Operating a Financial Services Business Without a Licence in Australia

New South Wales Police believe that missing Sydney woman Melissa Caddick is still alive, despite the fact she has not been seen since she disappeared without a trace on 12 November 2020.

Ms Caddick did not take her mobile phone, wallet or keys when she left her home in Dover Heights in the early hours of the morning. Police believe her conduct suggests she may have done left the items behind to make it look like she had become the victim of a crime.

Caddick’s home, which is where she worked as a financial adviser, was raided by the Australian Federal Police the day before her disappearance as part of an ongoing investigation by the Australian Investment and Securities Commission (ASIC) into allegations she had been operating a financial services business without a licence.

The investigation also suggested she may have been defrauding investors – many of whom were her family and friends – of millions of dollars by taking their money and using it to fund her lavish lifestyle rather than actually investing it.

Ms Caddick surrendered her passport at the time of the raid, and her assets have been frozen.

Operating a financial services business without a licence

The Financial Services Industry is governed by the Corporations Act 2001 (Cth).

Under section 911A of the Act, a person who carries on a financial services business must hold an Australian Financial Services License (AFSL) covering provision of those services.

Failure to comply is an offence that carries a maximum penalty of five years imprisonment and/or a fine of up to $126,000 for an individual or $1,260,000 for a corporation.

Section 911C of the Act prescribes a maximum penalty of two years in prison for any person who falsely holds out that:

• They hold an AFSL,
• The financial service provided does not require an AFSL,
• They are providing a financial service on behalf of someone else, or
• Their conduct is within the scope of their AFSL.

ASIC has the power to ban a person from trading within the industry for a specified period of time if it suspends or cancels the AFSL held by the person or if the person does not comply with their AFSL obligations.

Illegal Ponzi scheme

Police suspected that operating without a valid licence may have been just the tip of the iceberg when it comes to Ms Caddick’s conduct.

The suspect she may have misappropriated funds via an illegal ‘Ponzi scheme.

Ponzi schemes are where interest payment are made to existing investors with funds obtained from new investors, rather than from the profits of any investment.  There is typically no real investment at all, and investors are often mislead through the provision of false documents to believe real profits are being generated.

Anyone caught running a ponzi scheme or similar type of scam can be charged with fraud or money laundering offences.

Documents tendered to court by ASIC earlier this year show that, between January 2018 and September 2020, more than $20 million was withdrawn into Ms Caddick’s direct investment account and spent funding a lavish lifestyle that included holidays in Aspen, couture gowns, designer clothes, handbags, shoes and jewellery.

Investors are seeking answers and refunds

The documents also suggest that Ms Caddick’s “suspected contraventions” could have started as early as 2009. More than more than 60 people have lost about $13.1m investing with Ms Caddick and her company.

What appears to be frustrating ASIC now is that because of the way clients’ accounts were set up, it’s not a straightforward exercise to unravel what money is where, and who it belongs to. A liquidator has now been appointed.

Fifteen investors have engaged legal representation in an attempt to recoup what they can of their money.

Faking your own disappearance or death

NSW Police are treating the case as a missing person, and hold suspicions that Ms Caddick may have faked her own disappearance.

In New South Wales, it is not illegal to fake your own disappearance or your own death, although in our digital age it is difficult to do.

That said, criminal liability may arise where the intention behind the disappearance is to dishonestly obtain a benefit by a deception – which can amount to the offence of fraud – or where a false report results in the wasting of police time and resources.

Fraud in NSW

Fraud is outlined under section 192E of the NSW Crimes Act 1900, which says that:

‘A person who, by deception, dishonestly obtains property belonging to another, or obtains any financial advantage or causes any financial disadvantage, is guilty of the offence of fraud.’

The maximum penalty is 10 years’ imprisonment.

Fake IDs

Heavy penalties also apply for those who make fake identity documents, such as passports or driver licences, in a bid to reinvent themselves and start afresh.

Under section 192K of the NSW Crimes Act, a person who possesses identification information with the intention of committing, or of facilitating the commission of, an indictable offence is guilty of an offence.

The maximum penalty is 7 years imprisonment.

Wasting police time

In New South Wales there is also an offence of ‘public mischief’ under section 547B of the NSW Crimes Act 1900, which comes with a maximum penalty of 12 months’ imprisonment and/or a $5,500 fine.

You can be charged with this offence if you knowingly make a false representation to a police officer about an act which calls for an investigation and therefore wastes police time and resources.