iSignthis former CEO John Karantzis breached the law, court finds

The Federal Court has found iSignthis and its CEO ran afoul of deception rules, with the corporate cop succeeding in most elements of its long-running case.

ISignthis chief executive officer John Karantzis.

Controversial fintech company iSignthis engaged in misleading conduct and was deceptive, breached continuous disclosure obligations and its former chief John Karantzis gave the ASX false information, the Federal Court has found.

Nearly a year after a trial in the matter wrapped up and about four years after the case was first launched by the Australian Securities and Investments Commission, Federal Court judge Timothy McEvoy delivered his judgement in the long-running matter.

“ASIC has had some substantial success however there have been aspects of the case in which it has not succeeded,” Justice McEvoy said on Friday.

The company was suspended from trading on the ASX in October 2019 amid allegations it did not disclose material information about three integration agreements and the call by Visa to end a deal with the company.

ASIC first launched its case against the fintech company in 2020.

The corporate cop’s allegations arose from two separate periods and sets of circumstances, Justice McEvoy said.

The first period concerned the recognition by iSignthis of about $3m in revenue for one-off integration and set-up services provided to clients under integration agreements, and achievement of performance milestones at the same time the company incurred about $2.9m in one-off costs for the outsourcing services provided under the agreements, Justice McEvoy said.

The agreements were entered into with three customers, being Corp Destination Pty Ltd, Fcorp Services Ltd and IMMO Servis Group s.r.o in the middle of 2018.

Disclosures made by iSignthis to the market and representations made by Mr Karantzis, on behalf of iSignthis, during an analyst briefing on August 3, 2018 about the breakdown of one-off, as opposed to recurring, revenue are the focus of the first period of ASIC’s allegations.

Secondly, ASIC alleged iSignthis did not disclose the fact Visa Inc terminated its relationship with iSignthis to the ASX or the market between April and August of 2020.

Justice McEvoy found ASIC succeeded in proving iSignthis “engaged in conduct that was misleading or deceptive in relation to a financial product” in relation to the one-off revenue period.

“The Court has also concluded that iSignthis breached its continuous disclosure obligations … on and from 3 August, 2018 in the one-off revenue period and in relation to the Visa termination on and from 12 May 2020,” he said.

“In relation to Mr Karantzis, the Court has concluded that he has contravened (the Corporations Act) … in respect of representations he made during the one-off revenue period and by reason of his conduct during part of the Visa termination period.

“Finally, the Court has concluded that Mr Karantzis contravened (the Corporations Act) … by giving information to the ASX that was false or misleading and which omitted matters that, by their omission, rendered the information misleading, on one occasion in May 2020 in the context of the Visa termination, but not the second occasion which was the subject of ASIC’s allegations.”

iSignthis launched but later dropped a lawsuit against the ASX after it suspended the company’s shares with a damages claim of just under $500m.

Costs will be determined at a later hearing.