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Protection for Investors

Litigation: 23 March 2019

In times of a rising share market and at the end of the financial year it is useful to be reminded of the protection afforded to investors by various provisions of the Corporations Act, in particular, Chapter 7 of the Corporations Act.

Section 761G draws a distinction between retail and wholesale clients with retail clients being afforded a greater level of protection than a wholesale client.  Amongst other things a wholesale client includes a person who is a professional investor.  The Corporations Act provides for a greater level of disclosure required for retail client, for example:

  • in relation to financial services, in particular the requirement that a retail client is to be provided with a Financial Services Guide: Part 7.7;
  • in relation to financial products, in particular the requirement that a retail client is to be provided with a PDS: Part 7.9.

The Corporations Act also provides more general protection to investors (being both retail and wholesale clients) including in relation to:

  • false and misleading statements: s 1041E - a person must not make false and misleading statements that are likely to induce a person to apply for, dispose of or acquire financial products;
  • inducing persons to deal: s 1041F - a person must not induce another person to deal in financial products by disseminating misleading or deceptive material or dishonestly concealing material facts;
  • dishonest conduct: s 1041G - a person must not act dishonestly in connection with financial services or products; and
  • misleading and deceptive conduct: s 1041H - generally prohibits persons from engaging in conduct which is misleading or deceptive or is likely to mislead or deceive.

Breaches of these obligations could lead to criminal prosecution and / or also allow a person who has suffered loss and damage by reason of the breach of these obligations to seek recovery of the loss and damage from the person involved in the contravention. 

These rights are of course in addition to rights under other legislation for example the Trade Practices and Fair Trading Acts and at common law.

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