Australia's corporate watchdog is seeking penalties against iSignthis (ASX: ISX) and wants its CEO and co-founder John Karantzis barred from managing corporations, amidst allegations the technology group failed its disclosure obligations and misled the public.
iSignthis has now been suspended from ASX trading for more than 14 months and has engaged in a bitter war of words with the market operator, but now the Australian Securities and Investments Commission (ASIC) is out to give the company a grilling in court.
ASIC also alleges iSignthis made false and misleading representations under the Corporations Act, and the proceedings also relate to Karantzis' involvement in the alleged breaches as well as allegations he breached his directors' duties.
Karantzis, who is now also CEO of National Stock Exchange of Australia (NSXA, ASX: NSX) following an investment and technology partnership with iSignthis, is also alleged to have failed to take reasonable steps to ensure information that he gave to ASX was not false or misleading.
The watchdog argues an alleged failure to disclose key information about three integration agreements, whose revenues ASIC alleges allowed iSignthis to achieve performance milestones that triggered more than 336 million performance shares to be given mostly to directors, including Karantzis.
ASIC explains integration agreements with its customers Corp Destination Pty Ltd, Fcorp Services Ltd and IMMO Servis Group s.r.o provided one-off integration and set-up services for trading platforms.
"Specifically, ASIC alleges iSignthis failed to disclose that in the fourth quarter to 30 June 2018, it had recognised approximately $3 million in revenue that was one-off and non-recurring," the watchdog states.
"It is alleged that the revenue was derived from the integration agreements.
"In addition, ASIC alleges that iSignthis failed to disclose it had incurred approximately $2.85 million in one-off costs for out-sourcing services, which ASIC contends was for the supply of the integration services."
ASIC alleges the company made misleading representations about the revenues derived from the three integration agreements in an analyst briefing given by Karantzis on 3 August 2018, stating revenue for one-off or up-front fees accounted for less than than 15 per cent of total revenue in the fourth quarter to 30 June 2018.
In contrast, the regulator alleges this actually amounted to 75 per cent of the total unaudited revenue for that period.
"ASIC also alleges that Mr Karantzis was involved in the failure of iSignthis to comply with its continuous disclosure obligations and that Mr Karantzis contravened his directors' duties under the Corporations Act," ASIC states.
But that's not all. ASIC has also taken aim over an issue that has drawn much ire from the ASX as well - that being iSignthis' statements about a suspension and termination of its commercial relationship with VISA.
"ASIC alleges that by 17 April 2020, iSignthis failed to disclose that VISA had terminated its relationship with iSignthis and iSignthis eMoney Ltd, and failed to disclose the reasons for VISA's decision to terminate.
The regulator claims that those reasons were that "iSignthis is not operating appropriate programs to manage Anti-Money Laundering and Risk", in the words of VISA.
"ASIC alleges Mr Karantzis also failed to take reasonable steps to ensure information that he gave (and authorised to be given) to ASX regarding the suspension and termination by VISA was not false or misleading.
"ASIC is seeking declarations and pecuniary penalties against iSignthis and Mr Karantzis. ASIC is also seeking orders that Mr Karantzis be disqualified from managing corporations.
"The date for the first case management hearing is yet to be scheduled by the Court."
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