a fax transmission imprint from Tasman Business Consultants) to Mrs Brock, which clearly involved the giving of at least general investment advice including the relatively low exposure of a particular type of investment. A further example is the letter of 28 June 2005, (Ex AU 4239) on the letterhead of FZF Anguilla (with the facsimile transmission imprint from Tasman Business Consultants on 29 June 2005) in which Mr Hobbs (again described as a consultant) wrote to a Mr John Simonetta (of Perfection Superannuation) attaching "the requested fund breakdown for compliance" (which refers to all funds having "an outside licensed monitor - Trader View Ltd who manages all fund managers on your behalf ... a very prudent style of investment" - my emphasis). (Insofar as this letter refers to Trader View, it indicates an involvement with TraderView which is consistent with Ms Reisinger's evidence in the CFTC examination.) 907As to the submission that Mr Hobbs did not provide specific details of investments, it must be noted that Mr Hobbs spent a not insubstantial part of the DVD Seminar describing funds or investment products (sometimes by name though more often by reference to what the fund offered or who was running it) and described them in the context of indicating whether they were KLM funds or funds to which access was available (using the possessive "we" or "our"). So, for example, after having explained that FTC made available the financial education and then investors could enter into contracts with KLM for funds, Mr Hobbs went on to say things such as: ... Here are some funds that are just new on the market. ... And when I say new on the market, ... The whole investment arena worldwide is changing and it's going through a cycle again, a cycle that we see 15 years ago, and that is, capital guarantees. Most top products now are coming with a capital guarantee. Most of the guarantees are issued in the form of either a AAA insurance product or a AAA rated instrument issued by Bank of America, Citibank. There's a AA, A-rated product issued by SocGen Bank. But that's all the very good hard-core capital guarantees. The other interesting point that's: out of everything bad comes something good. And what you're seeing now in the world is you are having investment products that are absolutely performance focussed. They perform in bull and bear markets. So they'll perform in a market going up and down, with a capital guarantee. Now, we do not have products like that here in Australia, and we may not ever see some of them because we don't have the financial horsepower or the instruments available. (Pt 2 P 3 lines 6-35) 908Mr Hobbs said that he had just written an article "to our subscribers on risk return" (Pt 2 P3 line 44) and at Pt 2 P 4 line 30ff: So incidentally, some of the products that you have there with capital guarantee are: there's a foreign exchange trading product that's just been offered a capital guarantee on it. Now, that's the first time in history I've ever seen a foreign exchange trading product being offered with a capital guarantee. It's pretty significant. They've also stated that that product can be invested in Australian dollars take away exchange rate fluctuations. 909In light of the above (and the references to funds to which various of the investors have referred in their evidence) the submission by Mr Hobbs that there was no reference to specific funds in the FTC material is disingenuous to say the least. * Attribution of responsibility to others 910In addition to the matters referred to above (to which Mr Halley pointed as indicating the unreliability of Mr Hobbs' evidence, it was submitted by Mr Halley (again, not without substance in my view) that during cross-examination Mr Hobbs sought, at every available opportunity, to deny any knowledge or involvement in the OEM and KLM activities and to attribute anything to do with OEM or KLM (as well as much of the matters relating to FTC) principally to Mr Becker but also to Mr Chen (and similarly, to attribute responsibility for the development and operation of the financial product constituted by the schemes to Ms Reisinger). Certainly, Mr Hobbs on numerous occasions gave evidence to the effect that he was simply following instructions given to him by Mr Becker or doing what Mr Becker wished him to do. 911So for example, I note that in his answers in crossexamination in relation to the statement on the DVD Seminar that he was building up a team in Australia to manage funds, Mr Hobbs was adamant that the instruction to do so had come from Mr Becker but then gave internally contradictory evidence as to whether that was in fact what he was doing. 912In the DVD seminar, Mr Hobbs is recorded as saying (from p17 line 45, tab 10): In Australia here we want to build up a bigger team in Australia to actually manage funds. Their job of course is total transparency. They must do everything according to the book in informing the trustees of every transaction. And it's all checked and monitored along the way. (my emphasis) [The suggestion that the role of the scheme administrators was one of "total transparency" and to inform the trustees of every transaction is belied by reference to what scheme administrators actually did - which was to solicit funds. Again, the suggestion that administrators informed trustees every step of the way and that the investment was checked and monitored along the way is a remarkable statement when one takes into account that there seems to have been no reporting by any of the Australian administrators to the "trustee" identified in the scheme memoranda; there is no evidence of that trustee doing anything to check or monitor the investments; and that trustee was based in Mr Hobbs' office and, I have concluded, beneficially owned or controlled by him] 913From T 1317.20 there was the following exchange as to this issue: Q. Now, turn to page 18 of the transcript, go to line 1. You will see you go on to say: "In Australia here we want to build up a bigger team in Australia to actually manage funds"; do you see that? A. Yes. Q. Was that what you were seeking to do in October 2003? A. That's what Kip Becker asked me to do. (my emphasis) Q. Is that what you were seeking to do, Mr Hobbs? A. No, not particularly. I was doing - that's exactly what Kip Becker was Q. You were doing what Kip Becker wished; is that your evidence? A. Correct. Q. Did Mr Becker, as you understand it, wish for you to build up a bigger team in Australia to actually manage funds? A. Yes. [Pausing here, to this point, my understanding of Mr Hobbs' evidence at this point was that he was telling me that, when he said to the FTC seminar that "we want" to build up a bigger team to manage funds, he was conveying what Mr Becker had asked him to do, not what he personally wanted or was seeking to do - but, that he was not suggesting that he was not in fact complying with Mr Becker's wishes in that regard - ie, that he was doing what Mr Becker wanted him to do. As Mr Halley points out, that would be consistent with what was happening as at October 2003 with the establishment of further investment schemes in Australia] Q. So that is what you were seeking to do, was it, in October 2003? A. No, it wasn't actually. [This answer might be consistent with the previous ones if by this Mr Hobbs was suggesting that it was not his personal objective but that he was simply implementing Mr Becker's objective. However, the next answer seemed to contradict such a reading of the evidence to this point] Q. Were you seeking to do what you understood Mr Becker wanted you to do, as at October 2003, with respect to the building up of a bigger team in Australia to actually manage funds? A. That's what he wished and that's what he wanted; that's not exactly what I was doing. (my emphasis) Q. Well, if that wasn't what you were doing, Mr Hobbs, why were you telling the people present at this October 2003 seminar, that; "in Australia, here, we want to build up a bigger team in Australia to actually manage funds"? A. That's exactly as I was described, and I passed it straight on. Q. Mr Hobbs, you didn't intend to build up a bigger team in Australia to actually manage funds yourself, why would you have passed on to this meeting that that was what you wanted to do? A. Well, I would have related exactly what I was told. ... Q. So I can get this clear, Mr Hobbs: Did you, yourself, want to build up a bigger team in Australia to actually manage funds as of October 2003? A. Personally, no. Q. So you didn't want to; is that what you're saying? A. I was doing exactly what I was asked. Q. Mr Hobbs, is it your evidence that you did not want, in October 2003, to build up a bigger team in Australia to actually manage funds? A. Personally, no. Q. Why were you telling people that's what wanted to do? A. Because that's exactly what I was asked to do. Q. Do you say you do, at all times, exactly what Mr Becker asked you to do? A. Yes, I do. Q. Then Mr Becker wanted you to build up a bigger team in Australia to actually manage funds; didn't he? A. That's what he wanted. Q. That's what you wanted to do then; wasn't it? A. No, that's not true. Q. So you ignored Mr Becker's instruction to you, to build up a bigger team in Australia to actually manage funds; did you? A. No, I repeated it exactly as it is in the transcript. (my emphasis) 914Mr Halley submits that the evidence otherwise establishes (and I agree) that, whether or not this was at Mr Becker's instruction, this is precisely what Mr Hobbs was doing (namely, establishing an increasing number of funds with scheme administrators in Australia from October 2003 onwards) and submits that this exchange in cross-examination was an example of Mr Hobbs cavilling with a selfevident proposition (namely, that he told the meeting that "we" were proposing to do something) by taking refuge in the explanation that he was only relaying what Mr Becker had told him to relay (and answering that this was not in fact what he was personally trying to do). 915What I understood Mr Hobbs to be trying to convey in this exchange was that it was not his personal objective to build a bigger team in Australia to manage funds; rather that it was Mr Becker's objective and that he was only doing what Mr Becker had told him to do. It seemed to me that Mr Hobbs had become confused during the course of the questioning. However, that does not explain the inconsistency between Mr Hobbs' evidence that he did what Mr Becker had asked (or told or wished) him to do and his unwillingness to accept that, by so doing, he was in fact taking steps to build up a bigger team in Australia to manage funds (whether or not that was his own personal objective). I was left to conclude that the reason the evidence had become confused on this issue was because Mr Hobbs was faced with the logical inconsistency between saying that he was doing what he was instructed to do (and what Mr Becker wanted him to do though this was not his own personal objective), on the one hand, and being anxious to deny that this is in fact what he was doing (perhaps because he was seeking to avoid an admission that he was establishing funds in Australia). 916Significantly, in my view, insofar as it suggests what appears to have happened, was the answer by Mr Hobbs to the following question: Q. And that was how you were to implement, as you understood it, Mr Becker's instruction to build up a bigger team in Australia to actually manage funds; wasn't it? A. Well, it took a life of its own. (my emphasis) 917As to Mr Becker, Mr Halley notes that the only contemporaneous evidence suggesting any involvement by Mr Becker in the matters the subject of the proceedings is the email that Mr Hobbs sent to FTC executives advising of Mr Becker's death. (Mr Halley contrasts the description in that email of the activity in which Mr Becker was involved (ie that he was an attorney associated with OEM) with the impression he says Mr Hobbs sought to convey of Mr Becker's involvement in the course of his crossexamination.) 918In relation to Mr Chen, about whom there is similarly no evidence of any involvement in the contemporaneous records, it was submitted by Mr Halley that had Mr Chen had any relevant evidence to give it might be expected that Mr Hobbs would have approached him well before the conclusion of ASIC's evidence (which is the time when Mr Hobbs has deposed in his affidavit that he had made enquiries of Mr Becker's office as to Mr Chen's whereabouts or availability to give evidence). It is, I have to say, difficult to accept that Mr Hobbs would not have been in a position to make any enquiries as to Mr Chen's whereabouts over the period since at least 2009 when Mr Hobbs was aware that the ASIC investigation into these schemes included an enquiry into Mr Hobbs' own conduct, if not from late 2007 when Mr Hobbs was on notice of the enquiries being made of others such as the J&B Financial officers (and was taking steps to marshal evidence in support of his position in the form of statements from the J&B Financial officers and Mr Mitchell), particularly as Mr Hobbs had legal assistance through much if not all of that period (in the form of advice from Mr Bellamy and, for some time, representation by Mr Southwick of Counsel). 919The lack of any apparent enquiry by anyone on behalf of Mr Becker's estate as to the FTC or OEM/KLM entities or the investment schemes after the death of Mr Becker, and the lack of any apparent involvement by Mr Chen in the operation of those entities or schemes at any time, is inconsistent with the suggestion that either Mr Becker or Mr Chen had any ownership or controlling interest in FTC or OEM/KLM or that Mr Chen had assumed any controlling role in relation to those companies after Mr Becker's death. (I note that the suggestion that Mr Parker had an ownership interest in KLM is also inconsistent with the absence of any apparent involvement by Mr Parker in the schemes after the falling out with Mr Hobbs and Mr Fitzgerald over the non-return of moneys the subject of the Covered Strategies investment.) The fact that Mr Hobbs considered himself able to seek the revival of registration of both OEM and KLM in 2006 (without any apparent need for approval from Mr Chen or Mr Parker or anyone else), whether or not that was at Ms Li's request or for her benefit, strongly tells against anyone else having had a controlling role in those companies or their operation at an earlier stage. 920I am left to conclude that Mr Becker and Mr Chen are convenient scapegoats on whom Mr Hobbs has sought to place responsibility for what occurred with the funds from at least 2000/2001 onwards (Mr Becker because he is no longer alive to give any conflicting version of events; Mr Chen because he has not been called upon by Mr Hobbs to do so and there being no evidence beyond assertions by Mr Hobbs of any involvement by Mr Chen in the operation of the investment schemes). I consider the position of Ms Reisinger later in these reasons. * Mr Hobbs' explanation for the inconsistencies 921Mr Hobbs frankly concedes that he has given conflicting accounts at different stages of events. That, in itself might not be surprising, given the lapse of time since some of the events occurred, were it not for the fact that some of the areas in which there was a difference in accounts were fundamental issues about which it is hard to see how there would be any room for confusion - such as who had established FTC or the OEM/KLM process or as to whether Mr Hobbs ever had an ownership interest in any of those companies. 922What is more troubling, however, is the manner in which Mr Hobbs has sought to explain those differing accounts. In submissions Mr Hobbs said: But I ask your Honour to consider that when I was selling the Future Trading Corporation product I was attempting to sell my expertise. That is a very different thing to giving evidence under oath. The evidence I gave during the examination in New Zealand was given whilst I had no understanding of the importance of certain aspects of ASIC's claim. At that time I was the 16th defendant in one of the two proceedings involving these entities. I also was having severe difficulties with my health and these compound the usual problems we all have with memories over events from 2005, prior to and after this. 923The first part of this explanation suggests that Mr Hobbs was inclined to put a favourable gloss or "spin" on facts to encourage the purchase of whatever product or expertise he was actually offering in the FTC seminars or meetings. That is borne out by a number of the statements Mr Hobbs made at the DVD Seminar (which seem to be unsupported by the evidence of what in fact occurred or by any evidence to suggest they were correct), such as the statements made as to the zealous process of checking and double checking and reporting to the trustee and the assertion that there were thousands of people researching the operation of funds around the world, on whose research FTC was able to draw (again, not supported by any evidence). 924I accept that this might perhaps be able to be characterised as mere puffery or exaggeration, but it does mean that caution is required before accepting broad assertions made by Mr Hobbs of the relevant course of events as having any factual foundation (and illustrates the difficulty of accepting as reasonable his reliance on legal opinions provided on the basis of what, as far as the evidence suggests, were similarly broad and unsubstantiated assertions). 925The second part of the explanation suggests that Mr Hobbs might have paid more attention to the accuracy of some of the evidence given by him in the past had he been aware of the gravity of the allegations made against him or of the perceived significance of the particular issue or issues on which he was giving evidence to the case brought by ASIC. 926As to the former (lack of awareness as to the gravity of the allegations), it is difficult to see how Mr Hobbs' legal advisers would not have drawn to his attention the gravity of the matters under investigation by ASIC in 2009 but, even assuming that they did not, what Mr Hobbs seems here to be suggesting is that the evidence he gave in New Zealand (under oath) was not given with the care and regard to truth that one would expect of an examinee in those circumstances. Mr Halley submits that it is inconceivable that Mr Hobbs (and I would interpose to add those who were advising him at the time) would not have appreciated the serious nature of the enquiries being made by ASIC (and its New Zealand counterpart) at that time but that in any event whatever Mr Hobbs understood as to the gravity of the matters under investigation, he should have appreciated the seriousness of giving evidence under oath. (I might add that this should even more so be the case because, in the context of his religious faith Mr Hobbs made it clear when cross-examining Mr Koutsoukos that he sees dishonesty as an abomination in the eyes of God). 927As to the latter (lack of awareness of the significance of particular issues), if, by this, it is suggested (and I make no finding that this is the case) that Mr Hobbs might have given different evidence (or tailored his evidence to suit) had he been aware of the significance to the case that might be brought against him or was there being investigated of particular issues, then that would indeed cast serious doubts on his credibility as a witness. 928The other explanation that Mr Hobbs gives as to the inconsistency in his evidence or as to his inability to recall matters in the witness box is his medical condition (coupled with the pressure of being examined). During the course of his cross-examination, Mr Hobbs adverted more than once to this difficulty: A. .... It's a little bit difficult for myself, with MS you lose your shortterm memory. I tried to recall a discussion in 2006, exactly what it was. I just can't recall all the details at present. 929Mr Hobbs included in his submissions material relating to multiple sclerosis and explaining that short term memory loss may be associated with that condition. There was medical evidence before me (not in the hearing per se but in an interlocutory application shortly before the commencement of the hearing) that Mr Hobbs had been diagnosed for some time as suffering from multiple sclerosis. There was no expert evidence as to the impact of such an affliction on long-term memory, nor is there any basis by which I can assess when the onset of difficulties with his short-term memory may have commenced. 930Mr Halley does not dispute that judicial notice can be taken of the symptoms of multiple sclerosis, including the fact that it is a debilitating disease and that it may from time to time lead to shortterm memory loss. However, he submits that it is not open to me, in the absence of any clinical assessment of the impact that that disease might have on Mr Hobbs' longterm memory, to form any conclusion as to the impact that the condition has had on Mr Hobbs at any particular time. 931In that regard, while the condition might explain shortterm memory loss of the kind of which Mr Hobbs spoke (such as being able to recall names from one day to the next) (and might, to be charitable to Mr Hobbs, explain why he was unable only a week after swearing his first affidavit to recall what he had done in order to satisfy himself that various of the assertions in it were correct), it is by no means clear that it would have affected Mr Hobbs' ability now to remember matters from further in the past; nor is it clear how it might have affected his ability to remember things back in 2009 when he was being examined in New Zealand or back in 2003 when he was speaking at the DVD Seminar. 932Insofar as Mr Hobbs' submission suggests that reliance cannot necessarily be placed on his present memory (and as noted above it is not clear at what stage his memory began to be impacted by his condition), then it must follow that I should be cautious about placing reliance on his present stated recollection of events. In any event, it means that significant weight should be placed on contemporaneous material in testing the reliability of Mr Hobbs' evidence. 933In this regard, Mr Halley places weight on the contrast between the precision of Mr Hobbs' stated recollection of events that occurred a long time ago and the lack of corroboration of that evidence from contemporaneous documents or witnesses (including witnesses who might be expected to be sympathetic to him) rather than an inability of Mr Hobbs to recall particular details. 934It was certainly clear at some points in the hearing that Mr Hobbs was having difficulty speaking (and on one occasion he informed me that he was having difficulty with his eyesight). At times he said he was "struggling". On the occasions when Mr Hobbs appeared to be (or indicated that he was), having difficulty, steps were taken to accommodate this. I note that Mr Halley was assiduous in suggesting, and ASIC in consenting, to appropriate adjournments in this regard. (On the occasion when ASIC did oppose a request for adjournment during the course of the hearing it was not unreasonably put on the basis that there was insufficient evidence of Mr Hobbs' medical condition before the Court and, in any event, I granted the adjournment.) 935On the whole, it seemed to me that Mr Hobbs was able to follow the conduct of the hearing and the arguments that were being put forward (indeed, he was quick to point out perceived inaccuracies in the factual picture being put in the course of opening and he was clearly familiar with the concepts involved in the investments into which the various schemes had entered). Mr Hobbs certainly did not present as an unsophisticated person unfamiliar with financial matters (in contrast, for example, to a number of the witnesses, such as Mr Clements, Mrs Watson and Mrs Burnard). 936I consider that it is fair to say that Mr Hobbs' medical condition did not appear relevantly to affect his ability to present his defence during the course of the hearing (though I accept that as a lay person he was subject to the limitations that any lay person has in presenting his or her case in Court and I endeavoured to ensure that he was at no procedural disadvantage in this regard). 937It seems to me that the overwhelming number of inconsistencies in Mr Hobbs' evidence (when compared, in particular, to contemporaneous records, including the DVD Seminar, the Blow notes and the Parsons diagram (to which I will refer shortly), but also when compared with the sheer number of witnesses, across a range of issues, whose accounts of events differs from that of Mr Hobbs but is consistent with the evidence of others called by ASIC) compels the conclusion that, at the very least, Mr Hobbs' recollection of events has been subconsciously recast to accord with his belief (stated by Mr Hobbs to all and sundry as if that were determinative of the fact) that the activities in which he was engaged were lawful. 938The fallibility of human memory was addressed in Watson v Foxman (in a case involving allegations of misleading and deceptive conduct) by McLelland CJ in Eq (as his Honour then was) (at 318) as follows: ... human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. 939His Honour went on to say (at 318-319) that: Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not ... attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712. Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a cause of action ..., in the absence of some reliable contemporaneous record or other satisfactory corroboration. 940Those comments seem apposite in the present case. It seems to me that (whether with hindsight or because he has for some time been blind to the reality of the situation), Mr Hobbs has convinced himself that the position he has espoused is the truth and that he has consistently sought to put a favourable gloss on events that is not supported by the contemporaneous evidence (and to place the responsibility on others for events happening under his apparent control). Not only is Mr Hobbs' account inconsistent with the evidence before me but there is an almost complete dearth of evidence to suggest that others (such as Mr Becker and Mr Chen) were relevantly involved in the way Mr Hobbs suggests. 941In circumstances where I cannot exclude the possibility that some of the evidence given in the present proceedings was a product of an unreliable memory (or a tendency in Mr Hobbs' case to convince himself that the facts are as he would like them to be), I am not persuaded that Mr Hobbs has given dishonest evidence in these proceedings (though that seems to me well within the realm of possibilities). 942However, what I have no doubt about is that Mr Hobbs' recollection of events is extremely unreliable (and his constant references to conversations with or directions from persons not before the court self-serving). Wherever Mr Hobbs' evidence conflicts with a contemporaneous record or with credible evidence from another witness, I find that other evidence by far the more likely to be the truth and wherever it is uncorroborated by credible evidence, I treat Mr Hobbs' evidence with considerable scepticism. 943Taking the whole of the evidence into account, the version of events put forward by Mr Hobbs is one that I simply cannot accept as a likely (or even a realistic) possibility. Accepting that the evidence must be tested having regard, inter alia, to the gravity of the allegations that have been made against Mr Hobbs, I am nevertheless firmly of the view that his overall account of events is wholly improbable and that the evidence establishes that it is far more probable that Mr Hobbs' involvement, in the schemes the subject of the proceedings, was in fact as ASIC has alleged. Witnesses called by ASIC 944The witnesses who gave evidence in ASIC's case (some by affidavit, some who were subpoenaed to do so and examined in chief by either Mr Halley or Mr Clarke) can broadly be grouped into a number of categories (though I note that there is a degree of overlap between the various categories): (i)those who it is said acted as scheme administrators for the schemes the subject of these proceedings (Mr Koutsoukos, Mr Truong, Mr Wood, Ms Dong, Mr Bernard Moore, Mr Zhang), though not all scheme administrators gave evidence (for example, Mr Collard, Ms Li and, for all relevant purposes Ms Wu, since her very late affidavit was largely comprised of denials and assertions); (ii)those who were at one time or another FTC executives (Ms Brenda Canham, Mr Diaz, Mr Gahan, Mr Brian Hogno) (some of whom were also investors; and Mr Diaz at least having also at one stage administered an investment fund, though not one the subject of the proceedings); (iii)those who invested (or, to put it more neutrally, chose to invest) (through an IBC or a trustee of a self-managed superannuation fund) in one or more schemes but were not themselves scheme administrators or FTC executives (Mr Richard Blow, Ms Raffaela Camilleri, Mr Feng Gao, Ms Maria Gemmell, Mr Daryl Handebo, Ms Lei Huang, Mr Dimitri Jouravlev, Mr Vernon Lewis, Mr Colin MacDonald, Ms Natasha Marciniak, Mr Eric Millington, Mr Kevin Moule, Mr Wayne Moule, Ms Lara Mulligan, Mr Trent Ormond-Allen, Mr Gideon Russell, Mr Nicholas Stavropolous, Ms Zhi Jun Xu); (iv)friends or relatives of Mr Hobbs or others associated with the Nelson office from which Mr Hobbs carried on business from time to time (Mrs Burnard (nee Watson), Mr Clements (who was also a scheme administrator), Mr Dent, Mr Fitzgerald (also a scheme administrator), Mrs Brenda Hobbs, Mr Mitchell, Mrs Watson); (v)those associated with the relevant events in one or other capacity (Mr Parsons, Mr Bellamy, Mr Nicholas Moore, Mr Paul Monsted (from Technocash)); and (vi)Ms Reisinger (whose evidence was comprised of the transcript of her CFTC examination and who was not available for cross-examination by Mr Hobbs). 945Mr Hobbs cross-examined a number, but by no means all, of those witnesses. He made submissions as to the weight to be placed on the evidence of various of the witnesses (with particular emphasis on Ms Reisinger, the three J&B Financial officers, Ms Dong and Ms Huang). (i)Scheme Administrators 946As to the evidence of each of the J&B Financial officers, Mr Halley submits that this should be seen in light of the relative lack of financial sophistication of each (and particularly Mr Truong) in respect of the provision of financial services of the kind involved in the investment schemes with which they were associated. 947As to the experience of each, prior to his involvement with J&B Financial and PJCB, the evidence is that: * Mr Koutsoukos had previously operated various small businesses, including a newspaper shop and a wholesale milk run; as at 2004 he was running a gym in Bankstown; he had no formal financial education or qualifications (but had attended a two-hour seminar on option trading about 16 years before (Koutsoukos at [3],[4]); * Mr Wood had also previously operated a number of small businesses and had been a sales consultant for a roofing business; from about 2002, he had worked as a mortgage broker or salesman for Mr Diaz; he had undertaken a short business training course in 1965 and had completed a short mortgage broking course in 2002 but otherwise had no formal financial qualifications (Wood at [3]-[6]); and * Mr Truong had worked in various jobs, including as a packer and storeman, a kitchen hand, a house-keeper, and in furniture retail; had begun working one day a week for Mr Diaz in late 2002 and had then worked full-time for Mr Diaz during which period he said he learnt about mortgage and finance broking; and he had no financial qualifications (Truong at [7]-[14]). 948In response to the submission as to the lack of sophistication of these witnesses, Mr Hobbs raises two matters. 949On the one hand, Mr Hobbs points to evidence that he says refutes the suggestion that Mr Koutsoukos (at least) did not have capacity to be involved in financial matters such as the running of the fund (in particular, Ms Reisinger's evidence (at Ex AO p134.4-24, p135.1-24, p136.1-18), where Ms Reisinger refers to discussions in May 2007, after a meeting with the traders (in which she says Mr Hobbs was also involved - Ex AO p130), where she says Mr Koutsoukos "talked about having balance in the portfolio". 950On the other hand, Mr Hobbs asserts (and this is significant in my opinion) that a level of financial sophistication on the part of Mr Koutsoukos (and presumably not for any other scheme administrator) was not required (since the day to day trading was done by "professionals", namely the traders (or CTAs) "under the advice of Ms Reisinger"). Mr Hobbs submits that administration of the fund (which he describes as management of an aspect of the "Reisinger product") "simply required honesty, and good book keeping", no different from the other businesses that Mr Koutsoukos previously owned or ran. 951As to the first (the submission that Mr Koutsoukos did have sufficient capacity to be involved in financial matters involved in the running of a fund), there seems to me to be some ambiguity in the portion of Ms Reisinger's transcript on which Mr Hobbs relies, namely as to whether what Ms Reisinger was there saying was that Mr Koutsoukos had been discussing the balance of the portfolio "between ag-related commodities, metals and financial futures and S&P indexes" as Mr Hobbs' submission suggests or whether she was simply saying that she believed Mr Koutsoukos understood that having a diverse and well-balanced portfolio was good for his account (a proposition that would not be surprising having regard to the fact that this was a view that had been espoused by Mr Hobbs in the DVD Seminar). 952I accept that this is an issue on which Mr Hobbs might have sought to cross-examine Ms Reisinger had she been available for cross-examination (though I note that Mr Hobbs did not indicate any particular areas that he would have wished to explore in cross-examination of Ms Reisinger). To that extent, I might have been inclined to proceed on the assumption that any such ambiguity as to the proper reading of her evidence should be resolved in favour of the construction for which Mr Hobbs contends. However, at Ex AO p 135.5ff, Ms Reisinger is recorded as saying (when asked what Mr Koutsoukos had said that led to her opinion as to his sophistication): He just made a general comment that the Idylic account had been very profitable and, in his opinion it was due to the balance of the portfolio ... ..his general opinions and questions and the questions that they would ask the traders as far as their strategies and how long they held a trade, whether they were in and out on a daily basis or if they held the trade for a longer period of time ... He [Koutsoukos] did ask a trader if .. how long he held his positions and if he was a short-term trader, a long-term trader or medium-term 953In particular, Ms Reisinger said that there was nothing that Mr Koutsoukos did that indicated that he understood the difference between such trades other than the asking of the question. 954Therefore, to the extent that the basis for Ms Reisinger's understanding as to Mr Koutsoukos' level of sophistication was tested in her CFTC examination, the matters to which she pointed for that conclusion were relatively flimsy. I have difficulty in placing much weight on Ms Reisinger's assessment of Mr Koutsoukos' abilities in this regard and I note that Mr Hobbs did not cross-examine Mr Koutsoukos on his understanding of matters of this kind (simply focussing on his understanding of profit in a business context). 955As to the second part of the submission (namely, that the role of the scheme administrator was one that did not require a great degree of sophistication), this seems to me to underscore ASIC's case, which is that the corporate/scheme administrators performed a largely administrative role (and that Mr Hobbs was the one at whose direction or instruction the funds ultimately operated). 956While ASIC goes further to submit that it can be inferred that Mr Hobbs chose relatively unsophisticated people to administer the funds because they were unlikely to question him, I do not accept that such an inference should necessarily be drawn. I am inclined to think that an equally available inference is that Mr Hobbs' choice of persons to administer the funds, or for whom funds would be set up, reflects his view that the role was little more than an administrative role and one that (as explained in the DVD Seminar) followed on from the role of an FTC executives as someone who then wished to "sell investments" - which Mr Hobbs explained was possible through investment contract sales with KLM. 957At least some of the scheme administrators seem to have taken on that role by reason of their relationship or association with Mr Hobbs (Mr Fitzgerald says he did so at Mr Hobbs' request to help a friend; Mr Clements' evidence suggests that Mr Hobbs saw this as a way to give him an opportunity to make some money, reminiscent perhaps of Mr Hobbs' explanation that he appointed Mr Diaz as FTC National Sales Manager in order to give him an opportunity (and not because he had significant regard for Mr Diaz' solid financial business at that time). 958What the administrative nature of the role (as Mr Hobbs saw it) throws sharply into focus is the question of at whose direction or instigation the funds were set up and were to operate. I cannot accept the suggestion that no financial experience was necessary because the relevant decisions were all made by the traders. The investment schemes were set up (and investment therein was sought from potential investors) before any trading decisions were made by the traders and the traders themselves had no input as to what each scheme would promote as fund investments. 959It is very obvious that persons such as Mr Clements had no idea about financial products of the kind in which the scheme he operated was to invest in (notwithstanding that he agreed with Mr Hobbs that he had written an e-book on investment - an answer in which I could in any event place little weight if I accepted Mr Hobbs' assertion that "anyone" could write a financial education book of the kind that FTC distributed to subscribers). Similarly, while Mr Fitzgerald had some idea of the responsibilities involved in relation to ensuring the proper disbursement of investors' funds, he clearly was doing no more than taking administrative steps in relation to that fund (and for at least six months it appears that no one was directing the operation of that funds). 960Mr Hobbs says that it was Ms Reisinger who was giving the directions in relation to the funds (and in support of this he refers to the evidence of Mr Bernard Moore (at [79] to [82]), as further evidence of Ms Reisinger being the person who gave advice to fund administrators). The evidence of involvement by Ms Reisinger in the investment schemes related in general to the advice given by her (consistent with the advice that one would expect to be given by a broker or adviser to a client) as to the appointment of, and instructions given to, traders and advice as to what profits from trading were available to be withdrawn and whether she recommended that the profits be taken out at particular times (apart from the calculation and distribution of commissions or other payments to Mr Hobbs or those associated with the schemes). 961There is no evidence to suggest that Ms Reisinger made the decision to establish new investment schemes or made the decision as to who should take on the role of administrator of those schemes. (At most there is a suggestion that she came out to Australia and made a number of presentations to FTC executives or others (which would equally be consistent with Mr Hobbs' characterisation of Mr Caswell's trip to Australia as being something of general interest to people).) 962Insofar as Mr Hobbs points to the evidence of Mr Bernard Moore (who was the appointed "administrator" of North Wave Ltd which operated, the Good Value Fund, the appointed company secretary of North Wave being Mr Collard), this seems to me to be another example (disingenuous or otherwise) of Mr Hobbs focussing on one aspect of evidence out of its overall context. 963In the relevant paragraphs of his affidavit, Mr Moore gives evidence as to communications with Ms Reisinger in relation to the opening of the Cadent account for that fund. Relevantly, however, the email chain of communications commences with advice from Ms Reisinger to Mr Moore on 7 November 2006 that his account at Cadent had been improved and says "Please contact Lili or David Hobbs for further instructions (my emphasis)" and that if he could not reach them he could contact Ms Reisinger and she would "try to help you". Mr Moore responded that he had tried to contact Lili and David but had no response and Ms Reisinger then (on 21 November 2006) emailed to him that Lili was in China until the end of January and Mr Hobbs was ill and sounded likely to be until after the first of the year; and said "I can help you get started if you would like for me to. Let me know what I can do to help". 964A fair reading of that exchange (and Mr Moore's evidence that he dealt with Ms Reisinger as an intermediary between North Wave and Cadent) is not that that Ms Reisinger was giving directions in relation to the fund, but rather that Ms Reisinger had referred Mr Moore to Ms Li and Mr Hobbs for instructions and that she was assisting him in the absence of him being able to contact Ms Li and Mr Hobbs. From that I would draw the opposite conclusion from that for which Mr Hobbs contends, namely I would conclude that this is evidence of Ms Reisinger's understanding that the instructions in relation to the fund would come from Mr Hobbs (and Ms Li) and that Ms Reisinger was acting as an adviser only. 965Mr Halley submits, and I accept, that having regard to the level of sophistication of the three J&B Financial officers (and the history of their business activities prior to their involvement in the schemes the subject of these proceedings) it is inconceivable that they would themselves have conceived of the idea of establishing the Super Save Superannuation fund (for example). Similarly, the suggestion that they had the relevant contacts with persons such as Ms Reisinger to open and operate the Cadent accounts without guidance or assistance from Mr Hobbs seems to me to be far-fetched. Any such submission is inconsistent with the willingness of the J&B Financial officers to accept and pay the invoiced amount for the "IP" associated with the fund that they understood had been set up for them by Mr Hobbs (and with the payment of that amount into the Magny-Cours bank account that was controlled by Mr Hobbs). 966Turning then to the submissions made as to the credibility of the particular scheme administrators who were cross-examined in the proceedings, I comment as follows. Mr Koutsoukos 967Mr Hobbs submits that Mr Koutsoukos cannot be relied upon to give truthful testimony; that his total stance has been to attempt to shift blame for his actions ("even to the point that he is attempting to distort the truth about Geneva Financial" - a reference, as I understand it, to the nature of his first investment of funds through PJCB to Geneva Financial in 2005); and that he is not a reliable witness. Mr Hobbs points to the variations in the accounts given by the three J&B Financial officers as "nothing more than the perpetrated lie given by all three" and made no secret of the fact that he believes Mr Koutsoukos to have given false evidence. 968In general, where there were inconsistencies between the evidence of the three J&B Financial officers, Mr Halley submitted, and I accept, that given the frequency and the number of conversations, meetings and discussions it was not surprising that there might be differences between the three as to the time things were said or done or as to precisely what was said. Mr Halley places weight on the striking similarity of the evidence that each gave as to fundamental aspects of the relevant events. In particular, it is submitted by Mr Halley that there is a consistency between the three on their recollection as to how they came to operate the Integrity Plus and Super Save schemes; how they came to make decisions as to where they were going to place the investors' funds; the circumstances in which they came to start to pay profits; and the circumstances in which they had dealings with Cadent. 969Mr Hobbs, however, points to the following instances where he contends that Mr Koutsoukos' evidence was inconsistent with that of others or should not be believed. * Religious meetings 970First, Mr Hobbs refers to the inconsistency in the evidence given as to the religious meetings in the J&B Financial offices to which Mr Koutsoukos deposed at [171] and which in cross-examination he maintained Mr Hobbs (and Ms Reisinger) had either attended or participated in via a telephone link (T 271.47-50, T 272.1-19/32-35). Mr Hobbs points to the evidence of Mr Truong in cross examination (T 367.32-50), which was that neither Ms Reisinger nor Mr Hobbs had attended such meetings. 971In that regard, I note that Mr Truong did confirm that there had been regular early morning prayer meetings. It seems to me not implausible that Mr Hobbs (who invoked his faith on more than one occasion when the veracity of his evidence was challenged in the witness box and who stridently challenged Mr Koutsoukos in cross-examination with the proposition, readily accepted by Mr Koutsoukos, that telling an untruth was an abomination in the eyes of God) would have participated in prayer or religious discussion from time to time, particularly if he were in contact with the J&B Financial officers at the time of such a prayer meeting. Nothing seems to me to turn on whether or not Mr Hobbs actually did so. This issue seems to me to be peripheral to a determination of the overall credibility of Mr Koutsoukos as a witness (whose evidence was corroborated by others on numerous matters and was consistent in broad terms with the contemporaneous documents). (Moreover, I note that Mr Koutsoukos, who readily acknowledged the religious significance of speaking the truth, was not shaken in the evidence that he had given.) 972As I understand it, Mr Hobbs suggests that Mr Koutsoukos has made reference to the prayer meetings and has invoked his faith in order to bolster his general credibility. If that had been his intent then it would have served little purpose. In any event, as I understand the relevance ASIC places on the references throughout the evidence to religious matters, it is that part of ASIC's theory of what had occurred was that Mr Hobbs had used religion as a means of persuading others to accept his account of matters (and, in that regard, I note that Mr Hobbs himself emphasised his religious faith a number of times when pressed on matters in cross-examination). In any event, I am not persuaded that anything turns on the inconsistency between the witnesses' evidence in this regard. * Traders' returns 973Second, Mr Hobbs refers to the evidence given by Mr Koutsoukos as to the traders' meetings in Chicago in 2007, namely his evidence (at [96]) that that both Ms Reisinger and Mr Hobbs told those attending that they could not talk to the traders about their returns (Mr Hobbs referring to his cross-examination of Mr Koutsoukos at T 305.14-16/33-50; T 307.40-45; T 396.1-15; and T 324.1-13/24.32). Mr Hobbs notes that Mr Koutsoukos conceded that the traders gave presentations about their business and that their business was one of trading in the expectation of making profit (T 324.24-32), from which it seems Mr Hobbs invites the conclusion, by way of a process of deductive reasoning, that the traders spoke about profit (a conclusion that in my view does not necessarily follow). 974Mr Hobbs notes that in cross-examination each of Mr Clements (T 774.50; T 775.1-9; T 776.1-8) and Mr Woods (T1125.27-50; T 1126.1-25) agreed that at the meetings in Chicago the traders spoke about their strategies and returns or the lack of returns. Though general in content, I accept that this does suggest an inconsistency in the recollection of the three in this regard. 975Mr Hobbs argues that it would be incomprehensible for traders to give a talk about trading strategy without speaking about the most fundamental part of it, namely, profit or loss. That may or may not be the case. It seems to me, for example, by no means implausible that the traders could have spoken only in general terms about returns and that what Mr Koutsoukos understood he was precluded from asking was as to the specifics. (As to what reason there might have been for the giving of a direction not to talk about the specifics of trading, I could only speculate.) Again, this is a matter on which Mr Hobbs might perhaps have sought to cross-examine Ms Reisinger had she been available for cross-examination. 976While I accept that there is an inconsistency in the evidence on this point, it does not seem to me to follow therefrom that (as Mr Hobbs asserts) this is an instance of Mr Koutsoukos blaming others for his conduct of what Mr Hobbs refers to as the "J&B operation" nor does it seem to me to cast doubt on the credibility of Mr Koutsoukos' evidence on the whole. * TITL 977Third, Mr Hobbs refers to Mr Koutsoukos' evidence in cross-examination that he could not recall a company with a name similar to "TITL" (T 270.30-46). Mr Hobbs points to the statement by Ms Reisinger in her CFTC examination that: TITL was an account that was opened on Cadent's books [later she submits as being in 2008] ... It's my understanding that that was a second account. And in review of the account opening documents that were submitted, there was a second account for Jimmy Truong, Brian Woods and Con ... Koutsoukos 978Ms Reisinger said that she was not involved in the opening of that account and did not receive the documents until well after the account paperwork and documentation was received by New World Holdings. Ms Reisinger recalled that she had had a conversation with Mr Erdman about the account but could not recall what he had said; she also said that the account was never opened (as she believed that Cadent's background check had revealed what was by then the ASIC investigation into the J&B Financial officers). (Ms Reisinger went on to state her understanding that this account was to be associated with a unit trust (on the basis that it was her understanding at the time that the companies opening accounts with Cadent were the owners of unit trusts) and that Mr Hobbs was the foreign introducing broker for that account, matters to which, for perhaps obvious reasons, Mr Hobbs does not point - Ex AO pp558.21-561.12). 979Mr Hobbs relies on Mr Koutsoukos' stated inability to recall a company by the name of TITL as "further evidence of Mr Koutsoukos misleading the court". He bases that submission on his assertion that "this was the company Mr Koutsoukos referred to when I spoke to them on 17 October, 2007. At this discussion, Mr Koutsoukos told me that this was the company, through which they were making the most money". The significance of the 17 October 2007 date is that this is the date on which Mr Hobbs visited the J&B Financial office and asked that the J&B Financial officers sign a letter asserting that they were not operating a Ponzi scheme out of the J&B Financial office. 980There is no evidence of the incorporation of any company by the name of TITL, nor is there a copy of the Cadent paperwork to which Ms Reisinger referred (though I accept that Mr Hobbs may not necessarily have been in the position to obtain access to the latter). There was, however, in evidence a copy (Ex AU 45) of a declaration made by the Chief Operating Officer of Cadent in April 2008, Mr Thomas Konopiots, attesting to the fact that in mid December 2007 Cadent received a request to open an account for a potential new client (TITL Management Ltd). He says that the information provided to Cadent by TITL indicated that its owners were Mr Koutsoukos Mr Wood and Mr Truong and that each was employed by J&B Financial ([7]). 981(Mr Konopiots in that declaration also attested to the opening of the ISPL Cadent account in or around October 2006 and the opening of 13 sub-accounts to that account. He says that in the course of due diligence in relation to the opening of the TITL account it was discovered that ASIC had issued an advisory notice mentioning J&B Financial. He also attests to the meeting in January 2008 at which Mr Stanton, Mr Hobbs and Mr Collard conferred with members of New World Holdings and Cadent; at which he says that Mr Stanton said that he was representing "Idylic" in connection with legal proceedings and that "Super Save investors had been made whole" and Mr Hobbs said that he had been misled by Mr Koutsoukos, Mr Truong and Mr Wood. Mr Konopiots says that Mr Stanton and Mr Wood said that they did not know for certain to whom money in the ISPL account belonged but it "might be" Messrs Koutsoukos, Wood and Truong (see paras [8], [14]-[17]).) 982There was no evidence from Mr Hobbs as to any conversation on 17 October 2007 in the terms stated in his submissions (and I note that this conversation is placed as occurring at around two months before an account application in the name of TITL was apparently made to Cadent, hence it is difficult to see how any commission could yet have been earnt, or money coming in, from trading with Cadent on behalf of such a company at that stage). (The other point to note is that the Konopiots' declaration corroborates Ms Reisinger's evidence in the CFTC examination of those matters.) 983What was put to Mr Koutsoukos in cross-examination was whether he recalled a company of that name. My observation of Mr Koutsoukos in the witness box was that he appeared genuinely to be perplexed by the reference by Mr Hobbs to TITL. That may have been due to any number of reasons - he may not have understood the reference to the company name (it might for example have been miscommunicated by Mr Hobbs or misrecorded in the CTFC transcript; alternatively, Mr Koutsoukos may not have anticipated questions as to that company and, out of context, may not have immediately recalled the name; or he may simply have forgotten about the company). Certainly, any suggestion that J&B Financial was making a lot of money out of trading through Cadent by that company (if that is what the reference to this meant) would have been inconsistent with the evidence of Ms Reisinger that no such account had been established at that time. 984It is impossible for me to conclude, on the evidence that was before me, that Mr Koutsoukos' evidence that he did not recall a company of that name was false or a deliberate attempt to mislead (or "further mislead") the Court. * "Ponzi" 985Fourth, Mr Hobbs points to the inconsistency between Mr Koutsoukos' evidence as to when the "ponzi" letter dated 17 October 2007 was signed (he placing this event at some time after his ASIC examination on 8 November 2007 and before the s 1323 proceedings were commenced on 5 December 2007) and the evidence of Mr Truong (confirmed by Mr Truong in cross-examination - T 1475.15-20) that he signed the letter on 17 October 2007 and that he had never signed documents that were backdated (T 1476.4/20-26). (For linguistic edification, I note that the word "Ponzi" was used in a variety of ways in the course of the hearing: as an adjective, noun and even a verb, although according to the Macquarie Dictionary it is a noun - defined as "a fraudulent investment scheme in which initial investors are paid dividends using the income derived from later investors rather than real profits"; see also the Oxford English Dictionary definition of the term, the etymological derivation of which is the name of the notorious perpetrator of such a fraud.) 986I accept that there is an inconsistency in the accounts given by Mr Koutsoukos and Mr Truong in this regard (though I note that Mr Truong's account of the meeting in his affidavit is itself incorrect at least insofar as it places Mr Wood in attendance at the meeting - as Mr Truong accepted in cross-examination - and on Mr Truong's account there were two letters signed, yet, as far as I know, only one has surfaced in the proceedings). 987Mr Halley submits that the differences in the recollections of Mr Koutsoukos and Mr Truong as to how the December 2007 "ponzi" letter was typed simply highlight the extent to which each of those gave an independent recollection of his activities with Mr Hobbs. Mr Halley submits that what was consistent was that both said that Mr Hobbs was present, both said that the wording came from Mr Hobbs and both of them said that it was in that context that they signed it and gave it to Mr Hobbs (none of which was disclosed by Mr Hobbs in his evidence and on which points Mr Hobbs did not challenge them). I agree. 988The inconsistency in relation to this issue could not, on any view, lead to the conclusion for which Mr Hobbs contends (namely, that "This is a deliberate attempt by Mr Koutsoukos to suggest that I was somehow involved in his ponzi"). What Mr Koutsoukos' evidence (as does Mr Truong's) goes to is that he signed the letter at Mr Hobbs' request and did so without regard to the veracity of the statements contained therein. However, accepting that Mr Koutsoukos (and Mr Truong) had no belief in the truth of the statements in that letter would not itself not make true that which the letter denies (therefore it is difficult to see how doubt cast as to the evidence given by Mr Koutsoukos as to the circumstances in which the letter was signed would lead to the conclusion that this was an attempt to implicate Mr Hobbs in any Ponzi scheme there being operated). 989The evidence of both Mr Koutsoukos and Mr Truong (coupled with Mr Hobbs' acknowledgement in his submissions that he attended a meeting at which the said letter was provided to him) is telling in that it indicates that Mr Hobbs had some concern that he might be said to be involved in the operation of the funds administered from the Burwood office and that those schemes might be said to have operated as ponzi schemes (since absent such a concern it is difficult to see why the letter would have been requested in the first place). This might, on one view, indicate a level of knowledge by Mr Hobbs of the running of the schemes that belies his assertion that he had no knowledge of how the funds were operating. Be that as it may, I do not consider that the inconsistency in the evidence in this regard casts doubt on the overall credibility of Mr Koutsoukos. 990(To the extent that Mr Hobbs' submissions in this regard go on to make assertions as to what Mr Collard in his submissions would say or as to what discussions he had with Mr Collard at the time, this amounts to unsworn evidence after the close of the evidence in the hearing and I cannot properly, and do not, take those assertions into account.) 991Pausing there, I note that Mr Hobbs has emphasised the inconsistencies between the witnesses' accounts on particular matters such as this as indicative of the unreliability of their evidence (and made a point of cross-examining witnesses as to who had prepared their affidavits). Mr Halley submits (and I accept) that the differences in the respective accounts given by the J&B Financial officers are at the margin and that it would be more suspicious if the accounts of the witnesses were to be identical (as, I note, were the affidavits prepared by the J&B Financial officers on the basis of the draft affidavit prepared by Mr Hobbs). In that regard, I accept that there is a more readily available inference of collusion between witnesses where affidavits can be seen to have been cut and pasted (and the affidavits prepared by Mr Hobbs would clearly suffer from that problem). Therefore, the mere fact that there are differences in the accounts given by the various witnesses is not in itself a cause for suspicion. 992Notwithstanding that he submits Mr Koutsoukos is an unreliable witness, in some of his submissions Mr Hobbs relies on Mr Koutsoukos' evidence as supporting his version of events. * Running of funds 993Mr Hobbs points to Mr Koutsoukos' acceptance in cross examination of the proposition that he had the direct control and running of the two funds "of J&B" (referring to T 315.27-49; T 316.1-49; T 317.1-33; [795]-[813] of Mr Koutsoukos' affidavit) as being inconsistent with the allegation that Mr Hobbs was a director or de facto director for those funds. In effect, he relies on the evidence of Mr Koutsoukos as an admission that Mr Koutsoukos ran the funds. Mr Hobbs refers to the evidence at T 279.46,T 298.35 and T 315/316 in this regard. 994Mr Halley submits that those answers should be seen in the context of Mr Koutsoukos having made decisions on a daily basis but not as inconsistent with those decisions having been made subject to the directions and instructions of Mr Hobbs. I accept that there is no inconsistency between the proposition that Mr Koutsoukos made decisions in relation to the running of the funds and the case mounted by ASIC which is that he did so at the direction or on the instruction of Mr Hobbs (with which he was accustomed to act). 995I therefore do not regard this evidence in isolation as damning of ASIC's case. Rather, it must be seen in the context of the evidence of Mr Koutsoukos and others as to the involvement Mr Hobbs had in the making of those decisions (or the approval of such decisions when relayed to him). In that regard, the evidence as to Mr Hobbs' reaction to the level of the profit distribution made by the scheme administrators to themselves (as to it being too low) and the evidence as to Mr Hobbs directing that the percentage profit be varied to avoid the appearance of a Ponzi scheme, which I accept, is consistent only with Mr Hobbs having a directing role in relation to the funds administered by Mr Koutsoukos and the other J&B Financial officers. (I note that Mr Koutsoukos' evidence as to the payment of returns was largely not challenged in cross-examination.) * Complaint as to insufficient time spent by Mr Hobbs at the office 996Further, Mr Hobbs points to Mr Koutsoukos' evidence that he complained (T 301.39-41) that Mr Hobbs did not spend enough time at J&B's office as indicating that he was not giving instructions and was not a de facto director (on the basis that had that been the case Mr Hobbs would have spent a large amount of time at J&B). That submission seems to be predicated on the assumption that physical presence is necessary for a finding that Mr Hobbs acted as a director. However, the evidence that there were regular conference calls in which the J&B Financial officers reported on the running of the business conducted from that office and sought instructions from time to time would be sufficient without the need for Mr Hobbs to have been physically in attendance at the office. (Moreover, had the J&B Financial officers not regarded Mr Hobbs as having a role in the conduct of the business there would have been no reason to make such a complaint.) * Concession as to deceptive conduct 997Mr Hobbs places weight on the concession by Mr Koutsoukos that he had behaved deceptively when leaving an open Bible on his desk during client meetings (T 320.50 - T 321). Mr Hobbs referred to Mr Koutsoukos' evidence (at [173(d)]) that he had used religion as part of his sales routine and had accepted (T 321.40-46) that this was a devious way to entice clients. (As noted earlier, Mr Hobbs submits that Mr Koutsoukos has attempted to use religion and the Bible "as a way of attempting to put credibility into his affidavit". Ironically, Mr Hobbs also invoked his religious faith throughout cross-examination, perhaps also as a means of putting credibility into his answers.) 998This submission seems to go to Mr Koutsoukos' credit generally. Mr Halley submits that this evidence simply demonstrates that Mr Koutsoukos was prepared to address and confront difficult questions and to do so directly (without excuse or prevarication). 999Similarly, in response to the submission by Mr Hobbs that the evidence of "fraudsters" (namely Mr Koutsoukos, Mr Wood and Mr Truong) was of dubious reliability, Mr Halley points to the ready acceptance by Mr Koutsoukos of matters that would not go to his credit (namely his acceptance that the payments to himself and others out of client funds amounted to stealing). Mr Hobbs had pointed to the transcript of Mr Koutsoukos' cross-examination at T 264.26 to T 267.39; in particular to Mr Koutsoukos' agreement that the money paid to each of himself and Mr Wood came from investors' funds and his agreement that this was stealing (T 320.50; T 321.1-6) and to T 265.1-3; T 266.13-20; T 301.6-49 in this regard.) Mr Hobbs also noted the concessions that Mr Koutsoukos made in the course of crossexamination at T 265.34 as to the drawing of salaries out of investor's funds - T 266. Mr Halley points out that Mr Koutsoukos made no attempt to cavil with this. (The fact that Mr Koutsoukos has now been charged in criminal proceedings yet did not resile from the proposition that he had behaved wrongly is relied upon by Mr Halley as showing that (unlike Mr Hobbs) Mr Koutsoukos has been prepared squarely to face up to the consequences of his actions. Be that as it may, I do not consider that the fact that Mr Koutsoukos admits having behaved deceptively means that I should not accept his evidence, particularly where that evidence is consistent with other witnesses and contemporaneous records.) 1000I accept that to the extent that the evidence of Mr Koutsoukos is that he was prepared to sign a statement (in terms of the 17 October 2007 letter), a false affidavit (in terms of the 20 December 2007 document that was not on its face for use in any particular proceedings) and was prepared to give false evidence in the s 19 examinations, this is cause for concern (though not a matter advanced by Mr Hobbs as a reason not to accept Mr Koutsoukos' evidence in the present proceedings, perhaps understandably since the Mr Hobbs seems to have been involved in procuring some or all of that material). However, and significantly in my view, the evidence given in the present proceedings by Mr Koutsoukos (unlike that of Mr Hobbs) is broadly consistent both with the contemporaneous documents and with the evidence of other witnesses. * Other submissions 1001Briefly as to the other matters to which Mr Hobbs has pointed in his submissions, I note as follows. 1002I cannot place any weight on the answer by Mr Koutsoukos (when asked at T 268.20-32 whether Mr Hobbs would have been entitled to a salary had he acted as it was alleged he had in relation to the funds) that he did not know or that he accepted that it was "Hardly likely that somebody would conduct all that business without wanting a salary to be paid". What Mr Koutsoukos did or did not think would be the expectation of someone performing that role is irrelevant to the issue whether Mr Hobbs in fact perform that role. That is an issue for the Court. Moreover, this argument wholly fails to take into account the fact that a person might have been prepared to act in relation to a fund of this kind if there were a financial benefit otherwise expected to be gained from that work. Mr Hobbs' submission that "I did not give any alleged advice. I did not do the work so I had no reason or expectation to be paid" is no more than an assertion and I have treated it as such. 1003Mr Hobbs also referred to the transcript at T 275 where Mr Koutsoukos conceded the unlikelihood of someone in the position of Mr Tomlinson (said to have a considerable amount invested in Cadent funds) seeking to borrow moneys. In that regard, I note that Mr Koutsoukos' answer ("you were my boss") sounded to me quite unrehearsed and as reflecting Mr Koutsoukos' genuine understanding of the relationship between them. 1004As to the submission made by Mr Hobbs as to his recollection of Mr Koutsoukos and Mr Wood having "one-on one" discussions at a due diligence seminar in Miami with Mr David Marchant (referring to Mr Koutsouskos' cross-examination at T 304.4-33) about a business matter in which Mr Hobbs says he did not have any participation and Mr Hobbs' assertions as to what was understood by others, such as his brother, his wife and his sister-in-law in relation to investment by Mr Koutsoukos and Mr Wood into the funds administered by Geneva Financial, those are matters of evidence not submission and, again, they are not matters that I can properly take into account. 1005My observation of Mr Koutsoukos in the witness box was that he gave his evidence in a basic but matter of fact way. He readily conceded aspects of his behaviour that would be seen to be reprehensible (such as the deceptive nature of his use of religion in dealing with clients and that his conduct amounted to "stealing"). The concern to which he deposed in his affidavit as to the position in which he had placed family and friends who had invested in these products had the ring of truth to me; as did the concern to which he deposed that he expressed to Mr Hobbs at the time the ASIC investigation commenced, namely whether they had been doing anything wrong. 1006While it was suggested by Mr Hobbs that Mr Koutsoukos (and others) were simply seeking to put responsibility or the blame for the loss of the investments onto others, Mr Koutsoukos appeared in the witness box to accept his share of responsibility for wrongdoing with which he was involved (in the context where there are criminal proceedings on foot). 1007Mr Koutsoukos gave his evidence in a straightforward and genuine manner. He seemed to me someone who was impressionable in his dealings with Mr Hobbs. I accept that his recollection of events was not always consistent with others (such as in relation to matters such as the regularity of or participation in Bible meetings or the signing of the "ponzi" letter). Nevertheless I accept his evidence in essence as truthful. Mr Wood 1008Mr Hobbs makes similar submissions as to the evidence of Mr Wood. He commenced his submissions in this regard by the assertion that it became immediately apparent to him that he "was not going to extract the truth from Mr Wood" when he cross-examined Mr Wood about the evidence given in his affidavit in relation to a spark plug deal. 1009Mr Hobbs seemed to place great significance on the so-called spark plug deal (which is not a matter the subject of any allegations in the proceedings but was put forward as explaining the willingness of persons such as Mr Wood to place faith in what Mr Hobbs had represented to them). In particular, Mr Hobbs takes issue with the proposition that there was ever any money invested in the alleged spark plug deal (referring to T 1102.27-33; T 1104.1-9, 21-50; T 1105.1-35; T 1106.1-5 and referring to Mr Diaz' evidence in cross examination to that effect - T 357.32-37). I read Mr Wood's evidence in this regard as no more than his account of what he understood had been promised or represented in this regard. The fact that no money was ever invested in a deal of this kind seems to me to be immaterial to Mr Wood's credibility as a witness overall. 1010Mr Hobbs points to what he sees as inconsistency between evidence from Mr Wood as to whether a particular discussion occurred in a telephone call or in a conference room (contrasting T 1123.39-50; T 1124.15-35 with the reference in his affidavit to a conversation in the boardroom; and also referring to T 1128.19 to 50) as discrediting Mr Wood's evidence generally. Again, confusion or inconsistency on an aspect such as this does not seem to me to indicate that Mr Wood is not overall a credible witness. 1011Mr Hobbs also submits that the evidence given by Mr Wood (referring to T 1127.1-50; T 1128.1-3) that Mr Hobbs had typed changes into a soft copy of the scheme memorandum agreement and had then taken the disk out of Mr Wood's computer to Ms Trinh's office could not be true because: as at this time I could not use a computer, let alone change text in a soft copy, or put something onto a disk or even put a disk in or out of a computer. Still as of today I would have no idea how create a document or change text in a document or to put something onto a disk and I have only just learnt during this hearing what a "soft copy" is. The only thing I use a computer for is for limited emailing and for searching the web. 1012There is no evidence other than Mr Hobbs' assertion to that effect (this being a matter to which presumably Mrs Andrews, if not others, in the Hobbs' office could readily have attested). (Moreover, it is by no means apparent to me that a person not otherwise literate in computer skills could not have typed changes to a document in a soft copy.) In any event, what I place weight on in relation to the scheme memoranda is the striking similarity between the documents across different schemes, which it seems to me is readily explicable only by the provision of those documents by Mr Hobbs or Mrs Watson on his behalf. 1013Mr Hobbs also placed emphasis on the evidence given by Mr Wood in which reference was made to a "Stromberg carburettor" (referring to T 1129.29-50; T 1130.5-25; T 1132.15-24). He submits that this conversation could not have occurred since Stromberg carburettors were phased out in the 1970's and fuel injection became the product for manufacturers to use from the 1980's. He submits that by the year 2007 "no new vehicles produced would ever have reverted to carburetion over the standard fuel injection system in use since the 1980's". He considers it to be a bizarre suggestion that investment in developing obsolete Stromberg carburettors could have been financially viable. Mr Hobbs might very well be right but I cannot possibly draw any conclusion about what might or might not have been understood at the time to have been financially viable in this regard (particularly when there is no evidence of the matters asserted by Mr Hobbs in relation to Stromberg carburettors about which, as I made abundantly clear during the hearing, I have no knowledge whatsoever). 1014Similarly, Mr Hobbs points to Mr Wood's evidence in relation to Mr Starr and mag wheel production (T 1132.30-40; T 1133.1-16, 35-40)] as being inconsistent with the evidence that Mr Starr's business with J&B Financial was the production of inlet manifolds. Mr Hobbs finds significance in the fact that Mr Wood at first disagreed that he was confused about what Mr Starr said and then did agree that Mr Starr spoke about making inlet manifolds for motor vehicles. Again, it does not seem to me that anything turns on any inconsistency between the answers given by Mr Wood on this issue to matters in dispute in the proceedings. 1015Mr Hobbs notes the acceptance by Mr Wood that he had "paid a Ponzi" (T 1110.30-41; T 1121.38-50; T 1122.1-40]) and Mr Wood's agreement that: he understood that the clients' money in the bank in mid 2005 was money for the purposes of investment (referring to T 1121. 41- 51; T 1122.1-40]; that he was receiving money from J&B Financial (T 1107.30-43); and that "possibly some of that money could then be investors money" (T 1107.41-43). As with Mr Koutsoukos' evidence of similar propositions, this reflects Mr Wood's acceptance of responsibility for wrongful conduct, a matter that is contrasted by Mr Halley with the attitude of Mr Hobbs to the same conduct. 1016Mr Hobbs refers to Mr Wood's evidence at T 1102.9-12/14 in relation to earnings from J& B Financial and how it made its money. He also pointed out that while (at T 1106.14-49; T 1107.1-45) Mr Wood did not accept he had received the sum shown on the diagram prepared by ASIC (of $842,000 approximately) "No, because there was no relevant receipts shown, it was just an amount of money that was supposedly an outgoing amount that was put in the pie chart", Mr Wood did accept that he had received money from J&B Financial. As I understand it, reliance was placed on this to show that Mr Wood had been complicit in receiving investors' money and as going to his discredit generally. However, the acceptance of wrongful conduct by Mr Wood (or Mr Koutsoukos for that matter) does not absolve Mr Hobbs from responsibility for any involvement he had in the schemes, nor does it suggest any reason for Mr Wood to give false or unreliable evidence as to Mr Hobbs' involvement. 1017Tellingly, at T 1102.20, when answering Mr Hobbs' questions on that aspect of the matter, Mr Wood said that he did not recall "exactly when we started selling the FTC information for your group of companies [my emphasis] and started receiving commission on that". The use of the possessive "your" did not seem to me to be forced and I understood it as indicating Mr Wood's genuine understanding as to Mr Hobbs' association with FTC (and the other 'group' of companies, that seems likely to have encompassed OEM/KLM). 1018In summary, Mr Hobbs' submission was that there was no credibility in Mr Wood's evidence, on the basis that Mr Wood was confused at times during the cross-examination; attempted to shift blame "for his actions in the funds Integrity and Integrity Plus" (implicitly there seeming to accept that there was at one stage a second Integrity fund or a proposed second Integrity fund); denied receiving approximately $842,000 of investors' money; and gave given conflicting evidence to Mr Koutsoukos in regard to what the traders in Chicago spoke about in relation to traders' returns (though in relation to this point, as I understand it, Mr Hobbs would invite me to prefer Mr Wood's recollection to that of Mr Koutsoukos). 1019As to the submission by Mr Hobbs that Mr Wood's evidence was confused, in part I suspect that may have been due to his obvious physical frailty. (Mr Wood's cross-examination had been deferred for a time due to a period of hospitalisation.) Mr Wood gave his evidence quietly. He had difficulty at times in hearing questions I put to him, which was certainly no reflection on his cooperation as a witness (but, no doubt, a reflection on my audibility). However, Mr Wood showed no sign of confusion when taken to the substantive facts in dispute. I have no reason to disbelieve his evidence and I consider it to be consistent with the thrust of, and corroborated by, the evidence from each of Mr Koutsoukos and Mr Truong. Mr Truong 1020In relation to Mr Truong, Mr Hobbs relies on a number of points in his cross-examination where Mr Truong accepted propositions inconsistent with the evidence of Mr Wood or Mr Koutsoukos or accepted propositions consistent with the version of events put forward by Mr Hobbs, namely: * T 364.42-46 T 365.16-21, 27-35; T 367.4-7 in relation to who came up with the name "Integrity Plus" for the fund; * T 367.32-50 as to the religious meetings to which Mr Koutsoukos deposed; * T 368.48-50 as to the receipt of instructions from Ms Reisinger in June 2007 to increase trading and the confirmation by Mr Truong in that regard (an answer on which Mr Hobbs relies for the submission that "at no time did I have any involvement in the running of Idyllic or Idyllic Plus [sic] all business was completed between Lisa Reisinger and the fund managers"); * T 369.49-50, T 370.1-2, where Mr Truong accepted that he might be mistaken in deposing that Mr Hobbs had referred to "my investments"; * T 371.46-50, where Mr Truong accepted that it would be unlikely that Mrs Watson had used the word Integrity Plus as stated at [76] of Mr Truong's affidavit, accepting at T 373.11-14, in relation to [71] of the affidavit that while Mr Truong worked in the Bankstown office there was no Integrity Plus Fund; * T 373.15-27 where Mr Truong indicated that best efforts meant one could make anywhere between 0 and 4 per cent; * T 374.27-29, where Mr Truong answered no to a question whether he was aware if Mr Hobbs had received a salary from J&B; * T 377.5-19 where Mr Truong (having not accepted the proposition that Mr Hobbs would never talk about an investment or investment product and having said "to my memory when you were speaking about FTC you did mention to us some of the funds that you can access through offshore investments which is the I think U.S offshore magazines some of the returns you can actually access") agreed that Mr Hobbs would show the magazine as an example). 1021Reliance is also placed on the evidence of Mr Truong at T 1475.17-19 that he did recall signing the "Ponzi" letter on 17 October 2007, which Mr Hobbs invites me to accept as the truth and as indicating that "Mr Koutsoukos in his affidavit and evidence in regard to the letter of the 17th of October 2007 that he was deliberately telling a lie in an attempt to involve [Mr Hobbs] in the Ponzi he ran". 1022Mr Truong gave his evidence in a quiet manner and appeared to me to be deferential to Mr Hobbs. My observation was that there appeared to be more open exchanges of looks between Mr (and Mrs Hobbs) at the bar table and Mr Truong in the witness box, than between Mr and Mrs Hobbs and the other J&B Financial witnesses and I note that Mr Hobbs prefaced his cross-examination with a statement of sentiment (to which Mr Halley immediately objected), which suggested to me that there was still a relationship of goodwill between them and that there was perhaps an expectation that Mr Truong would be slow to give evidence unfavourable to them. The potential significance of this is that my impression was that Mr Truong was quick to accede to propositions put to him by Mr Hobbs in cross-examination even where those were inconsistent with the thrust of his evidence in chief (but just as quickly retracted from some of those answers in re-examination). 1023Relevantly, insofar as Mr Truong did seem quick to adopt or agree with what Mr Hobbs put to him on certain matters, this suggests to me that greater weight can be placed on the instances during the course of his examination where he did not do so (in particular, his firm recollection as to what had been said to him by Mr Hobbs as to access to investments). Overall, I consider that Mr Truong's affidavit evidence was consistent with contemporaneous records and not significantly challenged in cross-examination. Ms Bi Hong Dong 1024Ms Dong was involved in the administration of the Enhanced Fund scheme and deposed to her involvement with Mr Collard, Ms Li and Ms Wu, as well as to her recollection of various meetings at which Mr Hobbs spoke. Ms Dong was softly spoken. She appeared to me to give careful consideration to her answers in the witness box and from time to time in cross-examination she corrected her evidence in response to questions put by Mr Hobbs or when her attention was drawn to particular passages. This served to emphasise the firmness with which she confirmed other parts of her affidavit to be correct. 1025As to Ms Dong, Mr Hobbs refers to her affidavit [13], [18] and [19] as to the property management company she ran with a Ms Ma (MLD Developments), which Ms Dong said was not profitable, and to the liquidation of that company while she was in China. Mr Hobbs submits that this is evidence of Ms Dong's "strategy" that, whenever faced with a difficult situation, Ms Dong "either removes herself from the scene or quickly blames somebody else" (a submission that Mr Halley argues is not simply unfair but would aptly describe Mr Hobbs' own conduct insofar as he has sought to blame Mr Becker/Mr Chen and Ms Reisinger for the events that have unfolded). I cannot possibly make any adverse finding as to Ms Dong's credibility as a witness based on assertions by Mr Hobbs that she went to China at some point with the purpose of avoiding a difficult situation (whether or not the company in which she was involved went into liquidation while she was there). (Mr Halley submits that the characterisation sought to be placed by Mr Hobbs on this conduct as a "strategy" of blaming others would be apposite to refer to Mr Hobbs' own conduct.) 1026Mr Hobbs made reference to various aspects of Ms Dong's affidavit evidence and to her evidence in cross-examination (as to her staying with Ms Wu; setting up FZF; and setting up and funding of the Cadent account). He submits that Ms Dong was the administrator of FZF (Vanuatu) and was "very familiar" with Master Fund. He submits that she was the administrator for that company and signed all of the transactions in and out of Master Fund. (Pausing there, it is not disputed that Ms Dong acted as a co-scheme administrator in relation to the Enhanced Fund and that she acted for a time with the title of 'administrator' of FZF Vanuatu. That does not, however, establish that Mr Hobbs had no involvement with the Enhanced Fund. Nor does her alleged familiarity with the Master Fund point to such a conclusion.) 1027Mr Hobbs submits that the evidence shows that Ms Dong directly opened a Cadent account and he asks, rhetorically, how could he be the introducing broker "when they are opening accounts directly and setting up trading accounts". (This, of course, ignores the evidence that Ms Dong did so under instructions from Ms Li and ignores the fact that Ms Reisinger was keeping Mr Hobbs (and Ms Li) updated as to the setting up of the various Cadent accounts and understood Mr Hobbs to be the foreign introducing broker for this account; it also ignores the evidence of Mr Hobbs' entitlement to and receipt of commissions from Cadent funds other than simply the Global Funeral funds.) 1028Mr Hobbs' submission is that Ms Dong's affidavit leads to the conclusion that Ms Dong was intimately involved with Ms Li "and all of the different companies they ran together". He submits that the two important points emerging from Ms Dong's affidavits are those as to the running of the company and the opening of Cadent account ([147]-[151]) and that these demonstrate that Ms Li and Ms Dong were involved directly in the opening of companies and accounts. (He further submits that Ms Wu's involvement was "following the instructions of Ms Dong and Ms Min Hua Li as they worked so closely together".) 1029In support of this submission Mr Hobbs refers to the following paragraphs in Ms Dong's affidavit [37],[124];[126]-[127]; [133],[135]; [153]; [154]; [144] (including the fact that Ms Dong deposes to Ms Li having given Ms Dong shares of the companies for which Ms Dong did not have to pay). In this regard, Mr Halley made clear that ASIC accepts that Ms Dong worked with Ms Li on or with respect to a number of funds. The relevant question is as to the role that each of Mr Hobbs, Mr Collard and Ms Wu played in relation to the relevant fund or funds. (Mr Halley submits that Ms Wu also worked very closely with Ms Li with respect to those funds and that, over time, what emerged was that Ms Wu came to have a greater and more specific role in the operation of those funds. I consider this submission in due course.) 1030Mr Hobbs further submits that Mr Collard's involvement in the companies (as deposed to in paragraphs [123], [125], [139] and [143] of Ms Dong's) affidavit "was in fact at the request of Ms Ming Wa Li to do the administrative work or drive her to meetings where a lot of those meetings were conducted in Chinese". He says (in what is clearly unsworn evidence that I cannot properly take into account when introduced only at the stage of submissions) "I can personally also speak about many meetings I had in China with Ms Li (Ming Wa Li) where I would sit for 1-2 hours and not understand a word that was spoken. When it was finally translated to me at the end, it might have been summed up to perhaps 5-10 minutes of conversation". 1031Mr Hobbs asserts that Ms Dong's evidence that she did not receive any money (other than accommodation and a trip to China) is not correct (and submits that this is collaborated by Ms Wu and Mr Collard), though again there was no evidence (as opposed to submission) as to this issue. 1032Mr Halley submits that overall the evidence from Ms Dong should be accepted, noting that she answered Mr Hobbs' questions directly and that while there may be some questions as to the accuracy of her recollection from time to time, on the whole she was a witness of credit on which significant weight can be placed. I agree. It seemed to me that Ms Dong considered the questions put to her by Mr Hobbs carefully; made concessions and corrections to her evidence from time to time; was a co-operative witness and did not seek to overstate her evidence. I accept her as a truthful witness. (ii)FTC Executives - Mr Diaz 1033ASIC relies on Mr Diaz' evidence as to his conversations with Mr Hobbs as to the establishment of the OEM/KLM system, the detail of the FTC process, the role of the introducer, and the commissions to be paid. ASIC submits that considerable weight can be placed on Mr Diaz' evidence, particularly the detail of the notes that were provided by Mr Diaz, not least because Mr Diaz' evidence cannot be characterised as that of a 'fraudster' in the dismissive manner in which Mr Hobbs sought to do with the J&B Financial witnesses. 1034Mr Halley notes that Mr Diaz had more financial acumen than the three J&B Financial officers and submits that Mr Diaz, who engaged in a number of activities jointly with Mr Hobbs (particularly with respect to Mr Lynn Caswell), is in a position reliably to give evidence as to what had there occurred (and that the fact that Mr Diaz and Mr Hobbs subsequently had a falling out does not detract from that evidence). On that point, it was not suggested to Mr Diaz in cross-examination that his evidence was motivated by any ill-feeling towards Mr Hobbs, nor did it appear to me that it could be so characterised (particularly in circumstances where it was consistent with contemporaneous evidence such as the DVD Seminar). 1035Mr Halley also submits that the fact that Mr Diaz was not involved in the subsequent funds the subject of the ASIC proceedings means that he can be accepted as presenting a more objective account of what took place (independently of concerns that wrongdoing on his part may have had an impact on the quality or character of his evidence). 1036My observation of Mr Diaz in the witness box was that he was forthright and confident in manner. He spoke succinctly and answered quickly and without hesitation the questions put to him. He did not prevaricate nor did he not engage in confrontation or argument with Mr Hobbs in cross-examination. 1037Mr Hobbs' focus in his submissions in relation to the evidence of Mr Diaz relates to the supply of the DVD to ASIC. Mr Hobbs asserts that the DVD Seminar "was a one-off situation that was not aimed at any investor"; that "[t]his DVD was a once only situation, and was undertaken without my permission or consent, and Mr Collard's submission will agree to this" and that "I have spent a considerable amount of time with Mr Collard over the years and never has such a seminar been repeated". (The references to what Mr Collard might agree to in his submissions or as to evidence Mr Collard might have given in relation to the repetition of such a seminar are references to matters not in evidence and cannot properly be taken into account). 1038As to the assertion that the DVD was filmed without Mr Hobbs' permission or consent: first that is irrelevant to the weight that is to be placed on what Mr Hobbs accepts is a recording of the presentation he gave at that seminar (and I note that there was no suggestion that the evidence was unlawfully obtained in such a fashion as should lead to its inadmissibility) and, secondly, it is difficult to accept that Mr Hobbs did not at least have knowledge that the seminar was being filmed at the time, having regard to the apparent size of the room and the audibility on the tape of discussions as to when the tape was to be changed (and Mr Hobbs does not dispute the evidence that the tape was provided to him by Mr Diaz sometime after the seminar was conducted). Moreover, it is difficult to see how this has any bearing on Mr Diaz' credibility as a witness. 1039Mr Hobbs asserts that the credit card business of Mr Diaz was the reason for his termination as National Sales Manager of FTC and went on to describe what he says that business was. Apart from the fact that there was no evidence of this in the proceedings, it is not apparent what relevance it would have to Mr Diaz' credit as a witness in respect of other matters related to FTC. If it is sought to be suggested that this presented some form of motivation for Mr Diaz to give unfavourable evidence, that was not put to him and there is nothing from which I could draw the conclusion that that was the case. 1040Mr Hobbs places weight on the reference in Mr Diaz' affidavit to having put his "own spin" on things he had heard Mr Hobbs say when later conveying information about the investments to investors. Mr Hobbs submits that this is what Mr Diaz has done in his own affidavit. There is no logical connection between the two but in any event this comes very close to an acknowledgement by Mr Hobbs that he was putting a gloss on matters at FTC seminars (something in effect conceded when Mr Hobbs explained in his closing submissions inconsistencies by referring to a difference between giving evidence in court and saying things in the course of selling one's expertise). * Submission as to the "trend" of the ASIC affidavits 1041Mr Hobbs next submits that Mr Diaz' affidavit reflects "The trend of ASIC affidavits to present David Hobbs as a de facto director or alternative promoting a 4% return". 1042I interpose here to note that a consistent theme by Mr Hobbs throughout his cross-examination of witnesses was to enquire as to whether they had prepared their own affidavits and, for various of the witnesses who had not sworn affidavits (but had been subpoenaed to give evidence), to enquire as to the reason that they had not sworn the affidavits prepared for them (occasionally adducing evidence that the witness had disagreed with the contents, but without specifics of that disagreement, but also, in the case of Mrs Burnard, eliciting the answer that she had simply not bothered to read the draft affidavit sent to her after she saw that it had incorrectly specified her name). 1043Insofar as this was intended (as was the reference to a consistent "trend" in the affidavits) to suggest that ASIC officers had prepared the affidavits so as to create an impression or convey a message in the affidavits that bolstered its case and that did not reflect the witness' own recollection of events, that submission should be addressed, particularly having regard to the obligations of ASIC as a model litigant. 1044The fact that affidavits are commonly prepared by solicitors or barristers does not of itself warrant any submission that the information to which the witness has deposed is not the witness' own truthful recollection of events. One would expect preparation of affidavits by officers of this Court (who owe professional and ethical responsibilities to the Court) to follow the careful taking of witness statements/interviews with witnesses and to involve no more than a process of putting into admissible form the particular witness' recollection of events insofar as those are or may be relevant to the issues in the case (ie, not what the witness or the legal practitioners might think would best suit their client's case), testing in an appropriate fashion the witness' recollection of events as against contemporaneous material or having regard to the inherent probability or otherwise of such an account. It may on occasion be that a legal practitioner will consider that material a witness wishes to include in an affidavit is not admissible or irrelevant (and I suspect it is not uncommon that disagreements may arise where lay witnesses are of a different view as to what is relevant to a case). 1045In the case of various of the witnesses who refused or declined to sign affidavits, the outlines of evidence served by ASIC followed closely, as I understand it, the evidence given by those affidavits in the s 10 examinations. If so, then the fact that the witnesses may not later have been prepared to sign affidavits repeating such testimony is no indication of any impropriety on the part of the draftsperson. Indeed in Mrs Watson's case, the evidence she gave in examination in chief in the proceedings was at least in one respect inconsistent with her earlier evidence in the s 10 examinations (which she said was due to the pressure that she was under during the earlier examinations). If so, then that might explain a disagreement on her part with material in an affidavit that recorded the thrust of her sworn answers from the earlier examinations. Whether or not that is the explanation, or whether one or more of the subpoenaed witnesses simply chose for his or her own reasons not to cooperate in the provision of affidavit evidence in these proceedings, there is simply no evidentiary basis for any submission that ASIC's officers behaved in any way improperly in the preparation of draft affidavits or outlines of evidence or crafted them to reflect a particular "trend". 1046Indeed the approach taken by ASIC when one of the witnesses (Mrs Brenda Hobbs) at the last moment had an apparent change of heart and executed the draft affidavit that had apparently been sent to her much earlier provides an indication of how ASIC had approached this task. In that instance I was informed that unless ASIC's officers had an opportunity to confer with Mrs Brenda Hobbs and satisfy themselves as to the basis on which the affidavit was now being sworn, ASIC was not prepared to read the affidavit and would rely on eliciting the evidence in chief (which is what happened in due course, Mrs Brenda Hobbs appearing in Court under compulsion of subpoena for that purpose). 1047The very fact that some affidavits make clear that particular witnesses' recollection of events has varied or where a particular witness was able to recall matters only in general terms (such as Ms Huang) whereas others are more detailed in their recollection, is consistent with a proper approach to the preparation of affidavit evidence. 1048What would be more suspicious would be a cut and paste of identical testimony (as appears in the December 2007 affidavits prepared from the bullet points provided by Mr Hobbs). In that regard I referred in the course of the hearing (when Mr Hobbs had raised the issue of inconsistencies in the J&B Financial officers' affidavits) to the suspicion that can arise where there are affidavits in substantially identical terms. I had in mind the authorities that suggest that this may give rise to an inference of collusion between witnesses, which inference in turn may diminish the weight or credit accorded to the evidence of those witnesses, depending on whether there is an acceptable explanation that excludes the appearance of collusion. 1049In Macquarie Developments Pty Limited and Anor v Forrester and Anor [2005] NSWSC 674 Palmer J considered the weight to be attributed to two affidavits dealing with critical discussions in virtually identical terms, in circumstances where the evidence was that the solicitor who prepared the affidavits had "copied and pasted" portions from each. His Honour noted that: [I]t is totally destructive of the utility of evidence by affidavit if a solicitor or anyone else attempts to express a witness' evidence in words that are not truly and literally his or her own. Save in the case of proving formal or non-contentious matters, affidavit evidence of a witness which is in the same words as affidavit evidence of another witness is highly suggestive either of collusion between the witnesses or that the person drafting the affidavit has not used the actual words of one or both of the deponents. Both possibilities seriously prejudice the value of the evidence and Counsel usually attacks the credit of such witnesses, with good reason. 1050So, for example, in Seamez v McLaughlin [1999] NSWSC 9, Sperling J concluded that where there was a high degree of similarity in content, detail, terminology and sequence (particularly in relation to conversations) between the affidavits of three witnesses the affidavits could not have come into existence without direct or indirect collaboration. His Honour noted that: [a]cceptance of one of the three accounts of the events ... means not only that the other two are not genuinely recollected, independent accounts. It also means that the authors of those other accounts have misstated the way in which their respective accounts came into existence, and seriously so. The credit of the others would then be worthless. 1051In Dialog Pty Limited v Addease Pty Limited [2003] FCA 1359 Cooper J did not accept as the witness' independent recollection evidence produced by way of a "cut and paste" exercise. 1052Hence, in my view suspicion of collusion would have attached to the December 2007 affidavits, had they been relied upon by Mr Hobbs in his defence, (a suspicion that would have been justified having regard to the evidence as to how the affidavits came to be prepared). 1053However, there is nothing to warrant a suggestion of collusion between the ASIC witnesses nor of any impropriety in the preparation of the evidence of those witnesses (any more than it could be said that there was any impropriety in Counsel settling the affidavits sworn by Mr Hobbs, as I was told had been the case). (Although the J&B Financial officers had received copies of the affidavits sworn by each other, that was at a stage when they were defendants and entitled to be served with such affidavits and there is no suggestion that they saw or commented on each other's affidavits in draft before they were executed.) 1054Therefore any "trend" in the affidavits in the sense of a common reference to a 4% return strongly suggests not that there has been an attempt to put that figure into the mouths of the witnesses but, rather, that this is indeed what was said on a number of occasions (as corroborated by the references to returns generally in the DVD Seminar and Mr Blow's notes of the February 2003 seminar or meeting). * Other criticisms of Mr Diaz' evidence 1055Returning to the criticisms made of Mr Diaz' reliability as a witness, Mr Hobbs points to the fact that Mr Diaz had incorrectly suggested that it was Mrs Brenda Hobbs who was featured in the DVD Seminar (when in fact it was Mrs Dent). Having seen Mrs Brenda Hobbs in the witness box and having viewed the DVD Seminar video, I accept that Mr Diaz was incorrect in this regard. However, I do not accept that his inability to distinguish between the two women on the video reflects adversely on his credibility as a witness overall. 1056Mr Hobbs referred to the cross-examination of Mr Diaz at T 357.4-23 in relation to the meeting of Mr Diaz with Ms Reisinger and Mr Diaz' evidence that she stated that she was an introducing broker for Refco (and his meeting with Mr Erdman at which they discussed various investments). Mr Hobbs says that the significance of this is that in Ms Reisinger's CFTC examination (Ex AO p19.1-5) Ms Reisinger said that Mr Hobbs had had business with Refco (which Mr Hobbs asserts was untrue). In this context Mr Hobbs submits that it is significance that Ms Reisinger was first introduced to him by Mr Diaz (referring to Ms Reisinger's transcript p19.18-24; p20.1). 1057It is still not clear to me (though I attempted to ascertain this in the course of submissions) how the timing of the introduction of Mr Hobbs to Ms Reisinger (ie the fact that Mr Diaz had met Ms Reisinger before Mr Hobbs had done) impacts upon Mr Diaz' credibility as a witness (particularly when it is to be noted that this timing is consistent with Mr Diaz' evidence as to the trip he made to the United States in early 2002, a suggestion that Mr Hobbs dismisses as fanciful because Mr Diaz was an "unsophisticated cleaner"). Insofar as Mr Hobbs disputes that he had had business with Refco before he met Ms Reisinger, that seems to be the thrust of the statements made by Mr Hobbs himself on the DVD Seminar. In relation to Mr Diaz' Express Fund, Mr Hobbs says that Mr Diaz arranged the traders for this account himself while he was in the USA and that the traders contracted were evidenced by Ms Reisinger's transcript. Whether or not that be the case, it is clear from the documents in evidence that well after the breakdown of the working relationship between Mr Diaz and Mr Hobbs, the latter was having communications with Ms Reisinger in relation to the setting up of Cadent accounts for funds with which there is no suggestion that Mr Diaz has had any involvement whatsoever. 1058Mr Hobbs also seems to dismiss as implausible the evidence at T 359.43-48 in relation to Mr Diaz having said that Mr Hobbs had told him to sign off "as Junior Manager of KLM". The point Mr Hobbs was there seeking to make (namely that he has no idea what that term would mean and therefore would not have said it) goes no higher than assertion on Mr Hobbs' part. (iii)Investors 1059As to the investor witnesses, Mr Halley submitted that those who were crossexamined stood by the contents of their affidavits and gave evidence in a frank and considered manner and should be accepted (including, in particular, Mr Richard Blow, Mr Nicholas Stavropoulos, Mr Gideon Russell and Ms Lei Huang). Further, it is submitted by Mr Halley that the strength of the investor affidavit evidence that was not tested by Mr Hobbs in cross-examination is the consistency of corroboration that it provides in relation to the evidence of others. 1060Mr Hobbs' position in relation to the investor evidence in general was not that the investors were lying; rather, Mr Hobbs said that he accepted that they believed what they said. However, I was invited to find that they were mistaken to the extent that they say that Mr Hobbs was involved because "since ASIC were carrying out an investigation about Hobbs of course they would remember the Hobbs name". 1061Mr Hobbs' submission was that "when ASIC is saying they are investigating Mr Hobbs and all the media attention is on myself, I believe it is very easy for a witness to not recall exactly who said what at different time several years ago. Mostly, they could only remember my name because that is what they heard over and over again from ASIC". 1062The difficulty for Mr Hobbs in this submission (apart from the fact that there is no evidence whatsoever as to what media attention there might have been at the time or whether any of these witnesses had seen any relevant media reports) is not only that Mr Hobbs is simply speculating on what the witnesses might have been told in the course of investigation (and that this was not put to the relevant witnesses) but also, and more fundamentally, that at least some of the witnesses have notes of the meetings at which they have recorded Mr Hobbs being present (and what was said) and Mr Hobbs himself has been recorded at the DVD Seminar of saying things that in his affidavit he deposes that he made a point of never saying (a glaring inconsistency that causes me difficulty in placing any weight on Mr Hobbs' denials as to what he is alleged to have said to investors on the same or similar topics). 1063Turning to those investors who were cross-examined, I note as follows: Mr Richard Blow 1064Mr Blow was a subscriber to FTC (in October 2003) and an investor in June 2004 in the Elite Premier scheme. He gave evidence as to his attendance at various seminars at which investments were discussed. He was straightforward in the witness box and there was no reason to doubt his evidence. Significantly, he had taken contemporaneous notes of what was said in the seminars and, in particular, I place great weight on the notes of the 15 February 2003 seminar to which I have referred elsewhere. 1065I have no hesitation in accepting Mr Blow's evidence; nor did Mr Hobbs make any criticism of his reliability as a witness other than the general submission that he might have been mistaken in attributing comments to Mr Hobbs. In that regard, Mr Blow's contemporaneous notes (and their consistency with statements made by Mr Hobbs at the later 2003 DVD Seminar) makes Mr Hobbs' submission that Mr Blow might have been mistaken untenable in my view. Mr Nicholas Stavropoulos 1066Mr Stavropoulos is a company director who has operated a travel agency since 2002 (with a Mr George Papaioannou, who may or may not be the same Mr Papaioannou of Kemper & Co who raised with Mr Koutsoukos and Mr Hobbs in 2006 concerns as to the legality of Super Save). Mr Stavropoulos was an investor in the Prestige Unit Trust and subsequently took steps to become an administrator for a fund not the subject of these proceedings (although his evidence is that that fund did not ever trade). Mr Stavropoulos gave evidence as to the circumstances in which he came to make that investment (including a conversation with Mr Hobbs in Nelson in which he said that Mr Hobbs offered him the opportunity to invest some money to recover losses that Mr Stavropoulos said he had incurred relating to cancelled credit card charges for travel bookings for Mr Hobbs. (Contemporaneous emails relating to the credit card dispute were exhibited to Mr Stavropoulos' affidavit and corroborate his account of events in that regard.) 1067Mr Stavropoulos deposed (at [29] of his affidavit) to a conversation around 31 October 2005 with Mr Hobbs in which he said Mr Hobbs said, among other things, that he had access to various investments and had an investment opportunity "which would be great for you to piggy back off", referring to the Prestige investment fund, that he said was "an investment in a debenture trade" and into which he said that the Crown Prince of Tonga had put in a couple of million dollars. Mr Stavropoulos said that Mr Hobbs told him he would get returns 36 times his initial investment and every 10 days would get up to double returns. Mr Stavropoulos deposed to having met a number of people in Mr Hobbs' office including Mrs Watson, Mrs Andrews, Mr Clements (who he said was introduced to him by Mr Hobbs as a person who ran a hedge fund) and Mr Robert Hobbs. He also deposed to there being a discussion with Mr Hobbs as to the opening of an IBC, investment opportunities and financing. 1068Exhibited to his affidavit were emails following that meeting with Mrs Watson in relation to the setting up of an IBC, which corroborates the evidence that there was a discussion in that regard at the October 2005 meeting. There were also emails between Mr Stavropoulos and Mr Koutsoukos consistent with Mr Stavropoulos' evidence, in which Mr Koutsoukos refers to assistance "in your dealings with FTC and David Hobbs" and says that he would send detailed analyses "of how the fund that we administer works". (Mr Koutsoukos forwarded details of the Integrity Plus fund but ultimately Mr Stavropoulos invested in the Prestige Fund and there was correspondence from Mrs Brenda Hobbs "on behalf of Jacky" sending details as to the completion of the Geneva Financial documents.) 1069Mr Stavropoulos also gave evidence as to steps that he and Mr Papaioannou had taken to establish an investment fund (the Infinity Fund) after a conversation with Mr Hobbs in early 2007 in which Mr Hobbs said that he would set up a hedge fund for him (at a cost of $250,000) and said: The other funds are screwing up so we'll switch the investors in those funds to yours. The money will be deposited into an account with Cadent and traded through a special instrument. Treasury notes will be bought at wholesale rates and guaranteed against the principal invested. 1070Mr Stavropoulos gave evidence as to the signing of a fund contract for that purpose, receipt of an email as to a website (following Mr Hobbs stating that he would pay the cost of setting one up for that fund), payment of $20,000 to Magny-Cours as the initial payment towards the cost of setting up the hedge fund, the opening of Technocash account, receipt of an email from the nasl address with the private placement memorandum for the fund and private placement agreement, and emails from the nasl address regarding trading accounts with Cadent. 1071Relevantly, Mr Stavropoulos deposes to conversations with Mr Hobbs in which he says Mr Hobbs said he would handle particular issues with Cadent and gave him instructions as to what to say in his correspondence with Cadent. Exhibited to his affidavit are copies of email communications in relation to queries raised as to the beneficial ownership of the IBC, which led to Ms Reisinger sending the following message to Mr Hobbs on 6 September 2007: Hi David Can you let the guys know that it is not a good idea to e-mail Cadent directly instead it is best they send to me first so I can filter what needs to be filtered. ... I just want to be sure that they understand about the filter process we set up so that Cadent does not get something they are not suppose [sic] to. 1072Mr Hobbs received this and forwarded it to Mr Stavropoulos that same day. Relevantly, he did not respond to Ms Reisinger to say he knew nothing about the matter or to enquire as to why she would be sending this to him or what she was talking about in relation to the "filter" process. 1073Mr Hobbs cross-examined Mr Stavropoulos, relevantly, as to the conversations and matters deposed to at [28]-[29], [43], [46], [61] and [1119]-[120] of the latter's affidavit. At T 527.17-19, Mr Hobbs put to Mr Stavropoulos that he had discussed an account with Cadent that Mr Stavropoulos was going to open "that was predominantly for their wealthy business partner and themselves" and submits that this was the "single cause for them to contact Ms Reisinger and open an account". I accept that this Cadent account related to a fund not the subject of these proceedings. However, the significance of this exchange of communications is the involvement of Mr Hobbs in the setting up of the fund (including the provision from his office of the template documents) and that Ms Reisinger was communicating with Mr Hobbs in relation to that fund (and pointing out very clearly to Mr Hobbs the need for communication to be filtered on the way to Cadent), not whether the fund was one the subject of the proceedings. 1074Mr Hobbs also suggests that Mr Stavropoulos' business partner(s) should have been part of these proceedings (though it is not apparent to me why that should be the case, particularly if, as Mr Stavropoulos deposes, the Infinity Fund never traded and was never promoted to investors). Mr Hobbs made a point of noting that he could not cross examine Mr Stavropoulos partners to determine the reason for the account opening. The relevance of such evidence to the issues in dispute in these proceedings is not apparent. 1075In that regard, I interpose to note that, although not put by Mr Hobbs as such, the suggestion that he was deprived of an opportunity to cross-examine Mr Stavropoulos' partners seems to raise a question as to whether ASIC had an obligation to call evidence from those persons. If that is the nub of Mr Hobbs' submission (properly understood), then it seems to me that it is without substance. 1076I note that the High Court has recently considered the question whether ASIC had an obligation to call evidence from certain witnesses in civil penalty proceedings in Australian Securities and Investments Commission v Hellicar [2012] HCA 17. It rejected the proposition that the public interest could only be served if the case advanced by ASIC represented what actually occurred (and hence that witnesses central to the case were required to be called) (at [146]). (Here, Mr Stavropoulos' business partner(s) could hardly be said to be central to the issues in the case.) 1077The judgment of the plurality in the High Court (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) did not decide the issue as to whether an obligation of fairness had existed, instead stating at [152] that: ...it is convenient to assume, without deciding, that ASIC is subject to some form of duty, even if a duty of imperfect obligation, that be described as a duty to conduct litigation fairly. (my emphasis) 1078Heydon J, in a separate judgment, considered that any such duty of fairness as expounded by the Court of Appeal was novel, put forward as pointing to the lack of authority, statutory provision or accepted principle justifying the exception found by the Court of Appeal to the proposition that a regulator was under no duty to call every bystander or eyewitness who could give relevant evidence (at [246]). His Honour concluded (at [245]) that the rules of evidence and procedure in civil cases afforded the requisite safeguards to securing a fair trial. 1079The plurality, having assumed for the purposes of the argument (without deciding) that such a duty of fairness did exist, went on to consider at [152]-[153] the consequences of breach such a duty: What consequences might be thought to follow if failure to call a witness could, and in a particular case did, amount to a breach of a duty of that kind can then be elucidated by reference first to prosecutorial duties in criminal proceedings. What was held by this Court in Apostilides to be the duty of a Crown prosecutor in relation to the calling of evidence must be understood in the light of a number of relevant considerations. First, it is to be remembered that a criminal trial is an accusatorial process in which the prosecution bears the burden of proving its case beyond reasonable doubt. The prosecutor's duty stems from the very nature of the proceedings. Second, as this Court pointed out in Apostilides, the conclusion that a prosecutor has failed to call a witness who should have been called does not, of itself, require the further conclusion that the conviction recorded at that trial must be set aside. Rather, in the words of the common form criminal appeal statute, the question would be whether, having regard to the conduct of the trial as a whole, there was "on any other ground whatsoever a miscarriage of justice". If a prosecutor's failure to call a witness who should have been called occasioned a miscarriage of justice, the conviction entered at trial would be set aside and a new trial would be ordered. The failure to call the witness could not, and would not, found any reassessment of the evidence that was called at trial, let alone any suggestion that the cogency of that evidence should be discounted. 1080(Their Honours considered that an approach of discounting existing evidence if there were to be a breach of any such duty of fairness as might have existed would be "necessarily indeterminate" so that there would be no certain content to any principle that permitted the cogency of such evidence to be discounted in the event of a breach of such a duty (assuming one existed) (at [155]).) 1081Relevantly, for present purposes, the High Court considered that there was in fact no actual unfairness to the respondents occasioned by the failure to call the witness in question in that case. Their Honours reached that conclusion by considering what evidence, based on other evidence already before the Court, the witness was likely or unlikely to have said had he been called and then considering what advantage had been denied to the respondents, or what disadvantage they had been subjected to, as a result of that evidence not having been given (and there not having been an opportunity to cross-examine the witness). 1082Here, there is no suggestion that Mr Stavropoulos' business partner or partners had participated in the relevant conversations with Mr Hobbs or had been at the October 2005 meeting. Mr Papaioannou's (or anyone else's) reasons for opening a Cadent account seem to me to be wholly irrelevant to the issues that must be determined in the present proceedings. Even if there were a duty of fairness of the kind considered by the Court of Appeal to have arisen in Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331, adopting an analysis of the kind the High Court considered in Hellicar to be required would not have led me to conclude that there was any breach of that duty or actual unfairness occasioned by reason of the fact that Mr Stavropoulos' business partner(s) had not been called as witnesses. There is simply nothing to suggest that any evidence that he (or they) would have been likely to have given (in chief or in cross-examination) would have assisted Mr Hobbs' defence. 1083Returning to Mr Hobbs' written submissions as to the evidence of Mr Stavropoulos, he notes that (at [123]) Mr Stavropoulos deposes to having arranged to meet with Mr Erdman when he was in the United States of America; at [124] he refers to an email he received back from Mr Erdman (Tab 85) and to the evidence of Mr Stavropoulos (at [125]) that he travelled to Chicago in or about late October 2007 and met with Mr Erdman and Mr Paul Fry at Cadent and (at [127]) that he received a further email from Mr Erdman (Tab 86). It is not clear what submission Mr Hobbs seeks to make in relation thereto (other than as linked to the submission that the opening of this account was for a reason connected with Mr Stavropoulos' business partner, that I have considered above). 1084Mr Hobbs also in his submissions draws attention to the conversation to which Mr Stavropoulos deposed at [61] as occurring in early 2007 in which Mr Stavropoulos said Mr Hobbs told him that Mr Stanton had a hedge fund. It is not clear what point Mr Hobbs seeks to make in this regard unless Mr Hobbs is suggesting that ASIC should have joined Mr Stanton as a party to the proceedings (that being a submission made elsewhere by Mr Collard as to the IBC said to have been administered by Mr Stanton). 1085I found that Mr Stavropoulos to be a quiet and matter of fact witness. His evidence is consistent with the contemporaneous documents and there is no reason to disbelieve him. Mr Gideon Russell 1086Mr Russell gave evidence via video link from Dubai, where he works as an aircraft technician. He was an investor in the Covered Strategies and Elite Premier funds (and another fund the name of which he cannot remember) in August 2004 and gave evidence of the circumstances of those investments that supports the allegations ASIC makes as to the process for such investments.) Again, his evidence was straightforward and matter of fact. Mr Hobbs made no specific criticisms of his evidence and I have no reason to disbelieve his evidence. Ms Lei Huang 1087Ms Huang had the assistance of an interpreter in the witness box but was able to speak basic English and did not need to call upon the interpreter's assistance on many occasions. Ms Huang looked directly at Mr Hobbs when he was cross-examining her and was quietly confident in her answers in cross-examination. 1088As to Ms Huang, Mr Hobbs places emphasis on the evidence given by Ms Huang as to her close friendship with Ms Li ([8]) and suggests that Ms Huang may have been seeking to protect her friend by attributing responsibility to Mr Hobbs. This was not put to Ms Huang in cross-examination. 1089Mr Hobbs also refers to the occasions in her affidavit where Ms Huang says that something was said by Mr Hobbs or by Ms Li (seemingly suggesting this raises doubt as to the general reliability of her evidence). I accept that there are a number of occasions where Ms Huang has been unable to attribute a comment to one in particular of the two but, as I understood her evidence in that regard, it was that something was said to her at a meeting when both were present and she could not recall which of the two had said it. If so, then a statement by one, not corrected by the other, would be of relevance even though she could not recall who precisely had made the relevant comment. It seems to me to speak to the honesty of the witness that, where she was not able recall who in particular made a comment or statement, she made that clear. The question would be whether it casts doubt on her recollection that such a statement was made at all and as to whether there was doubt as to whether it was said in the presence of both. I do not think that it does. 1090Mr Hobbs submits that Ms Huang's affidavit "was a continuing trend of the ASIC affidavits where she states I spoke about named funds". I have commented earlier as to the implied criticism of ASIC in the reference to a "continuing trend" of the affidavits. The difficulty I see for Mr Hobbs in this submission is that not only is there an overwhelming quantity of evidence as to this (and as to the related "returns" representations) from a range of people - those associated in the schemes (who Mr Hobbs suggests have an interest in blaming responsibility for any wrongdoing on himself), other FTC executives associated less closely with Mr Hobbs, and those who invested in the schemes (some of whom, at least, are likely to have lost money in their investments and who may well wish to blame those responsible for encouraging them to invest in the schemes but would not necessarily have any particular reason to put the blame on Mr Hobbs had he not been present at meetings and made statements to the effect asserted) - and no reasonable basis to suggest collusion between all of those witnesses; but there is also irrefutable evidence of statements made by Mr Hobbs himself (on the DVD Seminar) to that effect (and, in the case of the "returns" representations) statements contained in the scheme documents (the provision of templates for which were, I have found, provided by Mr Hobbs or on his behalf to the scheme administrators). 1091In relation to Ms Huang's evidence, Mr Hobbs pointed in his submissions to certain answers recorded in the transcript of her cross-examination that he submitted could not be accepted as they were on their face incredible. The difficulty with those submissions is that during the course of the hearing (and, indeed, at the first available opportunity after the transcript was received), Mr Clarke had drawn attention to errors he perceived in the transcript in relation to that evidence and (although I accept that Mr Hobbs at that stage did not have a copy of the transcript) there was a discussion as to what had been recorded; I reviewed my notes of the particular exchanges and indicated that I agreed with the corrections; and Mr Hobbs did not (then or later) suggest that the corrections were not in order. 1092The portions of the transcript in question were, first, at T 1003.42-50; T 1004.1-6. When initially produced, the transcript recorded Ms Huang as saying, in answer to a question put to her by Mr Hobbs: yes that's one of them. You didn't mention other funds. I mean over several seminars. 1093The following day Mr Clarke indicated that he considered this to be an error and that Ms Huang had in fact said "You did mention other funds". My recollection was that that was correct and, on reviewing my notes, I confirmed that my notes had recorded that the witness had said "You did mention other funds" (though I had noted a query to check this against the transcript and my recollection is that I did so because the witness, who was quietly spoken, had been difficult to hear at that point). 1094The second such reference was to the answer given by Ms Huang to the proposition put by him (at T 1014.1-4) that it was Ms Li who could have spoken about Elite Premier (not him). Before corrected, the transcript read: from my memory, you didn't spoke and you introduced Mr Caswell 1095Clearly, that answer would have been internally inconsistent (and it was treated with some derision in submissions by Mr Hobbs). However, my recollection (confirmed by my review of my notes) of what Ms Huang said was: From my memory you spoke, few funds there and this is one of the funds and you are not specifically spoke about Elite Premier but you were introduced different funds 1096This accords with what Mr Clarke informed me his note of the evidence had been. Again, this was raised and discussed during the course of the hearing and Mr Hobbs did not demur from the correction of the transcript in this regard. I interpose to note that, although Mr Hobbs did not receive the transcript until after the close of the evidence (and did so then on ASIC's intervention and pursuant to an order I made for its provision to Mr Hobbs), Mrs Hobbs had a computer laptop at the bar table during the course of proceedings and I had observed her to be typing throughout the course of evidence in the proceedings so I would infer that Mr Hobbs was in a position to have reference to whatever contemporaneous notes had been taken by Mrs Hobbs during the hearing.) 