Mansfield v R; Kizon v R [2012] HCA 49: It is insider trading Even if Info is False

In the decision Nigel Cunningham Swift Mansfield v The Queen; John Kizon v The Queen [2012] HCA 49 (14 November 2012) the High Court of Australia has held that a person can contravene the prohibitions on insider trading by trading in securities while in possession of •inside information• as described in the Corporations Act 2001 (Cth) even if that information proves to be false.

Background

Where it was alleged that the managing director of AdultShop.com Ltd, a listed public company, told each of the appellants, information about AdultShop's prospects and that appellants shared that information with each other and it was further alleged that, armed with this •inside information•, the appellants bought or procured shares in AdultShop - the appellants were charged with committing or conspiring to commit offences against the insider trading provisions of the Corporations Act 2001 (Cth).

The prosecution in the District Court WA conceded that a jury could not be satisfied beyond reasonable doubt that information about AdultShop's prospects allegedly in the possession of the appellants was true. The trial judge held that a person could generally only commit insider trading if he or she possessed information that was factually correct and therefore entered judgments of acquittal on the AdultShop counts. A majority of the Court of Appeal of the Supreme Court of WA however, took the opposing view and allowed the prosecution's appeal ordering a new trial.

Result

By special leave the appellants appealed to the High Court and submitted that a person cannot be guilty of insider trading by buying or procuring the purchase of shares while in possession of information that is objectively false. The High Court dismissed the appeal, holding that a person can contravene insider trading provisions of the Corporations Act 2001(Cth) even if the information they have proves to be false as long as the statutory criteria for insider trading are met.

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