Published by Geoff Harrison | 18 July 2023
The offence of insider trading is under s1043A(1) of the Corporations Act 2001('the Act') which also includes the offence known as "tipping" (s1043A(2)). The gravamen of these offences is towards protecting the integrity of the market and investor confidence in the fairness of the market. The offences relate to acting upon or being aware that others will act upon, information that is not generally available and a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products.
The remarks of McCallum J in R v Glynatsis [2013] NSWCCA 131, at [79] are apposite for these offences:
The acquisition or disposal of financial products by people having the unfair advantage of inside information is criminalised because it has the capacity to unravel the public trust which is critical to the viability of the market. It is, as previously observed by this Court, a form of cheating. The fact that people of otherwise good character and compelling personal circumstances are tempted to engage in such conduct emphasises the need for the clear deterrent that insider traders should expect to go to gaol.
The maximum penalty for these offences is 15 years imprisonment and/or a fine of 4,500 penalty units as per s1311(1)/Schedule 3 and s1311B of the Act. These offences are also civil penalties.
The case of Khoo v R [2013] NSWCCA 323 (below) is a 'tipping' case where it is noted [at 64] that an offence of 'tipping' can be potentially more damaging to the market than insider trading given that, the offender has lost control of the information and its dissemination. Comparative cases are also considered at [86].
Cases:
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CORPORATIONS ACT 2001 - SECT 1043A Prohibited conduct by person in possession of inside information
Prohibited conduct by person in possession of inside information
(1) Subject to this Subdivision, if:
(a) a person (the insider ) possesses inside information; and
(b) the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information;
the insider must not (whether as principal or agent):
(c) apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or
(d) procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products.
Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)). For defences to a prosecution based on this subsection, see section 1043M.
Note 2: This subsection is also a civil penalty provision (see section 1317E). For relief from liability to a civil penalty relating to this subsection, see sections 1043N and 1317S.
(2) Subject to this Subdivision, if:
(a) a person (the insider ) possesses inside information; and
(b) the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information; and
(c) relevant Division 3 financial products are able to be traded on a financial market operated in this jurisdiction;
the insider must not, directly or indirectly, communicate the information, or cause the information to be communicated, to another person if the insider knows, or ought reasonably to know, that the other person would or would be likely to:
(d) apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or
(e) procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products.
Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)). For defences to a prosecution based on this subsection, see section 1043M.
Note 2: This subsection is also a civil penalty provision (see section 1317E). For relief from liability to a civil penalty relating to this subsection, see sections 1043N and 1317S.
(3) For the purposes of the application of the Criminal Code in relation to an offence based on subsection (1) or (2):
(a) paragraph (1)(a) is a physical element, the fault element for which is as specified in paragraph (1)(b); and
(b) paragraph (2)(a) is a physical element, the fault element for which is as specified in paragraph (2)(b).
Definitions
In this Division:
"able to be traded" has a meaning affected by section 1042E.
Division 3 financial products means:
(a) securities; or
(b) derivatives; or
(c) interests in a managed investment scheme; or
(ca) debentures, stocks or bonds issued or proposed to be issued by a government; or
(d) superannuation products, other than those prescribed by regulations made for the purposes of this paragraph; or
(e) any other financial products that are able to be traded on a financial market.
"generally available", in relation to information, has the meaning given by section 1042C.
"information" includes:
(a) matters of supposition and other matters that are insufficiently definite to warrant being made known to the public; and
(b) matters relating to the intentions, or likely intentions, of a person.
"inside information" means information in relation to which the following paragraphs are satisfied:
(a) the information is not generally available;
(b) if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products.
"material effect", in relation to a reasonable person's expectations of the effect of information on the price or value of Division 3 financial products, has the meaning given by section 1042D.
"procure" has a meaning affected by section 1042F.
relevant Division 3 financial products, in relation to particular inside information, means the Division 3 financial products referred to in paragraph (b) of the definition of inside information.
CORPORATIONS ACT 2001 - SECT 1042C
When information is generally available
(1) For the purposes of this Division, information is generally available if:
(a) it consists of readily observable matter; or
(b) both of the following subparagraphs apply:
(i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in Division 3 financial products of a kind whose price might be affected by the information; and
(ii) since it was made known, a reasonable period for it to be disseminated among such persons has elapsed; or
(c) it consists of deductions, conclusions or inferences made or drawn from either or both of the following:
(i) information referred to in paragraph (a);
(ii) information made known as mentioned in subparagraph (b)(i).
(2) None of the paragraphs of subsection (1) limits the generality of any of the other paragraphs of that subsection.
CORPORATIONS ACT 2001 - SECT 1042D
When a reasonable person would take information to have a material effect on price or value of Division 3 financial products
For the purposes of this Division, a reasonable person would be taken to expect information to have a material effect on the price or value of particular Division 3 financial products if (and only if) the information would, or would be likely to, influence persons who commonly acquire Division 3 financial products in deciding whether or not to acquire or dispose of the first-mentioned financial products.
CORPORATIONS ACT 2001 - SECT 1043M
Defences to prosecution for an offence
(1) In a prosecution of a person for an offence based on subsection 1043A(1) or (2), it is not necessary for the prosecution to prove the non-existence of facts or circumstances which, if they existed, would, by virtue of section 1043B, 1043C, 1043D, 1043E, 1043F, 1043G, 1043H, 1043I, 1043J or 1043K, preclude the act or omission from constituting a contravention of subsection 1043A(1) or (2), as the case may be, but it is a defence if the facts or circumstances existed.
