Morgan’s violation of regulation and conflict of interests leads to a lawsuit

Morgans, a former stockbroking giant, violated financial regulations according to internal regulatory documents and is currently facing legal claims for providing poor financial advice.

Australian Securities and Investments Commission (ASIC) has described the breaches as “concerning” within its internal emails, but details have been redacted.

The emails were released under freedom of information laws. The documents illustrated ASIC’s investigation on behalf of the clients of Morgans Financial who had invested in EPIC Diversified Property Funds or had received advice from Morgans’, Emerald’s central Queensland branch, or manager Thomas “John” Kirby.

Morgans and Kirby have four cases against them in Queensland court filed by Holman Webb. Webb claims his clients suffered losses after Morgans and Kirby promoted EPIC to his clients. Webb also claims Kirby was an investor and former director of EPIC, and therefore promoting EPIC is a conflict of interest. Morgans and Kirby have yet to file a defence.

Morgans have also faced other legal proceedings for providing poor advice to investors, including a single mother and a retired cattle farmer diagnosed with leukaemia at four other branches.

The organisation has resolved more than 60 claims from disgruntled clients and defended some legal claims. A time-restricted review has also been initiated quietly to compensate clients of an adviser in the Sunshine Coast.

Morgans (Brisbane-based) claims to have the largest “full-service stockbroking and wealth management network” boasting more than 500 representatives in Australia.

Court case

Problems have hit the Emerald branch, which was separated from Morgans in late 2015. One of the cases is posed by Lana Roberts. Roberts was looking after two children at the time and working in secretarial and retail roles. She claims Kirby had provided her with advice for ten years between 2006 and 2016.

Roberts allegedly wanted to “set herself and her kids up” and utilize a $900,000 divorce settlement to fund a mortgage and schooling.

Her lawsuit then claims Kirby replied to her advising EPIC Property Investment because the company was “producing very good returns” and that was the “best way” to go.

It was due to this advice she invested nearly $800,000 into EPIC in 2006, another $100,000 in 2009, and sold a minor portion of her holdings. Roberts claimed that as a result of her investments, she eventually suffered “substantial financial losses.”

Robert’s lawsuit also claimed that a conservative or balanced investor was supposed to be designated to Ms Roberts, but the strategy of involving EPIC should be for aggressive or speculative clients. It also described “the portfolio lacked diversification”.

Furthermore, allegations state a conflict of interest, as Mr Kirby had been a director and investor of EPIC at the time of her investment and the time in which she received her investment advice. Kirby received commissions as a result of introducing clients to the fund. The compliance officer of Morgans supervising Kirby’s work was also an EPIC investor.

The FOI documents demonstrate after Morgans publicly agreed with ASIC to licence restrictions for its overall operations in 2015, the Emerald branch separated from Morgans soon after. At that time concerns were raised about Morgans’ “monitoring and supervising its representatives after a number of serious breach incidents over recent years”.

One ASIC officer’s email suggested the regulator should  “perhaps request information regarding the circumstances of this branch and others leaving”.

A register of the branch’s breaches was attached and two listed incidents were related to Kirby as the adviser.

Breaches can be minor matters or big problems but the ASIC officer writing: “Although these incidents are somewhat dated they are concerning.” is the only detail not redacted in these cases.

Given the large scale of Morgans, branch closures and defections could be normal, but also could be an “inevitable consequence of ASIC attention”, claimed an ASIC officer.

“This is likely only the beginning and once a real change is effected through the licence conditions exercise, we should expect, at least as one likely scenario, that there will be many more.”

Working at the Emerald branch of Burrell Stockbroking currently and not having any disciplinary actions listed in ASIC’s public database, Mr Kirby refused to comment on the case.

As a corporation that had ASIC-triggered oversight restrictions lifted in 2019 and earned praise from a compliance consultant for its internal reforms, Morgans did not acknowledge questions regarding the issue.

ASIC also refused to comment on the case.

Originally published by Liam Walsh on Financial Review.