A property spruiker and his company have been hit by the full force of the law and have been fined a record $18 million penalty for making false or misleading representations about how people might buy a house for $1, among other claims.
The Federal Court imposed the record penalty against We Buy Houses and its director Rick Otton, with the penalty made up by a $12 million fine to We Buy Houses and a $6 million fine to Mr Otton. These are the highest ever fines imposed for contraventions of the Australian Consumer Law.
In addition to the fines, the Federal Court also banned Mr Otton from managing a corporation for 10 years as well as permanently restrained him and We Buy Houses from any further involvement in the supply or promotion of services or advice related to property transactions or investment.
ACCC chair Rod Sims said that We Buy Houses and Mr Otton were peddling false hope to people who were just trying to get a foothold in the housing market or into property investment.
“The record penalties imposed against both We Buy Houses and Mr Otton reflect their egregious conduct,” Mr Sims said.
“They have also effectively been permanently banned from any further involvement in real estate in order to protect consumers.
“These record penalties demonstrate the determination of the ACCC to take strong and effective enforcement action against businesses and individuals who prey on consumers using the false hope of creating financial success. The judgement signals the court’s condemnation of false and misleading property spruiking and get-rich-quick schemes.”
The claims that We Buy Houses and Mr Otton made during seminars, paid boot camps and mentoring programs included:
- Being able to buy a house for $1, without any deposit, bank loan, real estate experience or little to none of their own money;
- Creating a passive income stream through property so people could quit their jobs;
- Property portfolios could be built without a person’s own money invested, new bank loans or any real estate experience; and
- Profits could be made immediately.
Peter Koulizos, chairman of the Property Investment Professionals of Australia, said that he was very happy that “Rick Otton and We Buy Houses ha[ve] been used as an example of what happens when you don’t do the right thing by your clients and consumers”.
He also said that this action was very sorely needed in the property investment advice space.
“We need people that want to come into the property investment advice industry that have minimum qualifications, like educational qualifications, for people that are in the property investment industry to have compulsory continuing professional development,” Mr Koulizos told REB sister publication Smart Property Investment.
“It’s one thing to come in with a diploma or advanced diploma or a degree, but then you need to continue to maintain your qualifications and skills, and then of course we need penalties to back up people that do the wrong thing.
“At the moment, we just have a code of conduct which we hope everybody abides by, but what we need is actual legislation which has some serious ramifications behind it if you do the wrong thing.”
Tim McKibbin, CEO of the Real Estate Institute of New South Wales, also said that more regulation is needed in the property investment space.
“When you look at a huge fine for doing something wrong, in my view, that is, in part at least, a failure of government not to have had the right regulatory framework and enforcement protocols to prevent that problem,” Mr McKibbin told SPI.
“You don’t want a problem; you want to address issues before they become problems, so unless there is some licensing regime brought in, and unless there is some minimum education standards to qualify for a licence, then we are going to be fining people and dealing with problems, which is a reactive position, rather than taking a proactive position where we will address problems before they become such as to deliver poor consumer outcomes.”
When the ruling was made by the ACCC in 2017 that We Buy Houses and Rock Otton were guilty of making false or misleading representations, Justice Gleeson said that the free seminars were “a waste of time” and the boot camps and mentoring programs were “an expensive waste of time”.
“In her judgement on liability, Justice Gleeson said the free seminars were a waste of time, and that the boot camps and the mentoring programs were an expensive waste of time,” Mr Sims said.
The court also found that Mr Otton had made false or misleading representations that he had successfully implemented the wealth creation strategies he taught. In addition, a book authored by Mr Otton, and websites operated by We Buy Houses and Mr Otton, included testimonials from “students” claiming they were able to buy a house for $1, which the court found were false or misleading.
Previously, the largest fine for a company by the ACCC was $10 million, while the largest fine for an individual was $660,000.
Sasha Karen, realestatebusiness.com.au, 15 November 2018