Note: A defendant bears an evidential burden in relation to the facts or circumstances. See subsection 13.3(3) of the Criminal Code.
(2) In a prosecution brought against a person for an offence based on subsection 1043A(1) because the person entered into, or procured another person to enter into, a transaction or agreement at a time when certain information was in the first-mentioned person's possession:
(a) it is a defence if the information came into the first-mentioned person's possession solely as a result of the information having been made known as mentioned in subparagraph 1042C(1)(b)(i); and
(b) it is a defence if the other party to the transaction or agreement knew, or ought reasonably to have known, of the information before entering into the transaction or agreement.
Note: A defendant bears an evidential burden in relation to the matters referred to in paragraphs (a) and (b). See subsection 13.3(3) of the Criminal Code.
(3) In a prosecution against a person for an offence based on subsection 1043A(2) because the person communicated information, or caused information to be communicated, to another person:
(a) it is a defence if the information came into the first-mentioned person's possession solely as a result of the information having been made known as mentioned in subparagraph 1042C(1)(b)(i); and
(b) it is a defence if the other person knew, or ought reasonably to have known, of the information before the information was communicated.
Note: A defendant bears an evidential burden in relation to the matters referred to in paragraphs (a) and (b). See subsection 13.3(3) of the Criminal Code.
CORPORATIONS ACT 2001 - SECT 1043N
Relief from civil liability
In proceedings against a person under Part 9.4B (including under section 1317HA) relating to a contravention of subsection 1043A(1) or (2), the court may relieve the person wholly or partly from liability if it appears to the court that:
(a) in any case--the circumstances in any of the sections referred to in subsection 1043M(1) applied; or
(b) in the case of subsection 1043A(1)--the circumstance referred to in paragraph 1043M(2)(a) or (b) applied; or
(c) in the case of subsection 1043A(2)--the circumstance referred to in paragraph 1043M(3)(a) or (b) applied.
CORPORATIONS ACT 2001 - SECT 1043O
Powers of Court
If, in a proceeding instituted under this Act, the Court finds that a contravention of section 1043A has occurred, the Court may, in addition to any other orders that it may make under any other provision of this Act, make such order or orders as it thinks just, including, but without limiting the generality of the above, any one or more of the following orders:
(a) an order restraining the exercise of rights attached to Division 3 financial products;
(b) an order restraining the issue of Division 3 financial products;
(c) an order restraining the acquisition or disposal of Division 3 financial products;
(d) an order directing the disposal of Division 3 financial products;
(e) an order vesting Division 3 financial products in ASIC;
(f) an order cancelling an agreement for the acquisition or disposal of Division 3 financial products;
(g) an order cancelling an Australian financial services licence;
(h) for the purpose of securing compliance with any other order made under this section, an order directing a person to do or refrain from doing a specified act.
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Khoo v Regina [2013] NSWCCA 323 (20 December 2013)
Last Updated: 8 January 2014
Court of Criminal Appeal
New South Wales
Case Title:
Khoo v Regina
Medium Neutral Citation:
[2013] NSWCCA 323
Hearing Date(s):
8/11/13
Decision Date:
20 December 2013
Before:
Leeming JA at [1];
Bellew J at [12];
RS Hulme AJ at [23]
Decision:
Leave to appeal granted. Appeal dismissed.
Catchwords:
CRIMINAL LAW - appeal against sentence - insider trading - tipping - whether sentence manifestly excessive - whether sentencing judge failed to take proper account of individual factors
Legislation Cited:
Corporations Amendment (No 1) Act 2010 (Cth)
Corporations Act 2011 (Cth)
Cases Cited:
DPP v Lindskog [2013] VCC (unreported, Parsons CCJ, 14 March 2013)
Fridrich v Bradford [1976] USCA6 586; 542 F 2d 307 (6th Cir, 1976)
Ex parte King; Re Blackley [1938] NSWStRp 26; (1938) 38 SR (NSW) 483
Green v The Queen [2011] HCA 49; 244 CLR 462
Hartman v R [2011] NSWCCA 261
Hili v The Queen [2010] HCA 45; 242 CLR 520
Pearce v R [1998] HCA 57; (1998) 194 CLR 610
R v Dalzell [2011] NSWSC 454
R v De Silva [2011] NSWSC 243
R v Ellis (1986) 6 NSWLR 603
R v Glynatsis [2013] NSWCCA 131
R v Hinton [2002] NSWCCA 405; (2002) 134 A Crim R 286
R v Morgan (1993) 70 A Crim R 368
R v Mungomery [2004] NSWCCA 450
R v O'Brien [2011] NSWSC 1553
R v Olbrich (1999) 199 CLR 270; [1999] HCA 54
R v Rivkin [2004] NSWCCA 7
R v Taylor [2000] NSWCCA 442
R v XY [2013] NSWCCA 121
R v Zerafa [2013] NSWCCA 222
RR v R [2011] NSWCCA 235; 216 A Crim R 489
Texts Cited:
National Companies and Securities Commission, Insider Trading Legislation for Australia: An Outline of the Issues and Alternatives (AGPS,1986,)
R Baxt, A Black and P Hanrahan, Securities and Financial Services Law (LexisNexis. 8th ed, 2012.)
