Australia’s financial regulator ASIC has announced that it has commenced civil penalty proceedings in the Federal Court against RegTech solutions provider iSignthis Ltd and its managing director and chief executive officer Nickolas John Karantzis.

iSignthis (ASX:ISX) is publicly traded, but its shares have been halted for more than a year by the ASX, after the exchange operator questioned iSignthis’ disclosures. The company has unsuccessfully sued the ASX to have its shares unfrozen.

iSignthis provides automated payment verification and payment services to financial services clients, including numerous Retail FX sector firms, to help them meet KYC requirements under anti-money laundering regulations in different jurisdictions.

The proceedings allege breaches by iSignthis of its continuous disclosure obligations and allege false and misleading representations under the Corporations Act. In addition, the proceedings also relate to Mr Karantzis’ involvement in those alleged breaches by iSignthis, as well as breaches of directors’ duties and his failure to take reasonable steps to ensure information that he gave to ASX was not false or misleading.

ASIC alleges that iSignthis failed to disclose material information in relation to three integration agreements in breach of its continuous disclosure obligations.

The integration agreements were entered into with three customers – Corp Destination Pty Ltd, Fcorp Services Ltd and IMMO Servis Group s.r.o. The agreements provided one-off integration and set-up services for trading platforms. ASIC alleges the revenues derived under the agreements resulted in iSignthis achieving performance milestones which caused the allocation of 336,666,667 performance shares, a substantial majority of which were allocated to the directors of iSignthis, including to Mr Karantzis.

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. 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 also alleges iSignthis made misleading representations about the revenues derived from the three integration agreements in an analyst briefing given by Mr Karantzis on 3 August 2018, when it stated that iSignthis’ revenue for one-off or up-front fees accounted for less than 15% of the total revenue in the fourth quarter to 30 June 2018, when ASIC alleges it actually amounted to 75% 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’s proceedings also relate to iSignthis’ statements about the 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, which included that, according to VISA “iSignthis is not operating appropriate programs to manage Anti-Money Laundering and Risk”.

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.

The Notice of Filing and Hearing filed by ASIC against iSignthis can be seen here (pdf).