The Federal Court has found that German construction group holding company Hochtief Aktiengesellschaft (Hochtief AG) engaged in insider trading in contravention of section 1043A(1)(d) of the Corporations Act 2001 on 29 January 2014, and has ordered Hochtief AG to pay a financial penalty of $400,000, as well as ASIC's legal costs.
In reaching its decision, the Federal Court found that:
- on 14 January 2014, at a meeting of the Audit Committee of Leighton Holdings Limited (ASX code: LEI) (Leighton Holdings) (now called CIMIC Group Limited and ASX code: CIM) (CIMIC), Hochtief AG, through its Chief Financial Officer, came into possession of information in relation to LEI’s expected financial result for the year 31 December 2013, which information it ought reasonably to have known was inside information;
- on 27 January 2014, whilst in possession of the inside information, Hochtief AG extended the completion date for the acquisition of Leighton Holdings shares by its subsidiary Hochtief Australia Holdings Limited (Hochtief Australia) from 31 January 2014 to 14 February 2014 (Variation of Instruction);
- on 29 January 2014, whilst in possession of the inside information, Hochtief AG issued the Variation of Instruction to various directors and officers of Hochtief Australia, thereby procuring Hochtief Australia to acquire shares in Leighton Holdings as a result; and
- Hochtief AG procured Hochtief Australia to acquire 200,000 Leighton Holdings shares for $3,244,156.97 (including fees).
ASIC commenced its proceedings against Hochtief AG on 2 February 2016 (refer: 16-017MR). Hochtief AG admitted the alleged contravention in a Statement of Agreed Facts. On 18 April 2016, the Court found, as contended for by Hochtief AG, that Hochtief AG procured Hochtief Australia to acquire Leighton Holdings shares on one trading day being 3 February 2014.
In handing down his judgment, Wigney J. said:
'The public is entitled to expect that a corporation of the size and status of Hochtief AG would have had adequate compliance systems and training to ensure that contraventions of the insider trading prohibition do not occur…The penalty should be sufficiently large to send a strong message to large multinational companies, like Hochtief, that have operations in Australia, that they should ensure that they have established suitable and effective compliance systems, and conducted appropriate training, concerning Australia's insider trading prohibition. In that sense, at least, general deterrence is an important consideration.'
Wigney J. also said:
'While the contravention did involve carelessness and inadvertence, rather than actual knowledge and deliberateness, the careless was such as to amount to a serious failure to exercise appropriate care and diligence in the circumstances. It also involved a serious failure on the part of Hochtief AG to put in place appropriate systems and procedures relating to insider trading. It resulted in significant trading in a major Australian public company which, because it involved insider trading, had the capacity to significantly undermine the integrity and efficiency of the relevant securities markets. It was by no means a victimless crime: the victim was the market.'
Today, ASIC has also:
- issued to Hochtief AG, in accordance with terms of settlement, an order to recover ASIC's investigation expenses of $50,000 under s91 of the ASIC Act 2001; and
- accepted an Enforceable Undertaking (EU) from Hochtief AG in relation to the trading in Leighton Holdings (now CIM) shares procured by the contravention.
In accordance with the undertakings given in the EU, Hochtief AG will make a voluntary contribution of $103,400 to each of:
- Australian Shareholder Association for the advancement of shareholder education in Australia, or, for company monitoring, or both.
- First Nations Foundation for its initiatives with the Financial Services Council on My Moola, the Foundation's adult financial literacy program.
This represents the notional profits gained by Hochtief Australia as a result of Hochtief AG's contravention described above.
ASIC Commissioner Cathie Armour said, 'It is crucial to the efficiency and integrity of the financial markets that everyone has access to the same information. In particular, companies must understand the added risk of engaging in insider trading when their officers hold multiple directorships, particularly officers of majority shareholders.'
Hochtief Australia is ultimately owned and controlled by Hochtief AG which, in turn, has as its majority shareholder one of the world's leading construction companies, the Spanish company ACS Actividades de Construcción y Servicios S.A.
Hochtief Australia is the controlling shareholder of Leighton Holdings (now CIMIC).
Hochtief Australia was operated by Hochtief AG as a vehicle to hold, acquire and dispose of securities and other financial products, including Leighton Holdings shares for Hochtief AG.
A Form 604 'Notice of Change of interests of substantial holder' dated 5 February 2014 and filed with the ASX disclosed Hochtief Australia's relevant share acquisitions.
On 20 February 2014, Leighton Holdings reported its FY2013 Underlying NPAT was up 30% on FY12 to $584M, which was within guidance. The company also reported NPAT of $509M, which was up 13% on FY12.
On 19 February 2014, Leighton Holdings shares closed at $16.41. On 20 February 2014, following the results announcement, Leighton Holding shares opened at $18.30 and traded as high as $18.40 and as low as $16.90 before closing at $17.21, or up 4.88% on the previous day’s close.