Category:
Principal judgment
Parties:
John Khoo (Applicant)
Regina (Respondent)
Representation
- Counsel:
Counsel:
M Thangaraj SC (Applicant)
MMG McHugh SC (Respondent)
- Solicitors:
Solicitors:
Amond Legal (Applicant)
Commonwealth Director of Public Prosecutions (Respondent)
File Number(s):
2012/386642
Decision Under Appeal
- Before:
Marien DCJ
- Date of Decision:
08 August 2013
- Court File Number(s):
2012/386642
JUDGMENT
1. LEEMING JA: I have had the advantage of reading, in draft, the judgment of R S Hulme AJ. I agree with his Honour's reasons and conclusions. I also agree with the additional observations of Bellew J. I wish to provide the following additional reasons why ground (viii), which asserted that the sentence of full time imprisonment was manifestly excessive, should be rejected.
2. I start with authority. In R v Glynatsis [2013] NSWCCA 131, McCallum J said at [79]:
"The acquisition or disposal of financial products by people having the unfair advantage of inside information is criminalised because it has the capacity to unravel the public trust which is critical to the viability of the market. It is, as previously observed by this Court, a form of cheating. The fact that people of otherwise good character and compelling personal circumstances are tempted to engage in such conduct emphasises the need for the clear deterrent that insider traders should expect to go to gaol."
The applicant submitted that that passage was obiter, and distinguishable from the "tipping" offences he had committed. I disagree.
3. First, the passage was not obiter. It was a summary statement of her Honour's reasons for agreeing with the orders proposed by Hoeben CJ at CL. Moreover, the third member of the Court, Rothman J, expressly associated himself with it. It follows that the passage amounts to reasoning which two members of the Court treated as dispositive. If it were a principle of law, it would be ratio, for, as Jordan CJ said, "we are not entitled to pick out one reason for the judgment as the ratio decidendi and neglect the other": Ex parte King; Re Blackley [1938] NSWStRp 26; (1938) 38 SR (NSW) 483 at 490.
4. Secondly, the distinction between ratio decidendi and obiter dicta is not directly applicable to appellate statements about the sentencing process. Nevertheless, the applicant was correct to appreciate that the passage in Glynatsis was a substantial obstacle to his submission. The need for consistency in sentencing under federal law is self-evident, and in considering the sufficiency of sentences passed on federal offenders, intermediate appellate courts should not depart from what is decided by other Australian intermediate appellate courts, "unless convinced that the decision is plainly wrong": Hili v The Queen [2010] HCA 45; 242 CLR 520 at [57]. This is not the occasion to consider what is meant by "plainly wrong" in this context (which has been examined by Heydon J in Green v The Queen [2011] HCA 49; 244 CLR 462 at [83]- [87] and Basten JA in R v XY [2013] NSWCCA 121 at [30]- [40]), for in my view the passage is plainly right, at least in relation to the present form of the legislation. How else to construe the increase in maximum penalty from 5 to 10 years imprisonment? (See item 310 of Schedule 3 of the Corporations Act 2001 (Cth), amended by Corporations Amendment (No 1) Act 2010; some of Mr Khoo's offences preceded the amendment.)
5. Thirdly, the approach contained in Glynatsis - that offenders should expect to go to gaol - ought not be read as confined to insider trading as opposed to "tipping". True it is that her Honour's proposition was expressed to be based upon the acquisition or disposal of financial products. But s 1043A(2) of the Corporations Act applies only when there is a trade or likely trade, and the same unravelling of public trust occurs when inside information is communicated in those circumstances. There is no sound basis in the text of the statute, or the penalty imposed for its contravention, or the legislative purpose, to distinguish insider trading forbidden by s 1043A(1) from "tipping" forbidden by s 1043A(2). The primary contravention is the misuse of "inside information" as defined by s 1042A (broadly, market-sensitive information which is not generally available).
6. Central to Mr Khoo's submission on this issue was the proposition that the offence of insider trading involved more elements than tipping (possession and use of insider information plus trading) and was therefore necessarily more objectively criminal. As it was put by his counsel, "until there's a trade, the impact on the integrity of the market is not affected".
7. To the extent that the legislation protects equality of information in a fair market, Mr Khoo's submission cannot be true. The dissemination of information to a "tippee" may indeed be a greater threat to market integrity than actual trading by an insider. There is no novelty in that observation. The issues paper prepared for the National Companies and Securities Commission, Insider Trading Legislation for Australia: An Outline of the Issues and Alternatives (1986, AGPS) stated at p 62:
"Indeed, because of the ready transmissibility of information, tipping is arguably a more serious threat to the integrity of the securities market than trading, for the more widespread it becomes the greater will be the potential for trading."
That passage cited the concurring judgment of Celebrezze J in Fridrich v Bradford [1976] USCA6 586; 542 F 2d 307 at 327 (1976), who said:
"Tipping because it involves a more widespread imbalance of information presents an even greater threat to the integrity of the marketplace than simple insider trading. Tipping, by its very nature, is a more open-ended violation than that of the insider who enters the market, trades on his own account and withdraws."
9. Care must be taken in relying on United States decisions (which are a product of a body of judge-made law derived from high level prohibitions against market fraud: see R Baxt, A Black and P Hanrahan, Securities and Financial Services Law, 8th ed (2012) LexisNexis, at 690-692). But what Celebrezze J said is (to my mind self-evidently) correct.
