Opinion piece - insider trading
Greg Medcraft, ASIC Chairman
Oliver Curtis was found guilty on 2 June 2016 of involvement in an insider trading conspiracy, one in which 45 trades netted him a personal profit of $1,433,727.85. He has never admitted his guilt. On Friday 24 June, Mr Curtis was sentenced to two-years' imprisonment, to serve a minimum of one year in jail.
His co-conspirator John Hartman has admitted guilt, pleading guilty to related, and unrelated, insider trading offences in 2010. He was ultimately sentenced to three years imprisonment, with a single pre-release period of 15 months.
It remains to be seen whether any opportunities for appeal may be identified by Mr Curtis' legal team, so I am reluctant to discuss the specifics of the case.
More broadly, this case demonstrates the resources and the determination ASIC will apply in its quest to prosecute insider trading.
The Curtis case is the latest in a string of market integrity cases brought over the past five years, with an impressive 'success' rate, and increasingly so.
Since 2011, 35 people have been criminally prosecuted for insider trading as a result of ASIC investigations, with a conviction rate of over 85%.
In March 2016, former Hanlong managing director Hui Xiao was sentenced to eight years and three months' jail for insider trading, and that was after we had him extradited from Hong Kong.
Not so long ago it was a truism to say "insider cases never get up". The law was stacked against you. It was too hard to prove. It was too easy for traders to cover their tracks. The definition of "insider knowledge" was too tricky to establish, and how could anyone know for certain which way the market would turn? Et cetera.
I'm not sure that this was ever the case, but it was a widely held view. It certainly could not be argued now, and the market has been put on notice. Insider trading is a crime and it is increasingly likely to be detected. It will be investigated and, where possible, prosecuted.
Should we bother? Does it really matter? Yes and yes, and the law is quite clear why.
Its aim is to enable "confident and informed decision making by consumers of financial products". Insider trading is a serious offence because it can undermine the integrity of financial markets, the integrity of which is "of the utmost importance to the economy and society," as our counsel told the Supreme Court last Friday.
This is not a victimless crime. Those on the other side of the trade – those who were not "in the know", certainly suffered. They did not make the $1,433,727.85 that Curtis did, and were denied a fair and equal chance to make a profit from their trading.
We are all affected, at least indirectly, by insider trading. Just as we are all beneficiaries of living in a society where the rule of law is respected, where markets are assumed to be fair and transparent and where it is assumed sensible, informed decisions are possible.
Australia is considered a good place in which to do business. You are supposed to get a 'fair go', and most of the time that's exactly what happens and therefore businesses and markets elsewhere are also more likely to interact with us too.
This reputation helps make Australia "work", just as fair elections, a free media or a clean environment for growing food make Australia "work", and seem so appealing to those in places where this is denied.
I have said elsewhere this week that poor culture often leads to poor outcomes for investors and consumers, impacts on the integrity of the Australian financial markets, and can erode investor and financial consumer trust and confidence.
This applies as much to insider trading as it does business practices and conduct in general.
Financial market participants must promote a compliance culture to ensure staff have an appreciation of the seriousness of insider trading. It needs to be impressed on employees that using or leaking details of corporate transactions has grave consequences, for themselves and those who receive the information. Whistleblowing procedures need to be robust to enable early action on transgressions.
A key priority for ASIC is enabling fair and efficient markets. It is imperative that all investors have confidence in the integrity of our markets, and this starts with the people operating in it daily. It is their responsibility to help prevent insider trading occurring and to expose it when it does.
For its part, ASIC has invested heavily in getting the right people, and right structures and the right systems in place to rigorously scrutinise the market and follow suspicious trading patterns, or act on information gained through other means.
The bottom-line is simple: insider trading will not be tolerated. ASIC has the systems, the people and the powers to detect and prosecute breaches, and we will not hesitate to take offenders before the criminal courts.