ASIC launches legal action against iSignthis and John Karantzis

ASIC has launched legal action against the ASX-listed payments group iSignthis.

iSignthis chief John Karantzis.

The corporate regulator has launched legal action against iSignthis and its chief John Karantzis alleging a failure to meet continuous disclosure requirements.

The Australian Securities & Investments Commission is alleging Mr Karantzis failed to take reasonable steps to ensure information he gave to the ASX regarding the suspension and termination of a deal with Visa was not false or misleading.

ASIC is seeking declarations and civil penalties against iSignthis and Mr Karantzis, including a ban on him managing corporations.

This comes after the under-siege technology group was suspended from trade on the ASX in October last year amid accusations it had failed to disclose material information in relation to three integration agreements and the decision by Visa to end a deal with the company.

ASIC alleges that by April 17, 2020, iSignthis had failed to disclose the reasons for Visa ending its deal, including that Visa had indicated iSignthis was “not operating appropriate programs to manage Anti-Money Laundering and Risk”.

Court documents state iSignthis made “false or misleading claims” when it told the market the relationship with Visa “was terminated in the context of rule changes by Visa that are inconsistent with the business model of ISX”. But the documents show that Visa told iSignthis that it appeared “to have a fundamental misunderstanding of its role as a Visa client and a responsible acquirer”.

“It is indicative of a reluctance to meet Visa’s standards that iSignthis did not propose to take steps to terminate client agreements or address control deficiencies until Visa had issued the Termination Letter,” Visa said.

“In order to get to a level which would satisfy Visa that iSignthis is no longer introducing excessive risk into its payments network, there would need to be a significant shift in corporate culture regarding risk and a complete redesign of the IST Risk Programs.”

The regulator also alleges that reported revenues for iSignthis derived under the three integration agreements in question led to company directors achieving performance milestones and endowed Mr Karantzis with a performance bonus.

ASIC alleges 366,666,667 shares were allocated to directors of iSignthis, including Mr Karantzis, after it posted almost $3m in revenue. Red 5 Solutions (BVI), a company of which Mr Karantzis’s brother Andrew Karantzis was a director and shareholder, was allegedly the beneficiary of 130 million shares from this deal.

Mr Karantzis’s mother, Konstantina Karantzis, was also allegedly the beneficiary of two million shares.

ISignthis allegedly failed to tell the market that it had recognised almost $3m in revenue “that was one-off and non-recurring”.

“In addition, ASIC alleges that iSignthis failed to disclose it had incurred approximately $2.85m in one-off costs for outsourcing services, which ASIC contends was for the supply of the integration services,” ASIC said.

“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 August 3, 2018, when it stated that iSignthis’ revenue for one-off or upfront fees accounted for less than 15 per cent of the total revenue in the fourth quarter to June 30, 2018, when ASIC alleges it actually amounted to 75 per cent of the total unaudited revenue for that period.”

In a response lodged with the market late on Monday, iSignthis acknowledged the claim but said it would withhold making further comment until “it has had the opportunity to consider the allegations”.

“The company notes that the claim is focused on disclosures regarding integration agreements executed in the first half of 2018 and the suspension and termination of its commercial arrangement with Visa earlier this year,” iSignthis said.

The court date for the first case management hearing is yet to be scheduled. ISignthis has been embroiled in an ongoing series of legal battles and skirmishes with regulators and the ASX since it was suspended in October 2019.

In December it launched a case against the ASX fighting its market suspension and attempting to keep the exchange’s reasons for its suspensions secret.