10. Further, it is clear that the "victims" of insider trading are not merely those participants who trade, but the investing community at large, because the injury derives from "the loss of confidence in the efficacy and integrity of the market in public securities": R v Rivkin [2004] NSWCCA 7 at [412]. "Tipping" is no different. The vice of tipping is not confined to the individual securities which are traded by the tippee. Where the size of the trade is small compared with daily turnover (which will be most cases), it is no answer to the objective criminality to submit, as Mr Khoo in substance did, that the trade made not a jot of difference to the price. Indeed, although it is unnecessary for present purposes to express a concluded view, it seems plausible that the impact of tipping extends beyond the particular security. Australian securities markets are relatively attractive to local and overseas investment because there is perceived to be an efficient and effective regime protecting their integrity. The attractiveness of the market as a whole is impacted by the unequal dissemination of information.
11. Mr Khoo's submission that the criminality of insider trading inevitably exceeds that of "tipping" must be rejected. There is no a priori rule that mandates that tipping is less criminal than insider trading. Both are forms of conduct prohibited by subsections (1) and (2) of the same section. Within the class of conduct which contravenes s 1043A(2), there are varying degrees of criminality (contrast communicating inside information to a relative in need to communicating the same information to a broker, for reward, in the belief that it will be disseminated more broadly). The relevant factors in any particular case are identified by Bellew J. Those factors were taken into account by the sentencing judge, as R S Hulme AJ has explained in detail, and I respectfully agree with his Honour's conclusion that the ultimate sentence imposed was within the range open to the sentencing judge.
12. BELLEW J: I have had the advantage of reading, in draft, the judgment of R S Hulme AJ. I agree with his Honour's reasons, and the orders that he proposes. I have similarly had the advantage of reading, in draft, the judgment of Leeming JA and I also agree with his Honour's observations.
13. However, I wish to add the following observations in respect of ground (viii) which asserted that the sentences imposed were manifestly excessive.
14. In my view, the factors relevant to an assessment of the objective seriousness of so-called "tipping" offences include (although are not limited to) the following:
the nature and importance of the information which was disclosed;
the extent of the disclosure;
whether the offender knew that the person(s) to whom the information was disclosed would use it for the purposes of trading and/or profit taking;
the nature and extent of any breach of trust involved in such disclosure;
whether such disclosure involved any element of sophistication or subterfuge;
whether the offending involved a course of conduct; and
the extent of any profit made, be it by the offender or by those to whom the information was disclosed.
15. In the present case Judge Marien found that the offending was toward the mid range of objective seriousness. Taking into account the factors to which I have referred, that finding was clearly open.
16. The information disclosed by the applicant in the present case was, in each instance, properly described by the sentencing judge (at ROS 30) as being of a "high quality". It related to significant take-over bids and its general nature was such that, once publicly released, it would be expected to have an immediate effect upon the relevant share price. The fact that the people to whom the applicant disclosed the information were friends does not, in my view, render that aspect of his conduct any less serious. The more important consideration is that once the information was disclosed, the applicant lost control over it.
17. Moreover, Judge Marien found (at ROS 22) that it was highly likely that the applicant acted in the knowledge that those to whom he passed the information would use it to trade. He also found (at ROS 22) that the applicant hoped that a profit would be made, and (at ROS 33) that the applicant was motivated by a desire that such a profit would in fact eventuate.
18. The applicant obviously knew that the information was highly confidential. In the case of the offences relating to Macarthur Coal, he had been a member of the relevant advisory team for more than two months in the period leading up to the date of his offending. His role included providing advice as to the proposed takeover, as a consequence of which confidential information was communicated to him. The fact that such information was communicated in a partially coded form necessarily served as a constant reminder to the applicant of the need to protect its confidentiality. Moreover, as a condition of his employment, the applicant had been made aware of relevant policies, and had undergone training, which focussed upon the necessity to preserve the confidentiality of such information, and the legal prohibitions against insider trading.
19. All of these matters lead to Judge Marien finding (at ROS 29) that the applicant's conduct constituted a gross breach of trust. That finding was clearly open, even in circumstances where the applicant's conduct did not involve any element of sophistication or subterfuge (see R v De Silva [2011] NSWSC 243 at [61]).
20. It was also relevant for Judge Marien to take into account the fact that the applicant's offending was not limited to one isolated instance. He disclosed information on four separate occasions, to two separate individuals, over a period of ten months. The recipients of the information derived total profits exceeding $100,000.00. As I have previously noted, Judge Marien not only found that the applicant had hoped that such profits would eventuate, but that he was motivated by a desire that they would.
21. I would, for my part, eschew the use of labels such as "true insider" to describe the applicant's position and offending (see De Silva (supra) at [61]). Such an approach has the capacity to obscure an assessment of what the applicant actually did (see R v Olbrich (1999) 199 CLR 270; [1999] HCA 54 at 279; [19]). The important consideration is that the applicant's position gave him access to confidential information. In the circumstances I have summarised, and which are more fully set out in the reasons of Judge Marien, the applicant used that information in a way which had the capacity to cause damage not only to the market, but to those who invested in it.
22. In my view, all of these matters supported Judge Marien's conclusions as to the objective seriousness of the offending. General deterrence remained an important consideration (see Hartman v R [2011] NSWSC 261 at [77]) particularly in light of the difficulty in detecting offending of this nature. Even allowing for the applicant's subjective case, the overall sentence imposed was not manifestly excessive.
23. R S HULME AJ: On 8 August 2013, the abovenamed Applicant was sentenced by Judge Marien SC in respect of 4 offences arising pursuant to the terms of s 1043A(2)(d) of the Corporations Act 2011 (Cth). The offences were to the effect that:
Between ... and ... whilst in possession of inside information concerning (a named company) that was not generally available, being information which if it was generally available a reasonable person would expect to have a material effect on the price of the Division 3 financial products in (the company) and being information which the defendant knew, or ought reasonably to have known -
(i) was not generally available, and
(ii) if it were generally available, a reasonable person would expect it to have a material effect on the price or value of the relevant Division 3 financial products,
directly communicated the inside information to another, knowing that person would, or would be likely to acquire relevant Division 3 financial products in the company.