1097Insofar as Mr Hobbs notes that some of Ms Huang's evidence was general in its content and that the witness conceded she did not recall the name of the fund or had only overhead a conversation briefly, there is again a question of the weight to be attached to that evidence. (So, for example where Ms Huang said "I do not recall the name of the fund but I was 100% sure that that the conversation occurred, because I was very impressed" and "I overheard so very briefly, but that's what I heard", I accept that this must be assessed having regard to the level of vagueness with which the evidence is given - that said, one might well expect that a witness would not remember particular fund names after so many years but would remember being impressed as to the very high levels of returns about which others were speaking). 1098Mr Hobbs submitted that Ms Huang was confused (as between an options trader and someone trading futures and as to whether he was introduced as a millionaire). The thrust of her evidence does not, however, turn on whether she mistakenly referred to an options trader or a future trader (and she may very well not have understood the difference between the two). Mr Hobbs also suggested that it might be that Ms Huang thought she might be protecting her friend Ms Li by attempting to associate him with discussions she may have had with Ms Li. That is mere speculation on his part (and was not put to Ms Huang in cross-examination). 1099Mr Hobbs submitted that he had not handed out documents of the kind Ms Huang said she did. Again, this is simply Mr Hobbs asserting a different version of events to that of Ms Huang. 1100Mr Hobbs also submitted that Ms Huang's recollection that (in a seminar in or about July or August 2003) he had said words to the effect that "Covered strategies last month returned 21%" was incorrect. Ms Huang had said that: Ms Li was there, I remember 21% as another factor to invest Mr Hobbs denies that he had discussed Covered Strategies or a return of 21% and submits that "this appears suspiciously like network marketing and Lili's previous involvement in the Amway corporation where the first step to financial independence is going 21% or going direct. Lili signed up 168 persons in Amway in her first week she claims". There is no evidence as to Ms Li's involvement in Amway to support such a contention. It is simply speculation on Mr Hobbs' part. 1101Mr Hobbs notes that in his cross-examination of Ms Huang at T 1009.6-47, she was asked about some questions about Mr Caswell and a First Secured Bond Presentation. In his submissions, Mr Hobbs pointed out that Mr Collard had reminded him that First Secured Bond had not even been incorporated at the time that Ms Huang said that Mr Caswell had discussed that fund. The transcript on this issue is instructive. Mr Hobbs took Ms Huang to what she had said in [88] of her affidavit, namely that "In or around October or early November 2003 [she] attended a presentation with Mr Hobbs in a big meeting room at a hotel in Sydney, the First Secured Bond presentation. There was approximately 20 people in the audience". Ms Huang could not remember what hotel it was. She then went on at [89] to refer to Mr Caswell and to Mr Hobbs referring to Mr Caswell wanting to run a fund and letting "us put our money into his fund". Ms Huang's evidence was that she had listened to Mr Caswell speak and that: A. I think what he discuss is it relate to First Secured Bond, as I understood. 1102Pressed as to whether Mr Caswell had referred to First Secured Bond, Ms Huang said: A. I cannot remember the name and I cannot remember what he say, because it's about 10 years ago, but in my impression I am more impressed with Lynn Caswell's background. Q. Yes? A. And knowledge. 1103Consistently with her evidence in cross-examination, Ms Huang at [93] had said that she could not remember in detail what Mr Caswell said at that presentation. 1104Mr Hobbs put to Ms Huang that in this "alleged meeting" in October or early November 2003 he did not say that Mr Caswell had a fund or expected a 4 percent per month return. Ms Huang's response was firm: A. The impression I got was that all the funding you talk about being mainly at 4 percent. 1105Ms Huang made it clear, to my mind, that she could not remember in detail what Mr Caswell had said at that presentation but that from her recollection the First Secured Bond was "what we were talking about". When Mr Hobbs put to her that there was no discussion on First Secured Bond because it did not exist at the time, Ms Huang considered that question carefully and responded with a correction to her affidavit to say: A. The First Secured Bond. I was sure at that time they were talking about fund, but I can't remember the name but may be they put it as First Secured Bond name after, but at that time they didn't [my notes say "did'] discuss a fund, the same fund, but because I couldn't remember the first name I referred to my document, that that was the First Secured Bond fund, so that's why I put the words here First Secured Bond [in [89] and [90]] ... 1106Ms Huang was adamant that there was discussion to the effect stated in relation to a fund but could not remember the name of the fund there discussed but said that "I know this was later named as First Secured Bond" and that she understood that to be the same fund as had been discussed at the meeting. 1107Mr Halley pointed out during the course of cross-examination that on ASIC's case the first investment in the First Secured Bond Unit Trust was made on 10 December 2003, only about a month or a month and a half after this conversation, and that the premise to Mr Hobbs' question (that the First Secured Bond Unit Trust did not exist at this time) was not established (in the sense that the trust or fund may have been set up or was about to be set up at the time of this meeting). 1108As I understood her evidence, Ms Huang confirmed that she had no knowledge as to when the First Secured Bond Unit Trust had come into existence and that at the time that the discussion that took place at the presentation to which she had referred in [89]-[90] she did not know the name of the fund but that she now believes that it was a reference to the First Secured Bond Unit trust fund. I accept that evidence. 1109Mr Hobbs submits that Ms Huang's testimony (through her affidavit and cross examination) "is realistically based on the fact that my name is the name that has been used widely in association with this investigation and would be the name that many people would automatically associate to any of the matters in relation to these proceedings". I do not accept that there is any foundation for that submission. He also emphasises that ASIC prepared Ms Huang's affidavit (as to which I have already indicated I do not draw any adverse inference) and submits that the evidence of Ms Huang was unreliable. I do not accept that to be a fair characterisation of her evidence. 1110I found Ms Huang to be a quiet witness. I found it not surprising that her recollection might have been imprecise as to details of the Caswell presentation (not least because of the fact that English is not her first language). There is no basis, however, for the submission that she tailored her evidence to protect Ms Li (who is not in any event exposed to the making of any orders in these proceedings as they are stayed against her). I accept Ms Huang's evidence (subject of course to exercising some caution where the evidence is expressed in very general or conclusory terms). (iv)Friends/relatives/Hobbs office personnel Mr Craig Dent 1111Mr Dent is married to Mrs Hobbs' sister (and hence is Mr Hobbs' brother-in-law). He was at pains to confine the role he performed with his wife as that of publishers and printers (prefacing the answer to many of his questions with the words "as publishers and printers..."). He was also at pains to eschew any employment role as such - describing his role as simply providing assistance to his wife (a concern perhaps as to whether the performance of services on a contractual basis would have been in breach of his employment terms and conditions as a police officer in Queensland). He took care to read the material provided to him in the witness box and spoke slowly in answer to questions. He was not in my view uncooperative in giving his evidence in chief in the witness box (having been subpoenaed to do so by ASIC). 1112Mr Hobbs refers to the evidence given at T 663.17 to 25 where he asked Mr Dent if there was a reason why he did not agree to sign an affidavit and Mr Dent replied "Yes there was. There was a number of reasons, and I had a disagreement with ASIC". (For the reasons adverted to earlier, I draw no adverse inference from the fact that Mr Dent was not prepared to sign the draft affidavit that had been prepared. The disagreement might have related to anything and it certainly cannot be inferred that Mr Dent's objection related to any attempt by ASIC improperly to obtain evidence.) 1113ASIC submits that Mr Dent's evidence cannot be accepted as reliable to the extent that Mr Dent sought to contend that he was not himself undertaking significant work or that the work was being done by his wife. Mr Halley submits that the objective evidence as to the preparation of the reports and Mr Dent's response to requests from FTC executives and Mrs Watson demonstrated that Mr Dent had a central role in the activities carried out in Brisbane, in particular as to the printing of the scheme material. I agree. (It was suggested that the evidence that Mr Dent's daughter had assisted in reading out names and numbers for the preparation of reports was not credible, given her young age at the time.) 1114ASIC suggested that Mr Dent's evidence on this issue may have been influenced by a concern that, as a police officer, he might have been expected to have disclosed to his employer that he was undertaking this alternative employment (something Mr Dent appeared at least implicitly to concede) and that this was the reason that the money was being paid into a credit union account in the name of his wife (something that Mr Dent did not concede). (That said, Mr Dent's explanation as to why he was more involved in the computer work than his wife, namely that she was better at the laundry than he was, seemed to me to have the ring of truth to it.) 1115Apart from the evidence on the above issue, Mr Halley urges me to accept the evidence of Mr Dent as demonstrating that the scheme memoranda and investor agreements were being printed and distributed from Brisbane pursuant to instructions received from Mrs Watson (and in a context where Mr Dent had made it clear in his evidence that he would only do so if he were satisfied that it accorded with Mr Hobbs' instructions and, was not prepared to undertake work that he thought was being requested by people other than Mr Hobbs or Mrs Watson on Mr Hobbs' behalf). It is submitted that this evidence is highly relevant from someone who showed a tendency to support, rather than to give evidence inconsistent with, whatever Mr Hobbs' interest might be perceived to be. I agree. 1116Other than the attempt by Mr Dent to minimise his role (and that of his wife) in the operation of the OEM/KLM and investment process generally (ie that they were no more than publishers and printers, whereas the evidence suggests that there was a greater processing and reporting role undertaken by them), which is inconsistent with the contemporaneous documents in evidence, I accept Mr Dent's evidence as generally reliable. Mrs Emma Burnard (nee Watson) 1117As to Mrs Burnard, ASIC submits that the evidence she gave was truthful and that Mrs Burnard did do her best to recall what had taken place. Mr Halley submits that what emerged from Mrs Burnard's evidence was that she was simply implementing a process that she had been instructed to implement; that she was someone with good attention to detail; and that she was the person who, on a day to day level, implemented the sequence of requests to OEM and the dispatch of information to, and "qualification" of, investors and then took on the role attributed to Diligence Discovery Limited. Mrs Burnard had no financial qualifications and worked from home (seemingly as a basis of making some money to supplement the family income rather than as a career as such). The verification process performed by Mrs Burnard for Diligence Discovery seems to have been a perfunctory administrative role rather than any careful audit of the funds that were being invested. 1118Mrs Burnard was another witness who was not prepared to sign an affidavit in advance of the proceedings and who gave her evidence in chief in the witness box, having been the recipient of a subpoena compelling her attendance at the hearing. 1119Mrs Burnard was very nervous in the witness box and often did not seem able to concentrate on following the questions put to her. It seems to me fair to say that she demonstrated no understanding or appreciation of the role she was performing in relation to the various investment funds. 1120What is said by Mr Halley to be striking from her evidence is Mrs Burnard's explanation as to who it was from whom she obtained instructions (namely, that it was always her mother or Mr Hobbs). Mr Halley emphasises that there was no suggestion that anyone had had ever told her at any time that anyone else was behind the OEM/KLM process. I accept that this is a significant fact from which I can infer that the only realistic possibility was that it was Mr Hobbs who gave Mrs Burnard instructions in relation to the system (and I interpose to note that this is corroborated by the evidence of Mr Parsons). 1121Mr Halley submits that this was a bespoke system, developed for the purposes of FTC, OEM and KLM largely with respect to Australian and New Zealand investors. That may or may not be the case. However, I do accept that there is no evidence that the entities in the present proceedings operated otherwise than through the Hobbs' office in relation to investment schemes of the kind the subject of the present proceedings. 1122Insofar as it is submitted that the diversion of fax numbers to New Zealand indicates the appearance of a system that was not applied around the world (but rather was specifically developed for Mrs Burnard and her mother to conduct from New Zealand), I accept that this aspect of the process was likely to have been put in place only in relation to the investment schemes operated through the Hobbs office system. Further than that seems to me to be speculation. 1123What I do not accept is that the use of the diversion system is likely to have been purely as a matter of convenience in order to enable Mrs Burnard to access emails at her convenience (as Mrs Watson suggested). If that had been the purpose it would have been a simple matter for potential investors or FTC subscribers to have been given Mrs Burnard's email address as the relevant point of contact. I consider that the only conclusion reasonably open on the evidence is that the J2 diversion system was put in place in order to convey to potential investors that they were dealing with offshore entities not closely associated (as I find they were) with FTC and/or Mr Hobbs. The only purpose for so doing seems to me to be one consistent with Mr Hobbs seeking to distance himself from the operation of the investment schemes that, in reality, he had established and through which he had a financial interest. Mrs Suzanne Watson 1124Mrs Watson was another witness who gave her evidence having been subpoenaed by ASIC. She was not a particularly cooperative witness in the witness box and seemed to me to be overly defensive as to her position. (Indeed, her manner in the witness box seems not unlike the description given by Mr Parsons in his affidavit as to her behaviour in the Nelson office.) I accept that she consistently displayed partiality for Mr Hobbs' position and loyalty to him. (In connection with an interlocutory application to set aside the subpoena served on her to give evidence, Mrs Watson expressed in very emotive terms her outrage at the proceedings being brought against Mr Hobbs.) Mrs Hobbs presented as somewhat scatterbrained and with no idea as to the financial matters to which the investment schemes related. She was nervous and agitated in the witness box. 1125I consider that any suggestion that Mrs Watson had a decision-making role in the setting up of the processes involving OEM/KLM (independent of Mr Hobbs) (as opposed to the making of decisions as to how to implement that process) is fanciful. Mrs Watson had no financial qualifications or experience, worked as a hairdresser, carried out some part-time filing for Mr Hobbs and seemed to have very little apparent idea of what was involved in the process she was following (hence her apparent recognition only for the first time in the witness box of the 'awkwardness' of a company with a UK prefix having an office address in the Bahamas). Mrs Watson clearly saw the process as an automatic (or 'seamless') progression of events (such as Mr Hobbs seems to have sought in the first instance to have put in place via a computer program, as deposed to by Mr Parsons). 1126Mr Halley submitted, and I accept, that the significance of Mrs Watson's evidence is that it was not Mr Becker (or anyone other than Mr Hobbs) who she said was giving her instructions or directions or who had put in place or co-ordinated the system - that evidence being consistent with ASIC's case (and damning of the version of events given by Mr Hobbs). Mr Pierre Mitchell 1127Mr Mitchell was the accountant who worked for Mr Hobbs and the Hobbs companies in the Nelson office. He also had a role in the administration of at least one of the schemes. He was gruff in his manner but not an uncooperative witness. He swore an affidavit only shortly prior to the hearing, though his outline of evidence had been served on Mr Hobbs in advance. 1128Mr Halley submitted that Mr Mitchell's evidence, though somewhat vague, can be relied upon for the concession as to the evidence concerning the payment of the million dollars to Upton Ltd (namely his knowledge as to the receipt of that payment having come from Mr Hobbs and the notification that the money was to come in). (While it was suggested that the vagueness of his memory might have been attributable to him having a certain loyalty to Mr Hobbs, I did not discern any overt partiality to Mr Hobbs.) Suffice it to say that I accept Mr Mitchell's evidence as to the Upton payment - and that it is inconsistent with the version of the evidence that Mr Hobbs sought to put forward in relation thereto. Mrs Brenda Hobbs 1129Mrs Brenda Hobbs is married to Mr Hobbs' brother, Mr Robert Hobbs. Whether due to nervousness or otherwise, Mrs Brenda Hobbs was truculent confrontational from the start of her evidence in chief and broke down in tears more than once during her evidence. She clearly perceived the questioning by Mr Halley (which I considered to be quite unobjectionable) as intimidatory or accusatory (and described it as an attempt to 'wind [her] up'. Mrs Brenda Hobbs she spoke quickly and in clipped tones, She was not a particularly co-operative witness and regularly resorted to answers such as "no idea" or "whatever". Mr Halley (with commendable understatement) observed in his closing submissions that Mrs Brenda Hobbs had clearly found the process of giving evidence challenging and that she had made clear that she did not consider that the process was fair. I consider that to be an accurate assessment of the manner in which Mrs Brenda Hobbs presented as a witness. 1130Mr Halley submits that her evidence underlined two fundamental propositions of ASIC's case: the first, being the identification and use by Mr Hobbs of people with very limited financial skills and background to undertake tasks what were often no more than administrative tasks; and the second, being that it was Mr Hobbs who was the directing mind and guiding will of these operations. 1131As to the first, Mr Halley submits that Mrs Brenda Hobbs in the witness box demonstrated, by the manner in which she gave her evidence and her attitude to the questions she was being asked, that she did what she was told (and that she found it offensive for it to be suggested that she was in any way was managing or operating something). (Another possibility is that she was seeking to distance herself from any involvement that might implicate her in the proceedings. However, as I understand it ASIC had made clear to Mrs Brenda Hobbs at least at the time her cooperation was sought for the filing of an affidavit, that there was no intention to bring any charges against her.) It is submitted that Mrs Brenda Hobbs was in reality nothing more than a clerk in many ways (though, as Mr Halley notes, she was being held out to financial institutions in the United States, to investors and to others as a scheme administrator). 1132As to the person from whom Mrs Brenda Hobbs looked for instructions and directions, ASIC does not cavil at the suggestion that she turned first to Mrs Hobbs for those (indeed ASIC contends that Mrs Jacky Hobbs was relevantly a director and officer of Geneva Financial). However, ASIC submits that Mrs Jacky Hobbs was also at all relevant times acting under the directions or instructions of Mr Hobbs (citing by way of example, the dealings with Cadent and Ms Reisinger, which were referred by Ms Reisinger to Mr Hobbs, even if passed on through his wife, and the evidence as to the traders for Geneva Financial). I agree. Mr Grant Clements 1133Mr Clements was another witness who gave evidence only having been served with a subpoena to attend and to do so. He is a truck driver in New Zealand and has no financial qualifications. He became involved in the investment schemes following a discussion with Mr Hobbs as to what he was then doing. He saw Mr Hobbs as a father figure (which ASIC submits this highlights the extent to which I should infer that Mr Hobbs saw Mr Clements as someone who would do what he was told and who could be expected not to ask any awkward questions). 1134As to the experience or sophistication of Mr Clements, Mr Hobbs points out that, at T 773.29-34, Mr Clements agreed that he had researched and written the eBook referred to earlier. (This is, however, to be balanced against Mr Hobbs' own evidence that "anyone" could write financial education books - at least of the kind distributed by FTC - and I would infer from the title of the e-Book that this book was of similar ilk). (Given Mr Clements' lack of understanding in the witness box as to what, for example, was a debenture (T 704.2) (though in the private placement memorandum for Elite Premier it was emphasised that the fund did not invest in bank debentures trading programs) and that he operated two funds that were set up as unit trusts but was unable to explain what a unit trust was (T 684.20), those might perhaps have usefully been some of the 40 questions.) 1135Reference is made by Mr Hobbs in this context to portions of the transcript of Ms Reisinger (Ex AO p143.1-24, p144.1-24, p145.1-24, p146.1-24, p147.1-24, p148.1-24, p149.1-24, p150.1-24 and p151.1-15) in relation to the sophistication of Mr Clements. For the reasons given earlier in relation to Mr Koutsoukos, and by reference to Mr Clements' own answers in the witness box, I am not persuaded that Ms Reisinger's opinion as to Mr Clements' sophistication was one that had any real foundation (and again it seems to have been based on broad based statements that could have derived from dealings with Mr Hobbs himself). 1136Mr Clements himself saw his role as administrator of the fund to be "Just to administrate [sic] contracts and people's investments" (T 684.38). Mr Clements' explanation of the steps he took to set up the fund was just as basic: There was a IBC was [Preserved] and set up. And then there was an account set up for the fund, mainly for the investment money to come into ... and then it went out to wherever it was going to go 1137 Mr Hobbs submits that Mr Clements' ability to run a business is "quite different to how he answered questions under the pressure of a cross examination in court". I cannot possibly test that on the evidence before me. Suffice it to say that Mr Clements gave no indication in the witness box of any skills that would enable him to give financial investment advice of the kind that might lead to an investor being able to make an informed investment decision ie as to whether to invest in the funds Mr Clements administered (nor was there any indication that he would have had the qualifications or experience to have been granted an Australian financial services licence had he applied for one). 1138Mr Hobbs, in what I can only describe as an extraordinary submission, referred to the evidence at T 7041-4 (where Mr Clements was unable to describe what a bank debenture was) and said: I submit that most people attempting to bring investors into what I would call fraudulent transactions of Bank Debentures don't understand what [they're] trying to promote as its supposedly a very secret market 1139I would assume that Mr Hobbs was not thereby accusing Mr Clements of fraud. However, it does suggest that Mr Hobbs assumed that some form of withholding of relevant information from investors was to be expected. 1140Mr Hobbs, in his submissions, referred to particular passages of the cross-examination of Mr Clements. In so doing, Mr Hobbs either put forward an alternative explanation for that evidence or suggested that Mr Clements was confused (by reference to Mr Hobbs' own asserted version of events). 1141So, for example, Mr Hobbs submits that (although Mr Clements said in his examination in chief (at T 681.5-8) that he would have asked Mr Hobbs to send a fax to Vanuatu to set the company up), in cross-examination Mr Clements accepted that (T 777.17-24) it was common for him ask the same question in regard to business of Doreen Andrews, Robert Hobbs and Mr Hobbs. Mr Hobbs submits that "Mr Clements was in the habit of asking peoples [sic] opinion even after he had completed something and yet at other times he was quite secretive". There is no evidence of how this so-called secretive behaviour was displayed. (Nor, for that matter, was there evidence as to the similar assertion made as to Ms Li's so-called secretive behaviour when opening Cadent accounts.) 1142As an example of the kind of question Mr Clements might ask of multiple people, Mr Clements said in the witness box "I suppose I was just reassuring myself just if I would ask a question I would ask Dave and Tim Robert and Doreen yep". (That evidence seems to me to highlight the likelihood of Mr Clements relying on Mr Hobbs for advice, not the contrary.) 1143Mr Hobbs also referred to Mr Clements' evidence at T 697.1-22 (where Mr Clements gave evidence of travelling to America where he met Ms Reisinger and Mr Caswell), submitting that "this is the time Mr Clements started dealing with Ms Reisinger for the Reisinger Product". This seems to me no more than mere speculation (and in any event it does not address the question as to at whose instigation Mr Clements had travelled to America, had met Ms Reisinger and had started dealing with Ms Reisinger for the so-called "Reisinger Product", that seeming to mirror the product described by Mr Hobbs in the DVD Seminar and elsewhere). 1144Similarly, in relation to the evidence at T 706.24-50, (where Mr Clements accepted that it was possible that Mr Hobbs suggested he use the Bank of Nevis), Mr Hobbs denied that he introduced the Bank of Nevis to Mr Clements and suggested that Mr Clements "would have received that" from Mr Ty Andros (of Trader/View) and/or Ms Reisinger. Mr Hobbs notes that at T 789.50 - T 790.1-4 Mr Clements answered that he did not ask Mr Hobbs for advice or authority before he opened the bank account at BNZ for Preserved Investments. Again that seems to me to be speculation by Mr Hobbs. Mr Clements himself considered it possible that the suggestion had come from Mr Hobbs and there seems no basis to suggest that Ms Reisinger or Mr Andros had any connection with the Bank of Nevis so as to make it likely that either of them had referred Mr Clements to that bank. 1145Mr Hobbs reminds me (in his submissions) that at one point in cross-examination Mr Clements sought from Mr Hobbs confirmation as to the sending of money to Magny-Cours. Mr Hobbs referred to the evidence (at T 776.42-46) that it was for the Cash Builder trust and to Mr Clements describing that as "a fund" and saying "What do they trade in? I just called it Cash Builder which was ... Pierre run" at which point Mr Clements had asked Mr Hobbs "wasn't it?". That seems to me consistent with Mr Clements relying on Mr Hobbs for answers as to the scheme arrangements and indicating an assumption on Mr Clements' part that Mr Hobbs would know the answer. Therefore it is difficult to see what benefit Mr Hobbs seeks to draw from that. What I took from this was that Mr Clements relied on Mr Hobbs for instruction or guidance or information as to the funds that were operated out of the Hobbs office (which is consistent with ASIC's case as to the involvement of Mr Hobbs and his use of unsophisticated administrators). 1146At T 774.50, in cross-examination, Mr Clements said that he remembered meeting Ms Reisinger in Chicago and the traders speaking about their business and that they discussed what their trading was, "how it was going" and "whether it was good or bad". Mr Hobbs relied on this as inconsistent with Mr Koutsoukos' evidence that Ms Reisinger and Mr Hobbs had told them not to ask the traders about their returns. (As noted earlier, the content of what others recall that the traders said was rather general.) 1147Mr Hobbs notes that at T 711.44-46, it was put to Mr Clements that he would not have authorised transfers to Magny-Cours or to Focus Administration unless he had the approval of Mr Hobbs or somebody working for him and Mr Clements had agreed. Mr Hobbs submits that Mr Clements was "somewhat confused because he wouldn't have transferred to Magny-Cours without Mr Mitchell's approval and as to Focus administration I have no idea what it is nor would I be required to give approval". Apart from the fact that this was not put to Mr Clements, it amounts to no more than an assertion by Mr Hobbs. 1148Again, as to the evidence at T 712.17-50, where Mr Clements agreed that he had received a number of documents from Mr Hobbs, it is submitted by Mr Hobbs that Mr Clements was very confused at times while giving evidence. In support of this, Mr Hobbs submits that from T 780 Mr Clements "basically agreed in re-examination with everything Mr Clarke said". My impression at the time was that this was because Mr Clements realised that he had given inconsistent evidence and that he was accepting that there was no basis for the matters he had agreed to in cross-examination by Mr Hobbs. Certainly, Mr Clements did not cavil with what Mr Clarke put to him in re-examination. The highest I could put this evidence for Mr Hobbs would be to assume that Mr Clements was susceptible to agreement with whatever proposition may have been put to him but if so that means I can place no weight on the answers he gave to Mr Hobbs. 1149Mr Hobbs then submitted that a statement that Mr Clements had written after he returned to New Zealand confirmed he was confused and that he was not answering correctly but that he had not included that statement as it is "probably evidence". I cannot possibly draw any conclusions from an unknown statement that is not in evidence before me. 1150As to the evidence at T 718.1-10 (where Mr Clements gave evidence that Mr Hobbs had approved the certificate for the Elite Premier Option Two trust), Mr Hobbs submits that had he seen the certificate it would not have been his approval that was required rather that "It would have simply been Mr Clements way of asking everybody in the office not for approval in the sense of legality or permission but approval that the certificate looked good". Insofar as this seems to be Mr Hobbs giving evidence in his submissions as to his observation of Mr Clements' practice, that is unsworn and untested evidence that I cannot properly take into account. 1151What Mr Hobbs submits Mr Clements "very clearly and concisely confirmed" was the following: * at T 784.41-44, that he would not ask Mr Hobbs' permission for him to control and run his business; * at T 786.6-16, that Mr Hobbs did not ever request him to put on certain traders and did not ever request him to pay profit when it was due (noting that Mr Clements, in response to the question "Did I ever request you to pay certain profits?" said "only paid what profit was made in the trade. You can't request that, you can only - whatever was made"); * at T 787.21-24, that Mr Hobbs did not ever give him instructions as to the way money in Preserved Investments Unit Trusts investments were to be made; * at T 787.35-50 that Mr Hobbs did not ever suggest to him that he should look at Boston Trading and that when he was dealing with Cadent and the traders contracted to his funds and he would deal with Ms Reisinger, that he did take the advice of Ms Reisinger if she suggested he should leverage or de-leverage or put on traders or such like. (Mr Hobbs refers to the admission by Mr Clements that Paul Fry, the Risk manager, would be part of that as showing that Mr Clements took the advice of Ms Reisinger and Mr Fry). 1152Ironically, given the suggestion by Mr Hobbs that I should disregard Mr Clements' evidence in chief because he just accepted what Mr Clarke put to him, the same comment could be made as to the evidence to which Mr Hobbs refers above. In any event, the answers given by Mr Clements must be seen in the context of the unlikelihood that he made any such decisions on his own and that the role of Ms Reisinger and Mr Fry can be ascertained from contemporary documents. 1153As to T 721.5-18 (where Mr Clements suggested that he must have obtained from Mr Hobbs his understanding that he should send a fax to Mr Dent to get a contract memorandum and said he must have had a discussion with Mr Hobbs) the submission made by Mr Hobbs is that he "would have received" that fax number from Mrs Watson. (This does not take the matter very far if, as I consider to be the case, Mrs Watson was acting on Mr Hobbs' behalf in that regard.) 1154Mr Hobbs also referred to the letter dated 6 May 2004 from Rout Milner Fitchett as evidencing that Mr Clements obtained his own legal advice as to his business and fund. There was, however, no evidence form Mr Clements as to the circumstances in which this advice was obtained or as to the purpose for which the advice was sought. 1155Mr Hobbs relies on Mr Clements' response (T 744.1-10) to a question about Preserved Investments and its two funds (namely, that Mr Hobbs did not personally instruct or control him or what he did and that, in regard to the last traders he put on (Boston Trading), that he did the research, found these traders and put them on himself). I have great difficulty accepting that Mr Clements was in a position independently of Mr Hobbs to form an assessment as to traders or the like (unless he was relying on advice from Ms Reisinger and even then I would conclude that this was because Mr Clements understood that to be in accordance with Mr Hobbs' general instructions or practice). The fact is that Mr Clements did not give the impression of understanding anything of any financial complexity in relation to the funds he administered. 1156Mr Hobbs also points to the evidence at T 774.15-21 in which Mr Clements accepted that 20% of 20% of commission was actually paid to Mr Hobbs for office rent. (I accept that a rental arrangement of some informal kind may well have been in existence. That, however, simply points to Mr Hobbs having a financial interest in the operation of Mr Clements' schemes in that regard.) 1157Mr Hobbs also relies on the fact that when he asked Mr Clements whether Mr Hobbs himself had any control of ownership of his companies Preserved Investments, Elite Premier, Mr Clements answered that he did not. Again, I regard that question and answer with considerable scepticism. Apart from the fact that the question was self-serving and no doubt intended to prompt the answer from a witness partial to Mr Hobbs' position, it is by no means clear what Mr Clements understood by this answer. 1158I consider that Mr Clements evidence in general supports the contentions made by ASIC, not Mr Hobbs, as to Mr Hobbs' role in relation to the investment schemes. * Mr Robert Fitzgerald 1159Mr Fitzgerald worked in Mr Hobbs' Nelson office for a period of time and acted as the administrator for the Covered Strategies fund for a short period of time. Mr Fitzgerald, unlike many of the other scheme administrators, seems to have had an understanding of financial matters and quickly formed the view that there was a problem with the manner in which the moneys invested by investors were being dealt with. He struck me as a straightforward and honest witness. 1160Mr Halley submits that, while Mr Fitzgerald might be expected to have had a little more business acumen than others involved as scheme administrators, he nevertheless did not appear to have any relevant financial services experience. I accept that that seems to be the case. Mr Fitzgerald conceded that he did not have anything of substance to do with the named trustee (Trans Management Corporation) referred to in the Covered Strategies private placement memorandum; was not able to identify anybody from the trustee to whom he had ever spoken; and appeared to be receiving instructions either from Mr Hobbs or from Mr Parker from time to time. 1161Mr Halley also points to the fact that it was Mr Hobbs who "stepped in" when it became apparent that Mr Fitzgerald was not taking any action as administrator and that he did so in a public way by notifying others as to the position. (In a similar way emphasis is placed on the evidence Mr Hobbs had also sought to identify solutions when money was "lost", for example, the direction to move money around within the schemes (the "cross pollination" aspect of that being part of what ASIC relies upon for the contention that in substance there was one scheme in which money was moved around as appropriate to help administrators out if investments did not turn out as successfully as may have been hoped). 1162I consider that Mr Fitzgerald was a credible witness and I consider that his evidence supports the characterisation put by ASIC on his role. (v)Mr Parsons 1163ASIC places weight on Mr Parsons' evidence because of the extent to which he was involved in establishing fund websites at Mr Hobbs' instructions. It is submitted that if Mr Hobbs had nothing to do with any of these schemes it is inconceivable that he would have assisted in the design of websites for each of the schemes as Mr Parsons said that he did. I agree. Furthermore, I place weight on the fact that (without input from Mr Hobbs as to the overall arrangements in operation for the schemes) it would seem to have been impossible for Mr Parsons himself independently to have conceived of the various connections and links between the entities (a number being IBCs) so closely mirroring what the contemporaneous documents suggest occurred. 1164I note that Mr Parsons was not a particularly co-operative witness in cross-examination by Mr Hobbs (expressing a lack of knowledge as to building a website when, by later answers, it was apparent that he understood the thrust of the questions). There was clearly no love lost between Mr Parsons and Mr Hobbs (the latter having accused Mr Parsons, among other things it would seem, of wrongly providing material to ASIC). 1165Mr Hobbs submits that Mr Parsons is not a reliable witness. He accepts that Mr Parsons, through his company HelloPages, developed corporate websites (referring to T 485.46-47) but he submits that "His website development was going to be a viable business and we would sell websites off to any interested parties" (my emphasis) and notes that none of the websites developed by Mr Parsons was sold. 1166There was no evidence of any arrangement for the on-sale of websites after their development by Mr Parsons' company (of any proposal that this occur). Such a proposal (that Mr Hobbs might have been seeking to have websites set up for on-sale to the fund administrators) would seem inconsistent with the signing of the hosting agreements by the various fund administrators (and it difficult to see how the websites would be attractive for use by anyone other than the respective fund administrators). 1167Mr Hobbs places weight on the evidence as to an altercation between Mr Jim Cable "of our office" and Mr Parsons (T 512.11- 20). Mr Hobbs submits that "it was because of Mr Parsons' continual cause of conflict and problems within our office that his services were terminated". The reason for the termination of the arrangements seems to me to be irrelevant other than if it is suggested that Mr Parsons' evidence was somehow motivated by ill-feeling. 1168In that regard, while there was clearly ill-feeling between Mr Parsons and Mr Hobbs, it does not seem to me that Mr Parsons' evidence was inconsistent with the contemporaneous documents. Mr Hobbs did not pursue the line of questioning that seemed intended to raise the disputes between them (following the objections raised by Mr Halley to such a course in light of correspondence from Mr Hobbs in which Mr Hobbs had asserted that certain issues that he had foreshadowed would be dealt with in cross-examination were irrelevant to the current proceedings and only relevant to other unrelated proceedings.) 1169Mr Hobbs submits that certain of Mr Parsons' evidence (T 511.16-40) is "a complete fabrication". In order to understand that submission I set out that portion of the cross-examination: Q. Well, Mr Parsons, when we get further to your affidavit if we just quickly go over to paragraph 58 you say: "At some point during the building of the J&B website Mr Truong also sent me information that he wanted to put on the J&B website. The content described the relationship Mr Hobbs had with Wood, Truong and Koutsoukos." [I interpose to note that the statement at para [58] concluded with the words "and it talked about how great Mr Hobbs was". Mr Parsons exhibited to his affidavit email documents that he said Mr Truong had sent to him on 7 August 2006 - one of which was a Welcome Future Trading Corporation document that had a section headed Key Players and referred to Mr Hobbs as the International Sale s Manager of FTC - the significance being the apparent link in the mind of Mr Truong between the Integrity Plus Fund and the FTC subscription. Mr Parsons deposed that he had uploaded that information to the draft J& B website and had shown it to Mr Hobbs in his office "who always signed off on each web site before it was finished"] If we just go over to paragraph 61 you then allege in paragraph 61, if you just go down to the bottom, you allege I said: "Get this off. If they go down, they go down on their own and they won't drag me with them." Is that correct? A. That's correct. Q. So why would I give you content for the J&B website if here I'm alleging to get it off the website? A. Because the content that you gave me was different to the content that they gave me. They are two separate pieces of content. Q. I put to you, Mr Parsons, that's just not true at all, is it? A. It is true. 1170What Mr Hobbs submits is incorrect in the above exchange is presumably the evidence that he, Mr Hobbs, had instructed Mr Parsons to remove information from the website (although the penultimate question seems to be focussed on the proposition that it made no sense for Mr Hobbs to have given Mr Parsons content for that website at all). 1171Mr Hobbs further submits that the evidence given by Mr Parsons from [99] of his affidavit as to the flow chart diagramme that Mr Parsons said he prepared in about early 2007 of Mr Hobbs' business structure (and which Mr Parsons says Mr Hobbs shredded) was not credible. The cross-examination as to this was at T 517.21-50; T 518.1-17. After taking Mr Parsons to [99]-[100] of his affidavit, there was the following exchange: Q....And then you say, "I said, "That's no good"". And we continue to paragraph 100. And you say, "After Mr Hobbs said these words he walked off and I saw him shred the diagram". Mr Parsons, where do you allege you was it in my office you allege you showed me this diagram? A. Half way in your office, half way out of your office. Q. And I walked off which way, Mr Parsons? A. Towards the kitchen area. Q. And then you saw me shred the diagram? A. Correct. Q. Through a shredder, Mr Parsons, or not? A. With your hands. Q. So I'm walking on sticks but I'm ripping up a document with my hands? A. You wasn't walking on sticks. Q. Mr Parsons, I want walk on sticks? A. You were standing still. Q. But you say I walked off. Did I stop walking? A. Correct. Q. Or did I have sticks with me, or not? A. You were standing there. Your sticks were just propped up. You weren't using your sticks. Q. So I shredded the diagram? A. You shredded the diagram. Q. I put it to you that's totally incorrect as well, isn't it? Sorry. It's totally incorrect, isn't it? A. It is correct. 1172Mr Hobbs maintains that it was farcical to suggest that he was ripping up a document with his hands while walking on his crutches (and submits that he has walked with crutches for 13 years). Mr Hobbs submits that Mr Parsons evidence "is simply not truthful, neither is this alleged diagram he drew". 1173As to the former, on the DVD Seminar video I observed that there were occasions when Mr Hobbs had his sticks propped up and he was sitting on the desk but also where he appeared to be standing and balancing on the sticks but gesturing with his hands (which makes ripping up a document not inconceivable while the sticks were propped up - though I accept that this would seem to be more difficult if not indeed impossible if walking at the time and using the sticks for support). However, Mr Parsons' evidence was clearly not that Mr Hobbs had shredded the document with his hands while walking. I am not satisfied that Mr Parsons' evidence is therefore inconceivable. 1174As to Mr Parsons' diagram, relevantly it includes information that Mr Parsons would have no reason to know but for information provided to him by Mr Hobbs (or by fund administrators at Mr Hobbs' request). Significantly, it is consistent with other evidence. So, for example, it has a circle top right in which the following words appear: USA CADENT FINANCIAL LISA REISINGER with an arrow pointing to those and the words "David Hobbs Introducing Broker". 1175It also includes reference to "DDL Christchurch" (under the words Emma Watson) with arrows Susan Watson (presumably a reference to Suzanne) and David Hobbs and numerous other entities to which reference has been made in the proceedings (including the Peter Brock Foundation NZ, Elite Premier Option Two (Grant Clements and the words "$50.00 in D Hobbs 4 P Mitchell"), Master Fund.com (Min Li David Collard); Dest Fund.Biz (Guo Ping Zhang) Integrity Plus.net (Truong, Con Wood). 1176In the middle of the diagram linked by arrows to other circles, is a circle "David Hobbs. Tasman Business Solutions". There are arrows to it from the following names: James Stirling Cable, Pierre Michelle, Robert Hobbs, Grant Clements, Doreen Andrews as well as from a circle "David Hobbs House" (with an arrow to it from Jacky Hobbs) and linked to that circle "Robert Hobbs House" (with an arrow to it from Brenda Hobbs). Against those circles in the word NODE. Two other circles linked by arrows from the Tasman Business Solutions circle are, first, a "J& B Financial" circle (with the names J. Truong, Con Koscuss (obviously misspelt) and B. Wood in the circle) and other names pointing to it (including Con, Stanton, Jennings, "Paulina Diabolica" (presumably a reference to Ms Dabelic) and "Lui Lawyer and wife") and an arrow from that circle to the Integrity Fund circles, and a second circle "Chuck FTC Education Books" with an arrow to it for David Hobbs and Jacky Hobbs. Arrows link each of those circles also to the respective Hobbs house circles with notations "request" or "referred" (which appear to reflect the FTC/OEM/KLM process of transmission of requests, referral and so on). Interestingly there is also a circle "Magniccue" (possibly Magny-Cours) with the words "Offshore Account" and the words pointing to it "D Hobbs Could be the dump/sink" and the word "SINK". 1177Critically, it is difficult to see how the information on this document could have been gained otherwise than by information provided to Mr Parsons in the course of the exercise of building the websites. Had Mr Parsons set out to cause trouble for Mr Hobbs without first having been provided with that information it is difficult to see how he could have accessed the information (particularly as to the offshore Magny-Cours account). To the extent that Mr Hobbs has raised issues as to the production of electronic documents to the Securities Commission of New Zealand that were initially copied by Mr Parsons from the Hobbs office (referred to as the Cable CDs and back up files of "Doreen's machines") it is by no means apparent that the information on the diagram could have been readily gleaned from that material (and if it had Magny-Cours would surely have been spelt correctly). It seems to me very telling that the links that Mr Hobbs was adamant did not exist between FTC and the OEM/KLM process and the investment schemes are clearly reflected in this document. 1178In the context of the above, whether or not Mr Hobbs shredded the diagram while standing or walking, does not detract from the overwhelming likelihood that such a document was prepared by Mr Parsons from information provided to him by Mr Hobbs. 1179As to other matters, Mr Hobbs also takes issue with the statement by Mr Parsons at [92] to the effect that Mr Hobbs introduced Ms Li as "one of my administrators" and as "a doctor, brain surgeon who is very famous in China" and says that this is a complete fabrication. Mr Parsons confirmed in cross-examination that this was his recollection of what had been said (and there was nothing further explored in that regard). Suffice it note that a statement that Ms Li was a doctor or brain surgeon in China is suspiciously close to the statement that Mr Hobbs is recorded as having made on the DVD Seminar video as to Ms Li and, in circumstances where there is ample evidence that Ms Li was a scheme administrator and communicated closely with Mr Hobbs, including travelling with him to China to negotiate possible investments, it is by no means implausible that Mr Hobbs did introduce Ms Li to Mr Parsons in such terms. 1180Mr Hobbs next takes issue with the evidence by Mr Parsons as to a conversation he says took place with Mr Bellamy. Mr Hobbs submits that this "simply did not happen". The conversation in question is deposed to at ([69]ff of Mr Parsons' affidavit). He puts it as occurring in about September 2006 following concerns that he said he had as to the legality of the fund websites. Mr Parsons exhibits to his affidavit a copy of a letter of advice dated 1 September 2006 from Mr Bellamy on the letterhead of Fletcher Vautier Moore. This letter is addressed to Mr Hobbs, Tasman Business Consultants and headed Private Placement. It corroborates Mr Parsons' evidence in that it states: Your primary question to us was in relation to the web site. As I understand matters you and John [Mr Parsons] are concerned about whether or not the web site complies with the requirements of an exempted transaction as defined in Section 4(2) of the United States Security Act 1933 and Regulation D 1181Mr Parsons' evidence is that he had created a mock fund web site for the purpose of seeking the advice and had based it on the Eighth Wonder Fund's web site that he had earlier created. Mr Bellamy's advice was that the web site was worded in a sufficiently neutral way so as not to infringe the section. Mr Bellamy states that: The web site I saw does not solicit funds in any way shape or form either from the public at large or from a sophisticated investor and goes on to suggest that the limited liability status be displayed more prominently. The letter also makes general and not "conclusive" views as to the concept of a sophisticated investor, in the course of which he considers that the issue of an accountants certificate would be likely to provide "absolute and complete protection to the issuer" under Australian law but that it would be wise "to check with your various introducers whether the countries from which they obtain their funding regulations similar to the Audit and Assurance Alert No 9 from Australia". Mr Bellamy gave advice as to how Mr Hobbs could be satisfied in respect of documentation for qualifying as a sophisticated investor. This is only consistent with Mr Bellamy having an understanding that the activities conducted or to be conducted included such investment. 1182The only challenge that Mr Hobbs made to that evidence (at T 519.39-50) was as to the statement Mr Parsons said he made at that meeting in relation to the suggestion by Mr Hobbs that he research the countries to find out if they had such regulations (a request corroborated by the note "JP to "research" against item 10 of the advice). Mr Hobbs put to Mr Parsons that Mr Parsons had not said the following: I don't know what you get paid an hour, Philip, but I am not qualified to research these things. You are the lawyer. You have these investors, David. I don't know. 1183As a seeming aside, Mr Hobbs submits that the style of Mr Parsons was always argumentative "and that comes across in his fabrications as well". 1184The difficulty for Mr Hobbs in this submission is that the copy advice (marked with Mr Parsons' annotations) corroborates the rest of Mr Parsons' evidence on that issue and makes it not unlikely that a statement of that kind was made; Mr Hobbs did not require Mr Bellamy for cross-examination so did not take that opportunity to challenge Mr Parsons' evidence by reference to the other participant to the conversation; and, in any event, it is not necessary to rely on what Mr Parsons attributes to himself as saying in order to come to the conclusion that what Mr Bellamy understood he was giving advice on related to investment in funds referable to websites such as those created by Mr Parsons. 1185Mr Hobbs also takes issue with the evidence of Mr Parsons from [64] as to a conversation at a meeting with Mr Hobbs, Mr Koutsoukos, Mr Truong, Mr Jennings, Mr Stanton, Mrs Watson and an Egyptian couple who he said told him they were potential investors. Mr Hobbs in his submissions identified this couple as two lawyers from Sydney "one of whom wrote the legal opinion for me at the end of 2007 (Ms Louisa-Maria Maroun)". In Mr Parsons' affidavit he says that Mr Hobbs said in that meeting "in a very excited manner": There are changes to the Australian employees' superannuation laws. You've got to get more motivated. You've got to get back to Australia and push, push, push the sale of FTC. This is what you've got to do. You really need to push the FTC education to people in Australia and drive this really hard. We could do very well. 1186Mr Hobbs submits that the suggestion that he encouraged people to promote FTC is again a complete fabrication. Mr Parsons, when challenged on this (T 520.24-50; T 521.1-5, 7-39) maintained that the conversation had occurred. (Such a conversation is consistent with the evidence of Mr Koutsoukos as to targets for FTC subscription and with the evidence of the J&B Financial officers as to the suggestion in mid 2006 that Mr Hobbs would set up a superannuation fund for them.) 1187Mr Hobbs then refers to portions of the transcript of Mr Parsons' cross-examination (in which Mr Hobbs put to him a different version of events to that to which Mr Parsons had referred in his affidavit) but on each occasion Mr Parsons maintained his version of events and there was no evidence by Mr Hobbs to suggest otherwise. (So, for example, the suggestion put to Mr Parsons at T 501.15-36 that it was Mr Evans not Mr Hobbs who had given him the Spring Investments memorandum, cf [12] of Mr Parsons' affidavit - a suggestion that indicates Mr Hobbs had some knowledge that Mr Evans was associated with that fund; and the suggestion that it would have been very rude for Mr Hobbs to have abruptly walked out of the initial meeting - T 491.26, T 492.1-49, cf [8] of Mr Parsons' affidavit (which Mr Parsons said he did not think was rude and which Mr Hobbs asserts is a complete fabrication.) 1188Mr Hobbs then refers to particular paragraphs of Mr Parsons' affidavit (which he did not challenge in cross-examination) and suggests, either that they are a total fabrication ([41]-[46], in which Mr Parsons recounts a conversation with Mr Robert Hobbs where he says that Mrs Watson and her daughter had a system for "qualifying" investors that was secret; Mrs Watson refused to comment on it and Mr Hobbs later asked him to create a system that allowed people to put in their details and for "OEM and KLM letters to get created and sent to clients automatically" (consistent with the notations on Mr Parsons' diagram) and that he said there needed to be someone to monitor the information received and reply and that it could not be automatic); and [49]-[53], in which Mr Parsons continues to give evidence of that conversation with Mr Hobbs and Mrs Watson (relating to a "prequalification" process involving OEM forms and to the request by Mr Hobbs that he copy all the hard drives and discs of Mr Cable's computer; or on the other hand bizarre: namely [52] where Mr Hobbs is said to have said that: ...In this office, everybody is a company. Grant Clements is running his own business. Jim Cable is running his own business. Doreen Andrews is running Tasman Business Consultants. They are all separate businesses. (The statement that Mr Hobbs suggests was bizarre was the statement that Mrs Andrews ran Tasman Business Consultants, even though in other contexts he seems to have suggested she had considerable autonomy to act without reference to him.) 1189Mr Hobbs submits that Mr Parsons had no authority to copy or retain files or emails from "our office" and that this "combined with the interception of emails casts a cloud over Mr Parsons' credibility". He refers to the discussion at T 514.5-26 in that regard. The difficulty with this submission is that there is no evidence to support the assertion that files were copied or retained without authority. Mr Parsons denied what Mr Hobbs put to him (which was that the conversation to which Mr Parsons had deposed (at [108]) with Mr Robert Hobbs as to the copying of the files had not occurred). Mr Robert Hobbs was not called to give evidence. (When questioned, Mr Parsons said that to his knowledge Mr Robert would have had the authority to say that (although the basis for this conclusion was not tested). Mr Hobbs then put to Mr Parsons that he had "actually illegally [taken] our files". That question I rejected.) 1190Mr Halley had objected to the making of allegations of illegality when the relevance of the allegations to any issue in the proceeding had not been explained (and had previously been expressly disclaimed by Mr Hobbs) and submitted that if Mr Hobbs sought to rely on such an allegation for the purposes of credit he should explain why that allegation could substantially bear on the credibility of the witness' evidence. 1191I am not in a position to make (nor would it be appropriate for me to make) any finding that the material in question had been copied without authority (let alone that it had been downloaded illegally). Insofar as Mr Hobbs' submissions sought to reintroduce that topic (which he had not pursued in cross-examination) I reject them. 1192Finally, Mr Hobbs submitted that "Mr Parsons' demeanour while in the witness box as he said plainly he does not recall thereby avoiding the answer". I have set out earlier my observations of Mr Parsons' demeanour. I accept that Mr Parsons was not a particularly co-operative witness in cross-examination. I do not accept that I can infer from this that had Mr Parsons been otherwise he would have supported Mr Hobbs' version of events. 1193Mr Halley accepts that there was a significant amount of tension that was apparent between Mr Hobbs and Mr Parsons (referring to the matters raised in correspondence by Mr Hobbs prior to Mr Parsons giving evidence and the personal challenges made in crossexamination). It was clear that this was the case. However, Mr Halley submits that this does not detract from Mr Parsons' reliability as a witness. I agree. 1194It is submitted by Mr Halley that there is no reason why Mr Parsons' evidence as to the discussions that he had had with Mr Hobbs should not be accepted and that to the extent that the personal attack was made on Mr Parsons it should be understood as only underlining Mr Hobbs' recognition of the damaging nature of Mr Parsons' evidence. In this regard, I consider that the most significant part of Mr Parsons' evidence goes to the preparation of the diagramme and the discussions that he had with Mr Hobbs (and others in the Hobbs office) as to the overall scheme and the OEM/KLM process. I accept Mr Parsons' evidence as to how that document came into being. (vi)Ms Reisinger 1195I have indicated above the circumstances in which the transcript of Ms Reisinger's examination, conducted under the auspices of the Commodity Future Trading Commission, was admitted into evidence notwithstanding that she was not made available for cross-examination. I granted ASIC's application for leave to adduce that evidence over the objection raised on behalf of Mr Hobbs and his wife (who were represented by Counsel at that stage) and the objection of Mr Collard (who was represented by Mr Hartnell on that occasion), for the reasons that I have already published. 1196Mr Hobbs continued during the course of the hearing to raise objections in relation thereto and to assert that he had been prejudiced by reference to his inability to cross-examine Ms Reisinger (or to make inquiries in the United States about matters relating to her testimony). As to the latter, on the evidence before me earlier in the year it seems unlikely that Mr Hobbs would have had the funds to pursue any such inquiries. Moreover, there was no evidence as to any particular attempts or inquiries that Mr Hobbs had made in that regard. 1197I have read the transcript (Ex AO) with caution precisely because of the fact that her evidence was not tested in cross-examination (though in substance I consider that the aspects of Ms Reisinger's evidence on which ASIC places reliance are corroborated by other evidence). 1198Mr Hobbs did not indicate particular issues to which he would have taken Ms Reisinger in cross-examination had the opportunity been available. However, from his submissions it might be inferred that he would have sought to test Ms Reisinger as to one or more of: the circumstances in which she came to be introduced to Mr Hobbs; her belief that Mr Hobbs had previously conducted business through, or had had an involvement with, Refco; the circumstances in which the first of the relevant Cadent funds was opened through TraderView/TraderVest; the commission arrangements vis a vis Mr Hobbs or others; the traders' meeting in Chicago in 2007; her dealings with fund administrators; and, perhaps most likely, the authenticity of the New World (and/or Cadent) business records. 1199Mr Hobbs relies upon parts of Ms Reisinger's transcript in support of his submissions but also argues that parts are inconsistent with other evidence or incorrect. In particular, he raises the following issues: * Knowledge of international clients for NCCN 1200Mr Hobbs refers to the evidence by Ms Reisinger that he describes as being to the effect that she had no knowledge of any international clients for NCCN before it was brought to her attention (in mid 2005) and that Mr Donald Caffray was the client. (Mr Hobbs adds that this "also part of the legal proceedings against Ms Reisinger" by which I can only assume he is suggesting that the issue as to Ms Reisinger's knowledge of international clients through NCCN or Mr Caffray is an issue in the proceedings commenced in Illinois to which I will refer below.) He gave no transcript reference for that submission. 1201Mr Hobbs then refers to an email from Ms Reisinger to Mr Matthews on 22 June 2006 in which she refers to Mr Caffray's international clients and submits that it was Ms Reisinger who arranged for the international clients "to come into the NCCN Exempt Pool" (and asserts that an Exempt pool is supposed to have United States of America clients only). 1202I have assumed that Mr Hobbs is referring to the portion of the transcript at Ex AO where Ms Reisinger said that she was not aware until a meeting in July 2005 that there had been an earlier Cadent account opened through TraderView/TraderVest for Geneva Financial (p179ff) * Instructions to Cadent traders 1203Mr Hobbs refers to the evidence that Ms Reisinger gave instructions to traders for two submissions, as I understand it. 1204First, he makes reference to the evidence at Ex AO p 528.4-24; p 529.1-24; p 530.1-24; p 531.1-21, p 532.15-24 in relation to the recommendation or instruction that Ms Reisinger gave to Idylic Solutions (ISL) to buy into a drawdown in June 2007. Ms Reisinger had been taken to an email dated 21 June 2007 that she sent to Mrs Hobbs in relation to the Geneva Financial account. That email (to which I have referred in part earlier) read: Hi Jacky I do not know how much David had time to go through with you but we have now qualified for management and inventive fees paid from the traders cut of fees charged to the accounts. The management fees are starting to get billed it normally takes about 3 weeks for the whole process but I wanted to give you heads up. Of course there is very little in incentive fees due to the draw down but Idyllic Solutions bought the draw down when I told them to so they may have a few incentive fees. The majority of the fees will be management fees. This is separate from commissions and is paid by the trader to us ie Steve and then down to us. You may have already received a contract for this from Steve separate from the commission contract. Anyway that will be coming and I will keep you informed as it gets closer. 1205This was in response to a message from Mrs Hobbs to Ms Reisinger, copied to Mrs Brenda Hobbs, raising "a couple of questions on our account", including: ..While our account is down a bit, does any profit that is made just go in to fill the hole or is it possible to draw some of this for a payment to the clients. Also, can you look for an opportunity to trade our treasury notes to make up some lost ground. 1206Pausing there, the last is an example of a situation where it might well be understood that Mrs Hobbs was authorising Ms Reisinger to make decisions in relation to particular trading but it is clear that those decisions would be as Mrs Hobbs' agent or broker not by Ms Reisinger as a principal, an issue which is considered further below, (and it is inconsistent with the suggestion that Ms Reisinger was giving directions to Mrs Hobbs as to what to do with the Geneva Financial account). Also relevant to note is that Ms Reisinger is clearly communicating with Mrs Hobbs as to the position in relation to management and incentive fees referable to other fund accounts (supporting the conclusion that Mr Hobbs had, through Mrs Hobbs or otherwise, an interest in those). 1207I accept that the email refers to Ms Reisinger telling "Idylic Solutions" to "buy the draw down". This is what is explained in the examination at the passages to which Mr Hobbs has referred. Ms Reisinger there qualified that by saying that "told" is a strong word, "I recommended to Idylic Solutions and that was a standard" [sic]. 1208Ms Reisinger explained that the "we" have now qualified was a reference to Mr Erdman and herself. She said that she referred in the email to the possibility that Mr Hobbs had discussed this with Mrs Hobbs because it was her understanding that an additional Business Solutions Foreign Introducing Broker agreement was issued in the name of Mrs Hobbs "due to David Hobbs' health" as "We wanted her to be able to continue to receive fees". Ms Reisinger said that her understanding was that Mrs Hobbs was also an owner of Business Solutions (in fact Business Solutions seems to have been a trading name used sometimes for Tasman Business Consultants and sometimes for Mr and Mrs Hobbs individually or together). Ms Reisinger said that, in effect, the two agreements related to the same set of fees (not an entitlement to two sets of fees) and it would just have been a transfer of fees from Mr Hobbs to Mrs Hobbs. Ms Reisinger confirmed that the arrangement was that Mr Hobbs (or Mrs Hobbs in his place) was to receive management and incentive fees "in addition to the commissions". (see Ex AO p526/527) 1209What Mr Hobbs points to is Ms Reisinger's evidence that: I had recommended to Idylic Solutions to go ahead and initiate the trading with that particular CTA buying into a drawdown, is what we called it, was an opportunity because based on their track records -- you know, there's no guarantee; but most of the time after the drawdown, they had a tendency to then start to make money again. 1210Ms Reisinger described buying into a "drawdown" as subscribing or adding money to a trader and said that the opportunity for the CTA "to then become profitable becomes greater after a drawdown" because the likelihood of that CTA making profits is greater and once they have made profits that was what the incentive fees were paid from. 1211Ms Reisinger went on to explain that: The probability of them [the client] realizing a profit, in my opinion would be greater. I cannot tell you whether or not they did. I believe on that particular situation they might have, yes, therefore incentive fees from that split would be incurred 1212The explanation given by Ms Reisinger (and added to by her legal representative) in lay terms appeared to be that if one bought in at the bottom of a "trend market" then there would be an opportunity to make profits when the market turned around. Ms Reisinger said that those profits would not necessarily have been drawn (or realised) for the client. She said that "since one of the ways they tracked CTAs was based upon their historical track records, where a CTA had traded for a long period and where a trend market the accounts have a tendency to gain profits then the CTA will then pull back". She said that CTAs were always very cautious of "open trade equity realized gains on an open trading market". 1213Mr Hobbs submits that there is no financial evidence or logical reason to buy into a draw down (since, if a trader is in a 20% draw down, one must gain that 20% back before you make profit). Insofar as Ms Reisinger had recommended to clients to buy into a draw down (and was describing in the examination the making of profits and payment of incentive fees from that profit), Mr Hobbs submits that this suggested that an incentive fee would be paid where profit was made on individual trades while the trader was "in draw down" (regardless of whether the trades had reached the point of bringing the client's invested money back into profit). I accept that this is the effect of what Ms Reisinger was describing. 1214Mr Hobbs then submits that Ms Reisinger would have had an incentive to encourage her clients to buy into draw down (even though it would not necessarily mean profit for the client) because it would mean larger incentive fees for the introducing broker. I accept that there would be such an incentive (although Ms Reisinger's explanation suggested that there would be a greater probability for that client to make profit if it did so). 1215Mr Hobbs submits that this is not the practice of competent professional introducing brokers and that this practice is deceptive and deliberately misleading. I cannot possibly comment on what would be the practice of "competent professional introducing brokers" simply on the basis of Mr Hobbs say so. There is no evidence of the practice in this regard. The potential conflict of interest in the provision for round turn commissions was recognised at the outset of the agreement to which I referred above. The potential for a further conflict of interest in relation to the basis on which incentive fees are earnt might give rise to a basis for complaint as between the client and the introducing broker but is not something that renders Ms Reisinger's evidence unreliable. Moreover, it is impossible to find that this was a deceptive and deliberately misleading practice without a far more detailed understanding of what the relevant clients were told. This is no more than assertion on Mr Hobbs' part (and an interesting submission for him to make as someone who appears to have received commissions as a result of that very process). 1216Mr Hobbs then relies on that submission to assert that the allegations of destroying business records and emails "stems because of Ms Reisinger's evidence of highly dubious advice and actions in relation to telling client's [sic] to buy into draw downs as she gave in evidence in her transcript". I consider below the weight to be placed on the charges that have been laid against Ms Reisinger in the United States. Suffice it to note that no finding has been made, as I understand it, of any improper destruction of business records or emails and for me to speculate not only that this had occurred but that it was due to the reason proffered by Mr Hobbs would be unsustainable. 1217Unrelated to the above issue, Mr Hobbs then says that the evidence of Ms Reisinger (at Ex AO p 344.2-15) that: I never formed the opinion, though, that he gave them [the account holders] instructions as to what to do, but I do - I did form the opinion that he did give them advice on different trading strategies and how to - how to -- ... 1218Mr Hobbs submits that he never gave instructions or advice. I treat that as a denial. In that regard, I should note that the weight I could place on Ms Reisinger's opinion in that regard is limited in the sense that it is not clear on what she based that opinion. Ms Reisinger did say at p343 that she had formed the opinion that the account holders did seek Mr Hobbs' assistance and advice, based on general conversations and that account holders told her that they did value his opinion and did lean on him for advice. However, that is expressed in such general terms that I place no weight on this part of her evidence (relying instead on the evidence of what the various administrators say Mr Hobbs told them in relation to them operation of the funds and the management of the Cadent accounts). (That said, without corroboration I consider Mr Hobbs' blatant denial to be unreliable having regard to the general inconsistency of his evidence.) 1219The second aspect of the instructions given to traders on which Mr Hobbs relies is the evidence that Ms Reisinger told ISL to "bump up" Diamond and Rosetta (two of the Cadent traders) from $3m to $7m and C3 (another Cadent trader) to trade as to $3m, as well as to the instructions given by Ms Reisinger as to the termination of another Cadent trader (Tresner), as evidencing that she had a decision-making role in relation to the traders. 1220In relation to the Tresner issue, there is an email sent on 24 July 2007 by Ms Reisinger to the "Hobbs family" email address (which seems to be an address used by Mrs Brenda Hobbs) stating that after much thought she had suspended trading with Tresner that day and that she needed a letter "from one of you" to authorise that (and to authorise the increase for the Diamond trading). While, in its terms, this email communicates the making of a particular decision by Ms Reisinger, there are two points to be made: first, it is clear from the text of the email that Ms Reisinger was seeking ratification of that decision (which indicates that Ms Reisinger did not understand herself to be in a position to make such a decision without authorisation from the client) and, second, when read in the context of various of the emails around that time, it seems clear that Mrs Hobbs had been querying the performance of traders and seeking advice from Ms Reisinger as to matters such as whether to terminate the 'non-performing' traders and trade only with the Diamond Capital trader. 1221Mr Hobbs relies in support of his submissions on various statements made by Ms Reisinger in the context of her CFTC examination (although elsewhere in submissions his contention is that reliance should not be placed on this due to his inability to cross-examine Ms Reisinger). 1222First, he notes that Ms Reisinger said she was not aware of what moneys he would have received (Ex AO p69.2-10 and p71.9-10); to her helping work out the figures for commissions for him (p71.1-8); and to her statement that she did not see the statements that were sent to him (p69.8-10). (Mr Hobbs asserts that the statements were not in fact ever received by him, though I can place no reliance on this assertion for the reasons already indicated and I note that Mrs Watson's evidence suggests to the contrary.) 1223Second, he says that Ms Reisinger "added me as the Foreign Introducing Broker on all funds, even when I only signed a Foreign introducing Broker agreement mid 2006" (though that agreement in its terms contemplates more than one fund will be introduced). This submission ignores the distinction between registration with Cadent - which meant commission would be paid direct from Cadent - and the arrangement between he and New World Holdings in which he was entitled to a share of the New World Holdings commission without the need for any 'registration' as a foreign broker as such. Further, the reliance by Mr Hobbs on the fact that "when questioned by ASIC Ms Reisinger admitted that a Foreign Introducing Broker was just a made up title" (Ex AO p189.6-12) "and that I was not registered" (p190.16-22) is disingenuous (since it turns on a selective reading of Ms Reisinger's evidence on this topic in context). This indicates what seems to me to be a tendency on Mr Hobbs' part to put a favourable gloss on statements contained in the material (or perhaps simply that he reads or hears what he wants to see or hear) consistent with the manner in which he says he understood Mr Hartnell's advice. 1224Read in the context of the communications between Ms Reisinger and each of Mrs Hobbs and Mrs Brenda Hobbs, Ms Reisinger's responses in relation to the traders are those of an adviser, not those of a principal. It seems to me to be clear that Ms Reisinger operated on the basis that the ultimate decision as to traders was one that was for the client, not her and not New World Holdings, to make and, relevantly, it seems likely that Ms Reisinger regarded herself as impliedly authorised to make the decision on behalf of Geneva Financial to suspend or terminate trading of Tresner in light of the earlier communications. * Commission as introducing broker 1225Mr Hobbs suggests that there is an inconsistency in the evidence given by Ms Reisinger as to an email dated 10 May 2007 from her to Ms Dadey and Mr Erdman headed "Fw: pay out to David and Grant". The text of that email commences "Pay out detail for David" and lists account numbers against which it says Commission Net to Lisa 30% to David 20%. 1226There follows a list of Cadent account numbers (through which I was taken on more than one occasion) that match up to the account numbers for the various accounts the subject of the proceedings and at the bottom of which there is a total for "David" that is calculated out by reference to his commission on particular accounts plus or minus other amounts (including float totals). The total shown for Mr Hobbs there is $5,004.36 less an amount referred to as "diamond override" and an amount for legal fees, leaving the bottom line total at $4,905.31. Significantly, the bank account statements in evidence show the receipt into Mr Hobbs bank account of that exact amount as converted to New Zealand dollars shortly after 10 May 2007. (ASIC relies on this as a significant document in showing the receipt by Mr Hobbs of commission referable to Cadent accounts for funds the subject of the proceedings.) 1227Mr Hobbs submits that there is an inconsistency in Ms Reisinger saying (at EX AO at 12) that the accounts that were frozen at Cadent were accounts that had been introduced by Mr Hobbs through Mr Lynn Caswell and Ms Reisinger saying at Ex AO p 555.20 that the list of the account numbers on this document "would have been account numbers that David Hobbs had - from account holders that David Hobbs had introduced to Cadent". (Ms Reisinger went on in the transcript to confirm that the account numbers listed were the specific Cadent account numbers (which can be verified by reference to the account number details appended to the respective account applications).) 1228From my reading of the transcript, the references to accounts being frozen at Cadent (at Ex AO p12) were references to the Idylic Solutions account and a Unifund account (Ms Reisinger saying at line 15ff that she believed that they were the only two accounts that were frozen at that time - around May 2008). Ms Reisinger's evidence was that Mr Hobbs had contacted her around May 2008 to enquire as to the status of the commissions he was receiving from New World Holdings and if that had changed (11.18). 1229Ms Reisinger said: He apologized about the mess. He had mentioned the Donald Caffray account with NCCN, that he didn't understand the confusion there. 1230It was in that context that Ms Reisinger said that Mr Hobbs had introduced "all of those accounts to Cadent". Her explanation was that Mr Hobbs had introduced those accounts (ie the Idylic Solutions and Unifund accounts) through Mr Lynn Caswell and that "[h]e had introduced Don Caffray to the members of NCCN". She said that it was her understanding that when the Idylic account was frozen, Mr Hobbs' commissions had stopped but saw this as an issue between Mr Hobbs and Mr Erdman of New World Holdings. 1231The listed accounts to which Ms Reisinger was referring at p 555.20 went beyond the accounts referred to at p12. Therefore, I do not see the inconsistency to which Mr Hobbs is seeking to point between those references. 1232There does not seem to me to be an inconsistency between Ms Reisinger saying (as I understand her evidence to be) that, as between Cadent and New World Holdings, Ms Reisinger was the associated person or introducing broker and Ms Reisinger saying that the accounts in question were referred to her by Mr Hobbs (or by Mr Hobbs through Mr Caswell). The round turn commission agreements make clear that the introduction of the particular accounts to Cadent is made through New World Holdings (I accept that in relation to the earlier accounts opened through TraderView/TraderVest the introduction was not made through New World Holdings). What Ms Reisinger in that portion of her evidence seems to be doing is to elide the middleman, so to speak, when she says that these were all accounts introduced by Mr Hobbs to Cadent. (The need for the interposition of New World Holdings seems to arise from the fact that Cadent is dealing with registered brokers not unregistered individuals such as Mr Hobbs.) 1233Mr Hobbs notes that Ms Reisinger is shown on the commission statements as claiming commission as the introducing broker and submits that, on the one hand Ms Reisinger is saying that the introductions came through Mr Caswell, then she says the introductions were made by Mr Hobbs and then she claims commission for herself. (I have explained above how I read the evidence relating to the introductions by Mr Hobbs through Mr Caswell.) As to the submission by Mr Hobbs that this demonstrates that reliance cannot be placed on the documents admitted as New World Holdings business records, I do not accept that this is the logical conclusion to be drawn from Ms Reisinger's evidence (not least, having regard to the other documents on which ASIC relies for the allegation that commission was paid to Mr Hobbs). 1234The first part of this submission seems to raise the distinction between the role of introducing broker as noted in the New World Holdings' records and the status of Mr Hobbs for the purposes of the arrangement between New World Holdings and Mr Hobbs for him to obtain a share of the New World Holdings' commission (as a result of his introduction of the accounts to Cadent through New World Holdings). 1235Mr Hobbs takes issues with the evidence that Ms Reisinger gave in relation to the meaning of the term "Foreign Introducing Broker". In his submissions he contends that Ms Reisinger said that "there was no such thing as a Foreign introducing Broker" (referring to the Reisinger transcript p 189.6-24. As Mr Halley pointed out in his cross-examination of Mr Hobbs (when he suggested that Mr Hobbs must have thought ASIC was dopey) (T 1433.34) this is a somewhat selective use of the transcript. (In his affidavit, Mr Hobbs had deposed that "when questioned by ASIC Ms Reisinger admitted that a Foreign Introducing Broker was just a made up title" (referring to the Reisinger transcript at Ex AO p189.6-12) "and that I was not registered" (at p190 lines 16-22). 1236I accept Mr Halley's submission that Mr Hobbs' reading of the transcript is not a fair reading when one considers Ms Reisinger's evidence on the topic of foreign introducing brokers in context. Ms Reisinger explained, at Ex AO p13, that Mr Hobbs "was not my [ie, her] introducing broker". Mr Hobbs, in his affidavit, referred to this as an acknowledgement by Ms Reisinger that he was not an introducing broker. However, what Ms Reisinger explained she had meant by that was that the contract that Mr Hobbs had was not with her. Ms Reisinger's evidence was that there were two separate contracts - one (on which she was copied) between Mr Hobbs and Cadent (that she described as "his introducing broker contract that allowed him to receive commissions off of the accounts that he introduced to Cadent"), which presumably was the contract entered into in November 2006 being the foreign broker registration documentation, and one through New World Holdings (of which she said that she had general knowledge and referring to the one for Business Solutions). 1237It is clear, having regard to the documents in evidence, that Ms Reisinger must have been there referring to the Cadent foreign broker documentation (that Mr Hobbs submits is restricted to the Global Funds account but is not in terms so limited) and the Business Solutions agreements (one each with Mr Hobbs and Mrs Hobbs) in which there is agreement as to the payment of round turn commissions (and reference to the deduction of management and incentive fees). 1238The arrangements there provided for seem to me to encompass a position whereby there was no doubling up of commissions (and hence no inconsistency between commissions referable to introductions by both Ms Reisinger and Mr Hobbs) but rather a sharing of commissions between Ms Reisinger or New World Holdings and Mr Hobbs in relation to accounts introduced by Mr Hobbs to New World Holdings and thence to Cadent. (The position of Mr Caswell and any claim he might have had to commission as to the initial NCCN accounts with Cadent seems to me to be irrelevant to the arrangements that seem subsequently to have been put in place as between New World Holdings and Mr Hobbs for the sharing of the Cadent commissions.) 1239Ms Reisinger herself was asked in the CFTC examination how it was that both she and Mr Hobbs were receiving round turn commissions on the self same accounts and said that this was because she had introduced Mr Hobbs to TraderView and Ty Andros and that they were creating portfolios for Mr Hobbs utilising the CTAs and historical data from the CTAs, creating blends (Ex AO 40.6). Ms Reisinger said that in turn Mr Andros had introduced Mr Hobbs to Cadent and that the TraderView portfolios had then been phased out and Cadent "wanting to save those accounts that had been introduced by Mr Hobbs, stepped up and started introducing us to CTA's ... and then we paid them [the CTAs] the fees that normally would have been paid to TraderView" and that because of that involvement she or New World Holdings were paid a referral or commission on those accounts. (Ms Reisinger described her fees or commissions off the Cadent accounts as "more of a referral based than an actual commission based fee" and said Mr Hobbs' (round turn commission) fees (as the foreign introducing broker) were taken out before hers.) * Disclosure of fees to third parties 1240Mr Hobbs refers to the portions of Ms Reisinger's examination in which she was questioned as to disclosure of fees (Ex AO p543.1-24, p544.1-24, p545.1-16). Mr Hobbs makes the point that Ms Reisinger accepted that New World Holdings had an obligation to make a disclosure that fees were being passed onto a third person and said "It just didn't happen". (It is not clear what reliance places on the "It just didn't happen". If Mr Hobbs relies on this as supporting his assertion that he did not receive commissions, such a reading would not accord with the transcript read in context.) 1241The relevant passages recorded on the transcript show that Ms Reisinger was asked why New World Holdings was disclosing to the client that a portion of the commission (ie a portion of the round turn commissions charged to the client's Cadent account) would be paid to the trader to which she responded: A.Because all fees should be disclosed. 1242Pausing there, the letter itself gives a reason for such disclosure - namely the conflict of interest that it was acknowledged the trader had in making trades that generated commission for itself. Relevantly, Ms Reisinger was then asked why it was that it was not disclosed that Mr Hobbs was to receive such commissions and fees. Ms Reisinger's response (and it should be borne in mind that, at least with respect to the fees the subject of this arrangement, Mr Hobbs' fees were deducted from New World Holdings' share of the round turn commissions and not an additional charge to the client's account) was: That is a very good point. I don't - I don't believe that the breakdown of those fees were ever disclosed beyond New World Holdings. I don't believe that that again was normal course of business for New World Holdings to break down those fees to that extent. ...No, I'm saying it wasn't normal course of business to disclose how the fees that were paid to New World Holdings were broke down and paid past New World Holdings. 1243Asked whether there were other instances where New World Holdings was passing on commissions or management fees or incentive fees to a third party other than a trader, Ms Reisinger said: Yes, New World Holdings would pass those fees down to the AP, which would be me, and Mr David Hobbs or Business Solutions. 1244Mr Hobbs then emphasises the following exchange from p 545.4: Q. So you said before that it would be unusual for New World Holdings to make a disclosure that such fees were being passed on to a third person, there was in fact, no other third person ever other than Mr Hobbs, is that correct? A. That's my understanding. Q. So it's not usual or unusual, it just didn't happen? A. It just didn't happen. 1245Accordingly, the evidence (as it there stands) is that there was a disclosure of the fact that a share of the round turn commissions was paid to New World Holdings and to the trader; Ms Reisinger accepted that the share paid to New World Holdings was in effect her share; out of Ms Reisinger's share or New World Holdings' share there were fees paid to Mr Hobbs (but to no other third person); and there was no disclosure to the client as to how New World Holdings' share of the round turn commissions was divided up (as between Ms Reisinger and Mr Hobbs). 1246As to whether the disclosure of fees was discussed with Mr Hobbs: A. I believe David Hobbs was aware of the 2 and 20 management fee or any other management fee or incentive fee that was charged by a CTA. The reason I believe that was the times that he would come into Chicago it was openly talked about and he participated in those fees. Q. And did you ever have or were present when there was a discussion with Mr Hobbs about whether his fees should be disclosed. A. No I was never present or participated in a discussion or not his fees should be disclosed. 1247Mr Hobbs submits that Ms Reisinger was present in any meeting in Chicago when he was there and that these fees were never discussed. Apart from the fact that this is simply an assertion, the difference between the two versions is not whether disclosure of fees was discussed but whether fees were discussed at all. * Break-down of the payment for Business Solutions 1248Mr Hobbs regards as a very important issue the evidence from Ms Reisinger from p 544 of Ex AO as to a document recording the break-down of the payment for Business Solutions in May 2007. (ASIC places weight on this document, together with the bank statements recording payment into the Hobbs' bank account of the corresponding amount, as evidence that commissions were received by Mr Hobbs in relation to funds other than simply the Global Funerals fund.) 1249Mr Hobbs notes that Ms Reisinger gave evidence that she sent that document to Mr Erdman and Ms Dadey and explained the document as follows: A. This is - I was helping Steve - one of the guys must have been out of the office. From time to time I did do this. And this is a break-down of the payment for Business Solutions. These are the listed account numbers and the break down for those amounts. And then to the bottom there is a total on commissions to David, Total float, grand total. 1250From this, Mr Hobbs submits, first, that "all the documents" (presumably meaning all the New World Holdings documents that were admitted in evidence as business records) were produced by Ms Reisinger not by New World Holdings. Given that Ms Reisinger was the branch manager of New World Holdings, it is difficult to know what to make of this submission (since documents created by her in that role would still be New World Holdings' documents). Mr Hobbs submits that if the documents were to come from an introducing brokerage company the size of New World Holdings, they would be on letterhead. However, that requires an assumption to be made (that could not be made on the evidence) as to what the practice of New World Holdings was when keeping internal records of this kind (and in any event the document to which he is pointing is an email not an accounting document as such). 1251Second, Mr Hobbs contends that that the 'breakdowns' that Ms Reisinger said would be shown on documents of this kind are not recorded on the New World Holdings business records. Insofar as this is a complaint as to the lack of source documents, I deal with that elsewhere. Mr Clarke, in submissions both in opening and reply, took me through the documents that confirm receipt of the amount there recorded as the "total" for Mr Hobbs and that indicated that the commissions there recorded could not have been referable to the Global Funerals account (which by May 2007 was not recorded as producing any trading profits). 1252As to Ms Reisinger's evidence (from p 555.1-24, p 556.1- 24, p 557.1-24) that this sort of document would have been sent to Mr Hobbs every month, Mr Hobbs' response is to assert that he had "never viewed such documents until ASIC produced them" and had "never received them from New World Holdings or Ms Reisinger". Ms Reisinger's evidence was not definitive on this point ("I would think it would have been sent every month"). Whether or not Mr Hobbs received a copy of an email communication of this kind (and on the face of the document it was not sent to him) is not to the point - the more relevant questions seem to me to be whether he had an entitlement to receive commissions of this kind and whether the evidence establishes that he received such commissions (and I am satisfied that on both counts the answer is yes). 1253In any event, I do not consider that the matters to which Mr Hobbs has here pointed undermine the credibility of Ms Reisinger's evidence as a whole. * Evidence re Global Funeral cheques 1254Mr Hobbs refers to Ms Reisinger's evidence (at T 517.14-24, T 518.1-15) in which she was referred to an email sent by her on 23 August 2006 to Mr Hobbs (and others) referring to "some housekeeping on your Foreign IB status" and monthly cheques being sent from Global Funeral Services. Ms Reisinger certainly accepted that cheques were sent every month from Global Funeral Services to Mr Hobbs (and the evidence at T 159.9-21) * Summary 1255From all of the above, Mr Hobbs submits that fees were "undisclosed"; that Ms Reisinger was the author of the statements; that the commission statements did not include what Ms Reisinger alleges they should have done; and that the evidence that deliberate encouragement and advice was given by Ms Reisinger to administrators of accounts she administered to invest into traders draw down could only be for the reason of higher incentive fees for Ms Reisinger. For the reasons given above, I do not accept that such submissions are consistent with the evidence. Significantly, when considering the reliability of Ms Reisinger's evidence (untested by Cross-examination though it was), is the fact that it is remarkably consistent with contemporaneous documents and the evidence of other witnesses. * Meeting in 2008 1256Finally, I note that Mr Hobbs has pointed to Ms Reisinger's evidence (at Ex AO p 600.14-19) in relation to a meeting in Chicago after the ASIC investigations had come to light (at which she says Mr Hobbs, Mr Collard and Mr Stanton attended). Ms Reisinger says that she felt that Mr Hobbs needed to answer questions as he had introduced the Idylic account. Ms Reisinger said that Mr Hobbs and Mr Stanton had explained what the ASIC enquiry was about and that Mr Hobbs had said that: The three individuals that were the managers of the Idylic Solutions account did not follow the system and they had regulatory issues He did not go into detail, but the executives from Cadent Financial, New World Holdings and myself understood what that system was and that was that there was to be no solicitation in the country of Australia; that everything - there was to be no direct solicitation. Mr Hobbs said that they had violated that system that he had spent hundreds of thousands of dollars to set up 1257It is not clear what Mr Hobbs sought to draw from this. I do not take into account what Ms Reisinger says was the understanding of Cadent or New World Holdings but it is relevant to note that she records Mr Hobbs as referring to the "system" as one that he had set up and that the J&B Financial officers had not followed (in terms that suggest he understood that they should have followed his system). Authenticity of the New World Holdings documents * Incomplete documents (or documents not on letterhead) 1258Various New World Holdings documents were admitted in evidence as business records. Mr Hobbs takes issue with the provenance or authenticity of those documents. He submits that a brokerage firm "the size of New World Holdings" would not submit something as important as a Commission Statement (referred to as the New World Holdings business records) without that document being printed on the New World Holdings letterhead. By way of explanation, the documents in question were documents produced to the CFTC (and on which Ms Reisinger was examined during her CFTC examination). 1259At EX AO p539.17-24, p 540.1-12, Ms Reisinger was asked about a particular document (at tab 48 of Ex AO vol 2), being a copy of a document signed by Mr Collard for 888 Management Inc (that being, I assume, the 888 Vanuatu entity). On its face it is a letter from New World Holdings to the Client advising that the Client's Cadent account will be introduced by New World Holdings to Cadent "and advised by New World and carried on Cadent's books", to be traded by a particular trader (Del Rio). The letter goes on to state that the account will be charged commissions per round turn transaction "by Cadent, which will pay a share of the commissions to each of Del Rio and New World" (noting that by receiving commissions based on trading conducted according to its discretion, Del Rio would have a conflict of interest and, in effect, seeking acknowledgement by the client to waive that conflict). The amount of the round turn commission was not completed in the copy document. 1260The letter stated that the account would also be subject to payment of a monthly management fee and quarterly incentive fee to New World for its services. The management fee was there stated to be 2% per annum based on the value of the assets in the account at the close of business each calendar month and the incentive fee was stated to be 20% of New Net Trading Profits in the account (as defined) at the end of each calendar quarter. The letter stated that New World Holdings would invoice Cadent at the end of each month or quarter as the case may be and provided that the client authorised Cadent to pay such invoices from the client's account without any duty on the part of Cadent to calculate or question the amounts so invoiced. 1261Mr Collard signed for 888 Vanuatu, signifying its acknowledgment of and agreement with the contents of the letter. The letter was not on letterhead (bearing the header [New World Stationery]). It bore the handwritten annotation "Faxed to Lisa 24-10-07 by DC". 1262Taken to this in her CFTC examination, Ms Reisinger identified the handwriting as that of Mr Collard's on the second page of the document and said that she believed a more complete document would be on the file. She identified it as being "for the Texas trader Del Rio and the CTA fees that were being charged for the Del Rio trading by New World Holdings". (Ms Reisinger said that she believed on the complete copy the round turn was filled in and that this was a $25 round turn - $12.50 in and $12.50 out.) Asked about the more complete document, Ms Reisinger said that the only material difference would be the letterhead of New World Holdings. 1263At p542.7, Ms Reisinger explained that the reason there was no reference to Mr Hobbs receiving any commissions, fees or charges on this document was "because Mr Hobbs' fees and commissions and charges were paid to New World Holdings and then New World Holdings paid Mr Hobbs". 1264As to the submission by Mr Hobbs that Ms Reisinger says she never saw these figures in the New World Holdings statements (Reisinger transcript p 69.8-10), Mr Clarke points out that the figures in question were figures relating to payments directly from Cadent and it is not surprising that Ms Reisinger would not have direct knowledge thereof. 1265The provenance of the documents that were admitted as business records was established in the affidavit of Ms Padgett. That affidavit authenticates documents such as the above as documents that were produced to the CFTC under compulsion by New World Holdings. Given that the document was produced in that form, I can only assume that (whatever other documents there might have been) this was a document that had been signed by Mr Collard and sent to New World Holdings where it was retained on its files in that form and hence produced in that form when New World Holdings was ordered to do so. 1266There is no dispute, as I understand it, that "Del Rio" was not appointed as a trader for the 888 Vanuatu Cadent account and the other business records from Cadent disclose that there were fees and commissions charged in relation thereto. 1267As for the suggestion that the document would have been expected to be produced on letterhead, the manner in which many of the documents in this case were signed, witnessed or prepared, leaves much to be desired from the point of view of a professional organisation. The fact that Mr Collard was prepared to sign a document not on letterhead may say as much for Mr Collard's business practices as it does for New World Holdings. 1268I cannot conclude (simply by reference to the fact that the above document was not on letterhead) that this indicates an issue about the authenticity of the documents in general. Mr Hobbs nevertheless relied on the above to support the evidence of a US Commodity Futures Trading Commission Press Release of 27 July 2010 (referring to charges having been laid against Ms Reisinger, Mr Erdman and New World Holdings) being admitted into evidence. * US charges against New World Holdings/Ms Reisinger; Cadent 1269Significant weight is attached by Mr Hobbs to the fact that in about July 2010 charges were brought by the Commodities Futures Trading Commission against New World Holdings, Mr Erdman and Ms Reisinger alleging various offences. This is relied upon as reinforcing the Hobbs' submissions as to the unreliability of the New World Holdings documents (namely that they cannot be relied upon as being authenticated business records of New World Holdings and may have been falsified, or in Mrs Hobbs' words "reverse engineered"). 1270Mr Hobbs made more than one attempt to adduce the press release and charge into evidence. In the end I admitted as Ex 5, subject to weight and relevance, the actual complaint document in which the charges were made and the answer filed thereto, not the press release. I did so over the objection of ASIC. 1271The complaint appears on its face to relate to allegations that Ms Reisinger aided and abetted New World Holdings' failure to keep proper business records; the complaint alleging that, at least from 10 March 2006 to 1 April 2009, New World Holdings failed to maintain books and records as required by the Commodity Exchange Act and CFTC regulations. The complaint also charges Ms Reisinger (and Mr Erdman) with aiding and abetting New World Holding's violations by knowingly falsifying and destroying records. 1272Mr Hobbs relies on the making of these charges for the submission that the New World Holdings business records "as alleged by the Trading Commission in the USA, documents have been falsified". Pausing there, the complaint as laid does not indicate that records of the kind produced in these proceedings were falsified - rather it appears to relate to the destruction of or failure to keep emails alleged to have been business records of the company. 1273As I foreshadowed at the time, I cannot place any weight on the fact that such charges have been laid. They amount to no more than allegations that are not proven at this stage (and have been denied by Ms Reisinger). The complaint relates (on its face) to conduct in respect of opening as "proprietary accounts" accounts that were in fact pooled accounts. That does not support a conclusion that, if that conduct were proved, it would mean that the records for those accounts (trades and commissions) were also falsified. 1274In her evidence at the CFTC examination, Ms Reisinger explained that the only account opened as a pooled account was the Preserved Investments Cadent account and said that this was because he had sent through to Cadent the offering memorandum. Certainly, the evidence suggests that Cadent was on notice, at least in relation to the ISPL Cadent account, that the funds were pooled funds - having regard to Mr Koutsoukos' correspondence with Cadent when the first 'profit' distributions were made for the Integrity Fund (and Ms Fitzpatrick's immediate response was to request no direct communications with Cadent from the administrators of that fund). To the extent that this was the basis of the Cadent concern, it was a matter of which Mr Hobbs was apprised at the time. 1275The thrust of Mr Hobbs' submission seems to be that because Ms Reisinger has been charged with an offence relating to the falsification of records I should assume that the business records in evidence in these proceedings as produced by New World have been falsified or at least that there is a possibility that they have been falsified. I do not accept that such a conclusion can be properly drawn. 1276As noted, Mr Hobbs denies that he received any document in regard to commissions. He submits that the allegations against Ms Reisinger and Mr Erdman and the alleged acceptance by Ms Reisinger that there was no disclosure sent to any other third parties (that, as I understand it, he contends supports his submission that there was never any disclosure sent to him) provide support for his contention that even if New World Holdings was paying him in relation to funds the subject of these proceedings he had no knowledge of that. He submits that the commissions that it is alleged he received were commissions of New World Holdings and that these commissions were not additional commissions charged to any account. Mr Hobbs further asks rhetorically how, if Ms Reisinger cannot explain payments, could statements that she helped to prepare be credible. (In that regard, at least some of the payments that Ms Reisinger was asked to explain appear to be payments from Cadent, not New World - hence it is by no means clear that an adverse inference can be drawn as to her reliability as a witness simply by reason of a lack of direct knowledge of Cadent payments.) 1277To the extent that the documents that Mrs Hobbs contended might have been "reverse engineered" were Cadent documents (in particular the Cadent statements) it is illogical to suggest that Ms Reisinger or Mr Erdman "reverse engineered" them, since they were employed by New World Holdings, not Cadent. Moreover (as pointed out in reply submissions by Mr Halley) any suggestion that the documents were "reverse engineered" would be extraordinary having regard to the fact that the amounts shown in the documents match exactly in many instances with amounts received in the New Zealand bank accounts by Mr and Mrs Hobbs at the time (after conversion to NZ dollars at the then applicable rates). 1278Mr Hobbs also made submissions as to a document that he accepts is not in evidence before me, that he says records a settlement between Cadent and the authorities. He maintains that "This document came about because of an employee of Cadent, for a period of time, was taking good profitable trades to their own account and putting less profitable trades into client's accounts" and submits that the incentive for an introducing broker to accept "these trades" from a member of a clearing house is because of the increased incentive fees to the broker. I cannot possibly take into account matters relating to Cadent that are not in evidence and that appear to be evidence of no more than the making of allegations (and on settlement of some sort that would not necessarily involve any admission of wrongdoing). Financial/accounting submissions by Mr and Mr Hobbs 1279Mr and Mrs Hobbs both made submissions as to the accounting or financial material in evidence in the proceedings. Mrs Hobbs spoke to those matters on behalf of herself and her husband. 1280As to the particular criticisms made of the figures in the documents that were adduced in evidence as supporting the allegations in relation to the payment of commission, Mr Hobbs submitted (and Mrs Hobbs took me through various of the documents in some detail to support the submission) that there was no consistency across the figures shown in the New World Holdings records as to the amounts being paid (it ranging from an 80-20 split to a 70-30 percent split between himself) yet the Reisinger transcript records at p 42.12-18 that "It was my general understanding that Mr Hobbs was receiving 33 and a half percent off of all the management fees, incentive fees and round turn commissions and interest float, what we called float in the industry, off of these accounts". 1281Mr Hobbs submitted that Ms Reisinger's statements did not in any way correlate to any figures in the documents relied upon by ASIC. Mr and Mrs Hobbs each submitted that there were no source documents (from Cadent or New World Holdings or the traders) from which the figures in the documents could be reconciled. 1282Mr and Mrs Hobbs each made clear their suspicion that the documents were a reconstruction by Ms Reisinger for the SEC (or perhaps the CFTC). (Mr Hobbs again complains that he had no way of testing that proposition or asking Ms Reisinger to explain.) As to the allegation that the New World Holdings business records had been or might have been falsified or reverse engineered (to which I have referred above) Mr Halley submits, and I accept, that there is no factual foundation in evidence that would support such a finding. * Schedule B 1283I accept at the outset that Mrs Hobbs had obviously taken some time to consider the evidence put forward by ASIC in relation to the transactions recorded in Schedule B to the Third Amended Statement of Claim and had sought to reconcile the accounting material for the purpose of demonstrating the alleged unreliability of the records on which ASIC relies. Further, Mr Halley confirmed that in relation to certain of the entries (rows 356, 384, 405, 445 and 492) in Schedule B, ASIC accepted that these were not amounts in the case that ASIC seeks to make (relating to the amount that was split 5 ways in relation to Global Funerals - to which Mr Hobbs referred specifically in his submissions). That said, it was submitted that much of the submissions made by Mr Hobbs in relation to the flow of money was assertion not based on any evidence. 1284As to the itemisation of transactions in Schedule B to the Third Further Amended Statement of Claim, Mr and Mrs Hobbs submitted that it was inadequate and difficult to follow; that it was an incomplete record of all the financial transactions for each fund; that it did not record returns generated for most of the funds (so that it was not possible to evaluate accurately the profitability of each fund); that it did not disclose returns disbursed to all clients for each fund (such that it was difficult to assess whether payments out were made from profit or capital); that without a record of returns paid to every client it was difficult to trace the flow of money. On that basis it was submitted that it could not be assumed from the worksheets derived from Schedule B that all payments out from each fund came from capital. (I should add that I do not understand ASIC to suggest that to be the case. ASIC does not contend that payments were made out of capital for each of the funds; only out of the Integrity Plus, Super Save, Master Fund and Enhanced Funds.) * Incomplete nature of the business records 1285Mr Hobbs noted that no documents purporting to be business records have been supplied by New World Holdings for the month of August 2006 or for the period July 2007 to January 2008 and that payments were made from New World Holdings to Business Solutions ASB Bank account during the period September 2006 to February 2008. It is submitted that reliance cannot be placed on the so-called New World Holdings business records because the spreadsheets are in various forms and in various states of completion; the spreadsheets are only for a portion of the period during which money was paid from New World Holdings to Business Solutions ASB Bank account; there are no source documents for the 10 months of business records supplied to verify the veracity and accuracy of the New World Holdings documents; and a number of significant details cannot be verified to source documents. 1286ASIC does not contend that these records are more than records for the particular months in question. However, what it seeks to establish by these records is not the total amount of commission received by Mr Hobbs over the relevant period but simply the fact that commission was received by him. Therefore, the fact that the business records cover only some 10 months does not assist Mr Hobbs. There is nothing to suggest that anything in the accounts outside that period would have affected the accuracy of the months for which there were records. * Analysis of round turns 1287Mr Hobbs submits that not all of the account numbers listed in the records can be matched to Cadent Account opening documents; that the net commission amount per account number described as "Net Commission" cannot be verified (noting that the 'Net Commission' figure is obviously the product of column 4 'Total RT's' multiplied by a number and that the number used to multiply the 'Total RT's' by varies from row to row on the spreadsheet). 1288Examples were given for errors or inconsistencies identified in those documents and Mrs Hobbs took me through some of those in her oral submissions: namely where there was the same trader but different multiplying factors (Mrs Hobbs submitting that the source documents would reveal whether or not the multiplying factor should be different for the relevant account numbers or whether the multiplying factor should be the same and there was an inputting error on the New World Holdings document); where there were different traders and different multiplying factors; where there were different sales codes, same trader and different multiplying factors (Mrs Hobbs again noting that the source documents would reveal the significance of two different sales codes for the one trader and also reveal whether or not the multiplying factor should be different for these two account numbers or whether the multiplying factor should be the same and there was an inputting error on the New World Holdings document). Mrs Hobbs identified other perceived errors or inconsistencies in the compilation of the documents, such as where there was a different sales code, different trader, and different percentage to Cadent. 1289It was noted that the percentage split between amounts shown as due to Ms Reisinger and to "D Hobbs/Business Solutions" differed on every occasion (as to which Mr Clarke submits there is a logical reason, namely the differences in commissions between brokers and the difference in the sharing of expenses between them.) 1290As to the submissions made by Mr Hobbs relating to the fact that for the commissions paid by New World Holdings, the actual proportion of fees to Mr Hobbs was not always the onethird as the New World Holdings agreement specified and as referred to be Ms Reisinger, Mr Clarke accepts that there is a difference between reference in the New World Holdings agreement to onethird of net admissions and the reference in Ms Reisinger's evidence to onethird of total gross commissions but submits that otherwise the account given by Ms Reisinger is consistent with the contract. 1291ASIC accepts that what happened in practice seems to have varied. It is noted that before working out the final pay out, various amounts are added or subtracted (and there may well have been a different allocation as between Ms Reisinger and Mr Hobbs of those amounts). Further it is noted by reference to the 10 May 2007 email (containing Ms Reisinger's calculation of the final amount of commission for that month of $4,905.31 for Mr Hobbs, that the percentage commission for the particular sub-accounts varied on occasion between those accounts (from a 30% figure to Mr Hobbs to, on occasion, that 30% plus an additional 20% and in one instance the figure is shown as 100% (for account 38353, which is referable to Secured Bond). There is also a Geneva Financial sub-account (35202) on which Mr Hobbs is recorded as receiving 100% per cent of the net commission. ASIC does not have an explanation as to why there was a difference in those sub-accounts for that period or at all. 1292What seems to be clear from the material in evidence is that Mr Hobbs eventually received (in the Business Solutions account in different months) amounts referable to different subaccounts in respect of funds the subject of the proceedings for which a varying percentage split applied as between Mr Hobbs (or Business Solutions) and Ms Reisinger. 1293ASIC submits that no significance can be placed upon the different multiplying factors or different rates of commissions that were identified in the New World Holdings' statements, referring in this regard to Ms Reisinger's evidence at Ex AO p 36.21 that, in effect, there is no industry standard for determining the compensation that a futures commission merchant pays an introducing broker - rather it is based on volume and an agreement between the futures commission merchant and the introducing broker, such that normally the more one introduces the split becomes higher and the percentage of profitability becomes higher. 1294Ms Reisinger's evidence at p39 was that the range of round turn commissions she had seen was from as little as 50c a round turn to as high as $40. Her evidence was that the round turn commissions that Mr Hobbs earned on his accounts with Cadent were between 50 cents and $15. Thus it is submitted by Mr Clarke that the possibility of a range of different commission rates across different traders means that the fact that there may be a different commission rate as between traders is not an indicator of incorrect calculations. 1295It is submitted that this is demonstrated by the fact that the Cadent daily statements referable to the ISPL account (Ex P tabs 239-242) indicate different commission rates even with the same trader for the same account. The different trader authorisations also show a variety of rates specified to round turn commissions, management fees and incentive fees (and differences in rates charged by the same trader) as well as instances where the commission charge or incentive or management fee was expressed as a maximum. 1296Hence it is submitted by Mr Clarke that not only could the round turn commission rate vary (including for the same trader across different accounts), so also could there be a variation in the management and incentive fees, and therefore it is not surprising that there would be differences in the make-up of the total commission, and different multiplying factors, depending on the precise arrangements in place with respect to each account. 1297I was taken by way of example to the Cadent daily statement (Ex P tab 241), referable to the ISPL sub-account traded by Reynoso S&P (that being an account dated 11 May 2007) which identifies the trades made on that day and notes the commission referable thereto (in amounts of $12.20, $36.60 and $36.60 respectively). Figures marked with an asterisk (consistently with the Cadent guide to its statements attached to Mr Hobbs' submissions) indicates the total number of trades referable to that particular trade (hence the total commission shown on the statement in some cases represents more than one trade). (Mr Clarke accepts that on the face of the Cadent statements it would not be possible to tell whether the commissions on that account included the additional $1 return per trade.) 1298I was taken to the New World Holdings monthly statements from 3 September 2006, which record the total net commission inclusive of the Cadent charge (which is separately identified from the total net commission). The net commission is then shown in the New World Holdings document as split between New World and Cadent and a ratio of 70/30 applies to the difference between the net commission and the Cadent charge (70% to Ms Reisinger/30% to New World Holdings). (Mr Clarke notes that to this point the documents are consistent with Ms Reisinger's explanation as to the 70/30 split between her and New World Holdings.) It is noted by Mr Clarke that there is an exact match (on 5 of the 9 Cadent statements referable to the September 2006 account numbers) between the number of round turns, though it is noted that the multiplying factor for the round turns may vary between traders. 1299(Mr Clarke points out therefore that whatever the charges that have been laid against persons associated with New World Holdings, there is a consistency between the New World Holdings statements and the Cadent statements insofar as they show round turns commissions.) 1300Mr Hobbs submitted that the particular document to which I was taken (insofar as it contains an average and the contract opening amount and the settlement amount that seems to relate to futures positions and open positions) did not refer to round turns but applies to trades opened and trades closed (not round turns on those trades). Nevertheless, for the documents that correspond exactly in terms of round turns, the submissions made by Mr Clarke seem to me to be correct. 1301Insofar as the monthly statements that do not correspond exactly, there are some that make reference to options showing strike prices, expiry dates and referring to premium collected or premium paid. (It is suggested that the explanation for the difference in the round turn trade figures on those documents may be due to the possibility that not all of the option trades are considered in the calculation of complete rounds.) 1302Accordingly, on the example to which I was taken, to the extent that there is an exact match between the information recorded on five of the nine New World Holdings account statements and the Cadent round turn numbers, it is submitted that for there to have been a reconstruction or reverse engineering of this document falsely to suggest that Mr Hobbs had received an amount of commission which he had not, it would have been necessary for that person to have access to Mr Hobbs' Business Solutions account so as to make an exact calculation (and to do so having regard to the actual amount of New Zealand dollars on the relevant exchange rate for that day). Mr Clarke submits (and I agree) that this would be an extraordinary process. I accept that the likelihood of a reverse engineering of these numbers is fanciful. 1303Leaving aside the mathematical accuracy of whether the right multiplying factor was used or not, ASIC's case is that commissions were received by Mr Hobbs referable to the accounts which are the subject of these proceedings. Mr Clarke notes that the no commissions were shown on the Cadent statements as referable to Global Funerals prior to June 2006 and none were shown after December 2006 yet the account details for Mr and Mrs Hobbs bank accounts show the receipt of payments directly from Cadent outside that period (and in particular the receipt of payments directly from Cadent from January 2006) and Mr Hobbs has not explained the receipt of funds from Cadent outside the period in which Global Funerals account was trading through Cadent. 1304(Mr Clarke also points to the receipt of commissions through New World Holdings into Mr Hobbs' accounts in respect of funds the subject of the proceedings for periods both before during and after Global Funerals.) 1305I accept that there may well be errors or inaccuracies in the calculation of the precise amounts. However, what can clearly be gleaned by reference to the Cadent daily statements, New World Holdings statements and the Hobbs bank account records is that commission was received into the Hobbs accounts both from Cadent and New World and that at least part of those amounts must have been referable to Cadent accounts other than the Global Funerals account. 1306Insofar as Mrs Hobbs put forward explanations for some of the payments out of the Geneva Financial accounts (such as the payment of renewal/registration fees for its IBC deregistration and repayment of amounts allegedly funded by Mr Hobbs at the time the company was set up). I accept that Mrs Hobbs had genuinely sought to identify particular payments and the timing and amounts of the payments would be consistent with renewal or setup fees being paid. However, the exercise carried out by her was one of speculation (as evident from her difficulty in identifying various payments). * Ambush? 