'Exploited' investors lose fortune, $280m fines mulled

Brokerages found to have profited handsomely from vulnerable customers who lost millions of dollars on highly risky investment products could be hit with $280 million fines.

Investors lost $83 million by investing in complex, high-risk over-the-counter derivatives pushed by foreign exchange broker Union Standard International Group and its two authorised representatives between 2018 and 2020.

Union Standard and the two representatives EuropeFX and TradeFred committed hundreds of contraventions of corporations and financial law through systemic misconduct that targeted inexperienced consumers, the Federal Court found in December.

The complex products allowed customers to speculate on the change in value of an underlying asset, such as foreign exchange rates, stock market indices, single equities, commodities or crypto-assets.

The court found some customers were "flying blind during most, if not all, of the time" that they traded derivatives with EuropeFX.

The Australian Securities and Investments Commission (ASIC) is now seeking fines totalling $287.1 million against the three firms.

EuropeFX, the only one not in liquidation, should face a $114.1 million penalty, ASIC barrister Luke Livingston SC argued during a hearing on Tuesday.

The firm's revenue was directly linked to customers' trading losses, he said.

"In short, the more its customers lost, the more revenue it earned," he told Justice Michael Wigney.

The judge found in his December decision that all three firms had profited "handsomely" from their conduct.

Union Standard and TradeFred - both unrepresented at the hearing - should be fined $143.5 million and $29.4 million, Mr Livingston said.

EuropeFX has pushed for a lower penalty of $40 million, claiming ASIC's proposed fine was "double punishment".

ASIC argued the lower amount was insufficient to deter similar unlawful conduct in the future.

EuropeFX's barrister Michelle Painter SC said her client should be hit with a lower penalty than Union Standard as that was the firm issuing the financial products in the first place.

The company claimed at a prior hearing on liability that it had relied on Union Standard to train its staff properly.

Justice Wigney rejected those allegations.

EuropeFX's account managers unlawfully gave personal financial advice, pressured customers into depositing more funds and made misleading statements regarding investments, he found.

The firm also tried pressuring customers who had threatened to go to the Australian Financial Complaints Authority into accepting modest settlements instead, he said.

"EuropeFX's conduct was so far outside societal norms of acceptable behaviour in respect of the provision of financial services as to warrant condemnation as conduct that is offensive to conscience," he said at the time.

The judge also found Union Standard did not warn customers based in China they would breach Chinese law by investing in its products.

Several Union Standard directors have been banned from providing financial services based on their conduct at the firm or other companies.

The hearing continues.