24. The first offence occurred between 19 September and 12 October 2010, related to a company Caledon Resources PLC and the person to whom the information was communicated was Jia Tan.
25. The second offence occurred between 1 October and 28 November 2010, related to a company Mantra Resources Ltd and the person to whom the information was communicated was Jia Tan.
26. The third offence occurred between 25 June and 7 July 2010, related to a company Macarthur Coal Limited and the person to whom the information was communicated was again Jia Tan.
27. The fourth offence occurred between 25 June and 8 July 2010, related also to Macarthur Coal Limited and the person to whom the information was communicated was David Luong.
28. The sentences imposed by his Honour were:-
Counts 1 and 2 - imprisonment for 9 months commencing on 8 August 2013; and
Counts 3 and 4 - imprisonment for one year and eight months commencing on 8 November 2013.
29. The effective sentence was thus imprisonment for 1 year and 11 months. His Honour directed the Applicant's release on 8 October 2014, i.e. after the expiration of 14 months, conditional upon him entering a recognisance to be of good behaviour.
30. The offences arose under s 1043A, s 1311 and Schedule 3 of the Corporations Act 2001 (Cth). In the circumstances of this case the maximum penalty provided for each of the first and second offences was 5 years imprisonment and, by reason of the Corporations Amendment (No 1) Act 2010 (Cth), for each of the third and fourth offences 10 years imprisonment plus a fine of $495,000.
31. The matter proceeded before his Honour largely by way of a Statement of Facts originally drafted by ASIC, but ultimately containing some amendments to which both parties had agreed. At all relevant times the Applicant was employed at the Sydney office of the Royal Bank of Canada (hereinafter referred to as "RBC"), working in the Investment Banking Team. In that capacity he routinely acquired information about proposed takeovers, mergers, acquisitions and capital raisings. He had a base salary of some $140,000 and his last annual bonus was something over $120,000.
32. In the course of his employment he had received substantial instructions on RBC's Code of Conduct and other policies proscribing the unjustified publication and misuse of confidential information and demonstrated a knowledge and understanding of such matters. At all relevant times he was aware of the legal prohibitions on insider trading and passing on "inside information" as that term is defined in the Corporations Act 2011 (Cth) to others.
33. Mr Tan was a close friend of the Applicant. To the knowledge of the Applicant, Mr Tan had for many years been a day trader in high volumes of CFDs and other securities.
34. Mr Luong was also a close friend of the Applicant. To the knowledge of the Applicant Mr Tan had for many years been a regular day trader in CFDs and other securities.
35. The information provided by the Applicant to these persons was:-
Count 1 Guangdon Rising Assets Management Co Ltd intended to make a takeover bid for Caledon Resources PLC;
Count 2 JSC Atomredmetzoloto was planning to made an all cash takeover bid for the acquisition of Mantra Resources Limited at a price involving a substantial premium of the prevailing share price
Counts 3, 4 A client of Royal Bank of Canada would soon be launching a takeover bid for Macarthur Coal Limited
36. Although I do not think it matters, the Statement of Facts said that it was not alleged that the Applicant actually knew that Mr Tan and Mr Luong would engage in their particular trading at the time he communicated the respective pieces of information.
37. Each of Mr Tan and Mr Luong acted on the information supplied by the Applicant. Mr Tan and Mr Luong acquired financial products worth some $257,800 and $49,600 respectively. The profits made were:-
Count 1 $26,750 (approximately),
Count 2 $18,660,
Count 3 $39,820, and
Count 4 $24,987
38. The Applicant pleaded guilty to the charges against him on the first occasion when he could have done so. Earlier, he had been interviewed by officers of the ASIC and had provided a degree of co-operation referred to in more detail below.
39. The Grounds advanced in support of the challenge to the sentences imposed were:-
(i) His Honour failed to provide an appropriate discount for the admissions made by Mr Khoo to ASIC.
(ii) Given the submissions made by the Crown, his Honour erred by failing to have regard to the sentences imposed in DPP v Lindskog [2013] VCC (unreported, Parsons CCJ, 14 March 2013)
(iii) His Honour erred by failing to provide for the pregnancy termination by Mr Khoo's partner
(iv) His Honour erred by placing undue emphasis that the fact that the offences involved tipping
(v) His Honour failed to have regard to the principles of parity.
(vi) His Honour erred by failing to have regard to the fact that the offender tipped persons who were: -
(a) not of a familial identity,
(b) in financial need.
(vii) Given his Honour imposed a sentence of full time imprisonment and Mr Khoo had cooperated with ASIC and the Crown a discount ought to have been allowed for the more difficult custodial environment.
(viii) The sentence were manifestly excessive.
40. Ground (i)
His Honour failed to provide an appropriate discount for the admissions made by Mr Khoo to ASIC.