1307I have already noted that Mr Hobbs raised issues as to the provenance of the New World Holdings' business records. In his written submissions pointed out that there were no figures from Ms Reisinger or New World other than the documents produced by ASIC "allegedly from New World Holdings". Mr Hobbs maintained that he had not seen those documents prior to the court case. 1308It was further submitted in Mr Hobbs' closing submissions that not only were the documents unreliable but that "the first time we have ever viewed them or even understood that such records even existed was when they were presented to us by ASIC during some stage of the hearing", complaining that it was a complete surprise when they were handed up by ASIC, as "it felt like an ambush". In any event, Mr and Mrs Hobbs submit that "since analysing these documents in detail", they are irrelevant and they ask me so to find. 1309In that regard, ASIC served on Mr and Mrs Hobbs around October or November last year the affidavit of Ms Padgett deposing to the provenance of the documents obtained in the CFTC examination proceedings but did not provide copies of the documents so produced. Mr Halley contends that it was open to Mr Hobbs to seek provision of the documents. (Indeed, given that Mr Hobbs did not seek to open the disc served with Ms Padgett's affidavit before the close of the evidence in the hearing - nor perhaps even then - it is a moot point whether it would have made any difference had the underlying source documents been physically served on Mr Hobbs at that time.) 1310A DVD of underlying documents for the entries in the spreadsheets admitted as s 50 summaries was served with Mr Connor's affidavit sworn 30 March 2012 in March or April this year. Ex A comprises those parts of exhibit to Mr Connor's affidavit PJC 1 as were accepted as summaries for the purposes of the hearing in accordance with my reasons on that application handed down on 25 May 2012. Provenance of the business records is dealt with in Ms Elizabeth Chu Padgett's affidavit of 17 October 2011. Mr Hobbs' then legal representatives clearly had access to those documents insofar as submissions were made in relation to certain of the entries in the s 50 summaries by reference to documents in the course of the s 50 application. In light of the above, the submissions as to an ambush are not sustainable. * Global Funerals commissions 1311It is submitted by Mr Hobbs that it is not possible accurately to apportion the amount of any commission allegedly referable to the funds the subject of these proceedings and the amount referable to Global Funeral Services because the veracity of the business records cannot be confirmed and because of the errors and inconsistencies identified. It is submitted that commission payable via any of the parties (New World Holdings, Cadent, ROF, Dennis Reisinger and MLN), profit paid to Secured Bond as an investment into Master Fund for the client FZF, withdrawals from FZF's investment account in Master Fund, and profit and commission payable in regard to Global Funeral Services cannot be included in any consideration of the information presented against Mr and Mrs Hobbs. 1312In particular, Mr Hobbs noted that the Global Funeral Services Cadent Account Opening documents refer to a letter re Diamond Capital Management LLC showing that a sum of $7,000,000.00 was to be traded from December 2005. He notes that the sum of $29,960,393.20 shown on Cadent's Global Funeral Services Cash Account 37375 daily statement for 9 May 2006 is simply the opening balance for that day (and would therefore would have been the closing balance for the day before, 8 May 2006) and hence submits that it cannot be said that this was an amount deposited by Global Funeral Services on 9 May 2006. Mr Hobbs submits (and, as I understand it, Mr Clarke accepts) that it cannot be concluded, simply by looking at the 9 May daily statement for Global Funeral Services Cash Account 37375, that this is when an amount of $29,960,393.20 was deposited. 1313Mr Hobbs further submits that all investments into Cadent Financial Services were done by "wire transfer", not by deposit; that the daily statement for 9 May 2006 shows a "reverse wire transfer from 8 May 2006" debiting the Cash Account 37375 with $10,000,711.10 on 9 May 2006, leaving a closing balance on 9 May 2006 of $19,959,682.10; and that the next daily statement for Cadent's Global Funeral Services Cash Account 37376 for 9 May 2006 shows an opening account balance of nought and a "wire transfer received 8 May 2006" crediting the Cash Account 37376 with $10,000,711.10 on 9 May 2006. 1314Accordingly, Mr Hobbs submits that ASIC's reliance on these cash account statements is dismissed as "simply a random selection of daily statements that happen to show a wire transfer transaction on 9 May 2006 between 2 Global Funeral Services Cash Accounts". (Mr Hobbs further submits that the Technocash accounts for Global Funeral Services and Secured Bond clearly show the flow of funds from Global Services Cadent account to Secured Bond Technocash.) 1315As to the submissions made in relation to the documents for the Global Funeral Services Cadent account, Mr Clarke in reply took me through the material in relation to the Cadent account applications for Global Funerals from which it is apparent that the main Global Funerals Cadent account (the opening application for which bears a fax header of December 2005) was account number 37375. 1316Separate sub-accounts for the cash account for Global Funeral Services were opened each time an authorisation document appointing a trader to the account was signed. Diamond Capital Management was the first trader with respect to Global Funeral Services (that account being 37377). The relevant authorisation document was dated 12 December 2005 and faxed with the date header of 21 December 2005. (All of the other trader authorisations for the Global Funeral services account were dated variously between June 2006 and September 2006.) It is submitted by Mr Clarke, and I accept, that the evidence reveals that as at the end of May 2006 the only trader that had been authorised on that account was Diamond Capital. 1317As to the submission by Mr Hobbs that there was an amount available from December 2005 that was available to be traded on that account, and his submissions in relation to the May 2006 Cadent daily statements for Global Funeral Services (on which ASIC relies for the proposition that the Global Funerals account was not traded until around May 2006), Mr Clarke noted that the daily Cadent account statements for 9 May 2006 (forwarded by email from Ms Reisinger to Mr Hobbs on 10 May 2006) make it clear that for account 37375 and 37376 there were two cash accounts. (In evidence there were copies of bank statements of Business Solutions and J & D Hobbs for the relevant months.) 1318Mr Clarke notes that the daily statement in respect of 37376 shows a wire transfer as at 9 May 2006 in the sum of approximately US$10 million and that the effect of the transfer of US$10 million to the 37376 account was to split the funds that were in the Global Funeral's main cash account 37375, into two amounts of around US$20 million and US$10 million. He notes that this is consistent with the instructions confirmed by Mr Hobbs on 11 May 2006. In that 11 May email, authorising the purchase of the treasury notes, Mr Hobbs stated "and just to remind you we split the account...we will use the same trader" (the only trader at that time being Diamond). (By letter dated 10 May 2006 sent by email there is authorisation from Global Funeral Services for the purchase of treasury notes and treasury bills through Mr Chuck Weed.) 1319Although Mr Clarke accepts that the first daily statement referable to 37375 does not prove that the $30 million arrived into that account on 9 May 2006, he notes the reference in Ex AU 5927/5934 (an email chain between Mr Fry and Ms Reisinger) confirming that Mr Hobbs had been added to the list of recipients of the daily account statements on this account and the statement "Congrats again on the account funding", which Mr Clarke submits indicates that the account has only recently been funded. It is certainly consistent with a recent funding of the account (and more likely than if the funding had been in the account for 6 months by then). 1320Mr Clarke next points to Ex AU 6019 (a chain of emails going back to 29 May 2006) including an email from Ms Reisinger to Mr Hobbs and Ms Li of 30 May 2006 in which Ms Reisinger noted that "Lily, trading started today with Diamond. The rest should be starting here shortly. I will answer your questions on a separate email". It is submitted by Mr Clarke that it is clear from this that the trading with Diamond had not commenced until that date notwithstanding that the Diamond account appears to have been set up some months prior to that. I consider that to be the most likely inference from this communication. 1321As the Diamond account at that time was the only trading account that had been set up for the Global Funerals Cadent account, Mr Clarke submits, and I accept, that no round turn commissions could have been earned in respect of Global Funerals until at least June 2006 (those commissions only being earned on completed transactions not cash account balances). 1322Hence, it is submitted (and I accept) that the US$30 million is likely to have been received in or about early May 2006. (Reliance is placed on the New World Holdings statements for the months after November 2006 as demonstrating that no commissions in respect of those Global Funeral Services subaccounts were received past December 2006.) 1323I accept that the most likely inference from the above is that the earning of round turn commissions on the Global Funeral Services account did not commence until trading commenced by Diamond in May 2006. Therefore the submission by Mr Hobbs that all commissions were referable to the Global Funerals fund cannot be sustained. * Status of agreements in question 1324Mr and Mrs Hobbs submit that they did not have copies of the completed agreements with New World Holdings in our business records (though they recall signing them). They submit they did not receive a completed copy back from New World Holdings at any point following their completion by New World Holdings. The incomplete nature of the agreement signed by Mrs Hobbs is noted (it does not contain any reference to any compensation). It is further noted that the copy of the agreement between Mr Hobbs t/as as Business Solutions has not been signed by New World Holdings. 1325This submission seemed to be a submission to the effect that the Business Solutions agreements were incomplete or not enforceable. Whatever the position as between New World Holdings and Mr or Mrs Hobbs in this regard, the fact is that each of Mr and Mrs Hobbs signed an agreement of this kind (and in Mrs Hobbs' case, though it is incomplete I would infer that it was in the same terms as that signed by Mr Hobbs, particularly given the evidence of Ms Reisinger as to the reason a second agreement was signed). Furthermore, to the extent that there is evidence of commissions having been paid by New World Holdings, then it can be inferred that it considered there was an arrangement pursuant to which it had agreed to do so (whether legally binding or not). * Authorisation of additional round turns 1326As to the agreements pursuant to which ASIC contends that round turn commission payments were made to Mr Hobbs, he submits that: first, Cadent did not have any way of deducting any fee for such transactions or round turns from any Cadent account; second, there are no deductions for any transaction fees or round turns evident on any of Cadent account daily or monthly statement; and third, while he accepts that such fees can be calculated from the New World Holding documents, that they do not represent any relationship to the alleged authorised additional round turn amounts. In that regard, it is submitted that it cannot be shown that Cadent Financial Services did in fact take action on the alleged instructions from the Fund Administrators because there are no source documents from Cadent Financial Services to verify any such allegation. 1327It is submitted that "Round turn" fees have no connection to funds held in Cadent Cash or trading accounts; that there are no connections between Cadent accounts and the amount attributed to New World Holdings to disburse; that the amounts on the New World Holdings' documents do not appear anywhere on any Cadent account as a deduction, fee or commission; and that no Cadent Financial Services account holder bears the cost of such a fee payment (reference being made to the document providing instructions on how to read a Cadent Daily statement), which did not make reference to any deductions from Cadent accounts for round turns. 1328As to the additional $1 round turn commissions, Mr Clarke referred to Ms Reisinger's evidence at Ex AO p 37, in which she referred to the different types of commission paid to an introducing broker (round turn commissions, float (a percentage of the interest that the FCM makes on the dollars in the account) profitability, management fees and incentive fees commission) and added that on Mr Hobbs' accounts there was also an additional $1 round turn commission paid to him as a referral; and said "Cadent paid him an additional dollar round turn for every trade that was placed, to cover his costs". 1329Ms Reisinger confirmed at Ex AO p 64.14 that the additional dollar round turn commission was "a fee added on top of the normal round turn commissions that were charged on the account. It was an additional fee that was charged to the account above and beyond the round turn commission". Ms Reisinger made it clear that this was on top of the (usual) round turn commission and normal clearing fees, it was "an additional $1 round turn that was on every trade that was placed that was paid by Cadent to David Hobbs, it was deducted right from the account". 1330Ms Reisinger's explanation is consistent with the terms of the authorisations that were signed. Mr Clarke notes that those authorisations for the $1 round turn commission make clear that Cadent was to make the payment and that it was to be paid to Mr Hobbs as the "introducer of my account" and notes that each authorisation (except for the Geneva Financial authorisation) has an FTCL fax header imprint indicating that it was sent from Mr Hobbs' office. 1331While Mr Clarke accepts that there is not a direct reference on the Cadent daily or monthly statements in evidence in these proceedings to an additional $1 round turn commission, it is submitted that it should be inferred that such amounts were paid. This submission is on the basis that the New World Holdings monthly statements show the amount of net commission that includes the amount that goes to Cadent (without apportioning commission or fees to Cadent in that amount) and thus it should be inferred that the amount recorded as going to Cadent in this New World Holdings statement includes all amounts that are to be received by or distributed by Cadent (including the $1 round turns). In other words none of the separate items of commission or management fees or incentive fees appear on the Cadent statements (so that it is not surprising that there is not a reference to an additional $1 round turn). 1332Further, it is noted that the authorisations for the additional round turns predate the times when the Global Funerals Cadent account was operative. 1333Mr Clarke refers to the summary table prepared of the commissions received from Cadent into Mr and Mrs Hobbs' Business Solutions account that shows the receipt of funds directly from Cadent on dates including 24 January 2006, 13 February 2006 and 13 March 2006, all before trading commenced by Diamond on the Global Funerals' account. Legal principles 1334Relevant to the issues for determination are the following legal principles. De facto/shadow directors 1335Paragraph [421] of the Third Further Amended Statement of Claim pleads that, by reason of the matters alleged in paragraphs [37] to [276], Mr Hobbs was at all material times a director or an officer of each of the corporate administrators (defined in the pleading as the "Scheme Corporations") for the purposes of the Corporations Act. It is clear from the particulars to this paragraph of the pleading (and it was made clear in Mr Halley's comprehensive opening submissions) that ASIC contends that Mr Hobbs was a de facto or a shadow director or officer of those companies (and of FTC). 1336ASIC contends that either the individual scheme administrators (such as Mr Koutsoukos, Mr Wood, Ms Li and Mr Collard) were themselves the de facto directors of the IBCs that operated each of the individual schemes and acted at all times in accordance with directions or instructions from Mr Hobbs, thus making Mr Hobbs the shadow director of those companies, or, if the individual scheme administrators did not rise to the position of a de facto director (but rather were either officers or agents or employees of the IBCs), then Mr Hobbs himself was the de facto director of each of those IBCs (since if the scheme administrators with respect to a particular scheme were not in the position of de facto directors of the corporate administrator, then the only other person who could fit that category would be Mr Hobbs, as a de facto director). (Mr Halley postulated as a further alternative that both Mr Hobbs and the relevant scheme administrators were de facto directors.) 1337The term "director", as defined in s 9 of the Corporations Act, includes a person who, though not validly appointed as a director, acts in the position of a director (a de facto director) or whose instructions or wishes are ones in accordance with which the directors of the company or body are accustomed to act (a shadow director). The term "officer" is defined in s 9 of the Corporations Act as including a person who is a director (which, by reference to the earlier definition of director, includes a de facto or shadow director); who makes or participates in making decisions that affect the whole or a substantial part of the corporation's business; who has the capacity significantly to affect the corporation's financial standing; or in accordance with whose instructions or wishes the directors of the corporation are accustomed to act. There is room for overlap between persons occupying a de facto role (as director and officer) and those occupying a shadow role of that kind. 1338Paragraph (a) of the particulars to [421] states that Mr Hobbs acted in the position of a director of each of the Scheme Corporations (which, if established, would be constitute Mr Hobbs both a de facto director and an officer for the purposes of the Corporations Act) or was someone in accordance with whose wishes the directors of each of the Scheme Corporations was accustomed to act (which, if established, would be sufficient to constitute Mr Hobbs both a shadow director and officer for the purposes of the Corporations Act). 1339Paragraph (b) of the particulars states that Mr Hobbs made, or participated in making, decisions that affected the whole or a substantial part, of the business of each of the Scheme Corporations. Paragraph (c) of the particulars contains the statement that Mr Hobbs had the capacity significantly to affect the financial standing of each of the Scheme Corporations. If either is established, this would be sufficient to constitute Mr Hobbs at the least an officer for the purposes of the Corporations Act but in the circumstances such a role might have the consequence that the definition of a shadow director was also satisfied (since in those circumstances his wishes might be ones in accordance with which the directors were accustomed to act). 1340Therefore, while Mr Hobbs (in his and his wife's joint written submissions) contends that there is no allegation in the pleading that he was a shadow director of any of the companies, it is apparent (and would, no doubt, have been apparent to the lawyers advising Mr Hobbs at the time he pleaded his defence to the claim) from the particulars to [421] that ASIC was relying, for the contention that Mr Hobbs was a director of the respective companies, on facts that would constitute him a de facto or alternatively a shadow director or officer for the purposes of the Corporations Act. (Hence, the assertion made in Mr Hobbs' submissions that there is no allegation that he was a shadow director or officer of the companies cannot fairly be made. Mr Hobbs has at all times been on notice of the factual contentions on the basis of which ASIC now seeks a finding that that he was a director or officer of the companies.) 1341As to the matters to be taken into account when considering whether someone is a de facto or shadow director, in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; (2012) 287 ALR 22 Finn, Stone and Perram JJ considered what was meant by the definition contained in s 9(b)(i) of someone acting "in the position of a director" and said (from [64]-[69]): (i)A person may be a director even without any purported appointment of that person to that position at any time.... (ii)The formula, "acts in the position of a director", which mirrors the language of Mason J in Drysdale at 242 contemplates that in some degree at least the person concerned, though not appointed a director, has been "doing the work of a director" in that company: cf Re Western Counties Steam Bakeries and Milling Company at 630. Or to put the matter more fully, the person concerned, though not a director de jure, has been acting in a role (or roles) within the company and performing functions one would reasonably expect to have been performed by a director of that company given its circumstances. (iii)The roles and functions so performed will vary with the commercial context, operations and governance structure (to the extent it is operative: see Mistmorn Pty Ltd (in liq) v Yasseen (1996) 33 ATR 332[PDF] at 336-337) of the company: Austin at 489-490. Their performance by that person may well be at variance with what is permitted by the Corporations Act or by the company's constitution. Nonetheless, whether they suffice in the circumstances to constitute the person a director for the Corporations Act's purposes will often be a question of degree having regard to "the nature of the functions or powers which are exercised and the extent of their exercise": Austin at 490; Natcomp Technology Australia Pty Ltd v Graiche (2001) 19 ACLC 1,117 esp at [14]-[15]; Re Valleys Rugby League Football Club Ltd at 656. (iv)There is no reason why the relationship of a person with a company may not evolve over time into that of de facto director. It also may be the case that the person only performs the role and functions that constitute him or her a director for a limited period of time: see Austin. (v)Whether a person has acted in the position of a director is a question of substance and not simply of how that person has been denominated in, or by, the company: see s 9 "director" (a). The fact that a person has been designated a "consultant" for the performance of functions for a company will not as of course mean that person cannot be found to be a director. Whether or not he or she will be a director will turn on the nature and extent of the functions to be performed (both in and beyond the consultancy) and on the constraints imposed thereon. A limited and specific consultancy is unlikely on its own to be caught by the s 9 definition. Not so, a general and unconstrained one which permitted taking an active part in directing the affairs of the company even if not necessarily on a full-time basis: cf Mistmorn at 342 (the references there to Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 (AS Nominees) and to Antico seem mistaken). ... [in the present case, though Mr Hobbs has frequently styled himself as a "consultant" (for example for FZF Anguilla in particular) that does not mean he will not have fallen within the statutory definition of director, particularly if the consultancy seems, as it does, to have been general and unconstrained and Mr Hobbs was performing functions, such as the entry into contracts, of a kind that would be expected to be performed by a director of that comapny] (vi)...with the extension of the de facto director concept to persons who have never purportedly been appointed director, a rigid distinction between a de facto and a shadow director cannot be maintained. A person's power or influence over the directors of a company may provide the capacity to secure as of course compliance with his or her wishes or instructions for "shadow director" purposes: see AS Nominees at 52-53. But the possession and exercise of such power or influence by a person alleged to be a de facto director may throw direct light on the evaluation of that person's true position and influence in the affairs of the company. We also consider that like a shadow director whose wishes or instructions need not relate to all facets of the management of the company's business: see AS Nominees at 52; the functions assumed by a de facto director likewise may be limited in their scope: see Austin. Nonetheless, as Williams J observed (at 656) in Re Valleys Rugby League Football Club Ltd there will commonly be the need to determine "how much a person must do before it can be held that such person is occupying or acting in the position of a director". (vii)... put shortly, was the work done, work for a director of that company? In a given company, this may involve an alleged director in the day-to-day management and business affairs of that company and may require his or her doing many things for reasons of need, expediency or whatever, but which hardly could be said to be things that only a de jure director can properly do: see eg Mistmorn at 342. In another corporate setting, the work done may be simply selective and strategic action. In the end what is being asked for is the making of a value judgment about the proper characterisation of what in its context the person in question had been doing. (my emphasis) 1342In Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565, Madgwick J referred to the character of the decisions made by the person in question, in particular as to whether the person was performing "top-level management functions" (a term adopted by ASIC in its submissions), as distinct from functions of an administrative or company-secretary type role. 1343It is noted that questions as to a person's participation in management functions and capacity to affect the financial standing of the company are questions of fact (Morley v ASIC (2010); 81 ACSR 284 at [893]). Agency 1344It is alleged that FTC was the agent (or alter ego) of Mr Hobbs and that each of the FTC executives, corporate and scheme administrators, as well as New World Holdings and Ms Reisinger, acted as agents of Mr Hobbs when engaging in different categories. There are obvious differences in the position of the FTC executives/corporate and scheme administrators, on the one hand, and New World Holdings/Ms Reisinger on the other hand. 1345At the heart of the legal definition of an 'agent' is a person who acts on behalf on another person and who acts with the authority of that person to affect or create legal relations with third parties (International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644; Petersen v Moloney (1951) 84 CLR 91). 'Control' by the principal over the agent is a common element in an agency relationship and a corollary of the authority conferred by the principal upon the agent, reflecting the representative nature of the agency relationship. Dal Pont in Law of Agency (2nd ed, 2008) notes at [1.4]: Put another way, if the right by virtue of which the alleged agent acts is an independent right he or she already possessed, then he or she is not an agent; if it is, conversely, by virtue of some authority from another, then he or she is an agent. Thus, even though the words or phrases 'for', 'on behalf of', 'for the benefit of' or even 'authorise' may be used in relation to services done to advantage the person who requests them, lacking a representation of that person to third parties, there is no agency. 1346In Premier Building and Consulting Pty Ltd (recs apptd) v Spotless Group Ltd [2007] VSC 377; (2007) 64 ACSR 114), when considering whether there was an agency relationship between a holding company and its subsidiary, Byrne J (at [341] and [342]) considered it necessary to establish the extent of the power of the holding company to exercise control and its exercise of such control, "and any further indication that the subsidiary has so abandoned its independent commercial existence" that he might conclude that it had no independent commercial existence and was but the tool of the parent and labouring for the benefit only of the parent. His Honour concluded there that there was nothing to show a relationship beyond that of a parent and subsidiary within a corporate group. 1347The fact that the alleged agent has an independent commercial existence (of particular relevance when considering the position of New World Holdings, which clearly had its own separate commercial operation) is not necessarily inconsistent with a principal and agent relationship existing in relation to some activities carried out by the putative agent on behalf of the putative principal. 1348In Tonto Home Loans Australia Pty Ltd v Tavares; Firstmac Ltd v Di Benedetto; Firstmac Ltd v O'Donnell [2011] NSWCA 389), Allsop P In Tonto Allsop P considered the principles of agency in the context of the use by a lender of "mortgage originators", where those mortgage originators in turn used "sub-introducers" to identify potential borrowers and one of those sub-introducers had engaged in dishonest conduct. His Honour referred to judicial and academic discussion of the concept and central elements of agency (namely the discussion by Finn J in South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; 177 ALR 611 at 645-647 [131]-[137], in P Watts and F M B Reynolds, Bowstead and Reynolds on Agency (19th edn, Sweet & Maxwell, 2010) at 1-10, in G E Dal Pont Law of Agency (2nd edn, LexisNexis, 2008) at 4-8 and 26-28)) and referred also to W A Seavey "The Rationale of Agency" (1919-1920) 29 Yale Law Journal 859). 1349His Honour emphasised that the concept of agency is not merely functional but is a consensual arrangement or relationship, whereby the agent is to be taken as, or as representing, the principal ([175]), noting the definition set out in Article 1 of Bowstead and Reynolds that "Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation". 1350His Honour considered it uncontroversial that the concept of agency might properly extend to canvassers and those seeking to bring business (and noted the reference in 9-10 [1-019] of Bowstead and Reynolds on Agency (19th edn) to Art 1(4) as "incomplete agency" directed in particular to the "canvassing" or "introducing agent"). 1351It is clear from the analysis in Tonto that the relationship must be considered and characterised in its commercial context. There, Allsop P considered that an Introduction Deed (and other agreed arrangements) taken as a whole "did not provide for an arrangement under which [the alleged agent] would act on behalf, and in the interests, of [the alleged principal]" ([192]). Placed in its commercial context, his Honour considered that the arrangement was one "between two entities each of which had its own business. One was to endeavour to introduce business from its own customer base for the mutual commercial advantage of both". No agency relationship was found to have existed. 1352Whether or not a person is named as an agent in the course of business is not determinative of the issue. It is recognised that the legal concept of an agent may be different from that understood by the common usage of the word in a business context. In International Harvester, the High Court noted (at 652) that: Agency is a word used in the law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties. But in the business world its significance is by no means thus restricted. 1353Where there is found to be an agency relationship, issues may then arise as to the scope of the agent's authority and the acts or omissions for which the principal will be liable. Relevantly, given some of the submissions made by Mr Hobbs in the present case, I note that in Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 Gavan Duffy CJ and Starke J observed that the liability of the principal is not confined to that which has been specifically authorised (nor does it exclude that which has been specifically prohibited) but may also extend to conduct which the principal has put the agent in a position to do. (Thus the fact that FTC executives were precluded, by the terms and conditions of their appointment, from soliciting for investment - a point emphasised more than once in submissions by Mr Hobbs - is by no means fatal to ASIC's case that the FTC executives were FTC's and/or Mr Hobbs' agents even if acting in breach of their contractual obligations.) 1354The scope of an agent's actual authority is to be ascertained by applying "ordinary principles of construction of contacts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties" (Freeman v Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 per Diplock LJ at 502). An agent will also have implied authority to do that which is incidental to the activity expressly authorised, that which a person in the agent's position would usually have the authority to do, and that which is in accordance with such applicable business customs as are reasonable (Freeman v Lockyer). Implied authority may also arise due to a course of dealing between the principal and the agent. In Powercor Australia Ltd v Pacific Power [1999] VSC 110, Gillard J explains at [1274]: [I]f an employee performs a task on behalf of his employer who acquiesces in what he does, endorses it and gives effect to what he did, the employer is thereby authorising him to carry out that task. If this is permitted over a period of time then the clear inference is that he has that power within his employment to carry out that task. Indeed, the employee may have been expressly forbidden at some point to perform the task in question but if thereafter the employer with knowledge adopts the transaction and gives effect to it then in the absence of any contrary evidence one would be confident in drawing the inference that the employee's contract of employment has been varied authorising him to perform similar type tasks. (my emphasis) 1355Therefore, if (as ultimately I have found to be the case) there was an agency relationship between the FTC executives and FTC/Mr Hobbs, then in ascertaining what fell within the scope of the FTC executives' actual or implied authority one would need to consider the ordinary meaning of the terms of the executive's contract (objectively construed in their context, taking into account the object of the authority conferred as explained in Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165), as well as the acts that would be incidental to that authority and (of relevance in the case of the representations made by FTC executives to potential investors in meetings at which Mr Hobbs was present) statements or acts to which the principal did not demur or in which the principal had acquiesced. 1356Whether a particular act falls within the scope of the agent's authority thus requires consideration of all the circumstances in which the authority was conferred, the purpose for which it was conferred, and the circumstances in which the authority was exercised. In Kirkpatrick v Kotis [2004] NSWSC 1265 by Campbell J (as his Honour was then) said (at [85]): Even if P has given a general power of attorney to A, A is treated as acting on behalf of P only when, from the circumstances, one can tell that A is intending to act on P's behalf rather than on his own behalf, or where other circumstances, beyond the existence of the power of attorney, provide a justification for attributing A's action to P. Outside the context of P having given A a general power of attorney, one needs to look at circumstances such as whether there is a contract which entitles or obliges A to act on behalf of P, whether there is any request by P and A that should act on his behalf, whether there is any permissions by P for A to act on his behalf, or whether there are other circumstances on the basis of which the court will treat a relationship of agency as existing, before one decides whether A is at some particular time acting as the agent of P. 1357In Lysaught Bros & Co Ltd v Falk (1905) 2 CLR 421, Griffith CJ remarked that "an agent who is not acting for his principal but for his own benefit is acting beyond the scope of his authority" (at 429-430). However, Dal Pont argues at [7.31] that this is misleading in its connotation that an act performed by an agent within his or her actual authority may lose its status if motivated by the agent's own interests, and says at [7.32]-[7.34]: What can be said is that an agent's authority cannot extend to acts that are advantageous solely to the agent, as this is inconsistent with the agent's duty to act in the principal's best interests. ... The aforesaid applies subject to any express provision in the authority to the contrary. If the principal expressly authorises an agent to commit an act that is not in the principal's interests or that is solely in the agent's own interests, the principal is bound by the consequences of his or her own act. 1358As to the implied authority that an FTC executive performing his or her role would have, the question is what would be the ordinary or necessary acts incidental to those acts expressly authorised, or the custom, or the usual authority exercised by a person in that role and any other evidence regarding a course of dealing. 1359Relevantly, where there is express authority to negotiate on behalf of the principal, then there is likely to be implied authority to make certain representations on behalf of the principal (see Mullens v Miller (1882) 22 Ch D 194, where Bacon VC observed that where an agent was authorised to lease a property, there would be implied authority to describe the property to prospective lessees; as opposed to Fairmede Pty Ltd v Von Pein [2004] QSC 220, where Mullins J held that an agent authorised to sell property lacked the implied authority to make representations as to how the vendors would respond to requests for extensions of time under the contract). 1360In Australian Brokerage Ltd v Australian and New Zealand Banking Corp Ltd (1934) 52 CLR 430, the making of misrepresentations by a director selling shares of the company was considered to be something capable of falling within the scope of the director's implied authority to act on behalf of the company. Dixon, Evatt and McTiernan JJ were of the view that the inquiry as to authority was to be directed not at whether the company had authorised the making of false representations, but whether or not the company had authorised the director to make representations on behalf of it and left it open as to the manner and content of the representations. At 45-46, their Honours referred to the following dicta: "A person who puts another in his place to a do a class of acts in his absence, necessarily leaves him to determine, according to the circumstances that arise, when an act of that class is to be done, and trusts him for the manner in which it is done; and consequently he is held answerable for the wrong of the person so intrusted either in the manner of doing such an act, or in doing such an act under circumstances in which it ought not to have been done; provided that what was done was done, not from any caprice of the servant, but in the course of the employment," per Willes J, Bayley v Manchester, Sheffield and Lincolnshire Railway Co. "It is seldom possible to prove that the fraudulent act complained of was committed by the express authority of the principal, or that he gave his agent general authority to commit wrongs or frauds. Indeed it may be generally assumed that, in mercantile transactions, principals do not authorize their agents to act wrongfully, and consequently that frauds are beyond 'the scope of the agent's authority' in the narrowest sense of which the expression admits. But so narrow a sense would have the effect of enabling principals largely to avail themselves of the frauds of their agents, without suffering losses or incurring liabilities on account of them, and would be opposed as much to justice as to authority. A wider construction has been put upon the words. Principals have been held liable for frauds when it has not been proved that they authorised the particular fraud complained of or gave a general authority to commit frauds," per Sir Montague E Smith, speaking for the Privy Council in Mackay v Commercial Bank of New Brunswick. (my emphasis) 1361This approach is consistent with the approach taken in Colonial Mutual Life Assurance where Gavan Duffy CJ and Starke J said (at 46-47): It is not necessary that the particular act should have been authorised: it is enough that the agent should have been put in a position to do the class of acts complained of (Barwick v English Joint Stock Bank (1867) LR 2 Ex 259; Lloyd v Grace Smith & Co (1912) AC, at 733). And if an unlawful act done by an agent be within the scope of his authority, it is immaterial that the principal directed the agent not to do it. (Cf Limpus v London General Omnibus Co (1862) 1 H & C 526; 158 ER 993.) (my emphasis) 1362Whether, as Dal Pont argues in Law of Agency (2nd, 2008) at [8.6], an agent, authorised to make representations should be considered to be exercising ostensible, rather than actual authority, when making misrepresentations (due to the perceived incongruity in concluding that the principal actually authorised the misrepresentations), there is no doubt that the making of a misrepresentation that is not expressly authorised can nevertheless fall within the scope of the agent's authority. 1363(In saying this, I note that ASIC would contend that various of the misrepresentations allegedly made in this case were in fact authorised in the sense that FTC executives and scheme administrators were repeating what Mr Hobbs had trained, or shown, them to say to potential investors in the schemes or potential subscribers for the FTC education package - as evidenced by his presentation at the DVD Seminar; and in many cases FTC executives made the representations in Mr Hobbs' presence without any apparent demur by him as to the accuracy of the representations.) 1364A principal may be found to have expressly or impliedly adopted acts of an agent or may be found to have ratified an agent's act by acquiescence (such as where the circumstances are such that the principal is required to take positive steps to repudiate or deny the act of the putative agent and fails to do so). In City Bank of Sydney v McLaughlin (1909) 9 CLR 615 Griffith CJ and Barton J referred to circumstances where "a man is bound by all rules of honesty not to be quiescent, but actively to dissent, when he knows that others have for his benefit put themselves in a position of disadvantage, from which if he speaks or acts at once, they can no longer escape". 1365On the issue of illegal acts committed within authority, the authors of Bowstead & Reynolds on Agency (19th ed, 2010) comment at [2-026] that: An issue that has not received much attention is whether a principal can expressly authorise an agent to act illegally. In principal, there is no reason why such authority cannot be given as a matter of law, and in practice it must be a common occurrence. ... Where it is a question whether a principal is liable to criminal or civil penalty for illegal conduct committed by an agent, the liability of the principal will usually turn on the construction of the relevant statute. 1366The learned authors then go on to comment that "at least under companies statues which confer unlimited capacity on companies, it would be intra vires the board of directors to commit the company to illegal action: see Morgan v Babcock & Wilcox Ltd (1929) 43 CLR 163 at 173-4; Australian Agricultural Co v Oatmont Pty Ltd (1992) 8 ACSR 255 at 265." 1367In Tonto, consideration was also given to the circumstances in which knowledge of an agent is to be imputed to a principal (though the conclusion that there was no agency relationship strictly made it unnecessary to consider whether, on the assumption that there were an agency relationship, the so-called fraud exception would prevent the imputation of knowledge held by employees of the sub-introducers through to the lenders). Allsop P referred at ([207]) to the statement of principle in Bowstead and Reynolds on Agency (19th edn) in Art 95 at 514 [8-207], including as to the imputation to a principal of knowledge relating to the subject-matter of the agency which the agent acquires both while acting within the scope of the agent's authority and in circumstances where the knowledge is acquired outside the scope of that authority. 1368Insofar as Mr Hobbs' maintains that the contract between FTC and the FTC executives makes clear that the latter are not employees, that distinction does not assist Mr Hobbs in denying that the FTC executives were agents of FTC and/or of himself. 1369Generally speaking the distinction between employee/independent contractor may be relevant when considering the nature of any liability of the party employing or retaining the employee or independent contractor for the wrongful acts or omissions of the latter. The distinction there drawn is between the concept of vicarious liability in tort for the wrongful acts or omissions of the employee and the concept of joint and several liability of a principal for the tortious act of an agent within the scope of that agent's authority (as in Brooke v Bool [1928] 2 KB 578; Ex parte Colonial Petroleum Oil Pty Ltd (1944) 44 SR (NSW) 306; Schultz v Corwill Properties Pty Ltd [1969] 2 NSWR 576; J F & B E Palmer Pty Ltd v Blowers and Lowe Pty Ltd (1987) 75 ALR 509). 1370While, as a general principle, it is generally the case that one is not vicariously liable for the torts of an independent contractor (H C Buckman and Son Pty Ltd v Flanagan (1974) 133 CLR 244; Stoneman v Lyons (1975) 133 CLR 550; Scott v Davis (2000) 204 CLR 333; and Hollis v Vabu Pty Ltd (2001) 207 CLR 21), liability may arise for the acts of an independent contractor if an agency relationship can be established - see, in particular, the approach taken by McHugh J (in a separate judgment to the majority) in Hollis v Vabu, at [99] (though criticised by Dal Pont in Law of Agency (2nd ed, 2008) at [22.6]): ...a principal is liable for the wrongful act of an agent causing damage to a third party when that act occurred while the agent was carrying out some activity as the principal's authorised representative in a dealing with a third party... Further, CML (Colonial Mutual Life) clearly demonstrates that it is not necessary for the principal "specifically" to "instigate, authorise or ratify" the agent's wrongful act. In fact, the principal will be liable even when there is an express prohibition against the tortious conduct involved. 1371As to the distinction between an employee and independent contractor, this is a matter of substance not form. In Hollis v Vabu the High Court noted at [36] that: Terms such as "employee" and "independent contractor", and the dichotomy which is seen as existing between them, do not necessarily display their legal content purely by virtue of their semantic meaning. 1372In Colonial Mutual Life Dixon J (with whom Rich J agreed) said (at 48-49): The independent contractor carries out his work, not as a representative but as a principal. But a difficulty arises when the function entrusted is that of representing the person who requests its performance in a transaction with others, so that the very service to be performed consists in standing in his place and assuming to act in his right and not in an independent capacity. 1373In Hollis, their Honours went on at [40] to say that: Thus, by itself, the circumstance that the business enterprise of a party said to be an employer is benefited by the activities of the person in question cannot be a sufficient indication that this person is an employee. However, Dixon J fixed upon the absence of representation and of identification with the alleged employer as indicative of a relationship of principal and independent contractor. These notions later were expressed positively be Windeyer J in Marshall v Whittaker's Building Supply Co. His Honour said that the distinction between an employee and an independent contractor is "rooted fundamentally in the difference between a person services his employer in his, the employer's business, and a person who carries on a trade or business of his own". 1374It is not necessary for the purposes of deciding the issue of agency in the present case to determine whether the FTC executives were employees or independent contractors. Financial services contraventions 1375The two kinds of financial services contraventions alleged in the present case are breaches of s 911A of the Corporations Act (by the carrying on of a financial services business in the jurisdiction without an Australian financial services licence covering the provision of the financial services), alleged against Mr Hobbs, FTC and each of the corporate and scheme administrators) and breaches of s 601ED(5) of the Corporations Act (by the operation of a managed investment scheme that was not registered), alleged against Mr Hobbs and each of the scheme and corporate administrators in respect of the overall Hobbs scheme (if that be found to be a single collective scheme) or Mr Hobbs and the scheme and corporate administrators of the Integrity Plus and Super Save schemes only (if there be not found to be a singly collective scheme). Section 911A contraventions 1376Section 911A(1) of the Corporations Act provides that: Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services. 1377Austin and Black note ([7.911A] that "The licensing regime secures adequacy of capitalisation of providers of financial services, excludes unqualified and untrained persons from the industry and enforces compliance with ethical standards: Cairnsmore Holdings Pty Ltd v Barsden Holdings Pty Ltd [2007] FCA 1822 at [32]" and that the licensing requirement extends to product issuers who sell products directly to clients or engage representatives to do so. (Failure to comply with s 911A(1) is an offence: s 1311(1). Under item 262C of Schedule 3, for a contravention of s 911A there is a maximum penalty of 200 penalty units or imprisonment for 2 years, or both.) 1378Pursuant to s 911D(1), although without limiting s 911D(2), a financial services business is taken to be carried on in this jurisdiction by a person if, in the course of the person carrying on the business, the person engages in conduct that is intended to induce people in this jurisdiction to use the financial services the person provides or is likely to have that effect (whether or not the conduct is intended, or likely, to have that effect in other places as well). Austin and Black note that the section is capable of applying even if an overseas financial services provider "does not target sales in Australia, if it provides information as to its services at the client's request or provides client support or market information to the client, which may constitute conduct 'intended to induce the use of the service' within the scope of the section" ([7.911D]). 1379The term "financial services business" is defined in s 761A of the Act as meaning "a business of providing financial services". "Financial service" is in turn defined in s 766A of the Act as including conduct of the following kind: providing "financial product advice" (defined in s 766B) and dealing in a "financial product" (defined in s 766C). ASIC relies on conduct falling within ss 766B and 766C for the contention that Mr Hobbs, FTC, and each of the corporate and scheme administrators were carrying on or providing a financial service. (In Australian Securities and Investments Commission v Matthews (1999) 17 ACLC 528 at 530, the concept of carrying on a financial services business was held to include a the conduct of a website providing information about financial products.) 1380The term "financial product" is defined generally in ss 763A-E (subject to certain specific inclusions under s 764A and certain specific exclusions under s 765A) as including a facility through which, or through the acquisition of which, amongst other things, a person makes a financial investment. A person makes a financial investment if he or she (the investor) gives money to another person and the other person uses it to generate (or the investor intends that it will be used to generate) a financial return for the investor (s 763B). A "facility" (as defined in s 762C) broadly includes intangible property or an arrangement or term of an arrangement, or a combination thereof. Pursuant to s 763A(2), a "financial investment facility" includes a facility of a kind through which people commonly make financial investments, manage financial risk or make non-cash payments. 1381"Financial product advice" is defined in s 766B as meaning a recommendation or a statement of opinion, or a report of either of those things, that is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or could reasonably be regarded as being intended to have such an influence. The question whether an opinion or recommendation falls within that definition is a question of fact (Australian Securities and Investments Commission v Online Investors Advantage Inc (2005) 194 FLR 449; 23 ACLC 1929; [2005] QSC 324). 1382The definition of "dealing in a financial product" in s 766C includes applying for or acquiring a financial product and issuing a financial product and extends to the conduct of an agent acting on behalf of a person dealing in a financial product (s 766C(3A). (It does not include a person dealing in a product on his or her own behalf unless that person is an issuer of financial products and the dealing is in relation to one or more of those products, s 766C(3).) 1383In determining whether particular conduct has been "in relation to" a financial service, those words are recognised as being of wide import. In Australian Securities and Investments Commission v Narain (2008) 169 FCR 211, Jacobson and Gordon JJ, while accepting that the words "in relation to a financial product" qualified the conduct proscribed by s 1041H, by narrowing or qualifying the breadth of the proscribed conduct and directing attention to the characteristics of the conduct itself, not its consequences, referred (at [68]) to the wealth of authority for the proposition that the expression "in relation to" is extremely wide and that its meaning will be determined by the context (citing Joye v Beach Petroleum NL (1996) 67 FCR 275 at 285 and Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472 at [68] per Hill J). 1384In the present case, ASIC contends that, both by reason of the provision of financial product advice and by reason of the issuing of a financial product, there was a requirement on the part of the administrators of the investment schemes (and of Mr Hobbs and FTC) to register or to obtain an Australian financial services licence as they were carrying on a financial service business in Australia. 1385The exceptions to the prohibition in s 911A include the provision of a service covered by an exemption prescribed in regulations made for the purposes of the paragraph (s 911A(l)(k)). Regulation 7.6.01(1) specifies which service provisions are covered by an exemption from the requirement to hold a financial services licence. None of those exemptions is here applicable. Section 601ED(5) contraventions 1386Section 601ED sets out the circumstances in which a managed investment scheme (as defined in s 9) must be registered under s 601EB. It provides, relevantly: 601EDWhen a managed investment scheme must be registered (1)Subject to subsection (2), a managed investment scheme must be registered under section 601EB if: (a)it has more than 20 members; or (b)it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or (c)a determination under subsection (3) is in force in relation to the scheme and the total number of members of all of the schemes to which the determination relates exceeds 20. (2)A managed investment scheme does not have to be registered if all the issues of interests in the scheme that have been made would not have required the giving of a Product Disclosure Statement under Division 2 of Part 7.9 if the scheme had been registered when the issues were made. 1387Pursuant to s 601ED(5), a person must not operate in this jurisdiction a managed investment scheme required to be registered under s 601EB unless the scheme is so registered. Subsection 601ED(6) provides, relevantly, that for the purpose of subsection (5), a person is not operating a scheme merely because that person is acting as an agent or employee of another person. 1388Section 1311(1) has the effect that a person who does something forbidden by a provision of the Corporations Act, or fails to do something required by a provision, or otherwise contravenes a provision, is guilty of an offence, unless exempted under s 1311(1)(a). Section 1311(1)(a) does not apply to s 601ED (as Part 5C.1 is not specified in s 1311(1)(a)). 1389Therefore, pursuant to the general provision in s 1311(1), failure to comply with the prohibition in s 601ED(5) against operating an unregistered managed investment scheme required to be registered under s 601ED is an offence. (Item 163 of Schedule 3 provides that the maximum penalty for a contravention of s 601ED(5) is 200 penalty units or 5 years imprisonment, or both.) 1390The term "managed investment scheme" is defined, relevantly, in s 9 of the Corporations Act to mean: (a)a scheme [not excluded by subparas (e)-(h)] that has the following features: (i)people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not); (ii)any of the contributions are to be pooled, or used in a common enterprise to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as peoples who have acquired interests from holders); (iii)the members do not have day to day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); 1391The term "scheme" is not defined in the Act (not was it defined in the predecessor legislation). In Australian Softwood Forests Pty Ltd v A-G (NSW) (1981) 148 CLR 121 at 129, it was said to be a term of very wide import (a view adopted in Chase Capital at [57] by Owen J and in Australian Securities and Investment Commission v Takaran (2002) 170 FLR 388; [2002] NSWSC 834 by Barrett J as his Honour then was.) 1392In Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11; [2009] FCAFC 147 at [31] Sundberg and Dowsett JJ noted that s 9 and Chapter 5C of the Corporations Act generally form part of a regulatory system which guards against investment or market risk (the risk that an investment will decline in value), institution risk (the risk that an institution operating the scheme might collapse) and compliance risk (the risk that the operator of a scheme might not follow the rules of the scheme's constitution or laws governing the scheme, or would act fraudulently or dishonestly) and said at [33] that consistent with that object and purpose, the definition of "managed investment scheme" is to be construed broadly (noting the observations of Mason J in Australian Softwood Forests). 1393There are a number of limbs to the definition of "managed investment scheme": first, the contribution of money or money's worth to benefits produced by the scheme by several persons; second, that the contributions are to be pooled or used in a common enterprise to produce benefits for the members who hold interests in the scheme; and, third, that the day to day control of the operation of the scheme be outside the hands of the scheme members. 1394In Takaran at [15]-[16] and [49], Barrett J referred to the collation of judicial observations as to the meaning of "managed investment scheme" in Australian Securities and Investments Commission v Knightsbridge Managed Funds Ltd [2001] WASC 339 and to the reliance by Owen J in Chase Capital at 789 [57] and Douglas J in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (1999) 33 ACSR 403 on what had been said in Australian Softwood Forests as to the meaning of the word "scheme" in earlier legislation. 1395In Takaran, Barrett J noted that: The word "pooled" and the expression "to be pooled", as they appear in the present definition of "managed investment scheme", have been considered in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd and on appeal in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (2000) 158 FLR 221. From those cases, it appears that the word has its ordinary meaning. In particular, it will apply to describe arrangements where there is "common fund into or from which all gains and losses of the contributors are paid" or "a fund made up of numerous payments from participants and used for a purpose they contemplate". The phrase "to be pooled to produce" implies that the intention must be to pool the contributions and, by use of the pool, produce benefits. Pooling will occur where moneys are paid into or collected in an account: see Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (at 222 [8], 223 [9] and 224 [13]). The expression "common enterprise" was discussed in the Australian Softwood Forests case (at 133), where Mason J said: The argument is that in order to constitute a "common enterprise" there must be a joint participation in all the elements and activities that constitute the enterprise. I do not agree. An enterprise may be described as common if it consists of two or more closely connected operations on the footing that one part is to be carried out by A and the other by B, each deriving a separate profit from what he does, even though there is no pooling or sharing of receipts of profit. It will be enough that the two operations constituting the enterprise contribute to the overall purpose that unites them. There is then an enterprise common to both participants and, accordingly, a common enterprise. (my emphasis) 1396His Honour went on to say at [15]: The essence of a "scheme" is a coherent and defined purpose, in the form of a "programme" or "plan of action", coupled with a series of steps or course of conduct to effectuate the purpose and pursue the programme or plan. In some cases, the scope of the scheme will readily be gathered from some constitutive document in the nature of a blueprint setting out all relevant matters. In others, there may be no writing or such as there is may tell only part of the story, leaving the remainder to be supplied by necessary implication from all the circumstances. Profit-making will almost invariably be a feature or objective of the kind of scheme with which the s 9 definition of "managed investment scheme" is concerned, given the definition's references in several places to "benefits". Whatever is incidental and necessary to the pursuit of the profit (or "benefits") will therefore be comprehended by the scheme, including, it seems to me, steps sensible to counter risk of loss (or detriment). Every cogent plan caters for - or, at least, recognises and takes into account - contingencies of an adverse kind. (my emphasis) It must also be emphasised that a scheme having the characteristics bringing it within the s 9 definition of "managed investment scheme" will not necessarily possess those characteristics alone. In Royal Bank of Canada v Inland Revenue Commissioners [1972] Ch 665, Megarry J observed, in relation to the concept of "ordinary banking business", that "a statement of the essentials of a business does not seem to me, without more, to be exhaustive of all that is ordinary in that business". A managed investment scheme, like a banking business, may involve elements beyond the core attributes that give it its essential character. Elements which lie beyond those attributes but contribute to the coherence and completeness which make a "programme" or "plan of action" must form part of that "scheme". Every programme or plan of action must be taken to include the logical incidents of and consequences of and sequels to its acknowledged components. 1397Takaran was cited with approval of the Full Federal Court in National Australia Bank v Norman (2009) 180 FCR 243 at [127]). (ASIC also refers to the observations of Finkelstein J in Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd [2006] FCA 1415 at [2] in this regard.) 1398There are two components to the requirement that there be contribution by several persons of money, or money's worth, to benefits produced by the scheme: first, that the identified programme or plan of action or scheme was articulated before the contributions were made (National Australia Bank v Norman (at [139] per Gilmour J) and, second, that people have made the contribution of money or money's worth in consideration for the acquisition of rights to benefits to be produced by the scheme (Brookfield Multiplex at [50]). 1399Mr Halley notes that what must have been articulated before the contributions are made are the means by which benefits are to be produced; the benefits; and the consideration to be paid to obtain interests in those benefits. (In National Australia Bank v Norman at [139] it was said that the making of contributions may be steps, or a course of conduct, taken to effectuate the purpose and pursue the programme or plan articulated at previous meetings with potential investors). 1400As to what is meant by contribution, it is noted that it looks to purpose not form and that it means more than making available for payment or supply; rather it foreshadows the requirement for pooling or use in a common enterprise to produce financial benefits identified in the second limb of the definition and means to "supply or pay along with others to a common fund or stock", whether that supply be direct or indirect. In Brookfield Multiplex it was said to be sufficient that the intention is that the contributions be for the purposes of the scheme, regardless of the identity of the person to whom they are to be paid, given or supplied. (Although an identifiable entity for the purposes of Chapter 5C of the Act, a scheme is not itself a legal person - Brookfield Multiplex at [59]). 1401The term "interest" in a managed investment scheme is defined in s 9 to mean a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not) and that "benefit" is further defined in s 9, meaning "any benefit, whether by way of payment of cash or otherwise". 1402In Australian Softwood Forests, Mason J, when considering the definition of "Interest" in the predecessor legislation said: In attempting to apply the statutory definition of "interest" to the transactions already outlined, we must ask ourselves, first, whether there is a "financial or business undertaking or scheme" and, secondly, what are its elements. We begin with the circumstance that the words in question are of very wide import. For example, all that the word "scheme" requires is that there should be "some programme, or plan of action" (Clowes v. Federal Commissioner of Taxation (17). ... 1403His Honour noted that: ... It is not an objection to an enterprise qualifying as an undertaking or scheme that it consists of a number of parts or elements, the participation of individual parties being limited to one of these parts or elements, their profit or remuneration being derived from the particular activities in which they engage. There is nothing in the notion of an undertaking or scheme that requires or implies that there is joint participation in everything comprised in the plan or that there must be a share or pooling of profits or receipts. Apart from any considerations which may be derived from the general context in which the statutory definition appears, there is no very good reason for reading the words down. The context is that of prohibitions against issuing or offering to the public for subscription or purchase or inviting the public to subscribe for or purchase "interests" unless there is in force in relation to them an approved deed and unless there is provided information similar to that which is prescribed in connexion with an offer to the public of shares. ... 1404Reference was made by Mr Halley to what was said in ASIC v Great Northern Developments Pty Ltd [2010] NSWSC 1087 at [76] by White J as to the relevant question being what was the consideration for the contribution of money or money's worth and the requirement that such consideration be the right (even if unenforceable) to acquire benefits produced by the scheme. 1405In Australian Securities Investment Commission v Emu Brewery Mezzanine Ltd (2004) 52 ACSR 168 at [92], Simmonds J noted that it was important to consider what it is that those responsible for the relevant scheme are offering for acquisition by reference to the context in which the scheme is marketed and that, if the marketing context for the scheme shows that what is being offered goes beyond the legal rights the scheme otherwise gives rise to, then the "right" for the purposes of the first limb of the definition of managed investment scheme need not be in the form of the benefit of a contractual promise or promises in relation to the scheme operation. Mr Halley notes that where a characteristic of a scheme is an intermediate vehicle by and through which the investors are asked to contribute money (so as to enable them to gain the sorts of benefits the vehicle's participation in the scheme would make possible for investors), then there is a sufficient link between a contributor and a scheme to satisfy the first limb of the definition. 1406The requirement that the contributions be pooled or used in a common enterprise to produce benefits for the members who hold interests in the scheme means pooling for a common purpose (rather than a physical pooling of contributions). The definition will be satisfied if the moneys are available (and known to be available) for a relevant purpose regardless of physical location and irrespective of whether investors have a proprietary interest in the fund (Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd [2000] 1 Qd R 135; [2000] QCA 452 at [10].) An aggregation is necessary (as opposed, say, to a series of bilateral arrangements) (Burton v Arcus (2006) WAR 366; [2006] WASCA 71 at [4] per McLure JA and [73]-[83] per Buss JA). 1407Mr Halley notes that, while the investor's knowledge is relevant (in that any pooling must occur with the express or implied approval or knowledge of the contributors), such knowledge may be discerned objectively and variously from documents, discussions or conduct (National Australia Bank v Norman at [81]-[84]). 1408As to the requirement that there be a common enterprise, Austin and Black note that this is similar to the concept of common enterprise formerly used in the definition of "participation interest" ([5C.601EAA]. It is sufficient if there are two or more closely connected operations if the two operations constituting the enterprise contribute to the overall purpose that united them (Australian Softwood Forests at 133; H P Mercantile Pty Ltd v Tumut River Orchard Management Limited (In Liq) [2011] FCA 200 at [55]). 1409As to the meaning of "operate" in this context, Mr Halley notes that it refers to the acts which constitute the management of, or carrying out of, the activities which constitute the managed investment scheme (rather than being a reference to ownership or proprietorship. 1410In Australian Securities and Investments Commission v Pegasus Leveraged Options at [55], where the question was whether the sole director of the company that promoted and operated a managed investment scheme should be considered to be a person operating the scheme, Davies AJ said: The word "operate" is an ordinary word of the English language and, in the context, should be given its meaning in ordinary parlance. The term is not used to refer to ownership or proprietorship but rather to the acts which constitute the management of or the carrying out of the activities which constitute the managed investment scheme. The Oxford English Dictionary gives these relevant meanings: "5. To effect or produce by action or the exertion of force or influence; to bring about, accomplish, work. 6. To cause or actuate the working of; to work (a machine, etc). Chiefly US. 7. To direct the working of; to manage, conduct, work (a railway, business, etc); to carry out or through, direct to an end (a principle, an undertaking, etc) orig. US." and found that as the "living person who formulated and directed the scheme in question (and who was actively involved in the day to day operation of the scheme and supervised others in their performance), the director in question did not "merely" act as an agent or employee of the company but was the directing mind and will of the company "and the scheme". (See also Takaran at [49]; and Australian Securities and Investments Commission v McNamara (2002) 42 ACSR 488; [2002] FCA 1005.) 1411More than one legal entity person may therefore operate the same scheme. In Australian Securities and Investments Commission v McDougall (2006) 229 ALR 158 at [36]; [55], Young J (as his Honour then was) after referring to both Pegasus and McNamara, concluded that both the person who formulated and directed the scheme (and was the directing mind and will of the company in its day to day operations in relation to the scheme) and the company operated the scheme in question. 1412In Australian Securities and Investments Commission v Edwards (2004) 22 ACLC 1469 at [34] McMurdo J, considering the question as to whether the carrying out of some but not all of the activities of the scheme in the jurisdiction amounted to an operation of the scheme within the jurisdiction, said: The concept of the operation of a managed investment scheme does not require the identification of but one place, as that place where the scheme is operated. Nor does it require the identification of but one operator: see eg ASIC v Pegasus Leveraged Operations Group Pty Ltd. The question then is not whether this jurisdiction is the place where the scheme was operated but whether it was a such place. That involves a question of degree, and a consideration of the nature and extent of the activities carried on within the jurisdiction in the context of the scheme as a whole. 1413In that case, there was found to be a system within the jurisdiction for the payment through the alleged operator's business of investors and "a system in the jurisdiction for the provision of documents to potential investors and for their admission to the scheme". It was concluded that the alleged operator's involvement was probably more extensive than simply conducting pre-contractual dealings and disbursing funds to investors through a local bank account (noting that the correspondence included emails written by the alleged operator himself). It was concluded from this that the activities were such as to amount to an operation of the scheme and that: .... As much if not all of his activity occurred within Australia, including the canvassing of potential investors and the processing of payments to them, I conclude that this scheme was operated within the jurisdiction. (my emphasis) 1414In Pegasus, the person found to have operated a managed investment scheme was the person who had formulated and directed the scheme, was actively involved in the scheme's day to day operations, and supervised others in their performance. It is noted that others who have been found to have operated such a scheme include the "directing mind and will" of the scheme administrator or manager in its day to day operations in relation to the scheme (ASIC v McDougall (at 167; at [36]; ASIC v McNamara at [32]). 1415The requirement that the day to day control of the operation of the scheme be outside the hands of the scheme members relates to control as a factual matter not the legal right to control (Burton); namely the authority to decide matters directly and not merely to participate in decision making. Mr Halley submits that day-to-day control, in the context of s 9(a)(iii) of the definition of managed investment scheme, means the making of routine, ordinary, everyday management or operational decisions and does not refer to ownership or proprietorship. (Hence, the fact that decisions such as where investments are to be placed (or, as in the present case, into which "KLM" listed fund an investor wished to invest) are made by the individual investor does not mean that the investor has day-to-day control (Burton v Arcus at [9] per McLure JA), nor does the existence of a right in a member to be consulted or give directions as to the operation of the scheme.) 1416As to what is meant by "promoter" in the context of s 601ED(1), it is noted that in Australian Securities and Investments Commission v Young (2003) 173 FLR 441 at [53] Muir J said that it "plainly extends to activities in which a person formulates a scheme... advertises it, solicits others to participate in it and embarks upon its implementation" (and see Australian Securities and Investments Commission v Primelife Corporation Ltd (2005) 54 ACSR 536 at 542; [2005] FCA 1229 at [22]). It has also been held to mean a person "who sets up the joint venture and markets it to the investors" (Australian Securities and Investments Commission v Infomercial Management Group Pty Ltd [2002] VSC 262 at [35]) and persons who "engage in exertion for the purpose of getting up and starting a company (or a scheme), and those who assist them" (Ibrahim v Pham [2005] NSWSC 246 at [316], Australian Securities and Investments Commission v Woods and Johnson Developments Pty Ltd (1991) 6 ACSR 191 at 194). 1417ASIC contends that even if the individual schemes are found not to constitute a conglomerated scheme, s 601ED(1)(b) is satisfied if the promoter of each scheme is the same or, if different, is an associate of the promoter of the other(s) and the ordinary business of all includes the promotion of similar schemes (citing Australian Securities and Investments Commission v Infomercial Management Group Pty Ltd [2002] VSC 262 at [37]; Australian Securities and Investments Commission v IP Product Management Group Pty Ltd (2002) 42 ACSR 343 at 349; [2002] VSC 255 at [28] and noting that "associate" is defined widely under the Corporations Act to include (s 15) a reference to a person in concert with whom a primary person is acting or proposes to act where the material particulars of that matter are known to the associate). 1418If s 601ED(1) is satisfied, then the only exception to the requirement for registration is provided by s 601ED(2) which applies where all the issues of interests in the scheme that have been made would not have required the giving of a product disclosure statement if the scheme had been registered when the issues were made. 1419Sections 1012A and 1012B of the Corporations Act provide for the circumstances in which there is an obligation to give a product disclosure statement for a product. In summary, s 1012A requires a product disclosure statement when a regulated person (as defined) provides personal advice to a retail client recommending that the client acquire a particular financial product (referred to as a recommendation situation); s 1012B requires a product disclosure statement where a person offers to sell, or sells, a financial product to a retail client (referred to as a sale situation). The relevant financial product may include a managed investment. 1420There is an exception to s 1012B applies under s 1012E for small scale "personal offers" of managed investments and other prescribed products. A product disclosure statement is not required for such offers if all of the products are issued by the same person and none of the offers results in a breach, within any 12 month period, of either the "20 purchasers ceiling" or the "$2 million ceiling". (It is noted that "person" includes juristic persons such as the trustee of a self-managed superannuation fund and that s 761FA provides that where a trust has two or more trustees, Chapter 7 applies to the trust as if the trustees constituted a single legal entity). 1421Section 761G(1) provides a definition of "retail client" and operates with the effect that a financial product is presumed to be provided to a person as a retail client unless one of subsections (5), (6) or (7) apply. Those exceptions do not apply in the present case (this not being the provision of an insurance product for the purposes of s 761G(5) or a superannuation product for the purpose of s 761G(6), nor is it a case where the price for the provision of the financial product exceeds $500,000 (s 761G(7), Reg 7.1.18) or the person is a professional investor (as defined by s 9 of the Corporations Act) (in that regard Mr Halley notes that SMSFs are not bodies regulated by APRA nor within the meaning of the Superannuation Industry (Supervision) Act 1993.) 1422Mr Halley notes that since 28 June 2007 there has been an exception for "sophisticated investors" under s 761GA (as amended from 6 May 2010) but that this would not have been applicable on the facts of this case in any event as it requires the person providing the financial product to be a financial services licensee (s 761GA(a)). Misrepresentation contraventions 1423A number of contraventions predicated on the making of misleading or deceptive statements are alleged, largely turning on the same conduct (see Wingecarribee Shire Council v Lehman Bros Australia Ltd (in liq) [2012] FCA 1028 by Rares J as to the legislative framework (variously described by his Honour as a legislative "morass" or "porridge") within which representations in relation to financial products or services are regulated, at [947]-[948].) 1424In the present case, contraventions are alleged to have been committed of each of the following provisions: ss 1041E, 1041G and 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act. 1425Section 1041E of the Corporations Act provides that a person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information, if: (a)the statement or information is false in a material particular or is materially misleading; and (b)the statement or information is likely: (i)to induce persons in this jurisdiction to apply for financial products; or (ii)to induce persons in this jurisdiction to dispose of or acquire financial products; and (c)when the person makes the statement, or disseminates the information: (i)the person does not care whether the statement or information is true or false; or (ii)the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading. 1426For the purposes of s 1041E(b), "likely" is to be understood in the sense of a "real and not remote chance" not in the sense of "more than likely not" James Hardie Industries NV v Australian Securities and Investments Commission (2010) 274 ALR 85 at [184]-[185]). 1427Section 1041G of the Corporations Act provides that a person must not, in the course of carrying on a financial services business in this jurisdiction, engage in dishonest conduct in relation to a financial product or financial service. Dishonest in this context means dishonest according to the standards of ordinary people and known by the person to be dishonest according to the standards of ordinary people (s 1041G(2)). 1428Section 1041H of the Corporations Act prohibits misleading or deceptive conduct within Australia in relation to a financial product or a financial service. It is in substantially similar terms to s 52 of the former Trade Practices Act 1974). Hence the relevance of the case law in relation to that provision, as also applied to s 995 of the Corporations Act, to the allegations made for breach of s 1041H (reference being made by Mr Halley in this regard to Fame Decorator Agencies Pty Ltd v Jeffries (1998) 28 ACSR 58 at 63; Fraser v NRMA Holdings (1995) 55 FCR 452 at 464 and National Exchange Pty Ltd v ASIC (2004) 49 ACSR 369 at [18]). 1429Section 12DA is in similar terms to s 1041H and prohibits a person, in trade or commerce, from engaging in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. Certain conduct is exempted by s 12DA(1A), but that is not relevant for present purposes. 1430"Financial services" are defined by s 12BAB of the ASIC Act and, similarly to the definition in the Corporations Act, include arranging for a person to apply for or acquire a 'financial product' (that being 'dealing in a financial product' and therefore the provision of a 'financial service' for the purposes of s 12DA(1)). 1431Section 12DB of the ASIC Act prohibits a person, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services, from making a false or misleading representation that services are of a particular standard, quality, value or grade. 1432The construction to be afforded to this provision can be discerned by analogy by reference to the cases that have considered the prohibition on the making of a 'false' statement in order contexts, such as the corresponding provision under the Trade Practices Act 1974 (Cth). 1433In Darwin Bakery v Sully (1981) 36 ALR 371, Keely, Toohey and Fisher JJ considered whether s 53(e) of the Trade Practices Act, prohibiting the making of false and misleading statements, required there to be a mental element, such a dishonesty or awareness of the false nature of the statement. Their Honours held that the correct construction was that s 53 imposed strict liability and that (at 376) "it is unnecessary to established knowledge of the falsity of the statement or reckless indifference as to its truth or falsehood". This was consistent with the earlier case of Riley McKay Pty Ltd v Bannerman (1977) 15 ALR 561, where Bowen CJ observed in obiter that "these provisions [ss 52, 53(a) and 53(c) Trade Practices Act] prescribe absolute breaches...If a corporation does make such a representation there is a breach of s 53(a) and it is irrelevant whether there was a guilty mind or not." The reasoning in both these cases took into account the defences under s 85 of the Trade Practices Act that included reasonable mistake or reasonable reliance on information supplied by another person or certain matters. 1434In Darwin, their Honours said at 376 that: But we are of the opinion that the existence of s 85 in regard to contraventions of Pt V of the Act points to a policy on the part of the legislature that in the absence of one of the defences there mentioned the liability imposed by s 53 is strict. [...] The breadth of these defences hardly accords with a situation in which liability depends in any event upon establishing mens rea. Rather it assumes a liability arising from conduct objectively measured, but which may be avoided by the proof of matters peculiarly within the knowledge of the defendant. 1435Similar defences are contained in s 12GI of the ASIC Act, such as those of reasonable mistake (s 12GI(1)(a)), reasonable reliance (s 12GI(1)(b)) and that the contravention was an act or default of another person, outside the defendant's control, and with respect to which the defendant took reasonable precautions and exercised due diligence (s 12GI (1)(c)). Therefore, applying the reasoning in Darwin Bakery, a guilty mind is not required to establish a contravention under s 12DB. 1436Section 12DF of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any financial services. 1437(Section 12GB provides that a person who contravenes s 12DB or s 12DF; or who aids, abets, counsels or procures another to contravene; or induces, or attempts to induce, a person (whether by threats or promises or otherwise) to contravene; or is in any way, directly or knowingly concerned in, or party to, the contravention by a person of; or conspires with others to contravene, either section is guilty of an offence punishable by a fine not exceeding 10,000 penalty units. An offence under s 12GB for contravention of s 12DB or s 12DF is an offence of strict liability (s 12DB(3) and s 12DF(2) respectively). 1438Conduct is defined in the ASIC Act (s 12BA(2)(d)) as including doing or refusing to do any act such as making or arriving at a contract, arrangement or understanding, and giving effect to the provisions of such a contract, arrangement or understanding. Offering to do an act includes a reference to the person making known that the person will accept applications, offers or proposals for the person to do that act or to do that act on that condition, as the case may be (s 12BA(2)(d)). 1439Insofar as the conduct relied upon for the contraventions involved the sale of financial education material (and the provision of reports, lectures and books was held not to be conduct in trade or commerce in Chapman v Luminis Pty Ltd (No 5) [2002] ATPR Digest 46-214; [2001] FCA 1106 at [13]) Mr Halley notes that promotional activity usually falls within the ambit of the phrase (Gianni Versace SpA v Monte (2002) 119 FCR 349; [2002] FCA 190 at [105]-[106]) and that statements made by a person not himself or herself engaged in trade or commerce may nevertheless fall within the statutory prohibition if designed to encourage others to invest, or to continue investments, in a particular trading entity (Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 at [34]). 1440The principles applicable in considering whether conduct is misleading or deceptive or is likely to mislead or deceive have been considered by numerous cases in relation to the former Trade Practices Act provisions. They were conveniently summarised as follows. 1441Whether conduct is misleading or deceptive (or likely to mislead or deceive) is a question of fact (Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202-203) to be determined objectively having regard to all the circumstances of the case (Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at 109 per McHugh J). 1442Conduct is misleading and deceptive if it leads a person into error (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198; Butcher v Lachlan Elder Realty at [111]); namely if it induces or is capable of inducing error (Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 589) or leads to an erroneous assumption (Taco Bell (1982) 42 ALR 177 at 200) or misconception (Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228); or does, or is likely to, cause a person to misinterpret, or be deluded as to, the facts (Weitmann v Katies (1977) 29 FLR 336 at 342). 1443Conduct is likely to mislead or deceive if there is a real or not remote possibility of it so doing (Global Sportsman v Mirror Newspapers (1984) 2FCR 82 at 87). 1444It is not necessary to prove that the conduct in question actually deceived or misled anyone (Parkdale Custom Built Furniture at 198; Taco Bell at 189). Further, it is unnecessary to show on the balance of probabilities whether the impugned conduct was in fact misleading or deceptive (provided that it is established on the balance of probabilities that it was likely to be so) (Butcher v Lachlan Elder Realty at [112]). Evidence of persons actually misled is relevant but not determinative (Global Sportsman at 87). 1445Whether or not the conduct has led to, or is capable of leading to, error or misconception depends upon the presence of a sufficient nexus between the conduct (which may include refraining from doing an act) and the error or misconception (Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at [98]). 1446The former s 52 of the Trade Practices Act (as is the case with its counterparts in later legislation) is contravened even if the maker of the representation acted honestly and reasonably and without intent to mislead or deceive and without negligence (Parkdale Custom Built Furniture at 197). (The position is obviously different in contraventions where dishonesty is required to be proved - such as s 1041G of the Corporations Act - or where knowledge of the falsity or misleading nature of the conduct is required - such as s 12GB of the ASIC Act.) 1447As adverted to above, the conduct is to be considered in the light of the surrounding facts and circumstances and looking at the relevant course of conduct as a whole (Butcher v Lachlan Elder Realty at [39], [40], [109]), including the whole of the content of relevant documents and any other statements made that might impact on the relevant representations or conduct (Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 at 4). 1448Of relevance to the consideration of some of the alleged misleading and deceptive conduct in the present case is the effect of disclaimers or qualifications on the representations in question. 1449The effect of a disclaimer to a claim of misleading and deceptive conduct was considered in Yorke v Lucas (1985) 158 CLR 661. There, Mason A-CJ, Wilson, Deane and Dawson JJ said at 666: That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out ot be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct which is misleading or deceptive. 1450In The Australian Consumer Law (S G Coroneo, 2011), the author comments on the so-called "conduit defence" at [4.40] that it: ... arises in the context of principal-agency relationships, where the agent relays information imparted by the principal and seeks to immunise himself or herself by means of a contemporaneous disclaimer. It also arises in situations where an information provider, such as a newspaper or magazine publishes an advertisement on behalf of a supplier of goods or services that may contain misleading representations, and that the newspaper does not express its own views as to the truth or falsity of those representations. 1451Insofar as the disclaimer is contained in an exclusion clause (which would be relevant to statements contained in the scheme agreements), there is authority that it cannot break the nexus between pre-contractual misleading conduct and the contract induced by that conduct (Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546; Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR ¶41-043; CH Real Estate Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37). 1452Insofar as the disclaimer is made contemporaneously (ie during pre-contractual negotiations), then whether it precludes liability arising for misleading or deceptive conduct otherwise in the course of those negotiations will depend on whether the effect of the disclaimer erased whatever was otherwise misleading (Butcher v Lachlan Elder Realty). 1453In Butcher v Lachlan Elder Realty, there was found to be no misleading and deceptive conduct in relation to information contained in a survey diagram contained in an auction brochure, in circumstances where the brochure contained the following statement: All information contained herein is gathered from sources we believe to be reliable. However, we cannot guarantee its accuracy and interested persons should rely on their inquiries. 1454That disclaimer clause had the effect of erasing what would otherwise have been misleading not by any independent force of its own but by modifying the conduct ( Butcher v Lachlan Elder Realty at [152]). McHugh J said, from [151]: As I have indicated, the intent of the corporation is not relevant for the purposes of s 52. As a result, a disclaimer as to the truth or otherwise of a representation does not, of itself, absolve the corporation from liability. This is not to say that a disclaimer should be ignored for the purposes of assessing whether a contravention of s 52 has occurred. As Miller notes in Miller's Annotated Trade Practices Act (150), the conduct must be considered as a whole. This requires consideration of whether the conduct in question, including any representations and the disclaimer, is misleading or deceptive or is likely to mislead or deceive. If a disclaimer clause has the effect of erasing whatever is misleading in the conduct, the clause will be effective, not by any independent force of its own, but by actually modifying the conduct. However, a formal disclaimer would have this effect only in rare cases. Thus, in Benlist Pty Ltd v Olivetti Australia Pty Ltd (151), Burchett J said: "It has been held on many occasions that the perpetrator of misleading conduct cannot, by resorting to [a disclaimer] clause, evade the operation of the [Act]. Of course, if the clause actually has the effect [of] erasing whatever is misleading in the conduct, the clause will be effective, not by any independent force of its own, but by actually modifying the conduct. However, I should think it would only be in rare cases that a formal disclaimer would have that effect. (Emphasis added.)" The case law suggests that disclaimers that appear in small print at the foot of marketing brochures are rarely effective to prevent conduct from being found to be misleading or deceptive or likely to mislead or deceive. If misleading conduct has induced a contract, that fact cannot be negated by the mere circumstance that there is a statement to the contrary. ...the agent did not engage in conduct towards the purchasers which was misleading. Whatever representation the vendor made to the purchases by authorising the agent to issue the brochure, it was not made by the agent to the purchasers. The agents did no more than communicating what the vendor was representing, without adopting it or endorsing it. That conclusion flows from the nature of the parties, the character of the transaction contemplated, and the contents of the brochure itself. 1455The relevant factors that the High Court took into account in reaching the conclusion in Butcher v Lachlan Realty included that: suburban real estate agents do not hold themselves out as possessing research skills or means of independently verifying title details; suburban real estate agents do not commonly or habitually act as agents in the sense of creating legal relationships on behalf of the vendor; matters of title to land can be complex and outside the realm of skills a suburban real estate agent holds out as possessing; the size of the transaction; that the purchasers had engaged appropriate professional advisers to assist in relation to the transaction and their plans to renovate the property; that the diagram was recognisable as a survey document; and that the circumstances negated any suggestion that the agent had adopted the surveyor's diagram as its own, or that it had verified its accuracy - thus indicating the overall context in which the misleading or other nature of a communication must be assessed. 1456In Butcher v Lachlan Elder Realty, their Honours noted that although the disclaimers in that case were in small print, only persons of "very poor eyesight would find them illegible" (at [49]) and went on to say, as to the import of the disclaimers (at [50]): If the "conduct" of the agent is what a reasonable person in the position of the purchasers, taking into account what they knew, would make of the agent's behaviour, reasonable purchasers would have read the whole document, given its importance, its brevity, and their use of it as the source of instructions to professional advisers. There are circumstances in which the "conduct" of the agent would depend on different tests. For example, those tests might turn on what purchasers actually made of the agent's behaviour, whether they were acting reasonably or not, and they might also call for consideration of how the agent perceived the purchasers. Tests of that latter kind might be appropriate for plaintiff of limited experience acting without professional advice in rushed circumstances. (my emphasis) 1457The application of that approach in other contexts can be seen in Downey & Anor v Carlson Hotels Asia Pacific P/L [2005] QCA 199; Dalton v Lawson Hills Estate Pty Ltd [2005] FCAFC 169; and Orix Australia Corporations Limited v Moody Kiddell & Partners Pty Limited [2006] NSWCA 257. 1458In Downey, Keane JA (with whom Williams JA and Atkinson J agreed) acknowledged at [83] that "disclaimers can be effective ...if the effect of the disclaimer is make clear something that, if allowed to remain vague or ambiguous, could have led a person into error" and said: It is apparent that if a disclaimer is to function in this way it must be worded unambiguously, feature prominently and it must be communicated to the reader that the disclaimer is relevant to the information it is seeking to qualify. 1459There, his Honour rejected the submissions that the disclaimers operated to 'erase' the misleading effect of the representations made concerning the appellant's views as to the project's success on the basis that, considering all of the marketing material as a whole (and taking into account the effect of each disclaimer vis-à-vis each representation), the disclaimers in question did not specifically disclaim the relevant representations and that disclaimers which were contained in separate brochures (although sometimes provided together in the same marketing package) did not suffice to 'erase' the effect of the misleading representations contained in another brochure. 1460The Full Federal Court considered the effect of a contemporaneous disclaimer in Dalton v Lawson Hill Estate noting that the representation in that case was as to something that was readily ascertainable to the purchaser. (Their Honours took into account that the agent did not have expertise regarding the information in question and that the purchaser was in the same position as the agent to determine the actual acreage.) 1461In Orix, Ipp JA (with whom Spigelman CJ and Basten JA agreed) emphasised at [70] that: The majority in Butcher make it clear that, while the existence of a disclaimer is relevant to the 'conduct', it is not essential to a finding that an agent did no more than communicate what others were representing. The characterisation of the agent's conduct depends on a consideration of all the relevant circumstances and the existence or otherwise of a disclaimer is not necessarily determinative. 1462Where the persons to whom the representation is directed in a general sense are members of a class, it may be necessary to isolate by some criterion a representative member of that class (see Campomar Sociedad Limitada at [103]). Although the test is objective, the attributes of the target audience are relevant. Once the relevant section (or sections) of the public (by reference to whom the question of whether conduct is or is likely to be misleading or deceptive falls to be tested) is identified, then it has been noted that the matter is to be considered by reference to all who come within it, including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated and men and women of various ages pursuing a variety of vocations (Taco Bell; National Exchange Pty Ltd v ASIC (2004) 49 ACSR 369; [2004] FCA 427 at [18]). 1463The High Court has recently considered the operation of s 1041H of the Corporations Act in Forrest v Australian Securities and Investments Commission [2012] HCA 39. Relevantly, for present purposes, their Honours emphasised the need to identify the intended audience for the impugned statements and the message or messages conveyed to that audience. The plurality said at [36]: ...The intended audience can be sufficiently identified as investors (both present and possible future investors) and, perhaps, as some wider section of the commercial or business community and considered it not necessary to identify the audience more precisely. Later, at [48] their Honours emphasised the need to bear firmly in mind that the impugned statements were made to the business and commercial community. 1464Heydon J, in a separate judgment, also noted that what the statement in question should be taken to have said depended on what the audience must have understood it to have said. His Honour noted that: Fortescue's remarks were not directed to the public as a whole. They were directed to a section of the public. It comprised superannuation funds, other large institutions, other wealthy investors, stock brokers and other financial advisers, specialised financial journalists, as well as smaller investors reliant on advice. This was not a naïve audience. It was not an audience in whom the adjectives "Western Australian", "mining" and "Chinese" would excite a sudden certainty about the imminent creation of wealth beyond the dreams of avarice. ... The audience was sufficiently tough, shrewd and sceptical to know something of the difficulties of "forcing" a builder to build and finance anything... (my emphasis) 1465The emphasis on what the audience should be taken to have understood by impugned statements or what message should be taken to have been conveyed to a particular audience thereby is of particular significance when considering the representations in the present case. 1466The audience for the statements in the present case (a number of whom gave evidence and were not challenged on that evidence) was comprised of people who heard by word of mouth about the FTC financial subscriptions (often because they were friends or relatives of the FTC executives themselves). They cannot on any stretch of the imagination be described as sceptical or they surely would not have accepted at face value a number of the extraordinary statements being made to them (as to the banks or the government wanting to deprive them of opportunities to make a greater return on their investments, or as to the amazing rates of return said to have been achieved by various funds); they surely would have been alerted to the unsophisticated nature of the operation by reason of the typographical errors in the documents provided to them or the inconsistent way in which the documents were completed. 1467Some mortgaged their homes to invest in the products; some used their inheritances. Those who gave evidence were (and I say this with no criticism to them) not specialised financial advisers or journalists nor were they wealthy investors. They were, I would surmise, the very people in whom representations as to rates of return of the kind Mr Hobbs mentioned would excite sudden certainty as to the imminent creation of wealth beyond the "dreams of avarice". 1468And, tellingly, that is how Mr Hobbs understood his audience to be. At the DVD seminar, he made it clear that he understood that fear and greed were motivating factors for the investors to whom FTC executives would be speaking: Now, it's important though that the problem that you have there is - and take any one of that style of wholesale fund, people will usually want - all they see is the return, you know. They say "8 per cent a month or something, that's me," you know. Try to get them to spread their money around and not put it all in one basket, because the two things that drive investment is fear and greed. That's the two things that drive investment - fear and greed. 1469I accept that Mr Hobbs was there exhorting the attendees to encourage people to spread their portfolios, but what he clearly recognised was that once rates of return of the ilk he was suggesting were raised, then it was highly likely that this would be what motivated investors and little or nothing else. 1470Mr Hobbs knew not only that the investors were not sophisticated investors (since he made much of the fact that he was making available investments for them that otherwise they would not be able to access) but also (and this is relevant when considering what Mr Hobbs must have expected or understood they would pass on to potential investors) that the relevant scheme administrators were not sophisticated financial advisers. Mr Hobbs seems to have regarded FTC executives as no more than salespersons (indeed, he appointed Mr Koutsoukos on the basis of his salesmanship) who needed to be honest and good at book-keeping. I would infer from the following statement that he made at the DVD Seminar that he also considered them likely to be similarly motivated by greed: I can tell you commission-wise for introducers to that the most I've ever paid an introducer, which is paid directly from the company by the way, was 228,000 for a days work. I went and sat down with the accountants for this introducer and came out at the end of the time and handed him the forms and he just earned 228,000, which is not a bad days work. (my emphasis). thus making it plausible that Mr Hobbs made extravagant promises to them of investment in their funds or, in Mr Halley's words, dangled the carrot of significant investments (in the commercial bond transaction instance and elsewhere) in order to maintain their loyalty to him. 1471The statements made by Mr Hobbs and FTC executives and introducers to potential investors and scheme members must be seen therefore in the context of an unsophisticated and relatively naïve audience (an audience likely to be gullible and likely to be swayed by promises of access to high rates of return not otherwise available), such that any disclaimer or qualification (to be effective) would surely need to have been at least as prominent as that suggested in Thornton v Shoe Lane Parking [1971] All ER 686 by Lord Denning MR (namely, "printed in red ink with a red hand pointing to it"; in the modern context perhaps complete with the literary equivalent of flashing lights). 1472This is precisely the kind of investment that one would think would not prudently have been entered into without investors obtaining independent financial advice: it was solicited in a manner kept secret from regulatory overview and the promised returns were wildly in excess of rates of return for conventional investments of the kind to which the investors would have been accustomed. The provision and signing of documents in some cases on the spot (and in some cases only after the payment of funds - where a temporary contract was first entered) cannot possibly have permitted any real opportunity for independent financial or other advice to be obtained. This difficulty would seem to me to have been particularly acute for a number of the investors in the Li/Collard schemes (such as Ms Xu), namely those who were unable to read much or any English and who appear to have signed documents with no formal translation whatsoever, and reliant on whatever Ms Li and/or Ms Wu (each of whom had a clear conflict of interest in relation to the investments) said as to the operation of the scheme and the effect of the documents that were being signed. 1473I note that ASIC has invoked both s 769C of the Corporations Act and s 12BB(2) of the ASIC Act in relation to any representations made as to future matters (which would include representations at least as to the rates of return and the representations as to the $200million commercial bond and Barclaywest transactions but, on one view, would also extend to the representations as to the type of investment in which the funds would be placed). 1474Section 12BB(2) (which applies only to the maker of the statement and not to someone responsible as principal for another's statement or knowingly involved in a contravention of the relevant section) provides that a representation is deemed to be misleading if made with respect to any future matter and the person did not have reasonable grounds for making it at the time (in the same fashion in which the former s 51A of the Trade Practices Act operated), namely that the section reverses the evidentiary but not the legal (or persuasive onus) (McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230, at [191]-[192]) and see Forrest per Heydon J [104] fn 46). Thus, if evidence is adduced by the representor that tends to establish (or permits the inference) that there were reasonable grounds for making the representation, the deeming provision will cease to operate. 1475By contrast, s 769C of the Corporations Act, which provides that a representation as to any future matter is to be taken to be misleading unless a representor had reasonable grounds for making the representation, does not contain any such deeming provision (ASIC v Cyclone Magnetic Engines Inc (2009) 71 ACSR 1 at [78]). Directors' duties 1476Contraventions of ss 180, 181 and 182 of the Corporations Act are alleged against Mr Hobbs and various of the scheme administrators who it is alleged were de facto directors or officers of the respective corporate administrators of the schemes in question. The breaches of ss 180 and 181 are predicated, in essence, on the financial services contraventions by the companies in question. 1477In Diakyne Pty Ltd v Ralph (2009) 72 ACSR 450 at [84]; [124]-[127], Jagot J outlined the principles applicable to the statutory provisions alleged to have been breached in this case in relation to directors' and officers' duties, having regard to the observations in Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 ; [2002] NSWSC 171 at [372], [458] and [735] (Adler); Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199 ; 71 ACSR 368 ; [2009] NSWSC 287 at [236]-[257] and Vrisakis v Australian Securities Commission (1993) 9 WAR 395 ; 11 ACSR 162. Her Honour observed from those decisions that: (1)Sections 180, 181 and 182 involve duties owed to the corporation. (2)The requirement of reasonable care and diligence is objective in the sense that it involves asking what an ordinary person of ordinary prudence, with the knowledge and experience of the director, might be expected to have done in all of the circumstances at the relevant time of the conduct if he or she were acting on his or her own behalf. (3)Putting the test another way, was the director cognisant of circumstances of "such a character, so plain, so manifest, and so simple of appreciation, that no men with any ordinary degree of prudence, acting on their own behalf, would have entered into such a transaction as they entered into": Vrisakis at WAR 450; ACSR 212 citing Overend & Gurney Co v Gibb & Darby (1872) LR5HL 480 at 486-7 (Overend). (4)The circumstances of the corporation at the time are thus elevant to the content of the duty to act with reasonable care and diligence. (5)Directors are not required to exhibit a greater degree of skill than may reasonably be expected from persons of commensurate knowledge and experience in the circumstances and are entitled to rely on others except where an exercise of ordinary care would deny reliance. (6)There can be no failure to exercise reasonable care and diligence unless at the relevant time harm to the interests of the corporation is reasonably foreseeable by reason of the conduct and, to determine breach, the foreseeable risk of harm must be balanced against the potential benefits which might be expected to accrue to the corporation. (7)Where the matter involves a potential conflict between the director's duties to the corporation and a personal interest, "the duty of care and diligence falls to be exercised in a context requiring special vigilance": Adler at [372]. 1478ASIC notes that the duties owed by directors to companies include a duty not to authorise or permit a company to commit contraventions under the Corporations Act and points out that a company's interests may be put at risk by actual or potential exposure of the company to civil penalties or other liability under the Corporations Act. It is submitted that it is a breach of a relevant duty for a director to embark on or authorise a course of conduct which attracted the risk of such exposure, at least to the extent that the risk was clear and any countervailing benefits insignificant. 1479Reliance is placed in this regard on Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373 at [104] per Brereton J; ASIC v Elm Financial Services Pty Ltd (2005) 55 ACSR 411 at [5]-[7] (per Barrett J as his Honour then was); and ASIC v Elm Financial Services Pty Ltd (2005) 55 ACSR 544 at [3]-[4]. 1480In Maxwell, Brereton J said (from [102]), when considering the allegation of breach of directors duties in ss 180(1), 181(1) and 182(2) of the Corporations Act by reference to the director's conduct in permitting, allowing and participating in the various contraventions committed by those companies (including contraventions of s 911A and 12DA, as well as contraventions of other sections relating to the publication of misleading information: The constitution of the corporation, and concomitantly the identity of those to whom the duty is owed, is of importance because the duties referred to in ss 180, 181 and 182 are not duties owed in the abstract, but duties owed to the corporation. As Clarke and Sheller JJA observed in Daniels v Anderson at NSWLR 504; FLR 309; ACSR 665, the duties imposed by former s 232 (the predecessor of s 180) reflected the concept of negligence at general law, in that a director owes to the company a duty to take reasonable care in the performance of the office. ... One consequence of this, of present significance, is that where there is an identity of interest between the directors and the shareholders, so that in effect the directors are the shareholders, the requirement to prevent self-interested dealing, constrain management and strengthen shareholder control - which is fundamental purpose and rationale of these duties - is much less acute. That is a circumstance which can impact considerably on the content of the duties. The significance of a correspondence between the identity of the directors and the shareholders is illustrated by the circumstance that, at general law, a fully informed general meeting can prospectively or retrospectively ratify the actions of directors of the company, though they involve negligence, breach of fiduciary duty or the exercise of the directors' powers for an improper purpose: North-West Transportation Co Ltd v Beatty (1887) 12 App Cas 589; Furs Ltd v Tomkies (1936) 54 CLR 583 ; 9 ALJ 419; Hogg v Cramphorn [1967] Ch 254 at 265-6 ; [1966] 3 All ER 420 at 426 (Buckley LJ); Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; [1942] 1 All ER 378; Winthrop Investments Ltd v Winns Ltd [1975] ... 1481At [104], his Honour recognised that: There are cases in which it will be a contravention of their duties, owed to the company, for directors to authorise or permit the company to commit contraventions of provisions of the Corporations Act. Relevant jeopardy to the interests of the company may be found in the actual or potential exposure of the company to civil penalties or other liability under the Act, and it may no doubt be a breach of a relevant duty for a director to embark on or authorise a course which attracts the risk of that exposure, at least if the risk is clear and the countervailing potential benefits insignificant. But it is a mistake to think that ss 180, 181 and 182 are concerned with any general obligation owed by directors at large to conduct the affairs of the company in accordance with law generally or the Corporations Act in particular; they are not. They are concerned with duties owed to the company. ... [In my opinion, if a contravention of s 180(1) is to be established, it must be founded on jeopardy to the interests of the corporation, and not to protection of the interests of potential investors (though the interests of investors may be relevant to the interests of the corporation, as potential creditors). 1482Section 180 provides: 180Care and diligence - civil obligation only Care and diligence - directors and other officers (1)A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a)were a director or officer of a corporation in the corporation's circumstances; and (b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. Business judgment rule (2)A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they: (a)make the judgment in good faith for a proper purpose; and (b)do not have a material personal interest in the subject matter of the judgment; and (c)inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and (d)rationally believe that the judgment is in the best interests of the corporation. The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)--it does not operate in relation to duties under any other provision of this Act or under any other laws. (3)In this section: "business judgment" means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. 1483Mr Halley notes that the degree of negligence necessary to constitute a breach of s 180 is no higher than that which would support a claim of professional negligence on the part of the company director or officer at common law (referring to Vines v ASIC (2007) 73 NSWLR 451; [NSWCA] 75 at [63], [142]-[152], [587], [779] and [875]; and ASIC v Vines (2005) 55 ACSR 617; [NSWSC] 738 at [1070]ff per Austin J). 1484It is noted that an act or omission is capable of constituting failure to exercise care and diligence under the section, if, at the relevant time, it was reasonably foreseeable that the act or omission might cause harm to the interests of the company and that the relevant question is what an ordinary person, with the knowledge and experience of the defendant, might be expected to have done in the circumstances if he or she was acting on their own behalf (ASIC v Adler (2002) 41 ACSR 72; [2002] NSWSC 171 at [372] per Santow J (as his Honour then was), taking into account the purpose of the officer's actions. It is submitted that the requirements of the duty are particularly high in circumstances of known reliance and vulnerability of others (referring to ASIC v Vines (2005) 55 ACSR 617; [NSWSC] 738 at [1085]. 1485ASIC notes, in particular, that breaches of s 180 have been found where a director has failed to ensure that a company was properly licensed to carry on a financial services business and that all its staff were adequately qualified to provide financial advice (ASIC v PFS Business Development Group Pty Ltd (2006) 57 ACSR 553; [2006] VSC 192, where his Honour considered the management of the group to be a "complete shambles" and that unsuitable and unqualified persons had been employed to act as "introducers" to potential clients); has allowed a company to enter into transactions that produce no benefit to the company (ASIC v Adler); and has procured payments by a company to a related entity of the director of an amount that the director should have appreciated was a debatable liability of the company (Diakyne Pty Ltd v Ralph). 1486Section 181 of the Corporations Act provides that: 181Good faith--civil obligations Good faith - directors and other officers (1)A director or other officer of a corporation must exercise their powers and discharge their duties: (a)in good faith in the best interests of the corporation; and (b)for a proper purpose. (2)A person who is involved in a contravention of subsection (1) contravenes this subsection. 1487It is noted that the test as to whether a director or officer has contravened s181(1) is an objective test, having regard to what a comparable person, having the same knowledge and skills as the relevant director or officer, would reasonably have done in the circumstances (Bell Group chapter 20 per Owen J) and that the duty to exercise powers for a proper purpose and the obligation to act in good faith are separate duties (Bell Group at [4456]). 1488It is well recognised that the best interests of the corporation refer to the best interests of its corporators as a general body (Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286 at 291 per Evershed MR); that when considering whether a power has been exercised by a director for a proper purpose, it is necessary to consider the nature of the power being exercised and the substantial purpose for which the power was exercised (Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821); and that directors must use their powers for their intended purpose and not for a collateral purpose (Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285). 1489It is noted that where the director's conduct is attributable to a range of different purposes, the "but for" test is ordinarily used to determine what the relevant purpose was (Mills v Mills (1938) 60 CLR 150 at 186 (Dixon J); Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 294 (Mason, Deane and Dawson JJ), consideration being given to whether the director would still have acted in the same manner had the collateral purpose not existed. 1490Section 182 of the Corporations Act provides: 182 Use of position--civil obligations Use of position--directors, other officers and employees (1)A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a)gain an advantage for themselves or someone else; or (b)cause detriment to the corporation. (2)A person who is involved in a contravention of subsection (1) contravenes this subsection. 1491It is noted that the requirement of acting "improperly" does not necessarily equate to dishonest conduct (Kwok v The Queen (2007) 64 ACSR 307 at [80] (per Santow JA) and that a director of a company may act improperly with no intention of acting dishonestly or otherwise than in the best interests of the company as a whole (Chew v The Queen (1992) 173 CLR 626 at 640). 1492It is further noted that the improper conduct may consist in an abuse of the power or authority which the position of director confers and that where there is such an abuse for the purpose of gaining an advantage for himself or another person or causing detriment to the corporation, both elements of s 182 are established (R v Byrnes (1995) 183 CLR 501 at 512 per Brennan, Deane, Toohey and Gaudron JJ). 1493The test of impropriety is objective and depends not on the consciousness of impropriety but breach of the standard of conduct expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case (Byrnes at 517). In Byrnes, a fiduciary who exercised an authority or power for the personal benefit or gain of the fiduciary (or a third party) without the beneficiary's consent was said to act improperly. 1494It is said that impropriety would consist in a breach of the standards of conduct that would be expected of a person in the director's position by reasonable persons with knowledge of the duties, powers and authority of the position as direction and the circumstances of the case, including the commercial context, such standards being expressed according to objective criteria (Doyle v ASIC (2005) 227 CLR 18 at [35]; see also Forkserve Pty Ltd v Jack (2000) 19 ACLR 299 at [120] (Santow J as his Honour then was), referring to Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1989) 15 ACLR 416, Southern Resources Ltd v Residues Treatment and Trading Co Ltd (1990) 3 ACSR 207). 1495In Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18 at [35], Gleeson CJ, Gummow, Kirby, Hayne and Callinan JJ said : ... Impropriety on the part of Mr Doyle would consist in a breach of the standards of conduct that would be expected of a person in his position by reasonable persons with knowledge of the duties, powers and authority of his position as director, and the circumstances of the case, including the commercial context. Such standards, expressed according to objective criteria, are ultimately stated, as necessary, by the courts. 1496Particular reference is made by ASIC to Grove v Flavel (1986) 43 SASR 410 where the Court held (at 662) that "improper" is not a term of art but is to be understood in its commercial context to refer to conduct which is inconsistent with the proper discharge of the duties, obligations and responsibilities of the officer concerned. It is further noted that a director may breach the section even if the purpose of gaining an advantage by the director is not achieved (Forkserve Pty Ltd v Jack (2000) 19 ACLR 299 at [119] (Santow J), referring to Chew v The Queen (1992) 173 CLR 626 [120]. Breach of fiduciary duties 1497Mason, Brennan and Deane JJ in United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 (at 11-12) noted that: A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them... Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation. 