The corporate regulator has warned Google to carefully consider the implications of a court decision that found people were misled into tipping money into high-risk investments after following sponsored links in search results.
In a decision handed down on Tuesday, the federal court judge Stewart Anderson found the search ad campaign formed part of a broader pattern of misleading and deceptive conduct by Mayfair 101, an investment company best known for buying Queensland’s Dunk Island.
Mayfair 101 promoted two of its investment products by buying advertising keywords from Google that included “best term deposits” and “term deposit rates”, the court heard.
It also advertised on Google’s smaller rival, Bing, which is owned by Microsoft, and in newspapers including the Courier-Mail and the Australian Financial Review.
The court heard that when investigators from the Australian Securities and Investments Commission searched Google for term deposits in January last year, the first result linked to termdepositguide.com, which, as Guardian Australia has previously reported, was a site run by Mayfair 101. The second result was the Mayfair 101 website.
Mayfair 101 bought Dunk Island in September 2019 for more than $30m and promised to relaunch the cyclone-ravaged resort at a party attended by celebrities and influencers including the singer Ricki-Lee Coulter and the MP Bob Katter.
It also promised to spend more than $135m buying 230 properties from locals in the Mission Beach area near the island.
To fund the spending spree, Mayfair 101 raised $140m from investors in two products, M+ Fixed Income and M Core Fixed Income, which Anderson said had “significantly higher risk than bank term deposits” because they lacked the same legal protection as bank deposits and because the Mayfair 101 vehicle that sold them was insolvent.
The group’s advertising campaign “was misleading or deceptive and created a false and misleading impression that the Mayfair products were comparable to, and of similar risk profile to, bank term deposits”, Anderson said.
Mayfair 101 did not defend itself in the court proceedings but Karen Chester, Asic’s deputy chair, said it set an important precedent the regulator would use to defend consumers. “Search engines need to consider what this decision means for them,” she said.
Asic does not directly regulate Google’s advertising business but Chester had previously warned company boards they needed to consider non-financial risks, such as reputational damage, when considering their duties as directors.
“Acting in the best interests of consumers is in shareholders’ interests,” she told Guardian Australia. “This is a new and emerging area of law and this case sends a really strong message.”
Chester said the ruling was also important because it extended the legal principles protecting consumers from misleading and deceptive marketing.
“Justice Anderson has said the advertising rules extend to the way you use a search engine to draw people into your website and marketing in the first place,” she said. “If you entice someone in that way, and it’s misleading and deceptive, you’ve broken the law.”
The regulator’s deputy chair said the case also bolstered Asic’s “true to label” project – an effort to make sure that financial products, which can be complex or difficult to understand, perform as advertised to consumers.
“This case is a good proof point that true to label is enforceable, and not just a nice idea,” Chester said. “This gives us something with some heft that we can and will use across the industry in our continued true to label work.”
The case also illustrated the difficulties of dealing with marketing targeted at people who qualified as so-called wholesale investors owing to their personal wealth.
Wholesale investors enjoy less protection because they are presumed to be able to understand complex financial products.
This was not true of some of the investors in Mayfair 101’s products, Chester said.
“These investors are vulnerable people who are not sophisticated investors, who have nest eggs – that’s who this marketing targeted. This case shows that marketing must be true to label, whether the customers are retail or wholesale or both.”
Dunk Island has been repossessed, the part of Mayfair 101 that issued the M+ Fixed Income and M Core Fixed Income notes is now in liquidation and, in separate court proceedings that have yet to be determined, Asic is trying to have Mayfair 101’s founder, James Mawhinney, banned from being involved with the investment industry.
Mawhinney said Mayfair 101 “had a defensible case however it was not feasible to defend ourselves against an infinitely well-funded government department”.
“All our advertising was signed off by the group’s lawyers and was deemed compliant within the Corporations Act,” he said.
Google has been contacted for comment.
An Asic team that monitors investment management companies initially became concerned by Mayfair 101’s newspaper advertising blitz, which Guardian Australia reported on in September 2019.
Acting on concerns about the underlying products, Asic’s enforcement team became involved, with a formal investigation opened in late January 2020.
