A day in the life of a suspicious trade: Part III
Published by the Stockbrockers Association of Australia in the Stockbrokers Monthly, June 2015.
Parts I and II of this article described ASIC's identification of and investigation into suspicious trading activity in the securities of Acme Biotech Corporation (ABC).*
ASIC enquiries revealed that Mr Brian Long made significant purchases of ABC shares prior to the issue of a price sensitive announcement by the company, resulting in a realised profit of $375,000. Evidence was subsequently uncovered showing that Mr Long received advance notice of the announcement from Dr Bruce Short, the Chief Medical Officer of ABC and a business acquaintance of Mr Long, who also profited financially from trading in ABC.
Some months have passed between the initial trading alert and the bringing of charges against Mr Long and Dr Short. During that time, several teams within ASIC's Market Integrity Group worked together to gather evidence and assist the Commonwealth Director of Public Prosecutions (CDPP) prepare the case for trial.
This fictionalised account of events takes up the story at the end of the court proceedings.**
Supreme Court decision
Mr Long and Dr Short were each charged with insider trading offences (under section 1043A of the Corporations Act). Dr Short was also charged with improperly using his position as an officer of ABC (under section 184 of the Corporations Act). The matter was prosecuted by the CDPP.
A short committal hearing was held in the Melbourne Magistrates' Court, at which the brief of evidence was tendered by the CDPP. The Defendants entered pleas of 'not guilty' to all charges and the Magistrate committed them to stand trial in the Supreme Court of Victoria.
At their arraignment a few months later, the Defendants changed their earlier plea to 'guilty'. This avoided the need for a trial and a date was set for sentencing in two months' time.
Prior to the sentencing hearing, the CDPP and lawyers for the Defendants agreed a Statement of Facts. The Statement of Facts was tendered at the sentencing hearing. The CDPP also submitted a document called the 'Crown Submission on Sentence', setting out the applicable sentencing principles, relevant facts, and examples of sentencing decisions in similar cases. Corresponding documents were submitted by the Defendants' lawyers. Oral submissions from the Prosecutor and the Defendant's lawyers were also made.
At the sentencing hearing, Justice Little sentenced Mr Long and Dr Short to jail terms of 3 years and 7 months and 4 years and 5 months, respectively. In her reasons for sentencing, Justice Little commented that there was overwhelming evidence that the trades were made, and that at the time they were made, Mr Long and Dr Short were in possession of inside information. In relation to Dr Short, Justice Little also commented that his actions were a gross breach of trust by a true insider.
In sentencing Mr Long and Dr Short to imprisonment, Justice Little remarked that "Insider trading is a serious criminal offence. Notwithstanding that the Defendants pleaded guilty, it is necessary for the sentence to reflect the severity of the offence. Financial crimes such as this have the capacity to damage market integrity and do a great deal of harm to other investors."
In a candid interview published in a national financial newspaper nearly a year into his prison term, Dr Short revealed the impact the case had had on his life. He called his descent from a life of comfort and luxury to prison overalls and laundry duties a short but highly destructive path paved with greed: "At the time it looked like such an easy way to make money. We thought it was foolproof. We didn't realise how sophisticated ASIC's surveillance technology is – they had us from the get-go."
Dr Short revealed that since his conviction, he had been terminated from his $430,000 a year job with ABC and asked to resign from the Board of the Pharmaceutical Research Council of Australia. He wept as he described how his children had suffered for his 'sins' – his school age daughter and a son at university both regularly the recipients of taunts from other students. Having been a medical practitioner all his life, he is now undergoing treatment for anxiety and depression.
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