1498Once a fiduciary relationship exists, the duties owed by the fiduciary are proscriptive in nature (Breen v Williams per Gaudron and McHugh JJ at 113; approved in Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 at [74]; and see the plurality judgment in Youyang v Minter Ellison at [41]): namely, not to put himself or herself in a position of conflict between duty and interest (Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 per Dixon J at 408) and not to withhold any opportunity of advantage or use for his or her own exclusive benefit, information, knowledge or resources (Chan v Zacharia (1984) 154 CLR 178 at 199 per Deane J). In Chan, Deane J said: [A] person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest... or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee. 1499The distinguishing characteristic of a fiduciary relationship is that its essence, or purpose, is to serve exclusively the interests of a person or group of persons; it being a relationship in which the parties are not each free to pursue their own separate interests (Meagher, Gummow & Lehane's Equity Doctrines & Remedies, 4th ed (2002), Meagher, Heydon & Leeming, at [5-005]). However, the relationship may be one in which a fiduciary obligation is not owed as to all of the tasks or areas of activity undertaken in the course of the relationship (New Zealand Netherlands Society "Oranje" Incv Kuys [1973] 2 All ER 1222 at 1225-1226; Blythe v Northwood [2005] NSWCA 221 at [211]; Meagher, Gummow & Lehane, 4th ed, at [5-010]). 1500In "The Fiduciary Principle" (Equity Fiduciaries and Trusts, TG Youdan (ed, LawBook Co (1989) at pp46-47), Professor Finn, as his Honour then was, said that what must be shown: ... is that the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement. The critical matter in the end is the role that the alleged fiduciary has, or should be taken to have in the relationship. It must so implicate that party in the other's affairs or so align him with the protection or advancement of that other's interest that foundation exists for the 'fiduciary expectation'. 1501While a relationship of trust and confidence in the putative fiduciary may be indicative of a fiduciary relationship (Breen v Williams (1996) 186 CLR 71 at 82), the actual reposing of trust and confidence is not a necessary feature of all fiduciary relationships (see Dawson and Toohey JJ in Breen v Williams at 92-93). Similarly, the fact that a person is able to exercise a power or discretion, to which another person is vulnerable and whose interests may be affected, will not necessarily indicate the existence of a fiduciary relationship (Meagher, Gummow & Lehane, 4th ed, at [5-005]). It is submitted by Mr Halley that what is relevant is the ability (or otherwise) of the person holding the power or discretion to exercise it against the interests of the other. 1502Mr Halley notes that, pursuant to s 601FC(2) of the Corporations Act, where a scheme is registered the responsible entity holds scheme property on trust for scheme members and the responsible entity owes fiduciary duties under the general law as well as specific statutory duties (s 601FC). Reference is made to the cases that have recognised that the responsible entity of a scheme owes fiduciary duties to the members (Brisconnections Management Co Ltd v Australian Style Investments Pty Ltd (2009) 23 VR 253; [2009] VSC 128 at [67]; Stacks Managed Investments Ltd (2005) 219 ALR 532; [2005] NSWSC 753 at [56]). 1503It is also noted that fiduciary duties can attach to those that operate a scheme which ought to have been, but was not, registered (ASIC v ABC Fund Managers Ltd (No 2) (2001) 39 ACSR 443; [2001] VSC 383 at [124] per Warren J as her Honour then was). 1504In Tonto, Allsop P considered at [177] the circumstances in which an agent may or may not owe fiduciary duties: ... the word "agent" has a potentially wide and varying meaning in life and business and that, on some occasions, the business description will be given to someone who is not a fiduciary. See also Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64 ; 156 CLR 41 at 71-72 (per Gibbs CJ), cf at 96-97 (per Mason J), Boardman v Phipps [1967] 2 AC 46 at 127, F E Dowrick "The Relationship of Principal and Agent" (1954) 17 Modern Law Review 24 and R P Meagher, J D Heydon and M J Leeming (eds) Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th Ed, LexisNexis, 2002) at 191-192 [5-195]. It is sufficient to recognise that the essential characteristic is that one party (A) acts on the other's (P's) behalf, and that this will generally be in circumstances of a requirement or duty not to act otherwise than in the interests of P in the performance of the consensual arrangement. Bowstead and Reynolds on Agency , the Restatement and Seavey op cit at 863 include in the conception of agency the characteristic of fiduciary duty. The duty will, of course, conform with the extent and scope of the agency and thus be of potentially varied content, recognising that context (in particular, perhaps, a market or commercial context) may attenuate the rigour or content of the fiduciary duty: Birtchnell v The Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24 ; 42 CLR 384 at 408; In re Goldcorp Exchange Ltd [1995] 1 AC 74 at 98; Meagher, Gummow and Lehane (4th Ed) at 161-162 [5-010]); Finn J in South Sydney v News at [136], and in his text Fiduciary Obligations (LawBook Co, 1977) at 201. The necessary good faith implicit in a fiduciary character in the relationship reflects the character of identity or representation that the relationship essentially carries. 1505In Australian Securities and Investments Commission v AS Nominees Ltd (1995) 62 FCR 504, Finn J approached the question as to whether there was a fiduciary relationship by reference to what the putative fiduciary had in fact done and held that there was a fiduciary relationship with the investor-beneficiaries noting that: Even if it is the case that Securities can properly be said as a matter of legal form to be the manager for, or the agent of, the trustees (ie ASN and Ample) in performing services for the trusts, this by no means precludes a finding that it is, as well, in a direct fiduciary relationship with the beneficiaries of the trusts when providing those services: cf Powell & Thomas v Evan Jones & Co [1905] 1 KB 11; Blair v Martin [1929] NZLR 225. 1506As to the position of those offering financial or investment advice, in Daly v The Sydney Stock Exchange Ltd (1986) 160 CLR 371, a broker giving advice about investment was held to have owed a fiduciary duty to disclose information that would have revealed the disadvantageous nature of the investment, that duty arising, according to Gibbs CJ, in circumstances where the broker's firm had held itself out as an adviser of matters of investment "when, and because, a relationship of confidence exists between the parties". Brennan J said at 385: The duty of an investment adviser who is approached by a client for advice and undertakes to give it, and who proposes to offer the client an investment in which the adviser has a financial interest is a heavy one. 1507Here, although Mr Hobbs disavows the giving of any investment advice, the operation of the schemes was such as to inform potential investors of the ability to give them access to investment schemes that would yield a high rate of return. In those circumstances a duty of the kind found to have arisen in Daly (ie not to put oneself in a position of potential conflict) is by no means unlikely. 1508ASIC submits that the relationship of an operator of a scheme to scheme investors is one that bears the hallmarks of a fiduciary relationship since it gives the scheme operator a special opportunity to exercise power or discretion to the detriment of investors who are accordingly vulnerable to abuse by the fiduciary of his or her position (adopting the language used in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at [96]-[97] per Mason J (as his Honour then was) cited with approval in Breen v Williams (1996) 186 CLR 71 at [20]) and it is one in which the scheme operator undertakes or agrees to act for or on behalf of or in the interests of investors in the exercise of a power or discretion which affects the interests of investors in a legal or practical sense. It is submitted that a scheme operator acts in a 'representative' character in the exercise of his or her responsibility (again adopting the language in Hospital Products Ltd v United States Surgical Corporation at [68] per Mason J). Aiding and abetting 1509Section s 79 of the Corporations Act provides that a person is "involved" in a contravention if, and only if, the person: (a)has aided, abetted, counselled or procured the contravention; or (b)has induced, whether by threats or promises or otherwise, the contravention; or (c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d)has conspired with others to effect the contravention. 1510Mr Halley notes that the words "aid, abet, counsel or procure" encompass is the concept that the accessory is in some way linked in purpose with the person actually contravening the relevant provision, and is by his or her words or conduct doing something to bring about, or rendering more likely, such contravention (referring in this regard to Giorgianni v R (1985) 156 CLR 473 at 492). There must be demonstrated actual involvement by the person in the specific conduct the subject of the contravention, in the sense of that person being an "intentional participant" (Yorke v Lucas at 670). 1511For a person to be "knowingly concerned in" a contravention, he or she must have "knowledge of the essential facts constituting the contravention", though it need not be proved that the person knew that the matters in question constituted a contravention (Yorke v Lucas (1985) 158 CLR 661 at 670; Smithers v Beveridge (1994) 14 ACSR 197 at 201). Knowledge for this purpose means actual and not constructive knowledge (Compaq Computer Australia Ltd v Merry (1998) 157 ALR 1 at 4-5). 1512With respect to representations as to future matters, a "person involved" must have known of the representations and been involved in the making of them, and have known there were no reasonable grounds for the making of those representations (Yorke v Lucas at 670). 1513Mr Halley accepts that an individual defending an accessorial claim is not subject to the evidentiary presumption as to the existence of reasonable grounds created by s 12BB of the ASIC Act (cf Quinlivan v ACCC [2004] FCAFC 175; [2004] ATPR 42-010; ACCC v Universal Sports Challenge Pty Ltd [2002] FCA 1276; ACCC v Michigan Group Pty Ltd [2002] FCA 1439 at [341]) and therefore that it must be demonstrated that such a person knew that the representation was made and either knew that it was misleading or knew that the corporation had no reasonable grounds for making it (ACCC v Michigan Group Pty Ltd [2002] FCA 1439 at [303]). Matters raised by Mr Hobbs - relief from liability 1514Section 1317S permits the Court to grant an applicant relief from liability for a contravention of a civil penalty provision. It is in similar terms to s 1318, which empowers a Court to relieve a party in civil proceedings for negligence, default, breach of trust or breach of duty. 1515The two requirements that must be fulfilled are contained in s 1317S(2)(b): first, that the person has acted honestly and, second, that having regard to all the circumstances of the case, the person ought fairly to be excused. 1516The words "proceedings for contravention of a civil penalty provision" are not otherwise defined in Pt 9.4B of the Corporations Act. Ford's Principles of Corporations Law notes at [3.410] that s 1317S is presumably available in proceedings for a declaration of contravention, or a pecuniary penalty order, or a disqualification order under s 206, as well as a compensation order under s 1317H, and any other proceedings which seek relief for contravention of a civil penalty provision, such as proceedings under s 1324 which complain of contravention of a civil penalty provision (see also the discussion in Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 284 ALR 734, referring to Australian Securities and Investments Commission v Plymin (No 2) [2003] VSC 230. 1517The requirement of honesty is used in a narrow sense, namely, whether or not the person's actions were without an element of moral turpitude. In Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714, Gzell J stated the test for honesty (for the purposes of ss 1318 and 1317S) at [22] as being: ...if that person's conduct is without moral turpitude in the sense that it is without deceit or conscious impropriety, without intent to gain improper benefit or advantage and without carelessness or imprudence at a level that negates the performance of the duty in question. That conclusion may be drawn from evidence of the person's subjective intent. But a lack of such subjective intent will not lead the court to conclude that a person has acted honestly if a reasonable person in that position would regard the conduct as exhibiting moral turpitude. (my emphasis) 1518This test was also applied in Healey (No 2) and is consistent with the narrow interpretation of honesty given in Hall v Poolman [2007] NSWSC 1330; ASIC v Vines; and ASIC v Edwards (No 3) [2006] NSWSC 376; (2006) 57 ACSR 209. 1519Although reasonableness is no longer an express statutory requirement to be excused from liability, there have been decisions where the question whether or not the person acted reasonably was a relevant consideration when looking at "all the circumstances of the case" (Circle Petroleum (Qld) Pty Ltd v Greensdale (1998) 16 ACLC 1577; Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430). Where the liability sought to be excused from is where there has been a breach of the statutory duty of care and diligence, that finding may affect whether or not the defendant's conduct could be said to be reasonable, but it does not determine the question. (In Vines, it was said at [38]-[39] that it was relevant to the Court's discretion under s 1318 to consider the degree to which the defendant's conduct had fallen short of the statutory standard.) 1520In Vines, the Court of Appeal noted the following as relevant to be taken into account when considering all the circumstances of the case: the presence or absence of contrition by the defendant after the event, even though thus may also be relevant to the question of penalties if relief is not granted (at [51]); the seriousness of the contravention(s), taking into account three elements: the importance of the provision contravened in terms of public policy; the degree of flagrancy of the contravention; and the consequences of the contravention in terms of harm to others (at [52]); whether the defendant obtained and followed competent advice before committing the contravening act (at [57]); Whether the conduct was in accordance with some established practice (at [57]); and whether the defendant was paid for undertaking the contravening conduct (at [57]). 1521With respect to contrition as a relevant factor, in Macdonald (No 12), Gzell J at [96]-[97] indicated that little weight was placed on the lack of contrition (and seeking to maintain their innocence in the fact of overwhelming evidence) by some of the defendants seeking exoneration as it was not a case where the defendants were guilty of "obvious and palpable wrongdoing". (This point was not the subject of appeal in either the subsequent Court of Appeal proceedings (Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; (2011) 83 ACSR 620) or the High Court proceedings (Australian Securities and Investments Commission v Hellicar [2012] HCA 17). 1522Mr Hobbs also invokes s 189 of the Corporations Act, which provides that: If: (a)a director relies on information, professional or expert advice, given or prepared by: (i)an employee of the corporation whom the director believes on reasonable grounds to be reliable and competent in relation to the matters concerned; or (ii)a professional adviser or expert in relation to matters that the director believes on reasonable grounds to be within the person's professional or expert competence; or (iii)another director or officer in relation to matters within the director's or officer's authority; or (iv)a committee of directors on which the director did not serve in relation to matters within the committee's authority; and (b)the reliance was made: (i)in good faith; and (ii)after making an independent assessment of the information or advice, having regard to the director's knowledge of the corporation and the complexity of the structure and operations of the corporation; and (c)the reasonableness of the director's reliance on the information or advice arises in proceedings brought to determine whether a director has performed a duty under this part [Part 2D.1 of the Corporations Act (which deals with the duties and powers of officers)] or an equivalent general law duty; the director's reliance on the information or advice is taken to be reasonable unless the contrary is proved. 1523In effect, s 189 requires that, where the director relies on information, professional or expert advice, he or she must do so in good faith and only after having made an independent assessment of the information or advice. The requirement for an independent assessment imposes an obligation upon the director and replaces the words "proper inquiry" which were present in the previous version of this legislative provision. 1524There has been little judicial discussion as to the operation of s 189. In Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 dismissed a defendant's invocation of s 189 on the basis that there was no evidence that the defendant in fact relied on the information provided by the other defendants. On appeal, in Macdonald v Australian Securities and Investments Commission [2007] NSWCA 304), Spigelman CJ noted that reliance as proved pursuant to s 189 might be relevant to breaches alleged under s 180 and 181 Corporations Act. 1525With respect to the requirement for independent assessment, Ford's Principles of Corporations Law suggests at [7.264] that: ...what the section contemplates is an analysis of the information or advice in a way that is unbiased. The words "having regard to the director's knowledge of the corporations and the complexity of the structure and operations of the corporation" would seem to contemplate that the type of assessment may vary according to these factors. Inevitably, some information or advice will be given greater scrutiny by a director than other information or advice. Some knowledge that the director possesses might require the director to scrutinise the information or advice more carefully than other otherwise be required... Support for this interpretation is obtained from the judgment of the Full Court of the Supreme Court of South Australia in Southern Resources Ltd v Residues Treatment & Trading Co Ltd (1990) 56 SASR 455; 3 ACSR 207 at 255; 8 ACLC 1151 where the court said that when directors are required to exercise independent judgment, this means "no money than that they, having listened to and assessed what their colleagues have to say, must bring their own mind to bear on the issue using such skill and judgment as they may possess". Evidentiary Principles Onus 1526As noted by Mr Halley, ASIC must prove its case on the balance of probabilities (that being the applicable standard under s 140 of the Evidence Act for civil matters including civil penalty proceedings in New South Wales) and, in determining whether that onus has been discharged, the Court must take into account the nature of the cause of action or defence; the nature of the subject matter of the proceedings; and the gravity of the matters alleged (s 140(2)). 1527In that regard, it is accepted that serious allegations are made in the present case: financial services contraventions and breaches of civil penalty provisions (for which serious penalties may be imposed); as well as allegations of knowing conduct of a misleading and deceptive nature and dishonesty (which amount to allegations of fraud). 1528Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 said: Except upon criminal issues to be proved by the Prosecution it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the Tribunal. But reasonable satisfaction is not a state of mind that is obtained or established independently of the nature or consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular coding are considerations which must affect the answer to the question, whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be proved by inexact proofs, indefinite testimony, or indirect inferences. 1529(An interesting commentary on the test in Briginshaw from a neurobiological perspective can be found in "The civil standard of proof and the "test" in Briginshaw: Is there a neurological basis to being "comfortably satisfied" (2012) 86 ALJR 258, H Bennett and G A Broe.) 1530As to the approach to be adopted in considering circumstantial evidence in civil cases, in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5 the High Court said: Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while the latter you need only circumstances raising a more probable inference in favour of what is alleged. ... if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as mere conjecture or surmise ... 1531Where, as is the case here, a lesser standard of proof than that beyond reasonable doubt applies, the existence of other reasonable hypotheses is a matter to be taken into account in determining whether the fact in issue should be inferred from the facts proved (Doney v R (1990) 171 CLR 207 at 211) but in general it is not necessary that all reasonable hypotheses consistent with the non-existence of a fact, or inconsistent with its existence, be excluded before the fact can be found (Nguyen v Cosmopolitan Homes [2008] NSWCA 246 per McDougall J at [55] with whom McColl and Bell JJA agreed). 1532Mr Halley notes that in Vines at [811], Ipp JA noted that nothing in Briginshaw (or s 140) detracts from the proposition that a serious allegation may be proved by circumstantial evidentiary facts, inference and circumstance. 1533Reference was also made to Palmer v Dolman [2005] NSWCA 361 at [47] where it was said that there are no hard and fast rules by which serious allegations might be proved from circumstantial evidence and at [41] where it was said (there in a case of fraud) that the Court must consider the weight to be given to the united force of all the circumstances put together (citing Lord Cairns in Belhaven & Stanton Peerage (1875) 1 App Cas 278 at 279, quoted by Gibbs CJ and Mason J in Chamberlain v R (No 2) (1984) 153 CLR 521 at 535) and that the onus of proof is to be applied only at the final stage of the reasoning process. In Palmer, the Court cited Winneke P in Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 124 at 129: ...It is erroneous to divide the process into stages and, at each stage, apply some particular standard of proof. To do so destroys the integrity of [a] circumstantial case. and, as to the authoritative weight attaching to the observation that, where a serious allegation is made, "reasonable satisfaction" should not be produced by "inexact proofs, indefinite testimony, or indirect inferences" referred at [46] to the following from Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 per Mason CJ, Brennan, Deane and Gaudron JJ at 171: [T]he strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a Court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct. 1534In Palmer, Ipp JA (with whom Tobias and Basten JJA agreed) concluded at [47] that: The more recent authorities to which I have referred, and s 140 of the Evidence Act (1995) (NSW) make it plain that there are no hard and fast rules by which serious allegations might be proved from circumstantial evidence. The inquiry is simply, taking due account of what was said in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd, has the allegation been proved on a balance of probabilities. Jones v Dunkel inferences 1535As to the Jones v Dunkel inferences that I have been invited to draw, I note that such inferences may be drawn in civil penalty proceedings (where pecuniary penalties, disqualification and compensation orders are sought pursuant to the Corporations Act 2001 (Cth)) against a defendant who does not call a particular witness as would be available in ordinary civil proceedings. 1536This issue was considered in Adler v Australian Securities & Investments Commission; Williams v Australian Securities & Investments Commission [2003] NSWCA 131. Giles JA, with whom Mason P and Beazley JA agreed, considered the question whether inferences could be drawn against defendants who had chosen not to give evidence in the proceedings. At first instance, reference had been made to the statement of Street J (as his Honour then was) in Dilose v Latec Finance Pty Ltd (1966) 84 WN (Pt1)(NSW) 557 at 582 that: The inference which a Court can properly draw in the absence of a witness, where such absence is not satisfactorily accounted for, is that nothing this witness could say would assist the case of the party who would normally have been expected to have called that witness. The significance of this inference differs according to the closeness of the relationship of the absent witness with the party against whom the inference is sought to be propounded. Where the absent witness is party himself then considerable importance may well attach to the inference. Similarly, the inference is significant if the absent witness is, as in the present case, a person who is a senior executive of a corporate party who was personally engaged in the transactions in question and who was in fact present at Court during part of the hearing... 1537The defendants appealed on the basis that a Jones v Dunkel inference was not available in civil penalty proceedings, by analogy with the reasoning of the High Court in RPS v The Queen [2000] HCA 3; (2000) 199 CLR 620. Giles JA rejected this analogy, distinguishing RPS v The Queen at [656]: However, the reasoning in RPS v The Queen began with what were described as the fundamental features of a criminal trial, that it is "an accusatorial process in which the prosecution bears the onus of proving the guilt of the accused beyond reasonable doubt" (at [22]). The nature of a criminal trial was contrasted with that a civil trial, and the reasoning included that because of the prosecution's burden of proof beyond reasonable doubt "it will seldom, if ever, be reasonable to conclude that an accused in a criminal trial would be expected to give evidence". 1538His Honour also discussed Azzopardi v The Queen (2001) 205 CLR 50, which again emphasised the particular features of a criminal trial which was that it was an "accusatorial process, in which the prosecution bears the onus of proving the guilt of the accused beyond reasonable doubt" and where it was said at [34] that: Further, because the process is accusatorial and it is the prosecution that always bears the burden of proving the accusation made, as a general an accused cannot be expected to give evidence at trial. In this respect, a criminal trial differs radically from a civil proceeding. 1539Giles JA in Adler concluded (at [658]-[661]) that: Proceedings for civil penalties do not share the same fundamental features of a criminal trial. Civil penalties can be fairly regarded as punitive, with a resemblance to fines imposed on criminal offenders, but the resemblance is not identity. It is necessary to focus on these proceedings brought under the Act, rather than some general class of civil penalty proceedings, since the statutory foundation for and incidents of the proceedings may affect the view taken. As used in the Act the civil penalty provisions do not necessarily lead to imposition of pecuniary penalties, and may lead to a compensation order with the same effect as if the company had brought civil proceedings for breach of the directors' duties or to a disqualification order made not punitively but protectively. They are not be equated with provision for criminal offences. More important, the civil penalty proceedings are expressly to be maintained by civil law processes, not by a criminal trial with its fundamental features. When civil procedures have been adapted in civil penalty cases, it has not been because of equation with a criminal trial. It has been because of the privilege against exposure to penalties. ...To say that a person can not be forced to evidence against himself, by providing discovery or answering interrogatories or, in a criminal context, making a statement to the police, says little when it come to the giving of evidence in the person's own case. In ordinary civil proceedings the defendant can not be forced to give evidence in his own case. Civil penalty proceedings are no different in that respect. 1540The procedural incidents of the privilege against penalties in civil penalty proceedings were considered subsequently by the High Court in Rich v Australian Securities and Investments Commission [2004] HCA 42, in relation to a dispute as to whether the appellants were required to give discovery in such proceedings (the High Court holding that the privilege against penalties did apply in civil penalty proceedings and, in doing so, emphasising that focus must be placed on the orders that are sought). 1541In light of the emphasis placed by the High Court on the punitive character of orders sought in civil penalty proceedings in Rich v ASIC, in Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331 a question arose for consideration as to whether the position with respect to Jones v Dunkel inferences in Adler v ASIC had been implicitly overruled in Rich v ASIC. 1542In Morley, Spigelman CJ, Giles and Beazley JJA declined to depart from Adler v ASIC, stating (at [689]) that: In our opinion, nothing in the High Court's reasoning in Rich v Australian Securities and Investments Commission suggests that it is appropriate to reason by analogy from criminal procedure to civil penalty proceedings. Indeed, in our opinion, the analysis contained in the High Court's judgment is contrary to any such proposition. 1543Their Honours had earlier observed (at [684]) that the Corporations Act 2001 (Cth) maintained the distinction between criminal proceedings and civil penalty proceedings: A distinction between civil penalty proceedings and criminal proceedings is found in ss 1317N, 1317P and 1317Q. They provide for staying proceedings for a declaration of contravention or a pecuniary penalty order if criminal proceedings are started or have already been started against the person for substantially the same conduct (s 1317N); for starting criminal proceedings for conduct substantially the same as conduct constituting a contravention of a civil penalty provision (s 1317P); and for general inadmissibility in criminal proceedings against a person of evidence of information given or production of documents by the person in proceedings for contravention of a civil penalty provision for substantially the same conduct (s 1317Q). 1544The position of the Court of Appeal on that issue was affirmed on appeal to the High Court in Hellicar [2012] HCA 17 (at [154]) (although Morley v ASIC was overturned on other grounds). 1545As to the nature of the inference that may properly be drawn if the principles of Jones v Dunkel are enlivened, the Court of Appeal in Morley v ASIC stated (at [634]) that: The first matter was the familiar, although other misunderstood, Jones v Dunkel reasoning from a party's unexplained failure to call a witness the party would be expected to call. The fact-finding tribunal may infer that the evidence of the absent witness would not assist the case of that party, or it may draw with greater confidence an inference unfavourable to that party. There is no compulsion to reason in either way. The reasoning cannot make up for absence of proof: before there can be greater confidence in an inference unfavourable to a party, the inference must already be available on the evidence. Conversely, if the party's case is otherwise proved, the inference that the absent witness would not assist the party's case does not detract from the proof. 1546The plurality judgment in ASIC v Hellicar stressed that an inference which may be drawn from the failure to call a particular witness to give evidence was that the witness's evidence would not have assisted that party's case, not an adverse inference against that party, saying at [166]-[168]: Lord Mansfield's dictum in Blatch v Archer that "[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted" is not to be understood as countenancing any departure from any of these rules. Indeed, in Blatch v Archer itself, Lord Mansfield concluded that the maxim was not engaged for "it would have been very improper to have called" the person whose account of events was not available to the court. noting that in Jones v Dunkel itself, the Court had held "that any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence". 1547Heydon J, in a separate judgment, noted that two consequences can flow from the unexplained failure of a party to call a witness whom that party would be expected to call (at [232]): One is that the trier of fact may infer that the evidence of the absent witness would not assist the case of that party. The other is that the trier of fact may draw an inference unfavourable to that party with greater confidence. But Jones v Dunkel does not enable the trier of fact to infer that the evidence of the absent witness would have been positively adverse to that party. 1548In the present case, the only inferences of this kind that ASIC seeks to be drawn arise out of the failure of Mr Hobbs (who did choose to go into evidence) to call his secretary (Mrs Andrews) in relation to two issues (the authorship of a second Art of Arbitrage book and her practice in relation to the dissemination of emails received on the "nasl" email address to Mr Hobbs) and to call his brother (Mr Robert Hobbs) in relation to the issue as to the disbursement out of the Magny-Cours account of the funds received from J&B Financial in payment of the KLM invoice for intellectual property in the sale of a white label fund. 1549While I accept that such inferences are open to be drawn, ultimately I would have reached the same conclusions without the benefit of such inferences. As to the Art of Arbitrage booklet, nothing in my view turns on who was in fact its author, the only relevance being what should be drawn (from the inconsistency in Mr Hobbs' testimony on this issue) as to the reliability of his evidence. Given that this is by no means the only example of inconsistency, the Art of Arbitrage authorship evidence does no more than reinforce my view as to the caution to be exercised in accepting Mr Hobbs' blanket assertions at face value. As to the issue in relation to the email communications, the content of those communications makes clear that the understanding of the senders and recipients was that emails addressed to the nasl address would in the ordinary course be relayed to Mr Hobbs. Nevertheless, the failure of Mr Hobbs to call evidence from Mrs Andrews as to her practice in relation to the "nasl" emails does give me more comfort in concluding that in the ordinary course documents sent to Mr Hobbs at that email address would have come to his attention. 1550In relation to the Magny-Cours account, the fact that Mr Hobbs did not call his brother to explain what happened to the KLM IP invoice amount after it reached the Hong Kong account again gave me more comfort in concluding (as I would have done in any event from the documents in evidence) that Mr Hobbs was the relevant decision maker in relation to withdrawals from that account (and had treated the moneys in that account as moneys he was free to disburse) though there is other evidence to support that conclusion. Moreover the evidence of Mr Hobbs' financial interest in the schemes is not restricted to this payment. Authentication of business records 1551Business records may be admitted as an exception to the hearsay rule pursuant to s 69. Note 1 to the section states that ss 48, 49, 50, 146, 147 and 150(1) are relevant to the mode of proof and authentication, of business records. In particular, The New Law of Evidence (2nd ed, 2009) notes that the contents of the document may be proved by any of the means specified in s 48(1). 1552In Uniform Evidence Law (10th ed, 2012, S Odgers), the author notes (as to the issue of authentication of business records under s 48(1)(e)) at [1.2.4960] pp 186-187 that: On the other hand, it must be established that the tendered document "forms part of the records of or kept by a business". In accordance with s 142(1) the court must be satisfied that this "has been proved on the balance of probabilities". However, reasonable inferences may be drawn from the document itself under s 183. ... Whatever the proper approach in that content, this hearsay exception requires that it must be established on the balance of probabilities that the tendered document "forms part of the records of or kept by a business". 1553The question of authentication was discussed in Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 4) [2011] FCA 578 by Collier J. His Honour referred to Australian Securities and Investment Commission v Rich [2005] NSWSC 417 and distilled the following principles at [14]: It is important not to set the bar too high for the authentication of documents, because if too much is demanded, the authentication requirement will fight against the policy underlying the business records provisions. That policy recognises that any significant organisation depends for its efficiency upon the keeping of proper records, to be used and relied upon in the everyday carrying on of the activities of the business and therefore likely to be accurate, and likely to be a far more reliable source of truth than memory (Rich at [116]). The party tendering the document must establish authenticity, which cannot be achieved solely by drawing inferences from the face of the document where there is no other evidence to indicate provenance (Rich at [117]). Authentication is about showing that the document is what it is claimed to be, not about assessing, at that point of the adducing of the evidence, whether the document proves what the tendering party claims it proves (Rich at [118]). There is a distinction between matter of authenticity going to the adducing of evidence and matters going to the credibility and weight of documentary evidence once it has been authenticated and judged admissible (Rich at [118]). 1554In Aqua-Marine Marketing, the document concerned was an email between an employee of the defendant and a third party. The document was produced by the third party in response to a subpoena and evidence was given by a witness called by the respondent during cross-examination that there was communication between the employees of the respondent and the third party. Collier J was satisfied on the basis of that evidence that the document was what it purposed to be (an email which was a business record of the third party) and accordingly admissible. 1555There is some disagreement as to the principle above, deriving from Rich, that authenticity cannot be achieved solely by drawing inferences from the face of the document. Odgers notes (at p 187), s 183 of the Evidence Act expressly permits a court to "draw any reasonable inferences from" the document and argues that "[g]iven that, it is not apparent why authenticity (in this context, establishing that the document is a business record) "cannot be achieved solely by drawing inferences from the face of the document." Nevertheless, Rich (and Collier J's endorsement of Rich in Aqua-Marine Marketing) stand for the proposition that inferences drawn from the face of the document are not enough, absent other evidence, to establish authenticity. Issues for Determination 1556Having regard to the matters set out above, I turn to the principal issues for determination. For convenience, I have annexed the ASIC's list of principal issues. There is substantial overlap across some of the issues and I do not deal with each of them separately, but I have approached the issues in roughly the same order. 1557At the outset, I address the position of Mr Hobbs in relation to the companies referred to by ASIC as the Hobbs companies (Tasman Business Consultants, Magny-Cours, Trans Management Corporation, FZF Anguilla, International Management Corporation and FZF Vanuatu); his role in FTC and the other entities (OEM, KLM) through which (or in whose name) the investment process for most investors in the relevant schemes occurred), his role in Diligence Discovery; the involvement he had in the respective individual investment schemes; and the relationship between Mr Hobbs and the respective scheme administrators and FTC executives in relation to the process that led to investment of funds in the schemes the subject of these proceedings (since these matters are fundamental to the case ASIC makes against Mr Hobbs). 1558I interpose to note that Mr Hobbs' understanding, as professed in the witness box, was that there was a difference in the concept of beneficial ownership of limited companies in Australia and that of beneficial ownership or control of an IBC (though he was not able meaningfully to articulate what that difference was). In the context of questions as to the beneficial ownership of Geneva Financial (an IBC controlled by Mrs Hobbs and her sister-in-law, Mrs Brenda Hobbs), Mr Hobbs said the following: Q. What do you see is the difference between a shareholder and a beneficial owner, Mr Hobbs? A. With an IBC they have a beneficial owner of the company, quite separate. Q. Do you understand the difference between holding shares on trust for somebody else and holding shares solely for your own purposes? A. Yes, but an IBC is different to a limited company here in Australia. Q. What I want to suggest to you Mr Hobbs is that the concept of beneficial ownership is the same here as it is anywhere else, isn't it, Mr Hobbs? A. I don't agree with you. 1559That evidence is perhaps all the more remarkable in circumstances where Mrs Hobbs and Mrs Brenda Hobbs signed documents for Geneva Financial variously as beneficial owner and controller, as principal (and in one instance at least as director of the company) and there was at least one Geneva document to which Mr Hobbs was a signatory (signing the Cadent account opening documents as the duly acting secretary of the company). 1560The above is indicative of the way in which Mr Hobbs appears to have considered that the individual on whose application or behalf an IBC was established was the person who was the "owner" of the IBC (that being the basis on which he said he was the owner and able to assume the position as administrator of FZF Vanuatu) and able to control its activities. It also highlights the disingenuous nature of some of his responses in cross-examination (when suggesting that Mr Halley could check the registers of certain offshore IBCs if he wanted to check that Mr Hobbs had no interest therein). Tellingly, Mr Hobbs said that: Q. Now the funds that you spoke about from time to time to FTC executives and others in Australia were funds that were the funds of KLM, weren't they? A. They were owned; no, they were in the KLM list. They were owned by the people who owned the companies and controlled by them. Q. You were about to say they were owned by KLM, weren't you, Mr Hobbs? A. No. Q. When you use the term 'owned' what do you mean to convey by that Mr Hobbs? A. Well they physically owned the companies and they owned their own fund. (my emphasis) Q. So who owned Geneva Financial Limited Mr Hobbs? A. Jacky and Brenda. Q. Why do you say that? A. Well they owned the company, they ran the company. Q. Well did they own the company or did they run the company? A. Both. 1561In fact, as adverted to earlier, there was evidence to suggest that Tasman Business Consultants was at least from 2002 the beneficial owner of Geneva Financial (in the form of a Nominee Declaration dated 20 August 2002 by an entity named Newman Enterprises Limited in Anguilla, that entity being recorded on the register of shareholders of Geneva Financial in Anguilla as the shareholder of Geneva Financial is recorded as Newman Enterprises Limited, and being defined in the Nominee Declaration form as the trustee). The Nominee Declaration referred to Tasman Business Consultants Limited as the beneficiary. 1562Mr Hobbs accepted that (on the register), Newman Enterprises was disclosed as the shareholder of Geneva Financial and that it appeared that it had made a declaration that that share was held on trust for Tasman Business Consultants Limited. The declaration stated that it was executed under the common seal of Newman Enterprises Limited (and it was signed by a Ms Atrene Pemberton), though Mr Hobbs pointed out that he did not see the seal on the copy of the declaration (and there was no discernible imprint of a company seal on the copy in evidence). 1563Mr Hobbs maintains that he first became aware that Tasman Business Consultants was the beneficial owner of Geneva Financial when it was put to him in his s 10 interview in Wellington (in 2009). Mr Hobbs was, however, taken to a document apparently signed by Mrs Hobbs and by Mrs Brenda Hobbs, to which the common seal of Geneva Financial had been attached, and bearing a fax transmission imprint from FTC, that stated: To whom it may concern. The titles of Jacqueline Hobbs and Brenda Hobbs are both "beneficial owner and controller". Both Jacqueline Hobbs and Brenda Hobbs are authorised to act on behalf of Geneva Financial Limited. 1564It was put to Mr Hobbs that, as a matter of common sense, if it had not been appreciated that Tasman Business Consultants was the beneficial owner of Geneva Financial (as seems to be the effect of the execution by the shareholder recorded on the register having executed a declaration of trust in favour of Tasman Business Consultants) it would not have been thought necessary to make any form of declaration that Tasman Business Consultants held that beneficial ownership on behalf of anyone else (or, I might add, for there to be any form of authorisation by it as to the persons entitled to act on behalf of Geneva Financial). There was evident confusion by Mr Hobbs as to that question but ultimately it seemed to me that Mr Hobbs did accept the proposition that if he did not appreciate or understand that Tasman Business Consultants was the beneficial owner of the share in Geneva Financial then it would not have occurred to him to make a declaration of trust on behalf of Tasman Business Consultants of that beneficial share, ownership in the share. 1565(Mr Hobbs did not recall any discussion at any time with either Mrs Hobbs or Mrs Brenda Hobbs about who might be the beneficial owner of Geneva Financial Limited. He said that he "just always assumed that".) 1566Confusingly, Mr Hobbs' response when cross-examined on the issue of beneficial ownership of Geneva Financial said: Q. When did you first become aware that Tasman Business Consultants was the beneficial owner of Geneva Financial Limited? A. Well I didn't realise it was the beneficial owner. I thought it was a shareholder. ... Q. Wouldn't you have expected to have been told that your company was the shareholder of Geneva Financial Limited, a company that was offering investment funds to investors in Australia? A. Look I may have been told before that. I just; simply I did not recall it. 1567In light of the above evidence, it is hard to accept that Mr Hobbs saw any real distinction between an IBC and the individual that was nominated or acted as the "administrator" of the IBC. Findings - Hobbs companies * Tasman Business Consultants 1568Mr Hobbs admits the allegation (at [2] of the Third Further Amended Statement of Claim) that he is the sole director and shareholder of Tasman Business Consultants and that Mrs Hobbs is a shareholder of that company. In that regard, I am satisfied that Mr Hobbs was responsible for, and controlled the business operations of, the company. 1569The persons who were employed by (or whose wages or expenses were paid by) Tasman Business Consultants and who worked in the Hobbs' office over the relevant period (Mr Mitchell, Mrs Andrews, Mr Robert Hobbs, Mrs Watson and Mr Cable) reported to Mr Hobbs and largely, if not wholly performed administrative tasks (accounting/banking services; secretarial services; running errands and maintaining records of FTC subscriptions; "ad hoc" filing and tasks related to the 'automatic' issue of correspondence on OEM or KLM letterhead as well as liaison with FTC executives and introducers; and maintaining records and renewals for IBCs linked with the Hobbs office or the investment schemes in general, respectively). I would conclude that at all material times those persons acted in accordance with Mr Hobbs' directions and instructions, and with his (if not express, then certainly implicit) authority or approval. 1570The suggestion (implicit in the evidence of Mr Hobbs that he did not see various documents that had been received at the nasl email address and that Mrs Andrews may not have conveyed such information to him) that Mrs Andrews occupied a sufficient degree of autonomy, in her role as secretary or personal assistant, to make her own decisions as to what was or was not to be done in relation to Tasman Business Consultants or the business carried on from the Hobbs office seems to me to be implausible (and it is not supported by any evidence from Mrs Andrews herself). 1571(Similarly, the suggestion that Mrs Watson was performing tasks related to the investment schemes otherwise than with the implicit, if not express, approval of Mr Hobbs is implausible and inconsistent with her apparent lack of understanding of matters integral to the OEM/KLM operations or of the nature of the investment schemes in particular.) 1572I find that Mr Hobbs controlled the business operations of Tasman Business Consultants at all material times. 1573I further find that Mr Hobbs dealt with the funds of Tasman Business Consultants as his own. 1574As noted earlier, Mr Hobbs has deposed that the income received into the ANZ trust account of Tasman Business Consultants from the business operations of FTC was his sole source of income at the time (at [11] of his 3 August 2012 affidavit; his written submissions also referring to this as his principal source of income) and Mr Mitchell has deposed that (with one exception) income received by Tasman Business Consultants was deposited into the company's ANZ trust account to which Mr Hobbs was the only signatory (Mitchell [29]-[30]). Business expenses paid by Tasman Business Consultants were paid from the company's BNZ bank account (including the wages of Mr Robert Hobbs, Mr Mitchell and Mrs Andrews (Mitchell at [25], [38]) as were business expenses of Mr Hobbs (Mitchell at [33], [36])) with funds which had been transferred by Mr Hobbs by cheque from the company's ANZ trust account (Mitchell at [29], [30)]. 1575The expenses paid by Tasman Business Consultants included payments referable to work performed for entities other than the company (namely, for the work performed by Mrs Burnard (and expenses incurred by Mrs Watson) on behalf (or in the name) of OEM and KLM (Watson at T 465.3 - T 466.6) as well as Mr Hobbs' personal expenses (Mitchell at [33]-[36]) (including credit card charges incurred by Mr and Mrs Hobbs) (Mitchell at [26] which Mr Mitchell says were treated in the company's books as drawings by Mr Hobbs (Mitchell at [24], [33]-[36])). 1576Mr Mitchell, who was a signatory to the BNZ account, deposed that he never made any transaction on that account without the authorisation of Mr Hobbs (Mitchell at [27]). Mr Halley points out that there is no evidence of any system in place for anyone else (such as the only other shareholder, Mrs Hobbs) to approve expenditure by Tasman Business Consultants or expenses not directly related to the company. 1577Mr Hobbs, tellingly, seems to have considered himself at liberty to disburse for his personal purposes moneys retained in the Tasman Business Consultants' account even though he acknowledged that it had been set up as a trust account. (Mr Halley submits that this is relevant to the extent that there might otherwise have been any suggestion that a third party controlled FTC by reason of the fact that the moneys in the account comprised the FTC subscription payments.) 1578In cross-examination, Mr Hobbs, having confirmed that the Tasman Business Consultants account was the only account into which FTC subscription money was deposited and having acknowledged that this was a trust account for FTC ("Yes, I know it was; we formed it as a trust account"), explained his belief as to his personal entitlement to the moneys held in that account as follows: Q. If it was a trust account, how could it be your personal money? A. It's income that is earned into that account. ... Q. Who was the beneficiary of the trust account? A. It was whoever we drew the cheque for. ... Q. So you established a trust account for FTC and you thought the beneficiary of that trust account was for whoever you drew a cheque for? A. Yes, it was a trust account in name; yes. Q. Do you mean by that, in name only? A. I don't recall having any other material, any other accounting books for it. Q. So you regarded yourself at all times as able to [disburse] money from the ANZ account, maintained by Tasman Business Consultants, as you saw fit? A. Correct. 1579Mr Halley relies on this evidence as highlighting the artificiality of any alleged distinction between Mr Hobbs and FTC; and I accept that it does so. 1580In Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [128], the High Court said that a company is the alter ego of an individual where his or her mind is the company's mind. In Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 at 343 such a conclusion was said to follow where an individual was able to treat the company as his or her own. 1581Having regard to the above, and to Mr Hobbs' own reference to Tasman Business Consultants as his "personal consulting business" (in his letter dated 22 November 1999 to Sovereign Trust International explaining the receipt and/or disbursement of moneys in and from the Magny-Cours Hong Kong bank account), I find that Tasman Business Consultants was the alter ego of Mr Hobbs. 1582I find that Tasman Business Consultants was beneficially owned and controlled at all material times by Mr Hobbs and that Tasman Business Consultants was his alter ego. * Magny-Cours 1583Magny-Cours Limited (as with all the relevant Hobbs companies other than Tasman Business Consultants and Legend of Bathurst) was incorporated as an offshore IBC. 1584The evidence establishes that, following Mr Hobbs' application to Sovereign Trust International in 1999 for an offshore IBC to be incorporated, the beneficial interest in the company was held for Mr Hobbs. (In this regard, the manner in which the IBC was set up, as I would infer was the case for all of the offshore IBCs incorporated in what Mr Hobbs regarded as "privacy havens" was that whoever was noted on the register as the shareholder or director of the IBC held such shareholding or such office in a nominee capacity only. In some instances there was evidence of a nominee declaration that made it clear where the beneficial ownership lay; in others (as with some of the investor IBCs) it appears that there was a power of attorney granted in favour of the individual on whose application the IBC had been established, so as to permit the making of all relevant business decisions by that individual.) 1585At least up to the nomination by Mr Hobbs of his brother, Mr Robert Hobbs, as a co-beneficial owner in 2000, the evidence establishes that Mr Hobbs was the sole beneficial owner and controller of the company. Thereafter, at least up until the communication by Mr Hobbs of authority for the withdrawal of his beneficial interest in the company (which I assume was intended as some form of renunciation or disclaimer of that interest in the company that would, if effective, have had the effect of leaving Mr Robert Hobbs as the sole beneficial owner or controller of the company), Mr Hobbs was a co-beneficial owner and controller (with his brother) of the company and gave instructions in relation to the disbursement of moneys from that account. In that role, I find that he was a de facto director of the company. 1586After Mr Hobbs authorised Mr Robert Hobbs to become the sole beneficial owner of the issued share in the company, Mr Hobbs continued to issue instructions for moneys to be transferred out of the Magny-Cours Hong Kong bank account from time to time (and as at late 2005 Mr Robert Hobbs had referred at least some enquiries as to the operation of the company to him, indicating that Mr Robert Hobbs understood his brother to continue to have a role in the decision-making of the company or allowed him so to act). Therefore, I find that Mr Hobbs continued after that date at least as a shadow director (if not also a de facto director). 1587It is submitted by ASIC that Mr Hobbs exercised all relevant top-level management functions and acted as if he were (and assumed the responsibility of the role of) the most senior executive director of the company and therefore was at all material times a de facto director of the company. I accept that such an inference should be drawn at least up until 2004 (and I note that had that not been the case it would have been open to Mr Hobbs to call his brother to give evidence to dispel any such inference, though ASIC did not ask me to draw any Jones v Dunkel inference on this issue). 1588I further accept that the evidence establishes that the only persons who took any steps on behalf of Magny-Cours other than Mr Hobbs (namely, Mr Robert Hobbs and Mr Mitchell) were persons who were authorised (or permitted) to do so by Mr Hobbs. Within the Hobbs office I accept that they generally acted (and I would infer were accustomed to act) on the instructions of Mr Hobbs. (In this regard, the evidence is that Mr Robert Hobbs was engaged by Mr Hobbs in full-time employment and paid by Tasman Business Consultants on Mr Hobbs' instructions, running errands for Mr Hobbs, processing FTC subscription details, and reporting directly to Mr Hobbs. Mr Mitchell's own evidence supports the conclusion that the work he did for the company was at the direction or on the instructions of Mr Hobbs.) 1589Having regard to the above, and the apparent treatment by Mr Hobbs (at least since 2004) of the Magny-Cours HSBC bank account as his own personal bank account (from which, as he accepted in cross-examination, he authorised payment for various personal expenses), I find that Mr Hobbs was from the time of its incorporation up to 2000 a de facto director of, and from at least 2004 a shadow director of, Magny-Cours. * Trans Management Corporation 1590Trans Management Corporation was again incorporated as an offshore IBC. 1591The provision of registered agency/registered office services for Trans Management Corporation was, as Mr Hobbs acknowledged, paid for by himself (as were the fees for its incorporation), though Mr Hobbs maintains that this was at the request of Mr Becker (and simply continued after Mr Becker's death). The renewal fees were arranged for some time by Mr Jim Cable, who worked for Mr Hobbs out of the Hobbs office in arranging and maintaining the registration of various offshore IBCs (and who also operated an investment fund that was administered by an IBC set up on his behalf). Those fees were paid for out of the Tasman Business Consultant account on the instructions of Mr Hobbs. The business address of Trans Management Corporation was that of Tasman Business Consultants (which, as I have found above, was a company controlled by Mr Hobbs). 1592Mr Hobbs said that he did not have anything to do with Trans Management Limited; did not know who its directors were; believed that it was incorporated in Vanuatu; and that it was an IBC. Mr Hobbs' account is that he just paid the incorporation for it at the request of Mr Becker and that he continued to do that after Mr Becker died. Pausing there, Mr Hobbs does not seem to have had any concern as to whether it was in the best interests of Tasman Business Consultants as a company to pay the fees for an unrelated company about which Mr Hobbs claims to have known very little - though it may be explained if the fees were accounted for as personal drawings of Mr Hobbs; since it would then be a matter for him whether he chose to continue to pay moneys for a company about which he purported to have such little knowledge. 1593In cross-examination, Mr Hobbs maintained that he did not have any understanding as to who the beneficial owners of Trans Management were and did not to his knowledge ever see any document which might record who had some responsibility for the activities of that company. When asked: Q. Did you ever speak to anybody who you understood to be an officer of Trans Management Limited? [this must be a reference to Trans Management Corporation as this was the company identified in Mr Hobbs' response to queries raised by a prospective adviser as the outside trustee for the funds] A. Look I thought it was all controlled by Mr Becker and co. [I interpose to note that the somewhat throwaway description "and co" is consistent with a lack of precision on Mr Hobbs' part (and reinforces the impression that Mr Hobbs was just looking to place responsibility on others without having any firm recollection of who in fact was involved.] 1594There was evidence by Mr Diaz that Mr Hobbs had told him Trans Management Corporation (the entity nominated in the respective scheme memoranda as the trustee responsible for oversight of the schemes the subject of the proceedings) was owned by Mr Hank Parker (a suggestion that, according to Mr Diaz, was disavowed by Mr Parker himself). The only evidence of any association between Mr Parker and Trans Management Corporation was Mr Fitzgerald's recollection that he had sent reports of some kind in relation to the Covered Strategies scheme to Mr Parker for Trans Management Corporation. However, since the address for Trans Management Corporation was that of Tasman Business Consultants (and the reports do not seem to have been the subject of any action or response by Mr Parker), this does not suggest that Mr Parker had any controlling role in relation to the entity. (By far the majority of the scheme administrators did not perform even the perfunctory role of sending reports to the so-called outside trustee.) 1595Given that the business address of the company was that of Tasman Business Consultants, that payment of registered agency fees for the company was through the Tasman Business Consultants' account, and that there is no evidence showing any involvement by Mr Parker (or anyone else) in the operation of that company, I conclude that this was a company that was incorporated by, and operated on, the instructions of Mr Hobbs and that Mr Hobbs was the beneficial owner and controller of the company. * FZF Anguilla 1596Again, this company was incorporated as an offshore IBC. First Trust Anguilla provided registered office/agency services for the company (on instructions from Mr Hobbs). The initial incorporation expenses were shared equally between Mr Hobbs and Mr Diaz (whose evidence was that the two had agreed to set up the company to avoid confusion in dealings with clients). I would infer that the person or entity registered as the shareholder and director of FZF Anguilla held such shareholding and such office only in a nominee capacity and, by reference to the circumstances of its incorporation (including the payment of the incorporation fees from Tasman Business Consultants' account) that from the time of its incorporation Mr Hobbs was at least a 50% beneficial owner and controller of the company. 1597There is no evidence of Mr Diaz having any involvement with FZF Anguilla after its incorporation (and certainly not after the breakdown of his working relationship with Mr Hobbs in about 2004) and no evidence of Mr Diaz obtaining any financial benefit from that company. 1598Mr Hobbs signed agreements on behalf of a FZF Anguilla (such as the agreement dated 6 September 2006 between that company and Chen Zhi Hua and the agreement dated 10 February 2005 between that company and Tan Yue Investments Co Ltd); signed correspondence (providing what on its face appears to be broad financial advice) on the letterhead of FZF Anguilla (fax dated 3 September 2004 from Mr Hobbs to "Anita" - Ex AU 369); and sent correspondence as "consultant" on the letterhead of FZF Anguilla (Ex AU 369) (including correspondence to Mr Gahan - Ex H tabs 5,7,10,11,12 - in 2004-2005). 1599There was in evidence a copy of a "First Zurich Financial Limited" business card in the name of Mr Hobbs, with his stated address being the business address of Tasman Business Consultants "care of the registered company address in Anguilla" (a card which Ms Dong says Mr Hobbs gave to her when Ms Li introduced him to her in 2006). The evidence of Ms Dong (at [52]-[53]) is that Ms Li described "First Zurich Financial" as a large bank used by Mr Hobbs for project funding and (at [55]) that Mr Hobbs told her that First Zurich Financial did mergers and project funding. This is consistent with the entry by Mr Hobbs on behalf of FZF Anguilla of the two agreements referred to above and (assuming that the FZF entity that entered into the Global Funerals facilitation agreement, on which Mr Hobbs places much reliance, was FZF Anguilla and not FZF Vanuatu) the commercial bond facilitation agreement with Global Funerals. 1600As to the particular FZF entity with whom the Global Funerals facilitation agreement was entered, there is some doubt (ie whether it was FZF Anguilla or FZF Vanuatu). In cross-examination, Mr Hobbs was taken to a portion of the transcript of his s 10 examination in New Zealand (p73.26) where he was asked whether he had been involved in incorporating any companies in Anguilla. He answered no and denied that he had given instructions for the incorporation of any companies in Anguilla. Asked whether he had given anyone on his own behalf or on behalf of somebody else to incorporate any company in Anguilla, Mr Hobbs then answered that First Zurich Financial was incorporated in Anguilla and that this would have been on his instructions. 1601Mr Halley notes that the s 10 transcript then continued (at p74.6), as follows: Q. Are you a director of First Zurich? A. No, no, First Zurich was then taken over. I didn't continue with First Zurich and the name was picked up by Bi Hong Dong who incorporated it. 1602Asked whether that was correct, Mr Hobbs had said "Well, the name was taken over, and it was incorporated in Vanuatu". (Again this reflects a very casual approach to the use of corporate vehicles.) Mr Hobbs confirmed that he had incorporated a company called First Zurich Financial in Anguilla and that Ms Dong had incorporated a company called First Zurich Financial in Vanuatu and that they were different companies. 1603In his evidence in the s 10 examination, when asked whether the company he had incorporated in Anguilla was still listed and if not when it was deregistered, Mr Hobbs said "Probably 2006, 7, something, I assume. I don't really know". 1604In response to a question as to whether his answer at the s 10 examination that he had never used the First Zurich Anguillian company was correct, Mr Hobbs said "Yes, but I never had a bank account" (seemingly suggesting that the existence of a bank account equated to the use of the corporate entity). Taken to his evidence in his s 10 examination to the effect that FZF Anguilla had not engaged in any activities and asked in the witness box before me if that was a correct answer, Mr Hobbs said: A. Well it didn't have any bank accounts, so it didn't engage any financial activities such as that. [Pausing there, the suggestion that a company engaged in no activities because it had no bank account is surprising, particularly given that FTC which clearly did engage in the activity of selling subscriptions also had no bank.] ... Q. You understood, I suggest, when you answered no, Mr Hobbs, to the question, "so it engaged in no activities?" that First Zurich Limited, to the best of your knowledge, had never engaged in any activities? A. Mr Halley, very soon after this interview I was sectioned to the hospital. I cannot say, I cannot even recall these questions here. 1605Pressed on this answer at the s 10 examination, Mr Hobbs is recorded as saying the "We never completed any transactions, no" and that he had started to do project financing facilitation work with it but that had not continued and that "No, we didn't receive any payments" (but adding that the FZF Vanuatu company of Ms Dong had received payments). 1606Mr Hobbs was unable in the witness box before me to recall whether FZF Anguilla had ever had an entitlement to receive any payments or to identify any payment as one to which he considered FZF Anguilla was at any time entitled. Mr Hobbs accepted that FZF had been deregistered and he was unable to recall whether FZF Anguilla was re-registered at any time after its deregistration in or about 2006 or 2007. Mr Hobbs was also unable to recall the last time he had had anything to do with FZF Anguilla. 1607For present purposes, I note that Mr Hobbs' recollection in the witness box before me was that he did recall having an involvement in the activities of FZF Vanuatu, the nature of that involvement being "working for Global Funerals Limited". Hence, there is some doubt as to whether the FZF company named in the Global Funerals facilitation agreement is the entity that was incorporated in Anguilla or the entity of the same name in Vanuatu. Nothing presently turns on this except that it illustrates the potential for confusion where more than one entity was incorporated with the same name (and provides an explanation for the apparently conflicting evidence as to the place of incorporation of OEM and KLM). 1608I accept that there is no evidence of any person other than Mr Hobbs making a decision for or on behalf of FZF Anguilla with the possible exception of Mr Diaz. However, whatever involvement Mr Diaz may have had with that company it had ceased by the time of the breakdown in the working relationship between he and Mr Hobbs. ASIC submits that the fact that Mr Diaz was accustomed as an FTC executive to act at the direction of and on the instructions of Mr Hobbs, means that it can be inferred that he did so in relation to FZF Anguilla. More relevant, in my view, is the fact that the evidence does not disclose him performing any role at all for that company before or after 2004.) 1609Having regard to the above, I find that at the relevant times Mr Hobbs acted as the de facto director of FZF Anguilla. * FZF Vanuatu 1610FZF Vanuatu (to which I have referred above) was another offshore incorporated IBC, separate from FZF Anguilla (though Mr Hobbs described it as having been "taken over" from that entity in some fashion). Ms Dong's evidence is that she and Ms Li incorporated FZF Vanuatu as an offshore IBC following conversations with Mr Hobbs in about 2006. There is no evidence that registered office services were invoiced to Mr Hobbs or paid by Tasman Business Consultants. However, Mr Hobbs himself concedes that the company was set up at his request and on his behalf and (at T 1385.12-14; T 1388.34-37) Mr Hobbs admitted that he was the owner of the company. (He described Ms Dong as the "administrator" of the company. Mr Collard seems to have seen some significance in the asserted fact that Ms Dong had resigned as the administrator of Secured Bond at the request of Chinese investors but there is no evidence of this.) 1611At T 1385-35-36 Mr Hobbs confirmed that he was the beneficial owner of FZF Vanuatu.) Mr Hobbs explained his understanding was that this was because the company was incorporated for him (T 1388.49; T 1389.10-12) by Ms Dong (T 1381.10-19) or by Ms Dong and Ms Li (T 1389.49-50). 1612Insofar as Ms Dong signed documents on behalf of FZF Vanuatu such as the FZF Vanuatu Master Fund agreement ([281]-[283]) and documents as "administrator" of FZF Vanuatu (Ex G tab 42; [274]), she says (and I accept) that this was at the request or direction, or on the instruction, of Ms Li ([253], [256], [257]-[276] or at the direction of Mr Hobbs ([284]). (Ms Dong says that she also on one occasion signed an FZF Vanuatu document on the instruction of Mr Zhang.) 1613Ms Dong's evidence, which I accept, was that she was accustomed to signing documents placed before her by Mr Hobbs ([159]-[160], [165]-[169]) or Ms Li ([257]-[276], [285]-[286]); that on some occasions those documents were backdated ([252], [256]); and that she did not (or did not always) know the nature of the transactions in respect of which she was signing documents on behalf of FZF Vanuatu ([257], [276]). 1614Documents signed by Ms Dong on behalf of FZF Vanuatu included directions as to investments and withdrawal of investments of funds in various of the schemes the subject of these proceedings (including Master Fund, Elite Premier Option Two Unit Trust and Best Fund) as well as directions to pay commissions to companies controlled by Mr Hobbs (including Magny-Cours and Tasman Business Consultants), to the solicitors who acted for Mr Hobbs (Fletcher Vautier Moore) and to Shunfu Corporation (an IBC controlled by Ms Li). 1615Mr Hobbs could not recall whether he had seen any document recording any ownership by him in FZF Vanuatu but said "Look, I may have". He did not believe that Ms Dong is still the administrator of FZF Vanuatu but could not say when she stopped being the administrator for that company. Asked whether the company has an administrator today, Mr Hobbs said "I would be the administrator of it" but was not able to point to any means by which he was so appointed, seemingly having just assumed that role. He accepted that he had assumed the role of administrator independently of any corporate resolution of the shareholders or directors. 1616Mr Hobbs denied that, as far as he was concerned, he and FZF Vanuatu were for all practical purposes the same entity, though he maintained he was the "owner" and administrator of the company. Surprisingly, in light of that evidence, he maintained that he did not know who were the directors or shareholders of the company. It is impossible having regard to this evidence to accept that Mr Hobbs did not regard an IBC as anything other than an extension of the owner of it or person for whom it was incorporated. Any such suggestion becomes even more difficult to accept in circumstances where, during the course of the hearing, evidence was given that Mr Hobbs had signed an authority appointing two people (whose names he had difficulty recalling when put to him in the witness box) as his proxy for FZF Vanuatu for a meeting convened by the liquidator of the Master Fund. That proxy form (Ex BD) was signed by Mr Hobbs above the typed words "Signature Authorised Officer" maintained in the witness box that he understood that he had authority to sign as the "owner" of the company but when pressed on this said "Well, depends what an officer is. I mean, I'm not a director or a shareholder." 1617Mr Hobbs then seemingly sought to dismiss the significance of this by saying: "This document was filled out, was handed to me across the table very quickly, and I just signed it. I didn't even read it". He accepted that he does not now know whether he was an authorised officer of FZF Vanuatu for the purposes of filling out a proxy. 1618Significantly, on at least one occasion Mr Hobbs has signed an agreement nominating his companies as including FZF Vanuatu (the agreement dated 1 June 2007 with MLN - see listing of FZF Vanuatu in the Confidentiality and Non-Circumvention agreement; he had a business card in his name on FZF Vanuatu letterhead; and he received invoices addressed to FZF Vanuatu marked to his attention (such as the invoice dated 29 April 2008 from Fletcher Vautier Moore re "loan contracts"). 1619ASIC submits, with the exception of Ms Li (and I would interpose to add Ms Dong), there is no evidence of any person making a decision for or on behalf of FZF Vanuatu other than Mr Hobbs. In relation to Ms Dong, Mr Halley points out that the evidence is that she signed documents without the exercise of any independent mind - a submission that I accept. 1620Relevantly, on the evidence before me I would conclude that (both as an FTC executive and in her position as an "introducer" or in promotion of the investment schemes for the funds of which she was a co-administrator, Ms Li was accustomed to act at the direction, and on the instructions, of Mr Hobbs. I place weight in this regard on the communications from Ms Reisinger to Mr Hobbs in which she updated him as to the progress of "Lili's" funds and informed him as to matters in relation to those funds. 1621In that regard, Mr Hobbs referred to a particular email communication (on which there was no recorded email address) that was sent from Ms Reisinger in September 2007 and headed "Lilli and David" (relating to the information required in relation to Mr Zhang's passport details for the opening of a Cadent account, to which Ms Li responded that Equity Holdings (the nominee director) was still the director and Mr Zhang was the administrator of the company). Mr Hobbs submits that the reference to "David" in that communication was to Mr Collard. Mr Halley noted that there was not an address on the face of the document from which it could be determined precisely to whom it was sent but submitted that it could be inferred from the fact that Ms Reisinger wrote to "Lilli and David" that either Ms Reisinger knew that providing it to Ms Li meant that it would be sent to Mr Hobbs or that the actual email from Ms Reisinger went to Ms Li and to Mr Hobbs. 1622Mr Hobbs, during the course of Mr Halley's opening submissions referred to this email and said: At the end of Friday, there was a lot of discussion about an email to Lilli [and] David. It did not have my email address on it. It was actually an email to Lilli [and] David Collard. Lily, when she was opening accounts with Cadent, was quite secretive and got David to do the mundane chores. 1623There is no evidence from which I could conclude that the David to which reference is here made is Mr Collard (although I accept that this is possible). There is however a fair amount of other communications to David and Ms Li that must be referable to Mr Hobbs. 1624Nor is there evidence from which I could conclude that Ms Li was "quite secretive" when opening Cadent accounts (though it is of interest that someone who asserts no interest in the accounts might have expected any information from Ms Li in relation thereto and hence might have formed the view that she was quite secretive). Similarly, there is no evidence from which I could conclude that Mr Collard's role was a mundane one. 1625In relation to FZF Vanuatu, it is of significance that Mr Hobbs assumed the role of administrator of FZF Vanuatu after Ms Dong ceased in that role (T 1389.28-31) and (as he concedes) did so without any company resolution to that effect (T 1390.28-31) and it should be noted that he did so in circumstances where his evidence is that he did not know who were the directors or shareholders of the company (saying at T 1390.21-26): Q. But how did you become the administrator, Mr Hobbs? A. When Bi Hong Dong stepped away. 1626(I interpose to note that significance is placed by Mr Halley on the evidence relating to Mr Hobbs' assumption of the role of administrator FZF Vanuatu as again indicating Mr Hobbs' understanding of the operation of offshore IBCs (as entities controlled by a beneficial or undisclosed owner) and who it is that in effect controls them. Tellingly, Mrs Hobbs also seems to have understood an IBC to be an emanation of the person for whom it was established or who was in a position to direct its activities, insofar as she referred in closing submissions to Wyndom Enterprises as "my IBC" (and I would infer that it is likely that Mrs Hobbs obtained her understanding of IBCs through Mr Hobbs, who of the two had the more financial experience). Though Mrs Hobbs suggested later that there were others who shared a controlling interest in that IBC, the relevance I see in this is simply the assumption, that Mr Hobbs seemed to share, that an IBC incorporated on the application of a person in an offshore jurisdiction was that person's IBC (from which one would infer that person controlled the operation thereof). This is consistent with the explanation that Mr Hobbs gave at the DVD Seminar to the incorporation of IBCs for the purposes of investment in funds of the kind to which he there referred.) 1627I find that Mr Hobbs was the ultimate beneficial owner and controller of FZF Vanuatu and the de facto director of that company (and that he was, in any event, a shadow director thereof). * International Management Incorporation 1628International Management Incorporation is yet another offshore incorporated IBC. I find that it was incorporated at or on Mr Hobbs' instructions, having regard to the fact that the Certificate of Incorporation for the company contained a handwritten notation marked to the attention of Mr David Hobbs, that indicates it was forwarded by the relevant incorporator to Mr Hobbs, and having regard to the contents of communications sent to Ms Reisinger when a Cadent account was opened for it in mid 2006. 1629On 22 May 2006, Mr Mitchell sent a fax to Ms Reisinger (stated to be on the instructions of "David"), attaching a Cadent Account Application and Agreement for Corporations in the name of International Management Incorporation and noting the persons authorised to act with regard to the account as being Mr Mitchell and Mr Hobbs. That application was signed by Mr Hobbs as "beneficial owner" of International Management Incorporation. 1630On 7 November 2006, Mr Mitchell sent a further fax to Ms Reisinger in relation to the International Management Incorporation Cadent account application, attaching various documents including a form entitled Exemption for Foreign Entities which was signed by Mr Hobbs, a personal guarantee given by Mr Hobbs to Cadent for the International Management Incorporation Cadent account, and a director's resolution of International Management Incorporation authorising Mr Hobbs to act as signatory to the Cadent account "in all manners required" and authorising Mr Mitchell and Mr Hobbs to act with regard to the Cadent account in any way to manage the account efficiently. 1631There is no evidence that Mr Mitchell exercised any independent management role in respect of this company. 1632On 28 June 2007 (shortly after International Management Incorporation had been deregistered, that occurring on 4 May 2007), Mr Hobbs transferred his 26 shares in Barclaywest to International Management Incorporation. (In the absence of anything to suggest that this transfer was for consideration, I accept that it should be inferred that Mr Hobbs was effecting the transfer of his shares in the company to an entity controlled by him.) 1633On 27 August 2007 (again, notwithstanding that it had by then been deregistered), Mr Hobbs signed a temporary contract for Pinnacle Fund on behalf of International Management Incorporation (Ex AU 9845), in which the address of International Management Incorporation was stated to be the same as the registered address of Tasman Business Consultants (and the contact details included the Hobbs' "nasl" email address). 1634Mr Halley also points to the fact that the business records of 888 Vanuatu identify Mr Hobbs as the administrator of International Management Incorporation (Ex AU 207; Ex AU 206) and that on 21 April 2008, 888 Vanuatu transferred $47,008.08 from the 888 Vanuatu Sovereign Bank account to Tasman Business Consultants, from funds invested in Pinnacle Fund (Ex AU 11509) purportedly representing shareholder profit payable to International Management Incorporation (Ex AU 11483; 11488). 1635On the basis of the above, I find that Mr Hobbs beneficially owned and controlled International Management Incorporation and was the de facto director thereof. * Diligence Discovery 1636Diligence Discovery was incorporated in New Zealand on 27 April 2006 (and deregistered on 31 March 2009). Mrs Burnard was recorded as its sole director and shareholder. The sole business of the company (and, it would seem from Mrs Watson's evidence, the sole reason for its incorporation) was to provide a corporate vehicle to monitor the receipt and payment out of superannuation money to Cadent and to account for any flow of funds from Cadent (T 401.13-18; T 404.20-25; T 406.45-48). 1637It was apparent from Mrs Burnard's examination in chief that she regarded her task in the Diligence Discovery oversight process as administrative and that she was not responsible for determining what process the company should carry out as part of an oversight process of this kind (nor why such a process was necessary. The evidence establishes that Mrs Burnard undertook this role according to directions provided by others (by Mr Hobbs, either directly or through her mother, and by Mrs Watson herself (T 466.11-48; T 468.39-45; T 402.37-42), though she also had some communication with Mr Koutsoukos. 1638It seems fair to say that neither Mrs Watson nor Mrs Burnard displayed any real understanding of why a process of this kind (or for that matter the OEM/KLM process) would be necessary or of what was comprised by some of the steps that were put in place. 1639Mrs Burnard, for example, had no idea what a clearing house was, or what was the purpose of including a disclaimer for legal professional privilege on her standard form correspondence (or indeed what type of communications might attract such privilege). She accepted that the language of the letter in that regard would have been provided by others. Ms Burnard understood the Diligence Discovery process to be a process whereby Mr Hobbs was able to confirm and verify that Mr Koutsoukos, Mr Wood and Mr Truong were subject to proper compliance and oversight (T 469.33-50; T 470.1-30; T 471.6-40). 1640Mrs Watson said that she had had some involvement in the setting up of Diligence Discovery but when asked what she had done her involvement seemed to be confined to grammatical input into the preparation of the agreement between Diligence Discovery and 888 Vanuatu (for the provision of oversight services to the latter in relation to the 888 (Super Save Fund) and ensuring it was readily comprehensible ("Just made sure that it was clear to understand and that it was set out clearly, grammatical, that the steps were easy to follow, I hope"). As to the content of the document, she said (T 466.20-28) that: A. Well I think there was an input from both Con Koutsoukos and from David Hobbs and Emma and I tidied it up with what we understood to be what needed to happen. Q. And what was the input that you recall from Mr Hobbs? A. Well it was a rough draft, it certainly wasn't as much as this has ended up to be. I've, I can't tell you exactly how much input. I am sure if we are talking about percentages it was at least 50 percent. Q. And do you recall whose idea it was to incorporate a company for Emma? A. Well when Emma was approached to do this job I was concerned that she would be safe and have no liability back on her own home or anything like that and so that was discussed with David, to make sure that Emma was protected. Q. And when you say David that's Mr Hobbs? A. Yes. Q. And do you recall what Mr Hobbs said when you raised the concern about protecting Emma? A. I don't know the exact words but that's why Diligence Discovery Limited was set up, to handle that aspect. 1641As to the scope of what work that it was envisaged Diligence Discovery would do, Mrs Watson said that she had learnt of that through separate discussions (in which Ms Burnard was involved) with Mr Koutsoukos and with Mr Hobbs. 1642Mrs Watson seems to have understood the Diligence Discovery process to have involved a more comprehensive exercise than on its face it appeared to be, in that, when asked if the fee payable to Diligence Discovery had subsequently changed, she said: A. Yes, it did because when I say Con Koutsoukos it also means Jimmy Truong and Brian Wood. We were to supply the documentation to show the trail and when they became slow or negligent in providing that documentation all of a sudden things changed and you know so Emma was having to monitor it because she had an obligation back to the investors and their accountants and if she couldn't fulfil that obligation well, then, she had a problem. So every time she had to follow up it meant she had to check everything and it became time consuming. All of a sudden it wasn't just a paper trail, it was a nightmare. (my emphasis) 1643Mrs Watson confirmed that she had raised this issue with Mr Hobbs, though she was unable to recall what she had said to him. She said that she had raised that with Mr Hobbs because: A. Well what was supposed to have been a simple job was now becoming very awkward and I don't know if I; yes, I would have raised the question of the money and the time but I also was raising it with Con Koutsoukos to comply and in the end I think Emma put a 48 hour notice on them otherwise she was going to have to notify the clients that she couldn't complete the money trail. 1644Taken to a letter signed by Mrs Burnard on letterhead of Diligence Discovery Limited to Mr Collard (stating that "Your requirement is to supply by fax and/or email original receipts as listed below" and the list of matters there specified) Mrs Watson indicated that she had had no involvement in the specification of the requirements and said that by that stage she thought "Emma had a pretty fair grip on the whole thing and she was driving it". Mrs Watson's evidence (as I understand it) was that, apart from the original establishment of the system, Ms Burnard was in control of it and Mrs Watson had no daytoday involvement "other than if Emma was creating a new letter or whatever she would run it by me to see if I understood what it meant which therefore would mean that whoever it was going to would understand it too". 1645Relevantly, neither Mrs Burnard nor Mrs Watson had obtained any instruction as to the tasks they were carrying out from anyone other than Mr Hobbs (and certainly not by Mr Becker, he being one of those persons who Mr Hobbs has broadly identified as owning or controlling OEM or KLM). Neither had spoken with Mr Becker. Mrs Burnard recalled that she had communicated by email with Ms Reisinger but could not recall having met her. 1646Insofar as Mrs Burnard gave evidence that she had spoken to Mr Koutsoukos, Mr Wood and Mr Truong as to the nature of the work (T 406.13-27; T 414.41-50; T 415.1-16; T 426.42-47), Mr Halley characterises the information they gave her (and I accept that this is a fair characterisation) as relating to the companies with which they were involved in for the purposes of that process (888 Management Australia, 888 Vanuatu, ISPL and ISL) (T 415.29-45) rather than as matters going to the rationale or need for the oversight process itself. (Indeed the evidence of at least Mr Koutsoukos (who queried the cost of such services and thought they could more economically be carried out from the J&B Financial offices) suggests that he and/or the other J&B Financial officers had no real understanding as to why Diligence Discovery was required to be involved in the investment process for the funds operated out of that office but accepted the necessity for this process because Mr Hobbs had mandated it.) 1647Mr Halley notes that other than some assistance provided by Mrs Watson (T 453.21-26; T 440.45-49; T 441.1-13; T 446.8-9), Mrs Burnard was the only person who performed the services provided by Diligence Discovery and the company did not engage any employees (T 400.29-32; T 401.3-5; T 402.34-35). As I understand the evidence, the Diligence Discovery work was largely, if not wholly, carried out from Mrs Burnard's home. 1648When queried as to who it was to whom she would speak if instructions were required as to difficult issues in relation to the operation of the process, Mrs Burnard's evidence was that either she or her mother would speak to Mr Hobbs (T 468.39-45; T 467.26-50; T 468.1-16; T 417.35-50; T 418.1-17; T 419.22-43). While Mrs Burnard and her mother gave evidence that they prepared a number of standard form letters to use as part of the OEM/KLM process (T 468.39-49), their input seems to have been more from a cosmetic point of view (or as a courtesy as it was described in relation to one such letter) than as to the substance of the communication. Tellingly, where a draft letter was required for submission to an accountant, it seems that they considered Mr Hobbs' input would be necessary. 1649Mrs Burnard invoiced 888 Turks & Caicos, ISPL and ISL for the Diligence Discovery work and was paid for her services by Mr Koutsoukos, Mr Wood and Mr Truong (T 406.13-16; T 414.22-30; T 415.21-45) and from late 2006, Mrs Burnard also did work for 888 Vanuatu (the corporate administrator of the 888 (Super Save) Fund and/or for Mr Collard, Ms Li and Ms Wu) and was paid for those services by them (T 416.13-34; T 417.18-33; T 420.3-49). 1650ASIC contends that Mr Hobbs was a shadow (not de facto) director of Diligence Discovery on the basis that, at all material times, Mrs Burnard (the person who undertook the major work performed by the company) reported directly to Mr Hobbs and was accustomed to act on his instructions and at his direction. 1651I accept that it was Mr Hobbs who directed that the monitoring or oversight services provided by Mrs Burnard's company should be put in place and used by the J&B Financial officers (and that it is likely that he similarly directed the use of those services by 888 Vanuatu or 888 Management Australia on its behalf, given the unlikelihood of those companies independently deciding that there was a need for the services and the coincidence of them then using Mrs Burnard's company in a different jurisdiction for that purpose). 1652I am further satisfied that although Mrs Burnard (the sole director of the company), had some independence in the way in which she phrased the communications issued by the company and sent update letters, she was accustomed to act in accordance with the directions of Mr Hobbs (from himself or through her mother) and she did not make the substantive decisions for the company without reference to Mr Hobbs (again, either directly or through her mother). 1653Without any criticism of Mrs Burnard, who became involved in the process apparently because of her recognised organisational and administrative skills, Mrs Burnard's ignorance of the meaning of various of the terms used in her own correspondence, her lack of knowledge as to why a disclaimer for legal professional privilege would appear on the letter and her lack of any understanding as to the purpose of the tasks being carried out by the company in the context of the investment schemes, makes it inconceivable that it was she who made the important business decisions of the company. That person can only realistically have been Mr Hobbs, having regard to the fact that Mrs Watson also exhibited no understanding of what was involved in relation to the schemes. I am therefore satisfied that in substance Mr Hobbs directed the kind of services to be provided (and that he was the person to whom Mrs Burnard and Mrs Watson ordinarily have turned for guidance or instruction in relation to those tasks). 1654(I accept that there is evidence that Mrs Burnard spoke to Mr Koutsoukos in relation to the tasks performed by Diligence Discovery. However, it is clear from his evidence that he had no understanding as to why this process would be necessary for Super Save, as opposed to the lack of such a process for Integrity Plus, and his involvement was at an administrative level in that regard. Moreover, Mr Koutsoukos' involvement could not explain the fact that similar arrangements were set up for the 888 (Super Save) Fund, which was administered by Mr Collard and Ms Li.) 1655While, taken in isolation, specifying the particular checks or tasks to be carried out might be consistent with a client directing an independent contractor as to its particular accounting requirements, the role of Mr Hobbs seems to have gone much further than that (in drafting the terms or at least 50% of the contractual terms between Diligence Discovery and scheme administrators, for example). 1656I am satisfied that in matters of significance in relation to the Diligence Discovery process, Mrs Burnard (and Mrs Watson to the extent that she remained involved therein) were accustomed or likely to act in accordance with the instructions of Mr Hobbs. Accordingly, while I would have had considerable hesitation if asked to find that he were a de facto director of the company, I am satisfied on the evidence that Mr Hobbs was a shadow director of the company. * Legend of Bathurst 1657Legend of Bathurst was not an IBC. It was incorporated in New Zealand. I find that at all material times Mr Hobbs beneficially owned and controlled Legend of Bathurst; that he controlled the practical direction of the company; exercised all relevant top-level management functions; and acted in the position of controlling the sole director of the company (Mr Nicholas Moore). 1658Each of Mr Nicholas Moore and Mr Bellamy (lawyers then working with Fletcher Vautier Moore) has deposed that he holds the shares in his name in the company on trust for Mr Hobbs (N Moore [21]; Bellamy [27]). They have deposed to the circumstances in which the company was set up by them on instructions from Mr Hobbs. Neither Mr Bellamy nor Mr Moore (the sole director of the company) made any decisions in respect of the management of the company, each deposing that all relevant decisions of the company were made by Mr Hobbs (N Moore at [21], Bellamy at [28]). This is consistent with the evidence as to the instructions given in relation to the purchase by Legend of Bathurst of the Echodale and Covent Street properties (Bellamy [35]) both as to the nomination of the purchaser and as to the source (and characterisation) of the funds used to complete the purchase (as is, significantly in my view, the concern that was expressed by Mr Moore as to the exposure of his firm as to the then proposed loan arrangement in relation to the purchase). 1659It is noted by Mr Halley that there is no evidence of any tenancy agreement between Legend of Bathurst and Mr and Mrs Hobbs in relation to the residential property occupied by the latter nor of any rent paid by them to the company (N Moore at [118], Bellamy at [24]-[25]) and that Council rates invoiced to Legend of Bathurst in respect of the property at Covent Drive (and sometimes in respect of the property at Echodale Place) were paid (on the instructions of Mr Hobbs given to Mr Mitchell) by Tasman Business Consultants (Mitchell at [26]). 1660(I have referred earlier to the assertion made by Mr Bellamy in correspondence after the event as to the existence of a loan arrangement in respect of the funds the Legend of Bathurst used for purchase of the Nelson properties). This is, however, inconsistent with the correspondence at the time of the purchase and, in any event, it does not detract from the conclusion (inescapable on the evidence of Mr Moore and Mr Bellamy, neither of whom was required for examination by Mr Hobbs and whose evidence on this issue was therefore not the subject of any challenge) that they held their shares in the company on trust for Mr Hobbs and that they acted at all times in accordance with his instructions in relation to the company. I find that Mr Hobbs was the shadow director of this company. Findings - FTC/OEM/KLM 1661Turning to the entities more central to the operation of the investment process, I make the following findings. * FTC 1662FTC was incorporated as an IBC in Vanuatu. The provision of registered agency services with respect to FTC's registered office, nominee shareholder and nominee director was arranged by Mr Cable (who worked for Mr Hobbs out of the Hobbs office, as well as running an investment fund not the subject of these proceedings). Fees for those services were paid out of the Tasman Business Consultants BNZ bank account, on the instructions of Mr Hobbs (Mitchell evidence referred to above). The business address of FTC was the registered office of Tasman Business Consultants (a company controlled by Mr Hobbs). 1663As an IBC registered in Vanuatu, I accept that it can be inferred from the evidence of the manner in which such IBCs were incorporated that the person or entities registered as the shareholder and director of FTC held such shareholding and office in a nominee capacity for the benefit of the client for whom those services were provided. I am satisfied that the evidence establishes that that client was Mr Hobbs. 1664I have noted earlier the inconsistent submissions from Mr Hobbs as to the incorporation or formation of FTC: namely, whether he formed the company; formed the products brought into the company; sold the company; sold the company but retained a beneficial interest in the company; had an expectation of receipt of a benefit from the sale by others of the company and the like. What can be confidently said is that Mr Hobbs represented to others that he had an interest at some stage in the company and that Mr Hobbs acted at all times from 2004 (and, in my view, did so before) as if he were the person in the position to control the company (without the need for reference to any person overseas such as Mr Chen or Mr Parker). 1665I find that FTC was a company that was incorporated by (and/or continued to operate at the relevant times on) the instructions of Mr Hobbs and that he was at all material times the beneficial owner and controller of FTC. There is no evidence (other than Mr Hobbs' assertions) that FTC (or, perhaps more precisely, the entity known as FTC that was incorporated in Vanuatu in 1999, since I would by no means exclude the possibility that there had been others incorporated by Mr Becker or Mr Chen if, indeed, they were seeking to build up an FTC 'empire' of sorts across the United States and China as Mr Hobbs suggests) was a company beneficially owned or controlled by other persons such as Mr Becker or Mr Chen. 1666Certainly, after April 2004, Mr Becker could have had no involvement in FTC, he no longer being alive. However, there is no evidence of any involvement by Mr Becker in the operation of FTC before that time. The suggestion by Mrs Watson in the witness box that Mr Becker was an owner of FTC seemed very much to be an afterthought (she having already answered a number of questions without mentioning any such involvement). In any event, as emerged when she was cross-examined on this issue, her belief as to the ownership of the company by Mr Becker and/or someone in China was clearly based on no more than what Mr Hobbs had told her. As to Mr Chen, there is simply no evidence that Mr Chen ever exercised any control or took any step in respect of the company. Mr Hobbs' reference to a visit from Mr Chen at the time the KLM IP invoice was presented to the J&B Financial officers (emerging for the first time in his cross-examination) was not supported by reference to any such meeting by anyone else (and was not put to the J&B Financial officers in cross-examination. I accept that Mr Hobbs' stated recollection of a conversation with Mr Chen at that time was implausible (and had the air of an incremental change in his evidence of the kind to which Mr Halley referred as characterising Mr Hobbs' evidence as a whole). 1667I am satisfied that at all material times Mr Hobbs controlled the business and operations of FTC (in Australia and New Zealand) the subject of and relevant to these proceedings (namely in relation to the sale of financial education material, recruitment of FTC executives, and conduct of FTC seminars or other meetings (at which investment opportunities through access to the wholesale market offshore were discussed). I include in this finding, Mr Hobbs' control of FTC's business activities in relation to the marketing of opportunities for offshore investment in investment schemes of the kind the subject of these proceedings. 1668Mr Hobbs controlled the practical direction of FTC, exercised top-level management functions for the company, and acted in the position of the most senior executive director (at least in Australia and New Zealand) of the company. I find that Mr Hobbs was a de facto director of FTC. 1669Given that all of the persons who undertook the principal work performed by the company (including not only the FTC executives who gave evidence in these proceedings, but also Mr Robert Hobbs, Mrs Watson and Mr and Mrs Dent) reported directly to Mr Hobbs and were accustomed to act on his instructions and at his direction, Mr Hobbs would also satisfy the test of being a shadow director of FTC (though such a finding is unnecessary in light of the fact that he was clearly in my view a de facto director of the company). * OEM/KLM 1670I have referred earlier to the confusion as to where and when the relevant OEM and KLM companies (ie those involved in the investment process) were incorporated and to the seeming likelihood that there were at least two companies registered in those names during part or all of the relevant period. 1671Relevantly, the non-admissions made by Mr Hobbs in his pleaded defence as to the various corporate entities include non-admissions as to the alleged place (and date) of incorporation of each of OEM and KLM. In its then form, the pleading to which Mr Hobbs responded in this regard ([26] and [27]) was that OEM was a company incorporated in the British Virgin Islands on 12 December 2003 up to the date of its deregistration on 1 May 2007 and that KLM Enterprises was a company there incorporated on 11 February 2002 up to the date of its deregistration. 1672As amended the pleading now goes on to allege further or in the alternative that OEM was a company incorporated in Anguilla or the Federation of Saint Kitts and Nevis or the Bahamas or was an entity known as O.E.M. Ltd or OEM Ltd and (again further or in the alternative to the allegation in relation to KLM), that K.L.M. Ltd or K.L.M. Enterprises Ltd was a company incorporated in Anguilla or the Bahamas or was an entity known as K.L.M. Ltd or KLM Ltd or K.L.M. Enterprises Ltd. 1673Ultimately, nothing turns on the particular offshore jurisdiction in which OEM and KLM were incorporated. However, it is relevant in my view, when assessing the reliability of Mr Hobbs' recollection, that entities about which he was so confidently able to speak when questioned as to their corporate structure in the context where he was selling his financial expertise or product (such as the DVD Seminar) are now seemingly beyond his recall. 1674There is certainly primary evidence, in the form of business records, that companies of those names were incorporated (and later deregistered) in the British Virgin Islands. However, there are references to OEM and KLM in correspondence at dates earlier than the date of incorporation of the companies in the British Virgin Islands (which suggests that either the OEM/KLM entities there mentioned were different entities to BVI entities or that the letterhead/logo was a sham). 1675There is also evidence that indicates that companies of those names were at one stage incorporated in Anguilla (namely, evidence that registered agency services in respect of companies named OEM and KLM were being provided by First Anguilla Trust Co Ltd in Anguilla in 2005, including the provision of nominee shareholder and director and registered office address - Ex AH tab 10). Furthermore, in 2006, Mr Hobbs communicated with First Anguilla Trust Co for OEM and KLM to be "revived" (they having been struck off from the company register in Anguilla after non-payment of annual renewal fees). Mr Hobbs nominated the beneficial owner of the companies for the purposes of their revival as being Ms Li. (In his submissions, Mr Hobbs says that this was at Ms Li's request. However, there is no evidence of this.) Mr Hobbs forwarded a copy of the above communication to Mr Wood (Wood at [164], [302], [477]-[478]), who Mr Diaz identified as having been responsible for dealing with renewals of all IBCs incorporated in Anguilla, including those for Mr Hobbs (Diaz at [154]-[159]; Ex F tab 52), from which I would infer that Mr Hobbs regarded those companies as being within the IBCs maintained for his behalf. (On the list of IBCs maintained by Mr Wood, OEM and KLM are recorded as being "nz" companies, rather than and "au" companies, suggesting a closer link to Mr Hobbs.) 1676There are also various assertions in evidence in these proceedings that each of OEM Ltd and KLM Ltd (or KLM Enterprises Ltd) was a company incorporated in Nevis (DVD Seminar, Ex R) or based in Nevis (email dated 12 July 2001 from Mr Cable in relation to services for IBCs; Ex AT, tab 70). 1677Letters were written on different versions of OEM Ltd letterhead (one, with a header stating that the company had an office address in Nevis (though with a fax number in England) (Ex AM 8) another, also on letterhead with a header showing an office address in the Bahamas (but with the same fax number in England) (Ex AM 9). Mr Halley notes that each of the versions of OEM Ltd documents with either an office address in Nevis or an office address in Bahamas was a document that Mrs Watson or Mrs Burnard arranged to be sent to addresses in Australia. 1678Mr Hobbs' attempt to distance himself from the operation of the OEM/KLM part of the investment process was inconsistent with the contemporaneous records (in particular, his comments on the DVD Seminar) and the evidence of those to whom he explained the process at the time (including Mr Blow and Mr Parsons). It is also inconsistent with the emphatic evidence by Mrs Watson as to how the system should have worked (since that understanding can only have come from Mr Hobbs) and as to the total lack of awareness by Mrs Watson and Mrs Burnard as to where OEM/KLM were based and the purpose of the process. 1679When asked in cross-examination how Mr Hobbs understood the system should have worked, Mr Hobbs was emphatic that "FTC executives should have nothing to do with selling investment". (If that was indeed a requirement of the process, then it is somewhat unfortunate that attendees at the DVD Seminar might not unreasonably have formed the view from what Mr Hobbs himself said that the sale of investments was a natural consequence of the sale of financial education material by FTC and that there could be a seamless move from provision of the financial education to sale of investments under a KLM contract by the same peoples, though acting as introducers not FTC executives.) (It is reminiscent of Mrs Watson's adamant evidence in the witness box that Mr Jouravlev's response to the questions posed as part of the OEM qualification process were incorrect and that Mr Jouravlev should not have 'qualified' for the next step in the process, whereas in fact the evidence shows that the process continued on regardless.) 1680Significantly, what the evidence of Mr Parsons shows is that Mr Hobbs had not only been instrumental in the setting up of the "OEM/KLM" process but that he had envisaged this as an 'automatic' process (and had hoped that it could be implemented electronically without the need for human intervention). That, to my mind, clearly demonstrates the artificiality of the process, as does the seemingly unnecessary interposition of a UK fax number on the OEM/KLM letterhead. 1681(Reference is made by Mr Halley to the evidence of Mr Diaz (at [182]) that (when Mr Hobbs stated to Mr Diaz that Mr Parker was one of the owners of OEM), Mr Parker disavowed any such proposition and told Mr Diaz that Mr Hobbs was "the only one that owns OEM, KLM and FTC". To the extent that there is a suggestion that Mr Hobbs was present when Mr Parker said this, and did not challenge this, it would be of some significance but I am by no means confident that this was what should be drawn from Mr Diaz' affidavit and I place no weight on this.) 1682Mrs Watson's evidence made clear, in my opinion, the mechanical ("seamless") nature of the OEM/KLM process or at least her involvement in it. She confirmed that the process was that once an IBC had been "qualified", through the OEM process, and had received a list of funds "through KLM", then the next step was that: A. They could either choose to get a memorandum on that on whatever fund interested them or not. If they chose to get a memorandum, I would advise Craig Dent and he would forward that memorandum on to that person, and that might be one or several, whatever the case may be. Q. Then, would Mr Dent then confirm to you that he had provided that memorandum to the potential investor? A. Yes. There was no need for him to do that. Our interest in that process was finished at that point. Q. You say that, once he sent the memorandum to the IBC A. Once the request was made for information on a particular fund, I would notify him of that and the address and the IBC that it was to be sent to, and that was the finish of KLM involvement in the process. 1683Mrs Watson confirmed that Mr Dent had provided her (not very often) with a document confirming the dispatch of scheme memoranda to investors (in the form of the documents headed "KLM dispatch between 1 October 2005 and 31 October 2005" and "KLM events between 1 October 2005 and 31 October 2005" (that document identifying in some cases that Mrs Watson had requested the dispatch of the document). Mrs Watson was also taken to a letter on the letterhead of KLM Enterprises Limited to which her name had been added and confirmed that she had sent such documents to FTC executives (confirming the dispatch of the scheme memoranda) but she denied that this was the next step in the process, saying that: A. No. When Emma had let me know that the KLM fund further information on a particular fund had been requested, I notified Craig Dent and I also sent this note to whoever might be attached to that person just to let them know that whoever it was had received the information. It was not something that was required, but because people made incorrect requests from OEM and confusion could set off, especially amongst the Chinese et cetera, it was just a courtesy thing really to tell them that memorandums had been sent out. Q. Now, was the courtesy extended to the FTC executive who had initially sold the FTC education package or was it to the fund manager, in respect of which the memorandum had been sought? A. No, it was sent to the FTC executive who had introduced the person to FTC. (my emphasis) Q. And why did you do that? A. Oh, just because sometimes people got tangled up in their original approach to OEM and the other thing that was awkward was that only one page at a time could be sent to OEM and sometimes people repeatedly tried to send two and, of course, if they were sending their IBC certificate, it wouldn't come through. So, at that point it created frustration and so I developed this practice of letting them know that, you know, if they'd gone through to the end where they'd approach KLM for a memorandum, then it had actually been dispatched or was about to be dispatched. 1684(Mrs Watson said that she did not recall discussing with Mr Hobbs the sending of these types of letters to FTC executives.) 1685The assertion made by Mr Hobbs in cross-examination (in stark contrast to what he said at the DVD Seminar and, as I read Mr Blow's notes, at the February 2003 meeting attended by Mr Blow) that he did not understand how the OEM/KLM process worked is frankly unbelievable: Q. Because on any view, Mr Hobbs, you were the person who was operating the OEM, KLM process after April 2004, if not before; that is the case, isn't it? A. Not correct. I couldn't even tell you how it exactly worked. (my emphasis) 1686When tested on what the knowledge given to investors comprised, Mr Hobbs denied that it was the receipt of the fax number for OEM and suggested that people could "obviously pick up any magazine, like I used to show, and find investments internationally" (even though at the DVD Seminar Mr Hobbs was quite clear that what would happen was that an investor would be provided with a fax number to contact OEM). Mr Hobbs' denial that the person from whom potential investors obtained the fax number to contact OEM was an FTC executive is implausible in circumstances where he was otherwise unable to suggest how the number would be found (and it was not in any of the FTC booklets as far as I could see). Mr Hobbs, in the witness box, sought refuge in a dismissive "They would be given it by somebody" and then "You would have to ask them. I wouldn't know". (The difficulty for Mr Hobbs is that the evidence of those he suggested Mr Halley should ask was that the fax number was given to them by the FTC executive who sold them the information packages in the first place - or who occasionally sent the fax request for them.) 1687As to FTC and the OEM/KLM process, ASIC contends that although FTC conducted business in Australia by soliciting for sale and supplying financial education materials to subscribers of FTC in Australia, its business was not limited thereto and that it included the solicitation of potential investors to invest in one or more of the individual schemes the subject of these proceedings. I accept that the evidence overwhelmingly establishes this. 1688ASIC contends that there was no distinction between the business of FTC and the FTC executives in supplying financial education, on the one hand, and the business of KLM and the KLM introducers (or brokers) in introducing potential investors to specific funds, on the other. Rather, it contends that the sale of the education and the communications on the letterhead of OEM/KLM process were all part of the one process by which investors were led to invest in one or more of the individual schemes the subject of these proceedings. I agree. 1689ASIC submits that in all of the circumstances it can be inferred, and I so find, that in respect of the matters the subject of this proceeding the business and operations of OEM and KLM (or KLM Enterprises) in Australia and New Zealand were controlled and run by Mr Hobbs. Findings - allegations as to the roles of the particular individual defendants 1690I next turn to consider the allegations made by ASIC as to the particular roles occupied by the individual defendants in the respective companies. 1691In summary, I note that paragraphs [1] to [36] of the Third Further Amended Statement of Claim plead to the parties and the companies of which ASIC alleges the individual defendants were directors or officers. 1692Other than Mr Truong (who was formally appointed as a director of ISPL), Mr Hobbs (as a director of Tasman Business Consultants) and Mr Collard and Ms Li (who in November 2006 were the subject of resolutions by the nominee director of Secured Bond purporting to appoint them as directors, apparently in the context of the Cadent account applications at that time), it is not suggested that any of the individual defendants (ie Mr Hobbs, Ms Li, Mr Collard, Ms Wu, the J&B Financial officers or Mrs Hobbs) was formally appointed as a director or officer of any of the relevant companies of which ASIC contends he or she was a director and/or officer. (Rather, ASIC contends that they were de facto, or alternatively shadow, directors and/or officers of the relevant companies.) 1693As to Mr Hobbs, I have made findings above as to his role with each of FTC, Tasman Business Consultants, Diligence Discovery, FZF Anguilla and FZF Vanuatu. It is also alleged (at [2]) that Mr Hobbs was a director (or alternatively an officer) of each of the corporate administrators (Secured Bond, PJCB, ISPL, ISL, 888 Vanuatu, 888 Turks & Caicos, Geneva Financial, Barclaywest, Preserved Investments, North Wave, GP Global, Destiny and Ultimate Investments). Mr Hobbs denies that he is or was a director or officer of any of the companies in question other than Tasman Business Consultants. (He does not plead to the allegations as to the position of other defendants (in [3]-[9]) other, relevantly, than that he admits that his wife is a shareholder of Tasman Business Consultants and save that he asserts that Ms Li and Messrs Collard, Koutsoukos, Wood and Truong were "contractors" to FTC.) 1694As to Ms Li, it is alleged (at [3]) that at all material times she was a director or alternatively an officer of Secured Bond, 888 Vanuatu, Barclaywest and GP Global; an officer of FTC; a shareholder of Secured Bond, 888 Vanuatu, Barclaywest, North Wave and GP Global. 1695As to Mr Collard, it is alleged (at [4]) that at all material times he was a director or alternatively an officer of Secured Bond, 888 Vanuatu, Barclaywest and North Wave; an officer of FTC; a shareholder of Secured Bond, 888 Vanuatu, Barclaywest, North Wave and GP Global. (Mr Collard, as I understand it, wishes to maintain that he performed no more than an administrative role for those companies and acted at all times on the instructions or direction of Ms Li. There is no evidence from which I could draw that conclusion.) 1696As to Ms Wu, it is alleged (at [5]) that at all material times she was an officer of 888 Vanuatu and Barclaywest. Ms Wu denies that she was an officer of the said companies. (The difficulty for Ms Wu is that there is copious material from which it is apparent that Ms Wu signed documents and gave instructions on behalf of those companies - including emails advising as to whether particular transfers were subject to the Diligence Discovery process. Ms Wu may well have acted in this regard solely on the instruction or at the direction of Ms Li, or she may have acted on the direction or instruction of Mr Collard or even, as Mr Hobbs asserts, Ms Dong. However, the evidence clearly supports the conclusion that the role she performed was as an officer of the companies and I so find.) 1697As to each of Mr Koutsoukos, Mr Wood and Mr Truong, it is alleged (at [6], [7] and [8] respectively) that at all material times he was a director or alternatively an officer of PJCB, ISL, ISPL, 888 Turks & Caicos; J&B Financial; Destiny; 888 Management Australia (now known as Serenity Management Pty Ltd); an officer of FTC; a shareholder of 888 Management Australia (and that in the case of Messrs Wood and Truong that they were also shareholders of J&B Financial). 1698As to Mrs Hobbs, it is alleged (at [9]) that at all material times she was a director or alternatively an officer of Geneva Financial and a shareholder of Tasman Business Consultants. Mrs Hobbs admits that she was an "administrator" of Geneva Financial and a shareholder of Tasman Business Consultants but otherwise denies the said allegations. 1699I interpose to note (as adverted to earlier) that it is by no means clear what Mrs Hobbs and others, including Mr Hobbs, understood the role of "administrator" of a company (as opposed to a scheme) to be, if not (at the very least) an officer of the company, in circumstances where the administrator seems to have been the one responsible for the day to day operational decisions of the company. I have already pointed to the confusion as to corporate nomenclature and roles evident on the part of many of those involved in the schemes the subject of the proceedings. 1700Mr Hobbs' position varied, as between companies, as to whether he accepted that the person who was administrator was also the owner of the company. While he saw himself as owner of FZF Vanuatu (and Ms Dong only as administrator of that company), he said that the owners of Geneva Financial were his wife and sister-in-law (seemingly on the basis that they were the administrators of that company). The only apparent difference in those two scenarios seems to be that he considers that his wife and sister-in-law had incorporated Geneva Financial for their own purposes but that Ms Dong had incorporated FZF Vanuatu at his request and on his behalf. In cross-examination, he appeared to accept that the owner of an IBC was its beneficial owner, but said that his understanding was that being an administrator of an IBC did not mean that he or she was the owner of the IBC. 1701Mr Hobbs was insistent that a beneficial owner of an IBC was not the same as someone who was a beneficial shareholder (though he did not make clear the difference he perceived between the two), maintaining that the position with offshore IBCs was different to that which applied in relation to companies incorporated in the jurisdiction (and insisting that one or more of the IBCs should have been "hybrids" - by which he seemed to mean they should have been incorporated as companies limited by shares and guarantee).) In any event, what the persons involved in the schemes called themselves is not the relevant test. The question is what role they performed. 1702As to the particular scheme administrators, it is alleged that at all material times Mr Clements was a director or officer of Preserved Investments and Mr Robert Fitzgerald was a director or officer of Ultimate Investments ([33]); that Mr Bernard Moore was a director or officer of North Wave ([34]); that Mr Guo Ping Zhang was a director or officer of GP Global ([35]); and that Mrs Brenda Hobbs was a director or officer of Geneva Financial ([36]). (Mr Hobbs' defence contains a non-admission in relation to the matters alleged in each of these paragraphs. Mrs Hobbs admits that Mrs Brenda Hobbs was an "administrator" of Geneva Financial but otherwise denies the allegation made as to her sister-in-law's position in [36].) 1703For the reasons that I set out in relation to the findings in respect of the individual schemes, I find that each of the scheme administrators was a de facto administrator of the relevant corporate administrator and that Mr Hobbs was a shadow director of each of the said corporate administrators. 1704For completeness, I note that, as to the allegations in respect of the place and date of incorporation (and deregistration, as the case may be) of the various corporate entities contained in [10]-[32], Mr Hobbs admits the paragraphs in which allegations are made as to Geneva Financial, FTC and Tasman Business Consultants ([13], [18] and [29] but otherwise pleads that he does not know and cannot admit the allegations made. (I note that, perhaps somewhat surprisingly, this includes the allegation in [28] as to Magny-Cours, a company that Mr Hobbs himself made application to acquire and the disbursement of funds from which he ultimately accepted he was (jointly or otherwise) in a position to control, as well as the allegations in [30] and [31] respectively - the former relating to FZF Anguilla, on which letterhead Mr Hobbs wrote quite a quantity of correspondence as "Consultant" and, on at least one occasion, as "director"; the latter relating to FZF Vanuatu, a company that in, the witness box, he said was "his" because it had been set up for him.) 1705Mrs Hobbs admits the allegations as to the incorporation of Geneva Financial ([13]) and Tasman Business Consultants ([29]) but otherwise pleads that she has no knowledge and therefore cannot admit the balance of those paragraphs. Findings - individual schemes 1706In relation to Mr Hobbs' role in individual schemes, and before turning to the respective schemes, I note that Mr Hobbs denies that he was "the principal on all the funds". 1707Mr Hobbs makes a number of submissions as to why it is that I should not conclude that he had a controlling or guiding role in relation to the various investment schemes (or as to why I should not find that he was the person on whose direction or instructions the so-called Hobbs scheme operated). In so doing, he has no difficulty, it seems, in accepting that there was a financial product that was being offered for investment through the particular schemes, but he characterises this (as does Mr Collard) as the "Reisinger Product", she being the individual who he contends was responsible for the relevant operation of the individual schemes (at least in relation to the investment, by those which did so invest, through Cadent). 