41. In his Honour's remarks on sentence he observed that he was satisfied that assistance offered by the Applicant to give evidence against Tan and Luong played an important role in those persons pleading guilty to charges against them. His Honour recorded that the Applicant's pleas of guilty were entered at the earliest opportunity and he proposed to accord those pleas full weight. Later his Honour went on:-
I propose to discount the sentences that I would otherwise impose upon the offender, firstly in relation to sequences 1 and 2 for his pleas of guilty and co-operation and with some allowance of an Ellis discount by a factor in the order of 40% and in relation to sequences 3 and 4 for his co-operation and his pleas of guilty a discount in the order 35%. (sic)
42. In support of this ground attention was directed to aspects of the evidence before his Honour, in particular some remarks by an ASIC officer, a Mr Watson. Under cross-examination Mr Watson agreed that the Applicant's "admission and concession in relation to Mantra and Caledon were very important in being able to put evidence to the DPP to be here today" and that the Crown would have had a difficulty in showing that the Applicant realised the possibility that Tan and Luong would trade if he had not made admissions in that regard. However Mr Watson was not challenged on other statements to which I now refer.
43. This evidence was to the effect that in July 2011 as an incident of its normal activities ASIC became suspicious of transactions by Mr Tan and Mr Luong involving Macarthur Coal. On 13 October 2011 the Applicant was first interviewed concerning those transactions. He made no significant admissions and denied speaking to Tan or Luong about the proposed takeover of that company. At the time and although there was then no discussion concerning Caledon and Mantra, ASIC officers contemplated they would seek to identify any other examples of insider trading by the Applicant, Mr Tan or Mr Luong.
44. On 20 October 2011 the Applicant participated in a compulsory examination. On 11 November 2011, according to the Statement of Facts, the Applicant's solicitor met with offices of ASIC and indicated that the Applicant was willing to voluntarily co-operate with ASIC and consider pleading guilty to appropriate offences.
45. On 17 November 2011 the Applicant participated in a second voluntary interview and was asked whether he had told Tan about any other deals he had worked on. According to a statement of Mr Watson, an ASIC investigator, the Applicant referred to "some aspect of the insider trading offences relating to Caledon and Mantra" but his answers did not significantly add to ASIC's prior knowledge of those suspected offences. His answers were relatively general and vague and he stated that he could not remember or recall various relevant details. The answers did not constitute full admissions to any offence." Somewhat inconsistently the Statement of Facts also said that during this 17 November interview the Applicant "Made substantial admissions in relation to all of the offences ..."
46. Mr Watson went on to say that even if the Applicant had provided no information about the Caledon and Mantra offences, he was certain that ASIC would have identified them by its standard investigation strategies although he conceded that he could not positively state that ASIC would have been able to prove the Caledon and Mantra offences beyond reasonable doubt in the absence of the Applicant's admissions.
47. His Honour did not attempt to resolve the inconsistencies in Mr Watson's evidence and of course this Court cannot do so. For my part I am not persuaded that but for the Applicant's admissions the Crown would have had difficulty in proving that the Applicant provided information to Tan and Khoo and that he knew that they would trade.
48. One may take judicial notice of the fact that transactions in securities are recorded so there would seem to have been no difficulty in the Crown proving what Messrs Tan and Luong did. There would seem to have been no difficulty in proving that that trading was at times when the Applicant was in possession of confidential information. I would not infer that the Crown could not have proved that the Applicant and Messrs Tan and Luong were close friends and that he was aware that they were traders in securities. It was conceded that the Crown had plenty of phone records to demonstrate contact between the Applicant and those persons.
49. Of course any tribunal faced with these facts would have had to recognise the possibility that it was simply coincidence that Mr Tan traded when he did in securities in respect of which the Applicant had confidential information. However, given that this occurred 3 times, that possibility is not likely to have been accepted. The most probable inference is that Mr Tan had received the information that that Applicant had possessed. And if the inference were drawn that the Applicant had provided such information, it is almost inconceivable that he would have provided it without expecting his share trading friend to use it.
50. A similar argument may be made in the case of Mr Luong. Given Mr Luong's dealings the subject of the charges involved only one company, the argument is weaker but the Crown could still pray in aid the similarities with Mr Tan's dealings.
51. A further answer to the complaints made on behalf of the Applicant under this ground is that the Applicant's admissions, though made earlier, went no further than those implicit in his plea. To regard those earlier admissions as entitling the Applicant to any substantial discount in addition to that given for the plea involves an element of double counting.
52. The submissions under this ground also contended that the Ellis discount should have been higher. In R v Ellis (1986) 6 NSWLR 603 the Chief Justice, with the concurrence of the other members of this Court, observed:-
... the disclosure of an otherwise unknown guilt of an offence merits a significant added element of leniency, the degree of which will vary according to the degree of likelihood of that guilt being discovered by the law enforcement authorities, as well as guilt being established against the person concerned.
53. When regard is had to the totality of Mr Watson's evidence I am not persuaded that the Applicant was entitled to much by way of an Ellis discount. Nor am I persuaded that there was any other error by his Honour in the other discount or discounts he did allow.
54. This ground fails.
55. Ground (ii)
Given the submissions made by the Crown, his Honour erred by failing to have regard to the sentence imposed in DPP v Lindskog [2013] VCC (unreported, Parsons CCJ, 14 March 2013)
56. The submissions of the Crown were that the Applicant's offending required the imposition of a custodial sentence.
57. This ground is without substance. If any authority is needed for that conclusion - and it is not - the authority may be found in the numerous decisions of this Court eschewing arguments to the effect that a decision in one case demonstrates or constitutes persuasive evidence of what should be the decision in another - see R v Morgan (1993) 70 A Crim R 368 at 371; R v Mungomery [2004] NSWCCA 450 at [5]; and RR v R [2011] NSWCCA 235; 216 A Crim R 489 at 514 [118].
