By Loretta Lohberger
Copyright abc
A Queensland businessman who had a “magic pudding” approach to valuing the worth of one of his companies has been disqualified from managing corporations for five years.
The Australian Securities and Investments Commission (ASIC) took Dave Hodgson and two of his companies of which he was the sole director — Macrolend and Great Southland (GSL) — to the Federal Court, alleging they were operating without the required financial services licence, and that they made misrepresentations to investors.
In her judgement handed down on Friday in Brisbane, Federal Court Justice Sarah Derrington found Mr Hodgson and the two companies had breached the Corporations Act by carrying on a financial services business without the required Australian financial services licence (AFSL) between 2015 and 2023.
It was a time when Macrolend and GSL raised about $109 million from investors for a software company.
She also found GSL, a company registered in Belize but operating in Australia, did not register as a corporation as required under the Corporations Act.
“Those contraventions are very serious. The requirement to hold an AFSL to carry on a financial services business is an important part of the regulatory framework for the protection of investors and serves an important protective purpose,” Justice Derrington said.
‘Misleading’ conduct findings
Justice Derrington said Mr Hodgson and Macrolend “engaged in conduct that was misleading or deceptive or likely to mislead or deceive” between February 13, 2019 and December 11, 2020 when they “conveyed a representation” to prospective investors that one of Mr Hodgson’s companies Kradle Software had intangible assets valued at $1.02 billion.
She said the company’s balance sheet at that time, prepared by Kradle’s chartered accountants, “recorded intangible assets of $11,810”.
She also found that Mr Hodgson and the companies misrepresented how the investors’ funds would be used.
By the time of the trial, Mr Hodgson and the companies had admitted to all of the contraventions of the Corporations Act, and to two incidents of misleading or deceptive conduct. Mr Hodgson maintained, however, the $1 billion valuation of Kradle.
“In cross-examination, Mr Hodgson maintained that the figure of just over $1 billion was a proper representation of the value of the intangible assets of Kradle as at 30 June 2018, even though he had never sought advice from an accountant or valuer,” Justice Derrington said.
Justice Derrington said Mr Hodgson’s figure was arrived at partly from a Kradle co-director Michael Haddon.
The court heard that Mr Haddon reported to Mr Hodgson. While he was visiting Silicon Valley in the US, a “venture capitalist” told Mr Haddon “that he would pay $US180 million ($273 million) for a minority stake in Kradle”.
“Mr Hodgson confirmed that no particular venture capitalist was identified by Mr Haddon, nor was the name of any fund or firm. Nothing about the possibility of funding was reduced to writing,” Justice Derrington said.
She said the $1 billion figure “was no more than a figure plucked out of the air by an unidentified person at a tech conference who had an unseen, and as yet unlaunched product spruiked to him by Mr Haddon”.
She said while she was unable to find what the actual value of Kradle’s intangible assets was at June 30, 2018, she found it was not the $1.02 billion Mr Hodgson claimed.
‘I cannot accept that he feels any remorse’
Justice Derrington said while Mr Hodgson made “expressions of remorse” before her, in an email he sent to a Macrolend list before the trial, he described ASIC’s actions in investigating and prosecuting him as “massive overreach”.
“Further, and despite his admissions to the contrary, Mr Hodgson to this day does not accept that he, or Macrolend, engaged in misleading or deceptive conduct, nor that Macrolend and GSL were required to hold an AFSL,” she said.
“In the face of these statements by Mr Hodgson, I cannot accept that he feels any remorse, beyond the fact that he became subject to ASIC’s attention, nor that he has demonstrated any true contrition.”
She also said no investor had suffered any loss.
Justice Derrington disqualified Mr Hodgson from managing corporations for five years and permanently restrained him from engaging in financial services without an Australian financial services licence.
Mr Hodgson, Macrolend and GSL were ordered to pay ASIC’s costs.
ASIC deputy chair Sarah Court welcomed the judgment.
Mr Hodgson had been a director and executive officer of multiple companies over a period of almost 40 years.
At the time of Justice Derrington’s judgement, Mr Hodgson was a director of 17 Australian companies and one international company — GSL.
He has previously credited his success with “doing God’s will, God’s way”.
One of his companies, Paladin Hydrogen had proposed what he said would be a “clean” coal to hydrogen project in Tasmania, but that project has now been abandoned.
Mr Hodgson was prohibited in 2015 by ASIC from providing any financial services for a period of two years, after he was found to have contravened various provisions of financial services law.