1708Mr Hobbs submits, first, that it must be the case that any investment (presumably any investment through Cadent) had to meet Ms Reisinger's and New World Holding's requirements. Mr Hobbs submits that, no matter what Mr Hobbs did, without Ms Reisinger/New World Holdings as the intermediary to the Cadent investments, nothing would have happened. (Linked to that is the submission that it was Ms Reisinger/New World Holdings that required the use of IBCs, and that this was in order to meet the US Securities Exchange Commission requirements. There is no evidence to support that assertion. It is also inconsistent with other assertions by Mr Hobbs that it was Mr Becker who advised that the use of an IBC was necessary.) 1709While there is no evidence as to the particular requirements of New World Holdings (or Ms Reisinger, assuming they were different from those of New World Holdings) other than that which can be gleaned from the correspondence over the period (so, for example, the complaint made by Ms Reisinger in 2003 suggests that there were licensing requirements that she was obliged to meet in relation to investments), I would be prepared to accept that someone seeking to place funds through an entity such as New World Holdings would be required to meet whatever internal requirements New World Holdings might have imposed (and whatever regulatory requirements were there applicable). I would also be prepared to accept that, had Ms Reisinger or New World Holdings not accepted the moneys for placement with Cadent, then the investment schemes would not have been able to place funds with Cadent (at least without coming to some form of arrangement with another broker in the United States). That, however, does not mean that "nothing would have happened". There are a range of possibilities as to what might then have happened in relation to investment of the funds (particularly bearing in mind that not all schemes invested through Cadent). In any event, it is not clear to me how that addresses the question as to who it was, as at the Australian/New Zealand end of the investment transaction, that was controlling the operation of the investment schemes. 1710At most, it might suggest that (if the interposition of an offshore IBC had in fact been a regulatory requirement for investment in the relevant US market, or of New World Holdings), the inclusion of the IBC requirement as a step in the FTC/OEM/KLM process was something that may have been suggested or initiated by Ms Reisinger (not that the process itself was something developed and operated by Ms Reisinger). However, given that the evidence establishes that there was at least one scheme that had invested through Cadent (through Mr Caffray's NCCN account) before Ms Reisinger's involvement, it is difficult to place responsibility for the development of this part of the process on Ms Reisinger or New World Holdings. (The first Elite Premier scheme (about which Mr Hobbs spoke at the DVD Seminar and for which his FTC executives were informed contracts were available as at 2002) was in operation prior to the first involvement by any of the funds with Cadent through New World Holdings or Ms Reisinger.) 1711Mr Hobbs contends that it was "Ms Reisinger/Mr Kip Becker that established the OEM/KLM arrangements" and that it was Mr Becker that arranged for FTC to be set up. In support of those contentions, Mr Hobbs asserts that all the documentation with New World Holdings and Cadent was handled through Ms Reisinger; that none of the documentation was signed by him; and that Cadent and New World Holding accounted to the fund administrators and not to him. (The significance of the manner in which the Cadent accounts were opened or operated is something that cannot be related to Mr Becker's involvement vis a vis that of Mr Hobbs, since Mr Becker was unfortunately deceased by the time that the investment schemes opened accounts with Cadent.) 1712As to those matters, I have considered elsewhere the inconsistency in the accounts Mr Hobbs has given as to the establishment and ownership of FTC. As to the OEM/KLM arrangements, there is simply no evidence that anyone else was involved in the overall implementation and control of that process apart from Mr Hobbs. 1713At least some of the Cadent documentation was handled otherwise than through New World Holdings (and, according to Ms Reisinger, on one early occasion without her knowledge or input). Further, it is incorrect for Mr Hobbs to assert that none of the New World/Cadent documentation was signed by him (leaving aside the Global Funerals Cadent documentation that he accepts he signed), since he signed as company secretary for Geneva Financial on its application. 1714Relevantly, I accept the evidence of various of the scheme administrators (and others, in particular Mr Stavropoulos) who have deposed to Mr Hobbs giving them instructions and/or assistance as to the opening of the accounts (including filling out of the Cadent forms in which Mr Hobbs told at least the J&B Financial officers to fill in the forms by reference to Mr Hobbs' years of experience in the various markets and the (asserted) value of the intellectual property in the funds). The general uniformity of the responses set out in the completed Cadent applications is consistent with the evidence given by those scheme administrators as to Mr Hobbs' involvement in the process. In the case of Mr Stavropoulos (who did utilise the assistance of Ms Reisinger in relation to the completion of the account opening, it was clear from Ms Reisinger's correspondence that she was doing so to assist Mr Hobbs who was ill at the time, she having first referred Mr Stavropoulos to Mr Hobbs if he needed instructions). 1715Furthermore, when issues arose as to the information necessary for Mr Hobbs' foreign broker registration, Ms Reisinger deferred to Mr Hobbs for the relevant answers and it was to Mr Hobbs that Ms Reisinger turned when instructions were to be given to scheme administrators not to communicate with Cadent directly (or to explain matters such as the 6 wire transfers from J&B Financial). None of that is consistent with Mr Hobbs' disavowal of involvement in relation to the Cadent accounts; nor is it consistent with Ms Reisinger being the controlling person in relation to the investment schemes. 1716As to the submission that the accounting by New World and Cadent was to fund administrators and not to Mr Hobbs, the evidence establishes that there was a regular flow of communications between Ms Reisinger and Mr Hobbs or copied to Mr Hobbs and many instances where his input seems to have been sought in relation to particular matters. Mr Hobbs' denial that the Cadent daily statements were sent to him is unreliable given that he also suggests that he did not look at (or was not always shown) documents that came to the Nelson office email address. The business records of both Cadent and New World Holdings clearly show the payment of commissions to Mr Hobbs or into his account and there are communications between Mrs Hobbs and New World Holdings from time to time enquiring as to her husband's commission payments in terms that make it highly unlikely that this was not information relating to him. There is certainly not the separation between Mr Hobbs and New World/Cadent that one would expect if he had no involvement whatsoever in the dealings between the various scheme administrators with Cadent or New World Holdings. 1717Mr Hobbs refers to the evidence of Ms Dong (at [121],[147] - [149], [151] (as to the incorporation by Ms Li of companies and as to the opening by Ms Li of accounts at Cadent) as being evidence that matters of that kind were done independently of any input from himself. He notes that each of Ms Dong, Mr Koutsoukos and Mr Truong in their affidavits has spoken of material sent by Ms Reisinger for the opening of accounts, change of traders, allocation of leverage and the amounts to be traded. 1718Mr Hobbs also refers to passages in Ms Reisinger's examination transcript as supporting the submission that she dealt directly with various of the scheme administrators in respect of their Cadent accounts and that he (Mr Hobbs) was not a principal in respect of those accounts. In particular, he refers to Ex AO p329.11 - p333.24 (where Ms Reisinger refers to a discussion with Mr Koutsoukos, Mr Truong and Mr Wood as to her "strong opinion about Chuck Reeder of CBOR that was coming into the portfolio"). Ms Reisinger (in that portion of the transcript) says she emphasised Mr Reeder's background and his trading style; as well as his extensive track record, and that his trading style was "short-term"; she refers to advice given to them as to the adding of balance to their portfolio by the addition of precious metals exposure and as to have a well-balanced diversified exposure to the markets from short-term, medium term to long-term. Ms Reisinger confirmed that she had recommended Mr Reeder for their portfolio. Mr Hobbs also refers to the transcript at p389.1 - p393.6 (relating to the number of accounts that were opened with Cadent and identifying who had sent the account opening documents). 1719Mr Hobbs submits that there is no evidence that he provided "any such documentation and arrangements (or advice)" regarding the individual fund management for traders or leverage in relation to any of the accounts (making specific reference to the Geneva Financial Cadent in respect of which he asserts that his wife and Mrs Brenda Hobbs authorised all allocation of capital to traders and leveraging arrangements.). Recognising, no doubt, the difficulty that some of the communication from Ms Reisinger to Mrs Hobbs referred to Mr Hobbs in terms that suggested he would have some input or would provide advice or instructions, and referring in particular to the email in which she suggests that Mrs Hobbs "wait for David to come home", Mr Hobbs asserts that Mrs Brenda Hobbs and his wife did not seek advice from him on the operation of "their" Geneva Financial account. (That is a matter on which no evidence was adduced by Mr Hobbs. I treat it as assertion and, having regard to the unreliability of other blanket denials by Mr Hobbs, I place no weight on this assertion.) 1720I have referred earlier to various of the communications with Ms Reisinger relating to the funds. I do not accept that the giving of instructions from time to time by scheme administrators to Ms Reisinger demonstrates that Mr Hobbs was not ultimately the controlling operator of the schemes. I consider that the evidence amply demonstrates the referral of matters relating to the funds (and their investment with Cadent) by scheme administrators (and Ms Reisinger) to Mr Hobbs, which is consistent only with him having an overall oversight role. * Integrity Plus/PJCB 1721Turning first to the Integrity Plus fund, I accept that the evidence establishes that as at the time the Integrity Plus fund was established each of Mr Wood, Mr Truong and Mr Koutsoukos had no experience managing (and very limited financial or business expertise to manage) an investment fund such as Integrity Plus. 1722In that regard, if the role of administration of a pooled management investment fund of this kind was no more than an administrative role requiring good book-keeping skills and honesty, as Mr Hobbs submits, then one wonders why there would be a need for the imposition of regulatory standards and requirement for financial services licences for those in this area. It is difficult to accept that investors would have understood (or thought it acceptable) that they were investing considerable amounts of money, the making of relevant investment decisions as to which would be in the hands of no more than honest book-keepers. Moreover it is inconsistent with the emphasis placed by Mr Hobbs on his own financial experience when addressing those in attendance at the DVD Seminar (or as recounted by those attending other seminars at which he spoke). 1723The logical conclusion from an acceptance (though Mr Hobbs did not accept this) that these (or other) scheme administrators had little or no expertise in dealing with sophisticated financial investments is that not only is it not credible to suggest that they could have set up their own investment funds, assessed investment products and put in place arrangements by which offshore trading using invested funds could take place (something Mr Hobbs was at pains to tell others how much effort and money that had taken him to put in place) but also that they must have had direction from someone who did have that level of sophistication. I accept that the only credible and likely candidate for that role, on the facts of this case, is Mr Hobbs. 1724I accept the evidence of the three J&B Financial officers that Mr Hobbs offered Mr Wood, Mr Truong and Mr Koutsoukos the opportunity for them to operate the Integrity Plus fund and that he arranged for them to be the administrators of Integrity Plus. There is no other plausible explanation for how these three (with no experience in the management of such funds) became involved in the administration of Integrity Plus (and, relevantly, how Mr Koutsoukos became involved with each of Mr Wood and Mr Truong, they not having had a previous association with him before the J&B Financial office was established). 1725Nor is there any plausible explanation for why they would otherwise have paid the sum of $150,000, as they did, to Magny-Cours in 2004; there being no investment agreement in evidence to provide an alternative explanation for that payment. As noted, the direction or oversight of Mr Hobbs is consistent with the fact that Mr Koutsoukos' involvement or association with Mr Truong and Mr Wood seems to have been only shortly before the three, together with Ms Dabelic, commenced working together and with the role Mr Hobbs played when Ms Dabelic left the J&B Financial offices - by insisting that she be paid an amount of $50,000. (In passing I note that there is some evidence to suggest that Ms Dabelic had operated another investment fund - the Eighth Wonder fund - to which reference is made on the Parsons' diagram and for which a website was created by Mr Parsons on Mr Hobbs' instructions.) 1726I further accept the evidence of the three J&B Financial officers that Mr Hobbs explained to them how to set up and operate the Integrity Plus fund and directed the steps to be taken in setting it up (including the opening of the Technocash account.). I also accept that Mr Hobbs provided them with the original scheme documents for Integrity Plus and told them how these documents were to be used. (Given the remarkable similarity between the Integrity Plus scheme documents and those for other schemes in which the three were held involved, and their inexperience in the management of investment funds, no other explanation is plausible. In particular, the suggestion that Mrs Watson simply provided documents received from Mr Becker is not supported by Mrs Watson's own evidence, nor any contemporaneous record.) 1727I accept that Mr Hobbs gave the three J&B Financial officers directions and instructions as to how to operate Integrity Plus, not simply as to administrative matters such as the designation of the roles that each would play in the operation of Integrity Plus but also as to the more fundamental matters such as the opening in due course of the Cadent account and advice as to the payment of returns and the like. In particular, I accept that at all material times, Mr Wood, Mr Truong and Mr Koutsoukos were guided by Mr Hobbs in the operation of Integrity Plus, consulted with Mr Hobbs in relation to major decisions and generally accepted Mr Hobbs' instructions and recommendations regarding Integrity Plus, directing any queries they had regarding Integrity Plus principally to Mr Hobbs. (It is submitted that they generally accepted those recommendations without querying anyone else. While I accept that as a general submission there is evidence that towards the latter stages of the working relationship, at least, they did query Mr Hobbs' decisions and a suggestion that at one stage Mr Hobbs considered that Mr Koutsoukos may have been attempting to by-pass him in dealings with New World Holdings which apparently arose from Mr Koutsoukos directly liaising with Ms Reisinger or New World in relation to the Cadent accounts.) 1728I find that Mr Wood, Mr Truong and Mr Koutsoukos followed Mr Hobbs' instructions in relation to payments of profit, commissions, investments and loans paid from the PJCB Technocash account. (Though I accept that they made decisions in relation to the Cadent account trading from time to time on recommendations from Ms Reisinger it seems to me that this was in accordance with Mr Hobbs' instructions, in effect, that they rely on her advice and with his implicit authority.) 1729I accept their evidence that investments, loans and other payments made from the PJCB Technocash account were generally made at the direction of Mr Hobbs. To the extent that these were made to associates of Mr Hobbs or to companies related to Mr Hobbs and for his ultimate benefit, the fact that copies of agreements were sent to Mr Hobbs for his approval and that on a number of occasions he provided the drafts or templates of these agreements to Mr Wood, Mr Truong and Mr Koutsoukos, demonstrates Mr Hobbs' involvement in the scheme (and his disregard for the particular investments into which scheme funds might properly be channelled). 1730ASIC submits that Mr Wood, Mr Truong and Mr Koutsoukos did not make any substantive operational decisions in relation to Integrity Plus without the approval of Mr Hobbs and that their involvement in the setting up and operation of Integrity Plus was only in an administrative (or company secretary-type) role. ASIC further submits that the three did not perform any top-level management functions or make decisions regarding the business or operation of Integrity Plus other than at the ultimate direction of Mr Hobbs. I consider that the evidence makes good each of those submissions. 1731ASIC submits (and I accept) that each of Mr Wood, Mr Truong and Mr Koutsoukos was accustomed to act (together or individually) at the direction and on the instructions of Mr Hobbs in relation to the operation of Integrity Plus and PJCB. ASIC further submits (and I accept) that (at the direction and with the advice, assistance or instructions of Mr Hobbs) Mr Wood, Mr Koutsoukos and Mr Truong, on behalf of PJCB: opened and operated the Technocash account for Integrity Plus; paid returns to investors and commissions to FTC executives from principal amounts contributed to Integrity Plus by the investors not from profits (and, as I find in due course, that Mr Hobbs knew or ought to have known that this was happening); and transferred funds received from investors in Integrity Plus (purportedly by way of investment or otherwise). 1732I find that each of the J&B Financial officers was a de facto director and officer of PJCB and that Mr Hobbs was a shadow director of PJCB. * Super Save and its corporate administrators 1733I accept the evidence of Messrs Wood, Truong and Koutsoukos that, in mid 2006 at a meeting in New Zealand, Mr Hobbs told them that he would be establishing a superannuation fund (Super Save) for them to operate and that he arranged for Mr Wood, Mr Truong and Mr Koutsoukos to be the administrators of Super Save. The evidence of Mr Hobbs as to the meeting in mid 2006 (namely that it took place between the four J&B Financial officers, including Ms Dabelic, and that it "would have" been to discuss "production" as part of FTC business) is inconsistent with the time at which Ms Dabelic left J&B Financial and implausible having regard to the length of time the three had by then been FTC executives and the fact that steps to set up Super Save commenced very shortly thereafter. 1734I accept that Mr Hobbs explained to Mr Wood, Mr Truong and Mr Koutsoukos how to set up and operate Super Save; directed each step in setting it up, including the opening of bank accounts; provided them with the original scheme documents for Super Save and told them how these documents were to be used (the question as to whether Mr Hobbs himself typed amendments to the template documents as suggested by Mr Wood is one that seems to me to be immaterial having regard to the clear evidence in the form of the email communications which establish that revised drafts of the Super Save scheme memoranda came from Mr Hobbs' office - and the later evidence as to the changes to the memoranda to remove Cadent's name therefrom). I also accept that Mr Hobbs directed Mr Wood, Mr Truong and Mr Koutsoukos to change the corporate entity nominated as the administrator of Super Save on two occasions. 1735I find that Mr Hobbs directed Mr Wood, Mr Truong and Mr Koutsoukos to open a trading account for Super Save with Cadent (Mr Halley noting that when this was closed due to issues as to the manner in which the moneys had been transferred to Cadent, Mr Hobbs then directed them to open another). 1736It seems to me clear that the principal relationship with Cadent/New World in the case of Super Save and all the other schemes was through Mr Hobbs. I also accept that Mr Hobbs either monitored the Cadent accounts of Super Save or was informed by Ms Reisinger from time to time as to when returns were being paid. 1737I find that, at all material times, each of Mr Wood, Mr Truong and Mr Koutsoukos was guided by Mr Hobbs in the operation of Super Save; that they consulted with Mr Hobbs in relation to major decisions as to the operation of Super Save; and that they were accustomed to act upon and follow Mr Hobbs' instructions and recommendations regarding Super Save, including his instructions in relation to payments of profit and commissions from Super Save. 1738ASIC submits (and I accept) that Mr Wood, Mr Truong and Mr Koutsoukos did not make operational decisions in relation to Super Save without the approval of Mr Hobbs and that their involvement in the setting up and operation of Super Save was in an administrative role. I accept that they did not perform top-level management functions or make decisions regarding the business or operation of Super Save other than at the ultimate direction or approval of Mr Hobbs (or, following referral by him and hence his implicit approval, of Ms Reisinger). (Whether Ms Reisinger was Mr Hobbs' agent in providing recommendations as to traders and the like is, in my view, a different issue and one that I address in due course.) 1739I accept that there is a striking similarity between the manner in which the setting up of this fund (and the relevant fund documentation for Super Save) and that in relation to 888 Vanuatu (with which Messrs Wood, Truong and Koutsoukos were not involved). I consider that this leads to the inescapable inference that both were done at the instruction and direction of Mr Hobbs. 1740I do not accept that the evidence establishes that there is any real possibility, or reasonable alternative hypothesis, to the effect that the various investment funds were set up on the instructions or direction of Ms Reisinger or that they amounted to a separate "Reisinger product" developed or controlled by Ms Reisinger (although I consider it likely that it was Ms Reisinger (whether alone or with other investment advisers) was involved in developing or facilitating the procedures by which pooled or "blended" investment funds were able to be traded through Cadent in accounts that were set up (other than in the case of the Preserved Investments account) as proprietary (not pooled) accounts. 1741In the circumstances, ASIC submits (and I agree) that each of Mr Wood, Mr Truong and Mr Koutsoukos was accustomed to act (both together and individually) at the direction of Mr Hobbs in relation to the operation of Super Save and each of 888 Turks & Caicos, 888 Management Australia, ISPL and ISL (those being the successive corporate administrators of, or in the case of 888 Management Australia, the entity acting as agent of the corporate administrators of, the Super Save fund and that (at the direction and with the advice, assistance or instructions of Mr Hobbs), they opened and operated bank accounts for Super Save on behalf of the said companies. Further, I find that, to Mr Hobbs' knowledge, each of the said companies paid returns to investors and commissions to FTC executives from principal amounts contributed to Super Save by the investors. 1742I find that each of the J&B Financial officers was a de facto director and officer of each of the corporate administrators of Super Save and that Mr Hobbs was a shadow director of each of those companies. * First Secured Bond Unit Trust and Master Fund (administered by Secured Bond) 1743In relation to Mr Hobbs' involvement with the First Secured Bond Unit Trust, ASIC relies principally on the evidence of Mr Hogno, Ms Huang, Mr Jouravlev, Mr Bernard Moore and Mr Zhang; in relation to the Master Fund on the evidence of Ms Dong, Mr Hogno, Ms Xu and Mr Zhang. 1744Secured Bond was the corporate administrator of each of the First Secured Bond Unit Trust and the Master Fund. At the time of its incorporation each of Mr Collard and Ms Li was a 25% shareholder of Secured Bond. (From September 2004, their respective holdings in the company increased to 50%.) 1745Over the period from its incorporation to 9 December 2006, each of Mr Collard and Ms Li acted as an "administrator" of Secured Bond (a non-technical term that seems to have been adopted by a number of those associated with the schemes, perhaps assuming it to have the same content as administrator of the scheme or in an attempt to distance themselves from the role of director). 1746From 25 May 2008, Mr Collard was formally appointed as the "sole administrator" of Secured Bond. It is submitted (and I accept) that it can be inferred that before this time (ie, from 12 April 2007 to 25 May 2008) Mr Collard was or regarded himself as the "joint administrator" of Secured Bond with Ms Li, with whom he shared administration responsibilities. It is noted that Mr Collard was named as administrator of Master Fund on PowerPoint presentations given to investors. Ms Li seems to have maintained the records of Master Fund. 1747From 9 November 2006 to 12 April 2007, each of Mr Collard and Ms Li was formally appointed a director of Secured Bond (those appointments apparently being made at or about the time of the opening of the Cadent account for Secured Bond when Cadent seems to have sought proof as to the authorisation of persons to bind the companies opening those accounts - as for example occurred when Mr Stavropoulos took steps in relation to the opening of an account for the fund he was then setting up or when Ms Li communicated with Ms Reisinger as to the directorship of the entity of which Mr Zhang was described as the administrator). 1748From July 2004, each of Mr Collard and Ms Li was a signatory to and operated the Secured Bond bank accounts with BNZ. They together opened and operated the Secured Bond Technocash account, to which Mr Collard was a signatory. 1749I accept that each of Mr Collard and Ms Li promoted both the First Secured Bond Unit Trust and Master Fund to potential investors (and I accept Ms Dong's evidence that Ms Li also instructed Ms Dong to promote Master Fund and instructed her as to the investment process for the fund). 1750Ms Li signed various private placement agreements for both First Secured Bond Unit Trust and Master Fund on behalf of Secured Bond; Mr Collard signed Master Fund agreements on behalf of Secured Bond. In some instances each signed Master Fund "temporary" contracts on behalf of Secured Bond). Both sent correspondence to investors in the respective funds (Mr Collard signing as "administrator" of Secured Bond, Ms Li variously as administrator of First Secured Bond Unit Trust, Master Fund and Secured Bond). Mr Halley submits, and I accept, that when Mr Collard and Ms Li signed documents as administrator, each did so in the capacity of the "controller" of Secured Bond. It is also noted that there is evidence that Ms Li stated on various occasions that she was the administrator of Master Fund and controlled Master Fund. 1751There is evidence that Mr Collard made arrangements for some of the investments in First Secured Bond Unit Trust to be transferred to Elite Premier Option Two Unit Trust (one of the funds administered by Mr Clements and Preserved Investments). 1752I note that Ms Li and Mr Collard both signed the Cadent Account Application and Agreement for Corporations document and did so on behalf, and as administrator, of Secured Bond (Ms Li signing as secretary for the company; Mr Collard providing a personal guarantee to Cadent in connection with the Secured Bond Cadent account) and that each of Mr Collard and Ms Li corresponded with Ms Reisinger in relation to the operation of the Secured Bond Cadent account. 1753A number of the features of this fund were common to those of other funds. Mr Collard authorised the deduction of additional due diligence fees by New World Holdings from the Secured Bond Cadent account as administrator of Secured Bond (and each of Mr Collard and Ms Li signed the authorisation for Cadent to deduct the additional US$1 round turn fee from the Secured Bond Cadent account to be paid to Mr Hobbs); and Mr Collard entered into a hosting agreement on behalf of Master Fund with HelloPages Limited for the creation of a Master Fund website and subsequently, each of Mr Collard and Ms Li signed a hosting cancellation notification on behalf of Master Fund and Secured Bond (after the breakdown of the relationship between Mr Parsons and Mr Hobbs). (In passing, I note that the fact that all of the corporate administrators for whom websites were created cancelled the hosting agreements at around the same time as the falling out between Mr Parsons and Mr Hobbs is a telling indication of the influence Mr Hobbs exercised in respect of the individual schemes.) 1754The evidence discloses that both Ms Li and Mr Collard received payments from Secured Bond out of the amounts invested in Master Fund (Mr Halley noting that they received half the profits from Master Fund). There is also evidence that Mr Collard received the benefit of a payment by Secured Bond from amounts invested in Master Fund to Excite Holidays for travel by, among others, himself. 1755Mr Collard also signed a loan agreement between Secured Bond and the R & B Hobbs Family Trust on behalf of Mr Emori Toloi (the person who ultimately became administrator of the funds administered by Mr Collard), an investment that I accept could on no view be said to fall within the nature of the investments into which the funds administered by Secured Bond were to be invested. 1756ASIC submits (and I so find), by reference to the above, that at all material times each of Ms Li and Mr Collard acted as an officer or de facto director or officer of Secured Bond. (I note that in the period from 9 December 2006 to 12 April 2007 each was also apparently recorded as a director of Secured Bond.) 1757As to Mr Hobbs' involvement with Secured Bond and the two funds it administered, ASIC relies on the fact that Mr Hobbs received invoices sent to Tasman Business Consultants Ltd from First Anguilla Trust Company for services related to Secured Bond (including for transfer of shares, annual registration fees, and annual registered office/agent, corporate director and nominee shareholder fees) from which it submits, and I accept, it should be inferred that Mr Hobbs was involved in the incorporation of Secured Bond. There is also evidence that Mr Hobbs promoted First Secured Bond Unit Trust to investors. 1758ASIC submits (and I accept that this is the case not simply for this but for the other investment schemes) that there were striking similarities between the way in which these funds operated and the way other funds the subject of these proceedings operated insofar as: investors in both First Secured Bond Unit Trust and Master Fund were required to subscribe to FTC before investing in either fund and were required to follow the OEM/KLM process in order to obtain scheme memoranda and agreements; scheme memoranda and private placement agreements were in substantially the same form as other scheme agreements drafted or provided by Mr Hobbs (or used by other schemes with which Mr Hobbs had an association) and printed and distributed in the same way as others; and the trustee company identified in the scheme memoranda for each of First Secured Bond Unit Trust and Master Fund was Trans Management Corporation (which, as I have found above, was controlled by Mr Hobbs). 1759ASIC contends, and I accept, that it can be inferred from the fact that Secured Bond opened and operated an account with Technocash at the time when the majority of the schemes operated Technocash accounts that Mr Collard was referred to Technocash by Mr Hobbs and that Mr Collard was directed by Mr Hobbs to open the Technocash account. Secured Bond also opened and operated an account with Cadent, consistently with the other schemes the subject of these proceedings. 1760I infer from the similarity of the documentation in relation to the First Secured Bond Unit Trust and Master Fund (and the absence of any evidence that it was prepared by Ms Li or Mr Collard or was provided to them by anyone other than someone out of the Hobbs' office) that the documentation was provided to them by Mr Hobbs or on his behalf. 1761ASIC places weight on the fact that the First Secured Bond Unit Trust invested in the Elite Premier Option Two Unit Trust (and that investments in First Secured Bond Unit Trust were transferred to that scheme) as indicating the relationship between the respective schemes and Mr Hobbs. He notes that First Secured Bond Unit Trust also invested in KJB Trust Foundation (a company controlled by or associated with Mr Lynn Caswell, with whom Mr Hobbs had dealings at or about the time of the investment). 1762ASIC also places weight in this regard on the evidence that supports the conclusion that Mr Hobbs organised the loan from Secured Bond to the R & B Hobbs Family Trust after a request from Mr Robert and Mrs Brenda Hobbs. ASIC notes that Secured Bond made a payment to Magny-Cours (which, as I have found, was a company controlled by Mr Hobbs and in which his brother also had an interest) from accounts into which amounts invested in First Secured Bond Unit Trust had been deposited. It is further noted that Secured Bond made payments from accounts in to which amounts invested in Master Fund had been deposited to each of Tasman Business Consultants, Fletcher Vautier Moore (for the benefit of Tasman Business Consultants and Legend of Bathurst respectively) and Excite Holidays, for travel by persons including Mr Hobbs. (In this regard, ASIC does not dispute that there were funds in the Secured Bond account other than funds invested in the schemes; the submission simply being that the funds in that account were mixed and that payments were made out of that account to the above entities.) 1763There is evidence that concerns in relation to the Secured Bond Cadent account were directed by Ms Li to Mr Hobbs, who passed them on to Ms Reisinger. Ms Reisinger copied Mr Hobbs in on correspondence in relation to the Secured Bond Cadent account and from time to time she corresponded with Mr Hobbs directly in relation to the Secured Bond Cadent account. Ms Li sought advice from Mr Hobbs in relation to profits in the Secured Bond Cadent account. (There is also evidence, but on which I do not rely for the purposes of reaching the conclusions I have reached, due to the second hand nature of this evidence - although I admitted it on the basis that Ms Li was asserted to be an agent of Mr Hobbs - that Ms Li told others that Mr Hobbs had found a trader for Master Fund, that she had learnt from Mr Hobbs, that she followed Mr Hobbs' instructions and that Mr Hobbs was the "whole designer" of Master Fund.) 1764As noted earlier, Mr Hobbs was authorised by Secured Bond to receive an additional US$1 fee per complete (round turn) transaction on the Secured Bond Cadent account (in addition to other commissions paid to him in relation to the account). The fax authorising this was sent from Mr Collard to Mr Hobbs' office and then from Mr Hobbs' office to Cadent (and bears a fax transmission imprint or header "FTCL"). (I do not accept Mr Hobbs' denial that he in fact received the additional round turn commission so authorised but in any event it is relevant to note that such an authorisation was granted.) 1765I accept that Mr Hobbs took various steps relating to the operation of the funds in general (that being inconsistent with the suggestion that he had no overall involvement with them). In relation to Master Fund (as with various others), he arranged for a website to be set up by Mr Parsons for Master Fund (and when Mr Hobbs' business dealings with Mr Parsons ended, Mr Hobbs organised for a hosting cancellation notice to be signed by Mr Collard and Ms Li). Mr Hobbs also provided to Mr Collard a copy of the pro forma Geoffrey Gee advice as to the lack of any requirement to register the Vanuatu based IBCs in that jurisdiction. 1766Mr Halley also points to the fact that Secured Bond opened accounts with the Nelson branch of BNZ, even though neither Ms Li nor Mr Collard was a resident in that place and there would seem no logical reason to have done so other than through association with Mr Hobbs. 1767Mr Halley notes that Master Fund invested with Mr Caffray, who deposited money into the NCCN Cadent account and that, on occasion, Mr Hobbs received copies of the 'daily' Cadent reports for the NCCN Cadent account from Ms Reisinger. There is also evidence that Mr Hobbs also directed Messrs Koutsoukos, Wood and Truong to invest money from Integrity Plus with Mr Caffray. Mr Halley notes that Mr Hobbs was also copied into correspondence between Mr Collard, Ms Li and Mr Caffray. From this it is submitted (and I accept) that it can be inferred that Mr Hobbs directed Master Fund to invest funds with Mr Caffray. 1768Having regard to the above, ASIC submits (and I accept) that Ms Li and Mr Collard (as de facto directors or officers, or for some time as directors, of Secured Bond) acted on the instructions and directions of Mr Hobbs, and were accustomed to act at the direction of Mr Hobbs, in relation to the operation of both First Secured Bond Unit Trust and Master Fund. 1769In relation to Master Fund, ASIC further submits (and I accept that the evidence establishes) that at the direction and with the advice, assistance or instructions of Mr Hobbs and on behalf of Secured Bond in each case: Ms Li, Mr Collard (and Mr Collard's son, Matthew), opened and operated the Secured Bond bank accounts for the operations of Master Fund; and that Ms Li and Mr Collard transferred funds received from investors in Master Fund to Mr Caffray and then to Cadent by way of investment; transferred funds received from investors in Master Fund to Cadent by way of investment; and made payments from the said Master Fund accounts to various persons, by way of commission and otherwise, as set out in the Master Fund Spreadsheets and summarised in the Master Fund summaries. 1770ASIC contends that each of Mr Hobbs and Secured Bond knew, or ought reasonably to have known, that Master Fund had not generated sufficient profits to pay returns paid from Master Fund. I accept that this the case for the reasons set out in due course when addressing the issue as to payment of returns otherwise than out of profits. 1771Similarly, in relation to the First Secured Bond Unit Trust, ASIC submits (and I accept that the evidence establishes) that, at the direction and with the advice, assistance or instructions of Mr Hobbs, and on behalf of Secured Bond: Ms Li, Mr Collard (and Mr Matthew Collard) opened and operated the Secured Bond bank accounts for the operations of First Secured Bond Unit Trust; and that Ms Li and Mr Collard transferred funds received from investors in First Secured Bond Unit Trust to KJB Trust Foundation and to Preserved Investments, purportedly by way of investment and made payments from the said bank accounts to various persons, by way of commission and otherwise, as set out in the First Secured Bond Unit Trust Spreadsheets and summarised in the First Secured Bond Unit Trust summaries. 1772From the above, ASIC submits (and I find) that Ms Li and Mr Collard were directors and officers of Secured Bond (at least being de facto directors and for some time being recorded in corporate resolutions as having been appointed as directors) and that Mr Hobbs was a shadow director of Secured Bond. * 888 (Super Save) Fund and Pinnacle Fund (funds being administered by 888 Vanuatu) 1773I find that Mr Collard was primarily responsible for incorporating 888 Vanuatu. At the time of its incorporation, Mr Collard was a 29% shareholder of 888 Vanuatu, Ms Li was a 29% shareholder of 888 Vanuatu and Ms Wu was a 2% shareholder of the company. (From 3 July 2008 Mr Collard was a 39% shareholder of 888 Vanuatu.) (Ms Li instructed 888 Vanuatu shareholders to sign forms agreeing to strike off 888 Vanuatu). 1774From the date of incorporation to 1 July 2006, Mr Collard acted as "administrator" of 888 Vanuatu. On 1 July 2006, Mr Collard was formally appointed "administrator" of 888 Vanuatu, and continued to act as administrator of the company, including signing documents and materials identifying himself as administrator. I accept that when Mr Collard signed documents as administrator, he signed as the controller of 888 Vanuatu. 1775Ms Wu maintained the records of 888 Vanuatu. (She seems to accept that she performed a bookkeeping role in that regard, though she says that this was unpaid and at the request of others.) I accept that Ms Li directed Ms Wu in relation to maintaining the records of 888 Vanuatu, coordinating 888 (Super Save) Fund payments into the 888 Vanuatu Super Save Technocash account, transferring investor funds to Cadent and writing letters to Diligence Discovery. 1776Mr Hobbs provided the 888 Fund Memorandum and Agreement to Ms Li for use by Ms Li in respect of the 888 (Super Save) Fund and that each of Ms Li and Ms Wu then provided the 888 (Super Save) Fund memorandum to investors. (I also note that on at least one occasion Ms Wu assisted an investor to establish an SMSF and that on another occasion Ms Li instructed Ms Dong and Ms Ou to assist an investor to complete paperwork for an investment in Pinnacle Fund.) 1777From at least 23 September 2006, Mr Collard was authorised as the signatory to the 888 Vanuatu company accounts. He opened and operated the 888 Vanuatu Technocash account in the name of 888 Management Inc Super Save and he opened and operated the 888 Vanuatu Technocash account in the name of 888 Management Inc Pinnacle Fund. Mr Collard opened and operated the 888 Vanuatu Sovereign Bank account. Ms Wu operated the 888 Vanuatu Technocash accounts, by coordinating Super Save investor payments into the 888 Management Inc Super Save Technocash account and transferring investor funds to the 888 Vanuatu Cadent account. 1778I find that each of Mr Collard, Ms Li and Ms Wu promoted the 888 (Super Save) Fund to investors (and that each of Ms Li and Ms Wu promoted the Pinnacle Fund to investors) and that Ms Li instructed Ms Dong on the promotion of the 888 (Super Save) Fund. 1779I note that Mr Collard was named as administrator of the 888 (Super Save) Fund on PowerPoint presentations shown to investors; he signed at least one Pinnacle Fund temporary contract on behalf of 888 Vanuatu; he sent correspondence to investors in 888 (Super Save) Fund and Pinnacle Fund as "administrator" of 888 Vanuatu; he opened and operated the 888 Vanuatu Cadent account, signing the Cadent Application and Agreement for Corporations on behalf of 888 Vanuatu and as administrator of 888 Vanuatu; and he provided a personal guarantee to Cadent for the 888 Vanuatu Cadent account. (The Cadent account application was faxed to Ms Reisinger by Ms Li.) 1780The Cadent Application and Agreement for Corporations lists Mr Collard as the sole person authorised to act with regard to the 888 Vanuatu Cadent account. 1781Both Mr Collard and Ms Wu corresponded with Ms Reisinger in relation to the operation of the 888 Vanuatu Cadent Account. Ms Wu corresponded with Diligence Discovery on behalf of 888 (Super Save) Fund and 888 Vanuatu. 1782Ms Wu signed Pinnacle Fund agreements and temporary contracts on behalf of 888 Vanuatu and sent correspondence to investors in 888 (Super Save) Fund and Pinnacle Fund (on one occasion signing as administrator of 888 Vanuatu, and on other occasions "per administrator" of 888 Vanuatu). Ms Wu assisted investors to withdraw funds from the 888 (Super Save) Fund and the Pinnacle Fund. There is also evidence that Ms Wu on occasion stated that she was the manager of 888 (Super Save) Fund. 1783I accept that each of Mr Collard and Ms Li received payments from 888 Vanuatu, being amounts invested in the Pinnacle Fund. 1784ASIC submits, and I so find, that both Mr Collard and Ms Li were officers or de facto directors of 888 Vanuatu and that Ms Wu was an officer of 888 Vanuatu. 1785As to the position of Mr Hobbs, at the time of incorporation of 888 Vanuatu, either Mr Hobbs or International Management Incorporation (which I have found was controlled by Mr Hobbs) was a 29% shareholder of 888 Vanuatu. (At some later time, that shareholding in 888 Vanuatu was reduced to 26%.) 1786ASIC submits (and I accept) that Mr Hobbs provided the 888 (Super Save) Fund Memorandum and Agreement to Ms Li; promoted 888 (Super Save) Fund and Pinnacle Fund to investors; stated that he designed 888 (Super Save) Fund for 888 Vanuatu; and established or otherwise directed the creation of 888 (Super Save) Fund for 888 Vanuatu. 1787In that regard, I note that the same investment process applied to Pinnacle Fund as to other funds associated with Mr Hobbs, in that investors were required to subscribe to FTC and the trustee company for Pinnacle Fund was noted in the scheme memorandum as Trans Management Corporation. (There is no evidence of any communications between the administrators of the 888 (Super Save) fund, the Pinnacle fund or 888 Vanuatu, on the one hand and Trans Management Corporation on the other hand - whether in its role as trustee or otherwise.) 1788Ms Li provided updates of the opening of the 888 Vanuatu Cadent account to Mr Hobbs, and sent him the account opening documentation. Mr Alan Matthews (of New World Holdings) also sent emails in relation to the 888 Vanuatu Cadent account to Mr Hobbs. 1789ASIC notes that 888 Vanuatu made a payment to Tasman Business Consultants, a company controlled by Mr Hobbs, from amounts invested in Pinnacle Fund. 1790It is submitted (and I accept) that it should be inferred that, in all material respects, Ms Li and Mr Collard acted on the instructions or directions of Mr Hobbs in relation to the 888 (Super Save) Fund and Pinnacle Fund. In that regard, I base that conclusion on the following matters to which ASIC has referred. Ms Li and Mr Collard were present when Mr Hobbs promoted the investment opportunity in 888 Vanuatu to potential shareholders. Each of Ms Li and Mr Collard became shareholders in 888 Vanuatu and promoted or supported the investment opportunity. The setting up of 888 Vanuatu involved the payment by shareholders of a sum of money (in effect to Mr Hobbs, Mr Collard and Ms Li), as they acquired interests in shares in 888 Vanuatu that were paid for by the other shareholders. 888 Vanuatu opened and operated an account with Technocash, and Mr Collard was referred to Technocash by Mr Hobbs. At the time 888 Vanuatu opened the Technocash account, the majority of the schemes operated Technocash accounts; and Mr Collard opened an account with Sovereign Bank in the name of 888 Vanuatu (at least part of the account opening form for which was sent by fax to Sovereign Bank from Mr Hobbs' office, with a fax header "FTCL" from which I would infer that Mr Hobbs was involved in the opening of the 888 Vanuatu Sovereign bank account). 1791Significantly, the Pinnacle Fund Scheme Memoranda and private placement agreements are in substantially the same form as other scheme agreements drafted or provided by Mr Hobbs (from which I infer that the relevant documentation for Pinnacle Fund was not prepared by Ms Li, Mr Collard or Ms Wu but was provided to them by Mr Hobbs). 1792I accept the evidence that Mr Hobbs provided updates from time to time as to the status of the investment opportunity in 888 Vanuatu (usually in the presence of Ms Li and Mr Collard). 888 (Super Save) Fund and Pinnacle Fund, through 888 Vanuatu, each invested with Cadent, with whom Mr Hobbs had dealings at or about the time of the investment. Further, Ms Li provided an update to Mr Hobbs on the progress of multiple accounts being opened with Cadent, including 888 Vanuatu, and with respect to other company administrators of schemes the subject of these proceedings. 1793Diligence Discovery provided monitoring and reporting services to 888 (Super Save) Fund (from which I infer that Mr Hobbs directed Ms Li and Mr Collard to use the services of that entity, for the reasons earlier outlined). 1794A copy of the Gee advice (provided by Mr Hobbs to Mr Collard) was provided to Cadent on behalf of 888 Vanuatu. 1795I accept that the evidence establishes that it was the general practice of Ms Li and Mr Collard to follow directions and instructions of Mr Hobbs in respect of Ms Li's and Mr Collard's activities both with respect to the schemes the subject of these proceedings and in their capacity as FTC executives. 1796It is submitted by ASIC (and I accept, for the reasons outlined in the discussion of the agency allegations) that at all material times each of Ms Li, Mr Collard and Ms Wu acted as an agent of Mr Hobbs in promoting and operating unregistered managed investment schemes (whether independently or as part of an overall single scheme) to solicit subscriptions to FTC and investments from retail investors, including retail investors in Australia, in the name of an IBC, in the funds the subject of these proceedings (including those operated by 888 Vanuatu). 1797It is highly significant in my view that the setting up of the respective funds and the operation of (and relevant documentation for) the 888 (Super Save) Fund and the Pinnacle Fund bear a remarkable similarity to that of the other schemes the subject of these proceedings (with which there would be no reason for an association otherwise than through Mr Hobbs). I consider that the inescapable inference from the above is that the establishment and operation of these two funds was at the instruction and direction of Mr Hobbs. 1798Mrs Watson confirmed that she had had some involvement in the setting up of the 888 Vanuatu account with Cadent. Tellingly, she said that this came about in the following circumstances: A. David was leaving to go away. As he went out the door he just said "please work with Jimmy Truong, Brian Wood and Con Koutsoukos" to set up this situation which would oversight the paper trail of money sent from clients, their accountants, through the J&B boys and up to Cadent and profits paid back, so we needed Lisa Reisinger to complete that process. 1799Mrs Watson's evidence was that she thought she was doing that work as work "between DDL and Con Koutsoukos et cetera" and that she was "just to be someone else that could make contact with or maintain contact with Lisa Reisinger and someone that Con Koutsoukos and Jimmy and Brian could discuss in a loop with Emma to make it all happen" (though that does not explain why Mr Hobbs would have needed to become involved if, as he submits, he had nothing to do with the opening of the Cadent accounts). Q. And again you did this, I take it, on whose instructions? Who was asking you to do this? A. Well the original request was just one as David left the office to help the guys get going, stay focused on what had to be done and making sure that, not necessarily in this order, but that Emma was part of it as well. Who drove what I really don't know because they were often in contact directly together, either Emma with Lisa Reisinger or Emma with Koutsoukos and co. As they gained knowledge they outstripped me and there was no need for me to be involved at all. 1800(Mrs Watson also seems to have communicated with Mr Hobbs as to a draft letter prepared by Ms Burnard from Diligence Discovery to accountants for the J&B Financial matters "have been talking to Susanne this morning and she is going to run my letter for the accountants past David as soon as she can". Mrs Watson confirmed that she understood this reference to be to Mr Hobbs.) 1801I find that Mr Hobbs acted as an officer or de facto director of 888 Vanuatu and that each of Ms Li and Mr Collard (as officers or de facto directors of 888 Vanuatu) and Ms Wu (as officer of 888 Vanuatu) at all relevant times acted on the instructions and directions of Mr Hobbs, and that each was accustomed to act at the direction of Mr Hobbs in relation to the operation of 888 (Super Save) Fund and Pinnacle Fund. 1802ASIC further submits (and I accept) that in respect of the 888 (Super Save) Fund that, each of Mr Collard and Ms Wu, on behalf of 888 Vanuatu, at the direction and with the advice, assistance or instructions of Mr Hobbs: opened and operated the 888 Vanuatu Super Save Technocash account for the operations of fund; transferred funds received from investors in 888 Fund to Cadent by way of investment; and made payments from the said 888 Vanuatu Super Save Technocash Account to various persons, by way of commission and otherwise as set out in the Pinnacle Fund and 888 Fund Scheme Spreadsheets (Ex A tab 48, Pinnacle Fund and 888 Fund Scheme Spreadsheet) and summarised in the 888 Fund summaries (Ex A, 888 Fund summaries). 1803In respect of the Pinnacle Fund it is submitted (and I accept) that each of Mr Collard and Ms Wu, on behalf of 888 Vanuatu, at the direction and with the advice, assistance or instructions of Mr Hobbs: opened and operated the 888 Vanuatu Pinnacle Fund Technocash account and the 888 Vanuatu Sovereign Bank account for the operations of Pinnacle Fund; transferred funds received from investors in Pinnacle Fund to Cadent by way of investment; and made payments from the said Pinnacle Fund Accounts to various persons, by way of commission and otherwise as set out in the Pinnacle Fund and 888 Fund Scheme Spreadsheets and summarised in the Pinnacle Fund summaries. 1804ASIC submits, and I so conclude, that by reason of all the above Mr Hobbs was a shadow director of 888 Vanuatu. * Good Value Fund (administered by North Wave) 1805The principal evidence relied on by ASIC in relation to the Good Value Fund is that of Mr Bernard Moore, whose evidence is that he was formally appointed as the "administrator" of North Wave Limited by resolution of the board of directors on 1 July 2006 (under which Mr Collard was appointed company secretary (B. Moore at [63]). Moores Rowland in Vanuatu appear to have acted on the incorporation of the company. 1806The sole director of North Wave, on its incorporation, was a company incorporated in Vanuatu (Equity Holdings Limited), that seemingly also being the nominee director of GP Global the corporate administrator of the Best Fund which was administered by Mr Zhang. Equity Holdings seems to have remained the "sole director" until 12 May 2008 when there was a company resolution in relation to that position (Ex X tab 28). 1807The shareholding of North Wave at the time of its incorporation was divided essentially into three equal holdings (of three shares each by Mr Hobbs, Mr Collard and Ms Li with BOS Custodial Services Limited holding the one remaining share) (Ex X tab 23). 1808ASIC contends, and I accept Mr Moore's evidence, that the investment opportunity for which the Good Value Fund was created was promoted by Mr Hobbs (in the presence of Mr Collard) to Mr Moore and that Mr Collard arranged for Mr Moore to be the administrator of the Good Value Fund. 1809On 18 May 2006, there was a director's resolution for the further allotment of shares such that a further 23 shares were issued to each of Mr Hobbs, Mr Collard and Ms Li (bringing each of their shareholdings to 26 shares in total) and a further 11 shares to BOS (12), with 5 shares to Ms Jin Jin Xu and 5 shares to Mr Yibo Qiu and Ms Jue Wang jointly. Mr Collard and Ms Li together held 52% of the shares in North Wave. 1810I accept that the relevant documentation for the Good Value Fund was not prepared by Mr Moore but was provided to him by Mr Collard and that Mr Collard assisted Mr Moore to open, set up and operate the North Wave Technocash account. Mr Collard, with Mr Moore, signed and opened the Cadent Application and Agreement for Corporations on behalf of North Wave as company secretary of North Wave. 1811Mr Moore's evidence is that Mr Collard and Ms Li each separately suggested to him that he do the administration for North Wave and that "it's just looking after it as you do as a company secretary". 1812I accept Mr Moore's evidence that the way in which funds deposited into the Good Value Fund were invested with Cadent was not determined by Mr Moore, but by Mr Hobbs or Mr Collard. The evidence also discloses that Mr Collard received payments from North Wave, being payments made from amounts invested in Good Value Fund. 1813I find that, although Mr Moore was appointed as the "administrator" of North Wave, at all material times, Mr Moore acted as administrator of North Wave on the instructions, directions or advice of Mr Collard. (ASIC submits, and I accept, that Mr Moore was never a de facto director of the company because he did not make any operational decision in relation to the Good Value Fund other than as instructed or directed by Mr Hobbs or Mr Collard.) 1814ASIC further contends that the involvement of Mr Moore in the setting up and operation of the Good Value Fund was only in an administrative (or company secretary-type) role and that Mr Moore did not perform any top-level management functions or make any decisions regarding the business or operations of the company other than at the direction or on the instructions of Mr Hobbs or Mr Collard, or on occasions Ms Li. I consider that the evidence makes good that contention. 1815I accept that Mr Moore was accustomed to act at the direction of Mr Collard in relation to the operation of the Good Value Fund and that, at the direction and with the advice, assistance or instructions of Mr Collard, on behalf of and in the name of North Wave Mr Moore opened and operated the Technocash account for the Good Value Fund. On that basis, I conclude that at all material times Mr Collard acted as an officer or de facto director or officer of North Wave. 1816As to Mr Hobbs, ASIC submits that it should be inferred that, in all material respects, Mr Collard was acting on the instructions or directions of Mr Hobbs in relation to the Good Value Fund. It relies on the following matters for that contention. Mr Collard was present when Mr Hobbs promoted the investment opportunity to Mr Moore, and Mr Collard indicated his agreement with Mr Hobbs as to the opportunity and that Mr Collard also intended to invest (the investment opportunity for which the Good Value Fund was created was thus promoted by Mr Hobbs, in the presence of Mr Collard, to Mr Moore). 1817The setting up of North Wave involved the payment by Mr Moore of a sum in effect to Mr Hobbs, Mr Collard and Ms Li, as they acquired interests in shares in North Wave that were paid for by Mr Moore. The assistance of Mr Collard in setting up the Good Value Fund account with Technocash involved the provision of a business address being the post office address of Tasman Business Consultants. Following the setting up of the Good Value Fund, fund documentation was sent to Mr Moore (and it is submitted that it can be inferred that this was by Mr Dent, who reported to Mr Hobbs or Mrs Watson on behalf of Mr Hobbs). 1818Mr Moore's evidence was that Mr Hobbs (as well as Mr Collard and Ms Li) told him that they wanted to have North Wave set up on a similar basis as Secured Bond and they wanted to set up an account with Cadent to invest ([68]). Mr Moore said that he would look after the Cadent account but that he did not want outside people investing in the fund. 1819ASIC further relies on the evidence that Mr Hobbs provided from time to time updates as to the status of the investment in the Good Value Fund, sometimes in the presence of Mr Collard and that Mr Hobbs was kept apprised of important matters relating to the setting up and operations of the Good Value Fund. It is noted that the trustee company for Good Value Fund was Trans Management Corporation (though there is no evidence that Mr Moore or North Wave ever communicated with Trans Management Corporation in its stated role as trustee or otherwise). 1820As to the investment by the Good Value Fund with Cadent, at or around he same time as some of the other investment schemes the subject of the proceedings, ASIC notes that at one stage Ms Li provided an update to Mr Hobbs on the progress of multiple accounts being opened with Cadent, including with respect to North Wave. 1821This is another fund in respect of which the Gee advice provided to Mr Collard was subsequently provided to Cadent on behalf of North Wave. 1822I accept that it was the practice of Mr Collard to follow directions and instructions of Mr Hobbs both in respect of Mr Collard's activities with respect to the schemes the subject of these proceedings and as an FTC executive. 1823Again, I place weight on the fact that the setting up of the fund, operation of and relevant documentation for the Good Value Fund was strikingly similar to that of the other schemes the subject of these proceedings. I infer from this that it was done at the instruction and direction of Mr Hobbs. 1824ASIC submits (and I accept) that Mr Moore was accustomed to act at the direction of Mr Hobbs and Mr Collard in relation to the operation of the Good Value Fund; and that Mr Collard, when giving directions, advice, assistance or instructions to Mr Moore in opening and operating the North Wave Technocash account for the Good Value Fund, on behalf of North Wave, was also acting on the directions, advice, assistance and instructions of Mr Hobbs. 1825Accordingly, I find that Mr Hobbs was a shadow director of North Wave. * Enhanced Fund (administered by Barclaywest Ltd) 1826In relation to the Enhanced Fund, the principal affidavits relied upon by ASIC are the affidavits of Ms Bi Hong Dong and Ms Zhi Jun Xu. 1827Enhanced Fund was administered by Barclaywest Ltd, an IBC incorporated in Vanuatu. At the time of incorporation, the shareholding of Barclaywest was held equally as between Mr Collard, Ms Li and Mr Hobbs and the director of Barclaywest was a nominee company (Equity Holdings Limited), which was also the director of other IBCs who had roles as corporate administrators for funds the subject of these proceedings. From 15 March 2007, the shareholding had changed such that each of Mr Collard and Ms Li was approximately a 10% shareholder, and Ms Wu was a 10% shareholder. (Mr Hobbs' shareholding was transferred to International Management Incorporation in June 2007.) From 5 May 2008 each of Mr Collard, Ms Li and Ms Wu was a 10% shareholder of the company. 1828Equity Holdings was replaced as director by Mr Emori Toloi on 23 February 2006 (as evidenced by the material accompanying Ex AU 8791 that being the Cadent account application for Barclaywest enclosing Register of Directors of Barclaywest). The registered office of Barclaywest was Moores Rowland in Vanuatu (as noted on the Cadent account application for Barclaywest Ex AU 8791 enclosing the Constitution of Barclaywest). 1829After its incorporation, Mr Collard purported to change Barclaywest's name to "Barclaywest Ltd" and a new Certificate of Incorporation was issued (Ex AU 5695, Certificate of Incorporation of Barclaywest Ltd, dated 22 February 2006). 1830On 18 May 2006, by facsimile to Moores Rowland in Vanuatu, Mr Collard requested that Ms Li's shareholding be transferred to Shunfu Corporation (an IBC controlled by Ms Li) and that Mr Collard's shareholding be transferred to Mr Mac Incorporated (an IBC controlled by Mr Collard). 1831ASIC contends from the above that (and I accept) that Mr Collard was primarily responsible for the incorporation of Barclaywest. At some point after the time of incorporation but prior to 13 February 2007, Mr Collard was formally appointed "administrator" of Barclaywest, but at all times Mr Collard acted as an "administrator" of Barclaywest by signing documents and executing agreements as administrator of the company. 1832On 14 November 2007, Mr Collard was given a power of attorney by the person registered as director of Barclaywest (Mr Emori Toloi) to sign Barclaywest company documents and to exercise full authority on Mr Toloi's behalf on all matters pertaining to Barclaywest. 1833Mr Collard opened and operated the Barclaywest Sovereign Bank accounts. Each of Mr Collard and Ms Li was provided the Barclaywest bank account details and PIN numbers (from which it can be inferred that they operated or were authorised to operate that account). 1834Ms Dong gave evidence that Ms Li asked Ms Dong to be "administrator" of Barclaywest, and explained how to operate Barclaywest and that Ms Dong relied on Ms Li for instructions to complete documentation and to send facsimiles as "administrator" of Barclaywest. 1835Ms Dong gives evidence (and I accept) that Ms Li provided documentation to Ms Dong to be completed and signed on behalf of Barclaywest and Enhanced Fund, including forms to open a Technocash account, a Cadent account application, and documents appointing traders to the Barclaywest Cadent account and that Mr Collard instructed Ms Dong as to the operation of Barclaywest and Enhanced Fund, including how to complete the Cadent account application for Barclaywest. 1836The evidence discloses that Ms Wu was appointed as "book keeper" for Barclaywest and maintained the company records for Barclaywest. Ms Wu was provided with the password to the Barclaywest email address (from which it can be inferred that Ms Wu operated or was authorised to operate the Barclaywest email address on behalf of the company). Ms Wu signed the Barclaywest Cadent account application as "secretary" of Barclaywest. Ms Wu operated the Barclaywest Cadent account, and sent Enhanced Fund investors' funds to Cadent; Ms Wu organised the withdrawal of investments in Enhanced Fund. 1837Meetings of Barclaywest shareholders were held variously at Mr Collard's house, Ms Li's house and Ms Wu's house. Ms Wu took minutes of meetings of Barclaywest shareholders and sent correspondence to investors in Enhanced Fund on behalf of Barclaywest and signed "per administrator" of Barclaywest. Ms Wu also gave documents to shareholders of Barclaywest to sign. 1838I accept that Ms Li directed Ms Wu and Mr Zhang Bing to prepare the Enhanced Fund Scheme Memorandum and private placement agreement and Ms Li provided documents and instructions to Ms Dong and other Barclaywest shareholders for the promotion of Enhanced Fund to investors; that Ms Li, with Ms Wu, provided such documents to investors in the Enhanced Fund; and that each of Ms Li and Mr Collard promoted Enhanced Fund to investors. 1839On at least one occasion, Mr Collard sent correspondence to Ms Reisinger on behalf of Barclaywest and signed as administrator of Barclaywest. Ms Reisinger sent correspondence to Mr Collard and Ms Li in relation to the operation of the Barclaywest Cadent account. 1840Mr Collard received payments from Barclaywest, being payments made from Enhanced Fund investor funds; and Mr Collard obtained the benefit of payments to the Secured Bond Master Fund Technocash account for the purchase of shares in Barclaywest. Ms Li received payments from Barclaywest to Secured Bond for the benefit of Shunfu Corporation, being payments made from amounts Enhanced Fund investor funds, and Ms Li obtained the benefit of payments to the Secured Bond Master Fund Technocash account for the purchase of shares in Barclaywest. Barclaywest made payments to Ms Wu's sister, Ms Hui Qing Wu, being payments made from Enhanced Fund investor funds. 1841As to Ms Wu, the affidavit sworn by Ms Wu on 20 August 2012 (and read on her then application for leave to file a defence in the proceedings) deposes to similar matters as contained in the submissions to which I have referred earlier and contains the assertion (that I read only as such) that she was not an officer or employee of any company in these proceedings. She deposes that she subscribed to FTC and received financial education manuals and newsletters. 1842Ms Wu deposes to the receipt of certain payments to her or her company (Hao Tai Corporation), at least one of which payments she says that she received in accordance with the commission structure set out in the Pinnacle Fund contract and private placement memorandum (her stated understanding being that she received this for "introducing others when they received a profit from their investment" [12]). She also deposes to receipt of moneys that she understood were a return on her investment. 1843Ms Wu asserts that she made no decisions and that any documents she signed or tasks she undertook were at the direction of either Ms Dong or Ms Li. She concedes that she did tell her friends about the investments she made because she thought at the time it was a good idea [24]. She asserts that she invested in Master Fund and in Barclaywest; she also asserts that she invested money invested "in 888" (presumably 888 (Super Save). 1844Ms Wu deposes that she did not fully understand everything that has been going on in this matter (something that, with respect, seemed evident when she finally sought to take some active role in the proceedings). 1845ASIC submits (and I accept), on the basis of the matters adverted to above, that at all material times each of Ms Li and Mr Collard was an officer or de facto director of Barclaywest. I also have concluded that at all material times Ms Wu was an officer of Barclaywest. The fact that she performed the tasks that she did voluntarily or at Ms Li's or even Ms Dong's request is not to the point. The role that the contemporaneous records indicate that Ms Wu performed was as an officer (not director) of the company. 1846I therefore find that at all material times each of Ms Li and Mr Collard was an officer or de facto director of Barclaywest and that at all material times Ms Wu was an officer of Barclaywest. 1847As to Mr Hobbs, it is submitted (and I accept) that: Ms Li discussed an investment opportunity, with investors who became the shareholders in Barclaywest, that the company could set up a fund that would be like Master Fund and the 888 Vanuatu funds (888 (Super Save) Fund and Pinnacle Fund) each of which was a scheme controlled by Mr Hobbs; Mr Hobbs told the shareholders in Barclaywest that he was selling his rights to intellectual property to a financial institution for $200 million, and would give the profit to Barclaywest; and that Ms Li told the shareholders in Barclaywest, after Mr Hobbs had also spoken, that Mr Hobbs had an investment opportunity involving the sale of intellectual property rights owned by Mr Hobbs, the funds from which would be shared with the shareholders of Barclaywest because the investment opportunity/sale of intellectual property rights would be conducted through Barclaywest. 1848I place significance on the fact that, again, investors in Enhanced Fund were required to subscribe to FTC before investing in Enhanced Fund and were required to follow the OEM/KLM process to obtain scheme memoranda and private placement agreements. 1849ASIC submits (and I accept) that Mr Hobbs instructed Ms Dong to sign documents as administrator of Barclaywest; Mr Hobbs promoted the returns of Enhanced Fund to investors; and that Mr Hobbs (and Ms Li on his behalf) stated that Enhanced Fund was a "white label fund", being a generic fund (which in all the circumstances I would infer was a reference to a fund set up and arranged by Mr Hobbs). 1850ASIC notes that Barclaywest made payments from accounts (into which amounts invested in Enhanced Fund had been deposited) to Tasman Business Consultants. 1851ASIC submits (and I accept) that it should be inferred that, in all material respects, Ms Li and Mr Collard were acting on the instructions or directions of Mr Hobbs in relation to the Enhanced Fund on the basis that: Ms Li and Mr Collard were present when Mr Hobbs promoted the investment opportunity in Barclaywest to potential shareholders, and each of Ms Li and Mr Collard became shareholders in Barclaywest and promoted or supported the investment opportunity; the setting up of Barclaywest involved the payment by shareholders of a sum of money, in effect to Mr Hobbs, Mr Collard and Ms Li, as they acquired interests in shares in Barclaywest that were paid for by the other shareholders; Barclaywest opened and operated an account with Technocash, and Mr Collard was referred to Technocash by Mr Hobbs (at the time Barclaywest opened the Technocash account, the majority of the schemes operated Technocash accounts); following the setting up of the Enhanced Fund, fund documentation was prepared by Ms Wu and Mr Zhang Bing at Ms Li's direction, who reported to Mr Hobbs, and the fund documentation was in the same form as that used in other schemes; when an update as to the status of the investment opportunity in Barclaywest was required, Mr Hobbs provided such update, usually in the presence of Ms Li and Mr Collard; the trustee company for Enhanced Fund was Trans Management Corporation; Enhanced Fund, through Barclaywest, invested with Cadent, with whom Mr Hobbs had dealings at or about the time of the investment, using a trader made available to and used by other schemes; Ms Li provided an update to Mr Hobbs on the progress of multiple accounts being opened with Cadent, including with respect to other company administrators of schemes the subject of these proceedings, also contended to be controlled by Mr Hobbs; it was the practice of Ms Li and Mr Collard to follow directions and instructions of Mr Hobbs in respect of Ms Li's and Mr Collard's activities with respect to Schemes the subject of these proceedings, and as an FTC Executive responsible to Mr Hobbs. 1852ASIC further submits (and I accept) that at all material times each of Ms Li, Mr Collard and Ms Wu acted as an agent of Mr Hobbs in promoting and operating unregistered managed investment schemes (whether independently or as part of an overall single scheme) to solicit subscriptions to FTC and investments from retail investors, including retail investors in Australia, in the name of an IBC, in funds the subject of these proceedings including Barclaywest. It is noted that at the same time as Ms Dong was acting as "administrator" of Barclaywest, pursuant to the instructions and directions of Ms Li and Mr Collard, she was also taking direct instructions and directions from Mr Hobbs in relation to FZF Vanuatu (including incorporating FZF Vanuatu for the benefit of Mr Hobbs (T 1381.5-19; T 1388.39-43)). 1853Again, the striking similarity in the setting up of the fund, operation of and relevant documentation for the Enhanced Fund (and the investment opportunities offered to potential investors) to that of the other schemes the subject of these proceedings is such that I infer that the setting up and operation of the Enhanced Fund was done at the instruction and direction of Mr Hobbs. 1854I find that Ms Li, Mr Collard and Ms Wu (as officers or de facto directors of Barclaywest) at all times acted on the instructions and directions of Mr Hobbs, and were accustomed to act at the direction of Mr Hobbs in relation to the operation of the Enhanced Fund. 1855I further find, in respect of the Enhanced Fund, that each of Ms Li, Mr Collard and Ms Wu (at the direction and with the advice, assistance or instructions of Mr Hobbs, on behalf of Barclaywest, opened and operated the Barclaywest bank accounts for the operations of the Enhanced Fund; transferred funds received from investors in the Enhanced Fund to Cadent by way of investment; and made payments from the Enhanced Fund Accounts to various persons, by way of commission and otherwise, as set out in the Enhanced Fund Spreadsheets (Ex A tab 80, Enhanced Fund Spreadsheets) and summarised in the Enhanced Fund summaries (Ex A, Enhanced Fund summaries). 1856Accordingly, I find that Mr Hobbs was a shadow director of Barclaywest. * Best Fund (administered by GP Global) 1857The principal affidavits read by ASIC in relation to Best Fund are those of Mr Guo Ping Zhang and Mr Bernard Moore. 1858GP Global was incorporated by Mr Zhang, with the assistance of Mr Collard. Mr Zhang completed the forms and the incorporation was arranged through Moores Rowland lawyers (Zhang at [21]-[25]). 1859At the time of incorporation, Equity Holdings Limited, was nominated as the director of GP Global (GP Global register of directors; Zhang at [27], presumably the same entity as has been referred to in relation to other funds as noted earlier). On the following day, 9 January 2003, Mr Zhang is recorded as being appointed as the sole director of GP Global (Zhang at [27]). (ASIC submits that although Mr Zhang was purportedly appointed as the sole director of GP Global, it is not clear that such appointment was ever validly made.) 1860At all material times, Mr Zhang was the sole registered shareholder in GP Global. In September 2004 he entered into an arrangement with Ms Li and Mr Collard to transfer 15% of his shareholding to each of Ms Li and Mr Collard (Zhang at [27], [150]-[158]). 1861ASIC submits (and I accept) that: the investment opportunity for which Best Fund was created was promoted by Ms Li to Mr Zhang (Ms Li told Mr Zhang that she was able to arrange investors who would want to invest in the fund and arrange traders with whom the funds deposited could be invested); at Ms Li's direction, Mr Zhang prepared minutes of meetings related to the operation of the Best Fund; the relevant documentation for Best Fund was not prepared by Mr Zhang but was provided to him by KLM Enterprises Ltd and explained to Mr Zhang by Ms Li; Ms Li (and Mr Collard) assisted Mr Zhang to open, set up and operate the GP Global Technocash account and the GP Global Cadent account; Ms Li showed Mr Zhang how to create and send correspondence to investors in relation to Best Fund and how to speak to potential investors in relation to Best Fund; the way in which funds deposited into Best Fund were invested, first in Master Fund and then with Cadent, was determined by Ms Li; Ms Li introduced Mr Zhang to Ms Reisinger; Ms Li was involved in communications with Ms Reisinger as to the setting up of the account with Cadent; at all material times, Mr Zhang, as administrator of GP Global, acted on the instructions, directions or advice of Ms Li; Mr Zhang signed important documents and agreements at the direction and instruction, and with the assistance, of Ms Li, or on occasions Mr Collard, who at all times worked with Ms Li; Mr Zhang followed Ms Li's instructions in relation to payments of profit, commissions or other payments from the GP Global Technocash account; and Ms Li received payments from GP Global, being payments made from amounts invested in Best Fund. 1862I accept that there is no evidence that Mr Zhang made any substantive operational decision in relation to Best Fund other than as instructed or directed by Ms Li. It is submitted (and I so find) that the involvement of Mr Zhang in the setting up and operation of Best Fund was only in an administrative (or company secretary-type) role and that Mr Zhang did not perform any top-level management functions or make any decisions regarding the business or operations of the company other than at the direction or on the instructions of Ms Li. 1863ASIC submits (and I accept) that: Mr Zhang was accustomed to act at the direction and on the instructions of Ms Li in relation to the operation of the Best Fund; and that, at the direction and advice, assistance or instructions of Ms Li, on behalf of GP Global Mr Zhang opened and operated the Technocash account for Best Fund in the name of GP Global; transferred funds received from investors in the Best Fund to Master Fund, and subsequently withdrew all or part of those funds from Master Fund and invested them, together with other funds received from investors in Best Fund, with Cadent; and made payments from the Best Fund Account to various persons, by way of commission and otherwise as set out in the Best Fund Spreadsheet (Ex A tab 148, Best Fund Spreadsheet) and summarised in the Best Fund summaries (Ex A tabs 149-161, Best Fund summaries). 1864As to Mr Hobbs, ASIC further submits (and I accept) that it should be inferred that, in all material respects, Ms Li was acting on the instructions or directions of Mr Hobbs in relation to the Best Fund on the basis that: Ms Li stated that Mr Hobbs controlled all of the funds and the traders and implied that Mr Hobbs could make the appropriate arrangements to set up Best Fund for Mr Zhang; the setting up of Best Fund involved the procurement by Ms Li of a payment from Mr Zhang to her, which in fact was a payment to be sent to (and it can be inferred procured on behalf of) Magny-Cours, a company controlled by Mr Hobbs; the setting up of the Best Fund Account involved the provision of a business address which was the address of Mr Hobbs' office and the registered office of Tasman Business Consultants; following the setting up of Best Fund, the Best Fund documentation was sent to Mr Zhang (it can be inferred by Mr Dent, who reported to Mr Hobbs, or to Mrs Watson who in turn reported to Mr Hobbs); Mr Hobbs was kept apprised of important matters relating to the setting up and operations of Best Fund; the trustee company for Best Fund was Trans Management Corporation (though I note there is no evidence of any communication with that company in its role as trustee); Best Fund invested with Cadent, with whom Mr Hobbs had dealings at or about the time of the investment; Ms Li provided an update to Mr Hobbs on the progress of multiple accounts being opened with Cadent, including with respect to GP Global and other company administrators of schemes the subject of these proceedings, also contended to be controlled by Mr Hobbs; the Gee advice was provided to Cadent on behalf of GP Global; it was the practice of Ms Li to follow directions and instructions of Mr Hobbs in respect of Ms Li's activities with respect to schemes the subject of these proceedings, and as an FTC Executive responsible to Mr Hobbs; Mr Hobbs arranged the setting up of websites for various funds including Best Fund, and Ms Li assisted in arranging that with Mr Zhang in relation to Best Fund, which it can be inferred was on behalf of and at the instruction of Mr Hobbs, including as to obtaining the signature of Mr Zhang for the relevant agreements; specific instructions from Mr Hobbs to Ms Li with respect to directions for payments were acted upon by Ms Li by way of payments authorised to be made from the Best Fund Account by Mr Zhang, at the direction of Ms Li, on behalf of and, in certain specific respects, for the benefit of, Mr Hobbs. 1865Again, the making available through the fund of the offshore investment opportunity, the setting up of the fund, the relevant documentation bears striking similarity to that of the other schemes the subject of these proceedings. The investment opportunities undertaken by the fund, both in respect of the investment in (Master Fund) and thereafter the investment of funds with Cadent (consistently with all other funds at the time), each of which can in my view be inferred to have been done at the instruction and direction of Mr Hobbs. I find that Ms Li was at all times acting on behalf of Mr Hobbs with respect to the schemes. 1866I find that Mr Hobbs was a shadow director of GP Global. * Prestige and Smart Money (administered by Geneva Financial) 1867Mrs Hobbs admits that the Prestige and Smart Money funds were administered by Geneva Financial ([13]); (Mr Hobbs in his defence says that he understood that Geneva was the administrator of Smart Money [21]). 1868The principal affidavits relied on by ASIC in relation to Prestige are the affidavits of Mr Gahan, Mr Stavropoulos, Mr Koutsoukos, Mr Wood and Mr Truong, as well as the evidence given in the witness box by Mrs Brenda Hobbs. The principal affidavits relied on by ASIC in relation to Smart Money are the affidavits of Mr Hogno and Mr Zhang, together again with the evidence given by Mrs Brenda Hobbs. 1869Mrs Hobbs spoke to the submissions in relation to Geneva Financial and emphasised that it was not "a family empire with various family members receiving unjustified payments". She submits (and ASIC accepts) that no payments purportedly of profits from the Geneva Financial funds (Smart Money and Prestige) were made from investors' capital. It is submitted that Geneva Financial did not ever pay clients a fixed percentage return; nor did it pay a return to clients on a regular monthly or any other basis. 1870Mrs Hobbs submits that Mrs Brenda Hobbs had an equal responsibility and involvement in the company (being a 50% owner of the company) and was remunerated accordingly by a 50% share of fees. It is submitted that if either of the two was more responsible or had higher authority or did more of the work then one would have expected that party would have been remunerated accordingly by receiving a higher percentage. (That expectation may or may not be justified but in any event it does not seem to me that it affects the conclusion that Mrs Hobbs was a de facto director of the company nor does the fact, if it be the case (and there is no or little evidence as to this) that each of the two had her separate agreed responsibilities and that neither would carry out the agreed responsibilities of the other. 1871Mrs Hobbs points to the evidence of Mrs Brenda Hobbs to the effect that one of her agreed responsibilities was to send advice to Bizcards with respect to Smart Money when she had transferred money to Bizcards (T 804.21-23; Tab 3 Mrs B Hobbs exhibits); to issue Client ID numbers and contract numbers (T 806.3-30) (that it is said she then advised to Mrs Hobbs to maintain on two separate registers in the form of spreadsheets -tab 14 Mrs Brenda Hobbs exhibits); to request transfer of profit from Bizcards to Geneva Financial (Tab 4 B Hobbs exhibits); to communicate with Bizcards (Tab 12 Ms B Hobbs exhibits; T 818.29-45); to issue letters "as required for her portion of the overall responsibilities" (T 808.13 to 15); to complete the agreement and private placement documents once filled in by a client (T 817.13-21); to receive and send all faxes in relation to Geneva Financial (reference being made to the documents at Tab 10, Tab 11 and tab 18 of Mrs Brenda Hobbs exhibits and to T 811.34-50 and T 818.1-19; and T 824.11-36) (it is said that Mrs Hobbs' agreed responsibilities did not include sending faxes and that she did not have a fax machine - referring to T 825.15-21); to receive all bank statements and communication from Westpac in Stoke, Nelson in relation to Geneva Financial (Tab 10). 1872Reference is also made to the evidence given by Mrs Brenda Hobbs at T 811.5-51, T 812.18 A to the document at Tab 7 Mrs B Hobbs exhibits (Spreadsheet "Smart Money Final Result"), that Mrs Brenda Hobbs said was prepared by Mrs Hobbs (T 811.9-13; 45-50; T 812.1-18). Mr Hobbs submits that the statements that Mrs Brenda Hobbs described as receiving from Mr Malcolm Carr were those at Tab 7 and Tab 17 and that Mrs Brenda Hobbs was mistaken in identifying these as spreadsheets produced by Mrs Hobbs. (That was not put to Mrs Brenda Hobbs in cross-examination.) 1873It is submitted that where there was reference at T 813.37 to contracts of administration of private placement being properly filled out by a borrower, there "are no such parties involved in any of Geneva Financial's private placement memoranda or agreements" (reference being made to tab 8 of Mrs Brenda Hobbs exhibits). 1874It is submitted that one of the agreed responsibilities of Mrs Hobbs was to prepare various spreadsheets (T 805.36 - T 806.1; Tab 23 Mrs Brenda Hobbs exhibits) and to make online payments of profit to clients in NZD from the Geneva Financial NZD bank account to clients who wished to receive their profit in NZD (Tab 16 Mrs Brenda Hobbs exhibits). 1875Mr and Mrs Hobbs assert that (and I accept it may well be the case) that without both parties completing their respective responsibilities the administration of the business would not have succeeded; that each party was equally important to the company; and that no significant decisions were made without consultation or discussion with the other party (T 799.36-37 regarding opening of the bank accounts). 1876It is submitted that the "money trail" proves the equality of both Mrs Brenda Hobbs and Mrs Hobbs within Geneva Financial (reliance being placed on entries in Schedule B in that regard). 1877The difficulty I have with the above submissions is that an equality of responsibility between Mrs Hobbs and her sister-in-law would not preclude a finding that Mrs Hobbs was a de facto director and officer of Geneva Financial and a beneficial owner or controller of the company or the funds administered by it. 1878ASIC submits (and I accept) that:Mrs Hobbs personally arranged for Mrs Brenda Hobbs to assist in the administration of the Smart Money and Prestige funds; Mrs Brenda Hobbs had no relevant experience or expertise to run such investment funds; Mrs Hobbs explained to Mrs Brenda Hobbs how to operate the funds; the relevant documentation for Smart Money and Prestige was provided through Mrs Hobbs; Mrs Brenda Hobbs was not responsible for the soliciting of investors to invest in the fund, or the decision as to how to invest funds deposited by investors; the way in which funds deposited into Smart Money and Prestige were to be invested, as between Mrs Hobbs and Mrs Brenda Hobbs, was determined by Mrs Hobbs; Mrs Brenda Hobbs followed Mrs Hobbs' instructions in relation to payments of profit, commissions or other payments from the accounts held by Geneva Financial; although Mrs Hobbs and Mrs Brenda Hobbs purported to share the ownership of Geneva Financial and to share the work performed for Geneva Financial, at all relevant times Mrs Brenda Hobbs deferred to Mrs Hobbs. 1879ASIC submits that although Mrs Brenda Hobbs signed documents on behalf of Geneva Financial, Mrs Brenda Hobbs did not make any operational decision in relation to Smart Money or Prestige other than as instructed or directed by Mrs Hobbs; the involvement of Mrs Brenda Hobbs in the setting up and operation of the funds was only in an administrative (or company secretary-type) role; Mrs Brenda Hobbs did not perform any management functions or make any decisions regarding the business or operations of the company other than at the direction or on the instructions of Mrs Hobbs. I consider that the evidence makes good those submissions (particularly having regard to Mrs Brenda Hobbs' lack of understanding in the witness box of matters relevant to the fund). 1880As to Mrs Hobbs, ASIC submits (and I accept the evidence establishes) that at all material times (as between Mr and Mrs Hobbs), it was Mr Hobbs who had the financial experience and contacts in order to be able to set up and operate an investment fund using pooled moneys from investors to invest in foreign exchange or derivatives trading (rather than Mrs Hobbs, who was a book-keeper and without tertiary qualifications). Mr Halley notes (and I accept the evidence establishes) that Mr Hobbs promoted both Prestige and Smart Money and procured investors for those funds (in the case of Prestige, the investment by PJCB is one instance; in the case of Smart Money, the investments by Mr Conroy and Mr Clifford are such instances). 1881In relation to Smart Money, funds deposited with Geneva Financial were invested with Mr Malcolm Carr, who Mr Halley notes worked for and with Mr Hobbs at the time, and who was involved with investigations into potential financial investment opportunities at the time with Mr Diaz, on behalf of Mr Hobbs, including with Ms Reisinger and Mr Caswell. There is also evidence that Mr Hobbs made direct requests of Mr Koutsoukos and others to encourage investors to deposit funds into Prestige. It is noted that other FTC executives, working for and reporting to Mr Hobbs (such as Mr Robert Hobbs and Mrs Watson) also promoted the funds run by Geneva Financial. 1882Mr Halley further points out that at the time that Prestige was involved in opening an account with Cadent, and investing funds with Cadent, Mr Hobbs was involved in negotiations with Cadent and introducing brokers in dealings with Cadent, and it was Mr Hobbs, not Mrs Hobbs, made direct representations to Cadent and New World, at meetings in Chicago, as to investment accounts he was able to introduce to Cadent. ASIC points to the fact that Mr Hobbs made further visits to Chicago and met with Cadent and New World without Mrs Hobbs and that Mr Hobbs was involved in the application to open the Cadent account, and signed as Geneva Financial's (company) secretary. 1883I accept that there is evidence that Mr Hobbs dealt directly with Ms Reisinger in relation to the trading of various accounts with Cadent. I also think it fair to characterise the communications between Mrs Hobbs and Ms Reisinger as often proceeding on the basis that Mrs Hobbs was pursuing questions or topics raised by Mr Hobbs or following up matters she did not understand, though not all communications can be so characterised. 1884I accept that the evidence establishes that (though denied by him) Mr Hobbs received round turn commissions from the trading in the Geneva Cadent account. 1885I also accept the evidence that Mr Hobbs solicited investors in the funds administered by Geneva Financial, both directly (in the case of Mr Stavropoulos) and indirectly (through Mr Wood, Mr Truong and Mr Koutsoukos). ASIC submits (and I accept) that it should be inferred that Mr Hobbs directly and indirectly sourced and procured investors in Smart Money and/or Prestige. 1886ASIC notes that the evidence records payments made from the Smart Money accounts, including payments made to Mr Hobbs, Mrs Hobbs, Mr Robert Hobbs, Mrs Brenda Hobbs, Mr and Mrs Hobbs' daughter, and Tasman Business Consultants. (Mrs Hobbs contends, and took me to through the Schedule B reconstruction to explain, that payments made to those in her family were in respect of funds invested by them and I accept that Mrs Hobbs was sincere in her submissions in that regard.) 1887Significantly, however, the setting up of the respective funds, including the relevant fund documentation for Smart Money and Prestige, and its operation was strikingly similar to that of the other schemes the subject of these proceedings, such that I would infer this was done at the instruction and direction of Mr Hobbs. That conclusion is reinforced by the communications from Ms Reisinger that point to Mr Hobbs' involvement in aspects of the decision making for the Geneva Financial Cadent accounts. I simply cannot accept the suggestion in Mr Hobbs' evidence that he simply ignored requests made by Ms Reisinger for him to discuss or explain matters (and if Mr Hobbs had done nothing then one would expect to see chase up correspondence between Mrs Hobbs and Ms Reisinger). 1888ASIC submits (and I so find) that it can be inferred that Mrs Hobbs was acting with, or on behalf of, Mr Hobbs, in relation to the business of Geneva Financial and the setting up and operation of Smart Money and Prestige. 1889In the circumstances, ASIC submits (and I accept) that: Mrs Brenda Hobbs was accustomed to act at the direction of Mrs Hobbs, for and on behalf of Mr Hobbs (or Mr and Mrs Hobbs jointly), in relation to the operation of the Smart Money and Prestige funds; and that, at the direction and with the advice, assistance or instructions of Mrs Hobbs, for and on behalf of Mr Hobbs (or Mr and Mrs Hobbs jointly), Mrs Brenda Hobbs and Mrs Hobbs, on behalf of Geneva Financial, opened and operated the bank accounts for Smart Money and Prestige in the name of Geneva Financial; transferred funds received from investors in Smart Money and Prestige to other accounts purportedly by way of investment; and made payments from the Smart Money and Prestige accounts to various persons, by way of commission and otherwise. 1890I find that Mrs Hobbs was a de facto director and officer of Geneva Financial and that Mr Hobbs was a shadow director and officer of that company. * Elite Premier and Elite Premier Option Two Unit Trust (Preserved Investment Group) 1891ASIC submits that: Mr Hobbs personally arranged Mr Clements to be the administrator of the Elite Premier and Elite Premier Option Two funds; Mr Clements had no relevant experience or expertise to run such investment funds; Mr Hobbs explained to Mr Clements how to set up and operate the Elite Premier and Elite Premier Option Two Unit Trust funds; the relevant documentation for Elite Premier and Elite Premier Option Two Unit Trust was provided to Mr Clements by Mr Hobbs; at all material times, Mr Clements did not take any active step in relation to either Elite Premier or Elite Premier Option Two Unit Trust without it first being approved by either Mr Hobbs or Ms Reisinger (T780.43-45), in circumstances where Mr Clements understood that Ms Reisinger's instructions had been approved by Mr Hobbs (T80.47-781.1); Mr Clements followed what Mr Hobbs told him to do and would have done so even if it had been inconsistent with what Ms Reisinger told him to do (T782.3-10); at all stages Mr Clements looked to Mr Hobbs to give him directions or instructions about what to do in relation to Elite Premier and Elite Premier Option Two Unit Trust (T783.3-10); Mr Clements was not responsible for the soliciting of investors to invest in the fund, or the decision as to how to invest funds deposited by investors; the way in which funds deposited into the Elite Premier and Elite Premier Option Two Unit Trust funds were to be invested was determined by Mr Hobbs; Mr Clements followed Mr Hobbs' instructions in relation to payments of profit, commissions or other payments from the accounts held by Preserved Investment Group. I consider that the evidence makes good this submission. 1892ASIC contends, and I accept, that Mr Clements, in his evidence, demonstrated that he had a very limited and basic comprehension of pertinent matters to these schemes, including the steps involved in setting up an investment fund (see T 684.40-48), the distinction between a company and a trust (T 689.1-12), the role of a trustee company (T 688.30-36), whether Trans Management Corp was in fact an IBC (T 690.21-23), whether the Trans Management Corp Trust was ever set up (T 688.38-42), how the Trans Management Corp fitted in with the Elite Premier Unit Trust Fund (T 688.44-46), what the investments offered by Elite Premier were as described in the scheme memorandum (T 702.41-703.27), who the fund manager was as referred to in the scheme agreement for Elite Premier (T 698.3-5), what the role of the fund manager was (T 696.22-25), the purported "principles" of private placement (T 698.18-28), how to understand the different balances set out in the Cadent account statements (T 749.44-745.2), the difference between a Treasury note and a Treasury STRIP (T 751.28-35), what a claim of "privilege" was as made on documents he signed (T 754.14-28), or what a round turn commission was or why Mr Hobbs was entitled to be paid one, despite having purportedly authorised such commission to be paid to Mr Hobbs ( T 761.6-37; T 764.34-37). 1893ASIC submits (and I accept) that, although Mr Clements signed documents on behalf of Preserved Investment, Mr Clements did not make any operational decision in relation to Elite Premier or Elite Premier Option Two other than as instructed or directed by Mr Hobbs. I find that the involvement of Mr Clements in the setting up and operation of the funds was only in an administrative (or company secretary-type) role and that Mr Clements did not perform any top-level management functions or make any decisions regarding the business or operations of the company other than at the direction or on the instructions of Mr Hobbs. 1894Payments made from the Preserved Investments' accounts included payments made to Mr Hobbs, Mrs Hobbs, Mr Robert Hobbs, various FTC Executives (who reported to Mr Hobbs and worked for FTC, a company controlled by Mr Hobbs) and Tasman Business Consultants (which was owned and controlled by Mr Hobbs). Mr Hobbs arranged the setting up of websites for various funds including for Elite Premier Option Two Unit Trust (and I would infer that Mr Hobbs arranged for Mr Clements to sign the relevant agreements). 1895The setting up of the fund, operation of and relevant fund documentation for Elite Premier and Elite Premier Option Two was again strikingly similar to that of the other schemes the subject of these proceedings (such that, again, I infer that each was established and operated at the instruction and direction of Mr Hobbs). 1896ASIC submits (and I so find) that Mr Clements was accustomed to act at the direction of Mr Hobbs in relation to the operation of the Elite Premier and Elite Premier Option Two Unit Trust schemes; at the direction and advice, assistance or instructions of Mr Hobbs, on behalf of Preserved Investment Mr Clements opened and operated the bank accounts for Elite Premier and Elite Premier Option Two Unit Trust in the name of Preserved Investments; transferred funds received from investors in Elite Premier and Elite Premier Option Two Unit Trust to Cadent and other accounts purportedly by way of investment; and made payments from the Elite Premier Accounts to various persons, by way of commission and otherwise as set out in the Elite Premier Spreadsheet (Ex A tab 89, Elite Premier Spreadsheet) and Elite Premier Option Two Spreadsheet (Ex A tab 93, Elite Premier Option Two Spreadsheet) and summarised in the Elite Premier summaries (Ex A tabs 90-92, Elite Premier summaries) and Elite Premier Option Two summaries (Ex A tabs 94-114, Elite Premier Option Two summaries). 1897I therefore find that Mr Clements was a de facto director and officer of Preserved Investment and that Mr Hobbs was a shadow director of Preserved Investments. * Covered Strategies (Ultimate Investments) 1898ASIC contends (and I so find) that Mr Hobbs personally arranged for Mr Fitzgerald to be the administrator of the Covered Strategies fund; Mr Fitzgerald had no relevant experience or expertise to run such an investment fund; Mr Hobbs explained to Mr Fitzgerald how to set up and operate the Covered Strategies fund; the relevant documentation for Covered Strategies was not prepared by Mr Fitzgerald, but was provided to Mr Fitzgerald through Mr Hobbs' office, save for the certificate of units which was approved by Mr Hobbs; at all material times, Mr Fitzgerald considered himself to be subject to the directions and instructions of Mr Hobbs while he was the administrator of Covered Strategies; Mr Fitzgerald was not responsible for the soliciting of investors to invest in the fund, dealing with brokers, or dealing with Mrs Watson in respect of KLM or otherwise; Mr Fitzgerald was not involved in the decision as to how to invest funds deposited by investors. The way in which funds deposited into the Covered Strategies fund were invested was determined by Mr Hobbs, and Mr Hobbs made arrangements with Mr Parker prior to any involvement by Mr Fitzgerald. Mr Hobbs set up the original contract with Mr Parker as trader; Mr Fitzgerald followed Mr Hobbs' instructions in relation to the calculation and quantum of profit, commissions and other amounts paid from the accounts held by Ultimate Investments. 1899ASIC notes that when Mr Fitzgerald had problems with the fund, he left it to Mr Hobbs to deal directly with Mr Parker to resolve the issues that had arisen, and when Mr Fitzgerald decided to cease in his role as administrator of the fund, he left it to Mr Hobbs to find an alternative person to be the administrator of the fund, and assumed that that would be arranged by Mr Hobbs. 1900ASIC submits that, although Mr Fitzgerald signed documents on behalf of Ultimate Investments, Mr Fitzgerald did not make any operational decision in relation to Covered Strategies other than as instructed or directed by Mr Hobbs; the involvement of Mr Fitzgerald in the setting up and operation of Covered Strategies was only in an administrative or company secretary-type role; and Mr Fitzgerald did not perform any top-level management functions or make any decisions regarding the business or operations of the company other than at the direction or on the instructions of Mr Hobbs, or on occasions Mr Parker. 1901Mr Hobbs accepted that Mr Parker was (at least at one time) a friend of his. ASIC contends, and I accept that the evidence establishes, that each of Mr Diaz and Mr Fitzgerald understood that issues with the Covered Strategies fund could be addressed to Mr Hobbs, and would be dealt with by Mr Hobbs speaking with Mr Parker. 1902As earlier noted, Mr Diaz' evidence was that when Mr Hobbs stated to him that Mr Parker was one of the owners of OEM, Mr Parker told Mr Diaz that that was not correct and that Mr Hobbs was "the only one that owns OEM, KLM and FTC" (Diaz at [182]). While Mr Clements appears to have been of the understanding that Mr Parker had a role with Trans Management Corp (having sent faxes to him, such as that at Ex AQ tab 52, for Trans Management Corp), that entity was controlled by Mr Hobbs. 1903It is submitted that in all of the circumstances it can be inferred that Mr Parker reported to and acted on the instructions of Mr Hobbs. In that regard, I am not satisfied that there is evidence of Mr Parker reporting to Mr Hobbs as such. However, I am satisfied that the schemes that invested with or through Mr Parker (Covered Calls, insofar as this was administered by Mr Cable's IBC, and Covered Strategies, administered by Mr Fitzgerald) were schemes operated on Mr Hobbs' instructions. 1904ASIC submits that in relation to Mr Hobbs: Covered Strategies was promoted by Mr Hobbs and other FTC executives, who worked for Mr Hobbs; Covered Strategies was one of the funds listed on documents sent to investors by KLM Enterprises; Covered Strategies was one of the funds that was set up within a designated "system", involving a "circle" of companies, FTC, OEM and KLM, which were part of a network or associated together, each of which were controlled by Mr Hobbs, and Mr Hobbs controlled each and all parts of that system; payments made from the Covered Strategies accounts included payments made to Mr Hobbs, various FTC Executives (who reported to Mr Hobbs and worked for FTC, a company controlled by Mr Hobbs) and Tasman Business Consultants and Magny-Cours (each of which were owned and controlled by Mr Hobbs). Again, the purported investment opportunity, the setting up of the fund, operation of and relevant fund documentation for Covered Strategies was strikingly similar to that of the other schemes the subject of these proceedings, such that I infer it was done at the instruction and direction of Mr Hobbs. 1905ASIC submits (and I accept) that: Mr Fitzgerald was accustomed to act at the direction of Mr Hobbs in relation to the operation of the Covered Strategies fund; at the direction and advice, assistance or instructions of Mr Hobbs, on behalf of Ultimate Investments Mr Fitzgerald opened and operated the bank accounts for Covered Strategies in the name of Ultimate Investments; transferred funds received from investors in Covered Strategies to other accounts purportedly by way of investment; and made payments from the Covered Strategies Accounts to various persons, by way of commission and otherwise as set out in the Covered Strategies Spreadsheet (Ex A tab 115, Covered Strategies Spreadsheet) and summarised in the Covered Strategies summaries (Ex A tabs 116-143, Covered Strategies summaries). 1906I find that Mr Hobbs acted as a de facto director or officer of Ultimate Investments from at least the time of Mr Fitzgerald's resignation as a 'director' in 2005 and that in the period in which Mr Fitzgerald was the scheme administrator of the Covered Strategies fund Mr Hobbs was a shadow director of Ultimate Investments. Principal Issues for Determination 1907In the light of the above findings, I turn then to the principal issues for determination and answer the questions therein posed as follows. "Hobbs scheme" issues 1908Paragraphs [37] - [46] of the Third Further Amended Statement of Claim plead matters relating to the alleged development by Mr Hobbs of the so-called Hobbs scheme, raising a number of issues as to the role of Mr Hobbs (some of which have already been addressed in the factual findings above). Whether in or prior to 2002, Mr Hobbs created or otherwise developed a financial product, which he promoted and offered (or alternatively which he was engaged in the business of promoting and offering) to retail investors in Australia (Hobbs financial product) [37]. 1909Paragraphs [37] to [39] plead what is alleged to be the development by Mr Hobbs in or prior to 2002 of a financial product within the meaning of Division 3 of Part 7.1 of the Corporations Act, which it is alleged in [40] that he promoted and offered or was in the business of promoting and offering to retail investors in Australia. 1910The financial product to which ASIC pleads in paragraphs [38]-[39] is the white label or generic managed investment scheme outlined in the introduction to these reasons, it being alleged that investors contributed money to acquire rights to benefits produced by the financial product; that their contributions were pooled; and that investors did not have day to day control over the operations of the Hobbs financial product because they transferred funds to accounts with financial institutions that they were not authorised to operate, those funds were transferred to other accounts for investment and they were not involved in the day to day running of the schemes. 1911Mr Halley submits, and I accept, that a scheme such as that outlined above satisfies the definition of a financial product in s 763A of the Corporations Act. 1912Mr Hobbs denies that there was any "Hobbs financial product" and denies the allegations contained in the paragraphs referred to above. In essence, however, as I understand his case, Mr Hobbs is not denying that the facility that was offered or made available to investors through the schemes the subject of these proceedings was a financial product, as such. Mr Hobbs' contention appears to be, rather, that it was not one made available to retail investors in Australia (as opposed to one that was made to offshore IBCs) and, in any event, that it was not one developed or promoted by him. 1913Hence, in relation to the allegation in [37], in his Defence Mr Hobbs further says that (a)FTC was a company established by Kip Becker and [Mr Hobbs] believed that at all material times it was a wholly owned subsidiary of OEM, a company owned and controlled by Kip Becker, a United States attorney; John Chan, a Chinese attorney; and others. (b)FTC was a company engaged in the provision of educational materials and did not promote any financial products. (c)[Mr Hobbs] believes that Mr Becker, Mr Schillengier [sic] and Ms Reisinger developed a financial product the provision of which appears to be the subject of these proceedings "the Reisinger Product". (d)[Mr Hobbs] was instructed by Mr Becker to obtain a legal opinion as to the legality of the Reisinger Product. (e)[Mr Hobbs] believes Mr Becker, Mr Shillengier [sic] and Ms Reisinger advised the Corporate Administrators with regard to the Reisinger Product. (f)Neither [Mr Hobbs] nor FTC received any commission or other payment with regard to the Reisinger Product. 1914(Pausing there, to the extent that Mr Hobbs is there asserting that FTC was a company at all material times owned and controlled by others, it is difficult to see how such a dogmatic statement could be made as is contained in (f) by Mr Hobbs as to the non-receipt of any commission or other payment by FTC with regard to the "Reisinger Product". This simply highlights the inconsistency between the case Mr Hobbs wants to put as to his limited role in FTC and the knowledge and familiarity displayed by him at the DVD Seminar and elsewhere of its operations.) 1915(Mrs Hobbs pleads that she has no knowledge and cannot admit [37]-[40] inclusive. Ms Wu's defence is also a non-admission of those paragraphs insofar as they involve her.) 1916I have no doubt (and I so find) that the financial product made available for investment by investors in connection with the individual investment schemes the subject of these proceedings is one falling within the requisite definition in the Act. Was it created or otherwise developed by Mr Hobbs? 1917I accept that Mr Hobbs may well have obtained advice from securities attorneys or advisers in the United States as to the financial product that might be able to be offered (that being a "pooled" investment product) and as to how that might lawfully be done in the United States. However, to the extent that he put such a scheme into operation in Australia and New Zealand (and directed others such as Mrs Watson as to what steps were to be taken in the process) then Mr Hobbs was clearly involved in the development of the process. In contrast, I do not accept that the evidence establishes that Ms Reisinger had been involved in the initial development of the so-called blended product (since Mr Hobbs was involved in the establishment and operation of schemes before her introduction to him in 2002). Nor do I accept that the evidence establishes that the FTC entity involved in the present case was one in the establishment or operation of which Mr Hobbs had no involvement. 1918The manner in which Mr Hobbs promoted FTC (both in the DVD Seminar and at meetings with potential investors such as Mr Blow) was to convey the impression that Mr Hobbs was personally involved in the creation of the investment opportunities there being presented (or had been responsible for enabling access thereto). 1919The constant use of "we" and "our" in describing the funds and promoting the investment opportunities (which I find was done in the context of the sale of the financial education packages) cannot in my view be dismissed as simply as being a "figure of speech", particularly given the explanation by Mr Hobbs at T 1270.27 that "When I worked in the insurance industry, I always used the word "we" because it just incorporated the whole team". That, in my opinion, is a very telling response because it confirms the impression I had when observing Mr Hobbs on the DVD Seminar, namely that Mr Hobbs was including himself as part of the organisation or entity that had access to the funds in question or that was offering the investment opportunities in question. I find it inconceivable that anyone listening to the DVD Seminar would not have understood Mr Hobbs to be involved in the process by which access to investments could be made available to those who first had purchased the FTC educational package. 1920That Mr Hobbs was engaged in the business of promoting and offering to potential (retail) investors in Australia a product (namely a fund into which contributions would be pooled for investment in offshore markets) that he had developed (alone or in conjunction with others) is the only conclusion consistent with Mr Hobbs' references to the time and money spent in researching those investment opportunities and the assertion made by him as to the existence of intellectual property in the funds (made not simply to persons such as the J&B Financial officers, inter alia when advising them how to complete the Cadent application forms by reference to his own experience and the value of the intellectual property in the funds, but also in his own correspondence to Sovereign Trust in relation to Magny-Cours and, according to Ms Reisinger, in his discussions with those at New World Holdings and Cadent when explaining the activities in which he was involved) and consistent with the constant references in the DVD Seminar and, as deposed to by those who did invest in the funds, at other FTC seminars and meetings, to the opportunity to access "the real things". 1921Whether Mr Hobbs solely created or developed the said financial product, he held himself out as having been part of the creation of that product (and he represented that he had intellectual property in it and obtained a significant financial benefit from it via the $200,000 payment to Magny-Cours), I have no doubt that Mr Hobbs promoted that product in the various seminars and meetings (including the DVD Seminar) in Australia and I so find. 1922As to the particular assertions contained in Mr Hobbs' defence, I do not accept that the evidence supports them. I have dealt with (a) to (c) already. In relation to (c) and (f) there is at best a fleeting reference to Mr Schillengier in the evidence and I was taken to nothing in the evidence to support the assertion that he was either involved or developed the financial product or that he advised corporate administrators in relation thereto. As to (d), Mr Hobbs' evidence was inconsistent as to this. The inference I would draw from the timing of the request for advice from Mr Hartnell (and the correspondence with ASIC selectively quoting from that advice) is that Mr Hobbs made the enquiry of his own volition. That contention is reinforced by the use Mr Hobbs made of the advice afterwards. Whether in the period between at least 2002 and 2008, Mr Hobbs invited or otherwise procured people in Australia and New Zealand to establish managed investment schemes using the Hobbs financial product and directed or otherwise procured those people to establish corporations for the purpose of acting as a corporate administrator of those schemes [40]. 1923The allegation in [40] is followed by the allegation in [41] that Mr Hobbs procured the establishment in the period between 2002 and 2008 of the individual managed investment schemes the subject of these proceedings (each of which is alleged to have utilised or been derived from the Hobbs financial product and to have itself been a financial product within the definition in the Act) and the respective corporate administrators who it is alleged administered the Schemes. 1924Mr Hobbs expressly denies that there was any "scheme" as defined in [41] of the pleading and denies each of [41]-[43], except to the extent that he admits that Geneva Financial administered what he understood to be the Reisinger Products known as Prestige and Smart Money. Mrs Hobbs admits to being introduced to Ms Reisinger by Mr Hobbs and admits that Geneva Financial "subsequently invested in the Reisinger Product and managed Prestige and Smart Money" but otherwise denies that Geneva Financial was a scheme as defined in [41]. 1925Having regard to the findings above in relation to the respective schemes, I answer this question in the affirmative. Whether in the period between at least 2002 to 2008 Mr Hobbs and/or FTC marketed and sold financial educational material to persons within Australia and marketed opportunities to persons within Australia to invest in offshore wholesale investment markets through the Schemes [44]. 1926Paragraphs [44] - [46] relate broadly to the activities of FTC. At [44], it is alleged that in the period between at least 2002 and 2008, Mr Hobbs and, further or in the alternative, FTC, both marketed and sold financial educational to persons in Australia and marketed opportunities to persons in Australia to invest in offshore wholesale investment markets through the Schemes. 1927Mr Hobbs admits [44(a)] (namely that he and, further or in the alternative, FTC marketed and sold financial educational materials to persons within Australia over the relevant period) and (though not strictly required to plead to particulars) he admits that the financial educational materials consisted of the approximately 18 booklets published and distributed "to potential investors" by FTC over a 3 year period on various topics relating to investments. There is therefore no dispute as to the first part of the allegation. 1928What Mr Hobbs denies is that he and/or FTC marketed the investment opportunities referred to in (b) of this paragraph. In his defence, Mr Hobbs further says that he was the International Sales Manager of FTC and says that the educational material "contained no mention of the financial products which are the subject of these proceedings". 1929I find that the promotion and sale by FTC of the education packages and the process by which potential investors received information from FTC and then were referred to OEM and KLM were controlled by Mr Hobbs. 1930Having regard to the evidence of the various FTC executives who were called to give evidence in these proceedings, the statements made to FTC executives or potential executives (and, potentially, those who might have chosen personally to invest in the funds following that seminar) at the DVD Seminar, and the evidence of the investors, there is no doubt that Mr Hobbs did promote and market the opportunity for investment in the overseas wholesale market through funds such as those the subject of the present proceedings. I find that he did so not only in his stated capacity as International Sales Manager of FTC but also as a de facto director and officer of FTC. 1931The fact that there is no mention in the FTC booklets of the specific funds or financial products is beside the point. There were numerous references in the DVD Seminar to identifiable funds, such as the Elite fund and the fund the run by Mr Diaz (the Express Fund), as well as references to various types of funds or the investments in which those funds placed moneys. There were also numerous references to funds in the meetings with investors - to such a degree that in one instance a potential investor asked to invest in a fund not listed on the KLM list provided to her but instead to invest in a fund to which reference had been made at the seminar. 1932At one point on the DVD Seminar, Mr Hobbs talked about actual returns of traders who were licensed (stating that the best annual return was 118% trading in foreign exchange) and giving as an example "one of our traders at the moment", which he said was run by solicitors from Brisbane had over the years had some significant returns (making around 20% per month). I have earlier extracted some parts of what Mr Hobbs was recorded as saying at the DVD seminar as to the fact that "we've had some significant returns over the years. I mean, some months they've been 20-odd per cent per month", notwithstanding the "extremely cautious" nature of the operators of the fund in question. 1933Pressed by one of the attendees (Ms Wool) on the question as to whether there was only one bank that was also providing a share return, Mr Hobbs said that was the case but went on to explain: We have three different foreign exchange trading investments. Only one of them you can share the profit in with the bank. Another one out over here carries a capital guarantee on the money. So, I mean, again, horses for courses. It's what people like. And each have a slightly different strategy in how they trade. (my emphasis) (Pt 2 P 6.16) and went on to say: We have another options trading program that has a prospectus, but the prospectus is not registered here in Australia, and that trades on the FTSE market in London. Now, its worse year in 15 years was 1987. Most people in the room that remember 1987, October '87, it wasn't a particularly good month. But they still did 30.3 per cent or something for '87. Again theirs is a computer based system, has absolutely no emotion, it trades based on knowing factors. Another type of fund that is -. and again when somebody becomes an introducer for KLM Enterprises, they get equipped with a manual that's updated annually with all the latest reports from the different fund managers, showing the performance for that year and so forth. So they see all the inside information. They see who the fund managers are, you know, you get all the information required You will see one of the funds is an arbitraged mutual funds. Now, arbitraged mutual funds is quite an interesting fund. .... Now, that particular fund - there's an independent accountant's report on that fund that produced over 100 per cent gross per annum for the last three years, and that profit is paid out quarterly. [Mr Hobbs said that the Securities Exchange Commission in the US had just introduced legislation stopping arbitrage mutual funds because it was causing a false inflation of the markets for the fund managers and the average person was starting to do it from their home computer in America] So now arbitrage mutual funds are actually done from Europe and traded on the London exchange from other parts of the Europe. It's just the way it is. We don't have a fund any more in the arbitrage mutual fund area because since that legislation has come in, our fund managers, which was Merrill Lynch securities firm, just won't trade. [There is] funds in wheat contracts - trading contacts of wheat - again it's capital guaranteed and it's cleared through Refco, which is again the largest clearing house in the world. And that has been a very, very good performer for the last 20 years. It performs anywhere from sort of 2 to 6 per cent a month. And that's paid out quarterly. Not a bad little performer at all on a capital guaranteed product. Now of course all the funds we're talking about here we cannot offer to an Australian resident, because the prospectuses are not registered here. So they've got to understand how they can legally participate. And the only way we can do that is back to the education again. I thought I had a funds list. We have 20 funds in total. I just don't recall it off the top of my head. Yes, Elite Premier is another fund that trades in commodities and futures, and that's a leveraged fund. That is, half of the money is held in cash at any one time. So basically there's a 50 per cent risk on the client's capital. And that has returned some significant returns in past years. ... I think the Elite Premier has been quoted at - where are we - about 8 per cent. Last year it did 240 per cent. Now, I wouldn't say it will do that again this year. And past results - there's absolutely no guarantee of future earnings. But it has been - it has been a very successful fund. It is leveraged, so it means that every dollar that you put in, they leverage that five times. But the fund manager also covers that leverage by cash. .... With the Premier Elite you are not required by leverage to be responsible for any loss. (my emphasis) 1934At Pt 2 P 9 from line 4, Mr Hobbs explained the process of investment: Each investment has its own contract, each investment has its full disclosure agreement, and each investment has its own private placement memorandum that outlines complaints procedure, where the investment is, you know, whats the average return, and you can also get historical performance on every fund. Risk is always over-emphasised. And that's pretty important. That's something that I hold close to my heart. I think it's far better to overemphasise risk and under-emphasise return than the other way around. (my emphasis) 1935Mr Hobbs went through some of the foreign exchange products; explained that "We also have products from Switzerland, and some of these are IPOs"; said that "Hedge funds is an area where we're steering clear of"; referred to scalping trades and spot trades, spoke about the rule of thumb in currency trading being that there is usually a loss 3 times out of 10; and emphasised the arrangement in the fund in Brisbane: Also in this particular fund the solicitors in Brisbane have negotiated a very, very interesting arrangement that is: apart from commission that is paid to introducers, which works out roughly pro rata about 2 per cent a month. So if you had $ 1 million of clients' money under management, that's about twenty grand a month income just on commission. It works out about 3 per cent best efforts per month for the client is the profit roughly, you know. And that varies of course, because you cannot give a set figure because you're working on profit. But the other position that they have negotiated for us is: we are now allowed to share in what's called the pips. When you have a transaction done and the bank or the clearing house, whoever is clearing that transaction, there is a charge each time a trade is made. And rest assured, banks never lose. So whether that trader makes a profit or a loss, that bank receives a commission. And the solicitors in Brisbane have been able to negotiate for our introducers to receive part of that pip as commission per transaction. So not only are they getting commission out here from the profit, they also receive commission per transaction. And you get a statement at the end of every month from the bank showing you what your commission was on the sharing of the pips and of course you just match that up with the commission you receive to your bank account. (my emphasis) So that's one particular foreign exchange. We've been with that fund for maybe four years. It's been running for about eight or 10 here in Australia. These particular solicitors use 10 traders around the world between Europe and the US. They also are in the very privileged position of having on board what's known as a gentleman who is renowned as the top trader in the world. And he only works usually about three months a year. And he's one of their 10 traders. But he does 12 trades for 12 profitable returns. Unheard of, just absolutely unheard of. (my emphasis) 1936Having referred to the Express Fund run by Mr Diaz, Mr Hobbs also referred to a third foreign exchange product called Solid Gold ("It's a unit trust as well. It's run by accountants out of Maroochydore. And they use Refco, which is a clearing house, as well. But that's on exchange spot transactions only"); spoke about "we've actually withdrawing that [the arbitrage mutual fund] from the market" and that "right at the moment we do not have an arbitrage mutual fund for offer"; and another fund with a registered prospectus out of the UK (on the FTSE 100); and an "options fund that is a pooled investment that trades in the Australian market about of which he said: cleared through a major brokerage in Melbourne - a great little performer. The down side to this fund, and I need to be very clear about that, the down side to this fund, while the money is held and cleared by a major brokerage in Melbourne, the decisions are made by a sole individual. Now, you'll probably say, "Well, that's not so bad." When we look at a fund, we look at - you research a fund for two or three years, you look at the investment team. Is there any prima donnas in there that make the decision, or is it a team effort? In this case here it is an individual. And if anything happened to that individual, we would just have our funds returned and the fund would stop. So, I mean, that's - people have got to be aware of that. (my emphasis) Then there is funds in the protected market, such as commodity trading. We touched on that yesterday. There's funds that are available trading in wheat and gain commodities, have 100 per cent capital guaranteed, and other funds cleared through Refco via SocGen Bank, which -who runs these funds, also with 100 per cent capital guarantee, that perform in bull and bear markets. So they'll perform whether a market is on the way up or down. 1937It cannot be suggested that Mr Hobbs did not make numerous representations at the DVD Seminar as to the existence of funds to which investors might have access (and identified some of those funds by name or by reference to those running them or by reference to the nature of the particular investments in which fund moneys were invested). I accept the evidence of the numerous witnesses called by ASIC who say that similar statements were made in other seminars or meetings by Mr Hobbs or by FTC executives in his presence. 