Some days ago, the directors of two ASX listed companies known as Hallmark Gold (now called Hallmark Consolidated Limited) and Welcome Stranger Mining Company (now called Commsecure Limited), Stuart Adrian Corp. and Brian Millwood Smith, were jailed for taking part in a share warehousing scheme. They were sentenced to three years in prison in the District Court, on a total of 29 charges brought by the Australian Securities and Investments Commission (ASIC).
The ASIC Act charges against these persons were brought from their conduct as directors of these companies. ASIC alleged that Mr Corp. had an undisclosed beneficial interest in shares in Hallmark Gold and Welcome Stranger, which were held through the use of offshore companies registered in the British Virgin Islands and Gibraltar, namely Courtenay Investments Limited, Davenrite Limited, and Happle Limited. ASIC alleged that the shares were used by Mr Corp to vote on related party resolutions at general meetings of Hallmark Gold and Welcome Stranger, which delivered him a benefit. Mr Smith was alleged of warehousing shares in Hallmark Gold and Welcome Stranger, through the use of these offshore companies domiciled in the BVI and Gibraltar.
ASIC also alleged the directors of making false and misleading statements and documents at compulsory ASIC examinations, and therefore obstructing the Commission and destroying documents relating to the ASIC investigation. Jan Redfern, ASIC’s executive director of enforcement, said the market’s integrity relied on directors of listed companies acting honestly and transparently, but the actions of these Mr Corp and Mr Smith undermined confidence in the market and demonstrated a blatant disregard for the law.
This is the first successful prosecution by ASIC relating to the use of offshore companies to avoid disclosure of directors’ interests, and followed a complex investigation by ASIC in Australia and overseas.