Insider Trading: ASIC's Increased Efforts to Prosecute
Thursday 30 June 2016 @ 12.05 p.m. | Corporate & Regulatory | Crime
The recent sentencing of investment banker Oliver Curtis on charges of "insider trading" on 45 separate occasions is reported as being, one of a number of cases that show that the Australian Securities and Investment Commission (ASIC), the corporate regulator, is lifting its efforts to crack down on the white collar crime (see R v Curtis (No 3) [2016] NSWSC 866 (24 June 2016) - the Curtis Case). An observation supported by the ASIC senior executive leader of enforcement, Chris Savundra, who is quoted by the SMH as saying:
"We welcome the jury's decision today. It reinforces ASIC's commitment to pursue complex market misconducts such as these, no matter how long they may take or how vigorously they are defended, . . ."
Following is a recap of some recent developments.
What is Insider Trading?
Essentially, Insider Trading is trading information that's not generally available, which is likely to have an effect on the value of a financial product. The financial products that come under insider trading law include all securities that can be traded on the stock exchange. In legislation terms, the offence comes under the Corporations Act 2001 (Cth) and involves ". . . trade using inside information, or communicat[ion of] inside information to others who will, or are likely to, trade on the inside information". In terms of penalty, the maximum for the offence is 10 years imprisonment and/or a $450,000 fine.
The Curtis Case
Curtis was accused of receiving tip-offs from his former best friend, John Hartman, who worked for Orion Asset Management, and told Curtis when to buy and sell "contracts for difference" and at what price, using information not available to the public. Further, it is reported, Hartman provided the inside information using a messaging technique called "pinning" on a Blackberry device that Curtis had bought for him, and Curtis and Hartman were said to have shared the proceeds of the transactions, which, over the period May 2007 to June 2008, are said to have amounted to $1.4 million in illegal profits from insider trading using confidential information (see R v Curtis [2016] NSWSC 660 (26 May 2016) and R v Curtis (No 2) [2016] NSWSC 795 (15 June 2016)).
Other Recent Cases
As the ABC reports, in the same week as the Curtis sentencing, ANZ accountant Michael Hull was also sentenced ". . .to 17 months in prison after receiving stock tips from a friend at Credit Suisse, making $270,000". Mr Hull was charged with receiving stock tips from a "jogging buddy and family friend", a former Credit Suisse vice-president. Mr Hull, it is reported, managed to make more than $270,000 after investing in three small mining companies on the back of inside information passed to him by his jogging friend. ASIC commenced the investigation of Mr Hull in 2011 (the case against his "jogging buddy" is still progressing). In the case, the court heard that the jogging buddy would give stock tips to Mr Hull during lunchtime jogs around Sydney, and one time, after a child’s birthday party, which Mr Hull would then use to buy stock through an E-Trade account.
Another recent case was in March 2016, when a record sentence of eight years for insider trading was handed down to the former managing director of China's Hanlong Mining, Steven Xiao, and in 2015, Lukas Kamay, a former National Australia Bank officer, received a seven year sentence for a $7 million scheme with an ABS employee.
ASIC's Efforts to Date
It is reported that since August 2009, the date when ASIC took on responsibility for surveillance of the market from the ASX, ASIC has pursued 42 separate insider trading cases. From that number it has been successful in 34 of those cases and unsuccessful in eight cases it has pursued over the past seven years. ASIC's best year for insider trading enforcement is reported as being 2013, the year before $120 million of ASIC's funding was stripped from it as part of government cut backs.
Comments
The ABC reports the comments of James Wheeldon the lawyer for Mr Hull as saying:
". . . a lot of insider trading remains undetected. . . . If you asked most corporate lawyers or investment bankers in Australia if they thought that most cases of insider trading were detected and then successfully prosecuted you'd get a resounding 'no', . . ."
He goes on to point out that there is still a large supply of people:
". . . looking to structure things either by hiding transactions, using straw purchases, using trusts, offshore accounts, exotic financial instruments, all sorts of ways you can seek to evade detection and there's always going to be a cat-and-mouse game, . . ."
Further, the ABC reports the comments of Melbourne University law professor and corporate
law expert, Ian Ramsay, whose view is that the key problem for ASIC in cracking down
on insider trading is that ". . . ASIC still faces massive problems with the burden
of proof".
In Professor Ramsay's reported comments, it appears that while ASIC has cracked down
since taking over the responsibility for market surveillance in 2009 and has increased
it's success rate, which is now more than 80 percent, ASIC's issues with the burden
of proof are caused because, in most cases, ASIC is reliant on the confessions of
whistleblowers. Further, the legislation has been criticised by the courts for being
too complex and despite some long sentences, many do not face any time behind bars:
"There's a very high percentage of cases where although an individual offender is sentenced to imprisonment, that actual term of imprisonment is fully suspended, . . ."
The recent convictions and efforts by ASIC seems to indicate that while ASIC's success rate is up, there is still more to do by way of reducing the extent of the crime, and making the means of prosecuting it more efficient and effective.
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