By pursuing recent high profile cases against Richard Kamay, Steven Xiao and Oliver Curtis, ASIC has shown that it will prosecute those who have engaged or been involved in insider trading. What does this mean for you and your business?
(This is Part Two of a two-part article. Read Part One here )
Our discussions with ASIC indicate that the majority of market conduct issues are identified by ASIC’s own Market Analysis and Intelligence Unit. This Unit “flags” trades for review by its enforcement team, rather than relying on “suspicious activity reports” submitted to ASIC by market participants.
Further, in April 2016, ASIC received a significant funding injection to upgrade its analytics capabilities. Whilst much of this funding is earmarked for specific projects, the enhanced analytics capabilities are likely to be reflected in increased enforcement action relating to misconduct in financial markets.
ASIC boasts a success rate of around 85% in the insider trading cases it pursues where liability is determined by a Court. Therefore, it is imperative that those participating in the market understand the ways in which ASIC views market transactions and the limits it perceives on acceptable conduct.
Businesses need to be aware that if an individual is placing trades based on “inside information” on behalf of a corporation, and none of the corporate defences apply, the penalties for that corporation are particularly harsh. In fact, they could face fines of the greater of $4,950,000 or three times the benefit obtained (being generally available) or a fine as large as 10% of the corporation’s annual turnover (being available in certain circumstances).
Further, given the recent public interest in insider trading offences, the fines identified above could pale in significance compared to the reputational damage to a company. For example, a company could have its name trashed in the media based on the conduct of an employee who has engaged in insider trading as a high profile trial plays out.
Worse still would be the potential loss of business if it is a client’s inside information which has been used improperly by an employee conducting illegal trades. In this context, it is crucial for an organisation to effectively manage these and other compliance risks, as the defences depend on compliance.
Businesses should also remember that any instance where an organisation (whether through an employee or otherwise) is found to have breached insider trading laws is likely to be treated harshly by ASIC. If a company in this situation fails to demonstrate that it had effective controls to either prevent or pick up offending conduct, or establish the basis for defences, it could face difficulties in defending such a claim in the courts and in the eyes of the public.
Directors and employees should also be aware that the rules are strict, and at times complex. For example, as we recently observed, compliance with an entity’s trading policy does not necessarily equate to compliance with the insider trading provisions.
It should be observed that in Oliver Curtis’ case, ASIC pursued a charge of conspiracy. This decision was apparently approved by the Court despite a submission by Curtis that it was contrary to the interests of justice. In pursuing this charge, ASIC appears to be sending a message to market participants that it will pursue not only insider traders, but also those who are knowingly involved in that trading.
Interestingly, in Steven Xiao’s case, ASIC pursued the defendant despite his attempt to evade prosecution, even though this meant contesting extradition proceedings in Hong Kong. ASIC’s pursuit of Xiao is further evidence of how seriously it views contraventions of insider trading laws, and of its desire to pursue significant offenders (despite the associated cost and procedural difficulties).
ASIC maintains that one of its key goals is to ensure that Australian markets are fair and efficient. Its published results for the 6 months ending December 2015 indicate that it was particularly active in this space during that period.
Buoyed by recent success stories, we expect that this trend will continue.
(This is Part Two of a two-part article. Read Part One here)
2 See this recent enforceable undertaking. Whilst not raised in the context of insider trading, it shows the risk of improper sharing of confidential client information: http://asic.gov.au/about-asic/media-centre/find-a-media-release/2015-releases/15-406mr-asic-accepts-eus-from-institutional-stockbroker-and-hedge-fund-trader-for-concerns-about-misuse-of-confidential-client-information/. Also relevant is R v Glynatsis  NSWCCA 131 which concerned the employee of a professional services advisory firm who took advantage of confidential information.
4 R v Curtis (No 2)  NSWSC 795 see in particular at -
5 For example, ASIC’s response to the final report of the Government’s ASIC Capability Review: available at http://download.asic.gov.au/media/3826160/asic-capability-review-asics-public-response-and-implementation-plan-20-4-2016.pdf
6 ASIC’s Market integrity outcome report June 2015-Dec 2015 at p 22
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.