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Friday 25 September 2015

15-271MR NSW man jailed for market manipulation

Following an ASIC investigation, Nigel Derek Heath of New South Wales was convicted and sentenced today after pleading guilty to two market manipulation charges in the District Court.

Mr Heath was sentenced to two years and three months imprisonment. After nine months, Mr Heath will be released on a recognizance release order, with self-surety in the amount of $10,000, to be of good behaviour for a period of 18 months.

In sentencing Mr Heath, Judge King SC referred to the need to have a free and open market, uncontaminated by conduct of the nature carried out by Mr Heath. 'His conduct distorted the market and increased the value of his own portfolio and free equity in his CFD trading accounts.' Judge King SC said.

ASIC Commissioner Cathie Armour said 'Any form of market manipulation undermines the integrity of our financial markets. ASIC is determined to protect our financial markets and bring those involved in market misconduct to justice.'

The charges against Mr Heath related to his trading in shares and contracts for difference (CFDs) in four resource companies between 16 February 2012 and 11 October 2013. Over these 20 months Mr Heath traded through nine separate share trading and CFD trading accounts.

Between 16 February 2012 and 19 August 2013 Mr Heath carried out 138 transactions involving financial products relating to Petsec Energy Limited (PSA) that had the effect of artificially increasing the price for trading in PSA shares on the ASX. While the average value of the 138 transactions was $496, each transaction increased the PSA share price by between 4% and 11.5%, and increased the value of Mr Heath's shareholding in PSA by between $15,878 and $46,928.

Between 2 July 2012 and 11 October 2013 Mr Heath also caused 30 simultaneous buy and sell transactions involving shares and CFDs relating to PSA, Leyshon Resources Limited, Malagasy Minerals Limited and Orca Energy Ltd. These transactions had the effect of artificially increasing the price for trading in those shares on the ASX. These trades, commonly referred to as 'matched trades', caused an increase to the price of shares traded on the ASX of between 3.1% and 6.9%.

The Commonwealth Director of Public Prosecutions prosecuted this matter.

Background

In October 2014 Mr Heath plead guilty to two charges of market manipulation under s1041A and s1041B of the Corporations Act 2001 (Corporations Act). (refer: 14-270MR)

A CFD is an agreement between an investor and a CFD issuer which allows a trader to speculate on future price movements in a financial product such as shares. The value of a CFD roughly corresponds to the value of the underlying financial product, in this case, shares on the ASX.

The CFD trading accounts used by Mr Heath operated on a direct market access model, under which the CFD issuer hedges its exposure to a client’s trading position by causing a direct and equivalent position to be taken in the underlying security on the ASX.

In June 2014, Kristoffer John Watts, was sentenced in the Brisbane District Court to a term of two years imprisonment, with 21 months of the sentence suspended, and three months imprisonment to serve, following pleas of guilty to three counts of market manipulation involving trading in direct market access CFDs under s1041B of the Corporations Act. (refer: 14-131MR).

In December 2014, ASIC accepted an enforceable undertaking from First Prudential Markets Pty Ltd, a provider of direct market access CFDs, relating to concerns about its compliance processes for detecting and dealing with potentially manipulative client trading (refer: 14-345MR).

Editor's note:

On 25 February 2016, the Court of Criminal Appeal in Sydney upheld an appeal by Mr Heath against the sentence imposed on him by the District Court on 25 September 2015. (refer: 16-051MR)

Last updated: 02/03/2016 12:00