1938I was left with the firm impression that Mr Hobbs has simply convinced himself (and no doubt this conviction has increased through the constant repetition thereof) that there was a sufficient divide between the sale of financial education and the structure by which offshore IBCs were able to invest in the various investment schemes so as to removed the schemes from the scrutiny of regulators in Australia (or elsewhere). However, not only do I consider that his attempt to distance himself from anything beyond the sale of financial education was artificial and contrived; the reality (as evidenced by the evidence from numerous investors in the schemes and the scheme administrators themselves) is that the sale of educational material was treated as part of the overall process of investment in the schemes (and, as made clear in the authorities, the structure adopted of an educational club does not preclude a finding that there was a managed investment scheme for the purposes of the legislation if it was used as the conduit for investment in such a scheme). 1939I find that Mr Hobbs also (albeit informally) marketed investment opportunities in the sense that he suggested to Mr Koutsoukos the possibility of investment in the funds managed by Geneva Financial (and that whether or not this conversation took place in Australia, the offer of the investment was conveyed to the J&B Financial officers in Australia) and that Mr Hobbs also directed scheme administrators, such as Mr Koutsoukos and Mr Collard/Ms Li, from time to time to transfer investments between funds or place investor funds in other funds. Whether at all material times each of the persons identified in paragraph [46] was an agent of Mr Hobbs 1940At [45] it is alleged that Mr Hobbs, on his own behalf and or on behalf of FTC engaged people (the FTC executives) to carry on his and FTC's business in Australia (there particularising the persons said to have been so engaged). 1941Mr Hobbs admits that FTC "engaged independent contractors to carry on the business of FTC in Australia and elsewhere" and that certain of the persons listed in [45] signed FTC Executive Agreements but otherwise denies [45]. As I understand it, there is no real dispute that FTC did engage people to carry on the FTC business of promoting sale of FTC subscriptions in Australia (and Mr Hobbs' submissions acknowledge that he was involved in the recruitment of such persons). 1942As to the suggestion that the executives were independent contractors, Mr Hobbs seems to rely on this as evidence that they were not agents (a conclusion that does not necessarily follow having regard to the authorities referred to earlier in relation to agency). For present purposes, nothing turns on whether the executives were independent contractors or employees. I accept that the terms of the apparently standard form agency agreement are consistent with the executives being appointed as independent contractors. 1943At [46], ASIC alleges that each of the FTC executives together with other specified individuals in that paragraph was, to the extent alleged in the pleading, acting as the agent of Mr Hobbs and/or the agent of FTC. The specifically named individuals include the individual defendants (other than Mr Hobbs himself) to these proceedings as well as (among others) Mrs Brenda Hobbs, Mr Zhang, Mr Bernard Moore, Mr Fitzgerald, Mr Clements, Mr and Mrs Dent, Ms Dong, Mrs Watson, Mrs Burnard, Mr Cable, Mrs Andrews, Mr Diaz, Mr Robert Hobbs, Ms Reisinger and Mr Parker (as well as Optionz NZ, the company with which Mr Parker seems to have been associated). 1944ASIC relies, for the allegation of agency, upon affidavit evidence as to the giving of directions and instructions by or on behalf of Mr Hobbs to each of those individuals and the compliance by those individuals with those instructions as indicating that each was accustomed to act in accordance with his direction or the direction of persons appointed by Mr Hobbs to roles within FTC. 1945Mr Hobbs denies [46] and says: ...the named persons were agents of FTC for the sale of FTC educational material only. The named persons had no authority from [Mr Hobbs] or FTC (to [Mr Hobbs'] knowledge) to provide financial information nor to sell any financial product at all. (my emphasis) 1946Mrs Hobbs pleads that she has no knowledge and cannot admit paragraphs [44]-[46]; she further denies that she acted as Mr Hobbs' agent or as an agent for FTC; and says that: she has never received any money from FTC, has not acted for FTC and that there is no contract between her and FTC to do so. Ms Wu denies/does not admit the allegation of agency made against her. 1947Mr Hobbs maintains that the definition of agency in International Harvester at 652 (to which I have referred above) cannot be met in the present case because (on ASIC's case) if it is said that each of Ms Reisinger/New World, the scheme administrators, directors/officers of FTC and the FTC executives are all alleged to be agents for Mr Hobbs, then there is relevantly "no third party for all of the alleged agents to be negotiating with". In relation to that submission, this ignores the fact that the persons with whom FTC executives or scheme administrators were dealing (as Mr Hobbs' alleged agents) were the investors in the schemes. These are the persons with whom, in the first place, the alleged agents are said to be acting on Mr Hobbs' behalf. 1948As to New World Holdings/Ms Reisinger, the difficulty with Mr Hobbs' submission is that they were dealing with Cadent (a relevant third party) in relation to the opening and operation of the Cadent accounts for the scheme administrators. 1949Moreover, the concept of an agent in one capacity for Mr Hobbs dealing with another agent in a different capacity for Mr Hobbs is not something that points against them both being agents. 1950Mr Hobbs submits that the only proper approach is to look at the particular transaction/act alleged, the particular persons or entities involved and to determine whether that act is an act of that person or an act as agent for a particular principle (citing Butcher v Lachlan Elder at [41]). That is, in substance, the exercise that has been carried out by ASIC adducing copious evidence as the role of the FTC executives, their appointment, the evidence of what they did and said to particular investors, and the dealings between the scheme administrators and Mr Hobbs on the one hand and Ms Reisinger on the other. 1951In essence, as I understand Mr Hobbs' submissions, he contends that the FTC executives were not his agents (and were at most the agents of FTC only for the purpose of sale of educational material) on the basis that: (i)the FTC executive agreements make quite clear that there was no form of relationship as an employee or agent, rather that they were "executives"; (In this regard it is clear that nomenclature is not determinative.) (ii)the FTC executive agreements preclude FTC executives from selling investments (Mr Hobbs submits that "just because someone does something or has a scheme does not mean they are acting as his agent") (reference being made to clause 1) and therefore that any act in breach of that provision was unauthorised (ie, outside the scope of the agency as defined by the contract); (the authorities make clear that this is not the test); (iii)if what the FTC executives were doing was unlawful then Mr Hobbs submits that it was not an act that could bind the principal (whoever that principal might be); (this is how I read the submission made by Mr Hobbs that Mr Koutsoukos "was acting on his own behalf, or on behalf of J&B, or on behalf of Ms Reisinger when he stole over $700,000 ($900,000?) [sic]) from investment funds".) (Again, the illegality of an agent's act does not preclude responsibility on the part of the principal therefor. It is a question as to whether the act was within the scope of the agent's authority and construction of the relevant statutes. Here, the disingenuous nature of that submission lies in the fact that Mr Koutsoukos (and the other J&B Financial officers) give evidence that they distributed moneys to themselves on Mr Hobbs' instructions or with his approval.) (iv)if FTC were his agents, then Mr Hobbs would be directing them (somewhat of a non-sequitur when ASIC's case is that he did so) and that he would be getting paid directly in relation to them (in support of this proposition Mr Hobbs refers to submissions from Ms Wu and Mr Collard to the effect that Ms Dong was paid $1000 per week by Mr Collard and Ms Li - as I understand it, by way of contrast to the fact that he did not receive such a payment). Mr Hobbs says that: Ms Wu will say in her submissions that she sold approximately 10 subscriptions to FTC. The commissions for these subscriptions were all to be paid to Bi Hong Dong. This was arranged by Ms Li & Ms Dong. Further, Mr Collard has informed me that the commission on these subscriptions was used towards the figure of $1000 per week. (The statements attributed to Ms Wu and Mr Collard are not supported by any evidence in the proceedings and cannot properly be taken into account.) I consider this submission below. 1952The fourth proposition above is part of a succession of propositions that focus on the money trail in relation to commissions. It is submitted by Mr Hobbs that insofar as an FTC executive is also a director/officer of a scheme administrator (and was responsible for taking investments) it is likely that he was acting in his capacity as director/officer of the scheme (not FTC) and that any doubts about this can be resolved by reference to the source of the commission received in relation to the investments (as opposed to the FTC subscriptions). Mr Hobbs submits that as the "director/officers" were paid by the scheme administrators (and insofar as Mr Hobbs is drawing a distinction here I assume he is distinguishing between the individual scheme administrators, who are alleged to be directors or officers of the entities which were the corporate administrators, and the corporate administrators themselves), the scheme administrators were the principals and the directors/officers were the agents of the scheme administrators. 1953In support of this proposition, Mr Hobbs asserts that if they were acting as agents for himself or FTC, then the payment would have been from himself or FTC. He contends that a very important element in determining with whom any agency relationship arose is whether, and by whom, the person was paid for the relevant act. By way of example, Mr Hobbs points to the receipt by him of commission with respect to Global Funeral Services (which he says is what would be the commercial expectation as "I obtained the client"). Mr Hobbs also asserts that "the timing of the payments precisely fits with my explanation of events". 1954One difficulty with this submission is that it does not take into account the possibility that an agent may perform services for the principal without monetary payment (but, say, from an expectation of a monetary benefit to be derived elsewhere). (It is also not inconceivable that an agent may perform services for the principal on the basis that the agent will derive a non-monetary benefit or benefit from a third party in relation thereto). 1955The simple fact that commission for investments in the funds the subject of the schemes was paid out of the profits generated by the schemes does not mean that there was an agency relationship between the corporate/scheme administrators and the overseas fund managers. In fact, the corporate administrators were by and large controlled by, or alter egos of, the scheme administrators (on ASIC's case, ultimately by Mr Hobbs). Thus the fact that profits were paid out of the schemes to the introducers does not preclude an agency arrangement having been in place in relation to the schemes as a whole as between Mr Hobbs/FTC and the persons performing the roles, first, of FTC executives in the sale of the investment packages and then (with a different title) signing up investors for the investment schemes in question (some of which were administered by the same people that were the sales persons for the FTC subscriptions in the first place). 1956Mr Hobbs argues that if he had procured the opening of the Cadent accounts as alleged then it would be expected that, from the opening of each of those accounts (or some other date as determined by a contract), he would be entitled to receive some payment for the opening of that account but that there is no evidence of such an agreement nor are there any payments supporting such agreements save with respect to Global Funeral Services. He points to the summary of money flows in support of the submission that had he been the principal it would be expected that he would receive a substantial proportion (or at least some) of the commission or other payments (and his agents a lesser amount) and submits that there is no evidence of substantial payments to him (as opposed to the substantial payments that ASIC contends were made to Ms Li, Mr Koutsoukos, Mr Wood, Mr Truong and others). ASIC, however, points to the substantial benefits that it contends Mr Hobbs received indirectly from the schemes (including the $200,000 paid to the Magny-Cours account for the "IP" sale and the acquisition of properties in New Zealand through Legend of Bathurst, at least one of which was funded through investors' moneys). 1957The difficulty with this submission is, first, that the Cadent account agreement in November 2005 is in its terms not restricted to the Global Funds, and, second, that there is evidence that Mr Hobbs did in fact receive commission payments in relation to the other Cadent accounts. 1958Mr Hobbs submits that if he had arranged for agents to cause the Cadent accounts to open then it would be expected that he would have an agreement with those agents and that he would have to pay those agents (submitting that there is no evidence of any such agreements or payments from him to such agents). However, the lack of an agency agreement is not conclusive (particularly in circumstances where it does not seem that the contract documentation was particularly sophisticated in relation to other aspects of the overall scheme) and it ignores the fact that the persons said to be opening accounts with Cadent on Mr Hobbs' behalf stood to obtain a profit by way of commission from the funds if the Cadent investments were profitable - hence there was a commercial incentive for them to follow Mr Hobbs' directions in this regard. 1959Mr Hobbs also points to the evidence of the Cadent Account Applications and Agreement for Corporations forms signed by the parties to those agreements, and notes that they were signed by the corporate administrators, not by himself. Relevantly, however, various witnesses give evidence as to the instructions and assistance given by Mr Hobbs in relation to the paperwork for those accounts and in that regard it is significant that some of the questions on the application form cannot possibly have been truthfully answered by reference to the applicant's own experience. I accept that those answers were put forward by Mr Hobbs as correct on the basis that they would be operating, in effect, under his experience. 1960Mr Hobbs submits that the concept of agency does not enable ASIC to sheet responsibility home to him "for all of the activities of all the persons involved in the events the subject of these proceedings". I understand this to be a submission that certain of the activities of the persons fell outside the scope of the agency. (Similar to the submission that illegal or unlawful activities would fall outside the scope of any agency, which raises a separate issue.) 1961It is clear, in my view, that the FTC executives were acting on behalf of FTC when selling educational materials or subscription packages. In so doing, I find that they were acting not simply as the agent of FTC but as Mr Hobbs' agent (since I find that Mr Hobbs was the alter ego of FTC). 1962As to what activities fell within the scope of that agency, the most useful indication is by reference to the DVD Seminar, since I consider that the presentation made by Mr Hobbs on that occasion was at the very least a recruitment and/or training session for existing or potential FTC executives (hence the business-like tone of the opening by Mr Hobbs, by reference to the companies "we" will be discussing over the following days and his reference to the "sales track" as well as the way in which answers to potential investors' questions were dealt with). (I also note that this is consistent with the emphasis placed by Mr Hobbs during this seminar on the considerable amount of money he had paid an introducer in one day, which cannot have been a reference to FTC subscription commissions.) 1963In relation to the DVD Seminar, Mr Hobbs asserts that there were no potential investors in the room and there were no parties being sought from this meeting as introducers. As to the former, as a salesman one might think all parties in the room were potential investors. Certainly there was discussion of funds available and returns that might be expected (that might be expected not to be inconsistent with the presence of potential investors). As to the latter, the thrust of the DVD Seminar seems to have been to tell the attendees of opportunities to be made as FTC or KLM "introducers" by reference to the example that one had been paid an extraordinary amount for one day's work. 1964It cannot in my view credibly be suggested that discussion as to the potential investment opportunities or the returns to be made in different types of investment was something that fell outside the role of what an FTC executive was to perform in selling the FTC subscription packages. I think there is considerable force in the submission that the FTC subscription package was the price that investors understood they had to pay in order to obtain access to the investment opportunities of which the FTC executives were speaking (and that the FTC executives understood that the potential for high investment returns was the "carrot" to induce people to subscribe to the investment packages). 1965Therefore, to the extent that Mr Hobbs submits that any discussion by FTC executives (once appointed) as to investment opportunities or returns or the particular investment funds was outside the scope of their admitted agency, I do not accept that submission. It seems to me to be clear that the overall sales approach was to encourage investors to purchase subscriptions on the basis that this was the way they could access the opportunities available for offshore investment (that otherwise it was said were available only to banks or sophisticated investors) and that the FTC executive in question would be able to assist the investor in making that investment (hence soliciting investment contrary to the terms of the FTC executive agreement but consistent with the training that Mr Hobbs gave to the FTC executives). 1966Even if the FTC executives were strictly in breach of their contractual obligations to FTC when so soliciting for investment in the offshore funds, I find that this was authorised or otherwise acquiesced in by Mr Hobbs (who was present at various of the seminars in question) and that, in any event, it would be conduct for which the principal (FTC and through FTC, Mr Hobbs) would be liable. 1967As to whether Mr Hobbs could be liable for illegal activity by the agents of FTC (or of himself), the authorities make it clear that this liability can arise for illegal acts of agents. In the present case, Mr Halley submits, in effect, that this must be the case when Mr Hobbs had himself authorised that conduct. 1968I answer this question in the affirmative. Whether each of Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong, Mr Koutsoukos, PJCB, Secured Bond, ISL, ISPL, 888 Turks & Caicos and FTC made each of the Investor Representations alleged in subparagraphs [48(a)] to [48(o)] 1969Paragraphs [47] - [48] plead to the conduct by Mr Hobbs (by himself and his agents) of, and attendance at, seminars and meetings over the period between 2002 and 2008 that were attended by potential investors in the Schemes (defined respectively as the FTC Seminars and the Investor Meetings) at which it is said that various oral representations were made by each of Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong and Mr Koutsoukos, PJCB, Secured Bond, ISL, ISPL, 888 Turks & Caicos and FTC to potential investors. 1970The alleged Investor Representations (set out at [48(a)-(o)]) included representations which may broadly be summarised as representative of the ability of Mr Hobbs or persons or entities associated with him to provide the potential investor with access to offshore investment opportunities and to wholesale financial markets and opportunities otherwise available only to institutions and/or sophisticated investors; as to the process which a potential investor must undertake to obtain access to those opportunities (including where the potential investor wished to invest superannuation funds); as to the rate or return their investment would generate; as to what part or all of their money would be used to buy (in the case of First Secured Bond Unit Trust, bonds or to underwrite bonds; in the case of Prestige Unit Trust, debentures; and in the case of Integrity Plus, Super Save, Master Fund, Smart Money, the two Elite Premier funds and Best Funds, US Treasury securities or STRIPS) and that the principal amount invested by the potential investor would be guaranteed; that the money invested would be pooled; and as to the process of making such an investment. 1971Mr Hobbs denies [47]-[48]. (Mrs Hobbs pleads that she has no knowledge and cannot admit those paragraphs, though stating that the Smart Money memorandum indicated that: return on investment would be 3% "best endeavours"; that subscribers to Prestige were told in the memorandum that Prestige would purchase Treasury notes not debentures; that the Smart Money memorandum "specifically states no guarantee" and that both the Smart Money and Prestige memoranda say that participation is only for those who can bear material risk and a loss of their entire investment and that the investment was high risk.) 1972Mr Hobbs, in further answer to [47], says that: in the period 2002-2008, with the assistance of the FTC Executives, he conducted financial educational seminars in Australia "with the intent of selling financial information packages", at which seminars he advised "invited attendees" verbally and in writing that FTC provided financial education only and gave no financial advice nor was it affiliated with any fund, fund manager or financial service; and that Ms Reisinger and Mr Caswell "attended many of FTC's earlier seminars" and subsequently Mr Hobbs believes they "entered into arrangements with people who became administrators of the Reisinger Product". (This statement of belief is disingenuous to say the least, having regard to the knowledge that Mr Hobbs had as to the setting up of the Cadent accounts by corporate administrators of various of the schemes.) 1973As to [48], Mr Hobbs says that he did not make the oral representations set out in (a)-(o) and that he did not represent that FTC was other than a provider of financial education material and that all potential subscribers were told that FTC did not provide financial advice. 1974Turning to the respective representations: * Access to offshore investments 1975The first class of the alleged Investor Representations is that Mr Hobbs, or persons or entities associated with him, could provide potential investors with access to offshore investment opportunities ([48](a)), and/or access to wholesale financial markets and investment opportunities only available to institutions and sophisticated investors ([48](b)). ASIC relies on evidence given by various investors and FTC executives as to: * the making of the representation as to the provision of access to offshore investment opportunities: by each of Mr Hobbs (Blow at [10], [14]; Marciniak at [30]; Gahan at [12]; Stavropoulos at [43]; Huang at [20]; Koutsoukos at [207]; Wood at [19], [21]; Truong at [37]; Dong at [8]); Ms Li (Huang at [9], [48]; Zhang at [10]; Gao at [10]; Xu at [83]); Mr Collard (Hogno at [17]; B. Moore at [6]); Ms Wu (Gao at [9], [37]); Mr Koutsoukos (Canham at [7]; Koutsoukos at [170]); Mr Wood (Wood at [53]); Mr Truong (Truong at [62], [182], [298]); Mr Jennings (Handebo at [5]; Gemmell at [4]; Millington at [6]); W. Moule at [7]); and Mr Stavropoulos (Mulligan at [8]); and * the making of the representation as to access to wholesale financial markets and investment opportunities being only available to institutions and sophisticated investors: by each of Mr Hobbs (Blow at [10], [14]; Huang at [16], [20], [21](a), [89]; Koutsoukos at [67], [108], [110], [207], [332], [393]; Wood at [19], [21]; Truong at [37]; Dong at [8]); Ms Li (Zhang at [10], [90], [150]; Gao at [10]; Xu at [47], [78], [135]; Dong at [7], [30], [68], [70], [111]); Mr Collard (Jouravlev at [10]; Hogno at [9], [17]); Ms Wu (Gao at [9]); Mr Koutsoukos (Canham at [7]); Mr Wood (Camilleri at [22]; Wood at [53]) (Ms Dong (Dong at [31] 0, [83]; Mr Piggott (Marciniak at [9]); Ms Dabelic (Stavropoulos at [5]). 1976I note that space does not permit the evidence as to the making of the respective representations (here or in relation to other alleged representations) to be set out in any detail. I note, however, that I am satisfied that the material on which ASIC relies, here and elsewhere, as to the making of the representations supports its contentions. * Subscription to FTC/establishment of IBC or SMSF 1977The second class of the alleged Investor Representation was that in order to obtain access to these investment opportunities, a potential investor must first subscribe to FTC (for a fee) and either set up an IBC in an offshore jurisdiction ([48](c), (e)) or, in the case of investment in superannuation funds, establish an SMSF ([48](e)). ASIC relies on the evidence of statements to the following effect: * as to the representation relating to FTC subscription, by each of Mr Hobbs (Diaz at [13], [71]; Koutsoukos at [99]; Truong at [37]; Wood at [19], [21], [32], [81]); Ms Li (Huang at [9], [35], [39]; Xu at [17], [23], [24], [47], [78], [135]; Zhang at [10], [11], [90], [150], [192]; Gao at [10]; Dong at [7], [70], [205]; MacDonald at [12]); Mr Collard (Jouravlev at [10], [13], [33]; Hogno at [9]; MacDonald at [12]); Ms Wu (Gao at [9]); Mr Koutsoukos (Koutsoukos at [170], [677]; Canham at [7]); Mr Wood (Wood at [53], [55]; Camilleri at [20]); Mr Truong (Truong at [62], [112], [302]); Mr Diaz (Diaz at [30]); Ms Dabelic (Stavropoulos at [5]); Mr Jennings (Handebo at [5]; Gemmell at [7]; Millington at [6]; W. Moule at [7], [10]; K. Moule at [8], [11]); Mr Evans (Blow at [33], [35]); Mr Piggott (Marciniak at [9], [12]-[15]); Lewis at [5], [8]); Mr Stavropoulos (Mulligan at [8]) and Mr Denton (Russell at [6]); * as to the representation that (other than in the case of superannuation funds) a person must set up an IBC in order to invest, by each of Mr Hobbs (Diaz at [11], [13]; Huang at [10], [16]; Blow at [10], [14]; Gahan at [12]; Marciniak at [30], [33]; Koutsoukos at [111], [137], [332]; Truong at [37], [160]; Wood at [21]; Dong at [8]); Ms Li (Huang at [48]; Gao at [17]; Xu at [23], [24], [78], [135]; Zhang at [10], [19], [90], [150], [192], [360]; Dong at [7], [68], [205]; MacDonald at [12]); Mr Collard (Jouravlev at [10], [13], [33]; Hogno at [17]; B. Moore at [8]; MacDonald at [12]); Ms Wu (Gao at [9]); Mr Koutsoukos (Koutsoukos at [185]; Canham at [7]; Mulligan at [24]); Mr Wood (Wood at [55]; Camilleri at [20]); Mr Truong (Truong at [62]); Mr Diaz (Diaz at [31]); Mr Jennings (Millington at [6], [12]; W. Moule at [7]); Mr Evans (Blow at [64]); Mr Piggott (Marciniak at [9]; Ormand-Allen at [4]; Lewis at [5], [8]); Mr Stavropoulos (Mulligan at [15]) and Mr Denton (Russell at [6]); and * as to the setting up of an SMSF in order to invest superannuation funds (relevant to investment in Super Save or the 888 (Super Save) Fund), by each of Mr Hobbs (Koutsoukos at [656]-[665]; Truong at [272]); Ms Li (Xu at [88]; Zhang at [360]; Dong at [115]); Ms Wu (Gao at [37](b); Xu at [90]); Mr Koutsoukos (Canham at [14]); Mr Wood (Camilleri at [90]; Wood at [523]); Mr Truong (Truong at [298], [302]); Mr Jennings (Handebo at [5]; Gemmell at [7], [10]; Millington at [37]; K. Moule at [11]); and Mr Stavropoulos (Mulligan at [6]). * Assistance by FTC executive to establish IBC or SMS 1978The third alleged Investor Representation was that an FTC executive could assist the potential investor to establish an IBC (as the case may be) ([48](f)). ASIC relies on evidence of the making of such statements by each of Ms Li (Huang at [24], [48]-[53]; Xu at [25], [28]; Zhang at [19]; Dong at [10]); Mr Collard (Jouravlev at [41]; Zhang at [21]-[22]); Ms Wu (Gao at [19]); Mr Koutsoukos (Koutsoukos at [185]); Mr Wood (Camilleri at [22]; Wood at [55]); and other FTC executives (Marciniak at [33], [56]; Ormand-Allen at [22]; K. Moule at [14]). * Subscription to FTC/establishment of IBC or SMSF 1979The fourth class of alleged Investor Representation is that, after satisfying the FTC membership requirement and the IBC (or SMSF) requirement, potential investors needed to correspond by fax with OEM and KLM in order to obtain information about opportunities for investment ([48](k)), though, in the case of some investors in Master Fund, this process could be completed after they made the investment ([48](1)). (The representation alleged in (k) is principally directed at representatives to the extent by Mr Hobbs, Ms Li, Mr Collard, Secured Bond and FTC.) 1980ASIC relies on evidence of statements to that effect by each of Mr Hobbs (Truong at [41], [73]; Wood at [21], [78], [81]); Ms Li (Xu at [60]; Huang at [58], [65], [96], [157]; Zhang at [28], [31], [42]; Dong at [29]; and, as to the particular representation to investors of Master Fund, that the process could be completed after the investor had made their investment, Huang at [157]); Mr Collard (Jouravlev at [53]-[56]; Hogno at [21], [61]; Huang at [96]); Mr Wood (Wood at [57], [289]); Mr Truong (Truong at [62], [67]); Mr Evans ( Blow at [64]); Mr Piggott (Marciniak at [9], [11], [12]) and Mr Denton (Russell at [21]). * Pooling of funds for investment in wholesale market 1981Fifth, ASIC contends that it was represented that, if the potential investor chose one of the investments being offered by Mr Hobbs, or persons or entities associated with him, the funds invested would be pooled with funds invested by other investors ([48](m)) and (at least in the case of Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Secured Bond and FTC) invested in the wholesale market ([48](g)) or invested so as to give the investor access to wholesale returns ([48](h)). ASIC relies on evidence of statements to the relevant effect: * as to the representation that the funds invested would be pooled with funds invested by other investors, by each of Mr Hobbs (Blow at [31]; Ormand-Allen at [18]; Huang at [16], [20]; Dong at [8]); Ms Li (Xu at [60], [67], [78], [83], [101]; Dong at [98]); Mr Collard (Hogno at [74](a)); Ms Wu (Gao at [9]); Mr Wood (Camilleri at [22], [72]); and Mr Jennings (K. Moule at [11]); * as to the representation that the funds invested would be invested in the wholesale market, by each of Mr Hobbs (Blow at [10]; Huang at [89]; Dong at [8]; Koutsoukos at [108]); Ms Li (Zhang at [112]; Dong at [68], [70], [209]; Xu at [115]); Mr Collard (Hogno at [17], [74](b)); Ms Wu (Gao at [9]); Mr Wood (Wood at [53]) and Ms Dong (Dong at [31], [83], [209]); and * as to the representation that the funds invested would give the investor access to wholesale returns, by each of Mr Hobbs (Blow at [10], [14]; Huang at [89]; Dong at [8], [99]; Koutsoukos at [106]; Truong at [37]); Ms Li as to Master Fund, Xu at [17], [83]; Huang at [155](a); Dong at [14], [30], [68], [70], [111]; as to Enhanced Fund, Xu at [115]; Dong at [209]); Mr Collard (Dong at [68], [110]); Ms Wu (Gao at [9]); Mr Wood (Wood at [53]); Mr Truong (Truong at [182]) and Ms Dong (Dong at [83], [209]). * Monthly returns 1982Sixth, ASIC contends that it was represented that if the potential investor chose one of the investments being offered by Mr Hobbs or persons or entities associated with him in relation to Integrity Plus, Super Save, Master Fund, First Secured Bond Unit Trust, Covered Strategies, Best Fund, Smart Money, Elite Premier, Elite Premier Option Two Unit Trust and 888 (Super Save) Fund, the investment would generate a monthly return of in the order of at least 3% to 4% per month on funds invested and in relation to the Pinnacle Fund that the investment would generate at least 30% per annum on funds invested ([48](i)). ASIC relies on the making of statements to the effect of the monthly returns representations: * in relation to Integrity Plus, by each of Mr Hobbs (Koutsoukos at [74], [120], [207], [332]); Mr Koutsoukos (Canham at [7]; Mulligan at [24]); Mr Wood (Camilleri at [72]; Wood at [288](b)); Mr Truong (Truong at [182]); Mr Stavropoulos (Mulligan at [4]) and Mr Jennings (W. Moule at [7]); * in relation to Super Save, by each of Mr Koutsoukos (Canham at [14]); Mr Wood (Camilleri at [90]; Mulligan at [40]; Wood at [523]); Mr Truong (Truong at [298]) and Mr Jennings (Handebo at [5]; Gemmell at [4]; K. Moule at [11]); * in relation to Master Fund, by each of Mr Hobbs (Dong at [99]); Ms Li (Re Master Fund: Xu at [17], [23], [60], [78], [88]; Zhang at [147], [223]; Huang at [155]; Dong at [70]); and Mr Collard (Hogno at [74](e)); * in relation to First Secured Bond Unit Trust, by each of Mr Hobbs (Huang at [89]; Dong at [229]); Ms Li (in relation to First Secured Bond Unit Trust: Zhang at [107]; Huang at [86]); and Mr Collard (Jouravlev at [22]-[23]); * in relation to Covered Strategies, by each of Mr Hobbs (Huang at [16], [20], [29], [38], [103]; Jouravlev at [71]; Wood at [145]-[146]); Ms Li (Zhang at [68], [69], [105]; Huang at [103]); Mr Wood (Camilleri at [5], [24]); Mr Truong (Koutsoukos at [13]); Mr Piggott (Ormand-Allen at [11](e); Marciniak at [16]); * in relation to Best Fund, by Ms Li (Zhang at [150]); * in relation to Smart Money, by Ms Li (Zhang at [38]); * in relation to Elite Premier and Elite Premier Option Two Unit Trust, by each of Mr Hobbs (Huang at [132]); Mr Collard (Jouravlev at [96]-[98]); and Mr Piggott (Marciniak at [25]); * in relation to 888 (Super Save) Fund, by each of Mr Hobbs (Dong at [99]); Ms Li (Zhang at [361]; Xu at [78], [88]); and Ms Wu (Gao at [37]); and * in relation to Pinnacle Fund, by Ms Li (Gao at [10]); and Ms Wu (Gao at [9]). 1983ASIC also contends that a monthly return representation to this effect was also made in relation to investment in unnamed and relies in that regard on evidence of statements to that effect by each of Mr Hobbs (Huang at [16]-[20], [23]; Marciniak at [33]; Ormand-Allen at [18]; Blow at [14], [31]; Gahan at [24]; Jouravlev at [71]; Koutsoukos at [52], [106], [207], [210], [332], [388], [393], [1030]; Truong at [37], [88], [217]; Wood at [19], [82], [393]); Ms Li (Zhang at [10], [90], [150]; Huang at [9]; Dong at [68]; Xu at [115]; Macdonald at [11]); Mr Collard (Jouravlev at [10], [12]-[13]; MacDonald at [11]; Dong at [68]); Mr Wood (Wood at [53]); Mr Truong (Truong at [62], [119); Mr Piggott (Ormand-Allen at [4], [l11](e)); and Mr Jennings (Millington at [6]). * Particular investments that would be made 1984Seventh, ASIC contends that it was represented that if the potential investor chose one of the investments being offered by Mr Hobbs or persons or entities associated with him in particular funds, then ([48](g)(i)) the funds invested would be used to buy particular financial instruments (in the case of First Secured Bond Unit Trust, bonds (or used for the purpose of underwriting bonds); in the case of Prestige, debentures; and in the case of Integrity Plus, Super Save, Master Fund, Smart Money, Elite Premier, Elite Premier Option Two and Best Fund, Treasury securities or STRIPS, which would guarantee that the principal amount invested by the investor would be repaid unless the US Government defaulted) and further ([48](g)(ii)) that the principal amount invested by the potential investor would be guaranteed. 1985In relation to the relevant representation made in the case of First Secured Bond Unit Trust (that funds invested would be used to purchase bonds or used for the purpose of underwriting bonds), ASIC relies on evidence of statements to that effect by each of Mr Hobbs (Jouravlev at [67]-[71]; Huang at [89]-[90]); and Mr Collard (Jouravlev at [22]). 1986In relation to the representation made in the case of Prestige (that funds invested would be used to purchase debentures) ASIC relies on evidence that such a representation was made by Mr Hobbs (Gahan at [24]; Stavropoulos at [29], [46]). 1987In relation to the representation made with respect to the purchase of Treasury securities/ STRIPS, ASIC relies on evidence of statements to that effect by each of: * Mr Hobbs (with respect to Integrity Plus: Koutsoukos at [230]; with respect to Elite Premier: Huang at [132]; and with respect to unnamed funds: Koutsoukos at [42], [91], [118], [332]; Truong at [232]; Dong at [85]); * (with respect to Integrity Plus, Elite Premier and unnamed funds), Ms Li (Xu at [17], [23], [47], [60], [78], [88], [137]; Zhang at [90], [147], [181], [223]; Dong at [70], [76], [98], [108], [209], [233]); and Mr Collard (Hogno at [74](c); Dong at [68], [98]); * (with respect to Master Fund and Best Fund), Ms Wu (Gao at [9], [37](a)); * (with respect to 888 (Super Save) Fund), Mr Koutsoukos (Canham at [7], [14]; Mulligan at [24]); * (with respect to Integrity Plus and Super Save) Mr Wood (Handebo at [48]; Camilleri at [36], [72], [90]; Wood at [53], [288](b), [297], [523], [531]) and Mr Truong (Truong at [182], [298]); * (with respect to Master Fund) Ms Dong (Dong at [77]); * and Mr Jennings (Handebo at [5]; Gemmell at [4], [7]). 1988In relation to the representation that the principal amount invested by the potential investor would be guaranteed, ASIC relies on evidence of statements to that effect by each of Mr Hobbs (Blow at [10]; Jouravlev at [71], [89]; Koutsoukos at [42]; Wood at [33]; Huang at [132]); Ms Li (Xu at [17], [23], [24], [47]; Zhang at [90], [147], [181], [185], [223]; Dong at [70], [98], [108]); Mr Collard (Hogno at [74](c); Dong at [98]); Ms Wu (Gao at [9], [37](a)) Mr Koutsoukos (Canham at [7], [14]); Mr Truong (Truong at [298]); Mr Jennings (Millington at [6], [25]; K. Moule at [11], [61]); and Mr Piggott (Marciniak at [11]; Ormand-Allen at [11](e), [12]). * Scheme agreement/deposit of funds 1989Finally, ASIC contends that it was represented that potential investors wishing to invest had to sign a scheme agreement (save that in some instances in the Master Fund and Pinnacle Fund potential investors were told they could sign a temporary contract and the scheme agreement later) and deposit funds into a bank account nominated by an FTC executive or the account identified in the scheme agreement ([48](n)-(o)). 1990In relation to the representation that potential investors needed to sign a scheme agreement to invest funds, ASIC relies on evidence of statements to that effect by each of Mr Hobbs (Koutsoukos at [140]); Ms Li (Xu at [127]; Huang at [78], [96], [104](a); Zhang at [71], [95]; Dong at [86]); Mr Collard (Huang at [96]; Hogno at [26]); Ms Wu (Gao at [22], [26]-[29]); Mr Koutsoukos (Mulligan at [25]); Mr Wood (Wood at [531]); and Mr Truong (Truong at [302]). 1991In relation to the representation that potential investors needed to deposit their funds into a bank account nominated by an FTC executive, ASIC relies on evidence of statements to that effect by each of Ms Li (Xu at [32]; Huang at [72]; Zhang at [73], [367]); Mr Collard (Jouravlev at [66]; Hogno at [26]; Zhang at [83]); and Ms Wu (Gao at [23]). Conclusion 1992There is overwhelming evidence as to the making of the Investor Representations by those identified in each case as having made those representations. I find that this allegation is established and that the denials by Mr Hobbs and Ms Wu in this regard (and the submissions of Mr Collard to the extent that he denies the making of any such representations) not credible. Whether at all relevant times each of KLM and OEM was the alter ego of Mr Hobbs [62] * Context in which the alter ego allegation is made 1993The allegation that each of KLM and OEM was the alter ego of Mr Hobbs falls within those paragraphs of the pleading ([49] - [67]) in which ASIC makes allegations as to the process by which potential investors subscribed to FTC and invested in the various schemes. Paragraphs [68] to [70] then plead that the terms and conditions of each Scheme were set out in the Scheme Memorandum for that scheme (as particularised); that at or around the time of making an investment a prospective investor was required to enter into a Scheme Agreement with the corporate administrator who administered the relevant scheme; and that the material terms of each Scheme Memorandum and Scheme Agreement were drafted by Mr Hobbs or otherwise supplied by him to the corporate administrators for each scheme. The particulars to [70] state that Mr Hobbs or his agents (Mr Cable, Mrs Andrews, Mr Dent and Mrs Watson) provided templates or standard form version of the Scheme Memoranda and Scheme Agreements electronically or otherwise to each of the corporate administrators. 1994Mrs Hobbs pleads that she has no knowledge and cannot admit the allegations in [49]-[65] and [67] in relation to the alleged investment process. 1995Mr Hobbs admits in broad terms various of the components that formed part of what ASIC alleges was the "process for investing" (such as the completion of an FTC application form, payment of $4,000 into the Tasman Business Consultants account "on trust for FTC"; that FTC executives were independent contractors of FTC who introduced subscribers and were paid a commission from the moneys held in trust for FTC; that subscribers received booklets as alleged) but denies most of the allegations as to what occurred after the FTC subscription. 1996As to [53] (which alleges that Mr Hobbs arranged, by himself or through his agents, for the production of the FTC booklets and their despatch to potential investors) this is denied insofar as the activities are alleged to have been carried out by agents for him and insofar as the subscribers of FTC are described as "potential investors" (Mr Hobbs saying that any activities carried out by himself or others "were as employees of, or contractors to, FTC"). 1997As to the allegation in [54] that Mr Hobbs (by himself or his agents) or alternatively FTC or alternatively each of Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong and Mr Koutsoukos, assisted potential investors to establish IBCs, Mr Hobbs "denies that he, or FTC or (to his knowledge) any agent on their behalf" established any IBC on behalf of any person described as a "potential investor" but otherwise does not admit the paragraph. (I note that this part of the defence again appears to treat Mr Hobbs as being in a position to speak on behalf of FTC since the words in parentheses expressly qualify only the reference to the acts of any agent on behalf of Mr Hobbs or FTC.) 1998Mr Hobbs pleads that he does not know and cannot admit the allegation that each of Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong and Mr Koutsoukos procured documents to be sent to potential investors relating to the establishment of their IBC or the granting to them of a power of attorney over their IBC. (This seems a rather disingenuous plea when one takes into account what Mr Hobbs himself told at least Ms Li, Mr Collard, Mr Truong and Mr Wood at the DVD Seminar as to the process for incorporation of IBCs.) 1999Mr Hobbs denies that he, or FTC or (to his knowledge) any agent on their behalf established any self managed superannuation fund on behalf of any person described as "potential investors" and denies that he, or FTC or (to his knowledge) any agent on their behalf procured the sending of a facsimile to OEM, but otherwise does not admit the allegations in [56] and [57] in relation to those matters. 2000In paragraph [36] of his defence, Mr Hobbs again states his belief that OEM was a company owned and controlled by Mr Becker, Mr Chan [sic] and others. He denies the allegation in [58] (that he, by himself or his agents Mrs Watson and Ms Burnard, directed or otherwise procured OEM to request information from potential investors about themselves and their IBCs) insofar as it is made against him but otherwise does not admit the paragraph. 2001In paragraph [37] of his defence, Mr Hobbs states his belief that KLM was a company owned and controlled by Mr Becker, Mr Chan [sic] and others. He denies the allegation in [59] (that he, by himself or his agents Mrs Watson and Ms Burnard directed or otherwise procured KLM to provide documentary material to potential investors who had provided information as requested to OEM about their IBCs) insofar as it is made against him but otherwise does not admit the paragraph. 2002Similarly, Mr Hobbs denies the allegations in [60] and [61] (that relate to the provision in the KLM documentary material of information to potential investors as to the Schemes in which they could invest or that potential investors were informed that they could seek further information as to the schemes in the KLM material from KLM and/or OEM) insofar as the allegations are alleged against him but otherwise does not admit those paragraphs (by which it appears that Mr Hobbs is denying that this occurred to his knowledge or at his request or on his behalf but not denying that it may have occurred). 2003As to [63], Mr Hobbs denies that he or (to his knowledge) his agents caused information to be sent to potential investors as alleged (ie documents setting out the terms and conditions of the schemes) and says that to the extent that Mrs Watson or Mr Dent may have sent such material he did not authorise it (no reference is specifically made to Mrs Dent in this context, though she is alleged to have been one of his agents who caused such documents to be sent). 2004As to the allegation in [64] (as to the provision of Scheme memoranda and Scheme Agreements or temporary contracts to potential investors), Mr Hobbs denies the allegation so far as it is made against him, otherwise does not admit the paragraph and says further that he did not authorise any FTC Executives "to provide memoranda for the Reisinger Product or agreements for the Reisinger Product" and to the best of his knowledge no FTC executive was authorised by anybody to do the same. 2005Mr Hobbs denies the allegation in [65] that potential investors, acting in reliance on the Investor Representations, took the steps therein set out (and repeats his denial of [48] and the matters averred in relation to that paragraph). 2006As to [66] (which alleges that Mr Hobbs by himself or the persons or entities named therein as his agents caused investors to be sent a certificate or letter confirming their investment), Mr Hobbs denies that any of the named persons or entities was his agent and otherwise does not admit the paragraph. Similarly, in relation to [67] (which relates to the procuring of some investors to sign a scheme agreement in respect of the Pinnacle and Master Funds after the deposit of their money and to back-date the agreement, Mr Hobbs denies the allegation insofar as it is made against him, denies that Mr Li, Mr Collard or Ms Wu were his agents and otherwise does not admit the paragraph. 2007As to [68]-[70], Mr Hobbs denies the allegations insofar as the word Scheme refers to the definition of Scheme in [41] but otherwise pleads that he does not know and cannot admit the allegations. He says that insofar as investors in the "Reisinger Product" used standard form documents he believes that they were originally drafted by Mr Becker. * Alter ego allegation 2008Included in this part of the pleading is the allegation (at [62]) (the relevant issue at this point for determination) that at all material times each of KLM and OEM was the alter ego of Mr Hobbs (particularised on the basis that each of OEM and KLM was established on Mr Hobbs' instructions; each was accustomed at all times to act in accordance with Mr Hobbs' instructions; that Mr Hobbs prepared or gave directions for the preparation of the substantive parts of all letters or other documents sent by OEM or KLM to investors or potential investors; that he instructed his agents, Mrs Watson and Mrs Burnard to send correspondence in the name of OEM and KLM to potential investors and that faxes sent to the (UK) fax number to which investors were directed were received by Mr Hobbs or alternatively his agents Mrs Watson and Mrs Burnard). 2009Mr Hobbs denies that allegation but pleads as follows to the particulars provided of the alter ego allegation (at [39]) as follows: (a)OEM and KLM were companies owned and controlled by Kip Becker, John Chan [sic] and others and any assistance given to those companies by [Mr Hobbs] was on the instructions of Mr Becker and later John Chan. [which I take to be a reference to the John Chen referred to in the affidavit evidence] (b)That insofar as he gave instructions to Emma Watson, Suzanne Watson and Mr Dent it was on behalf of Kip Becker and John Chan. [arguably implicitly acknowledging the possibility that he did give instructions to those individuals] (c)[Mr Hobbs] denies that Suzanne Watson or Mr and Mrs Dent were his agents. [A denial that in my view is extraordinary and cannot possibly be accepted on the evidence.] (d)[Mr Hobbs] says that he believes the documentation referred to in paragraph 62 was sent out as part of the above named persons' duties to OEM/KLM. [Again, this submission is extraordinary not only in light of the conspicuous lack of any evidence of interaction between those involved in the OEM/KLM process and the persons Mr Hobbs says owned and controlled those entities, but also because on Mr Hobb's own evidence, he did not know what was involved in the process - so it is difficult to see how he could have formed the stated belief.] 2010I have no doubt that Mr Hobbs controlled and ran the OEM/KLM operations in Australia and New Zealand and, insofar as OEM/KLM were legal entities through which the OEM/KLM process operated, he controlled those entities. That, in essence, disposes of this issue. However, for completeness, I note as follows. 2011In relation to the two Anguillian IBCs in respect of which registered agency services were provided (and paid for by Mr Hobbs or by Tasman Business Consultants at his direction or on his instructions), I infer that whoever was registered as the shareholder/director of the IBCs held such office only in a nominal capacity. Where there is no evidence that Mr Hobbs maintained those companies on behalf of anyone else and where Mr Hobbs seems in 2006 to have assumed that he had the authority (and that First Anguilla Trust would accept his authority) to nominate whoever he designated as the new "beneficial owner" of the company on his application for its revival, I conclude that at all material times OEM Ltd (Anguilla) and KLM Enterprises Ltd (Anguilla) were companies owned and controlled by Mr Hobbs. 2012As to any other OEM/KLM entities that may have been involved in the process (as opposed to the Anguillian registered entities) ASIC submits, and I accept, that the evidence demonstrates that at all material times Mr Hobbs controlled the OEM/KLM process and accordingly I would infer that he also controlled those other entities. 2013Mr Halley submits, and I agree, that whether or not there was (at some earlier time than the time the Anguillian companies were incorporated) a company called OEM Ltd or KLM Ltd that was separately incorporated in Nevis (or whether or not Mr Hobbs or some other person controlled any such a company) is an issue that does not need to be decided in the present proceedings. (I note in passing that the Macquarie Dictionary observes that Anguilla is one of the Leeward Islands in the West Indies and a British dependency and one of two islands that formerly formed the British colony of St Christopher and Nevis-Anguilla, now federal parliamentary state of St Christopher and Nevis. Therefore, it is possible that the references to Nevis and Anguilla were intended loosely to refer to the same location.) 2014In the case of KLM, Mr Halley points to the following additional matters as evidencing Mr Hobbs' control of the relevant operations of KLM: (i)at the DVD Seminar, Mr Hobbs purported to speak on behalf of KLM in respect of its business and operations, its processes, its funds and its traders; and accepted in cross-examination that he understood that Mr Becker wanted him to build up a bigger team in Australia actually to manage funds (T 1317.29 - T 1317.36), (which Mr Halley notes was, on Mr Hobbs' case, KLM business rather than FTC business); in that regard, I have already indicated that the frequent use of "we" or "our" seems to me to be consistent only with Mr Hobbs' speaking as part of or on behalf of the entity in question; (ii)Mr Hobbs and FTC executives who reported to Mr Hobbs (variously, Ms Li, Mr Collard and Mr Wood) undertook steps which were purportedly part of KLM's business when assisting potential investors to establish an IBC (or an SMSF), usually in the jurisdiction of Vanuatu using Moores Rowland in Vanuatu (Dong at [32], [38] (in respect of Ms Li and Mr Collard); Zhang at [19]-[22] (in respect of Ms Li and Mr Collard); Huang at [48]-[57] (Li); Xu at [24]-[30], [35]-[38] (in respect of Ms Li); Gao at [30] (in respect of Ms Li); Gahan at [13] and Jouravlev at [34]-[40] (in respect of Mr Collard); Hogno at [17]-[19] (in respect of Mr Collard); B. Moore at [8]-[9] (in respect of Mr Collard); and MacDonald at [393]) or Anguilla (using First Anguilla Trust Co (Koutsoukos at [185]-[188], [195], [373]; Wood at [55], [128]-[138], [213](h); Truong at [134](c); Camilleri at [22]); (iii)there is evidence that Mr Hobbs (and FTC executives) promoted specific schemes at, or immediately after, FTC seminars or meetings, and provided information to persons attending the FTC seminars and meetings that, after satisfying the FTC membership requirement and the IBC (or SMSF) requirement, they could correspond by fax with OEM and KLM in order to obtain specific fund information, all of which was (purportedly) the business of KLM. (In this regard, Mr Halley notes that Mr Hobbs conceded that providing advice about funds directly to retail investors would not be consistent with his case as to the purported distinction between FTC and KLM - T 1323.30 - T 1323); (iv)the FTC executives who made representations to potential investors as to potential investments (and on ASIC's case encouraged the potential investors to pursue the particular investment opportunities) then became KLM introducers in respect of the introduction of such investment (which it is submitted demonstrates that in truth the FTC executives, each of whom reported to Mr Hobbs, were conducting business on behalf of KLM). (In this regard, emphasis is placed on the fact that FTC executives were able to earn substantial (undisclosed) commissions on returns on investors' investments in any of the schemes - at a rate of 12% on returns, which Mr Halley notes was emphasised in the training of FTC executives (Koutsoukos at [549]-[554]; Canham at [27]; Diaz at [42]), including by Mr Hobbs (Truong at [41]). Thus it is said, and I think it likely, that in practice it was inevitable that FTC executives also acted as introducers or brokers soliciting investment (Dong at [29]) and that their role was to direct investors as to how to invest (reference being made in this regard to the role Ms Li (at Dong [26]-[27]), Mr Koutsoukos (at [829]) and Mr Diaz (Diaz at [42]-[43]).); (v)the printing and distribution of KLM funds memoranda and agreements was conducted by Mr and Mrs Dent (it being said that this can be inferred to be for and on behalf of Mr Hobbs); in that regard Mr Hobbs' denial of knowledge of the Dents' activity is implausible and inconsistent with the later direction for printing to take place offshore; and (vi)when Mr Hobbs sought the advice of Mr Hartnell on behalf of FTC, on the letterhead of FTC, the advice sought was not only in relation to steps in the FTC process but also (as Mr Hobbs agreed at T 1305.42-44, though Mr Halley observes that Mr Halley suggested that this was not material insofar as he also said that he "could have used a different letterhead" at :T 1306.4-5) related to the KLM business and process. (Mr Halley submits that the evidence by Mr Hobbs at T 1306.18-23 that he was not in any way acting on behalf of KLM in this regard cannot be accepted unless, in truth, the KLM process was simply a part of the one FTC process). 2015I find that Mr Hobbs controlled all of the business and operations of OEM and KLM (to the extent those companies were involved in conduct in Australia and New Zealand that is the subject of and relevant to these proceedings), namely the conduct of the OEM/KLM process. 2016I am satisfied that Mr Hobbs controlled the practical direction and exercised all relevant top-level management functions in respect of the operations of OEM and KLM, to the extent they were part of the OEM/KLM process the subject of these proceedings, and acted in the position of the most senior executive director of those entities. Accordingly, I find that Mr Hobbs was a de facto director of OEM and KLM. 2017Further, since each of the persons who undertook the relevant parts of the OEM/KLM process (Mrs Watson and Mrs Burnard (and for some time, the J&B Financial officers)) took instructions from Mr Hobbs and (in the case of Mrs Watson) was accustomed to act on Mr Hobbs' instructions and at his direction or (in the case of Mrs Burnard) was accustomed to act on the instructions of either Mr Hobbs or Mrs Watson, I find that Mr Hobbs was a shadow director of OEM and KLM. 2018I find that OEM and KLM (namely, the entities under whose name the OEM/KLM process was conducted, if they actually existed at all) were the alter ego of Mr Hobbs. What was the true nature of the transaction entered into pursuant to the Scheme Agreements [72] 2019This issue raises the allegation of sham as contained in [71] and [72] of ASIC's pleading. 2020What is alleged is that, insofar as each Scheme Agreement purported to record an agreement between an IBC and the corporate administrator (rather than an agreement between the person(s) who purported to sign the scheme agreement on behalf of the IBC and the corporate administrator), the Scheme Agreement was a sham and, further or in the alternative, did not reflect the true nature of the transaction. 2021ASIC contends that the true nature of the transaction was an agreement between the scheme member and the corporate administrator (or alternatively between the IBC as the agent for the scheme member and the corporate administrator) recording the terms and conditions on which the scheme member agreed to contribute funds to the relevant scheme and the corporate administrator agreed to deal with those funds. 2022By way of particulars to the sham allegation, ASIC relies on the following matters: (i)that the purported constitution of an agreement between an IBC and the corporate administrator was to avoid the need for the corporate administrator and the other defendants to hold Australian financial services licences and for the Schemes otherwise to be registered as a managed investment scheme pursuant to s 601 ED(1) of the Corporations Act; (ii)principal amounts contributed by scheme members to the Schemes were not paid from an account in the name of the IBC; (iii)in a number of instances the scheme member executed the agreement by signing his or her own name in the place for the investor/client's signature in the agreement and in the appendices (iv)the scheme member was identified as the client for the purposes of the source of funds declaration; (v)the address of some of the IBCs recorded on the scheme agreement was the scheme member's address in Australia; (vi)in some instances the scheme member wrote his or her name next to the words "Name of Client" in Appendix 1; (vii)some scheme members nominated in Appendix 1 an account in their own name in Australia or an account in Australia in a company name but not that of their IBC or an overseas account in the name of a natural person; (viii)the contact details for some of the IBCs recorded in the agreement were the scheme member's fax number email address and postal address in Australia; and (ix)to the extent that the scheme agreement provided that the IBC was the investor or the client, ASIC contends it was "a spurious imitation, a counterfeit, a disguise and/or a false front" [which appears to be an assertion of ASIC's contention or conclusion from the above particulars, adopting the description of a sham found in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 453.] 2023ASIC contends that the interposition of an IBC (in the place of the individual investor) was a sham to give the appearance that the relevant investor was not an unsophisticated retail investor (but a discrete international business corporation) and that the relevant solicitation and issue in respect of the investment took place offshore. (Pausing there, it is difficult to resist the conclusion that the interposition of an offshore incorporated IBC was designed in order to give the investment an offshore character - that was something made abundantly clear by Mr Hobbs in his DVD Seminar.) 2024I note that Mr Halley submits that, even if I do not accept that the interposition of the IBC was a sham, nevertheless the IBC only ever acted as the agent of the principal who was onshore and the investment funds were provided in the main by the respective principals onshore - hence the jurisdictional requirement is satisfied in any event. 2025Mr Hobbs denies [71]-[72] insofar as the word "Scheme" is based on the definition in [41] and insofar as any matters are alleged against him and otherwise does not admit these paragraphs. 2026The origin of the word 'sham' was discussed by Lockhart J in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 453, where his Honour noted that the word first appeared as slang in the seventeenth century and that the dictionaries describe it as of obscure origin. Kirby J in Raftland Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2008] 238 CLR 516 at [135] explained that the word 'sham' derives from Old English word 'shame', "with which its core notions of duplicity and deceit are connected and that the primary meaning assigned to the word sham by current legal doctrine in Australia is that of one of its dictionary meanings, namely "something that is not what it purports to be". 2027In Scott v Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265, Windeyer J gave the following description of a 'sham' transaction at 279: On the other hand, if the scheme, including the deed, was intended to be a mere façade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, the words of the deed should be disregarded... A disguise as a real thing: it may be elaborate and carefully prepared thing; but it is nevertheless a disguise. The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be and in fact use it as, merely a disguise, a façade, a sham, a false front - all these words have been metaphorically used - concealing their real transaction... (my emphasis) 2028In Bridge v Campbell Discount Co Ltd [1962] AC 600, where the House of Lords considered whether or not a clause in a hire purchase contract amounted to a penalty, only Lord Devlin considered the question as to whether there was a 'sham' arrangement. (His Lordship did so in the course of pointing out that, while the other Lords did not expressly make any findings as to whether there was a 'sham', their reasoning involved not taking the words of the clause at their face value.) Lord Devlin said at 634: It is well settled that when a court of law finds that the words which the parties have used in a written agreement are not genuine, and are not designed to express the real nature of the transaction but for some ulterior purpose to disguise it, the court will go behind the sham front and get at the reality. That, indeed, is what the court is doing when it declares that what is expressed as an agreement about liquidated damages is not a genuine agreement but cloaks the imposition of a penalty. 2029In Snook v London & West Riding Investments Ltd [1967] 2 QB 786, Diplock LJ said at 802: ...it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. If it has any meaning in law, ['sham'] means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create... [F]or acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a 'shammer' affect the rights of a party who he deceived. (my emphasis) 2030Regarding the doctrine of 'sham' as stated in Snook by Diplock LJ, Kirby J in Raftland commented at [120] that: ...the basic doctrine as explained in Snook continues to govern the law's response in the United Kingdom when a transaction is alleged to be sham. The parties must have intended to create rights and obligations different from appearing in the documents. They must have intended to give a false impression of those rights and obligations to third parties. Only then will the label of sham be applied, with the legal consequences that it attracts. 2031Lockhart J in Sharrment cited the above passage by Diplock LJ in Snook and then proceeded to describe a 'sham transaction', for the purposes of Australian law, at 454: A 'sham' is... something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive. 2032Sharrment was concerned with whether an elaborate series of transactions that purported to create an indebtedness were in fact a 'sham'. His Honour noted that the question was one of fact; a matter of characterising whether the transactions were in fact what they purported to be legally. Lockhart J observed (at 454-455): First, the fact that the transaction involved a round robin of cheques does not necessarily establish that the transaction is a sham, even when no party has funds to meet the cheques: Re Barnett; Perpetual Trustee Co Ltd v Barnett [1969] 2 NSWR 721. Secondly, the artificiality of the transaction does not give rise to its characterisation as a sham or to the characterisation of the constituent documents as a sham so long as each document "had the effect that it purported to have", and so long as none of the documents purported "to do something different from what the parties had agreed to do": Inland Revenue Commissioners v Littlewoods Mail Order Stores Ltd [1962] 2 All ER 279 per Lord Reid at 285. (my emphasis) Thirdly, the complexity of the transaction does not in itself establish its character as a sham. In Coppleson's case, supra, Hunt J of the Supreme Court of New South Wales considered a gift to a hospital of redeemable preference shares instead of cash. His Honour observed (at 383) that the fact that "the transaction became complex and elaborate rather than simple and straightforward does not seem to me to affect its true nature if in legal form it is a gift and if the parties thereto intended it to be operative according to its tenor". Fourthly, a purported disposal of property, and by analogy a purported creation of a debt, may be a sham where donor and donee (or lender and debtor) do not intend to give effect to the transaction, it being agreed between them that there will be no change in the legal and beneficial ownership of the property. ... Fifthly, the fact that the transactions of 1979 may have been intended by Mr Wynyard to present a shield against creditors does not, absent the transactions being set aside under the relevant provisions of the Bankruptcy Act, characterise them as a sham. The transactions may in themselves be legally effective although intended to achieve an unacceptable purpose. In Miles v Bull, supra, Megarry J said at 264: "A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it." Megarry J went on to observe that in the context of determining whether a sale of property was a sham so as to allow a defence to an action for possession that: "mere circumstances of suspicion do not by themselves establish a transaction as a sham; it must be shown that the outward and visible form does not coincide with the inward and substantial truth" (at 264). 2033Lockhart J concluded that there was no evidence upon which to draw the inference that the creation of the debt as a result of the relevant transactions was a mere fiction or sham. His Honour went on to raise a note of caution in relation to 'sham transactions', saying that: The difficulty I feel about the matter is that to draw the inference of sham for which the Official Trustee contends is to reach a strong finding, and one which cannot be made if another inference is at least equally open. As I have indicated I think that another inference is open, namely, that what was done was to in fact create a debt in pursuance of Mr Wynyard's desire to benefit his family through his family trusts. [though noting that there was "an unpleasant aura pervading the facts of the case"]. 2034The concept of a 'sham' transaction was more recently considered in Equuscrop Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, where the High Court considered a complex investment arrangement that was alleged to have been a sham geared toward sustaining a partnership loss so as to enable a tax deduction to be obtained by subscribers to an investment scheme. It was alleged that the scheme recorded only "paper" debts and credits (with no "real" money in fact ever being transferred). The respondents were each investors in the scheme who had been sued by Rural Finance (and Equuscorp as its assignee) on the initial loans. 2035Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ, the High Court rejected the characterisation of the transactions as 'shams' and said at [46]: Each of these transactions was legally effective. None of the transactions that took place on 30 June 1989 could be said to be sham. ... "Sham" is an expression which has a well-understood legal meaning. It refers to steps which take the form of a legally effective transaction but which the parties intend should have been apparent, or any, legal consequences. In this case, debts were created and satisfied at all points in the chain until, at its end, Rural Finance owed JFM and FJA certain sums, and the respondents owed Rural Finance certain sums. And of most particular relevance to the present matters, in accordance with its obligations under the written loan agreements, Rural Finance had applied the money it lent in payment of the application moneys due from the respondents for the units being bought. (my emphasis) 2036I note that in the present case certificates or letters confirming the acquisition of units in the schemes were issued in the relevant IBC's name and that moneys were paid for the incorporation of the IBC. Therefore, there is no doubt that there was an IBC legally in existence and that it was legally entitled to the units issued by the corporate administrators on receipt of funds relating to the investment.) 2037In Equuscorp, their Honours rejected the view expressed in Australian Horticultural Finance Pty Ltd v Jekos Holdings Pty Ltd (unreported, Court of Appeal of Queensland, 9 December 1997) that a loan was not effective unless 'real' money was lent, emphasising instead that the loans were legally effective, observing at [48] that: As the expression "real money" might suggest, the point which the respondents sought to make in these matters appeared to one about the economic rather than the legal effect of the transactions in question. 2038In Raftland , by contrast, a finding of sham was upheld, though there was a suggestion that the word was there being used in a less pejorative sense than "fraud" insofar as Gleeson CJ, Gummow and Crennan JJ said (at [35]-[36]): The term 'sham' may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Official Trustee in Bankruptcy, the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd, Mustill LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where was a 'sham'; the term, where '[c]orrectly employed', denotes an objective of deliberate deception of third parties. The presence of an objective of deliberate deception indicates fraud. This suggests the need for caution in adoption of the description. However, in the present litigation it may be used in a sense which is less pejorative but still apt to deny the critical step in the appellant's case. 2039The High Court found that there was never any intention by the trustee to pay a particular sum to the discretionary beneficiary (though that had been recorded in a resolution by the directors of the trustee) and that the resolution, as well as the appointment of the beneficiary of the trust, was an attempt to shelter income from taxation obligations. Their Honours found that there was an intention common to all parties to the transaction that the resolution in question would not have substantive effect. 2040Kirby J, in a separate judgment, considered the import of Equuscorp on the analysis of 'sham' at [135]-[136]: Equuscorp thus stands for the proposition that where parties express their rights and obligations in what appear to be binding legal instruments, courts will accord such instruments their purported legal effect, according to their tenor, even if the transactions described do not appear to "have been commercially sensible" (that is, entered into within an economic motive in mind other than tax avoidance). However, Equuscorp does not deny the existence of sham as a legal category. On the contrary, this Court expressly accepted that sham has a well-understood legal meaning, and that whether a sham is established or not depends on whether the parties intend their respective rights and obligations to derive from what appears to be a legal instrument. (my emphasis) 2041His Honour emphasised that when considering the invocation of the concept of sham in legal analysis, what must be kept in mind was the need for intentional deception: ... And because what is intended in the context of a sham, may itself be disguised, the objective facts are by no means irrelevant. They may assist to prove the relevant intention of the participants where (as will usually be the case) a forthright admission by those who have resorted to the sham is lacking. 2042Again, Kirby J at [112] emphasised in Raftland: Important to this description is the idea that the parties do not intend to give effect to the legal arrangement set out in their apparent agreement, understood only according to its terms. In Australia, this has become essential to the notion of sham, which contemplates a disparity between the ostensible and the real intentions of the parties. The courts must therefore test the intentions of parties, as expressed in documentation, against their own testimony on the subject (if any) and the available objective evidence tending to show what that intention really was. 2043ASIC accepts that the investment itself was not a sham (moneys being transferred to the relevant bank accounts for the purposes of being pooled with other investors' money for offshore investment); it is only the identity of the investor that it contends was a sham. 2044I have concluded that the relevant scheme agreements by which IBCs entered into agreements for the investment of moneys in a pooled managed investment scheme were not sham transactions. 2045The evidence establishes that potential (individual) investors were told (and it was part of the very process that ASIC contends took place) that investment was only possible (and could only lawfully be done) through an offshore IBC (except in the case of the superannuation funds, where investment was through a trustee of the fund). 2046Whether or not this was an attempt to avoid the operation of laws in this jurisdiction that would prohibit the offer of such investment onshore (and it seems to me difficult to escape the conclusion that this was at least part of the reason for the IBC process, having regard to what was said by Mr Hobbs at the DVD Seminar and the reliance placed by Mr Hobbs on the second aspect of the Hartnell advice) or was in order to comply with investment requirements in the United States (as Mr Hobbs submits - though these seem to have related to the investment process through Cadent, which does not seem to have commenced at the time that the requirements for investment were explained at the DVD Seminar), it follows that a potential investor must have intended the investment to occur in fact through an IBC (since the investor was being told that otherwise he or she could not access the investment opportunities there being offered). 2047It is relevant to note that the investors in question paid money for the incorporation of an IBC and that one was in fact established. Whether or not there was in fact any legal requirement for investment to be through an IBC, and formulaic as the OEM/KLM process of "qualifying" an investor was, it seems to me that the common intention of the parties to the scheme agreements entered into by IBCs was that the investment be an investment of the IBC in whose name the agreements were signed. 2048The fact that the agreements were inconsistently or haphazardly completed (with individuals signing in places in the agreements as clients) seems to me to be consistent with a lack of attention by the people investing in the funds and by the introducers (all of whom seem (on the whole) to have been unsophisticated investors). (Similarly, the fact that signatures were witnessed in some instances where the witness had not seen the signatory execute the document; or in some cases a witness had signed but there was no signature on that page of the document to be witnessed, illustrates the unprofessional and unsophisticated manner in which the documents were completed.) 2049The fact that in many instances local addresses or bank accounts were given for the purposes of correspondence or payments of returns seems to me to demonstrate the alternative proposition for which ASIC contends, namely that the investment by the IBC was on behalf of the investor (or, in other words, that the investor was making the investment through the IBC controlled by it). 2050It follows from my conclusion as to the investments being made by an investor through an IBC (because the investors were advised was necessary for the investment to occur) and from the manner in which returns were made and correspondence issued to the controllers of the IBC (not the IBC itself), that where investments were made in the name of the IBC they were on behalf of and for the ultimate benefit of the investor. I find that in making the relevant investments the IBC was acting as the agent of the individual(s) on whose behalf or at whose instigation the IBC was incorporated and that the IBC was the alter ego of the relevant individual(s) for that purpose. 2051For completeness, I note that even if the investments were made by the named IBC as principal (and not as agent for or as the alter ego of the relevant individual) the conclusion I would have reached as to the making of an offer, and issue of the relevant interest, in the jurisdiction would have been the same. 2052The private placement memoranda and scheme agreements were issued (for most of the relevant period) by persons in Australia (Mr and Mrs Dent and in some instances by FTC executives in this jurisdiction) to addresses (mostly) nominated for the IBCs in the jurisdiction (the addresses of the "administrators" of the IBCs), the certificates were issued to IBCs at addresses in the jurisdiction and payments were (again, mostly) made to bank accounts in the jurisdiction. 2053There is more than sufficient activity within the jurisdiction to bring the matter within the jurisdictional reach of the Corporations Act and ASIC Act. Whether at all material times, to the extent alleged in the Third Further Amended Statement of Claim, each of New World and Ms Reisinger acted as the agent of Mr Hobbs [86] 2054The allegation that New World and Ms Reisinger were acting as the agents of Mr Hobbs is particularised (in [86]) as follows: (i)Mr Hobbs provided or procured the information in relation to the operation of the schemes to each of New World and Ms Reisinger; (ii)each of New World and Ms Reisinger was accustomed to consult with Mr Hobbs and act in accordance with his directions or instructions in relation to the operation and performance of the Cadent Accounts; and (iii)Mr Hobbs profited from the conduct of New World and Ms Reisinger in relation to the Cadent Accounts outlined in [87] and [119]-[121]. 2055Paragraph [87] pleads to the opening of the various Cadent accounts; paragraphs [119]-[121] to the various commission agreements and payments thereunder. (I consider the dispute as to payment of commission in due course.) 2056I have already set out above the principles by which the existence of an agency relationship is to be determined. 2057I am satisfied that the matters set out in (i), (ii) and (iii) above have been established. As to (ii), I accept that Ms Reisinger from time to time gave recommendations or advice to one or more of the scheme administrators as to traders or leveraging (and on occasion that advice was couched as a direction), and that Ms Reisinger acted on instructions or directions from scheme administrators (though I consider that she did so on the basis of an implicit authorisation by Mr Hobbs). Nevertheless, there were communications passing between Ms Reisinger and Mr Hobbs office that indicate sufficiently that Ms Reisinger looked to Mr Hobbs as the person with the ability to make the ultimate decisions in relation to the Cadent accounts. 2058Insofar as Mr Hobbs' submissions appear to suggest that Ms Reisinger and New World cannot have been Mr Hobbs' agent (because they were acting in their own commercial interests in relation to the incurring of benefits from the trades they initiated with Cadent), it seems to me that this is a situation where the existence of a commercial interest of their own does not preclude a finding that in facilitating the opening and placement of accounts with Cadent (at the very least) they were acting as the agent of the account applicants (and ultimately of Mr Hobbs on whose direction or instruction those applicants made the relevant applications), just as a mortgage originator acting on the initiation of mortgages on behalf of a lender has a commercial interest in the commission it may obtain from such a process. 2059Mr Hobbs has asserted no knowledge of the scheme administrators' dealings in relation to Cadent (and that it was Ms Reisinger who was responsible for dealing with the individual scheme administrators). Mr Halley points to evidence, including in relation to Geneva Financial, which he submits (and I accept) shows that Mr Hobbs had involvement in the Cadent accounts other than simply the account for Global Funerals account. Furthermore, the communications between scheme administrators and Ms Reisinger or New World Holdings were often copied or referred to Mr Hobbs and are generally in terms that are consistent with Ms Reisinger acting in an advisory role (and not making the investment decisions herself unless asked by scheme administrators to do so). 2060There is affidavit evidence by scheme administrators such as the J&B Financial officers as to the instructions given by Mr Hobbs for the opening and operation of the Cadent accounts (including the instructions or advice given as to the role Ms Reisinger was to play in relation to the accounts) and as to his knowledge and approval from time to time of payments out of those accounts. There is also ample evidence in the form of contemporaneous emails to demonstrate Mr Hobbs' overall involvement in the opening and operation of Cadent accounts (that would be inexplicable unless he maintained oversight or control in relation to the operation of the schemes in this regard). So, for example, without being exhaustive, I refer to the following: * an email (also of interest as showing Ms Reisinger's understanding of Mr Hobbs' earlier business with Refco, notwithstanding Mr Hobbs' position that he had not previously carried on business with Refco) sent on 18 October 2005 by Ms Reisinger to Mr Matthews, Mr Erdman, Mr Fry and Ms Dadey, stating that "David has a number of accounts that have pulled from Refco offshore and they need a home" and that "The Hobbs Accounts are ready to start opening up at Cadent. David would like a conference call ... to talk with Cheryl" (Ex AU 5049); * an email on 31 January 2006 from Mr Matthews to Mr Hobbs at the "nasl" address referring to "Status of accounts for Cadent" (Ex AU 5620) including Global Vision ("not open awaiting some documents"); Global Funeral Services ("Account open awaiting funding"); 888 account ("open awaiting funding"); Ultimate Investments ("open awaiting funding"); Brian Wood Account ("NCCN awaiting funding"); GP Global ("from GFT awaiting authorisation forms"); Jade Enterprises Group (an entity apparently associated with Ms Dabelic) (documents "sent to David's office"); there is simply no explanation for such an email unless Mr Hobbs was involved in the opening of the various accounts; * an email on 29 June 2006 from Ms Reisinger to Mr Hobbs with instructions for logging on to the account (and her email around that time sending him copies of "Cadent financials") (though I accept this may have been related solely to Global Funerals); * an email from Ms Reisinger on 8 August 2006 to Mr Hobbs and Ms Li (Ex AU 6490) thanking them "again for all the business and the trust that you have placed with us. Bring your clients to us..." and attaching a guide to Cadent statements (my emphasis, noting that at this stage the Global Funerals account had not yet been funded, so the reference to "all the business" can surely only be understood as encompassing more than this account); * an email on 12 August 2006 from Ms Reisinger to Mrs Hobbs, Mr Hobbs and Ms Li as to the setting up not only of the Global Funerals account but also as to matters relating to the Secured Bond accounts (for which there would be no reason, at least in relation to the latter, if Mr Hobbs had had no involvement or oversight in relation thereto); * an email on 25 September 2006 from Ms Li to Mr Hobbs (Ex AU 6890) advising in relation to GP Global and 888 (presumably 888 Vanuatu) that she had faxed to Ms Reisinger Cadent account opening documents would send him copies of the whole documents for North Wave and questioning whether she "should ... ask Burny" (presumably Bernard Moore) to do the same; * (significantly, in my view) an email on 30 September 2006 from Ms Reisinger emailing Mrs Watson with information as to the requirements of foreign corporations when opening accounts with Cadent (Ex AU 6935), which Mrs Watson then forwarded to the J&B Financial officers; Mrs Watson, in her examination in chief, gave evidence that she had done so at Mr Hobbs' request and, unlike communications in relation to Secured Bond (some of which may have related to the Global Funerals account), the J&B Financial officers had nothing to do with the Global Funerals account so this is clear evidence of Mr Hobbs' involvement with the opening of other Cadent accounts); * an email on 14 October 2006 from Ms Reisinger to Mrs Hobbs as to profit noting that "Things are going very well. Lilli has now submitted 5 more accounts. I will keep you and David informed of progress (Ex AU 7167) (my emphasis); * an email on 18 January 2008 from Ms Reisinger to Mrs Hobbs and Mrs Brenda Hobbs (Ex AU 11095) referring to a huge month profit and saying "I have contacted David and he returned a phone message to me and he agrees that we must have a plan to draw down the profit so we do not shoot ourselves in the foot" and asking that they "keep this profit to yourselves until David, Steve and I speak" (my emphasis); and * an email on 13 August 2008 from Ms Reisinger chasing account information in relation to "888 Management", which was copied to Mr Hobbs. 2061There are certainly documents (of the kind to which Mr Hobbs points) that show instructions being given by scheme administrators in relation to trading amounts and the like (such as the email of 21 October 2006 from the J&B Financial offers directing Cadent to open an additional account and allocate $1m for trading - Ex AU 7214) without apparent reference to Mr Hobbs (as well as emails that suggest that Ms Reisinger was directing things to be done in relation to the accounts or had made decisions without reference to the scheme administrators or Mr Hobbs). 2062However, there are also numerous instances where enquiries are made, purportedly on behalf of Mr Hobbs or in his name, as to Cadent accounts and regular updates from Ms Reisinger to Mr Hobbs, referrals of queries to him or copying of correspondence to him, which are inconsistent with the assertion that he had no involvement (at least at the level of overall oversight) in relation to the various Cadent funds. 2063Moreover, at least in relation to the Cadent accounts operated by the J&B Financial officers, the impression gleaned from the correspondence is that they had, in effect, delegated the decision-making on certain aspects of the Cadent trading to Ms Reisinger. Ultimately, however, Ms Reisinger's correspondence made clear that the operational decisions in relation to the Cadent accounts were to be made by the relevant account holders. (The setting up of the ISPL Cadent account was, I find, at the instigation of Mr Hobbs.) 2064I refer, again without intending to be exhaustive, in this regard to the following: * an email on 18 April 2006 from Ms Reisinger to the email address for Mr and Mrs Hobbs a message that read "David ... here are the traders you asked for ..." (my emphasis) and attaching trader details. (Pausing here, I note that Mr Hobbs maintained in cross-examination that he had had no involvement in the choosing of traders and that, at most, he may have passed on a message to his wife. There was the following exchange in cross-examination in relation to the request that had been made to him by Ms Reisinger to pick out traders from the list she had sent in relation to the Geneva account: Q. Do you now concede Mr Hobbs that you did have some knowledge of what was going on with respect to Geneva Financial Limited and Cadent? A. Look I didn't become involved in choosing the traders. I wouldn't have been able to tell you at any one time who they had. (my emphasis) Q. Don't you accept Mr Hobbs that this email on its face demonstrates that Ms Reisinger had sent you a list of traders and asked you to go through them and pick out the ones which you thought were best? A. On its face the reality is that I didn't do that. Q. So you ignored the request, did you? A. Yes, I would have left it to Brenda and Jacky. Mr Hobbs accepted that from time to time he might have been told by Ms Reisinger when traders might have been suspended on Geneva's accounts (and was shown an email from Ms Reisinger to Mrs Brenda Hobbs and to his wife that, on its face, was copied to him concerning the suspension of trading with a trader named Tresner but he said that this "doesn't mean to say I got involved with [the traders operating the Cadent accounts]"). This evidence is clearly inconsistent with Ms Reisinger's apparent understanding as to Mr Hobbs' involvement (as can be seen from the email communications) and inconsistent with the lack of any response from Mrs Hobbs or her sister-in-law to Ms Reisinger to the effect that Mr Hobbs had not given any assistance in that regard or that Ms Reisinger should not assume he would be doing so.) * an email from Mrs Hobbs to Mr Matthews on 27 June 2006 in which she notes that "Dave has just asked me to confirm the amount we have in Geneva's account" (referring to net liquidity of a "fairly large negative amount of around $62k") (Ex AU 6174), copied to Ms Reisinger with the message that Mrs Hobbs had sent this to Mr Matthews "after he has talked to Dave"; (Ms Reisinger's response made it clear that it was up to Geneva Financial to authorise Cadent if it wished to remove the negative balance on the account "carried over from the trader you had under Jim Green in Chicago"). (In cross-examination, Mr Hobbs did not recall, but accepted that it was possible, that he had asked his wife from time to time to confirm with Ms Reisinger the amount that Geneva had in its account with Cadent, though he said he could not see why he would ask that question and then that "It might have been on a very very rare occasion". He said that "I didn't take that great deal of interest over the period of the time, sorry" and that "I deliberately kept away from it as much as possible" (an interesting comment since there would seem no obvious reason for Mr Hobbs deliberately to distance himself from business in which his wife was involved, and particularly business that had the potential to provide commissions or other payments to him, other than if he had a concern that there was some question as to the to lawfulness of that business - although I make no finding as to this). At most, Mr Hobbs was prepared to concede that "I may have asked on one occasion; what I'd asked for I'm not sure".); * an email also on 27 June 2006 from Mrs Hobbs to Ms Reisinger referring to the message to Mr Matthews as to her understanding of Cadent statements; * an email from Ms Reisinger in response on 27 June 2006 (sent to the email addresses of both Mrs Hobbs and Mr Hobbs but addressing the text of her message to "David") referred to an update on the progress on "several fronts", providing details as to "Lili's accounts" (namely that there was a profit for the Global Funerals account that month); as to Geneva (that she would start the Diamond trading again and would check "on your round turn commissions for that account"); as to "NCCN LLC profit" ("sent to Don"); and referring to a buy out between State Management and Secured Bond. It is difficult to accept that Mr Hobbs had no interest or involvement in the matters to which reference was there made; * an email on 22 August 2006 from Ms Li to Mr Hobbs reminding him of a number of things to do including "Master Fund any profit payment" (Ex AU 6658); * an email on 22 August 2006 (Ex U 12617) from Ms Reisinger to Mr Hobbs and Ms Li advising as to additional traders for Secured Bond (addressed in the text to Lili but clearly copied to Mr Hobbs), requesting certain documentation to be resent in order to satisfy the compliance requirements; * an email from Ms Reisinger to Ms Li, again copied to Mr Hobbs, on 13 February 2007 in relation to Secured Bond (Ex AU 8440), saying "Lilli I just spoke to David and he said that you were concerned about your Secured Bond account and that you were in the negative", suggesting that they go through and "see what you need to do to make it more effective for you" and that "If we need to make changes to the trade allocation we will" (consistent with Ms Reisinger having an advisory role, rather than directing the scheme administrators; and with Mr Hobbs having an oversight role in relation to the accounts); * an email on 21 February 2007 (Ex AU 8528) from Mr Koutsoukos to Ms Reisinger "re Idylic", stating that: David has asked me to request from you an investment strategy direct from the traders. We require the information as part of an audit process with the Australian Tax Office. ... I thought I could write something up myself but David has told me that the investment strategy has to come direct from the traders. (my emphasis) * communications between 24/26 March 2007 between Ms Reisinger and each of Mrs Hobbs and Mrs Brenda Hobbs copied to Mr Hobbs at the "nasl" address (Ex AU 8822), in which Mrs Brenda Hobbs had suggested that their account was alarming and asking Ms Reisinger if she thought they should be getting rid of one of the non-performing traders and Ms Reisinger noted that she was "copying David in on this" and that "he can sit down and explain it to you"; and that "I am sure David can explain in much more detail than I can [the impact of the crash in Asia on the world markets]" (in this regard, the relevance I draw from the communication is not whether Mr Hobbs in fact explained the matters that Ms Reisinger had indicated he would, but that there was an assumption that he would do so and would be in a position to do so; and I note that there was no response from Mrs Hobbs or her sister-in-law to Ms Reisinger pressing her for an explanation on the basis that Mr Hobbs had nothing to do with the fund and was not able to, or would not, assist in that regard); * an email on 3 April 2007 from Ms Reisinger to the Hobbs family and Mrs Hobbs email addresses, copied to Mr Hobbs, asking that "David call me tonight to discuss the Geneva account and the draw down that the traders are in right now" (Ex AU 8869) (which directly flies in the face of the suggestion that Mr Hobbs did not have any involvement in the Geneva account, whether or not he in fact returned that call); that email again contained advice from Ms Reisinger but made it clear that she was leaving the decision to Geneva Financial to make); (I also note Ms Reisinger's explanation in that communication as to the putting of money in during a draw down situation is consistent with her evidence at the CFTC examination (she describing it there as like buying into a stock market when it is low) points up the disingenuous nature of Mr Hobbs' submission in closing that this gave rise to a conflict of interest for Ms Reisinger and amounted to unprofessional conduct on her part - since it would seem he was aware of the logic behind buying into a draw down, whether or not he agreed with it, back in 2007 but no issue was taken with Ms Reisinger as to this at that time); * an email on 10 May 2007 from Ms Reisinger to Mrs Hobbs and Mrs Brenda Hobbs, again copied to Mr Hobbs (Ex AU 8925) re Geneva noting that "One thing David and I did talk about is addition of new traders into Geneva to help diversify your portfolio. I think David and Robert can help explain what the traders said better face to face than me in an email"; * an email on 20 June 2007 from Ms Reisinger to Mrs Hobbs (Ex AU 9214) saying "I do not know how much David had time to go through with you but we have now qualified for management and incentive fees paid for the traders cut of fees charged to the accounts" (my emphasis) and stating that there was little in incentive fees due to the draw down (though Idylic may have a few incentive fees) and that the majority of fees will be management fees - separate from the commissions - and paid by the traders to Mr Erdman and "then down to us"; and * an email on 6 July 2007 (Ex AU 9313) from Ms Reisinger to Mr Hobbs (and to Mr Erdman and Ms Dadey) in relation to the Geneva account, commencing "Good afternoon David, In regards to the Geneva account no treasuries have been traded" (again, my emphasis)and referring to the daily statements and month end statements that Mrs Hobbs received; in that email an assurance was given to Mr Hobbs "that no such transaction has ever taken place in the Geneva account or I would know about it as I am the US broker for the account and it would be transparent in the daily statements for both Jacky and myself". 2065Mr Hobbs points to emails such as one on 15 March 2006 from Ms Reisinger to Mr Matthews and Mr Fry advising as to the amount she would "need to wire out of NCCN LLC" and in relation to "Don Caffray's clients" in which there are references to an error in relation to PJCB's account and to the amount for "Secured Bond, PJCB and the Tonga Church" as suggesting Ms Reisinger's control of the process. He also points to an email from Ms Reisinger to Mr Matthews on 10 December 2006 advising as to Secured Bond's part in this fund "from my conversation with Lilli tonight. Please adjust slightly and that should do it" as showing Ms Li's involvement; an email on 6 January 2007 from Ms Reisinger to Mr Wood in relation to the Integrity Fund, querying whether the a particular amount included "the Tonga Church money"; and an email on 7 December 2007 from Ms Reisinger, emailed Mr Matthews, referring to a wire to NCCN and noting advice received from Mr Collard as to the total amount "left there for them" (either Secured Bond or the Tonga Church) of the total fund, presumably as showing the involvement of Mr Wood and Mr Collard respectively. 2066However, those do not explain communications of the kind I have referred to above, which evidence Mr Hobbs' continued oversight of the various Cadent accounts (and these submissions seem to me to illustrate Mr Hobbs' tendency to take selected pieces of information out of the overall context in which they appear). 2067ASIC also refers to the email in early 2007 from Ms Reisinger to Mr Green, Mr Matthews and Ms Dadey, referring to the Caffray accounts as indicating Ms Reisinger's understanding that the NCCN account was to be shut down as a separate account and that it had operated in respect of funds coming from Mr Caffray on behalf of Mr Hobbs (consistent with her evidence in the CTFC examination). Emphasis is placed on the use of the possessive in the reference in that email to "most of the managers of David's". 2068The conclusion I draw from evidence of the above kind is that Mr Hobbs was well and truly involved in the opening and operation of the various Cadent accounts (which is logical in circumstances where the relevant scheme administrators appear to have had no prior contact or involvement in trading Cadent accounts and were introduced to Ms Reisinger and Cadent through Mr Hobbs). 2069I accept the submission of Mr Halley that it is inconceivable that persons such as Mr Clements or the J&B Financial officers would have had the contacts or wherewithal to set up Cadent trading accounts on their own initiative (and there is certainly nothing to suggest that Ms Li or Mr Collard had any contact with Ms Reisinger or Cadent until introduced thereto by Mr Hobbs; indeed, the evidence that Ms Li at one stage suggested that she might be able to by-pass Mr Hobbs and set up her own arrangements for investment funds indicates that she had not previously had any such involvement). As to Geneva Financial, it is telling that neither Mrs Hobbs nor Mrs Brenda Hobbs was included in the overseas meetings with Cadent or the Cadent traders and that their role in the fund (and particularly the role of Mrs Brenda Hobbs) was of an administrative kind. 2070It is evident from the dealings between Mr Hobbs and Ms Reisinger/New World Holdings and from the communications between the latter and Mr Hobbs in relation to Cadent accounts opened in the name of the various scheme administrators, that Ms Reisinger and New World Holdings were acting as Mr Hobbs' agent in placing business with Cadent and in facilitating the operation of the Cadent accounts. While I accept that in their role as brokers, the provision of advice to scheme administrators (or to Mr Hobbs) as to investment or trading decisions (such as whether to buy into a draw down or whether to suspend traders from time to time based on their performance) would be consistent with the provision of investment advice from a broker retained to provide such advice (and not with that advice being provided as Mr Hobbs' agent), the opening and operation of the Cadent accounts in general seems to me clearly to have been effected by Ms Reisinger/New World Holdings as Mr Hobbs' agent. 2071Therefore, in relation to the opening and facilitation of operation of the Cadent accounts, I find that New World Holdings and Ms Reisinger acted as Mr Hobbs' agent. As to the provision of trading or investment advice from Ms Reisinger to the scheme administrators, I am not persuaded that this was done as Mr Hobbs' agent. Rather, it seems to me that Ms Reisinger was there acting as a professional adviser for the benefit of a client, and not as agent of Mr Hobbs (albeit that I accept that the scheme administrators sought such advice on the directions or instruction of Mr Hobbs or with his express or implicit approval). (The receipt of advice by the scheme administrators from Ms Reisinger would, consistently with my earlier finding, be receipt by them on behalf or as agent of Mr Hobbs.) Whether the investors' funds in the Cadent accounts (whether held in cash or in US Treasuries) were fully protected or secured [113]-[114] 2072ASIC maintains (and the Principal Protected Representation is said to be false for this reason) that there was a risk of investors losing the principal sum invested in each of the schemes because of the risks associated with the type of investments made using the funds invested in each of the schemes (including the type of derivatives trading carried out in the Cadent Accounts); the extent to which that trading was leveraged to permit further speculative trading; the possibility of large losses resulting from the trading; the fact that the cash and US Treasuries credited to the Cadent Accounts were a margin or deposit for the derivatives trading and were therefore at risk at all material times (referring there to the Cadent Account Application and Agreement for Corporations, clauses 8, 9, 15 and 31); and that none of the investments was secured. (In relation to Integrity Plus, it is alleged that the risk of loss of the principal sum was also due to the fact that some of the funds were disbursed in purported but not real investments, but that is not relevant to the present issue under consideration.) 2073It is submitted by Mr Clarke that all of the funds invested in each of the Cadent Accounts were at risk and that, because of the leveraging of those investments, it was possible to lose more than 100% of the funds invested in any of the Cadent Accounts. By way of explanation, Ms Reisinger in her CFTC examination said that the ISPL account was "at risk and then some", by which she meant that: ...any commodity account [which is what the ISPL account was] is at 100 percent risk and you could lose all or more of your money, so you could be subject to a margin call and add more money to your account to hold your positions (EX AO, Reisinger transcript pp736-737). 2074Ms Reisinger confirmed that this was also the case for all of the Cadent accounts referred to in the examination as the Hobbs Cadent accounts (including Secured Bond and 888 Vanuatu). Mr Hobbs did not point to anything that suggested otherwise. 2075I accept that the effect of the leveraging of the accounts, coupled with the fact that margin calls could be made on the accounts and that there was no evidence of any security for the principal contributed to the Cadent accounts, meant that it could not be said that the funds invested in the Cadent accounts were fully secured, whether or not those funds or part of them were used to purchase US Treasury bonds. 2076It seems that Mr Hobbs' position was that the mere fact that a US Treasury instrument was being acquired meant that the principal was protected - even though not all of the capital invested in the funds was used for the acquisition of such instruments - and without consideration as to the exposure of the invested funds to risks associated with leveraging and with the prospect of margin calls to secure trading in other instruments. I say this because there are various examples of Mr Hobbs saying words to the effect: We use treasuries as security. They are government backed. The security of a treasury is safer than the security of the Commonwealth Bank because a bank can collapse. But it is very hard for a government to collapse. [Koutsoukos at [118]]. 2077I find as a matter of fact that the sums invested in the Cadent accounts were not fully protected or secured. Whether Mr Hobbs received commissions, fees or other amounts of money in connection with funds invested by the Scheme Administrators with Cadent [119]-[121] 2078Paragraphs [119][122] plead the payment of commission payments to Mr Hobbs (and Mrs Hobbs) from the transactions in the United States. Mr Hobbs denies that he received any commissions other than for the Global Funerals account (and says that, if he had, then he was unaware of that having been the case). 2079Mr Hobbs submits that the one transaction where he would have expected substantial commission was with respect to Global Funeral Services; that he was entitled to US$1.5million and commissions from Cadent; that the $US1.5m is payable through Secured Bond and the Cadent commissions were payable to Business Solutions; he accepts that he received US$970,435.75 from the Global Funeral Services Cadent Account from profit generated on Global Funeral Services Trading accounts (those being transactions about which he contends that "ASIC throughout these proceedings attempted to keep information" from the Court - a submission to which I have already referred). Mr Hobbs points to the statement by Ms Reisinger (Ex AO p260.21-23) said that there was approximately $50 million under management, including $30 million from Global Funerals, and points out that even on ASIC's case he "never received anything like" the commission he should have received as set out in the agreements between Global Funeral Services and FZF. However, the business records reveal that Mr Hobbs did receive commissions otherwise than simply in relation to the Global Funerals account and the suggestion that this was without his knowledge is extremely difficult to accept (having regard to the email communications to which I have earlier referred passing between Mr Hobbs or others in the Hobbs office and Ms Reisinger and the evidence from Mrs Watson as to the receipt of Cadent statements in the Hobbs office). 2080I have already given examples of the correspondence to and from Mr Hobbs (via the nasl email address), or others seemingly writing on his behalf, in relation to the operation of the Cadent accounts. There are also examples of such communications in which reference is made to payments of commission or other fees to Mr Hobbs, on accounts that cannot have been limited to the only account from which Mr Hobbs concedes that he obtained commissions (that being the Global Funerals account). For example: * an email on 25 October 2005 from Mrs Hobbs sent an email to Ms Reisinger, stating that "we haven't received official confirmation" of the purchase of US Treasury strip for Geneva as advised on 2 August 2005 (Ms Reisinger's response confirmed that a sum of $5,000 had been forwarded and referred to the same concession of $2,500 to Jacky and $2,500 to David); * an email on 19 December 2005 from the "djhobbs"email address to Ms Reisinger raising further questions as to the round turn commissions, including "Grant has informed me that commission from these round turns is coming to my account. Does this amount cover all funds? If so, what percentage portion is Grant's?", on which ASIC places weight as an acknowledgement that the round turn commissions covered all Cadent accounts. 2081There is also evidence of payment of commission or fees paid by NCCN to Mr and Mrs Hobbs (either to their joint account or the Business Solutions account) presumably relating to scheme investments with NCCN (through Mr Caffray). (So, for example, on 8 March 2006, NCCN paid NZ$6,814.43 to the J&D Hobbs Account; and on 8 August 2006, there is a wire transfer request in relation to commission/fees payable from NCCN to Business Solutions - J Hobbs account (Ex AU 6478.)) 2082Mr Hobbs (at [7] of his 7 August 2012 affidavit) seems to accept there was an agreement in relation to commission payable in respect of US Treasury bills purchased by Mr Chuck Weed of Cutter & Co for Global Funerals but says that Ms Reisinger told him they would be paid by ROF as the introducing broker. The agreements with Mr Weed and MLN are referred to earlier. 2083On 10 May 2007, Ms Reisinger emailed her mother (Ms Dadey) and Mr Erdman details in relation to the payment to "David and Grant" in relation to a particular numbered account (being the Integrity Plus Cadent account 35201). Some clarification was then sought by Mrs Hobbs on 31 May 2007 as to the round turn commissions and Mr Erdman on 8 June 2007 confirmed that, of the payment of $4,905.31, the sum of $706.23 represented Mr Clements' 20% net commission but that Lisa had confirmed that "you can deduct whatever you want for Grant". He also pointed out that the sum wired did not include incentive and management fees (and that Grant was not entitled to those). 2084Similarly, the denial by Mr Hobbs of receipt of Cadent statements is contradicted by the evidence of Mrs Watson who confirmed that she had seen statements from Cadent in Mr Hobbs' office (although I accept that this does not establish that Mr Hobbs had in fact looked at them): Q. And did you do anything with those documents when you saw them in Mr Hobbs' office? A. Well I presume that it would be filed. I don't think these were anything that were on a regular basis so far as I know. ... A. No I think these were just ad hoc. I don't think there were very many of them and they would be just filed. 2085I find that the evidence establishes that Mr Hobbs did receive commissions, fees or other amounts of money in connection with funds invested by the scheme administrators with Cadent (otherwise than simply by reference to the Global Funerals account). (I consider it to be almost inconceivable that Mr Hobbs was not aware that this was the case, particularly in light of the queries made to Ms Reisinger reportedly on his behalf as to commissions at least in relation to the Geneva Financial Cadent accounts.) Whether the respective Return Payments for the Integrity Plus, Super Save and Master Fund schemes were paid from principal amounts contributed to those schemes by scheme members and not from profit [150], [173], [186] 2086The schemes for which ASIC contends returns were paid out of capital were Integrity Plus (Ex A - Table 165); Super Save (Ex A - Table 163); Master Fund (Ex A - Table 162) and Enhanced Fund (Ex A - Table 164). (For the Enhanced Fund, ASIC accepts that the first of the payments out was partly paid out of profits; for the other three schemes it is contended that the returns that were paid were wholly paid out of capital rather than profits (irrespective of how one calculates, on the three possible bases that such a calculation might be carried out, the status of the account). 2087ASIC relies on the respective Return Payments Spreadsheets (admitted as s 50 summaries) to establish that the returns defined as Integrity Plus Return Payments, Super Save Return Payments and Master Fund Return Payments were paid from invested capital and not from profit. (In relation to the Enhanced Fund, the relevant Spreadsheet shows that other than the first return payment, returns from that fund were also paid from invested capital and not from profit.) In those spreadsheets, the amounts invested with Cadent out of the respective scheme accounts are identified, as well as the wire transfers out of the Cadent accounts for payment of commissions and other payments. The spreadsheets include entries for payments into Cadent followed by the investment (for those accounts where US Treasuries were acquired) of funds in the acquisition of US treasury notes or STRIPS (see T 223ff for examples of particular entries in the spreadsheets). 2088By way of example, Mr Clarke explained the entries on the spreadsheet at tab 81 of the Exhibit A summaries which disclosed four transfers to Cadent from Barclaywest (on 31 August, 11 September, 27 September and 27 September 2007 respectively). An aide-memoire (at tab 176) summarises the amounts transferred into the Barclaywest Ltd Cadent Cash Account No 30200) (less an international wire transfer fee in each case). 2089Within roughly two weeks of the second of those wire transfers, two US treasury strips were purchased: the first, for US$30,590.84 (the par value of which being recorded at US$44,000) and the second for US$19,485.08 (the par value of which being recorded as US$28,000). (Accordingly, US treasury strips using approximately 25% of the invested funds had been acquired.) Some two weeks after the 27 September payments (by which time the aggregated of the amounts transferred to Cadent was approximately $415,000), a further US$200,000 "PRIN" strip was purchased (on 16 October 2007) for $139,130. Mr Clarke notes that this was the value of approximately 33% of the new funds that had come into the account. The instructions to purchase those treasury strips came from Ms Wu to Ms Reisinger. 2090By May 2008 (after some payments to Barclaywest on 3 December 2007 of $11,400 and on 1 May 2008 of $160,000, recorded in the document at tab 80), the cash balance in the account was in the negative by some $89,000 (although there was equity in the account by reference to the US treasury strips that had been acquired). 2091On 28 August 2008, there was a sale of the $200,000 PRIN strip, for US$154,000 (at a profit of about US$15,000), at which point the cash balance was positive; followed by further sales of the other treasury strips on that date (one at a profit of about $3,000, the other of about $2,000). 2092Relevantly, on 1 December 2008 (at the time that there was a transfer of funds into the Court and transfers between the three Barclaywest subaccounts), only two of the three Barclaywest sub-accounts showed a positive cash balance at that time. 2093The main scheme spreadsheet records payments made to investors and others on 10 and 11 December 2007. 2094What Mr Clarke notes that Table 164 demonstrates is the state of the Cadent Barclaywest accounts on the date on which those payments were made to investors and the status of the three trading accounts on the previous business day (calculated on three bases: closing account balance, total equity and total liquidity). 2095In her CFTC examination, Ms Reisinger explained (Ex AO pp 422- 428) that the closing account balance is the realised profit (ie, the cash in realised profits); the total equity includes not only the realised profits but the value of open option positions; and that the total liquidity includes the value of open futures positions (ie the difference between total liquidity and closing account balance). 2096Mr Clarke submits, and I accept, that the result of that exercise is to show that, whichever way one calculates the account balance, the total amount of funds that were being held in the Barclaywest/Cadent account as at the relevant dates (once the returns to date and the sums that were being traded on behalf of the traders as of those dates were taken into account) as at the time the payment on 1 May 2008 (of $160,000) was made was such that the payment was made in part out of capital and not out of profits. 2097A similar exercise was carried out in relation to the balance of the payments from this account and as to each of the payments of returns in relation to the Integrity Plus, Super Save and Master Fund schemes. I accept that for those accounts (and the balance of the payments in the Barclaywest Cadent Cash account) all payments were made out of capital. 2098Accordingly, on the basis of the evidence summarised in the respective Return Payments Spreadsheets, I find that the Integrity Plus, Super Save and Master Fund Return Payments were paid from invested capital not from profit. Whether the Schemes collectively comprised a single managed investment scheme [276] 2099The features of the alleged Hobbs scheme are pleaded at [37]-[49]. At [276], ASIC alleges that the individual management schemes the subject of the proceedings collectively comprised a single managed investment scheme under the Corporations Act (one that ASIC alleges in [277] required the giving of a Product Disclosure Statement). The allegation in [276] is predicated on the matters alleged in paragraphs [37] to [275] of the pleading. 2100ASIC's principal allegation as to the existence of a collective scheme is based on the similarity and interrelationship between the individual schemes and the integral role that it is said Mr Hobbs played in the promotion and establishment of each of the 14 individual schemes. 2101The single scheme allegation is particularised as follows: (i)Scheme members of each of the Schemes contributed money from bank accounts located within the jurisdiction as consideration to acquire units that conferred rights to benefits produced by the Schemes. (ii)The money contributed by the scheme members to each of the Schemes was to be pooled with other contributions, or used in a common enterprise, to produce financial benefits for the scheme members. (iii)Scheme members did not have day to day control over the operation of the Schemes. (iv)Each of the Schemes was operated in the same, or in a substantially similar, manner in that: (1)each of the Schemes used documents in substantially the same form, being a Scheme Memorandum, a Scheme Agreement and its components including the non-solicitation statement, the confidentiality agreement, the no advice acknowledgment, a Scheme bank account details form, the TT instructions, the release and the source of funds declaration, and the certificate of units; (2)each of the Schemes received funds from potential Investors who had been given access to the schemes through FTC Seminars, Investor Meetings and/or KLM and/or OEM; (3)each of the Schemes other than Super Save and the 888 Fund purported to receive funds from potential investors through an IBC; (4)the Corporate Administrator of most of the Schemes opened the Technocash Accounts; (5)most of the Schemes invested funds in derivatives trading accounts with Cadent; (6)a number of the Schemes (Integrity Plus, Master Fund, Elite Premier Option 2 and Best Fund) had websites designed by John Parsons on Mr Hobbs' instructions; (7)the Schemes made investments in accordance with the advice or recommendations of Mr Hobbs and/or Ms Reisinger; and (8)the Schemes paid a commission to the FTC Executive who introduced the relevant scheme member to the Scheme. (v) Each of the Schemes was controlled by Mr Hobbs and further or in the alternative FTC. (vi)The Corporate Administrator of each of the Schemes was accustomed to act in accordance with Mr Hobbs' instructions. (vii)Each of the Schemes was only made available to potential retail investors who subscribed to FTC. (viii)Mr Hobbs, by himself and his agents each of Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong, Mr Koutsoukos and the FTC Executives, and the KLM Material, solicited investors and promoted each of the Schemes in the same, or in a substantially similar, manner. 2102It is submitted by ASIC that there was only one overall or collective scheme (of which Mr Hobbs was the designer) and that the FTC process and the OEM/KLM process were simply a part of the one overall process (controlled by Mr Hobbs) by which investors were approached and solicited to invest in any of the Schemes designed and overseen by Mr Hobbs. 2103Mr Halley emphasises that the process was applied in some instances even after the investment had already been made (Huang at [157]) and notes the evidence of witnesses who have deposed to FTC, OEM and KLM making up the "whole program" (Dong at [29]) or being a "circle" (Fitzgerald T 992.30; 993.46); or to the examples of it operating as a single process (Canham [8]; Handebo [5]-[6]). (In this regard, the evidence of Mr Parsons is compelling also.) 2104Mr Halley submits that each scheme was merely a version of a "white label" or generic fund that enabled the scheme to be administered by the appointed administrator acting in an administrative (or secretarial) role. Significantly, Mr Hobbs himself, in closing submissions, seemed to assert that the role of administrator required no specialist financial expertise - supporting the characterisation by Mr Halley of the administrator's role being in effect a clerical one. It seems to me that this is consistent with the evidence given by the respective scheme administrators - some of whom, (such as Mrs Brenda Hobbs), had no apparent idea of the investments in which investors' funds were placed and treated the role as administrative only. (Mr Fitzgerald, for example, clearly saw his role as no more than administrative.) 2105Mr Hobbs denies the existence of the alleged Hobbs Scheme (as does Mrs Hobbs) and denies paragraph [276], repeating his defence to the earlier paragraphs of the pleading on which it is predicated. In his defence he states that he believes that "any similarities arising between the funds relates [sic] to them all being investments in the Reisinger Product". 