Landmark ACCC result against foreign exchange broker

24 December 1996
On Friday 20 December Justice Branson of the Federal Court found that foreign exchange broker, Chats House Investments Pty Ltd had breached the Trade Practices Act on a number of counts. Chats House and its director, Albert Chan, were found to have breached s.51AA by engaging in unconscionable conduct, s.52 of the Act by engaging in misleading and deceptive conduct, and s53(d), by falsely representing an affiliation with Bankers Trust Australia.

Chats House funds in Australia had previously been frozen by the Court, on the ACCC's application. $894,217 will now be distributed between the 26 former Chats clients, on whose behalf the ACCC ran a representative action. Chats House's operation had involved actively recruiting inexperienced agents, training them poorly, then sending them out to attract clients to the scheme.

Chats clients were required each to pay $20000 as a deposit. Sham foreign currency speculations were then engineered as part of what her Honour described as " elaborate charade designed to convince Chats clients that...they were engaging in genuine foreign exchange margin trading". The fact was that Chats very rarely took an open position on behalf of its clients.

In most cases clients were required to pay additional monies in "margin calls" which Chats misrepresented as being required by the banks through which it dealt. The ACCC's case asserted that Chat House had regularly contrived to maximise the amount that its clients lost in speculations.

Justice Branson also found that Chats had remitted deposits and interest charges paid by its clients, to an associate of Chats in Singapore. She found that s.51AA had been breached in that Chats "deliberately and unconscientiously took advantage of its superior position of understanding and knowledge in circumstances in which its clients were in a position of special disadvantage and without the ability to make judgments in their own best interests."

ACCC Chairman, Professor Allan Fels, said: "This case sets several landmarks. It is the first time that a Court has made a decision on a breach of s.51AA which relates to unconscionable conduct in business dealings. It establishes a general principle that the ACCC can bring actions under the Federal Court's 'class action' provisions. And it marks a successful conclusion to a joint exercise between the ACCC and the Australian Securities Commission. Evidence gathered by the ASC was invaluable".
Release number: 
MR 181/96
ACCC Infocentre: 

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