58. Ground (iii)
His Honour erred by failing to provide for the pregnancy termination by Mr Khoo's partner
59. The Applicant's partner was a Ms Pham. His Honour made reference to the subject of this ground when he remarked:-
Ms Pham also gave evidence before me in the sentencing proceedings. She stated that she first became aware in October 2011 that the offender was being investigated by ASIC. She said, "This news came as a shock to me as it was out of character for John." Ms Pham stated that in November 2011 she became aware the offender resigned from RBC because of the ASIC investigation. She said that at that time she discovered she had fallen pregnant with the offender and she states that the combination of the unplanned pregnancy, the ASIC investigation and the offender losing his job caused her significant emotional and mental distress. She states that in December 2011, faced with the uncertainty of the offender's predicament and the fact that he lost his job with RBC, she made the difficult decision to have a termination of her pregnancy. She states this was a very traumatic, stressful and saddening process to deal with. She states that she was scared of facing the prospect of raising child alone.
Of course I am required under s 16A (2)(p) of the Crimes Act to take into account the effect of the sentence on the offender's family and dependants. While I have every sympathy for Ms Pham and for the offender in relation to the decision she made, I do not regard the fact that Ms Pham made a free and considered decision to terminate her pregnancy because she was fearful of facing the prospect of raising a child alone as a matter which should mitigate the sentence.
60. The conclusion was one reasonably open to his Honour. Particularly is this so once it is recognized that the reference in s 16A(2)(p) of the Crimes Act to "the probable effect that any sentence or order under consideration would have on any of the person's family or dependents" should be read as if it were preceded by the words "in an exceptional case" - R v Hinton [2002] NSWCCA 405; (2002) 134 A Crim R 286 at [31]; R v Zerafa [2013] NSWCCA 222 at [93].
61. This ground fails.
62. Ground (iv)
His Honour erred by placing undue emphasis that the fact that the offences involved tipping
63. This ground also is without substance. His Honour placed no such undue emphasis.
64. Certainly his Honour referred to the differences between tipping and insider trading and pointed out that the Applicant's offences involved a gross breach of trust and that the victims of conduct such as his included the sellers who sold at prices lower than if they had been fully informed and the investing public generally because it undermined the integrity of and public confidence in the investment market. His Honour went on to express agreement with a submission of the Crown that "one of the significant vices of tipping offences is that the tipper loses control of the inside information and creates a risk that it will be further disseminated to other persons" and that therefore tipping can be potentially more damaging to the securities market than an insider who conducts illicit trades himself.
65. There was no error in such an Honour's approach.
66. Ground (v)
His Honour failed to have regard to the principles of parity.
67. The foundation for this ground lies in the sentence imposed on Mr Tan for the offence of insider trading whilst in possession of the information the subject of count 3 against the Applicant. The sentence imposed on Mr Tan was one of 200 hours community service and a fine of $40,000. Mr Tan was also ordered to pay a pecuniary penalty of $39,820 (his profit). It was Marien DCJ who imposed this sentence and indeed his Honour referred to it in the course of his remarks.
68. Although the Applicant passed on and Mr Tan received and used the same information, the charges against them were different and they were not co-offenders. The matter is thus not one of parity but proportionality. Nevertheless I accept that the sentence on Mr Tan is relevant.
69. However there is a significant difference between the circumstances of the 2 offenders. Mr Tan was not guilty of the breach of trust or requirement for confidentiality that the Applicant was. Mr Tan, whilst his own trading may have had some, probably immeasurable, impact of the market, did not create the risk to the market that the Applicant's conduct was calculated to create.
70. Thirdly, because it is their conduct that creates the unfairness and other problems of insider trading, I would regard the need for general deterrence of persons situated as the Applicant was as greater than in the case of persons such as Mr Tan.
71. Fourthly, because the Applicant was being sentenced for 4 offences, it would not have been appropriate to impose on him the same type of sentence as that imposed on Mr Tan. Indeed his Honour referred to this fact as one that led to the need for a full time custodial sentence.
72. This ground also fails.
73. Ground (vi)
His Honour erred by failing to have regard to the fact that the offender tipped persons who were: -
(a) not of a familial identity,
(b) in financial need.
74. His Honour's remarks relevant to this ground included the following:-
In my view, the fact that the offender acted with a motive or hope for financial gain by others, in this case his close friends and not himself, does not reduce the criminality of his conduct. The offence of communicating inside information is not primarily directed towards the making of unfair profits through insider trading but at maintaining public trust in a fair transparent investment market: See R v Fysh (No 4) [2012] NSWSC 1587 per McCallum J at [47].
75. And later:-
The fact that the offences were not motivated by personal greed on the part of the offender cannot in my view lead to any significant mitigation of penalty.
The Crown submits and I accept that the offender was motivated by a desire that his friends Tan and Luong would financially benefit from his breach of trust and breach of his confidentially agreement with his employer.
Accordingly, the fact that the offender nor his family derived any financial gain from these offences does not in my view reduce his criminal culpability. (sic)
76. The only evidence that either of Messrs Tan and Luong were in financial need was in fact a statement in a Pre-Sentence Report that:-
Mr Khoo presented as remorseful and regretful of his actions and decisions noting he was well aware it was wrong at the time however wanted to help two friends out who he believed were experiencing some financial hardship at the time.
77. Given the passages from the Remarks on sentence that I have quoted, it simply cannot be said that his Honour failed in the respects that are the subject of this ground. His Honour did have regard to the Applicant's apparent motivation and lack of family benefit.