2106In his written submissions, Mr Hobbs has pointed to various ways in which he said the funds operated differently. In particular, Mr Hobbs notes that: * not all funds paid administration fees to administrators (he identifies the funds which did not pay administration fees to administrators as North Wave, Barclaywest (by which I understand him to be referring to the Enhanced Fund), Pinnacle Fund and 888 (Super Save) Fund); * some funds "appear to have paid" a fixed percentage (4%) per month whereas some paid no return and others paid variable percentages in returns (according to Mr Hobbs this being "seemingly determined by what percentage return was produced by the fund"); * some funds "seemed to pay" on a regular monthly basis, others on a quarterly basis and others at irregular periods (again, Mr Hobbs suggests that this was determined by whether or not the fund produced a profit) and others did not pay at all; * some funds had shareholders and others did not; and that for one of the funds (I understand this to be a reference to the Good Value Fund) that had shareholders, the shareholders were the only investors in the fund; and * every fund had a different composition of traders with different proportions of the total funds invested allocated to the different traders; each fund had traders with varying amounts of leverage assigned to the traders (referring to the advice from Ms Reisinger at Exhibit AU 11838 and 11836 and the authorisation of each individual administrator). 2107As to the submissions based on differences in payment of dividends and profit and payments to administrators, Mr Hobbs relies on the following: * in respect of Barclaywest that on one occasion a dividend of 10% was paid to the shareholders and 11.2% was paid to the investors (giving the investor/shareholders a 21.2% return) (Exhibit AU 11537); * in respect of the Pinnacle Fund, that on one occasion the investors received a 15% profit return and the shareholders received an 18.07% dividend (giving investor/shareholders a 33% return) (Exhibit AU 11488); * that the Good Value Fund had generated a profit which was retained in the Cadent account and not paid out to the investors who were also the shareholders of the company (it being said that the "capital plus 28%" is presently held in the Court); and * in the case of Mr Collard, pointing out that he was the administrator of Pinnacle, 888 (Super Save) and the Enhanced Fund (in relation to the latter there being 17 shareholders, some of whom became investors, and that all investors were shareholders) and that, as secretary to North Wave, Mr Collard did not receive any fees/commissions. 2108Whether the individual schemes constituted a single collective (or conglomerate) scheme, is to be determined by whether or not there is a degree of interdependence that binds them into a single scheme (ASIC v IP Product Management Group at [22] and [28]). 2109In Chase Capital at [59], Owen J noted that the application was brought forward on the basis that there were two managed investment schemes each being the combination of the investments promoted through the respective Turks and Caicos Islands incorporated entity and the holder of its issued shares. His Honour concluded that: ... It seems to me that each investment is itself a separate part of the scheme but, nonetheless, it is a part of the overall scheme. I acknowledge that each is comprised of different participants or groups of participants. The method of organisation, while substantially similar, had subtle differences. The "manager" was different in the sense that on some occasions the application form mentioned that CCML would be the manager while, on others, it would act through an agent. The target or object of the various investments were different. For example, in some of them the money was put in by way of subscription for shares or units in unit trusts. On another there was a purchase of a piece of machinery and the lease of the equipment to the target. Other investments, such as BBF, TCF and TIF were quite different again. But many, if not most, investment schemes will have a spread of investments. In the end, though, what ties the various investments together is the concept of "the club". It is the same overall structure, using the same method of operation and designed towards the same end. (my emphasis). 2110In the present case it is submitted by Mr Halley that where the explanations provided to investors (as to how their contributions would be used) have varied (and in many cases have borne no correlation with how the moneys were actually used by the scheme managers or operators), the question is as to the substance of how the scheme operated in reality (citing Pegasus Leveraged Options Group at [36]-[37], where the intent of numerous separate arrangements with investors was for investors to pay money into accounts which a scheme operator held at the National Australia Bank and all monies invested through those accounts were thereafter used indiscriminately by the operators without regard to the investors' intentions or understanding, and Davies AJ held there was only one scheme not several). 2111ASIC relies on the following as warranting a finding that there was a single scheme: (i)the common structure of each of the schemes (bearing the indicia of a managed investment scheme, namely: scheme members contributing money as consideration to acquire units that conferred rights to benefits produced by the scheme; those contributions being pooled with other contributions in respect of that scheme, and used in a common enterprise, to produce financial benefits for the scheme members; and the scheme members not having day to day control over the operation of the schemes); (ii)the substantial similarity in the operation of each of the schemes; (iii)the control by Mr Hobbs (and/or FTC) of each of the schemes and the fact that each of the corporate administrators was accustomed to act in accordance with Mr Hobbs' instructions or directions; and (iv)that each of the schemes was only made available to potential retail investors who subscribed to FTC; that the potential investors in each of the schemes were identified and solicited through a common process involving FTC; and that potential investors in many of the schemes were required to participate in a common process (the OEM/KLM process as described earlier) in order to be provided with information in respect of the available schemes. 2112As to (ii) above, Mr Halley points to the following matters: * the use of documents in substantially the same form; the use of a common arrangement and process for the printing and dispatch of the relevant scheme documents; the receipt of funds from potential investors who had been given access to the schemes through FTC and/or OEM and KLM; the receipt of funds from (or purportedly from) potential investors through an IBC or (in the case of Super Save and the 888 (Super Save) Fund) an SMSF; for most of the schemes the opening of a Technocash account by the corporate administrator; investment by most of the schemes of funds in a similar manner, particularly (from around 2005) in derivatives trading accounts with Cadent, with the same introducing broker and foreign introducing broker and on the advice or recommendations of Ms Reisinger or Mr Hobbs; for a number of the schemes, the design of websites at around the same time by the same person, at the direction of Mr Hobbs (and which Mr Parsons deposes Mr Hobbs referred to as "his" websites [45]); and the similar commission structure for the "introducer" (usually 12%), the introducer usually being the FTC executive who introduced the relevant scheme member to the scheme. 2113As to (iii), Mr Halley relies upon evidence that Mr Hobbs: * determined the person(s) who would be the administrator of each of the schemes: having either personally chosen the person(s) who would be the scheme administrators (as it is said was the case with Integrity Plus and Super Save; Prestige and Smart Money; Elite Premier and Elite Premier Option Two Unit Trust; Covered Strategies; First Secured Bond Unit Trust, Master Fund, Pinnacle Fund and 888 (Super Save) Fund) or having approved the involvement of others to act as co-administrators (with Ms Li and/or Mr Collard in relation to Good Value Fund, Enhanced Fund, and Best Fund); (Mr Halley notes, and I accept, that the administrators so chosen had no prior experience in the operation of investment funds or the investment in financial products of the kind in which the funds invested, such as derivatives; did not have the financial education, business background or experience to operate such a scheme; and did not hold an Australian financial services licence); * made arrangements or assisted in the arrangements for the setting up of an IBC for or on behalf of the scheme administrator(s) of each of the schemes, to operate as the corporate administrator of each of the schemes, or provided an IBC to the scheme administrator(s) to operate as the corporate administrator of each of the schemes; Insofar as Mr Hobbs advised FTC executives of the requirements for IBCs and provided details of the firms and entities through whom IBCs could be established - including reference to Sovereign Trust at the DVD Seminar and, I would infer, referrals to Moore Rowlands in Vanuatu and the First Anguilla Trust Company in Anguilla, with whom those working in the Hobbs office and Mr Wood communicated for renewal of registrations in the respective jurisdictions and of whom there is no suggestion they had any knowledge prior to working with Mr Hobbs; * provided the scheme administrators of each of the schemes, or made arrangements for them to be provided, with the relevant documents for the operation of the schemes, and made arrangements for the relevant scheme documents to be printed and dispatched; * assisted in or provided instructions as to the setting up of a dedicated bank account, in the name of the corporate administrator, for the receipt of funds to be invested in each of the schemes; * assisted in or provided instructions as to the investment of funds received by the corporate administrator of each of the schemes (including for a number of funds the setting up of an account with Cadent for investment in derivatives trading through Cadent, on the advice or recommendations of Ms Reisinger or Mr Hobbs); * directed to whom payments were to be made from funds invested in the schemes, including payments by way of returns or purported returns to investors, payments of commission to the scheme administrator(s), relevant FTC executives acting as brokers, and also to Mr Hobbs; and * directed that investor funds be transferred between different schemes and that investor funds be transferred to other entities and individuals who were not investors. 2114As to those matters, I am satisfied that Mr Hobbs personally chose those who were to be the administrators of the various schemes or, in some of the Li/Collard schemes, implicitly approved the involvement of co-administrators, in the sense that he did not demur from persons such as Ms Wu and Ms Dong being held out as scheme administrators. I am satisfied that the evidence establishes that Mr Hobbs either gave the directions or assistance referred to above or put in place the means by which the scheme administrators would receive and act upon advice from others. 2115I do not accept as plausible Mr Hobbs' denial that he was unaware that Mr and Mrs Dent were printing and distributing private placement memoranda and scheme agreements, having regard to the emphasis Mr Dent placed on having dealings in relation to the printing directly with Mr Hobbs and not the scheme administrators. 2116As to (iv), it is noted that FTC executives invited potential investors to FTC seminars or investor meetings in Australia; FTC executives made representations orally to potential investors at the FTC seminars and meetings as to the potential access to offshore investment opportunities, providing monthly returns in the order of at least 3-4% per month on funds invested (save for Pinnacle Fund which was represented to offer at least 30% per annum) or otherwise providing access to wholesale returns, not otherwise available to retail investors, provided they subscribed to FTC and set up an IBC; the dispatch to potential investors who subscribed to FTC of the FTC financial education booklets; and (with the exception of the schemes that were limited to specific investors who were invited to be shareholders of the corporate administrator of the relevant scheme - such as the Good Value Fund), the provision of assistance by FTC executives (or other persons assisting the FTC executives) to set up and establish IBCs, or self managed superannuation funds, as the case may be. 2117Insofar as the process by which Mrs Watson and/or Mrs Burnard (or scheme administrators) sought to solicit and 'qualify' potential investors as eligible to invest in the schemes was said to be based on (or justified by) the June 2002 advice received from Mr Hartnell, Mr Halley submits that this is also indicative of there being, in substance, only one scheme. 2118Mr Halley submits, and I accept, that the above matters (which I consider to be broadly established by the evidence) warrant the conclusion that the FTC process and the OEM/KLM process were part of a single process by which investors were approached and solicited to invest in any of the schemes the subject of these proceedings (being schemes over which Mr Hobbs had effective control). 2119In addition, Mr Halley submits that Mr Hobbs himself regarded the individual schemes as, in effect, one scheme, and engaged in conduct consistent with there being only one scheme. Reference in this regard is made to: * the evidence by various of the witnesses to Mr Hobbs: having referred to the various schemes or funds as 'his' funds (Diaz at [11], [13], [68], [126]; Parsons at [11]; Stavropoulos at [29], [61]; Blow at [31]; Camilleri at [66]; Gahan at [24]; Jouravlev at [71], [89]; Huang at [16], [20], [38]; Koutsoukos at [119], [207]; Dong at [85]); having referred to the investors in the various schemes as his ("our") investors (Parsons at [39]), having referred to the scheme administrators as "his" people (Parsons at [11]); and having referred to profits being made by the schemes as profits being made by him, or by him and others (Diaz at [68]; Jouravlev at [89]); * the evidence that Mr Hobbs referred to the schemes as "white label funds" (Koutsoukos at [74]; Dong at [143]; Wood at [467]-[468]) and referred, in his letter to Sovereign Trust International in November 2009, to the payment of $200,000 to Magny-Cours as involving the "setting up of white-labelled funds, ie investment funds spread over a blend of registered traders and the opening of an account with a licensed clearing house"; * the statements made by Mr Hobbs' then legal representative, Mr Bellamy, writing on behalf of Mr Hobbs to Cadent, and with Mr Hobbs' knowledge, as to the operation of the funds (Ex B tab 4); * the fact that Mr Hobbs arranged for visits by various of the scheme administrators as a group to Cadent's offices in Chicago in about April 2007 (Koutsoukos at [99]-[1011], T 141); and * the evidence by Mr Parsons as to Mr Hobbs' stated understanding of the whole operation (set out in the diagram drawn by Mr Parsons after having received instructions from Mr Hobbs as to the scheme(s) (Parsons at [99], Tab 3) (evidence which I regard as very significant not least because of Mr Hobbs' reaction in the witness box to the documentation of the arrangements, which I find were in fact in place as represented on that diagram). 2120Reference is also made to what Mr Halley refers to as the "cross-pollination" by or at the direction of Mr Hobbs between schemes, in that: on some occasions, funds invested in one particular fund were in turn invested on the instructions or advice of Mr Hobbs in another fund (Jouravlev at [98]); the evidence of Mr Koutsoukos that Mr Hobbs directed or encouraged the administrators of one scheme to invest in or assist in soliciting investment of funds in another fund (such as when Geneva Financial needed propping up at [288]) and at [388]-[397] that Mr Hobbs encouraged people to invest Geneva in 2005;and at [961]-[966] when Elite Premier Option Two Unit Trust needed to be "built up". 2121I consider that the lack of financial sophistication/expertise on the part of most of the scheme administrators and the persons involved in the OEM/KLM process is significant insofar as it makes it inconceivable that each would separately (or in groups of one or two) have themselves formulated the process that was put in place or had the contacts to enable that to be done. The evidence overwhelmingly leads to the conclusion that it was Mr Hobbs who provided the common link between the schemes. 2122That is consistent with Mr Hobbs' belief that there was valuable intellectual property that reposed in the investment process or the setting up of the "white label" fund (for which he would be justified in charging a substantial premium). Had he formulated the scheme, made the introductions and had no further involvement therein, that might have been one thing. However, having regard to his continued involvement in the process (evidenced by communications both with scheme administrators and with Ms Reisinger) and his continued presentations at FTC seminars to potential investors, and having to the fundamental aspects that the schemes had in common (particularly the striking similarity in the scheme documentation and the process involved), I consider that the four schemes taken together were part of one collective scheme (involving both FTC and the OEM/KLM process), even though some funds once set up operated in a slightly different way in relation to solicitation of investments). 2123I place weight on Mr Hobbs' own presentation of the process at the DVD seminar that clearly links the sale of the financial packages with the provision of access to offshore investments and his presentation on other occasions as recorded in contemporaneous documents such as Mr Blow's notes of the seminar he attended. 2124I find that the fourteen individual managed investment schemes collectively comprised a single scheme (of which the steps involving FTC on the one hand and OEM/KLM on the other hand were part). Whether the issue of interests in the "Hobbs Scheme", or alternatively each of the Super Save and Integrity Plus Schemes, required the giving of a product disclosure statement under Division 2 of Part 7.9 of the Corporations Act [277]-[278] 2125Paragraph [277] alleges that the issue of interests in the Hobbs Scheme (as defined in the Third Further Amended Statement of Claim) required the giving of a Product Disclosure Statement under Division 2 of Part 7.9 of the Corporations Act. The basis on which this allegation is made is that, at least from 1 July 2004, the Hobbs Scheme had in excess of 20 members and the amount invested in the Hobbs Scheme exceeded AU$2,000,000 within any twelve month period. 2126Paragraph [278] pleads, further or in the alternative, that the issue of interests in each of the Super Save and Integrity Plus schemes required the giving of a Product Disclosure Statement under the said statutory provisions. This is particularised by reference to the facts that in the twelve month period between 1 January 2006 and 31 December 2006 Integrity Plus had more than 20 members and the amount invested in the Scheme during that period exceeded AU$2,000,000; and that in the twelve month period between 7 December 2006 and 6 December 2007 Super Save had more than 20 members and the amount invested in the Scheme during that period exceeded AU$2,000,000. (Pausing there, ASIC does not assert that the other individual schemes taken in isolation required the giving of a product disclosure statement, so the submission of Mrs Hobbs in relation to Geneva Financial is not disputed per se; rather what is said is that it was part of the overall scheme and that overall scheme was required to be registered.) 2127Mr Hobbs, in his defence, denies the existence of the alleged Hobbs Scheme and says "accordingly" the obligation alleged in paragraph 277 of the Further Amended Statement of Claim is denied. (On a pedantic reading of the pleading, one might think that issue was there being taken simply with the allegation that there was an overall or collective scheme as alleged, not as to whether, if there was a single scheme, it required the issue of a product disclosure statement. Nevertheless, I have treated this as a denial of the substantive allegation.) 2128As to [278], Mr Hobbs pleads that he does not know and cannot admit the allegation (consistent with his denial of knowledge or involvement in the respective individual schemes). (Ms Wu does not admit the allegations in [277]-[278].) 2129In light of the finding as to the existence of an overall collective scheme, it follows from the level of investment therein over the relevant periods that the Hobbs scheme required the issue of a product disclosure statement. Misrepresentations 2130The second broad group of issues relates to the alleged misrepresentations by Mr Hobbs or others allegedly acting as his agent or on his behalf. * Scheme Representations 2131There are three scheme representations alleged at [279] to have been made in the period from at least 2004 to 2008 in respect of each of the schemes, by each of Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Mr Koutsoukos, Mr Wood, Mr Truong and FTC, namely: (i)the Lawful Investment Representation (namely that, by investing in the Hobbs scheme (and further or alternatively each of the schemes), Mr Hobbs or persons or entities associated with Mr Hobbs could lawfully provide investors with access to offshore investment products and opportunities); (ii)the Principal Protected Representation (namely that there was no risk of investors losing the principal sum invested in the Hobbs scheme, and further or alternatively each of the schemes); and (iii)the Investment Returns Representation (namely that each investor could generally expect to receive returns in the order of at least 3 to 4% per month on funds invested in the Hobbs Scheme, and further or alternatively each of the schemes - although the Pinnacle Fund the representation was of a 30% annual rate of return (that may be equated to approximately 2.5% per month). 2132Particulars of the Scheme Representations are contained in the pleading. Each is said to have been partly express and partly implied. 2133The Lawful Investment Representation, to the extent that it was express, is said to have been oral; the others to the extent that they were express are said to be partly in writing (deriving from statements in the respective Private Placement Memoranda for the funds and (in the case of the Investment Returns Representation) from some PowerPoint presentations). 2134To the extent that the Scheme Representations are said to be implied: (i)in the case of the Lawful Investment Representation it is said to be implied from the making of the Investor Representations without any qualification or reservation that the Hobbs Scheme, and further or alternatively the Schemes, were not or may not have been operating lawfully in Australia in soliciting investments from potential investors, purportedly through international business corporations or by reason of some alleged qualification as a sophisticated investor by purchasing educational materials from FTC and then pooling those funds that were invested and placing those pooled funds in either proprietary accounts with Cadent, without disclosing the beneficial interests of the investors in the funds placed with Cadent, or in other alleged investment opportunities; (ii)in the case of the Principal Protected Representation, to the extent that it is said to be implied, ASIC contends that it is to be implied from statements made by each of Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong and Mr Koutsoukos, to investors at FTC Seminars and Investor Meetings concerning the types of investments made by the Hobbs Scheme, and further or alternatively the Schemes, including the purchase of US Treasuries to protect their principal; and (iii)in the case of the Investment Returns Representation, to the extent that it is implied, it is said to be implied from the circumstances in which the Investor Representations were made, including statements and representations made by Mr Hobbs and each of his agents Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong and Mr Koutsoukos in the course of FTC Seminars and Investor Meetings in the period from at least 2004 to 2008 as to rates of return achieved and achievable in the offshore wholesale investment market generally and by investment in the Hobbs Scheme, and further or alternatively each of the Schemes (and in the case of Master Fund the representation is to be implied from the Master Fund Presentation). 2135Each of the Scheme Representations is alleged at [280] to have been a continuing representation on the basis that each was made to potential investors to encourage them to make and retain investments in each of the Schemes. Hence it is said that the representation continued unless and until the investment had been redeemed in full, or the representation was withdrawn. 2136Further, it is alleged in [281] that each of the Scheme Representations was false in a material particular, materially misleading, misleading or deceptive, or likely to mislead or deceive. 2137It is submitted that in the circumstances in which each of the scheme Representations was made to potential investors to encourage them subsequently to make and retain investments in each of the schemes, it can readily be concluded that such representations were likely to induce persons in Australia to make and retain investments in, or apply for or acquire interests in, the schemes. I agree. 2138As to the Scheme Representations, in general, Mr Hobbs accepts that he made the statements recorded at the DVD Seminar (on that occasion - though, as I have noted, he dismisses that seminar as being a "one-off" occasion). However, he does not accept the characterisation of those statements put against him by ASIC. 2139I turn then to the particular issues so arising in relation to the misrepresentation issues: Whether each of Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong, Mr Koutsoukos and FTC made the Lawful Investment Representation [279](a) (namely that by investing in the Hobbs Scheme, and further or alternatively each of the Schemes, Mr Hobbs or persons or entities associated with Mr Hobbs could lawfully provide investors with access to offshore investment products and opportunities) 2140ASIC relies for the allegation that the Lawful Investment Representation was made by each of the above on the following evidence of the making of oral statements to this effect: (i)by Mr Hobbs (Blow at [10], [12] (including Mr Blow's handwritten notes of the first FTC meeting he attended), [14]; Marciniak at [30], [33]; Koutsoukos at [67], [68] (when the Hartnell opinion was produced and Mr Koutsoukos says Mr Hobbs said that if anyone questioned the legality of the investment reliance should be placed on this), [110], [112]-[113], [189]; Dong at [8], [109], [230] (again referring to the Hartnell advice); Wood at [21], [32]; Truong at [37]; Huang at [16]); (ii)by Ms Li (Huang at [9], [48]; Gao at [10], [17], Xu [60]-[61],[88]; Dong at [230] (referring to the Hartnell advice)); (iii)by Mr Collard (Hogno at [17], [21]; Gao at [45]; Jouravlev at [10]; Ms Dong at [230] (referring to the Hartnell advice)); (iv)by Ms Wu (Gao at [9]); (v)by Mr Wood (Wood (as to his practice of what to say at client meetings between about mid-2002 and about December 2007) at [55] (including reference to the Hartnell advice); at [523] talking about his usual practice when speaking to clients about Super Save to say); (vi)by Mr Truong (Truong at [62] and [67] (as to his usual practice from about 2002 and continuing in the period from about 2004 to about 2007), [298] as to his practice when promoting Super Save; Mr Koutsoukos at [16]); (vii)by Mr Koutsoukos (Canham at [7]); (viii)by other FTC executives (Mr Evans (Blow at [33], [35], [64]); Mr Jennings (Handebo at [5], [16]; Gemmell at [4]; W. Moule at [7]); Mr Piggott (Ormond-Allen at [4]). 2141Mr Hobbs' submission is that he had "good reasons not to do any more than talk about products and specifically not to give financial advice" (there referring to the advice provided to him by each of Mr Miles, Mr Hartnell and Ms Maroun) and he denies having done so. (This submission seems to be a tacit acknowledgment of awareness at the time that to do so would have risked a contravention of the legislation in this jurisdiction.) 2142As to the Lawful Investment Representation, in particular, Mr Hobbs submits that this "is not consistent with a representation by me that my own acts were legal"; rather that, at its highest, what was said at the seminars was to the effect that investors could, under certain circumstances, legally invest overseas. Mr Hobbs says that no specific details of any kind were provided. 2143Mr Hobbs relies on the fact that he was "in possession of the Hartnell advice which did provide that in certain circumstances investors could invest overseas" and submits that there is nothing in ASIC's case to suggest that, by so investing, investors were acting illegally. 2144It is worth noting precisely what Mr Hobbs said at the DVD Seminar: So, if we come to talk about what is real opportunities in the world, and we know that a lot of the major fund [managers] do not operate down in our part of the world, how do you legally participate? Well, the first point being we can pull out a number of prospectuses here now and discuss a number of prospectuses from around the world but if we made an investment offer or gave advice, we are breaking securities law here in Australia. So, how does a person legally participate in that market? Most sophisticated individuals, or people that understand how to participate in the international arena know that they must form a company internationally, and that's usually a company that's formed in one of the tax havens of the world, and that company seeks an offer from the fund managers. For example, there is - and you can go on the web and have a look - there is a very good options trading program that has been on the [FTSE] market for about 15 or 16 years now, it's worst year in the last fifteen years including '87, it produced 30.3 per cent for the year, and that was '87. It's a registered prospectus, but you apply for that prospectus as an Australian resident and they will not send it to you, because you're breaking - they would be breaking the law. But they will send it to a company that's registered or incorporated, I should say, in a jurisdiction that allows them to transfer that information. So, if a client has a company, and please, we'll review this in more detail over the next [two] days but I'm just speeding through a process here, I guess. If a client has a company in a jurisdiction that allows them to receive investment, you still cannot offer that company here in Australia, that investment. That particular company must seek an investment offer from offshore. So, you cannot give financial advice, you cannot make an investment offer, which of course, if you did make an investment offer, if you did give financial advice, you would be under all the jurisdiction that is here, requires public indemnity insurance, requires registration, requires the products to be registered, to have a prospectus and so forth. (P 5 lines 3-31) (my emphasis in italics; my correction of the transcript based on what I heard said on the video is in italics] 2145As can be seen, Mr Hobbs (both at the DVD Seminar and in his submissions) is there conflating two issues - whether an Australian resident can lawfully invest (in the market to which he was referring at the DVD Seminar) and whether investment offers could lawfully be made in the jurisdiction. 2146The Lawful Investment Representation goes only as to the latter. What ASIC contends is that there was a representation made to potential investors that "by investing in the [Scheme or Schemes] ...Mr Hobbs or persons or entities associated with Mr Hobbs could lawfully provide investors with access to offshore investment products and opportunities" (my emphasis). At the introduction of the DVD Seminar, Mr Hobbs stressed this very point: By law in Australia we can [share] financial [education] information by education, but the moment you make an investment offer, in Australia, you must have either the twelve twenty rule or have a registered prospectus. ... (P 3 line 38-39) (my correction of the transcript based on what I heard said on the video is in italics) 2147And again later: [But] Enjoying the results of wholesale funds is substantially different to being restricted to a retail level only. The difficulty is, we['ll] come back to it again, if it does not have a prospectus registered here in Australia you cannot offer that investment, you can only discuss it by way of education, and by way of education you can show people how they can legally participate, but after that the client must make the effort to obtain that information. [Yes] We can give them the fax number offshore they can fax to requesting it, but there is procedure that that client must do, you cannot offer the investment here in Australia, and again we can go through that in a little bit more detail. (P 10 lines 37-45) (my emphasis in italics; my correction of the transcript based on what I heard said on the video is in italics) 2148Whether or not (consistently with the Hartnell advice or otherwise) investors could lawfully invest in the offshore market through an offshore IBC (if an investment offer were to be made to them and the investment offer and issue took place totally offshore) or even if they could lawfully do so despite a breach by the offeror of statutory prohibitions in this jurisdiction is not the issue. The case against Mr Hobbs, in this regard, is that potential investors were told that the offeror could lawfully provide them with the investment opportunities in question. 2149The above extracted portion of the transcript of the DVD seminar makes it unarguable that a statement of that kind was made by Mr Hobbs on at least that occasion. The evidence of persons who attended other seminars or who were appointed as scheme administrators makes it clear that Mr Hobbs said this on many other occasions. (Elsewhere on the DVD Seminar, Mr Hobbs describes FTC subscription as "Subscription is a legal means to an end" - that end can only, in the context of the seminar, have meant investment in offshore markets). 2150Again, on the second day of the seminar, Mr Hobbs is recorded as saying: But you can only share that information by educational purposes. You cannot make an investment offer. Because you're operating on an educational basis, you're not required to have PI insurance, you're not giving financial advice, you're selling an educational program. In that educational program it shows clients how they can legally participate in an investment that has a prospectus registered in the US or UK or Europe and - and physically obtain the memorandum or the prospectus as a contract, because as we touched on yesterday, if you have a fund manager in the US and you're a resident of Australia and you apply for that prospectus, you will not receive it, because they are breaking security laws here. Their product is not registered here. (my emphasis) 2151Mr Hobbs again went into some detail in relation to the investment products (in similar terms to the day before) and said: The procedure for clients. The procedure for clients is: they can only - we can only share this information with them by education. And let's be very clear about that, because if we try and make an investment offer to a client here if the product is not registered here in Australia, we're breaking the law. And that's absolutely somewhere we don't want to go to. So we can only do it by education. The client learns to participate in international finance or international investments. They form a company, which can be formed for them by different solicitors and attorneys from around the world, in a jurisdiction that allows them to receive a contract memorandum and the product. Now, usually that's close to Australia. Of course that can be Vanuatu, but not the most significant area, but the Isle of Man, Anguilla, The Bahamas. (my emphasis) 2152Again, Mr Hobbs is there addressing two issues - whether a person can lawfully invest in such products and whether it would be a breach of the law to offer such investment. 2153As to the manner in which the Hartnell advice was deployed, on the first day at the DVD Seminar, Mr Hobbs said: The advice that we took on this matter was from different solicitors. We actually had a recent opinion from Tony Hartnell, a solicitor here in Sydney who was involved in the forming of the New South Wales financial services industry, or ASIC. ... And he said - he was very clear in his opinion: providing the client has an offshore company, that offshore company approaches offshore for an investment offer, it does not constitute an offer here in Australia, providing you have not made any form of offer here or financial advice. (my emphasis) 2154He repeated this on the second day: Now, we have an opinion here, as we mentioned yesterday. The opinion is via the solicitor here in Sydney, Mr Tony Hartnell. Mr Hartnell was involved in writing the ASIC legislation, and was very plain - he states very plainly - should a person operate in that procedure from an IBC and request the information from offshore in the IBC's name, it does not fall under any of the securities commission's - a conflict here in Australia because the offer has not been made on Australian soil to Australian resident, it's been made to an offshore company from another offshore identity. 2155Those cannot, in my view, fairly be said to be statements limited as to the lawfulness of investment by the investor - what they appear to address (particularly the first of the extracts) includes or at least relates to the lawfulness of providing the investment offer or opportunity. 2156As to the evidence from the various witnesses in respect of what was said by Mr Hobbs at particular meetings, I consider that statements to the effect that "We are limited to what we can [invest in] in Australia" (as Mr Blow records Mr Hobbs as having said, juxtaposing the requirement for prospectuses in Australia and "a lot of organisations around the world [that] don't have the requirement for prospectuses" with the statement that there are a number of ways that those in Australia can invest offshore, are statements that convey the message that the investment process there being spoken about is lawful for the investor, but statements to the effect that there are no requirements for prospectuses also conveys the message, in my view, that a company offering the investment through the IBC process can do so lawfully in a way that permits investors in Australia to invest in the funds without a prospectus. 2157Similarly, the statement identified by Ms Marciniak that it was necessary to establish a "legal business" offshore in order to "explain the overseas flow of money" and that: There are offshore funds available to invest in, but these are only open to offshore companies. 2158In saying this, I am conscious of the need (emphasised in Forrest) to focus on what the particular audience would understand the statements to have meant. In the present instance, it seems to me that an unsophisticated listener to such statements would not have sought to parse the meaning thereof but would have understood them to mean that the investment process there put forward was legal from whatever perspective (ie that of the offeror and that of the offeree) - in other words that there was no risk attached that the investor would be involved in something that was not legal in the jurisdiction. 2159More specifically, Mr Koutsoukos deposes (and I accept his evidence) that during an initial conversation with Mr Hobbs (relevantly, after Mr Hobbs had said "Show them this [an Investment Magazine] and tell them about the education that leads onto investment", when Mr Koutsoukos queried whether this was all legal, he says Mr Hobbs handed him a copy of the Hartnell advice and said words to the following effect: This is an opinion by a lawyer from Atanaskovic Hartnell. This guy wrote the ASIC Act. He's top notch. What we're doing is all legal. If anybody questions whether what we do is legal, give them a copy of this. 2160Similarly, Mr Koutsoukos says that at the first seminar he attended at which Mr Hobbs spoke, Mr Hobbs said words to the following effect: Look, how can we make this possible and accessible to the mums and dads without breaking any of the ASIC laws? They become sophisticated. An investor can become sophisticated in one of two ways: if you have large sums of money, or if you have knowledge. Very few people have got a half a million dollars in cash to put into any investment but any one can be knowledgeable. We have legal opinions here and if you buy the education it's all legal. (my emphasis) 2161He says that at that Mr Hobbs held up the Hartnell advice and said: This is an opinion by a lawyer from Atanaskovic Hartnell. This guy wrote the ASIC Act. Once you buy the education and read it, then you become knowledge. Then if you set up an international business company, or "IBC", it is your IBC, not you, talking to another IBC. The IBC requests a memorandum and the IBC makes the investment, not the Australian resident. That way the average mum and dad won't have to pay our exorbitant tax rates here in Australia. Once you buy the education, it will all be revealed to you. 2162Significantly, Mr Koutsoukos deposes, and I accept, that when dealing with clients he also presented and discussed the Hartnell advice "as a way to assure clients as to the legality of investing in the Integrity Plus fund" and he gave copies of the advice to a number of clients. Insofar as Mr Hobbs relies on the Hartnell advice as assuring him that what FTC (or KLM) was doing was legal, he can hardly suggest that the provision of that advice to potential investors was not intended to convey that same message. 2163Similarly, Ms Dong deposes that each of Mr Collard, Ms Li and Mr Hobbs on separate occasions in meetings with investors said words to the effect: Tony Hartnell used to write ASIC laws. He looked at this. He tell us its legal. He look at all the documents. It's very legal. All this FTC stuff, or Master Fund, everything is already given to Tony to look at. As long as you tell people you have to have FTC and an IBC to invest 2164Mr Hogno deposes to a discussion with Mr Collard in late 2002, in which he says Mr Collard said that before he could invest in private placement he would have to set up and get an offshore business company "because Australian citizens cannot partake in wholesale investments" and that in early 2003, after setting up his IBC, he spoke with Mr Collard who said that: I cannot give you any information myself. All IBC's have to go through KLM to get their information. Just use your IBC name and write them a short letter requestion further information. Use the fax number that I gave you conveying in my view the message that while Mr Collard could not do so, KLM (lawfully) could. 2165Other witnesses depose to the making of similar statements (as particularised by ASIC), such as Ms Gao and Mr Jouravlev. Mr Wood and Mr Truong depose to what it was their practice to say in this regard, Mr Wood referring specifically to the Hartnell advice and Mr Truong emphasising that he said to clients words to the effect "We are complying with the law if we do it this way". 2166I am satisfied that the evidence establishes the making of statements to the effect, or conveying the message, of the Lawful Investment Representation by Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong, Mr Koutsoukos, Mr Evans and Mr Jennings. In particular, the provision of the Hartnell advice goes squarely to the issue whether the activity comprised in offering investment on an offshore basis was lawful. 2167Mr Hobbs submits that, insofar as ASIC relies on the making of the Lawful Investment Representation by "each of Ms Li, Mr Collard and all the FTC executives both on their own behalf and on behalf of [Mr Hobbs] and FTC" (as stated in (iii) of the particulars to [279](a) of the pleading, the pleading (and also the evidence in the case) fails properly to examine "of whom and in what capacity any such representation was made". There can be no criticism fairly made of a failure to identify by whom the alleged representations were said to be made. ASIC has clearly identified those persons by reference to the evidence in the proceedings. However, what I understand to be the nub of Mr Hobbs' complaint in this regard is as to whether it can be said that, where such representations were made by others, they were representations made on his behalf. 2168Mr Hobbs submits, for example, that if Ms Li is said to have been making the representation as agent for Mr Hobbs, then the evidence "should identify the authority on which she was making such a statement". That seems to raise again the submission as to whether such conduct fell within the scope of her authority as an agent (and, on that issue, I find that it did - by analogy with the position of a director authorised to sell shares being implicitly authorised to make representations in relation thereto). However, insofar as Mr Hobbs goes on to submit that it is far more likely any statement Ms Li made (apart from one made with respect to the financial education package) was made on behalf of the fund in which the investor ultimately invested, Mr Hobbs' submission seems to be that responsibility for representations of this kind lies only with the "fund" (or more precisely, the corporate administrator, since the "fund" or investment scheme itself does not have a separate legal existence). 2169The difficulty I have with this submission is that it ignores the evidence that it was Mr Hobbs who set up the investment schemes and that they operated as part of an overall scheme (under which Mr Hobbs stood to gain considerable financial benefits, albeit not directly from the investments made in the scheme by way of a broker's or introducer's commission (other than on limited occasions)). Logically, therefore, representations on behalf of corporate administrators can (and I find that they were) made on behalf of or as agent of Mr Hobbs. 2170Mr Hobbs argues that one indication as to the capacity and authority of Ms Li to make such a representation "would be the flow of money with respect to the representation". He submits that "generally" the party benefiting from the investments would be the person making the alleged representation (in this case Ms Li as director/officer of her fund) and not Mr Hobbs or FTC). (That is a generalisation not supported by any evidence.) It raises again the submissions made by Mr Hobbs as to the need to follow the "money trail". Ironically, the evidence adduced by ASIC points to a money trail that often ends in Mr Hobbs' bank account or in the hands of persons or entities associated with him. 2171Mr Hobbs also raises an issue as to whether Ms Li was "merely passing on Mr Hartnell's advice". If that is intended as a "conduit defence", the passing on of the advice would at the least need to be accompanied by a suitable disclaimer. As it is, the advice was provided to investors or referred to by Ms Li and others (including Mr Hobbs) in the context of statements to investors that conveyed the message that the investments were being lawfully offered (or that the investment process was such as to permit a benefit to be obtained that could not otherwise lawfully be passed on to persons in their position). Hence the evidence goes further than the mere provision (as a conduit) of legal advice for the investor to consider. Moreover, any suggestion that the investor could obtain independent investment advice cannot seriously be maintained having regard to the manner in which solicitation for investment took place (agreements in some instances at least being signed at the same time as the provision of the private placement memoranda or, in the case of the Pinnacle Fund, before the provision of such information by way of a temporary contract committing the investor to unspecified contract terms). 2172Relevantly, from the evidence of what was said to FTC executives (both at the DVD Seminar and as deposed to by the various executives) as to the investment process (and the training or demonstration as to how to present the investments to clients) (and I note that at least Ms Li, Mr Wood and Mr Truong were present at the DVD Seminar), it is readily able to be concluded that any representations they thereafter made to investors were as shown by or as instructed by Mr Hobbs'. Mr Hobbs consistently emphasised the lawfulness of what FTC/KLM was doing (via the offer of investment through offshore entities) to potential investors and FTC executives (and did not apparently demur when statements of that kind were made by others). The representation is one that I would conclude Mr Hobbs was encouraging the FTC executives to make. In those circumstances I cannot accept the proposition that Ms Li was simply "passing on" Mr Hartnell's advice or that the FTC executives when making statements to the effect alleged were not doing so as agents of Mr Hobbs and FTC or on their behalf. 2173I find that the relevant representations were made by each of the alleged representors. Whether the Lawful Investment Representation was false in a material particular, materially misleading, misleading or deceptive and likely to mislead or deceive [281(a)] 2174By way of particulars of this allegation, ASIC relies on the following for the allegation that the Lawful Investment Representation was false. It says that Mr Hobbs or persons or entities associated with Mr Hobbs could not, in the circumstances in which they purported to do so, lawfully provide investors with access to offshore investment products and opportunities since: the real investor in each of the Schemes was not the IBC set up on behalf of each relevant potential investor, but was the individual person themselves, or alternatively (as I have found) the IBC was merely an agent for the individual investor; the investment in the schemes occurred in Australia; FTC carried on a financial services business in Australia without an Australian financial services licence; FTC made recommendations or statements of opinion that were intended to influence a person in making a decision in relation to investing in the Hobbs Scheme or the schemes without an Australian financial services licence; at no time did FTC give a Product Disclosure Statement with respect to the issue of units in the Hobbs Scheme or any of the individual schemes; Mr Hobbs and FTC operated a managed investment scheme (the collective Hobbs scheme), which was not registered with ASIC in contravention of s 601ED(5); Mr Hobbs carried on a financial services business in Australia without an Australian financial services licence; each of Mr Wood, Mr Truong, Mr Koutsoukos, Ms Li, Mr Collard, Ms Wu, Mrs Hobbs, Mrs Brenda Hobbs, Mr Clements, Mr Fitzgerald, Mr Moore, Mr Zhang, FTC, PJCB, Secured Bond, 888 Vanuatu, Geneva Financial, Preserved Investments, Ultimate Investments, North Wave, Barclaywest and GP Global carried on a financial services business in Australia without an Australian financial services licence; and that none of the schemes was registered with ASIC. I consider each of those matters to have been established (other than the sham allegation though in that regard I accept that the IBCs were the agent or alter ego of the individual in question). 2175It is not disputed that neither FTC nor Mr Hobbs (nor any of the scheme or corporate administrators) held an Australian financial services licence. Nor is it disputed that none of the schemes was registered with ASIC. I find that the Lawful Investment Representation was false. (Moreover, it seems to me that the Hartnell advice could not reasonably have been relied upon by Mr Hobbs as correct, given that the advice he had obtained was predicated on an incorrect or incomplete version of the activities in which FTC and Mr Hobbs, including the activities of KLM, were in fact engaged.) Whether each of Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong, Mr Koutsoukos and FTC made the Principal Protected Representation [279(b)] (namely that there was no risk of investors losing the principal sum invested in the Hobbs Scheme, and further or alternatively each of the Schemes) 2176ASIC relies for the allegation that the Principal Protected Representation was made by each of the above on the following evidence of the making of oral statements to that effect: (i)by Mr Hobbs (Blow at [10], [31]; Jouravlev at [71], [89]; Huang at [132]; Koutsoukos at [42], [118], [332], Truong at [232]); (ii)by Ms Li (Xu at [17], [23], [24], [47], [60], [88]; Zhang at [90], [147], [181], [185], [223], Dong at [70], [98], [108], [209], [233]); (iii)by Mr Collard (Hogno at [74](a), (c); Dong at [68], [98]); (iv)by Ms Wu (Gao at [9], [37](a)); (v)by Mr Wood (Handebo at [48]; Camilleri at [36], [72]; Wood at [53] as to his practice of what he said at client meetings, [288](b) as to his usual practice when promoting Integrity Plus; [297]/[531] as to numerous conversations with clients in relation to Integrity Plus/Super Save in which he responded to client queries as to whether the investment was safe by saying "Yes, we believe it's safe. It's protected by the Treasury STRIPS", [523] as to his usual practice when speaking to clients about Super Save); (vi)by Mr Truong ( Truong at [182] as to his usual practice when promoting Integrity Plus; [298] as to his practice when promoting Super Save); (vii)by Mr Koutsoukos (Canham at [7]; [14]; Mulligan at [24]); (viii)by agents of Mr Hobbs/FTC: Mr Clements (Blow at [88]); Mr Jennings (Handebo at [5]); Gemmell at [4]; K Moule at [11]); Mr Fitzgerald (Huang at [27]). 2177ASIC also points to the following written statements to the effect of the alleged representation: * pages 10, 12 and 14 of the Integrity Plus scheme Memorandum and the evidence of various witnesses in relation thereto (Mr Millington at [22], [23], [45], [47], [62], [63]; Ms Camilleri at [84], [108]; Ms Mulligan at [25], [26]; Mr W Moule at [30]; * pages 9, 12, 14 and 16 of the Super Save scheme Memorandum and the evidence of witnesses in relation thereto (Ms Canham at [35]; Ms Mulligan at [42]; Mr K Moule at [41]); * page 14 of the Prestige scheme Memorandum; * pages 6, 10 and 14 of the Best Fund scheme Memorandum (and evidence of Mr Hogno at [26] (a) and (b); Mr B Moore at [42]), * page 5 of the 888 Fund Memorandum; * p 3 of the Master Fund power point presentation ("Master Fund Important Notice" and evidence Ms Dong at [80] as to the provision of copies of this presentation to potential investors from about 2006 to 2007 in presentations conducted by Ms Li and Mr Collard; * p 3 of the Barclaywest power point presentation ("Barclaywest fund Important Notice") and evidence of Ms Dong at [162], [164] in relation thereto; * p 8 of a power point presentation ("Super Save Returns of the Fund") given to potential investors in the Pinnacle Fund - Ms Dong at [116]. 2178As to statements from which the Principal Protected Representation is said to be implied (concerning types of investments made by the Hobbs Scheme or schemes, including the purchase of US Treasuries to protect their principal), ASIC relies on the evidence in relation to the allegation at [48](j) as to oral representations to the effect that investor's money would be used to buy bond/debentures/US Treasuries and the principal amount invested would be guaranteed; and the evidence relied upon in support of the allegations in [282(a)] (as to the Trading Representation), [282](b) and [285](d) and [288](b) ( as to the Capital Protected Representations to potential investors in Integrity Plus, Super Save and Master Fund); [285](a) and [288](a) (as to the Investment Representations to potential investors in Integrity Plus and Master Fund); [289](a) as to the A+ Representation to potential investors in First Secured Bond Unit Trust. 2179ASIC points to evidence of Mr Hobbs making two types of oral representations as to the principal (or capital) invested in the funds being protected. 2180First, the making of general statements as to the security of the investment. For example, [10] of Mr Blow's affidavit gives evidence that Mr Hobbs said words to the effect "I know of a capital guaranteed fund that guarantees a certain percent return each year." 2181Second, statements which refer to the capital being protected by US Treasury Notes (Mr Jouravlev at [71] and [89]; Ms Huang at [132]; Mr Koutsoukos at [118]; and Mr Truong at [232]). An example of the latter representation is at [118] of Mr Koutsoukos' affidavit, to which I have earlier referred. 2182There is certainly evidence of Mr Hobbs making statements to potential investors in which he gives as an example funds that he said are capital guaranteed. Although those might be said to be general references that are not necessarily misleading of themselves, it is instructive to see how Mr Hobbs explains the meaning of a capital guaranteed fund. Mr Jouravlev, for example, refers to his notes taken at the third "Hobbs seminar" he attended and gives evidence that Mr Hobbs said words to the following effect: In the first quarter of 2004 we are launching a new kind product with a capital guarantee. It makes money in AAA insurance underwriting. It is backed by US Treasury bills, and doubles every 5.7 years. The capital guarantee is backed by Chase Manhattan Bank. After a period of time your capital is guaranteed to be worth 100% of what you originally put in. 2183The message that an unsophisticated investor would take from the above must be that the amount invested in such a fund (ie, the capital) would be guaranteed; that it would be backed by US Treasury bills; and that the named financial institution (if one invested in that fund) was guaranteeing that capital (so that all that was at risk would be the return from that invested capital). The manner in which the US Treasury bonds were purchased and used as support for leveraged accounts in which the losses could exceed the amount of the bonds themselves makes such a representation demonstrably false. 2184Mr Jouravlev says that at the next seminar, Mr Hobbs further explained this as being: We have a new capital guaranteed fund that pays profit. It pays 4 to 5% per month. The capital guarantee is provided by a US Treasury bill. From each $100 invested, $60 is put into the US bond, which will mature in 5 years to be worth $100. The remaining $40 is leveraged and traded. This is where we make our money. 2185True it is that Mr Hobbs suggested to some investors (as indicated in the above) that only part of the money would be invested in US Treasuries, but he nevertheless suggested that the investors' capital would be protected at least to the extent of the amount represented by the Treasuries. 2186Similar statements were made to others (Ms Huang, Mr Koutsoukos and Mr Truong). Mr Truong gives evidence of a statement that: When we purchase the Treasury note, it protects the capital. Every dollar, they pay, they secure 80%. They leverage the 20% 3 times and that's how they trade. When it comes to mature to 5 years, you get your capital back. It has a AAA rating. It's a lot better than the US government. Only certain people can have access to buy treasury notes, not everyone can go and purchase it. 2187At [118], Mr Koutsoukos deposes to Mr Hobbs having said the following: Hands up who has invested in blue chip companies? Recently we have seen even large companies that have gone bad, like Enron and they were considered blue chip. A company can go broke. A government will never go broke. Our investment vehicles are backed by US government treasuries. We use treasuries as security. They are government backed. The security of a treasury is safer than the security of the Commonwealth Bank because a bank can collapse. But it is very hard for a government to collapse. 2188A very similar statement can be heard on the DVD Seminar. Again, while Mr Hobbs seems to accept that there is evidence on the DVD Seminar of the statements he made on one occasion from which this allegation can be tested at least in part, he submits that, at its highest, what he there said was that there were funds (not available in Australia) that provided for principal protection. He maintains that there was no specific representation that any particular fund was so protected. The context in which those statements were made (and followed by the provision of private placement memoranda in which there are clear statements to the effect that principal is protected) makes it clear that what Mr Hobbs was representing was that there were funds available to which FTC subscribers could have access where their funds would be capital guaranteed or principal protected. That was simply not the case for the funds in question in these proceedings. 2189As to Ms Li, there is evidence from a number of investors as to the representations made by her that the money invested in the funds she was promoting was protected by T-bills or Treasury notes or US bonds. These representations were frequently made in the context of assuring a potential investor that their capital would be safely guaranteed, such as stating: I promise that you won't lose your capital with this investment. If we take $1 of an investment, then 40c is used to invest in the stock market and thus will grow three times in $1.20 or more. The 60c is used to buy American bonds. The American bonds are like insurance, so you can always have your capital back. The US government have given us a guarantee. Your principal is always guaranteed. As long as you give 1 month's notice, you can get your capital back. This investment is so secure. (Xu at [23]) 2190Ms Xu quotes Ms Li as also saying on other occasions (and has a note of the second, albeit that I could not read as it is in Chinese characters): If you invest $1 in Master Fund, your investment is sent to a clearing house in the US. They will put 60c of that dollar to buy US bonds. The rest is put into some other investment scheme. This investment in US bonds is a very safe, very conservative project because the money that it put into US bonds means that it is guaranteed that years later you will always get your money back. The rest of your money is packaged for investment purposes. ... The Master Fund is protected by the US Treasury. If you take 1 dollar of an investment, 60 cents is invested with the US Treasury. Back in 1999 when the financial world had a lot of trouble and people lost money, the Master Fund achieved 20%-40% return. It is very secure and very good. It is protected by the US government. (my emphasis) 2191Mr Zhang gives similar evidence of representations by Ms Li. Significantly they were made in the presence of Mr Hobbs. Ms Dong gives evidence that at a meeting in which Mr Collard was present, Ms Li made similar statements: There is no risk because this fund will buy 80 per cent or 90 per cent of money in the fund will buy an American treasury bond. We can't talk guarantees, nothing's guaranteed in this world but is more secure. Your personal guarantee is nothing because you are the bankrupt and then a company guarantee maybe little bit better and the bank guarantee maybe even better than a company but the government give you guarantee. The treasury bond is like a safety net. You will only lose your money if America is bankrupt. The other money will go to the trading, the trade for profit. (my emphasis) 2192As to Mr Collard, Mr Hogno and Ms Dong give evidence that Mr Collard made statements to the effect that the "investment would be capital guaranteed by US Treasury Notes" (Hogno at [74]) or "protected by a T-Bill" (Dong at [68] and [98]). In the case of Ms Wu, Ms Gao gives evidence of a conversation with Ms Wu in June 2007 where Ms Gao asked, in relation to investment opportunities available through FTC, whether investment capital was secure and where Ms Wu responded that it was (at [9]). Ms Gao also gives evidence of a later conversation in 2007 where Ms Wu reassures her that her "capital is not lost. It is guaranteed". 2193ASIC points to the evidence of Mr Handebo and Ms Camilleri to the effect that Mr Wood made representations that their money was "absolutely guaranteed" and "capital guaranteed by the purchase of US bank bills" (Handebo at [48]; and Camilleri at [36] and [72]). Mr Wood also gives evidence of his own practice in promoting Integrity Plus and Super Save to make representations that the investment in those funds was protected by the purchase of Treasury STRIPS (at [53]; [288]; [297]; [531] and [523]). An example of such a representation (which he says was indicative of his usual practice) is given at [523]: Your investment in Super Save will be protected by treasury STRIPS. A portion of the investment is bought by Treasury STRIPS and they are held until they reach maturity, which is 8 years hence. When they reach maturity they will replenish the money to the full extent to which the money is invested. The most you'd have to wait is 8 years to get your money back. 2194As to Mr Truong, he also gives evidence that, in the course of promoting Integrity Plus and Super Save, it was his practice to make representations that the investment was protected by a T-bill. For example, he attests at [182] that he would say that the "[c]apital was protected by the T-bill" and at [298] that the "fund is covered by the Treasury notes...the Treasury Note matures in 5 years, then you get your capital back". 2195Ms Canham and Ms Mulligan give evidence that Mr Koutsoukos, in course of promoting Integrity Plus and Super Save, would make representation regarding the fund being "secured by US Treasury STRIPS" (Ms Canham at [7] and [14]; Ms Mulligan at [24]). Ms Canham's evidence at [7] goes on to note that Mr Koutsoukos said that upon maturation of the Treasury STRIPS (in that case, after 12 months), she would be able to request her capital back with 60 days notice. 2196Mr Blow gives evidence at [88] that when he queried Mr Clements as to the statement in the fax he had received to the effect that for the Elite Premier fund the investment was "capital guaranteed", Mr Clements responded that the "overall capital amount is insured" as the "insurance company that insures the capital takes out a treasury note to the value of the invested capital": The investors' funds are pooled. The overall capital amount is insured. The fund trader trades daily and only trades with a small amount of capital at a time. And only one trade is open at any one time and each trade is closed before the next one is opened. This means that only a very small percentage of the capital is at risk at any one time. The insurance company that insures the capital takes out a treasury note to the value of the invested capital. 2197Mr Jennings made similar statements according to Mr Handebo at [5]: Your money is absolutely guaranteed by the American government and you will be given Treasury STRIPS showing where your money is and showing the guarantee. The only way you will lose your initial investment is if the American government collapses. 2198This is consistent with the evidence of Mr K Moule that Mr Jennings said that the money was "all capital guaranteed by the United States Treasury" (at [11]) and the general evidence of Ms Gemmell that Mr Jennings represented that the money invested with Super Save would be "very safe" as the scheme was "foolproof" (at [4]). Ms Huang gives evidence at [27] of Mr Fitzgerald stating that the "money is safe" when invested with Covered Strategies and that there was a risk management strategy in place. 2199ASIC points to a number of written statements to the effect of the Principal Protected Representation, for example, statements in the Integrity Plus Memorandum contains statements to the effect that the fund trades in "AA+ rated financial instruments" and that the fund is protected "by virtue of being a non depletion account". No risk to capital is discussed in the memorandum (the section headed 'Risk' dealing only with the risk due to difficulties in conducting due diligence). These statements are not unique to the Integrity Plus Memorandum. They are repeated, for example, in the Master Fund Memorandum. 2200A frequent statement in the scheme memoranda was to the effect that the principal would be protected or the fund secured with a Treasury note or bill. The Super Save memorandum refers to the purchase of a Treasury note with 60% of the invested fund and then represents that the fund is protected by these Treasury notes, which "on maturity yield 100% of the investing capital". This representation is then repeated under the section titled 'Risk' in the memorandum. Similarly, the Best Fund Memorandum, under the heading 'Investment Objectives and Fees', notes that "capital protection on the fund is by way of US T/notes which have a maturity date of 5-8 years". Similarly worded representations as to capital protection by a Treasury note are also featured at page 3 of the Master Fund PowerPoint and page 3 of the Barclaywest Important Notice. 2201In general, in response to the alleged Scheme Representations relating to the funds, Mr Hobbs submits that, on ASIC's own case, potential investors were told to seek further information from KLM or OEM (at [60] of the pleading) and says that until they had receipt of that information investors did not know what funds were available for investment. He notes that the same material that provided investors with information as to specific funds also provided investors with an assessment of the risk of the investment. Mr Hobbs directs attention to the documentation in question (the KLM material containing a précis of the funds, the provenance of which, or Mr Hobbs' involvement in the provision of which, is a matter in dispute) as to the level of detail provided of the risks of investment in the respective funds. 2202It is submitted that insofar as a particular fund elected to be capital guaranteed or not that was a matter for the fund administrators "possibly on the advice of Ms Reisinger" and was entirely outside Mr Hobbs' control. Similarly, it is submitted that insofar as there were terms and conditions as set by traders, those were matters for the fund administrators either to accept or choose another fund manager and entirely outside Mr Hobbs' control. Mr Hobbs submits that "At most I could give non-specific and general educational information". 2203Mr Hobbs submits that insofar as the fund administrators caused scheme documentation to be prepared it was based on material prepared by Mr Becker and the scheme administrators would make such amendments as were appropriate. He further submits that "regardless of any comments I might have made at the seminars" in choosing a fund in which to invest investors must have had regard to the information they received from the fund administrators. 2204Mr Hobbs argues that it is difficult to see how there can be reliance on a general statement "when there has been a choice of a specific product". I am not certain precisely what Mr Hobbs is putting forward by this submission. If he is here submitting that it is not likely that a general statement of this kind would mislead or deceive investors who have (subsequently to the making of the general statement) received information as to a specific product, then would be likely to turn on whether the specific product advice corrected the representation. If it is suggested that the ability to choose between products necessarily removes any misleading quality from a general statement of that kind, I do not agree. (I note that for the purpose of determining whether damages had been suffered in reliance on a misleading statement requires proof of reliance, but proof of actual reliance is not necessary where the allegation is that a statement is likely to mislead or deceive). 2205As to the information provided to potential investors about the funds, Mr Hobbs asserts that it could not have emanated from him because it was the fund that chose the particular investment products and decided upon the terms under which the traders operated (or agreed to accept those offered by traders). (He points out that the agreements with the Cadent traders were signed by the directors/officers of the fund and not by him.) 2206In that regard, there is evidence (for example from the J&B Financial officers, when they depose to the statement by Mr Hobbs that he would set up a fund for them that would trade in commodities) that Mr Hobbs did direct the nature of at least some of the products in which particular funds were to invest (significantly, in relation to the Covered Strategies Fund, he did so in writing when giving instructions to Mr Fitzgerald as to the LEAPS strategy). Furthermore, to the extent that the private placement memoranda followed a standard template provided by or on behalf of Mr Hobbs, it might reasonably be concluded that general statements as to the investments of the particular funds derived from Mr Hobbs. 2207In circumstances where the scheme administrators by and large had little financial experience it is not credible to suggest that they prepared the précis information (or the risk assessments of the funds) themselves (and there is no evidence that this was prepared for them by Ms Reisinger or others at New World Holdings (other than that there was some discussion at the 2007 traders' meetings in Chicago as to the trading strategies and perhaps as to the traders' returns). 2208I note that the question of the source of the précis information was the subject of inconsistent evidence from Mrs Watson. In chief, when asked: Q. And was sometimes that information provided to you from the fund managers by Mr Hobbs? A. No, I don't think so. There was no need. He had no information in his office on these funds. Those fund managers managed their own funds. 2209That answer was inconsistent with the evidence Mrs Watson had given on that topic when she was examined in her s 10 examination in New Zealand in May 2009. Mr Halley therefore sought and I gave leave for him to cross-examine on the answer extracted above. 2210In that cross-examination, Mrs Watson maintained at first her denial that sometimes the information with respect to each of the individual funds was provided to her by Mr Hobbs and denied that Mr Hobbs would give to her a document containing a description of the funds' investment activities and ask her to include it in the KLM Enterprises document (that was forwarded to investors as part of the OEM/KLM process). Faced with the inconsistent evidence she had given in 2009, Mrs Watson then conceded that it was possible that Mr Hobbs did have the information from the fund managers and that it was possible that he had passed on to her the information from them but said "Well, it's not how I recall it now" (and gave an explanation as to the stress she was under at the time of the s 10 examination and suggested that "sometimes we were talking at crosspurposes"). 2211There was the following exchange: My recollection is that my recollection is that certainly most of this information was given me by the fund managers. If David had passed on some of their information from them, so be it, but that's how my recall is now. Q. It's possible that Mr Hobbs may have passed on information that he said he'd received from fund managers to you, isn't it? A. That's just what I said. That's possible, but most of this I recall that it was sent to me by the fund managers. If David passed that on from one of the fund managers, well, I don't know. He didn't David didn't run these funds. (my emphasis) 2212The assertion by Mrs Watson that Mr Hobbs did not run the funds (volunteered as seeming explanation for her recollection that most of this information was sent to her by the fund managers) does not appear to have been based on any knowledge by Mrs Watson of what was involved in the running of a fund and nor (as she accepted) did she have any involvement in the operation of any of the funds included in the KLM letters (other than sending the précis on the funds). Therefore, the conclusion expressed by Mrs Watson is one the foundation for which cannot be tested. (Mrs Watson denied that her knowledge was based almost exclusively on what Mr Hobbs told her as to his involvement in the running of the funds, but there was no basis put forward as to how she had formed her conclusion in that regard.) I am unable to place any weight on the view there expressed by Mrs Watson. 2213Mr Hobbs submits that, to the extent that ASIC has particularised the Principal Protected Representation by reference to statements contained in the fund documents (paragraph (iv) of the particulars to [279](b)), Mr Hobbs submits that this confirms that the representations were made by the "fund" and its directors/officer, not by him. Such an argument does not take into account the oral representations made by him of which there is evidence, nor the evidence that fund documents were provided by him. (Nor does it address the contention that representations made by fund administrators were made on his behalf or as his agent, though I accept that this is firmly denied by Mr Hobbs.) 2214In the interests of space, I have not set out the entirety of the material which supports this or the other allegations as to the representations. Suffice it to say that there is abundant evidence of the making of statements of the kind alleged and that I consider that to an unsophisticated investor of the kind to which these statements were made they would convey the meaning for which ASIC contends. 2215I find this allegation to be established. Whether the Principal Protected Representation was false in a material particular, materially misleading, misleading or deceptive and likely to mislead or deceive [281(b)] 2216The Principal Protected Representation is said to be false in that there was a risk of investors losing the principal sum invested in each of the Schemes because of the risks associated with the type of investments made using the funds invested in each of the Schemes, including the type of derivatives trading carried out in the Cadent Accounts, the extent to which that trading was leveraged to permit further speculative trading, the possibility of large losses resulting from the trading and the fact that the cash and US Treasuries credited to the Cadent Accounts were a margin or deposit for the derivatives trading and were therefore at risk at all material times, and that none of the investments was secured. (In relation to Integrity Plus, it is alleged the risk of loss of the principal sum was also due to the fact that some of the funds were disbursed in purported but not real investments, such as the payments to the late Mr Brock and to the entity associated with Mr Graham (Tractor) Tomlinson, for which there was not even lip service paid to the documentation of a loan arrangement in relation to moneys paid out of the pooled funds in the scheme account.) 2217I accept that the evidence establishes that all of the funds that invested in each of the Cadent Accounts were at risk and that, because of the leveraging of those investments, it was possible (as Ms Reisinger explained) to lose more than 100% of the funds invested in any of the Cadent Accounts (EX AO pp736-737). Whether each of Mr Hobbs, Ms Li, Mr Collard, Ms Wu, Mr Wood, Mr Truong, Mr Koutsoukos and FTC made the Investment Returns Representation [279(c)] (namely that each investor could generally expect to receive returns in the order of at least 3 to 4% per month on funds invested in the Hobbs Scheme, and further or alternatively each of the Schemes - although the Pinnacle Fund the representation was of an annual rate of return that equated to about 2.5% per month). 2218ASIC relies for the allegation that the Investment Returns Representation was made by each of the above on the following evidence of the making of oral statements to this effect: (i)by Mr Hobbs (Blow at [10], [14], [31]; Ormond-Allen at [18]; Marciniak at [33]; Gahan (at [24], who says that Mr Hobbs said in about 2005 "I am running several funds. One of them is called Prestige. Investment funds in Prestige go to the large trading houses in the US. The return on investments in Prestige is 3% per month. Investments in Prestige are secured by US treasury notes that will mature in the future"), Jouravlev at [71] (whose recollection of what was said by Mr Hobbs at the seminars he attended is remarkably similar to that on the DVD Seminar); Koutsoukos at [74], [120], [207], [332]; Dong at [99]; Huang at [16] -[19] (and the documents she says were handed out at seminars), [20], [23], [29], [38], [103], [132]; Wood at [145], [146]); (ii)by Ms Li (in relation to Master Fund (Xu at [17], [23], [60] , [78] , [88]; Zhang at [147], [223], Huang at [155], Dong at [70]); in relation to First Secured Bond Unit Trust (Huang at [86], Zhang at [107]); in relation to Best Fund (Zhang at [150]); in relation to Super Save (Zhang at [361], Xu at [78], [88]); in relation to Pinnacle Fund (Gao at [10]); in relation to Smart Money (Zhang at [38]); in relation to Covered Strategies (Zhang at [68], [69], [105]; Huang at [103]) in relation to Solid Gold (Zhang at [38]); in relation to other funds (Huang at [9], in relation to a car club investment, in early 2003 - reminiscent of what Mr Hobbs had said more than once by way of explanation as to arbitrage in the DVD Seminar, Zhang at [10], [90], [150]; Dong at [68]; Xu at [115]; MacDonald at [11]. (iii)by Mr Collard (Hogno at [74](e); Jouravlev [10], [13], [22], [98] (the last in relation to a representation on telephone call, not at meeting]); MacDonald at [11]; Dong at [68]); (iv)by Ms Wu (Gao at [9], [37], a minimum 30% return in relation to Super Save); (v)by Mr Wood (Wood at [53] as to his practice to say at client meetings "They're at a far greater rate than bank interest. For instance, if you took them at 4% per month you'd get 48% per year which is much greater than the current interest rate with the banks", [288](b) as to his usual practice when promoting Integrity Plus - "Integrity Plus is paying returns of 4% per month best efforts. Best efforts means that it's the best it would do. But on this fund we've said that 4% will be the result all the time. So it will pay each month. After one month, your money will start working for you and after 2 months, you'll get the first return. After that, it will be monthly. You'll get 4% per month ad infinitum", at [523] as to his usual practice when speaking to clients about Super Save - "Super Save is a new fund. It's starting off. So it's probably not going to be generating as much of a return as the other fund. In fact in the memorandum it says it's returning about 3.5% but we anticipate it will grow"; Camilleri at [5], [24], [72], [90]; Mulligan at [40]); (vi)by Mr Truong (Truong at [182] as to his usual practice when promoting Integrity Plus to say "Best efforts means that it could make 4% per month, or it could make less. It's not an indication that it will make 4% all the time. The average person cannot access the wholesale market. The average person like me can only access the retail market, which is paying 6 or 8%. You can make anything like 3-4% per month best efforts in the wholesale market", [62] ,[67], [119], [298] as to his practice when promoting Super Save; Koutsoukos at [13]); (vii)by Mr Koutsoukos (Canham at [7],[14]; Mulligan at 24]). 2219ASIC also points to statements contained: * on pages 6 and 10 of the Integrity Plus Memorandum (Millington at [22], [23], [45], [47], [62], [63]; Canham at [53]; Camilleri at [84], [108]; Mulligan at [25], [26]; W Moule at [30]); * on pages 7 and 12 of the Super Save Memorandum (Mulligan at [42]; K Moule at [41]); * pages 6 and 10 of the Master Fund Memorandum (B Moore at [42]); * on pages 6, 10 and 14 of the First Secured Bond Unit Trust Memorandum (Hogno at [26] (a) and (b); Zhang at [114]; Jouravlev at [62], [63]); * on pages 6 and 10 or 13 of the Smart Money Memorandum (Zhang at [43], [45]; Lewis at [17], [18]); * on pages 6 and 10 of the Elite Premier Memorandum (Zhang at [48], [76]; Russell at [30], [33]); * on pages 6 and 10 of the Elite Premier Option Two Memorandum (Jouravlev at [102], [103]; Lewis at [17], [18]); * on pages 6, 10 and 14 of the Covered Strategies Memorandum (Hogno at [26] (a) and (b); Natasha Marciniak at [38]; Ormond-Allen at [33]; Zhang at [98], [101]; Russell at [29], [33]; Jouravlev at [62], [63]); * on pages 6 and 10 of the Best Fund Memorandum (Hogno at [26] (a) and (b); Zhang at [178], [181]. 2220ASIC also relies on what was contained in the KLM faxes (including the history of the funds, type of investment, the performance of the fund, the risk rating of the funds, contract period and the expected returns on a best efforts basis) (Hogno at [22]-[23]; Marciniak at [36], Huang at [64], Blow at [30], [32], Zhang at [34], [35], [76], [285], Russell at [23], Jouravlev at [58]-[59]; Lewis at [14], Truong at [204]. 2221As to statements from which ASIC contends the representation concerning the rates of return achieved and achievable in the offshore wholesale investment market generally and by investment in the Hobbs Scheme, and further or alternatively each of the Schemes, can be implied, reliance is placed on the evidence in support of the alleged Investor Representation as to wholesale returns ([48](h)) and for returns of 3%-4% per month ([48](i)). 2222ASIC relies, for the contention that the said representation can be implied from the Master Fund Presentation on the contents of the Master Fund Presentation and the evidence of Ms Dong at [80] that, in the period from about 2006 to 2007, copies of PowerPoint slides on the Master Fund PowerPoint were provided in presentations to potential investors conducted by Ms Li and Mr Collard at which she was present. 2223In relation to the alleged Investment Returns Representation, Mr Hobbs submits that there is no evidence that he made any representation as to the return on any particular fund. He asserts that his comments were entirely "non-specific" and he repeats the submissions made in relation to the Principal Protected Representation. 2224I accept that the evidence establishes that Mr Hobbs made frequent references to the rate of investment returns of various funds, including Prestige (Gahan at [24]), Covered Call (Wood at [145]-[146]) or Covered Strategies (Jouravlev at [71]; Huang at [16]-[19]; [29]; [38] and [103]), Integrity Plus (Koutsoukos at [207]), Solid Gold (Jouravlev at [71]) and Elite Premier (Huang at [132]). 2225These representations were either representations regarding past performance of the fund (for example, Ms Huang gives evidence at [29] that Mr Hobbs represented that Covered Strategies "did 21% last month") or representations as to the projected future performance of a fund (for example, in relation to Elite Premier, Mr Wood at [146] gives evidence that Mr Hobbs said the fund did 25% per month and "could go higher"; and Ms Huang gives evidence at [103] that Mr Hobbs made statements such as "Covered Strategies will return 4% every month"). 2226A number of witnesses also give evidence that, in addition to making specific representations regarding the performance of a particular fund, Mr Hobbs also would refer to the performance of anonymous funds that he was not allowed to name. For example, Mr Blow gives evidence (at [31]) of Mr Hobbs referring to funds which made 2-3% per month and then speaking of one that made 300% over the past few weeks, while prefacing that information with the comment that "I can't mention the funds by name". Another example is given in the evidence of Mr Koutsoukos where at [74] he describes Mr Hobbs stating to him that "[a]n exact fund like the one you're getting made 4000% last year." Although these representations did not directly relate to a particular named fund, the anonymous way in which Mr Hobbs discussed these purported funds would have facilitated the extravagant nature of the claims he made. 2227The evidence of statements as to rates of return linked to particular types of fund (and some named funds, including Mr Diaz' Express Fund) is consistent with the statements that can be heard on the DVD Seminar. 2228As to Ms Li, ASIC points evidence that Ms Li made representations as to the rate of investment returns in relation to funds including the Master Fund (Xu at [17], [23], [69], [78] and [88]; Zhang at [147] and [223]; Huang at [155]; and Dong at [70]); the First Secured Bond Unit Trust ( Huang at [86]; and Zhang at [107]); the Best Fund (Zhang at [150]); 888 (Super Save) (Xu at [78] and [88]; and Zhang at [361]); Pinnacle Fund (Gao at [10]); Smart Money (Zhang at [38]); Covered Strategies (Zhang at [68], [69] and [105]); and Solid Gold ( Zhang at [38]). 2229Although the rates of return cited varied according to the specific fund referred to, the representations were similar in the sense that they were made in an unqualified manner and expressed with certainty. For example, in relation to the Master Fund, evidence is given that Ms Li said: Back in 1999 when the financial world had a lot of trouble and people lost money, the Master Fund achieved 20%-40% return. It is very secure and very good. It is protected by the US government. The return you will receive each month from your investment in Master [sic] will be different, but your goal is to have at least 4% per month, so you'll make at least 40% per year. 2230Ms Li also made more general statements regarding funds accessible should potential clients join FTC without specific reference to a particular fund. For example, at [90] of Mr Zhang's affidavit, he gives evidence of Ms Li saying, in an early 2004 meeting, that "[t]he funds David Hobbs runs [sic] make between 2 and 5% per month". 2231As to Ms Wu, ASIC points to the evidence of Ms Gao at [9], where she gives evidence of Ms Wu representing that an investment in the '888' fund had at least 30% returns per year. Although in that same conversation Ms Wu says that "there is no guarantee", this is qualified in the context where Ms Wu also says that "it gives higher returns than normal" and that "there is no risk involved". 2232In addition to the evidence of investors in the schemes with which he was related, Mr Wood gives evidence of his own practice, noting at [53] and [288] that he made representations in relation to Integrity Plus that it would return 4% per month and at [523] that Super Save would return 3.5% per month but that this rate was anticipated to grow. 2233Mr Truong similarly gives evidence that it was his usual practice when promoting Integrity Plus to say (at [182]): Best efforts means that it could make 4% per month, or it could make less. It's not an indication that it will make 4% all the time... You can make anything like 3-4% per month best efforts in the wholesale market. 2234His evidence is also that he made similar representations about investment returns when promoting the Super Save fund (at [298]). Mr Koutsoukos also gives evidence as to representations of returns made by Mr Truong (at [13]). 2235Again, there is abundant evidence for the making of investment return representations by the various FTC executives and scheme administrators and it seems to me to be an inescapable conclusion that this was what Mr Hobbs encouraged FTC executives and introducers to do (particularly by reference to what was said at the DVD Seminar). 2236As to written statements regarding investment returns, there are numerous examples contained in the various scheme memoranda (such as for Integrity Plus, Super Save, Master Fund, First Secured Bond Unit Trust, Smart Money, Elite Premier, Elite Premier Option Two Unit Trust, Best Fund and Covered Strategies), and in KLM correspondence with various potential scheme investors. 2237In the scheme memoranda, the representations are generally in similar form (such as that in the Covered Strategies Private Placement Memorandum, under the heading 'What returns will I get', where it is said "Best efforts basis. Approximately 5% per month paid quarterly in arrears".) Where there was variation was as to the rate of return that was specified. However, in general (there being a difference with the Pinnacle Fund) the statement was in similar form and commonly there was a nominated rate (on a monthly basis) and the words "best efforts". 2238As to the statements in the KLM correspondence, an example can be found in the correspondence that was sent to Mr Jouravlev. After the list of funds, with the risk scale identifying the degree of risk associated with each fund, there are short descriptions of each of the funds on the list. In each case there is a statement as to returns. So, for example, the projected returns for the Covered Strategies fund are stated to be "5% per month. Best effort" and it is said "to date three to four month's results have been in the 10% to 20% range per month." Other funds the subject of these proceedings described in this document include Elite Premier, Elite Premier Option Two Unit Trust, Express Fund, Smart Money and Solid Gold. (Some of the fund descriptions include a note that past performance is not indicative of future returns, such as for Solid Gold, although this is not a common feature of all the descriptions for the various funds.) 2239The question is not whether statements as to returns were made (as they clearly were) but what would have been understood by the audience to whom those representations were made, bearing in mind the context in which it was made (including, that in the private scheme memoranda there was usually the "best efforts" qualification and statements as to there being "no guarantee" or as to the nature of the risk and that investors should only invest "discretionary" capital or money that they could afford to lose. I consider this below when addressing the question whether the statements were misleading or deceptive. 2240For present purposes, I simply note that there were numerous representations made to investors that they could expect to receive a rate of return on their investments (on a "best efforts" basis) of a specified amount (usually around 4% monthly) and that in each case the rate of return was much higher than the retail rate of return on onshore investments. (Mr Hobbs himself was at pains to distinguish between retail/wholesale returns at the DVD Seminar and in the February 2003 seminar attended by Mr Blow.) Whether the Investment Returns Representation was false in a material particular, materially misleading, misleading or deceptive and likely to mislead or deceive [281](c) 2241The Investment Returns Representation is said to be false in that the funds were not invested in investments that could regularly produce returns in the order of at least 3% to 4% per month for investors since: administrators did not invest 100% of the funds deposited by investors (reference being made to Ex A and Ex BG and the Scheme Spreadsheets); some of the funds were invested in the Cadent accounts in commodity futures contracts, commodity option contracts, cash commodities and related transactions, for which there was no basis to make the representation made as to returns; and, in the case of the Integrity Plus, Super Save and Master Fund, the funds invested did not in fact produce returns in the order of at least 3% to 4% per month (Ex A table 162 Master Fund return payment spreadsheet, table 163 Super Save return payment spreadsheet and table 165 Integrity Plus return payment spreadsheet). 2242I find that the representation was false and that it was materially misleading and deceptive or likely to mislead or deceive. As noted earlier, the misleading or other quality of the impugned statement must be assessed by reference to the audience to which it was made. 2243Here, the audience was one comprising friends or relatives of those promoting the investments or those to whom by word of mouth the investments had become known. There was no evidence of any public advertisement of the schemes (and the material handed out to prospective investors makes it unlikely that there was any such public advertising - given the emphasis on confidentiality in relation to the investment). It is significant, as I noted earlier, that Mr Hobbs understood the audience for his FTC education packages (and the audience to whom he was so altruistically making available the opportunities for high returns that he said the government and banks were trying to keep from them) to be the "mums and dads" - not the sophisticated investors. 2244The combination of statements made in FTC seminars and meetings as to historically high levels of returns and the "best efforts" statements in the written material issued in respect of the particular fund in which an investor was proposing to invest (coupled with the emphasis on risk in the context of a difficulty to carry out due diligence on an offshore company - which difficulty was presumably being suggested to be alleviated by the thousands of people researching matters worldwide for FTC and/or KLM and the educational material distributed by FTC) makes it likely in my view that an unsophisticated investor would be expected to focus on the upside of the investment and to discount the stated risk. That is, of course, exactly what Mr Hobbs seems to have expected (having regard to the comments made by him at the DVD Seminar). 2245The presence of a seemingly scientific "risk scale" and the references to investments being "capital protected" or fully secured would in my view also lessen the impact of the disclaimers made as to past performance not being a guarantee of future performance and cautions against investing more than one could afford to lose. (It is a moot point as to what would be understood by an unsophisticated investor as to the meaning of "discretionary capital" for example.) 2246As to the "best efforts" qualification itself, Mr Halley submits that, to the extent that it has any effect, it qualifies that the precise return of 3-4% may not be achieved every month (but that in context it represents that such a return is not only possible but in the order of magnitude of what is likely to be achieved and hence the representation is false). 2247I do not consider that the effect of the qualifications as to best efforts, or to there being no guarantee, are sufficient to remove or counteract the misleading effect of what was said. I think it is fair to say that the likely impression conveyed to an unsophisticated investor would be that it was likely that the investment would achieve a return of around 4% per month, not that the investment might make no return at all for any number of months. 2248The reaction of investors to this kind of representation is evidenced by the affidavits relied upon by ASIC in the proceedings. Ms Xu, for example, was told by Ms Li, in effect, not to worry about the disclaimer (because that was just something that the administrators had to say) and that the investment would be perfectly safe. 2249Therefore, I do not accept that the statements as to risk or the "best efforts" qualification contained in the written material (or made orally) had the effect of erasing the misleading nature of the Investment Returns Representations. * Particular Scheme Representations (i)Integrity Plus Representations 2250At [282] it is alleged that, in the period 2004 to 2007, each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and PJCB made the following representations (collectively referred to as the Integrity Plus Representations) in Australia to potential investors in Integrity Plus: (a)that the investor's funds would be traded in AA+ rated financial instruments (the Trading Representation); (b)that the capital of funds invested would be protected by US Treasuries (the Capital Protected Representation); (c)that once funds had been invested for at least 12 months, each investor would be able to redeem or withdraw the invested capital upon giving 60 days' notice (the Redemption Representation); and (d)that each investor would receive returns of approximately 4% per month on funds invested on a best efforts basis (the Returns Representation) 2251It is alleged that those representations were continuing ([283]) and that each was false in a material particular, or materially misleading or deceptive or likely to mislead or deceive. 2252By way of particulars, each representation is said to have been express and either in writing or partly in writing. The Trading Representation is the only one said only to have been in writing (contained on pages 6, 10 and 14 of the Integrity Plus Memorandum). 2253To the extent that the remaining Integrity Plus Representations are said to have been writing, the Capital Protected Representation is identified as contained on pages 10, 12 and 14 of the Integrity Plus Memorandum; the Redemption Representation on pages 7, 9 and 13 of the Integrity Plus Memorandum; and the Returns Representation on pages 6 and 10 of the Integrity Plus Memorandum. 2254In that regard, the documents clearly contain such representations. 2255To the extent that each of the representations was oral, the representation is said to have been made by each of Mr Wood, Mr Truong and Mr Koutsoukos on his own behalf and on behalf of Mr Hobbs and PJCB to potential investors in the period 2004 to 2007 at FTC Seminars and Investor Meetings. 2256The evidence on which ASIC relies for the contention that the respective Integrity Plus Representations were orally made is as follows: Capital Protected Representation (the capital of funds invested would be protected by US Treasuries) 2257This is said to have been made orally by Mr Hobbs specifically in relation to Integrity Plus (Koutsoukos at [230]) and in relation to unspecified funds (Koutsoukos at [42], [91], [118], [332], Truong at [232]); to have been made orally by Mr Wood (Camilleri at [36], [72], [90]; Wood at [53], [297]); to have been made orally by Mr Truong (Truong at [182]) and orally by Mr Koutsoukos (Canham at [7]; Mulligan at [24]). 2258ASIC contends that when made by each of Mr Wood, Mr Truong and Mr Koutsoukos, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and was also made on behalf of PJCB (on the basis that each was a director or officer of PJCB). 2259I accept that the evidence establishes that such representations were made. Redemption Representation (once funds had been invested for at least 12 months, each investor would be able to redeem or withdraw the invested capital upon giving 60 days' notice) 2260ASIC relies on the following evidence for the allegation that this was made orally by Mr Hobbs (Wood at [33]); by Mr Wood (Wood at [288](b)]); by Mr Koutsoukos (Canham at [7]). 2261Again, it is alleged that when made by each of Mr Wood, Mr Truong and Mr Koutsoukos, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and on behalf of PJCB (on the basis that each was a director or officer of PJCB). 2262Again, I accept that such representations were made (and they were in any event clearly stated in the investment agreements). I find that the representations were false. There was no evidence of any mechanism available by which funds that had been pooled for investment purposes could be redeemed on 60 days' notice after 12 months. Rather, the agreement seemed to contemplate that if no redemption notice was given then the investment would continue. That begs the question as to what would happen if some of the investors wished to withdraw funds and others did not (particularly if those funds were being traded by Cadent traders at the relevant time). Indeed the complaint made in the submissions by Mr Collard as to the losses occasioned when trading positions had to be closed in order to comply with orders for the transfer of the funds to Court, suggests that even a 60 day withdrawal notice may not have been feasible. In any event, whether or not false as a matter of what was logistically possible, the representations were clearly misleading or deceptive and likely to mislead or deceive, having regard to the fact that funds were being disbursed out of at least some of the accounts for unsecured investments (such as the moneys paid out of the Secured Bond accounts for the Master Fund). Returns Representation (each investor would receive returns of approximately 4% per month on funds invested on a best efforts basis) 2263ASIC relies on the following evidence for the allegation that this was made orally by Mr Hobbs (Koutsoukos at [74], [120], [207], [332]); by Mr Wood (Wood at [288](b)], Camilleri at [72]); by Mr Truong (Truong at [182]); and by Mr Koutsoukos (Canham at [7], Mulligan at [24]). 2264Again, it is alleged that when made by each of Mr Wood, Mr Truong and Mr Koutsoukos, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and on behalf of PJCB (on the basis that each was a director or officer of PJCB). 2265I have considered above the making of such representations as part of the consideration of the scheme representations. I find that such representations were made. For the reasons set out above, I find that they were false, misleading or deceptive in a material particular, or likely to mislead or deceive the audience of unsophisticated investors to which they were made. (ii)Super Save Representations 2266At [285] of the pleading it is alleged that in the period 2006 to 2007, each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL made the following representations (referred to collectively as the Super Save Representations) in Australia to potential investors in Super Save: (a)that the investor's funds would be invested in AA+ rated financial instruments which were presold (the Investment Representation); (b)that the investor's funds would be invested in equities, currencies, options, factoring, the secondary life insurance market, futures and registered derivatives; (c)that the investor's funds would be invested with various fund managers such as Bond's Viatical Markets, Registered Derivatives, Factoring Funds and Company Debentures, Shares/Options, Initial Public Offerings, Unit Trusts and Currency Trading; (d)the Capital Protected Representation (as earlier defined); and (e)the Redemption Representation (as earlier defined); (f)each investor would receive returns of approximately 3.5% per month on funds invested on a best efforts basis (the Super Save Returns Representation) 2267It is alleged that those representations were continuing ([286]) and that each was false in a material particular, or materially misleading or deceptive or likely to mislead or deceive ([287]). 2268By way of particulars, each representation is said to have been express and either in writing or partly in writing. Other than the Capital Protected Representation, the Redemption Representation and the Super Save Representation, the said representations are only said to have been in writing (contained on pages 16 (for the Investment Representation), 7 and 16 for the representation in (b) above and 11 for the representation in (c) above, respectively of the Super Save Memorandum. 2269To the extent that the remaining Super Save Representations are said to have been writing, the Capital Protected Representation is identified as contained on pages 9, 12, 14 and 16 of the Super Save Memorandum; the Redemption Representation on pages 8, 11 and 15 of the Super Save Memorandum; and the Super Save Returns Representation on pages 7 and 12 of the Super Save Memorandum. 2270I am satisfied that the representations alleged to have been made in writing were made (and that read in context and by reference to the audience to which they were made, they were misleading and deceptive or likely to mislead or deceive). 2271To the extent that each of those representations was said to have been partly oral, the representation is said to have been made by each of Mr Wood, Mr Truong and Mr Koutsoukos on his own behalf and on behalf of Mr Hobbs and ISL to potential investors in the period 2004 to 2007 at FTC Seminars and Investor Meetings. 2272The evidence on which ASIC relies for the contention that the respective Super Save Representations were made orally is as follows: Capital Protected Representation (the capital of funds invested would be protected by US Treasuries) 2273This is said to have been made orally by Mr Wood (Handebo at [48], Camilleri at [36]; Wood at [53], [523], [531]); to have been made orally by Mr Truong (Truong at [298]) and orally by Mr Koutsoukos (Canham at [14]). 2274ASIC contends that when made by each of Mr Wood, Mr Truong and Mr Koutsoukos, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and was also made on behalf of ISL (on the basis that each was a director or officer of ISL). Redemption Representation (once funds had been invested for at least 12 months, each investor would be able to redeem or withdraw the invested capital upon giving 60 days' notice) 2275ASIC relies on the following evidence for the allegation that this was made orally by Mr Truong (Truong at [298]); by Mr Koutsoukos (Canham at [7]). 2276It is contended that when made by each of Mr Truong and Mr Koutsoukos, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and on behalf of ISL (on the basis that each was a director or officer of ISL). Super Save Returns Representation (each investor would receive returns of approximately 3-4% per month on funds invested on a best efforts basis) 2277ASIC relies on the following evidence for the allegation that this was made orally by Mr Wood (Mr Wood at [523], Camilleri at [90], Mulligan at [40]); by Mr Truong (Truong at [298]); and by Mr Koutsoukos (Canham at [14]). 2278Again, it is alleged that when made by each of Mr Wood, Mr Truong and Mr Koutsoukos, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and on behalf of ISL (on the basis that each was a director or officer of ISL). 2279I am satisfied that the evidence establishes the making of those oral representations. (iii)Master Fund Representations 2280At [288] of the pleading, it is alleged that in the period 2003 to 2008, each of Mr Hobbs, Ms Li and Mr Collard and Secured Bond made the following representations (together, Master Fund Representations) in Australia to potential investors in Master Fund: (a)the Investment Representation; (b)the Capital Protected Representation; and (c)the Returns Representation (each as earlier defined). 2281At [290], each is said to be a continuing representation and at [291] each is said to have been false in a material particular, or materially misleading or deceptive or likely to mislead or deceive. 2282By way of particulars, each representation is said to have been express and each (other than the Investment Representation which was only in writing) to be partly in writing and partly oral. The Investment Representation is said to be contained on pages 6 and 10 of the Master Fund Memorandum. To the extent that they were in writing, the Capital Protected Representation is identified as contained on page 3 of the Master Fund power point presentation and the Returns Representation at pages 6 and 10 of the Master Fund Memorandum. 2283Again, the making of the written representations is established by the material to which I was taken. 2284To the extent that the Capital Protected Representation and Returns Representation were said to have been partly oral, the representations are said to have been made by each of Ms Li and Mr Collard on her or his own behalf and on behalf of Mr Hobbs and Secured Bond to potential investors in the period 2004 to 2007 at FTC Seminars and Investor Meetings. 2285The evidence on which ASIC relies for the contention that the respective Master Fund Representations were made orally is as follows: Capital Protected Representation (the capital of funds invested would be protected by US Treasuries) 2286This is said to have been made orally by Mr Hobbs (Dong at [85]); by Ms Li (Zhang at [147], [223]; Xu at [17], [23], [47], [60], [78], [88]; Dong at [70], [76], [98], [108]); by Mr Collard (Hogno [74](c), Dong at [68], [98]). 2287ASIC contends that when made by each of Ms Li and Mr Collard, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and when made by Mr Hobbs, Ms Li and Mr Collard, the representation was as also made on behalf of Secured Bond (on the basis that each was a director or officer of Secured Bond). Returns Representation (each investor would receive returns of approximately 4% per month on funds invested on a best efforts basis) 2288ASIC relies on the following evidence for the allegation that this was made orally by Mr Hobbs (Dong at [99]); by Ms Li (Xu at [17], [23], [60], [78], [88], Zhang at [14], [223], Huang at [155], Dong at [70]); and by Mr Collard (Hogno at [74](e)). 2289Again, it is alleged that when made by each of Ms Li and Mr Collard, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and when made by Mr Hobbs, Ms Li and Mr Collard on behalf of Secured Bond (on the basis that each was a director or officer of Secured Bond). 2290I accept that the evidence relied upon by ASIC establishes the making of the respective representations. (iv)First Secured Bond Unit Trust Representations 2291At [289] similar allegations are made in relation to the specific First Secured Bond Unit Trust Representations, namely that in the period 2003 to 2004, each of Mr Hobbs, Ms Li, Mr Collard and Secured Bond represented in Australia (the First Secured Bond Unit Trust Representations), to potential investors in First Secured Bond Unit Trust that: (a)that the investor's funds would be invested in A+ registered securities or the underwriting of those securities (the A+ Representation); and (b)the Returns Representation (as earlier defined). 2292At [290], each is said to be a continuing representation and at [291] each is said to have been false in a material particular, or materially misleading or deceptive or likely to mislead or deceive. 2293By way of particulars, each representation is said to have been express. The A+ Representation is particularised as only in writing (contained on pages 6, 8, 9, 10 and 14 of the First Secured Bond Unit Trust Memorandum) (though ASIC notes that there is evidence in Ms Huang's affidavit at [89] that "In or around October or early November 2003 Mr Hobbs said "JP Morgan Bank is involved in First Secured Bond. JP Morgan had an AAA rating, which is one of the highest you can get. This means that your investment in First Secured Bond will be very reliable and very low risk"). To the extent that the Returns Representation is identified as contained in writing it is on pages 6,10 and 14 of the First Secured Bond Unit Trust Memorandum. I accept that the written material contains those representations. 2294To the extent that the Returns Representation were said to have been partly oral, the representations are said to have been made by each of Ms Li and Mr Collard, on her and his own behalf and on behalf of Mr Hobbs and Secured Bond to potential investors in the period 2004 to 2007 at FTC Seminars and Investor Meetings. Again, I accept the evidence of the witnesses who have deposed to the making of those representations. Returns Representation (each investor would receive returns of approximately 4% per month on funds invested on a best efforts basis) 2295ASIC relies on the following evidence for the allegation that this representation was made orally by Mr Hobbs (Huang at [89], Dong (at [229])); by Ms Li (Huang at [86], Zhang at [107]); by Mr Collard (Jouravlev at [22]). 2296Again, it is alleged that when made by each of Ms Li and Mr Collard, the representation was also made on behalf of Mr Hobbs (on the basis that they were his agents) and when made by Mr Hobbs, Ms Li and Mr Collard on behalf of Secured Bond (on the basis that each was a director or officer of Secured Bond). Again, I am satisfied that the evidence establishes the making of those representations. * Specific Representations (i)Profits Representations 2297At [292], it is alleged that in the period from 4 April 2005 to 14 December 2007 each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and PJCB represented, in Australia, to investors in Integrity Plus that Integrity Plus was generating profits or sufficient profits to enable the returns each investor received by way of purported profit to be paid to them (Integrity Plus Profits Representation). 2298At [293] it is alleged that on or about each of 12 February 2007, 21 to 25 May 2007, 4 June 2007, 20, 22 and 29 August 2007, 20 September 2007 and 22 November 2007, each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL represented, in Australia, to investors in Super Save that Super Save was generating profits or sufficient profits to enable the returns each investor received by way of purported profit to be paid to them (Super Save Profits Representation). 2299At [294] a similar allegation is made in relation to the Master Fund, namely that on particular dates on or about each of 31 May 2005, 28 June 2005, 29 September 2005, 22 December 2005, 4 July 2006, 3 October 2006, 31 October 2006, 27 July 2007 and 27 August 2007, each of Mr Hobbs, Ms Li, Mr Collard and Secured Bond represented, in Australia, to investors in Master Fund that Master Fund was generating profits or sufficient profits to enable the returns each investor received by way of purported profit to be paid to them (Master Funds Profits Representation). 2300Each of the said Profits Representations is said to be a continuing representation ([295]) and to be false in a material particular, or materially misleading or deceptive or likely to mislead or deceive ([296]). 2301By way of particulars, each representation is said to have been partly express and partly implied. To the extent that it was express, it is said to be in writing, contained in that the statements or profit statements issued (in the case of Integrity Plus on a monthly and quarterly basis, and in the case of Super Save on a quarterly basis) to investors in the respective funds. 2302To the extent that the Profit Representations are said to have been implied, it is contended that they are to be implied from the payment to investors of what was described in the statements as "profit". 2303The evidence on which ASIC relies for these allegations is comprised of the various profit statements in question. I accept that the issuing of statements in which payment is described as profit amounts to a representation that would be likely to have been understood by an unsophisticated investor as meaning that the moneys being paid were being paid out of profits. In the case of the four funds identified (Integrity Plus, Super Save, Master Fund and, other than in one instance, the Enhanced Fund) the evidence establishes that this was not the case and the payments were being made out of capital not profits. (ii)Barclaywest Shareholder Representation 2304At [297], the allegation is made as to the making in 2007 and 2008 by each of Mr Hobbs, Ms Li and Mr Collard of representations (together, the Barclaywest Shareholder Representations) in Australia to potential and existing shareholders of Barclaywest that: (a)Barclaywest's involvement in projects, including a project in China, would generate profits for shareholders (this being said to be an express representation made orally at Mr Collard's house in 2007 by Ms Li on her own behalf and on behalf of Mr Hobbs and Mr Collard to potential and existing shareholders of Barclaywest - Dong at [123]). (b)Barclaywest would do a commercial bond to fund a project (again this being particularised as an express allegation made orally at Mr Collard's house in 2007 by Ms Li on her own behalf and on behalf of Mr Hobbs and Mr Collard to potential and existing shareholders of Barclaywest - Dong at [123]); and (c)Mr Hobbs would give $200 million, being proceeds from a sale of rights, to Barclaywest (again an express allegation particularised as being made by Ms Li on her own behalf and on behalf of Mr Hobbs and Mr Collard, and by Mr Hobbs on his own behalf to potential shareholders of Barclaywest in 2007 at Mr Collard's house - Xu at [113], Dong at [156]). 2305ASIC contends that the representations were made to Ms Dong, Ms Wu, Ms Zhi Jun Xu, Mr Jim Ping Qin, Mr Zhang Xian, Ms Wang Ying and Ms Yu Qiong Li (Dong at [123]) who were potential and existing shareholders of Barclaywest at that time (Dong at [112]). 2306It is contended that the representations by Ms Li were on behalf of Mr Hobbs (as a director and/or officer of Barclaywest at the relevant time) and that Mr Hobbs knew, or ought reasonably to have known, that Ms Li made the representation. 2307(Ms Dong deposes to a statement by Mr Hobbs at such a meeting in early 2007 ([143]) in which Mr Hobbs said words in English to the effect "Barclaywest is a white label fund" and at [156] to his statement that "I am selling my rights to a financial institution. The buyer will buy the rights for 200 million. This is exciting news. There is a big deal coming over. You will get this money. I will give the profit to Barclaywest" at a meeting she attended. I would conclude that Mr Hobbs, having attended various of the FTC seminars and meetings, had a reasonable expectation that statements he made would be repeated, accurately or otherwise, by the FTC executives or introducers). 2308It is further said that the representations made by Ms Li were on behalf of Mr Collard and were made in his presence (Mr Collard being a director and/or officer of Barclaywest at the relevant time). 2309I accept Ms Dong's evidence. (Although I do not rely on this to reach that conclusion, I note that a feature of the evidence of a large number of the witnesses was the extravagant statements by Mr Hobbs about profits or investments in general, which would counter the scepticism by which I might otherwise have been inclined to treat such statements.) Moreover the reference to a commercial bond transaction was being made at a time when Mr Hobbs was involved with Ms Li in the commercial bond facilitation (in respect of a considerable sum of money to be invested in Cadent). 2310I am satisfied as to the making of these representations. (As representations going to future matters, the lack of any evidence to suggest that there were reasonable grounds for the making of this representation will assist ASIC in establishing the ASIC Act contraventions against the makers of the statement - Mr Collard and Ms Li.) (iii)888 Shareholder Representations 2311At [298] it is alleged that in April 2006, each of Mr Hobbs, Ms Li and Mr Collard represented to a potential shareholder of 888 Vanuatu, that an amount in the order of $207 million would be invested and would generate returns in the order of 100% every 10 days, 50% of which would be paid to 888 Vanuatu (888 Shareholder Representation). The 888 Shareholder Representation is particularised as being express and made orally by Mr Collard on his own behalf and on behalf of Mr Hobbs and Ms Li, to a potential shareholder of 888 Vanuatu in April 2006 at the offices of Advest Consulting Group Pty Ltd. The evidence on which ASIC relies for this is that of MacDonald at [18], [19]. (Mr MacDonald was not cross-examined on his affidavit.) 2312ASIC contends that Mr Collard made the representation on behalf of Mr Hobbs since Mr Hobbs was a director and/or officer of Barclaywest at the relevant time and contends that it can be inferred that Mr Hobbs knew, or ought reasonably to have known, that Mr Collard made the representation by reason of statements made by Mr Collard as to Mr Hobbs' involvement and from subsequent representations by Mr Hobbs as to his involvement in the scheme (MacDonald at [30], [32]) 2313It is contended that Mr Collard made the representation on behalf of Ms Li as Ms Li was a director and/or officer of Barclaywest at the relevant time and that it can be inferred that Ms Li knew, or ought reasonably to have known, that Mr Collard made the representation on the basis of statements as to Ms Li's involvement and her subsequent involvement (MacDonald [22], [29], [32], [44]). 2314There is no basis not to accept Mr MacDonald's evidence (and it seems consistent with the general manner in which promises were made to potential investors, including the Barclaywest Representations referred to above. I find this allegation also to be established. I find that there was no reasonable basis for this representation. (As a representation of a future matter, the evidentiary onus assists ASIC in establishing the contraventions of the ASIC Act by the makers of this representation - Mr Collard and Ms Li.) * Findings on the representation issues 2315I have made findings on the representation issues in the course of answering the issues above, but so that there is no doubt I confirm that I make the following findings: (i)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and PJCB made the Trading Representation (as alleged in [282(a)] and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [284](a)); (ii)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and PJCB made the Capital Protected Representation (as alleged in [282](b)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [284](b)); (iii)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and PJCB made the Redemption Representation (as alleged in [282](c)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive [284(c)]);. (iv)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and PJCB made the Returns Representation (as alleged in [282](d)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [284](d)); (v)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL made the Investment Representation ((as alleged in [285](a)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive ([287](a)); (vi)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL made the Specific Instruments Representation (as alleged in ([285](b)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [287](b)); (vii)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL made the Fund Managers Representation (as alleged in [285](c)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [287](c)); (viii)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL made the Capital Protected Representation (as alleged in [285](d)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [287](d)); (ix)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL made the Redemption Representation (as alleged in [285](e)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [287](e)); (x)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL made the Super Save Returns Representation (as alleged in [285](f) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [287](f)); (xi)that each of Mr Hobbs, Ms Li, Mr Collard and Secured Bond made the Investment Representation (as alleged in [288](a)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [291](a)); (xii)that each of Mr Hobbs, Ms Li, Mr Collard and Secured Bond made the Capital Protected Representation (as alleged in [288](b)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [291](b)); (xiii) that each of Mr Hobbs, Ms Li, Mr Collard and Secured Bond made the Returns Representation (as alleged in [288](c)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [291](c)); (xiv)that each of Mr Hobbs, Ms Li, Mr Collard and Secured Bond made the A+ Representation (as alleged in [289](a)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [291](d)); (xv)that each of Mr Hobbs, Ms Li, Mr Collard and Secured Bond made the Returns Representation (as alleged in [289](b)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [291](e)); (xvi)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and PJCB made the Integrity Plus Profits Representation (as alleged in [292]) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [296](a)); (xvii)that each of Mr Hobbs, Mr Wood, Mr Truong, Mr Koutsoukos and ISL made the Super Save Profits Representation (as alleged in [293]) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [296](b)); (xviii)that each of Mr Hobbs, Ms Li, Mr Collard and Secured Bond made the Master Fund Profits Representation (as alleged in [294]) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [296](c)); (xix)that each of Mr Hobbs, Ms Li and Mr Collard made the Barclaywest Profits Representation (as alleged in [297](a)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [300](a) and [300](b)(i)); (xx)that each of Mr Hobbs, Ms Li and Mr Collard made the Commercial Bond Representation (as alleged in [297](b)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [300](b)(ii)); (xxi)that each of Mr Hobbs, Ms Li and Mr Collard made the Barclaywest $200 million Representation (as alleged in [297](c)) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [300](b)(iii)); and (xxii)that each of Mr Hobbs, Ms Li and Mr Collard made the 888 Shareholder Representation (as alleged in [298]) and that it was false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive (as alleged in [300](b)(iv)). Direct contraventions Section 601ED(5) of the Corporations Act contraventions - operation of an unregistered managed investment scheme in Australia - Mr Hobbs - [408]); Mr Collard - [383A]; FTC - [305]-[306]; PJCB - [315]-[316]; ISL - [325]-[326] 2316There is no doubt that, if viewed (as I so find them to be) as a collective scheme, the individual schemes together constituted a managed investment scheme that was required to be registered. There were more than 20 members of the schemes as a whole and the exception in sub-section 601ED(2) does not apply (on the basis that there was an obligation to provide a product disclosure statement in respect of the issue of units in either the Hobbs financial product or the overall Hobbs scheme). 