On Friday 3 June 2016, Oliver Curtis was found guilty of 45 counts of conspiring to commit insider trading. John Hartman, already in prison, gave tip offs to Curtis in relation to trading on ‘contracts for difference’.
On the same day, in an unrelated case, Michael Hull was given an effective head sentence of 17 months imprisonment in the New South Wales Supreme Court for insider trading charges brought by ASIC.
Although Curtis and Hartman have dominated the media recently, this case was by no means isolated. Indeed, since 2009, ASIC report that they have brought 39 insider trading actions before the Courts and achieved a conviction, guilty plea or guilty finding before a jury in 32 of those matters.
The law on insider trading however is far from concrete and certainly not immune to criticism.
The main provisions on insider trading are to be found in the Corporations Act 2001 (Cth) (‘the Act’) in Division 3, sections 1042A-D. The basis of insider trading is obtaining information that is not generally available and which is likely to have an effect on the value of a financial product. This includes a broad range of financial products, but for present purposes will be limited to securities that can be traded on the stock exchange.
In s 1042A of the Act the definition of “information” itself is very broad. It starts out in s1042A (a) with “matters of supposition and other matters that are insufficiently definite to warrant being made known to the public; and goes on to encompass; (b) matters relating to the intentions, or likely intentions, of a person. Case law over the years has come to very different outcomes when trying to ventilate these definitions.
Clear as mud then.
Turning to the elements of the offence, the prosecution must prove that you were in possession of information (however broad) that can have an effect on the value of a financial product that can be traded, and that you know that the information you have is not generally available. They also need to prove that you have traded in that product or you tell someone else (Hartman telling Curtis) about the information knowing that they will trade in that product (contracts for difference).
Crucially, the prosecution does not require proof that you knew the information was not available and may have had a material effect, it merely requires that a reasonable person would have that belief. The reasonable person in this context is a member of the jury.
Hartman provided precisely this type of information to Curtis on at least 45 occasions between 2007 and 2008, benefiting to the tune of at least $1.4m. They both went to great lengths to conceal the sharing of information by using a process called ‘pinning’ on a Blackberry, making the information much harder to trace.
From a policy perspective, insider trading is a constantly shifting landscape. At present the two dominant perspectives are economic efficiency (protecting investor confidence) and market fairness (that access to information should be equal in the marketplace). Both of these approaches are the subject of ongoing debate, with some arguing that they are inherently incompatible with each other.
The current legislation seeks to deal with insider trading as effectively as possible, as evidenced in the broad definitions of both information and intention, however inconsistency in Court decisions and interpretation between judges persists.
Attempts at reform and public criticism of ASIC has done little to ease the pressure or provide clearer direction on insider trading and public confidence in the handling of price sensitive information by market participants.
Nevertheless, Messrs Hull and Hartman can give the topic considerable thought from their prison cells, and it will be a sombre few days in Mosman as Mr Curtis is on bail awaiting sentencing.Know Your Rights Fraud