ASIC commissioners directly warned about Nuix prospectus

Senior ASIC commissioners were urged personally that given sensitive government clients, Nuix’s prospectus warranted close attention.

Nuix CEO Rod Vawdrey speaks at the firm’s listing ceremony in December 2020. Picture: Bianca De Marchi

The nation’s most senior corporate regulators, including ASIC deputy chair Karen Chester, were warned in November the Nuix prospectus demanded extra scrutiny despite the agency’s limited resources, due to the highly-sensitive nature of Nuix’s clients that include the Australian government, other departments and overseas intelligence services.

The Australian and Securities and Investments Commission also received an initial complaint about the forensics and investigative software company as far back as February 2020 - 10 months before its $1.8 billion float - with an anonymous complainant telling ASIC in an online form that “someone is breaching the law”.

It comes as Nuix comes under increasing pressure because of a string of corporate governance issues and three profit warnings since its December IPO.

Nuix’s latest earnings downgrade, on Monday, sent its shares almost 20 per cent lower, bringing to 80 per cent the total share price collapse from its peak earlier this year.

Internal ASIC emails and letters released to The Australian under Freedom of Information laws revealed repeated warnings from a lawyer representing a former high-ranking Nuix executive that the regulator needed to properly investigate the company’s prospectus due to a range of alleged deficiencies, including relating to financial controls and escrow periods for major shareholders.

However the prospectus was given the ASIC seal of approval within 12 days and the concerns dismissed.

Nuix became the largest IPO of 2020 but its shares later crashed as corporate governance holes appeared and its financial forecasts proved illusory.

Aperion Law director Mark Allen wrote to ASIC a number of times last November on behalf of an unnamed client raising serious allegations about Nuix operations, its accounts and the prospectus. These letters triggered an ASIC investigation which later cleared the Nuix prospectus.

On November 26, Mr Allen directly emailed ASIC deputy chair Ms Chester as well as commissioners Cathie Armour, Sean Hughes and Danielle Press to bring to their personal attention a previous complaint about Nuix.

Mr Allen’s unnamed client was eager to escalate the concerns expressed about aspects of the content of the Nuix prospectus, namely an alleged significant risk disclosure.

“Our client had expected the matters referred to would have be taken seriously with the result that the exposure period would have been extended to allow ASIC time to investigate and determine if it was appropriate for any regulatory action to be taken.

“Our client is surprised that whatever vetting occurred before release of the prospectus November 18 had not already resulted in amendments being made,” Mr Allen’s letter to ASIC commissioners read.

Nuix CEO Rod Vawdrey rings the bell at the Australian Securities Exchange in December 2020. Picture: Bianca De Marchi

Mr Allen then reminded the ASIC commissioners that given the highly sensitive and confidential nature of Nuix’s work and clients, which includes Australian and foreign governments as well as various intelligence agencies, the regulator needed to properly investigate the prospectus.

“Our client understands that, having regard to the limitations on the resources available to ASIC to pre-vet every prospectus lodged with it, a decision may have been taken to allocate resources to the vetting of other prospectuses lodged by promoters and their advisers without the credentials of those associated with Nuix.

“In our client’s view the very nature of Nuix’s business (and the fact that it counts among its clients many Commonwealth government departments and agencies) required extra care to be taken to the offer even without the benefit of the matters we raised in our first letter.”

Mr Allen said in his letter the matters called for extra vigilance to be taken for the protection of investors – especially retail investors.

“Our client urges you to ensure that the matters are investigated to ensure confidence is maintained in the Australian financial sector and that this does not become another example of too little being done too late.”

In a separate complaint lodged with ASIC in February 2020 a form was filled in and in response to the question “What is the problem you want to tell ASIC about” the response was: “Someone is breaching the law”.

The anonymous complainant, who said he was a shareholder in Nuix, told ASIC that Nuix had not lodged its consolidated accounts for almost seven months after the end of fiscal 2019 despite the law requiring accounts lodged within four months of the year end.

“In addition, I strongly suspect the company should have produced consolidated accounts for FY 2018 - but failed to do so.”

In answer to the question on the ASIC form, “Tell us what kind of outcome you are expecting”, the box was filled with the sentence: “I just want to bring it to ASIC’s attention, investigation.”