‘Insider Trading’ is the illegal practice of trading in shares or other financial products whilst in the possession of price-sensitive information which is not publicly available.
In order to establish the offence of ‘insider trading’ it must be proved that:
A person possesses certain information (this ‘information’ is deemed to be matters of supposition and other matters that are insufficiently definite to warrant being made known to the public and matters relating to the intentions, or likely intentions of a person);
The information is not generally available;
A reasonable person would expect the information to be material (that is, to have a material effect on the price or value of certain securities);
The person knows (or should know) that the information is not generally available;
The person knows (or should know) that a reasonable person would expect the information to be material; and
Whilst in possession of the information, the person trades in those securities, (that is they buy or sell those securities) or procure another person to buy or sell those securities on their behalf.
It is worth noting that there is no requirement within Australian law that the alleged insider trader actually ‘uses’ the relevant information to be found guilty of the offence. Possession of the information at the time of trading or at the time of arranging procurement of trading is enough to be found guilty of the offence and face an insider trading charge. It is not a defence to argue that the alleged insider trader did not rely on the inside information because, for example, they had already planned a trade prior to coming into the possession of that information, or that they based their decision to trade on alternative or publically available information.
The case of R v Rivikin1 is one of a very small number of Australian cases that have resulted in a conviction for insider trading. Rivkin’s case received huge media attention and publicity at the time of the trial and subsequent appeal.
Mr Rivkin was charged and prosecuted for insider trading and following a trial by jury was convicted in the NSW Supreme Court. He was fined $30,000 and sentenced to 9 month’s periodic detention. Mr Rivkin appealed against the conviction and sentence to the NSW Court of Criminal Appeal but both the conviction and sentence were upheld.
Recent numbers disclosed by the Australian Securities and Investment Commission (ASIC) point to an increase in the seriousness of how insider trading is being treated. These numbers include:
More than 27,500 tip-offs for insider trading or marketing manipulation
35 cases referred for formal investigation
six criminal convictions for the 2010-11 financial year
prison terms ranging from 20 months to more than four years
financial penalties ranging from A$70,000 to A$1.57 million.
In 2010 an amendment to the Corporations Act 2001 (Commonwealth) substantially increased the penalties for both individuals and corporations in respect of insider trading and market manipulation.
ASIC can decide to undertake either criminal or civil proceedings against a corporation or an individual who they suspect of engaging in insider trading. In the majority of cases ASIC commence criminal proceedings which are prosecuted by the DPP. In addition to launching investigations and undertaking criminal proceedings ASIC has the power to freeze assets and restrict travel.
It is difficult to successfully prosecute the offence of insider trading. There are many complexities of interpretation and many ‘grey areas’ that can, at times, make it difficult to judge insider trading charges. If you find yourself the subject of an ASIC investigation or a DPP criminal prosecution it is essential that you immediately seek legal advice. North Shore Criminal Law has significant experience dealing with insider trading and other white collar criminal offences. We also have excellent working relationships with the top barristers specialising in the area of white collar crime. We can, if necessary, appear for you in court and we can help you to navigate through any investigation you may be the subject of in order to ensure that you get the best possible outcome.
Facing an insider trading charge? Call North Shore Criminal Law on (02) 9955 2298 or 0400 44 64 24 at any time for a free first telephone consultation during which we will outline the steps available to you to satisfactorily resolve your case.