Federal Court finds financial services company distributed thousands of misleading brochures.
Squirrel Super fined $55k for false property claims
The Federal Court has fined Squirrel Superannuation Services Pty Ltd $55,000 for engaging in misleading and deceptive conduct involving the investment potential of property in SMSFs.
The court found Squirrel had issued more than 9,000 brochures and emails claiming that residential property could double in value every seven to 10 years and produce annual returns for SMSFs of 14 per cent.
ASIC took the case to court in 2020 after Squirrel failed to pay two infringement notices for the same conduct in 2018.
Squirrel, a financial services licensee, pitched at customers to establish and operate an SMSF in a brochure, How buying established residential property can super charge your superannuation.
The Court estimated that from around March 2015 to January 2019, Squirrel staff distributed the brochure as an email attachment or brochure on 9,420 occasions.
The Court found that the brochure had made a number of misleading representations including that:
- Residential property in metropolitan locations was likely to double in value every seven to 10 years and generate a rental return of around 4-5 per cent per annum.
- Purchasing an $800,000 residential investment property using a 25 per cent deposit from an SMSF and taking out a mortgage for the balance would produce an average total annual return of 14 per cent.
- There is a “remarkable” difference in returns between investing in a regular superannuation fund (7 per cent) and using an SMSF that purchased residential property (14 per cent).
- The costs of managing an investment property through an SMSF are “surprisingly low” compared with using a financial planner to select a series of managed investment funds.
Justice Stephen Burley concluded that Squirrel, in trade and commerce, engaged in conduct in relation to financial services that was misleading or deceptive or likely to mislead or deceive in contravention of s 12DA(1) of the Australian Securities and Investments Commission Act 1989.
Justice Burley stated that Squirrel’s misconduct was compounded when it continued to disseminate the brochure “after receiving verbal feedback about it from attendees in April 2015 and, more particularly, after it had received notification from ASIC about its concerns in July 2018”.
“The fact that Squirrel approved and distributed the brochure over an extended period may be taken to reflect a poor corporate culture of compliance and indicate that Squirrel had inadequate systems in place to ensure compliance with the Act,” he said.
“Further, although there is no evidence as to what profit Squirrel derived from its contraventions, it may readily be inferred that the representations were intended to persuade consumers that the choice of using its services would lead to superior results when compared with investing in a retail or industry superannuation fund and that Squirrel obtained a benefit from its contraventions.”
The Court noted, however, that the former chief executive of Squirrel, Damien Linn – who designed and approved the brochure – was no longer involved in the management of Squirrel.
The company was placed into voluntary administration in August 2019 and is under new management, said Justice Burley.
“There is no suggestion that since it came under its current management Squirrel has engaged in any further contravening conduct. Nor has any evidence been adduced to indicate that any recipient of the brochure suffered any loss or damage arising from receiving it,” said Justice Burley.
Commenting on the decision, ASIC deputy chair Sarah Court said the SMSF sector holds an estimated total value of assets of just over $876 billion.
“Misleading information about SMSFs can greatly impact the sector so it is important that clear and accurate information is provided to those looking to set up an SMSF,” said Ms Court.
“ASIC issued two infringement notices about the Squirrel marketing material that were not paid. Entities should be aware that by not paying infringement notices, they risk higher penalties imposed by the Court.”