Small business targeted by ASIC over diamond trading scheme speaks out

A small business accused of an “elaborate diamond trading scheme” by the Australian Securities and Investments Commission has spoken out against the watchdog’s allegations, calling them “a complete and utter lie”.

Queensland-based credit company Fast Access Finance told SmartCompany the regulator has “killed its business” through ongoing investigations.

ASIC has filed proceedings in the Brisbane Federal Court against FAF for allegedly pretending to swap diamonds for credit in order to avoid consumer credit laws.

The regulator claims the business’s customers, who were allegedly obtaining loans of between $500 and $3000, had to sign documents which said it was for the purchase and sale of diamonds before they were able to obtain a loan.

ASIC, which became the consumer credit law regulator as of mid-2010, claims there was no diamonds involved, but FAF legal counsel Rob Legat told SmartCompany the business takes a different view entirely.

“We have given ASIC evidence of the existence of diamonds and it’s never requested further information on that.

“There were a lot of individual customers, but for privacy reasons I can’t disclose them. However, there were also businesses such as a company called Diamond Clearing House, which is now de-registered, and there was also a company called Teracast, which still has a trading presence in Australia.”

SmartCompany contacted Teracast to try and confirm the nature of the businesses trading relationship, but received no response prior to publication.

Court documents from October 2011 revealed FAF and Diamond Clearing House had been doing business together, although the exact nature of the arrangement was unclear.

In the case, the businesses were ordered to repay $1500 to two respondents, as the court ruled FAF was not able to retain the interest paid on a lending agreement under the Queensland Consumer Credit Code.

ASIC claims the diamond contracts were created to allow the business to escape the requirement to hold a licence for lending activities and the 48% per annum interest rate cap which applied at the time.

The regulator said FAF customers who signed the diamond contracts to borrow $500 were charged an additional $1 for every $1 borrowed.

However, Legat says FAF started trading in diamonds in 2008, one year before the National Consumer Credit Protection Act was introduced.

“How could have we created a method of operation to avoid something which didn’t exist yet?”

“We were licensed under the Second Hand Dealers and Pawn Brokers Act. Gem stones are considered to be second-hand property, so we needed to be licensed to deal with them,” he says.

Legat says the businesses in question – FAF Beenleigh and FAF Burleigh Heads – are no longer accepting new business.

“FAF Beenleigh and FAF Burleigh Heads are no longer trading and they’re seeing out their current commitments. They stopped from about June 30 last year,” he says.

Legat claims the FAF businesses stopped trading in diamonds under the alleged model in the first quarter of last year and it had been previously cleared of breaching consumer credit laws by Queensland authorities.

ASIC is yet to respond to questions asked by SmartCompany based on FAF’s claims, including the time frame of its allegations.

SmartCompany contacted the Queensland Office of Fair Trading and questioned whether or not it had investigated FAF in the past, but received no response prior to publication.

The decision to stop operating the Beenleigh and Burleigh Heads businesses, Legat says, was “ultimately its own decision”, but it was motivated by ASIC investigations, which he says were ongoing for a period of more than two years.

“ASIC never came to us and said exactly what they thought we were doing wrong. We requested the chance to sit down with them on a few occasions, but we were rejected,” he says.

The case is ongoing and is listed to be heard on September 20, 2013 in the Brisbane Federal Court.