2317In Chase Capital at 789, Owen J considered whether a series of syndicated investments (utilising moneys that had been obtained from various investors and pooled together) constituted a "managed investments scheme" under the Corporations Law. Two of the relevant respondents were companies registered or incorporated in the Turks and Caicos Islands (neither being registered as a foreign company in Australia). Other respondents were the controller and/or directors of one or more of the entities involved in the alleged scheme. 2318The facts of that case have obvious parallels to the present. As described by his Honour at [4]-[5]: A business name "The Manhattan Club" was registered on 11 January 1999. The nature of its business is described as "investment information service". Various persons or entities have, from time to time, carried on business under that name. ... ...[as to the evidence of the background to the investment activities, his Honour noted that] It seems that out of the activities of the Manhattan Club there emerged another group called the Chase Investment Club. It is not easy to ascertain from the materials the exact relationship between the Manhattan Club and the Chase Investment Club. I will refer to the groups globally as "the Club". The idea for the Club came about after discussions following addresses Hicks made to groups of people on subjects relating to tax minimisation and wealth creation. This led to a group comprised of members who paid subscriptions in return for educational videos, compact discs, books and presentations from individuals in the finance industry. In an advertising brochure for the Manhattan Club it is said that the Club "educates and assists its subscribers in financial literacy". It held fortnightly seminars and distributed a monthly newsletter. ... (my emphasis) 2319Owen J said from [63]: Counsel for the respondents submitted that here the money was paid by investors to the various corporate entities as managers "as a conduit" to the ultimate investments. Chase and Leadenhall were never in a position "to give consideration" for anything. Rather, they were trustees or agents to invest the money as requested by the investors. I do not accept this submission. It seems to me that relevant part of the definition focuses on the acquisition of benefits from the "scheme", not from the manager. The "scheme" is the entire operation. It starts with "the club". It then involves the generation of ideas or proposals for individual investments that are communicated to members of the club either orally at meetings, or by newsletters or the posting of invitations to participate. It then involves the investors, the manager, the ultimate recipient of the investment funds and the flow of moneys to, from and between those various persons or entities. Take AET as an example. AET is referred to in the newsletter "Millionaires' Corner" for December 1999, January 2000 and February 2000. The application form indicates that moneys are to be paid "for a syndicated investment security [to] be held by [CCML] on behalf of the investor". CCML is to manage the investment. It envisages that profits will be earned and that, subject to CCML deducting an administration fee, those profits will be distributed back to the investor. This, it seems to me, constitutes the acquisition by the investor of rights, namely a sharing of profits, from the scheme. The fact that the money is paid by the investor to a trustee or agent to be passed through to the entity that is (hopefully) to generate the profit is not to the point. It is a payment as part of the overall scheme and it is consideration for the acquisition of rights or benefits in the scheme. I was referred to the judgment of the court in Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd (2000) 35 ACSR 620. At [6] of that judgment I find support for the proposition that the generation and earning of profits from the investment and the distribution of those profits to the investor is a relevant benefit produced by the scheme, which benefit has been acquired by the investor. (my emphasis) 2320(Pausing there, Mr Halley submits, with considerable force, that it is inconceivable that had Mr Hartnell been apprised of the full circumstances of the manner in which investment in the offshore schemes was occurring or was to occur he would have given the advice he did in relation to the second part of the advice in 2002, having regard to what had been said in Chase Capital. At the very least, assuming (as I would expect of a senior practitioner experienced in this area such as Mr Hartnell) that the legal adviser was aware of the above decision, one would have expected that any advice as to the legality of the sale of financial subscriptions (in circumstances where it was contemplated that subscribers would then have the opportunity to gain access to offshore investment opportunities) would have been suitably qualified to take into account the possibility that the financial education seminars were part of an overall scheme for such investment (as I find was the case here).) 2321I find that each of Mr Hobbs, Mr Collard, FTC, PJCB and ISL was directly involved in the operation of the Hobbs scheme within the jurisdiction and thereby breached s 601ED(5) of the Corporations Act by operating an unregistered managed investment scheme (the Hobbs Scheme) within the jurisdiction. The fact that investment was in the name of an offshore incorporated IBC does not assist in bringing the scheme outside the reach of s 601ED. The provision of information about the individual funds in which investors could invest occurred within this jurisdiction; the making of the offer (in the sense of the provision of an indication that an application for investment would be accepted) was made in this jurisdiction (and offers were solicited in seminars and meetings within this jurisdiction, particularly in relation to the Li/Collard schemes); and unit certificates and confirmatory letters were issued and payment of returns made in this jurisdiction. The offshore component of the scheme (though not a sham in my view) was a deliberate (but unsuccessful) attempt to remove the investments from regulatory overview or supervision. 2322Had I not found that there was a collective scheme, then the obligation to register the individual managed investment schemes would apply only to Integrity Plus and Super Save because of the application of the exemption to the requirement for the giving of a product disclosure statement under s 1012E for those smaller schemes. (ASIC concedes that if the smaller schemes are found to be individual schemes then, by reason of s 1012E, there would not be a requirement to give a product disclosure statement). Section 911A Corporations Act contraventions - carrying on an unlicensed financial services business in Australia - Mr Hobbs - [409]-[412]; Mr Collard - [380]-[383]; Ms Wu [380]-[383]; FTC - [301]-[304]; PJCB - [309]-[314]; ISL - [319]-[324]; ISPL - [329]-[334]; Secured Bond - [372]-[377]; Barclaywest - [435]-[436]; 888 Vanuatu - [452]-[453] Geneva Financial - [443]-[444]; Preserved Investments - [441]-[442]; GP Global [439]-[440]; North Wave [437]-[438]; 2323In accordance with the findings I have made above as to the promotion of the financial product referred to as the Hobbs financial product and the operation of the Hobbs scheme, I find that each of Mr Hobbs, Mr Collard, Ms Wu, FTC, PJCB, ISL, ISPL, Secured Bond, Barclaywest, 888 Vanuatu, Geneva Financial, Preserved Investments, GP Global and North Wave contravened s 911A of the Corporations Act by reason of the provision of financial services within this jurisdiction without a financial services licence. Section 1041E Corporations Act contraventions - making statements or disseminating information that was false or misleading - Mr Hobbs - [413](a], [414](a]; Mr Collard - [384](a); FTC - [307](a), [308](a); PJCB - [317](a); [318](a)); ISL - [327](a); [328](a); Secured Bond - [378](a); [379](a) 2324Having regard to the findings made above as to the making of the respective representations identified above (and the false or misleading and deceptive nature of each of those representations, ie that they were false and that there was a real and not remote chance that they would mislead the particular audience to which they were directed) I find that each of Mr Hobbs, Mr Collard, FTC, PJCB, ISL and Secured Bond, contravened s 1041E of the Corporations Act by making statements that were, or disseminating information that was, false or misleading. Section 1041G Corporations Act contraventions - engaging in dishonest conduct in relation to a financial product or service - Mr Hobbs - [413](b], [414](a); Mr Collard - [384](c); [386](a); FTC - [307](b), [308](a); PJCB - [317](b); [318](a); ISL - [327](b); [328](a); Secured Bond - [378](b); [379](a) 2325The substance of the conduct relied upon for this category of contravention is the same as considered above. There is no doubt that the respective representations were made in relation to a financial product or service. As to the question whether the conduct was dishonest on the part of each of the representors, I note that dishonesty is to be tested by the conduct expected according to the standards of honesty of ordinary people. 2326In relation to the Lawful Investment Representation, it is submitted that it can be inferred that Mr Hobbs either did not care whether the Lawful Investment Representation was true or false, or knew or ought reasonably to have known that it was false in a material particular or was materially misleading in circumstances where: as a matter of fact, the representation was false; Mr Hobbs, in his role at FTC (having responsibility for matters concerning the regulatory requirements of FTC in respect of its business and operations to the extent such occurred within Australia) knew that the Hartnell advice was based on assumptions inconsistent with the way that FTC and investment in the schemes occurred in practice and knew that neither FTC nor any of the schemes was appropriately registered where FTC was carrying on business in Australia and the schemes were operating in Australia, and given his role as a (shadow) director of the corporate administrators of each of the schemes. 2327As to Mr Collard, it is submitted that, given his role as a (de facto) director or officer of the relevant corporate administrators, he ought to have known whether the Lawful Investment Representation was true when it was made by him and others including Mr Hobbs, and therefore it can be inferred that Mr Collard either did not care whether the Lawful Investment Representation was true or false, or that he knew or ought reasonably to have known that it was false in a material particular or was materially misleading. 2328Mr Halley submits that to embark on a scheme which ultimately led to very significant sums of money being invested in reliance on a legal advice that proceeded on a false premise is entirely unreasonable (and that reliance on that advice in the context of representations to potential investors as to the lawfulness of the investments was consistent only with an absence of good faith and with Mr Hobbs acting dishonestly for the purposes of s 1041G of the Corporations Act). In this regard, Mr Halley points to the fact that the representations made to investors as to the lawfulness of the investments were made in the context that investors became aware of these investment opportunities through word of mouth, not through recognised financial institutions, and might be expected to ask questions as to the legality of such an investment. (Hence ASIC contends that the Lawful Investment Representation issue is at the heart of what is alleged to have been the misleading and deceptive conduct, the making of false statements and the dishonesty by Mr Hobbs.) 2329In relation to the Principal Protected Representation, it is submitted that it can be inferred that Mr Hobbs either did not care whether the Principal Protected Representation was true or false, or he knew or ought reasonably to have known that it was false in a material particular or was materially misleading in circumstances where: as a matter of fact, the representation was false; Mr Hobbs knew the type of investments made using the funds invested in each of the Schemes, including the type of derivatives trading carried out in the Cadent Accounts, the extent to which that trading was leveraged to permit further speculative trading, the possibility of large losses resulting from the trading and the fact that the cash and US Treasuries credited to the Cadent Accounts were a margin or deposit for the derivatives trading and were therefore at risk at all material times, and knew none of the investments were secured; and given his role as a (shadow) director of the corporate administrators of each of the schemes. 2330As to Mr Collard, again it is submitted that, given his role as a (de facto) director or officer of the relevant corporate administrators, he ought to have known whether the Principal Protected Representation was true when it was made by him and others, including Mr Hobbs, and so it can be inferred that Mr Collard either did not care whether the Principal Protected Representation was true or false, or that he knew or ought reasonably to have known that it was false in a material particular or was materially misleading. 2331In relation to the Investment Returns Representation, it is submitted that it can be inferred that Mr Hobbs either did not care whether the Investment Returns Representation was true or false, or he knew or ought reasonably to have known that it was false in a material particular or was materially misleading in circumstances where: as a matter of fact, the representation was false, and Mr Hobbs knew that returns of 3-4% per month, every month, were not realistic, whether on a best efforts basis or otherwise, and understood that the "best efforts" qualification meant "whatever" (namely, that the returns could realistically be anything from positive to negative in reality), and given his role as a (shadow) director of the corporate administrators of each of the Schemes. 2332Again, as to Mr Collard, it is submitted that given his role as a (de facto) director or officer of the relevant corporate administrators, he ought to have known whether the Investment Returns Representation was true when it was made by him and others including Mr Hobbs, and so it can be inferred that Mr Collard either did not care whether the Investment Returns Representation was true or false, or that he knew or ought reasonably to have known that it was false in a material particular or was materially misleading. 2333As to the representation in relation to returns, it is noted that Mr Hobbs in cross-examination admitted that it was not possible to provide returns to investors consistently of 3-4% per month (T1252.49-1253.13) and that the qualification in the Private Placement Memoranda by reference to "best efforts" or "best endeavours" is meaningless (particularly having regard to Mr Hobbs' opinion that "best efforts" means "whatever" (T1253.36-44) such that a best efforts representation would mean that the return could be anywhere from positive to negative. At least some of the scheme administrators gave evidence that they were told to pay no more than the 3 or 4% monthly figure. 2334The evidence of Mr Hobbs from T 1252 line 49 makes it clear that he knew not only that any representation as to a fixed return would be false (as does his explanation on the DVD Seminar of the difference between retail and wholesale returns) but also that there would be no reasonable expectation as to whether from time to time a monthly return of the kind indicated in the scheme memoranda would be likely: Q. Would you agree, Mr Hobbs, that it was not possible to obtain a return of 4% per month in the futures market on any regular basis? A. It wouldn't be possible to do it month after month after month, no. Q. I want to be quite clear what I'm putting to you: Would you agree it was not possible to obtain a return of 4% or more per month in the futures market on any regular basis? A. No. I said I don't believe that to be. Q. So it is not the case it is 4% exactly. It is the case that the figure of 4% per month, in terms of return, you regard as excessive if one was to represent that that was to be obtained on the investment in the futures market? A. It's not just percentage. I don't know a trader in the world who would make a profit every 30 days. You couldn't do it. They would have losses at different times. Q. I'll put it slightly differently, Mr Hobbs. Would you agree it was not possible to obtain a return of 48% or more per annum in the futures market from year to year? A. Well, that, I don't particularly agree with because in the years that the markets were very buoyant, you could make very good returns regularly. But in the years of 2002, three, onwards, I don't believe that would be possible. Q. So what do you consider to be a reasonable estimate of what one could expect to earn by way of return on an investment in the futures market in the period 2002 onwards? A. I'd have to look at the traders' returns, but I couldn't tell you. Q. But you didn't have any hesitation in passing on to people estimates, knowledge of returns that had been made, investing in funds in 2003, 2003; did you? A. I don't agree with what I have heard and read in affidavits. Q. By that you mean to suggest that when people have in an affidavit represented the figures that you were suggesting, you don't accept that those figures were figures that you mentioned in discussions with them; is that your evidence? A. Correct. I mean, you could talk about best efforts but best efforts means whatever. Q. Sorry, what does it mean; "whatever"? A. You could go anywhere from negative to a positive. Q. So if one was to say best efforts, 4%, that could mean whatever; is that what you're saying? A. Well, it would be unlikely to be anything past that. (my emphasis) 2335It was suggested by Mr Halley to Mr Hobbs (and I consider this to be self-evident, though Mr Hobbs did not accept the premise on which it was based) that the monthly return would be particularly unlikely to be anything past 4% if the relevant FTC executive or introducers had been told that they were entitled to keep anything above 4% (and I note the evidence in that regard from the J&B Financial officers as to the percentage that they could keep out of the profits or so-called profits of the fund). 2336As to the submission that Mr Hobbs knew or ought to have reasonably known that profits were being paid out of capital not returns, reliance is placed on the evidence of each of Mr Wood, Mr Truong and Mr Koutsoukos of various conversations with Mr Hobbs (starting from about June 2005 when Mr Koutsoukos says he told them to start paying returns even though no funds had been transferred from Mr Caffray's account to the PJCB Technocash account ([473]), following which they queried Mr Hobbs as to whether there were sufficient returns to pay investors and/or raised concerns as to a "hole" in the fund; and conversations towards the end of 2005 as to them running out of money because they were paying money for returns out of the fund where it is said that Mr Hobbs told them to keep paying out and either that he would fix it up or that the returns were there (Koutsoukos [473], [479], [482]. [486], [488] (on which he was not challenged in cross-examination), Wood [428], [435] on which he was challenged in cross-examination and [457], Truong [246] on which he was not challenged); and to their practice of querying Mr Hobbs regularly in relation to the returns (Wood [376], [378], [428]). 2337Mr Koutsoukos deposes to a conversation in late 2005 (on which Mr Clarke notes he was not challenged in cross-examination) when he asked Mr Hobbs if they were running a "pyramid scheme" and he says that Mr Hobbs said that once they had issued a certificate of units to the investor they could do what they wanted with the invested money as long as they had enough assets to pay them back (Koutsoukos [605]). 2338Significantly, in evidence that was not challenged in cross-examination, Mr Koutsoukos deposes that some time between June and October 2007 Mr Hobbs directed the three of them to vary the 4% rate of return because the consistent payment of 4% would look to ASIC to be a Ponzi scheme ([1163]) and that thereafter they varied the percentage paid out to investors. 2339Reliance is also placed on the evidence of Mr Koutsoukos that in about mid-October 2007 Mr Hobbs told them that they had to get money into Integrity Plus quickly because there had been a "draw down" in the Integrity Plus account (Koutsoukos [1124]) (also not challenged in cross-examination) and directed them to transfer $1 million into Upton Ltd. Further, Mr Koutsoukos deposes to a conversation with Mr Hobbs on about 13 December 2007 (after ASIC had served freezing orders in respect of the Integrity Plus account) in which Mr Koutsoukos says he suggested that they return the money to the Australian investors and re-build the business in Europe, to which he says Mr Hobbs responded that it was not that simple to get the money and that it was "all over the place" (Koutsoukos [1197], again not challenged in cross-examination). 2340In relation to Mr Hobbs and FTC (which is the alter ego of Mr Hobbs), I consider that their conduct in making each of the representations was dishonest. (Ironically, Mr Hobbs himself suggested that the conduct of the schemes run by the J&B Financial officers was dishonest when accusing those officers of fraud in relation to the Ponzi aspect of the schemes - the irony being that (as I have found) they were following his instructions in relation to the payment out of returns in respect of the schemes they administered.) 2341In relation to the corporate administrators (Secured Bond on the one hand and PJCB/ISL on the other hand), the basis on which their honesty is to be tested can only be by reference to the conduct of the officers or agents carried out on their behalf. I consider that having regard what Mr Collard must have known as to the operation of the investment schemes his conduct at the relevant time was dishonest (as was the conduct of the J&B Financial officers). True it is that they may have relied on information from Mr Hobbs as to matters such as the lawfulness of the investment process, but they were clearly on notice of the disbursement of investor funds otherwise than in accordance with the private placement memoranda and they made or participated in the making of representations as to the nature of the fund investments, the protection of capital invested in the schemes and the expected rates of return, at times when there can have been no reasonable basis for them to consider that these were correct. 2342I find that each of Mr Hobbs, FTC, Mr Collard, Secured Bond, PJCB and ISL contravened s 1041G of the Corporations Act by engaging in dishonest conduct in relation to a financial product or service. Section 1041H Corporations Act contraventions - misleading or deceptive conduct in relation to a financial product or a financial service -Mr Hobbs - [413](c); [414](a); Mr Collard - [385](d); [386](a); Ms Wu - [385](a); [386](a); FTC - Act [307](c), [308](a); PJCB - [317](c); [318](a); ISL - [327](c); [328](a); Secured Bond - [378](c); [379](a) 2343On the basis of the findings made earlier, I find that each of Mr Hobbs, Mr Collard, Ms Wu, FTC, PJCB, ISL and Secured Bond breached s 1041H of the Corporations Act by engaging in misleading or deceptive conduct in relation to a financial product or a financial service. Section 12DA ASIC Act contraventions - engaging in misleading or deceptive conduct in relation to financial services - Mr Hobbs - [413](d); [414](b); Mr Collard - [385](e); [386](b); Ms Wu - [385](b); [386](b); FTC - [307](d); [308](b); PJCB - [317](d); [318](b); [327](d); [328](b); Secured Bond - [378](d); [379](b) 2344Again on the basis of the earlier findings, I find that each of Mr Hobbs, Mr Collard, Ms Wu, FTC, PJCB, ISL and Secured Bond contravened s12DA of the ASIC Act by engaging in misleading or deceptive conduct in relation to financial services. Section 12DB ASIC Act contraventions - falsely representing that financial services were of a particular standard - Mr Hobbs- [413](e); [414](b); Mr Collard - [384](f); [386](b); FTC - [307](e); [308](b); PJCB - [317](e); [318](b); [327](e); [328](b); Secured Bond - [378](e); [379](b) 2345I find that each of Mr Hobbs, Mr Collard, FTC, PJCB, ISL, and Secured Bond contravened s 12DB ASIC Act by falsely representing that financial services were of a particular standard. The representations made to investors were that the investments would be in particular types of investment and would have a particular rating and/or would be capital or principal protected. Those representations were false. Section 12DF ASIC Act contraventions - misleading the public as to the characteristics or suitability for purpose of financial services - Mr Hobbs - [413](f); [414](b); Mr Collard - [384](g); [386](b); FTC - [307](f); [308](b); PJCB -[317](f); [318](b); [327](f); [328](b); Secured Bond - Act [378](f); [379](b) 2346I find that each of Mr Hobbs, Mr Collard, FTC, PJCB, ISL, Secured Bond contravened s 12DF ASIC Act by misleading the public as to the characteristics or suitability for purpose of financial services. Again, representations were made as to the characteristics and suitability of the investment funds. The effect of those was not erased by general statements as to the "discretionary" nature of capital to be invested therein or generalised warnings as to the lack of a guarantee of performance or that investors should only invest if they could afford to lose their funds. Breach of directors' or other duties 2347A series of contraventions is alleged against the individual defendants of breaches of directors' and or officers' duties owed to the various corporations, some of those depending on a finding of contraventions by the companies of which they were directors or officers (the s 180 and s 181 contraventions) and others not so dependent (the s 182 contraventions). The s 180 and s 181 contraventions (like the s 911A contravention) are contraventions of civil penalty provisions. 2348As to the s 180 and s 181 contraventions, I have referred (much earlier) in these reasons to the authorities in which it has been said that a director may breach his or her duties to the corporation by placing it in a position (or permitting it to act) where it is in contravention of statutory provisions. 2349In the present case, it seems to me that a fundamental requirement for a company carrying on the operation of an investment scheme such as those the subject of the present proceedings would be to ensure that the company and any relevant officers held the appropriate licences and took the appropriate steps to ensure that the company was lawfully conducting business in the jurisdiction (particularly where that was the sole business of the company and the reason for its incorporation). In those circumstances, it seems to me that there is a clear breach of directors' duties in taking steps that put the company in jeopardy of prosecution for breach of ss 911A and s 601ED of the Corporations Act. 2350As to the remaining statutory breaches (by reference to the misrepresentation contraventions), the question whether or not a director had breached the duty of good faith contained in s 181(1) of the Corporations Act by causing or permitting the company to make misleading and deceptive statements in contravention of the Corporations Act and the ASIC Act has been considered in ASIC v PFS Business Development Group Pty Ltd [2006] VSC 192; ASIC v Maxwell [2006] NSWSC 1052; ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224 (to which I have made reference earlier). 2351In ASIC v Maxwell, Brereton J found that there was not a breach of s 181 by the director of a company that had made misleading and deceptive statements. There, unlike the present case, the director was not found to have made, caused to be made or been involved (within the meaning of s 79 of the Corporations Act) in the making of the alleged misleading and deceptive statements. 2352In both PFS and Sydney Investment House Equities, misleading and deceptive conduct did amount to a breach by the relevant director of s 181(1). So, for example, in Sydney Investment House Equities, Hamilton J found certain representations contained in memoranda and prospectuses provided by the company were misleading and deceptive within the meaning of s 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act and that the conduct of the director "in causing or permitting" the company to issue to misrepresentations therefore exposing the company to potential civil remedies and criminal sanction under the respective Acts had breached ss 180 and 181 in relation to each misrepresentation. His Honour's reasoning seemed to be on basis that these were "indirect breaches" of the director's duties (his Honour citing Brereton J in ASIC v Maxwell). His Honour said (at [49]) that "causing a company to engage in a course of conduct that breaches the law may involve on the part of the director a failure to exercise reasonable care and skill and a failure to act in the best interests of the company within the meaning of s 181". 2353In PFS, however, a distinction was drawn between actual dishonesty and negligent conduct. Hargrave J found that, with respect to misleading and deceptive conduct, one of the directors had acted with actual dishonesty, thereby contravening ss 12DA and 12DB of the ASIC Act and s 1041H of the Corporations Act (see [365]), as a consequence of which that director had acted in bad faith and in contravention of s 181(1) (at [383]). In contrast to the position of that director, Hargrave J held that another director who had made misrepresentations in contravention of the relevant provisions nevertheless did not contravene s 181 (at [385]) as his conduct "should be viewed as gross negligence, rather than as a lack of good faith on his part". Hargrave J inferred that the director in question "was simply complying with directions from [the dishonest director] in circumstances where, as I have said, he had no real appreciation of his duties as a director". 2354In the present case, the s 181(1) good faith contraventions are pressed against each of Mr Hobbs, Mr Collard and Ms Li, and the J&B Financial officers. In each case the individuals were directly involved in the making of the relevant misrepresentations and, in the case of those other than Mr Hobbs, although I consider that they were following the general instructions (and example) of Mr Hobbs in what they said to investors, I am not persuaded that this is a case where they could be said to have simply acted as a conduit or following directions without being in a position where one would expect them to have understood that the making of misrepresentations of the kind alleged in relation to the investment products could well expose the companies in whose name the schemes were operated to exposure. 2355Therefore, in considering the liability of the said individuals for contraventions of their duties of good faith by reference to the s 1041E, s 1041H and s 1041G Corporations Act contraventions and the s 12DA, s 12DB and s 12DF ASIC Act contraventions, I consider that this case is more analogous to the scenario considered with the dishonest director in PFS and the director held to have contravened s 181(1) in Sydney Investment House Equities than with the position in Maxwell. 2356Here, the persons who is it is said breached obligations of good faith in exposing the companies to liability (or permitting or causing the relevant misrepresentation contraventions) were the very individuals who promoted the investment schemes by the making of statements as to matters that, from their involvement in the operation of the schemes, they must have been aware were inconsistent with the way in which the schemes were in fact operating. Mr Collard, in particular, was privy to various arrangements such as the authorisation of the additional round turn commissions and directions for payment of moneys out of Secured Bond to entities associated with or on the direction of Mr Hobbs that should have caused a reasonable person to question the basis on which those steps were taking place and as to whether it was in the best interests of Secured Bond for those steps to be taken. 2357As to the s 182 contraventions, before addressing the particular breaches alleged, I note that Mr and Mrs Hobbs had prepared a summary document, relied upon as an aide-memoire, from which payments recorded in Schedule B to the pleadings had been extracted and by reference to which it was submitted that Mr Hobbs had received nothing (or very little) out of the respective funds. 2358In reply submissions, in relation to the document headed "Summary Money Flow" listing payments referable to the Integrity Plus and Super Save, Mr Halley noted that the payments extracted in the Hobbs' reconstruction (relating to parties other than Mr Hobbs) were payments that ASIC itself contends were made. However, it was submitted that overall the summary presented a misleading picture. Mr Halley noted that the Money Flow document did not record the transmission of funds from Integrity Plus to Destiny Holdings and ultimately to Fletcher Vautier Moore (which were used for the purchase of Echodale Place) in the aggregate sum of around NZ$444,000 on 25 October 2007 and did not record the $200,000 payment from J&B Financial to Magny-Cours for the sale of the white label fund. (The status of those payments is a matter in dispute.) 2359As to the first of the amounts that Mr Halley submits have been omitted from the schedule, emphasis was placed on the fact that Mr Nicholas Moore (the partner at Fletcher Vautier Moore who acted in relation to the purchase) was not cross-examined and had given evidence as to the receipt of those moneys. (In this regard, as I have earlier noted, there is some inconsistency between the evidence of Mr Moore as to what occurred at the time of the transaction - particularly, in relation to the draft loan agreement that had been submitted to him - and Mr Bellamy, his employed solicitor, when subsequently writing on Mr Hobbs' behalf to the liquidator in relation to that payment.) As to the second of the payments said to have been omitted from the reconstruction, Mr Hobbs maintained in cross-examination that this was a payment made to KLM but directed to be paid to Magny-Cours account by Mr Chen. 2360Whatever the status of the alleged loan in respect of the purchase of the Echodale Place property, I cannot accept that the payment into Magny-Cours' account was other than a payment for Mr Hobbs' own benefit. Mr Halley contends (and I accept) that the submission that Mr Hobbs received nothing from Integrity Plus and Super Save is demonstrated to be incorrect by reference to that payment (and makes a similar submission in relation to the Echodale Place payment). 2361As to the payments out of the Master Fund scheme, ASIC prepared a further summary for use as an aide-memoire of the payments (and handed up copies of the supporting documents noting that each was already in evidence) in order to address the submission made by Mr Hobbs that the payments made through Master Fund were linked solely to moneys from Global Funerals. The schedule recorded both the investment of capital into the Master Fund scheme as well as the outgoing payments around that time and the deposits received from Global Funeral Services. 2362ASIC accepts that certain of the amounts received in relation to Global Funerals did not represent an investment in Master Fund and have nothing to do with the operation of the investment schemes the subject of these proceedings. (So, for example, where reference was made in Mr Hobbs' summary to the sum of $249,278.79 on 7 July 2006 as an investment of capital, ASIC accepts that there is a bank record that evidences the deposit from Global Funeral Services of that amount (recorded as having been received from Global Funeral Services; the payer being Bi Hong Dong and the relevant IBC as First Zurich Financial Ltd) and ASIC accepts that this relates to introducing fees of Mr Hobbs (which in aggregate amounted to $253,675.55) (not being moneys included in the case that ASIC seeks to make.) 2363However, what ASIC does argue is that the records demonstrate that the $249,278.79 deposit was pooled with other funds and that pooled amount was then transferred by the administrators of Master Fund to Cadent on 11 July 2006. Accordingly, it is submitted that when those funds were transferred they were no longer the individual funds of the investor but were scheme funds (unless and until there was a redemption of units in the scheme). The Master Fund scheme spreadsheet records a wire transfer to Cadent of $266,722.50 on 11 July 2006. 2364Significantly, there is in evidence a copy of a Master Fund agreement between First Zurich Financial Ltd (presumably the FZF Vanuatu company is unclear) and Secured Bond Limited dated 15 July 2006, recording the amount of the investment by FZF as $249,227 (almost exactly the amount of the deposit of $249,278.79). Ms Dong signed that document for FZF and Mr Collard signed for Secured Bond by Mr Collard (his signature being witnessed by Ms Li). 2365(Ms Dong's evidence (at [280] of her affidavit) was that she had not prepared (and had not in the relevant period seen) the spreadsheet at tab 45 of the exhibits to her affidavit that purported to record a series of deposits and withdrawals (and she was not aware of the transactions or the source of any of these funds). 2366Mr Halley notes that the contemporaneous scheme and bank records therefore show the sum received from or referable to the Global Funerals account being treated as a deposit by First Zurich Financial Ltd for the purposes of a pooled investment of that amount with other contributions to the Master Fund scheme. Accordingly, while it is accepted by ASIC that the source of the funds may well have been Global Funerals, it is noted that the sum was treated at the time as an investment by First Zurich Financial Ltd (by Ms Dong) and that this amount was then, together with other money, transferred to Cadent for investment. Mr Halley notes that this is the basis on which ASIC had treated each of the deposits so recorded in the contemporaneous records as an investment by First Zurich Financial Ltd in Master Fund. 2367Mr Halley notes that of the investments recorded in this fashion, sometimes the amounts paid to Cadent following the investment were for amounts less than that deposited and sometimes they were considerably more. (So, for example, at row 401 on the spreadsheet to which I was taken there was a credit of $293,281 followed three days later by a transfer of $273,257 to Cadent; but on row 443 after a sum of $71,981.96 was deposited on 16 October 2006, an amount of $323,000 was invested the following day by Master Fund with Cadent.) Mr Halley submits that this reflects the fact that the scheme funds were pooled funds and, once funds were invested in the scheme, the operators of Master Fund were able to transmit in aggregate funds from different investors for investment with Cadent. 2368As to the list of payments out of the fund (extracted in Mr Hobbs' spreadsheet), they included payments to MagnyCours, Tasman Business, Fletcher Vautier Moore, Nelsons Bay Holden and R&B Hobbs Family Trust. Mr Hobbs submits that these payments related to funds received in respect of the Global Funeral Services investment. Mr Halley submits that this cannot be the case. In particular, in relation to the payment to Nelsons Bay Holden, for example, of $15,440.40 on 19 May 2006, it is submitted that this could not be directly referable to Global Funerals because it was paid almost two months before there was any deposit from Global Funerals. 2369For others, such as the R&B Hobbs Family Trust payment on 7 August 2006, it is submitted that the timing of the relevant payments in and out permits an inference that there was a causal connection as contended for by ASIC. There, row 375, a deposit was recorded as an investment of capital in the scheme records by First Zurich Financial of around $120,493 on 7 August 2006; there was a wire transfer to the Hobbs Family Trust on the same day for roughly threequarters of that amount. In any event, ASIC relies on the fact that the payment out is from Secured Bond. being the administrator of the Master Fund (without any apparent redemption of funds in the interim). 2370Mr Halley notes that in relation to some of the payments Ms Dong signed a direction to Secured Bond to make a payment to a third party. However, it is submitted that simply because FZF made an investment of funds into the Secured Bond account does not mean that capital could be withdrawn pursuant to a simple direction to withdraw capital in that fashion. I agree. 2371So, for example, there was a payment to D and G Wells of $6,214.28 on 21 March 2007 (row 757) following a direction by Ms Dong to Secured Bond Limited to transfer a US dollar amount from First Zurich Financial Ltd to that account. Mr Halley notes that this entry is referable to moneys from Global Funerals. Other directions were issued for the withdrawal "from our account" of moneys to other accounts (including one for the transfer of US$79,762 to Tasman Business Consultants). ASIC treats those not as a formal redemption of capital but as a direction to the administrators (such as the direction for the item at row 857 on 14 August 2007 "Pay direct to foreign bank, description reference Tasman Business"). 2372The last of those directions relates to a payment of around NZ $99,999 (recorded in the Technocash statement for Secured Bond). Mr Halley notes that Mr Mitchell treated this as a loan referable to provisional tax in his schedule of 15 August 2009. 2373Whether there was a link between FZF Vanuatu and this payment because of the direction from Ms Dong, Mr Halley relies on this evidence as demonstrating in part the extent to which the account of Master Fund held by Secured Bond as the corporate administrator was used as a device or a mechanism by which payments that Mr Hobbs wished to make were channelled through scheme funds. 2374Therefore, ASIC's response to the submission sought to be made good by the money flow summary prepared by Mr and Mrs Hobbs in relation to the Master Fund payments was, ultimately, that whatever may have been the original source of these funds, they were recorded at the time as investments by First Zurich Financial Ltd in Master Fund in a pooled investment and then disbursed (pursuant in some cases to directions signed from time to time by Ms Dong, who did not have any idea of the reason for the direction) from the Secured Bond account without any redemption of that investment. Further, it is submitted that given the extent to which funds were pooled, and that the account operated as a running account (with no separation in the account for moneys from different investments), it is probable that these funds would have consisted or comprised funds contributed by others. Hence ASIC submits that (particularly in the absence of any evidence to the contrary), the payments can be characterised as payments out of the Secured Bond Master Fund account of moneys that included investors' funds. 2375Mrs Hobbs sought me to address me on this issue. Her understanding seems to have been that the money from Global Funerals was "still First Zurich's capital" when it was paid into the Secured Bond account (even though in at least some instances it was paid into that account pursuant to an investment contract. She submitted that this may have been in accordance with the facilitation agreement between Global Funerals and Mr Hobbs (and First Zurich) in which Ms Li was to administer the commission statements (and suggested that Ms Li had produced the spreadsheet of payments that Ms Dong gave evidence that she had not seen). 2376However, even assuming that Ms Li was "administering" the commission payments in some fashion by placing them in an investment with Secured Bond, the fact is that the funds were placed in a pooled investment fund (in at least one case pursuant to a signed agreement for investment therein) and thereafter were not simply amenable to a direction for the withdrawal of the funds and payment out to third parties (not least because of the difficulty of establishing whose funds were comprised by the moneys so paid out). This gave rise to the question to which I referred earlier as to how funds pooled in the account of the corporate administrator of a fund could properly be dealt with by way of a direction of the kind that seems to have been given to Secured Bond on a number of occasions. To the extent that Mr Hobbs (and various of the scheme administrators) seems to have considered that the Secured Bond account could be treated as a personal bank account into which moneys would be deposited and withdrawn at will, this is inconsistent with the duties of Secured Bond to the persons who invested funds in the investment schemes it was administering. (Mr Zhang's reaction to such conduct is illuminating in that he queried why it was that Mr Hobbs caused moneys to be invested in the investment scheme only to withdraw them the following day. No satisfactory explanation of this was given.) 2377As to the receipt of moneys by Geneva Financial out of the PJCB account, it was Mr Hobbs' submission that there was no reason for he or his wife to doubt the statement that he says was made by Mr Koutsoukos to the effect that the funds (subsequently invested in Smart Money) were from the sale of property owned by Mr Koutsoukos. Mr Hobbs submitted that "To this day I can think of no reason why Mr Koutsoukos, Mr Wood and Mr Truong would take funds out of PJCB for which they were taking commission which were invested in a similar fund and on which they would pay no further commission" (which I read by way of a comment only - since whether or not Mr Hobbs is able to postulate a reason for such an investment is not relevant to the issue). (Similarly, Mr Hobbs' submission, noting that the first transfer was from Mr Wood's personal account, that the only sensible reason for this investment was that the J&B Financial officers were trying not to mix personal funds with investors' funds is no more than speculation or commentary on what Mr Hobbs perceives may have been the explanation for this.) 2378Mr Hobbs submits that neither he nor his wife had any reason to look beyond that explanation for the funds being invested in Smart Money (which rather suggests that Mr Hobbs was accepting he had an involvement in the fund) and that the request for the profit to be paid to J&B Financial is only consistent with it being an investment by the J&B Financial officers. (As to the first point, on Mr Hobbs' case he had no involvement with Smart Money in any event, so it is not clear why he would be involving himself in any explanation as to the source of funds received by Geneva Financial for that fund. As to the last point, it rather conflicts with the argument that investment contracts were with the named offshore IBCs, since in many cases the returns were paid to bank accounts of the individuals in question.) 2379Finally, Mr Hobbs submits that: Mrs Hobbs did not speak to Mr Koutsoukos after the first discussion about investment to which Mr Hobbs deposes in his affidavit (a matter of which there is no evidence); that Mrs Brenda Hobbs was the person responsible for correspondence for Geneva Financial and ensuring agreements were completed correctly (accepted to an extent by Mrs Brenda Hobbs in the witness box but not to the point in establishing the source of the funds); that "Both Jacky and Brenda are clearly of the understanding that the money coming from PJCB was Mr Koutsoukos' and Wood's money" (about which there was no evidence - at least in the case of what Mrs Hobbs understood and the understanding of Mrs Brenda Hobbs not being put to her in cross-examination); that the first transfer to Geneva Financial was from Mr Wood's personal bank account; and that the profit from Geneva Financial was paid to J&B Financial's bank account "as instructed by them in their agreements with Geneva" (matters to which I have referred briefly above). 2380As to the submission that Geneva Financial understood that there was a progressive sale of flats and funds were available when the flats had sold and that "If Geneva Financial Limited understood the money was to be from third party's [sic] the investment would not have been accepted", if Mr Hobbs is here suggesting that he is in a position to speak to the understanding of Geneva Financial at that time, then it would be an implicit acknowledgement that he was in a position of control in respect of that entity. However, I will give him the benefit of the doubt and assume that he is making this submission on behalf of Mrs Hobbs. In any event, there is no evidence as to what would have been the case had the controlling mind(s) of Geneva Financial understood this money to have been from third party investors - even assuming that Mr Hobbs' account of the conversation were to be accepted. 2381With those general remarks, I make findings in relation to the particular breaches as set out below. Breaches of s 180(1) of the Corporations Act - duties of care and diligence 2382Breaches of directors' and officers' duties of care and diligence (or in the case of Ms Wu of officers' duties of care and diligence) are alleged as follows: (i)by reference to the respective contraventions of s 911A of the Corporations Act by: * Mr Hobbs in relation to FTC [416]-[419]; PJCB and ISL [421]-[423]; * Mr Collard in relation to FTC [395]-[396]; Secured Bond [388], [390], Barclaywest [455]-[456] and 888 Vanuatu [460]-[461]; and * Ms Wu in relation to Barclaywest [455]-[456] and 888 Vanuatu [460]-[461]. (ii)by reference to the respective contraventions of s 601ED of the Corporations Act by Mr Hobbs in relation to FTC [416]-[419], PJCB and ISL [426]; (iii)by reference to the respective corporate misrepresentation contraventions, by: * Mr Hobbs in relation to FTC [418]-[419], PJCB and ISL [424] [425]; Secured Bond [434], [426]; * Mr Collard in relation to FTC [395]-[396]; Secured Bond [388], [390]; and * Ms Li in relation to FTC [395]-[396]. Breaches of s 181(1) of the Corporations Act - duties of good faith 2383Breaches of directors' and officers' duties of good faith are alleged as follows: (i)by reference to the respective contraventions of s 911A of the Corporations Act by: * Mr Hobbs in relation to FTC [416]-[418], [420], PJCB and ISL [424][426]; * Mr Collard in relation to FTC [397]; Barclaywest [457]; 888 Vanuatu [459]-[460], [462]; * Ms Li in relation to FTC [397]; Barclaywest [457], 888 Vanuatu [459]-[460], [462]; * Messrs Koutsoukos, Wood and Truong in relation to PJCB and ISL [350]-[352], [354]; (ii)by reference to the respective contraventions of s 601ED of the Corporations Act by: * Mr Hobbs in relation to FTC [417]-[420]; PJCB and ISL [422], [426] and * Messrs Koutsoukos, Wood and Truong in relation to PJCB and ISL [350]-[352], [354]; (iii)by reference to the respective misrepresentation contraventions by: * Mr Hobbs in relation to FTC [418]-[419]; PJCB, ISL, Secured Bond [426]; * Mr Collard in relation to FTC [397]; Secured Bond [391]; and * Ms Li in relation to FTC [397]; Secured Bond [391]; and * Messrs Koutsoukos, Wood and Truong in relation to PJCB [350]-[352], [354]; 2384I have found above that Mr Hobbs was at all material times a director or alternatively an officer of FTC. FTC was his alter ego. I have no doubt that Mr Hobbs breached his duties as a director and officers of FTC (both of care and diligence under s 180(1) of the Corporations Act and of good faith under s 181 of the Corporations Act), in carrying on through FTC a financial services business without the appropriate licence and permitting it to participate in the operation of an unregistered managed investment scheme, thus exposing it to penalties. I also find that Mr Hobbs breached those duties by exposing FTC to liability for the misrepresentation contraventions. 2385In relation to the contraventions of s 911A of the Corporations Act, I find that the allegations against the directors and officers of the relevant companies for breach of director's or officers' duties in relation to the financial services contraventions to be established. (In relation to Ms Wu, although I think it likely that she acted at the direction of others in relation to the companies for which she acted as administrator and not of her own initiative, she was fulfilling a corporate role as administrator of those companies and the test as to whether she is liable for breach of duties of care and diligence must be tested by what one would reasonably expect of an officer in her position.) 2386As to the alleged breaches of directors' and officers' duties predicated on the misrepresentation contraventions by the respective companies, I consider that the relevant directors were so closely involved in the making of the misleading and false statements that the contraventions of s 180 and/or 181 in the case of the respective directors has been established. 2387I find that Mr Collard breached the officer's duties of care and diligence owed to FTC (having regard to the s 911A, s 1041E, s 1041G, s 1041H Corporations Act and s 12DA, s 12DB, s 12DF ASIC Act contraventions by FTC) pursuant to s 180(1) Corporations Act on the basis that Mr Collard played a prominent role (with Ms Li and Mr Hobbs) in the promotion and marketing of the Li/Collard schemes. 2388I find that each of Ms Li and Mr Collard breached officer's duties of good faith owed to FTC (having regard to the s 911 A, s 1041E, s 1041G, s 1041H Corporations Act and s 12DA, s 12DB, s 12DF ASIC Act contraventions by FTC) pursuant to s 181 Corporations Act; (I note that the contravention by Ms Li is relevant only to the aiding and abetting claims against Mr Hobbs.) 2389I find that Mr Hobbs breached directors' and officers' duties of care and diligence he owed to each of PJCB, ISL and Secured Bond pursuant to s 180(1) of the Corporations Act (having regard to the s 911A and s 601ED(5) contraventions by PJCB and ISL and the s 911A contravention by Secured Bond). I further find that Mr Hobbs breached the said duties having regard to the s 1041E, s 1041G, s 1041H Corporations Act and s 12DA, s 12DB, s 12DF ASIC Act contraventions of each of those companies (in circumstances where Mr Hobbs was not only personally responsible for the misrepresentation contraventions but was responsible for contraventions of the same ilk by the J&B Financial officers, having given them instructions and directions as to what to say to investors in relation to the investment scheme, and acquiesced in the contraventions by the J&B Financial officers and Ms Li and Mr Collard when present at seminars and meetings at which they made similar representations). For the same reasons, I find that Mr Hobbs breached directors' or officers' duties of good faith he owed to each of those companies (having regard to the s 1041E, s 1041G, s 1041H Corporations Act and s 12DA, s 12DB, s 12DF ASIC Act contraventions by PJCB and ISL) pursuant to s 181 Corporations Act. 2390I find that each of Mr Wood, Mr Truong and Mr Koutsoukos breached directors' or officers' duties of good faith owed to PJCB and ISL pursuant to s 181 of the Corporations Act (having regard to the s 601ED(5) and s 911A contraventions by PJCB; as well as the s 1041E, s 1041H Corporations Act and s 12DA, s 12DB, s 12DF ASIC Act contraventions by those companies. (I note that this finding is relevant only to the aiding and abetting claim against Mr Hobbs.) 2391I find that Mr Collard breached directors' or officers' duties of care and diligence owed to Secured Bond (having regard to the s 911A, s 1041E, s 1041H Corporations Act and s 12DA, s 12DB, s 12DF ASIC Act pursuant to s 181 Corporations Act contraventions by Secured Bond). 2392I find that each of Mr Collard and Ms Li breached directors' or officers' duties of good faith he or she owed to Secured Bond (having regard to the s 1041E, s 1041G, s 1041H Corporations Act and s 12DA, s 12DB, s 12DF ASIC Act contraventions by Secured Bond) pursuant to s 181 Corporations Act. (I note that the finding against Ms Li is relevant only to aiding and abetting claim against Mr Hobbs.) 2393I find that Mr Collard breached directors' and officers' duties of care and diligence he owed to Barclaywest (having regard to the s 911A contravention of Barclaywest) pursuant to s 180(1) Corporations Act. 2394I find that Mr Collard and Ms Li breached directors' or officers' duties of good faith he or she owed to Barclaywest (having regard to the s 911A contravention by Barclaywest) pursuant to s 181 Corporations Act. (The finding against Ms Li is relevant only to the aiding and abetting claim against Mr Hobbs.) 2395I find that Ms Wu breached officers' duties of care and diligence she owed to Barclaywest and 888 Vanuatu (having regard to the s 911A Corporations Act contravention by those companies). Breaches of s 182 of the Corporations Act - obtaining a benefit or advantage for oneself or others to the detriment of the corporation 2396Breaches of s 182 of the Corporations Act are alleged against: * Mr Hobbs in relation to PJCB [427]; ISL [427]; ISPL [427]; Secured Bond [427]; Barclaywest [427]; 888 Vanuatu [427]; Geneva Financial [427]; Preserved Investments [427]; Ultimate Investments [427]; GP Global [427]; * Messrs Koutsoukos, Wood and Truong in relation to PJCB [355]; ISL [362]; * Mr Collard in relation to Secured Bond [392]; Barclaywest [458]; 888 Vanuatu [463]; * Ms Li in relation to Secured Bond [392]; Barclaywest [458]; 888 Vanuatu [463]; * Ms Wu in relation to Barclaywest [458] and 888 Vanuatu [463]; and * Mrs Hobbs in relation to Geneva Financial [449]. 2397There is ample evidence of the payment of benefits (out of accounts in which investors' pooled funds were held by the corporate administrators) to those associated with one or more of the schemes (otherwise than, on the face of the payment, for commission due in accordance with the scheme memoranda) or for the apparent benefit of the above defendants or others associated with them or made at the express or implicit direction or request of one or more of the defendants. 2398So, for example, the payment of invoices rendered for private expenses of Mr Hobbs or his brother, or payments made at the request of Mr Hobbs for family members (such as the payments to his cousins, Ms Hall and Mr Johns) or by way of purported loans to friends or associates (such as payments to Mr Brock or to Mr "Tractor" Tomlinson). (Similarly, there is evidence of a payment treated by Mr Mitchell as referable to provisional tax payable by or on behalf of Mr Hobbs.) Even if, as is contended by Mr and Mrs Hobbs, certain of the payments are explicable as proper disbursements out of the funds held by corporate administrators (such as the payments to Mr Hobbs out of Geneva Financial that Mrs Hobbs explains as a repayment of the company's renewal registration fees in Anguilla met by Mr Hobbs) or as a return on investments (as Ms Wu characterised the moneys received by entities associated with her and as Mrs Hobbs characterised the moneys received out of Geneva Financial by family members) or as legitimate administration fees (as Mrs Hobbs characterised the amounts paid to her and her sister-in-law) that leaves a considerable number of payments (out of what must have included investor funds), the receipt of which (or the direction for the payment of which) amounts to a breach of s 182 by the director or officer of the corporate administrator receiving or making that payment). 2399Similarly, payments of moneys between funds in order to enhance the position of other funds or payment of moneys out of pooled funds in order to meet expenses of or related to Mr Hobbs would seem to me to be payments giving rise to clear breaches of s 182. Even if, as Mr Hobbs contends, there were moneys in Secured Bond's bank account which represented commission due to him from Global Funerals, those moneys (once pooled with other investors' funds), could not properly be treated as belonging to him personally (without a proper redemption of the investment into which they had been placed), having regard to the interests of other investors in the pooled investment scheme. 2400I do not set out in detail all of the payments in question. Broadly, I note that ASIC has referred to payments of the following kind: sums of $50,000 each paid by the Super Save administrators to Mr Koutsoukos, Mr Wood and Mr Truong and a payment to J&B Financial in circumstances where there was no profits which would have permitted the payment of returns; the disbursement out of Best Fund contributions into Secured Bond's account of money to Ms Li, ShunFu Corporation (an IBC of Ms Li), to Mr Collard; the significant number of payments out of the Master Fund account to entities such as MagnyCours, Tasman Business, Fletcher Vautier Moore (from whence funds were used for the benefit of or transferred to Legend of Bathurst, the R&B Hobbs Family Trust (that being the family trust of Mr Robert and Mrs Brenda Hobbs), Tricksmart Holidays and to Nelson Bays Holden); payments out of that fund to J&B Financial, Guo Ping Zhang, the Wells, Preserved Investments and ED Weaver as well as to Ms Li and ShunFu Corporation ($130,000 to Ms Li and ShunFu and $130,000 to Mr Collard and Mr Mack); payment out of the First Secured Bond Unit Trust funds of some $39,000 to MagnyCours (without any apparent record of investment) and $86,000 to Preserved Investments; disbursement out of the Pinnacle Fund accounts to Mr Collard and Ms Li of amounts of approximately $50,000 as well as payments to a company associated with Ms Li (HLD Corporation), and to a Susan Fi Ou and a payment of some US$47,000 to Tasman Business (I note that the only payment that ASIC contends went to the Hobbs' interests directly from the Pinnacle fund was the payment to Tasman Business); payment out of the 888 Vanuatu fund (from which no returns were paid) of $1,000 was paid to ShunFu Corporation and the IBC of Ms Li; payments out of the Enhanced Fund to ShunFu (Ms Li's company), Amazing Glory and Mr Mac Incorporated (Mr Collard's company); payments out of the Best Fund to Ms Li, ShunFu Corporation and various entities such as Watercraft World, Lambretta South, DC Fiver Limited trading as Philco Farm as well as to Mr Collard, to Ms Huang and New Century 2001 (ASIC submits that the Watercraft World, Lambretta South and DC Fiver payments were made at the direction of Mr Hobbs); payments out of Elite Premier of some $50,000 to MagnyCours, and $54,000 to Focus Administration Services; and payments out of Elite Premier Option Two Unit Trust to Austin Trading, Mr Caffray, Keystone International Limited. There were also payments out of Elite Premier Option Two Unit Trust to Tasman Business (of some $55,000) as well as to Ms Li (of US$29,000) and to Mr Collard (of US$5,000) (neither Ms Li nor Mr Collard being a scheme administrator of that fund, though ASIC concedes that they were FTC executives and hence these payments could have been by way of commission); in relation to Covered Strategies, payments were made to Mr Truong, Ms Li and Mr Wood (none of whom was a scheme administrator of that fund) and to Bamford Law (which ASIC says was at the direction of Hobbs) as well as additional payments (some $93,000 to Tasman Business and $60,000 to MagnyCours), as well as some payments to persons or entities the identity of whom ASIC has not been able to confirm. 2401I note that there were also payments out of Geneva Financial to Mr Hobbs, Mr Robert Hobbs and Mr & Mrs Hobbs' daughter (though these are said by Mrs Hobbs to be referable to investments and for present purposes it is not necessary to come to a concluded view on those payments). 2402I am satisfied that ASIC has established the breach by Mr Hobbs of directors' or officers' duties owed to the respective corporate administrators by reason of the fact that he gained an advantage for himself and others and caused a detriment to those companies having regard to the payments and benefits identified by ASIC that he received or directed to be disbursed to others out of investors' funds during the period the respective companies acted as corporate administrator of schemes within the Hobbs scheme. 2403I find that each of Mr Wood, Mr Truong and Mr Koutsoukos breached directors' or officers' duties owed to PJCB and ISL by gaining an advantage for himself or someone else or causing a detriment to those companies in breach of s 182 of the Corporations Act. (Again, I note that this finding is relevant only to the aiding and abetting claims against Mr Hobbs and Mrs Hobbs.) 2404I find that each of Ms Li and Mr Collard breached directors' or officers' duties owed to each of Secured Bond; Barclaywest and 888 Vanuatu by gaining an advantage for herself/himself or someone else or causing a detriment to those companies pursuant to s 182 Corporations Act. (Again, I note that this finding is relevant only to the aiding and abetting claims against Mr Hobbs.) 2405I find that Ms Wu breached officers' duties owed to Barclaywest and 888 Vanuatu by gaining an advantage for herself or someone else or causing a detriment to those companies pursuant to s 182 Corporations Act. (Even though Ms Wu says that she was no more than an investor in the companies, she signed, as administrator, directions for moneys to be paid out of the Secured Bond accounts to the advantage of others and the detriment of the companies in question.) 2406I find that Mrs Hobbs breached directors' or officers' duties she owed to Geneva Financial by gaining an advantage for herself or someone else or causing a detriment to Geneva Financial pursuant to s 182 Corporations Act as alleged. I note that the arrangements by which Mrs Hobbs authorised Mr Hobbs to obtain the round turn commissions in relation to the Geneva Cadent accounts and the MLN arrangements clearly benefited Mr Hobbs (and in relation to MLN, herself) at the expense of investors and to the detriment of the corporate administrator insofar as it was exposed to claims in relation thereto. Aiding and Abetting Breaches of Directors' Duties 2407There are various allegations made as to the aiding and abetting of particular contraventions of ss 181 and 182 (those aiding and abetting allegations being made variously against Mr Hobbs, Mrs Hobbs and Geneva Financial). As noted earlier, these are only pressed as an alternative claim (in the event that the relevant individual scheme administrators, such as Mr Koutsoukos, Mr Wood and Mr Truong were not acting as Mr Hobbs' agents, but rather as principals, in the conduct that contravened the respective statutory provisions). ASIC's primary claim is that the relevant contraventions by the scheme administrators were as Mr Hobbs' agent. Having found that the scheme administrators were acting as Mr Hobbs' agents, the alternative aiding and abetting claims do not strictly arise. I consider below what findings I would have made had the issues been necessary to decide. Did Geneva Financial aid and abet, counsel or procure and/or was it directly or indirectly knowingly concerned in contraventions by Wood, Truong and Koutsoukos of s 182 of the Corporations Act and contraventions by Mr Hobbs of ss 181 and 182 of the Corporations Act [445]-[447] 2408Not only does this issue not arise for determination on the basis of the principal findings I have made, but it would go nowhere as Geneva Financial is deregistered. In the event that this issue had fallen for determination I would have found that the contravention was established on the basis that the knowledge of Mr Hobbs would be imputed to the company of which he was the de facto or shadow director (and for this purpose is likely to have been the guiding mind of Geneva Financial). Did Mr Hobbs aid and abet, counsel or procure and/or was he directly or indirectly knowingly concerned in contraventions by Messrs Wood, Truong and Koutsoukos of ss 181 and 182 of the Corporations Act ([429](a)); by Ms Li and Mr Collard of those statutory provisions ([429](b)); and by Ms Wu of s 182 of the Corporations Act [429(b)] 2409I accept the evidence of the J&B Financial officers as to the directions, instructions or advice given by Mr Hobbs as to the implementation and operation of the individual investment schemes operated by them and as to the payment of moneys out of the fund otherwise than in accordance with the investments in which the fund memoranda specified. Mr Hobbs was aware of the representations being made through the scheme documents and at meetings at which he was present as to the financial product to which investors were being offered access (indeed, he provided the role model for the J&B Financial officers to follow). He provided (and I find he did so directly) the templates for the scheme documents and directed the process through which investment was to occur. 2410Mr Hobbs was in my view clearly involved in the various contraventions by the J&B Financial officers and knew of the essential facts that constituted those contraventions. He was on notice from as early as the ASIC enquiry in 2002 of the risk that the activities in which he and (later, by extension) the J&B Financial officers were engaged. His attention was again drawn to it in mid 2007 by Mr Koutsoukos (following the concerns expressed by Mr Papaioannou). It seems to me not unduly melodramatic to describe him (as ASIC has) as the mastermind behind the operation of the Burwood schemes. 2411In light of the findings made in relation to the issues for determination in these proceedings, it seems to me clear (and certainly it has been established to my satisfaction on the balance, and having had regard to the gravity of the allegations) that Mr Hobbs aided and abetted the contraventions by Mr Koutsoukos, Mr Wood and Mr Truong of ss 181 and 182 of the Corporations Act. 2412As to the position with Ms Li, Mr Collard and Ms Wu, there is no evidence directly from those defendants (other than Ms Wu's affidavit sworn in support as to the application for leave to file the defence) as to the circumstances in which each of them became involved in the investment schemes in which they were involved (in differing capacities, since Ms Wu was only an officer of two of the corporate administrators). Nevertheless, there is ample documentary evidence of Mr Hobbs' involvement in the contraventions by those defendants as well as evidence from various of the witnesses as to the role Mr Hobbs played in the operation of the schemes. 2413It is inconceivable that the operation of these schemes so closely mirrored the operation of the Burwood schemes for there not to have been an involvement by Mr Hobbs in relation to the Li/Collard schemes. Moreover, he communications between Ms Reisinger and Mr Hobbs make it clear that he was frequently updated on the status of the Cadent accounts with which Ms Li was involved. Furthermore, the payment out of moneys from Secured Bond (not all of which could possibly be attributable to the distribution of commissions received via Global Funerals) to persons and entities associated with Mr Hobbs (on receipt of directions signed by Ms Dong without her having any knowledge of the reason she was asked to sign the directions) points again to Mr Hobbs' knowing involvement in the contraventions. (The evidence of Mr Zhang in this regard is instructive - he expressed bewilderment at the receipt into his investment fund (Best Fund) of moneys from Mr Hobbs only for those moneys to be directed to be paid out almost immediately. It seems to me clear that Mr Hobbs was directing the payment out of funds and treating the Secured Bond account as, in effect, a personal bank account.) Did Mrs Hobbs aid and abet, counsel or procure and/or was she directly or indirectly knowingly concerned in contraventions: by each of Messrs Wood, Truong and Koutsoukos of s 182 of the Corporations Act ([450]-[451]) and/or by Mr Hobbs of those statutory provisions [450]-[451] 2414As to the aiding and abetting allegations against his wife, Mr Hobbs submits that "in virtually every case" the actions alleged against him were alleged to have been carried out by other people as his agents (such as Ms Reisinger and the fund administrators) and that in circumstances where those people were acting outside of their authority as FTC "consultants" and in circumstances where they may have been acting illegally, Mrs Hobbs cannot be responsible for their actions. For the reasons given above, when considering the question of agency, even if it were to be the case that acts were conducted in breach of the FTC executives' authority, or illegally, that does not preclude a finding that those individuals committed contraventions and that Mrs Hobbs was knowingly involved in or assisted those contraventions. 2415That said, I have some difficulty in relation to the allegation that Mrs Hobbs, in her capacity as a scheme administrator of the Prestige Unit Trust, assisted knowingly in the contravention by the J&B Financial officers of their statutory obligations as de facto directors or officers of PJCB (in relation to the acceptance of investment funds from those officers that were dealt with otherwise than in accordance with the scheme memoranda). 2416There is no evidence that she was in attendance at the various FTC seminars or meetings at which representations were made to potential investors, nor is it clear to me that she directed any payments to be made out of the Burwood scheme funds for her benefit or the benefit of others. Had it been necessary to determine this issue, I would not have found that Mrs Hobbs had aided and abetted the contraventions of the J&B Financial officers. 2417The position in relation to the contraventions of Mr Hobbs is very different. Mrs Hobbs appears to have taken a direct role in relation to the communications with Ms Reisinger as to commissions (and was clearly involved in seeking to reconcile the statements received in relation to commissions for more than the Geneva Financial funds). She seems to have done so on Mr Hobbs' directions or at his request (having regard to the way in which various of the emails are worded). I consider that it has been established that Mrs Hobbs was involved in at least some of the contraventions by Mr Hobbs of ss 181 and 182 of the Corporations Act. (As the claim in this regard is an alternative to the claim made for the direct contraventions of the respective statutory provisions, I do not set out in detail the particular contraventions of Mr Hobbs in which I consider Mrs Hobbs aided and abetted or was knowingly involved.) Breach of Fiduciary Duties Did each of Mr Hobbs ([433]-[432]; [434]), Mr Collard ([398]-[400]; [407]) and Ms Wu ([398]-[400]; [407]) breach fiduciary duties owed to investors either by placing himself or herself in a position where there was a real and substantial risk that his or her interest would conflict with those of investors or by using his or her position to gain an advantage for himself or herself and others 2418Again, this set of issues does not arise in the sense that ASIC puts these claims forward as an alternative or "stopgap", in the event that there were not findings of breaches of the Corporations Act by reason of the conduct of the individuals or corporations. In those circumstances it is contended that Mr Hobbs, Mr Collard and Ms Wu (by reason of the position that each was in) owed fiduciary duties to the investors and those duties were breached. 2419Having found that each of Mr Hobbs, Mr Collard and Ms Wu was in breach of the relevant statutory duties owed by them as directors and/or officers of the relevant companies in relation to the operation of the respective scheme or schemes, no finding is necessary on the fiduciary duty claims. However, again, I consider below what would have been my findings had I not found that one or more of them was acting in a corporate capacity in relation to the scheme or schemes. 2420The allegation that each of Mr Collard and Ms Wu (as well as Ms Li) owed a fiduciary duty to investors (in the case of Mr Collard and Ms Wu in relation to investors in the 888(Super Save) Fund, the Pinnacle Fund and the Enhanced Fund; and in the case of Mr Collard also in relation to the Master Fund and First Secured Bond Unit Trust) is contained in [398]-[399] of the pleading. The allegation that fiduciary obligations were owed to the respective investors is based on the following: that each of Mr Collard and Ms Wu (and Ms Li) provided or was otherwise involved in the provision of financial services to potential investors in the said funds; each operated or was otherwise involved in the promotion and operation of the said funds; investors in the said funds were dependent or otherwise relied on each of Mr Collard and Ms Wu (and Ms Li) for information and advice on whether and how to invest in the funds; investors had no control over their investment once it was placed with the said funds and were dependent on each of Mr Collard and Ms Wu (and Ms Li) to invest their capital in profitable and secure income producing investments, distribute profits to them and redeem the investments to them on the termination of the investment; that as investors did not have any control over the investment of their funds each was placed in a position of vulnerability as against each of Mr Collard and Ms Wu (and Ms Li); that, by reason thereof, investors placed trust and confidence in, and were dependent upon, each of them to provide impartial advice and to act in the investors' best interests; and therefore investors were entitled to expect that each of Mr Collard and Ms Wu (and Ms Li) would act in their interest or the interests of the investors in the particular funds. 2421I consider that in their capacity as operators of the relevant managed investment schemes, each of Mr Collard and Ms Wu (and, for that matter, Ms Li) owed fiduciary obligations to the members of the scheme. (I accept that the existence or content of any such fiduciary obligation might be qualified or informed by reference to the terms of the contract by which the investors became scheme members. However, even apart from the fact that the contractual relationship was between the member and the corporate administrator, there is nothing in the private placement agreement that in my view is inconsistent with the existence of fiduciary duty obligations on the part of the scheme administrators. Particularly in circumstances where the scheme administrator was often also an introducer in respect of the investment (and promoted and provided advice, at the very least in the form of the provision of the private placement memoranda, and assistance to the investor in relation to the investment), I consider that the fiduciary relationship has been established. 2422In that regard, I consider that each of Mr Collard and Ms Wu was n a position where he or she owed fiduciary obligations to investors not to put himself or herself in a position of potential or actual conflict of interest and not to obtain an advantage for himself, herself or others by use of his or her position as a fiduciary. Insofar as the receipt of commissions as scheme administrator, these were disclosed in the private placement memoranda. Other benefits or potential benefits were not. (I note that Mr Collard and Ms Wu were not parties to arrangements of the kind to which Mr Hobbs was party (for the payment of round turn or other commissions from Cadent or through New World Holdings. However, they were in a position where they procured or directed the making of payments out of the pooled funds otherwise than in accordance with the scheme memoranda and in circumstances where those payments benefited themselves or others with whom they were associated). 2423As to Mr Hobbs, the basis on which ASIC contends that there was a fiduciary relationship between he and the investors in the Hobbs scheme, as pleaded in [430]-[431] is that: Mr Hobbs provided or was otherwise involved in the provision of the Hobbs financial services to potential investors in the Hobbs scheme; he operated or was otherwise involved in the promotion and operation of the Hobbs scheme; investors in the Hobbs scheme were dependent or otherwise relied on Mr Hobbs for information and advice on whether and how to invest in the Hobbs scheme; investors had no control over their investment once it was placed with the Hobbs scheme and were dependent on Mr Hobbs to invest their principal in profitable and secure income producing investments, distribute profits to them and redeem the investments to them on the termination of the investment; as investors did not have any control over the investment of their funds each was placed in a position of vulnerability as against Mr Hobbs; by reason of those matters investors placed trust and confidence in Mr Hobbs and were dependent upon him to provide them with impartial advice and to act in their best interests; and investors were entitled to expect that Mr Hobbs would act in their interest or the interests of the investors in the Hobbs scheme as a whole to the exclusion of his own interests. 2424The alleged breaches of fiduciary duties (and unconscionable conduct) by Mr Hobbs are that he directed or otherwise procured the making of the various scheme returns and scheme payments: first, from money provided to the corporate administrators by investors for the purpose of investing in the schemes rather than out of profits and thereby placed himself in a position where there was a real and substantial risk that his interests would conflict with those of investors ([432]) and, second, that were not authorised by or otherwise disclosed in the Scheme Memoranda or otherwise by the investor and thereby he improperly used his position within the corporate administrator to gain an advantage for himself, Mr Wood, Mr Truong, Mr Koutsoukos, Ms Li, Mr Collard, Mrs Hobbs and related parties ([433]). 2425As can be seen from [430], the allegation that a fiduciary relationship was in existence is predicated not simply on the provision by Mr Hobbs of financial services (in the form of advice as to the accessibility or availability of the relevant offshore investments) and reliance by investors thereon, but on the dependence by investors on Mr Hobbs' advice and conduct in relation to the investment of their moneys as someone operating or involved in the operation in the overall Hobbs scheme. 2426I have little doubt that as an operator of the overall Hobbs scheme, Mr Hobbs was in a position where he owed fiduciary obligations to those who had invested in the scheme. However, as I understand the submissions made by Mr Halley, although pleaded as a claim further or in the alternative to the foregoing claims, the breach of fiduciaries claim is pressed (as a stopgap) in the event that Mr Hobbs is found not to have been acting as a de facto or shadow director of the corporate administrators in relation to the scheme. If that had been my finding (and it is not), then logically his involvement in the operation of the scheme would have been found to have been much more remote and there would be a question in my mind as to whether his anterior involvement in the events leading up to investment in the schemes would have been sufficient to give rise to a fiduciary relationship. 2427In other words, if Mr Hobbs' involvement had been limited to setting up (and, say, selling to administrators the rights to use or operate) the investment funds, then I would have had difficulty finding that he owed any fiduciary obligations to ultimate investors in those funds (and, to be fair, I do not think ASIC contends otherwise). Similarly, if all Mr Hobbs had done had been to disseminate financial education and train others to sell the FTC educational packages, but thereafter he had not been involved in the provision of information in relation to the available investment funds or in the operation of those funds, then there might be some difficulty in finding sufficient dependence by ultimate investors on Mr Hobbs as to give rise to such obligations. 2428While there might be some analogy drawn with the position of the broker in Daly, in that I consider that Mr Hobbs was holding himself out as able to advise in relation to investment in the offshore wholesale market and did provide both generic advice and more specific advice in some instances as to the funds in which persons could invest (and I accept that at that stage there was at least a sufficient degree of trust and confidence reposed in Mr Hobbs for potential investors to seek the information he said would be made available in relation to the funds), I am not satisfied that there was a sufficient relationship to give rise to fiduciary obligations at that point. 2429However, in the present case, Mr Hobbs' involvement in the operation of the funds went far beyond the initial introduction to funds through which offshore investment was made possible for scheme members (hence his liability for the contraventions as found above). To the extent that it was Mr Hobbs' operation of the scheme as a de facto or shadow director of FTC and the corporate administrators that would lead to the conclusion that there was a fiduciary relationship, then a finding that he had not been involved in such a capacity would have caused me some hesitation (since his role would on that hypothesis have been largely removed from the decision making role in relation to the schemes). There might of course have been a sufficient relationship of dependence and confidence as to lead to the conclusion that the relationship was one in which Mr Hobbs was not free to pursue his own separate interests in advising as to investment in the funds, but it would have been less clear. 2430As it is, Mr Hobbs' role in relation to the operation of the Hobbs scheme (consistent with the finding of his involvement as a de facto or shadow director of the corporate administrators) is such that I find that Mr Hobbs was in a fiduciary position and owed fiduciary duties to scheme investors above and beyond the directors' and officers' duties owed to the respective corporations. I also find that he was in breach of both of the proscriptive duties owed by him as a fiduciary. However, as I understand it, such a claim is not pressed by ASIC in light of the findings I have made above in respect of Mr Hobbs' breach of the civil penalty provisions. 2431For completeness, I note that the procuring and receipt of the respective payments and returns each of Mr Hobbs, Mr Collard and Ms Wu have been established and I find that the allegations as to the making of payments not authorised by, and not disclosed to, scheme members have also been established. (The broad reference in the scheme memoranda to the making of other investments did not authorise the investment of funds in, for example, unsecured loans or payments to friends or associates of Mr Hobbs; nor am I satisfied that it was open to treat moneys the subject of investment with Secured Bond as moneys open to a mere direction for payment out of pooled moneys, without any consideration give to or application of the redemption process provided for under the scheme documents.) Defences/matters pleaded in answer to the claim Limitations defence 2432In further answer to the whole of the Further Amended Statement of Claim, Mr Hobbs makes a number of assertions. The first of those, at [287], appears to raise a limitations defence (although this was not the subject of any submissions during the hearing) namely that, to the extent that the (then) Further Amended Statement of Claim relies on events six years prior to 31 March 2010 (the date of filing of the first Statement of Claim), the claim is statute barred. (Mrs Hobbs similarly relies on such a defence in a broad sense in answer to the claims made against her to the extent that reliance is placed on events that occurred more than six years from the date of the first pleaded Statement of Claim.) 2433The first two sets of proceedings, as noted earlier, were instituted in late 2007 and were commenced by summons. The third set of proceedings was similarly commenced by summons in 2008. Mrs Hobbs was a party to the third set of proceedings from the outset. Mr Hobbs was joined as the seventeenth defendant to the third set of proceedings on 11 July 2008 by order of Austin J. He was also joined as a party (the twelfth defendant) to the first set of proceedings by orders on that date. The respective proceedings were consolidated by orders made on 27 August 2010. 2434Section 1317K Corporations Act provides that proceedings for a declaration of contravention, a pecuniary penalty order or a compensation order may be commenced no later than six years after the contravention. Ford's Principles of Corporations Law notes at [3.410] that: The lapse of substantial time from the contravention to the proceedings will probably have the effect of dissuading the court from exercising its discretion to make a pecuniary penalty order or a disqualification order, even if the contravention is established and the declaration of contravention is made. The lapse of time is likely to be less significant in proceedings for a compensation order, unless the plaintiff is guilty of delay or the defence of laches is established. 2435This can be compared to the five-year limitation period (unless the Minister's consent is obtained) for proceedings for an offence against the Corporations Act provided for under s 1316 Corporations Act. 2436The limitation period ceases to run when proceedings are commenced. Proceedings are commenced when the originating process is issued (although a defendant is not drawn into proceedings until served). In P Handford, Limitations of Actions: The Laws of Australia (2nd ed, 2007) at [5.10.460], it notes that it is not necessary for service of the originating process to take place within the limitation period, as long as it is sealed in the court registry within the relevant limitation period. Handford then goes on to say: The commencement of proceedings stops time running only in respect of the cause of action sought to be enforced in those proceedings. Time continues to run in respect of other causes of action, although the running of time may be deemed to be stayed where other causes of action are added by a later amendment. 2437T Prime and G Scanlan (The Law of Limitation, 2nd ed, 2001) comment that existing proceedings may be amended, provided that the substance of the allegations remains constant. Further, they note that the cessation of time running for one cause of action does not stop time running in respect of another cause of action (see, for example, Leferve v White [1990] 1 Lloyd's Rep 569). 2438With respect to parties joined after the commencement of proceedings in New South Wales (such as Mr Hobbs), r 6.28 of the Uniform Civil Procedure Rules 2005 (NSW) provides that where a party is joined, the date of commencement of proceedings as against that party is the date on which order for joinder is made (or on such later date as the Court may specify in the order). 2439Accordingly, time would not cease to run, for limitations purposes, on a cause of action in the proceedings against Mr Hobbs at least until he was joined in 2008. Mr Hobbs, however, points to the March 2010 date when the first Statement of Claim was pleaded (a draft as at 20 November 2009 having apparently earlier been served in the proceedings). As at the time Mr Hobbs was joined to the respective proceedings in 2008, the Further Amended Originating Process already alleged contraventions of s 911A and s 601ED in relation to the relevant scheme (in the 6201/07 proceedings that being the Integrity Plus scheme, in the 5864/07 proceedings that being the Super Save scheme) as well as seeking declaratory relief in relation to alleged contraventions of s 180(1) and s 1041H of the Corporations Act. Thus in respect of those causes of action, arguably time ceased to run once Mr Hobbs was joined (and not at the later date when the claims were pleaded more completely in the Statement of Claim). 2440It is not necessary to consider whether the allegations in the pleaded claim (once the three actions were consolidated and the matter proceeded with a consolidated pleading) introduced new causes of action that were not encompassed in the respective originating processes at the time of Mr Hobbs' joinder as a party to the proceedings in July 2008 (such as some of the misrepresentation claims not the subject of the claim for declaratory relief as contained in the originating process as at that date) because even on the later date the causes of action would not have been statute barred. 2441The contraventions of ss 601ED(5) and s 911A of the Corporations Act relate to the Hobbs scheme that was still in operation as late as May 2008 (that being when the last investment into the Master Fund occurred). Even if there were no collective "Hobbs scheme", each of the individual managed investment schemes was still in operation within 6 years of the filing of the first Statement of Claim (the earliest of those schemes to have ceased taking investments being the Elite Premier Unit Trust, the last investment in which was on 20 August 2004). 2442For the same reason, the contraventions by reference to the making of representations to investors and the breaches of directors' and officers' duties, insofar as they relate to conduct over the period from at least the relevant date in 2004, would be within time even if the date on which time stopped running, for the purposes of a limitations defence, in respect of claims against Mr Hobbs was not until the first Statement of Claim was filed in March 2010. Invocation of s 1317S and s 189 Corporations Act 2443At [288], Mr Hobbs asserts that, to the extent that the Corporations Act applies and is liable for a civil penalty (which is denied), then reliance is placed on s 1317S of the Corporations Act. Mr Hobbs says that he acted honestly throughout and ought to be fully excused. 2444By way of particularisation of that pleading, Mr Hobbs points to the advice obtained in 2002 "on behalf of Kip Becker" from Atanaskovic Hartnell "which said that the Reisinger Product would not contravene the relevant provisions of the Corporations Act; that Mr Hobbs did not raise funds from investors in Australia for the purposes of investment in the Reisinger Product; that "insofar as he was aware that IBCs were investing in the Reisinger Product", Mr Hobbs reasonably believed that they could do as set out in the Hartnell advice; that this belief was confirmed by the investment in the Reisinger Product "by Australian lawyers including a barrister Greg Stanton, who eventually administered one of the Reisinger Products" (of which there was no evidence in the hearing before me); that opinion was confirmed by subsequent legal opinion in 2007 (unidentified but apparently this is a reference to the advice from Ms Maroun); that he himself invested in the Reisinger Product; that he believed that Geneva Financial "being a fund operated in New Zealand by New Zealanders, had no requirement to comply with Australian Law (but would for reasons in the Hartnell advice be legal there in any event)"; and that Mr Hobbs believed that Global Funeral Services Limited, being a Taiwanese company, had no requirement to comply with Australian Law, and any services provided by Mr Hobbs in Taiwan or elsewhere outside Australia were not within the jurisdiction of this Court. 2445As noted earlier, in order for s 1317S to apply, it must be found that the person has acted honestly and that, having regard to all the circumstances of the case, that person ought fairly to be excused in relation to the relevant breach of the civil penalty provision in question. 2446I am unable to conclude that Mr Hobbs acted honestly in relation to the schemes, adopting the test of honesty as being without moral turpitude (ie, "without deceit or conscious impropriety, without intent to gain improper benefit or advantage and without carelessness or imprudence at a level that negates the performance of the duty in question"). I consider that a reasonable person in Mr Hobbs' position would have regarded the conduct involved in relation to the schemes as exhibiting moral turpitude. 2447Moreover, I cannot be satisfied that Mr Hobbs' actions ought fairly to be excused when he was squarely on notice (from as early as 2002) that there were requirements for the operation of schemes such as these, which he knew were not being met. Mr Hobbs, on his own admission having regard to the matters of which he spoke in the DVD Seminar) believed that if he (or entities operating through him or on his behalf) solicited investment by retail customers in Australia of funds in a pooled investment scheme such as the ones he had established then it would be necessary at least for there to be a product disclosure statement or prospectus issued for those schemes and for regulatory requirements in this jurisdiction to be met. He made a point of emphasising the regulators and that the investment could not lawfully be made within the jurisdiction (or that if offers were made in the jurisdiction, there would be a breach of the law). 2448Mr Hobbs seems to have considered that the feature that removed these schemes from regulatory overview and prevented the operation of the schemes from being unlawful in this jurisdiction was the incorporation of an offshore IBC in whose name the interest in the scheme was to be acquired. In so doing he seems to have ignored (wilfully or otherwise) the many connecting points in this jurisdiction (not least being the printing of scheme memoranda and the issue of the scheme memoranda in this jurisdiction to addresses within this jurisdiction). Accepting that he is not a lawyer, I nevertheless consider that a reasonable lay person in receipt of Mr Hartnell's advice would have understood it to say no more than that solicitation of investment that occurred wholly offshore would not be regulated in this jurisdiction. That was not the case with the Hobbs scheme or the underlying investment schemes that comprised it. 2449It should be noted that Mr Hobbs has expressed no contrition (and indeed he accuses others involved in the scheme as being fraudsters); and that the contraventions were serious (having regard to the public policy underlying the relevant provisions, the flagrancy of the contraventions and the harm to unsophisticated investors in the schemes). The advice obtained by Mr Hobbs was based on what seems to have been an incomplete account of what was occurring or what was to occur in relation to the schemes (and obtained, at least in relation to the Maroun advice, well after the event) and Mr Hobbs had a significant financial interest in the conduct of the schemes. 2450I am firmly of the view that relief under s 1317S is neither applicable nor warranted in relation to the contraventions by Mr Hobbs of the civil penalty provisions. 2451At [289], Mr Hobbs states that, to the extent that it is found that the Corporations Act applies (which is denied), and he is found to be a director of FTC or any company associated with the "Reisinger Product" (which is denied), he relies on the defence provided by s 189 of the Corporations Act. By way of particulars, reliance is again placed on the 2002 Atanaskovic Hartnell advice said to have been obtained "On behalf of Kip Becker". It is stated that the opinion provided that: i)the sale of financial information by FTC "'through magazines, newsletters, etc. to Australian retailers was not a sale of a financial product and did not constitute the carrying on of a financial services business as defined and thus FTC did not need an Australian financial services license under the Act. Reisinger Product would not contravene the relevant provisions of the Corporations Act. ii)Australians who seek investment through foreign unregistered prospectus or memorandums may legally do so if they own an IBC and the offer and acceptance are both offshore. The First Defendant, having made enquiry of a legal professional who has significant expertise as a former head of ASIC, was entitled to rely in good faith on the information and advice provided in the legal opinion and he is entitled to rely on that advice. 2452Reliance is also placed on the confirmation of the Hartnell opinion by a subsequent legal opinion in 2007 (the opinion provided by Ms Maroun). Mr Hobbs pleads that "the opinion" (the Hartnell opinion) was relied on by him when he provided educational material through FTC and in discussions with FTC executives and that his reliance on the opinion provided by Atanaskovic Hartnell ("legal professionals with acknowledged expertise in Corporations Law and ASIC compliance") was reasonable and made in good faith. 2453Although at [18] of Mr Hobbs' affidavit, he deposes to his understanding of the lawfulness of the activity on the basis of the advice not only from Mr Hartnell but also from Mr Miles and Mr Becker, the primary reliance in that regard seems to have been on the advice from Mr Hartnell. (Reliance on Ms Maroun's advice would not assist in relation to the contraventions before the time at which it was provided.) 2454As Mr Halley points out, no particular advice from Mr Becker was identified. I have assumed that to the extent that Mr Hobbs' evidence is that Mr Becker told him that investment needed to be through IBCs for the purposes of investment requirements in the United States then that might be relevant advice (and perhaps any advice comprised by the provision of templates for the investment documents, assuming for present purposes that I could accept Mr Hobbs' evidence that the initial template for those documents was prepared or provided by Mr Becker, also included some advice). There is certainly no written advice from Mr Becker in evidence and even if there had been oral advice in relation to the above matters, it does not extend to (nor could it reasonably have been understood to extend to) the lawfulness in Australia of the activities that were undertaken in relation to the schemes. 2455As to the advice from Mr Miles referred to in paragraph [9] of Mr Hobbs' affidavit, this was oral advice the content of which is elucidated no further than the statement that "as far as I am aware this is perfectly legal" and the advice that FTC should appoint executives rather than brokers or consultants. 2456It is impossible to make any assessment as to the reasonableness of reliance on advice the content of which is not clear and (more importantly perhaps) the instructions or assumptions on which it is based are not identified. That becomes even more apparent when the advice of Mr Hartnell is considered. I have set out earlier the relevant parts of Mr Hartnell's June 2002 advice. 2457Mr Hobbs has deposed, at [18]: I always understood based on that advice there was nothing contravening any New Zealand, Australian or American law in an Australian making investments of this kind as long as it was done in accordance with the advice from Mr Hartnell." (my emphasis) 2458Mr Halley points out that Mr Hobbs goes on to say: I was aware that people were establishing these schemes but did not give them much consideration as I had no financial interest. 2459(The financial interest Mr Hobbs had in the scheme has been identified earlier. Moreover, the proposition that he did not give much consideration to the establishment of the schemes seems perilously close to suggesting that there was no real reliance on the advice itself (if, as Mr Hobbs suggests, he did not think it relevant to his own personal situation). 2460As to the Hartnell advice, as already noted the request for advice raised two questions: the first, concerning FTC (the activities of which are described as being limited to the sale of financial information worldwide); the second, as to the legality of offshore investments. 2461As to the assumptions on which the advice was based, Mr Halley notes that there was no suggestion in the letter that Mr Hobbs or FTC was conducting seminars or meetings in Australia (at which statements were made as to how access could be gained to wholesale funds offshore or as to the performance of various funds, the returns that had been received in the past by particular funds and what returns might be received in the future). Nor was there any reference to the dispatch of lists of funds in which investment could be made (in response to faxes sent to offshore companies). 2462As to the conclusion that that "financial information of the kind provided by you is not a financial product in itself", that must be understood in the context that the financial information to which Mr Hartnell's advice referred (insofar as it was based on what was said in the letter requesting the advice) was information contained in a series of booklets as to generic topics such as budgeting, succession planning, debt restructuring, mortgages, an ABC of IBCs and introduction to financial statements (and newsletters warning of investment scams or the like). Mr Halley notes that there was no reference to explanations given to potential investors of opportunities available for investment overseas, the types of funds that might be accessible and the types of returns that might be expected to be achieved. 2463Mr Hartnell's advice in this regard can only be read as limited to the proposition that the sale and distribution of magazines and newsletters on generic topics of kind referred to above (without more) would not amount to the provision of a financial product or financial service requiring the provider to be licensed. 2464As to the second part of the advice, Mr Halley notes that even if it is accepted that (and ASIC does not accept this) the true nature of the investment was that it was by the IBC and that the IBC had a relevant discrete existence to the investor, nevertheless the request for information was made on-shore to an offshore number and the offer (and issue of the product) was made by the sending of material to the potential investors on-shore. The private placement memoranda and the agreements were sent or provided to persons or addresses in Australia (or New Zealand as the case may be). The unit certificates were issued in the name of IBCs and, in most cases, sent to addresses in Australia or New Zealand. The money was generally paid into Technocash accounts (whether by the IBC or by the administrator of the IBC) in Australia and returns (whether of capital or profit - though ASIC has shown that there were only little returns made out of profits) were generally paid into bank accounts in Australia. 2465Mr Halley submits that the obvious inference is that Mr Hartnell was not asked to consider the relevant facts as to the actual operation of the investment process (since it is submitted that had the relevant facts been drawn to Mr Hartnell's attention is it inconceivable that Mr Hartnell would have given the advice he did, having regard not only to the provisions of the Corporations Act but to the authorities that had considered very similar factual circumstances to those that apply in the present case). Having regard to the Chase Capital case, I consider this submission to be irresistible. The suggestion that someone of Mr Hartnell's experience (to which Mr Hobbs himself points as warranting a finding that reliance on the Hartnell advice was reasonable) would not have, at the very least, have qualified his advice by reference to the then recent authorities on this area would be extraordinary. 2466Mr Halley submits, and I accept, that the letter makes it clear to Mr Hobbs that there is an express prohibition on operating a managed investment scheme in Australia if the scheme is required to be registered but is not in fact registered. He submits that the reference in [3.5] to the fact that the exemption from the prohibition on operating an unregistered foreign scheme in Australia applies even if the foreign schemes make offers and issues to investors in Australia provided that all such Australian investors are wholesale client, should have made it clear that where investment offers were being made in Australia in relation to foreign schemes the relevant exemption was for wholesale clients (not an exemption for investments through an IBC). (Mr Hartnell's letter makes clear what the qualification for a wholesale client was under the legislation.) 2467Mr Halley submits further that the statement in the letter that "separate to the question of registration of a foreign fund the product disclosure regime contained in the Corporations Act provides there is no requirement to give the investor a disclosure statement where no offers or issues of foreign products are made or received in Australia" emphasises the significance of the making or the receipt of the offers in Australia. 2468Mr Hobbs, in his affidavit and cross-examination, explained what he understood by the advice and emphasised that he was not a lawyer. Nevertheless, Mr Halley submits that reliance on this advice as an imprimatur for the activities being conducted was not reasonable particularly given the use by Mr Hobbs of this advice in emphasising the lawfulness of what was being done. (Indeed, the statements made at the DVD seminar seem to me to make it clear that Mr Hobbs well understood that it was not lawful to offer investments of this kind to persons in Australia without compliance with the requirements under the relevant legislation - hence the emphasis on the requirement for incorporation of an offshore IBC. The difficulty for Mr Hobbs is that, being as charitable as one can be in this regard, at best he seems to have assumed that once there was an investment in the name of an offshore IBC, it did not matter what else was done in relation to the investment within the jurisdiction - as indicated by his answers in cross-examination at T 1300 - and any such assumption was fundamentally misconceived.) 2469At T 1290.13ff, Mr Hobbs accepted that he had not asked Mr Hartnell whether it was legal to conduct seminars in Australia to potential subscribers and that his question to Mr Hartnell was limited to the sale of manuals and distribution of newsletters. At T 1292.35, he was asked: Q. And you would agree that Mr Hartnell's advice concerning registration as a foreign company therefore proceeded on the assumption that the only link to Australia was a newsletter sold to Australian subscribers? A. I probably didn't read it as that at the time. 2470Not surprisingly, he was then asked at T 1293.20: Q. When do you say you first appreciated that Mr Hartnell's advice concerning whether FTC had to register as a foreign company in Australia proceeded on the assumption that the only link that FTC had with Australia was the sale of a newsletter to Australian subscribers through retailers or possibly directly? A. I mean just as you are explaining it now. I didn't read into that anything else. 2471The suggestion by Mr Hobbs that he did not understand that Mr Hartnell's advice was based on the activities Mr Hartnell had been told were engaged in by FTC is frankly difficult to accept. The value of any legal advice (and the reliance that a client could place upon it) must be heavily influenced by the content (and accuracy) of the instructions on which it is based. At T 1293.44, Mr Hobbs suggests that as he was not a lawyer, he simply took the advice on its face value. Mr Halley submits that the only meaning that could be attributed to the first part of the advice (by a lay person or otherwise) on its face value would be that it related to what Mr Hobbs had indicated, namely the sale through other people of financial booklets of a very general nature and some newsletters. I agree. 2472As to the second part of the advice, at T 1300, Mr Hobbs agreed that when he had received and read this advice he understood that what Mr Hartnell was saying was that provided everything was offshore, it was outside the reach of the Corporations Act. (He deposes to this same understanding in his affidavit at [18]). At T 1300.28 there was the following exchange: Q. So what I want to suggest to you Mr Hobbs is that when you read this advice you must have appreciated that what Mr Hartnell was saying would not constitute a contravention, was an investment where everything with respect to that investment, the application, the request, the offer, was all done offshore, that's how you understood it at the time you read it, wasn't it? A. I believe so. Q. And that advice would not cover a situation where somebody in Australia made a request for information concerning an offshore investment, would it? A. I am sorry, I don't know. Q. And it would not cover a situation where an offshore entity sent private placement memorandums and investor agreements to investors in Australia, would it? A. I am sorry I don't, I don't know. If it was an offshore company I don't see any reason why not. (my emphasis) ... Q. I am talking Mr Hobbs, so we are not as crosspurposes, about the dispatch of a private placement memorandum and an investor agreement from offshore to an investor in Australia, you understood that Mr Hartnell's advice didn't cover that situation, did it? A. No, I am not sure about that. I believe that if it was sent to an IBC in the name of an IBC it didn't constitute anything. (again my emphasis) 2473Mr Halley submits that Mr Hobbs was either recklessly indifferent to the content of Mr Hartnell's advice or chose deliberately to ignore that it proceeded on a fundamentally false premise as to the scope of the activities that FTC conducted in Australia and the OEM/KLM investment process, namely the premise that the investment process was wholly offshore to offshore with no relevant connection to Australia. 2474I am not satisfied that s 189 is applicable. In particular, I am not satisfied that Mr Hobbs paid more than lip service to the advices obtained in relation to the scheme. Certainly, I consider that any reliance he did place on the Hartnell advice was not reasonable, there being no suggestion that Mr Hobbs made any independent assessment as to whether the actual operation of the scheme fell within the parameters of what Mr Hartnell had advised would be lawful (or that he fully briefed Mr Hartnell at the time that advice was received). In this regard, Mr Hobbs' conduct when the lawfulness of the scheme was queried by Mr Papaioannou in mid 2007 is instructive. There is no suggestion that Mr Hobbs went back to Mr Hartnell and enquired as to whether the initial advice had been correct or whether there was now some other requirement to be satisfied. Mr Hobbs seems to have done no more than to move some aspects of the operation offshore (the printing of the memoranda) and to have continued on regardless. He did seek further advice in relation to the lawfulness of the scheme (and the superannuation components of the Super Save scheme) but, for whatever reason, this time he chose not to go to the expert in the field but to a relatively junior solicitor (to whom he provided the Hartnell advice and who seems largely to have regurgitated that advice, though adding further detail and responding to the superannuation components). 2475I am not satisfied that Mr Hobbs gave any independent thought to the applicability of the advices he received so as to satisfy the requirement of s 189. (Moreover, the incomplete information apparently provided in order to procure the advice suggests strongly to me that it was not sought in good faith - in the sense that there is a reasonable inference that Mr Hobbs' instructions were couched in order to bring the fact situation presented to the advisers within one that would enable the provision of the advice he wanted, without any apparent concern as to the completeness or correctness of that information.) 2476Even if Mr Hobbs could establish that he had relied on the Hartnell advice for the purposes of s 189, I consider that ASIC has proved that such reliance was not reasonable in all the circumstances. Therefore, I do not consider that s 189 affords Mr Hobbs a defence to the contraventions of the civil penalty provisions. Conclusion 2477I am satisfied that the white label or generic investment funds promoted for investment through Mr Hobbs, FTC and the FTC executives constituted a financial product for which an Australian financial services licence was required. No such licence was obtained by anyone involved in the promotion of those funds in this jurisdiction. Therefore, there was a breach of s 911A of the Corporations Act by Mr Hobbs, FTC and each of the corporate and scheme administrators by reason of the provision of financial services without an Australian financial services licence in relation to the marketing of the investment funds (through a combination of the sale of FTC subscriptions and what has been termed the OEM/KLM process, leading to the making of offers and issue of unit certificates or confirmation of investments in this jurisdiction). 2478I further find that there was a breach of s 601ED(5) of the Act by reason of the operation of a unregistered managed investment scheme within this jurisdiction (that being the overall scheme that I have found was comprised by the individual management schemes and the process in which FTC and OEM/KLM were engaged). 2479I summarise the findings as against each of the defendants, below. 2480I find the following contraventions against Mr Hobbs have been proven: * personal contraventions of s 911A and s 601ED(5) (in respect of the collective Hobbs scheme) on the basis that he was involved in the operation of managed investment schemes which were unregistered in this jurisdiction and carried on a financial services business (through the provision of financial services advice and the promotion of a financial product) in this jurisdiction without an Australian financial services licence; * personal contraventions of ss1041E, 1041G and 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act; and * contraventions of ss 180 and 181 as a de facto director of FTC and a shadow director or officer of each of the corporate administrators (by reference to the respective breaches by the corporate administrators of the Corporations Act), as well as contraventions of s 182 of the Act in relation to the benefits gained by himself or others and to the detriment of the following corporations. 2481The aiding and abetting allegations in respect of the contraventions of Mr Koutsoukos, Mr Wood, Mr Truong, Ms Li and Mr Collard and the breach of fiduciary duties owed to investors by Mr Hobbs do not arise for determination in light of the above. I have made varying findings in relation to those. 2482I am not satisfied that Mr Hobbs has established what is necessary for relief to be granted under s 1317S or s 189 of the Corporations Act. In particular, I am not satisfied that reliance on the Hartnell advice was reasonable on the basis that it was predicated on a factual scenario that was known not to be the case (ie that all the steps leading up to the investments occurred offshore). 2483As against Ms Li, the findings are only relevant for the purposes of the liability of others in respect of those contraventions as the proceedings are stayed against Ms Li. I find that contraventions by Ms Li of (ss 911A and 601ED(5) of the Corporations Act, ss 1041E, 1041G and 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act have been established. 2484As against Mr Collard, I find that he contravened ss 911 and 601ED(5) of the Corporations Act, ss 1041E, 1041G and 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act. I find that (to the extent that Secured Bond contravened the Corporations Act), Mr Collard, as a de facto director and officer of Secured Bond, breached his duties under ss 180-181 of that Act. I also find that Mr Collard breached s 182 of that Act by obtaining a benefit by reference to the receipt of funds for his benefit or the transfer of funds for the benefit of others at his direction out of the funds deposited by investors to the funds administered by Secured Bond. 2485As against Ms Wu, I find that, as an officer of Barclaywest and 888 Vanuatu she contravened s 911 of the Corporations Act and ss 1041E, 1041G and 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act. 2486As against each of Messrs Wood, Truong and Koutsoukos I find the contraventions of the Corporations Act and ASIC Act alleged against him (of ss 911 and 601ED(5) of the Corporations Act, ss 1041E, 1041G and 1041H of the Corporations Act and ss 12DA, 12DB and 12DF of the ASIC Act) to have been proven. Those findings are relevant only for the purposes of the liability of other defendants in respect of that conduct as the proceedings have been discontinued against these three defendants. 2487As against Mrs Hobbs, I find that the contravention of s 182 of the Corporations Act has been established. (Had the question arisen, I would have found that she had aided and abetted the contraventions of Mr Hobbs but not of Messrs Koutsoukos, Wood and Truong as alleged.) 2488As against each of ISPL, 888 Vanuatu, Geneva Financial, Preserved Investments, North Wave GP Global, I find the contraventions of s 911A of the Corporations Act proven. (I note that only ISPL and North Wave remain currently registered.) 2489I have considered above the fiduciary duty claims but no findings need be made in that regard, in light of the principal findings. Declarations and Orders sought by ASIC 2490By way of relief, ASIC has sought: declarations that Mr Hobbs and each of the defendants, other than the second defendant against whom proceedings are stayed and the fifth to seventh defendants against whom the proceedings have been discontinued (to which I would presume should be added the corporate defendants that have been deregistered) ("the remaining defendants"),has contravened the relevant sections of the Corporations Act and ASIC Act (including declarations of contraventions of civil penalty provisions pursuant to s 1317E of the Corporations Act); disqualification orders pursuant to s 206C or alternatively s 206E of the Corporations Act against each of Mr Hobbs, Mr Collard and Mrs Hobbs; and pecuniary penalty orders pursuant to s 1317G of the Corporations Act in an amount to be determined by the Court against each of Mr Hobbs, Mr Collard and Mrs Hobbs. 2491ASIC also seeks the following orders pursuant to ss 1101B and 1324(1) of the Corporations Act: (i)orders that each of the remaining defendants be permanently restrained from operating or promoting the individual schemes, carrying on any business related to, concerning or directed to be part of those individual schemes and being in any way involved in the promotion or establishment of or the carrying on of the individual schemes; (ii)orders that for a period of years to be determined by the Court each of the remaining defendants be restrained from carrying on any business related to, concerning or directed to be a registered managed investment scheme within the meaning of the Corporations Act and being in any way involved in the promotion, establishment or the carrying of the business of a registered managed investment scheme within the meaning of the Corporations Act; (iii)orders that each of the remaining defendants be permanently restrained from carrying on any business in relation to financial products or financial services in contravention of s 911A of the Corporations Act; (iv)orders that each of the remaining defendants be permanently restrained, alternatively be restrained for a period of years to be determined by the Court, from carrying on any business in relation to the financial products or financial services or being involved in the carrying on by another person of financial services business. (v)ASIC seeks orders for the winding up and appointment of a liquidator to each of the Pinnacle Fund, Smart Money, Prestige, Enhanced Fund, Elite Premier Option Two Unit Trust, Good Value Fund and the Best Fund. (Mr Collard supports such an application and, towards the close of the hearing, handed up Consents to Act by a proposed liquidator for that purpose; as did ASIC at the conclusion of the hearing - ASIC's proposal being for the appointment of Mr Taylor, the liquidator who was appointed to each of the Integrity Plus, Super Save and Master Fund schemes.) (vi)ASIC also seeks an order pursuant to ss 1323(1)(h) and 1101B of the Corporations Act that a receiver be appointed to Mr Collard and a receiver be appointed over the assets located in each jurisdiction of each of Geneva Financial, Mr Hobbs and Mrs Hobbs. 2492I note that the Court is required to make a declaration of contravention under s 1317E if satisfied that a person has contravened one of the specified sections; such a declaration must specify the civil penalty provision that was contravened, the person who contravened the provision, the conduct which constituted the contravention and the corporation to which the conduct related (s 1317E(2)). Austin and Black note at [9.1317E] that if multiple contraventions are found it may be appropriate for a separate declaration to be made in respect of each contravention but that the Court must not take account of conduct declared to constitute a contravention more that once since this could penalise the defendant more than once for that conduct (citing Adler v ASIC (2003) 179 FLR 1; 46 ACSR 504; [2003] NSWCA 131; Vines v ASIC (2007) 63 ACSR 505; 25 ACLC 867; [2007] NSWCA 126.) 2493I also note that, if satisfied that a civil penalty should be imposed, then there should be a separate hearing in relation to penalty in order to allow submissions to be made as to the circumstances of the defendant and the appropriate penalty (ASIC v Adler (2002) 42 ACSR 74; [2002] NSWSC 510). I consider that ASIC has clearly established a basis for civil penalties to be imposed in light of the contraventions that have been found against the various defendants against whom such penalties might be imposed. 2494In those circumstances, I consider that the appropriate course is to hear submissions on the appropriate declarations of contravention to be made in light of the above findings and for submissions as to penalty. I will list the matter for directions at a convenient time for such a hearing. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 October 2012