78. However on the assumption that the complaint is really that his Honour did not regard the matters relied on as mitigating factors, I am still of the view that this ground fails. I can accept that, as was said in R v Glynatsis [2013] NSWCCA 131 at [48] that "The distinction between an offence committed for motives of personal greed and committed for the benefit of some other person is real. This is not to say that such a circumstance is exculpatory, rather it can indicate a less serious level of criminality as it did in this case." However, that is not to say that the commission of offences for the benefit of others is a mitigatory factor. The statement is equally consitent with greed as a motivating factor being aggravating.
79. Primarily the Applicant's criminality is to be judged by comparing what he did against the statutory proscription. I see no error in his Honour's approach.
80. Ground (vii)
Given his Honour imposed a sentence of full time imprisonment and Mr Khoo had cooperated with ASIC and the Crown a discount ought to have been allowed for the more difficult custodial environment.
81. A discount for co-operation with the authorities is generally intended to reflect all of the consequences of that co-operation. There is a significant risk of double counting if the sentence is reduced on account of such co-operation and then some further amelioration of the sentence given on account of a more difficult custodial environment. There is nothing in his Honour's remarks on sentence to indicate that in deciding upon the discount he allowed, he did not take into account the notorious more difficult custodial environment which the Applicant might well suffer.
82. This ground fails.
83. Ground (viii)
The sentences were manifestly excessive.
84. The principal submission under this ground was that a sentence of full time custody was inappropriate. In support reference was made to other cases where a non-custodial sentence had been imposed
85. Before turning to that submission it should be noted that the Applicant had no prior convictions of any significance and that his Honour accepted that the Applicant was genuinely remorseful and had excellent prospects of rehabilitation and that there had been delay in the final disposition of the matter, delay for which the Applicant was not responsible
86. Among the cases to which the Court's attention was directed were R v Dalzell [2011] NSWSC 454; R v O'Brien [2011] NSWSC 1553; R v Glynatsis [2013] NSWCCA 131 and DPP v Lindskog [2013] VCC (unreported).
87. In R v Dalzell, the offender, without subterfuge, purchased some $40,000 worth of shares in a company about which he had acquired inside information whilst working for an organisation involved in a possible takeover of that company. At the time of offending the maximum period of imprisonment that could be imposed was 5 years. Hall J concluded that there had been no "gross abuse" of highly confidential information, that although the offender must have been aware that his actions were wrong, he was not mindful of the serious criminality of his act, and that the case was towards the lower end of the range of insider trading offences. His Honour sentenced the offender to 2 years imprisonment to be served by way of Intensive Corrections Order.
88. In R v O'Brien, the offender committed 4 offences by causing a superannuation fund of which he was a trustee to purchase shares in companies concerning which he had insider information. The relevant beneficiary of the transactions was the offender's mother. The amount invested totalled some $174,700 and a profit of some $54,700 was derived. The offender was aware of the legal prohibitions against insider trading. He had no prior convictions and otherwise a strong subjective case. His offending had imposed significant financial pressure on his family
89. The offences were committed during the period 30 June 2010 and 11 January 2011. The maximum period of imprisonment to which the offender rendered himself liable was 10 years for the fourth offence but 5 years for each of the earlier offences. The parties and Hoeben J (as his Honour then was) approached the 4 offences as constituting a single episode of criminality. His Honour took the view that the objective seriousness of the offences was at the lower end of the range and imposed 4 sentences each of 2 years imprisonment to be served concurrently. His Honour said that he did not regard a custodial penalty as appropriate and directed that the sentences be served by Intensive Corrections Order.
90. In R v Glynatsis [2013] NSWCCA 131 the offender committed 9 offences by trading in shares and CFDs relating to companies in respect of which his employer held confidential information. Some of the trading was done in the offender's own name and some, for their benefit, in the names of relatives. The trading occurred during the period 20 November 2009 and 23 November 2010. The offender was aware that his actions in accessing the information and then trading with it contravened his employer's policies and were illegal. The trading realised a profit of some $23,800 for the offender and $26,300 for his relatives. Some $371,000 in all was invested.
91. At the time of sentence the offender was 29, had no prior criminal history and had a strong subjective case. Johnson J sentenced the offender to concurrent imprisonment for 1 year for each of the offences. The sentences on counts 1 to 5 were concurrent. Those on counts 6 to 9 were also concurrent but accumulated on the sentences for count 1 to 5. The sentences were directed to be served by way of Intensive Corrections Order.
92. On appeal, this Court held that Johnson J had not erred in concluding that the trading on behalf of the offender's relatives in an attempt to restore his family's fortunes was a factor operating in his favour. However the appeal was allowed, the Court holding that, given the nature and seriousness of the offender's criminality, the ICO did not adequately meet the principle of general deterrence. The sentences imposed were of 15 months for counts 1 to 5 and 12 months for counts 6 to 9. The sentences for counts 1 to 5 wee directed to be served concurrently. The sentences on counts 6 to 9 were also made concurrent with each other but directed to commence 9 months after the sentences on counts 1 to 5. A direction was made that the offender was to be conditionally released after 12 months.
93. In DPP v Lindskog the offender was charged with 4 offences relating to the purchase of shares in a company in resect of which the offender held confidential information concerning possible takeovers of that company. The offences took place over the period 14 March to 3 June 2011. the total cost of the purchases was some $172,000 and resulted in a profit of some $25,600.
94. The offender had a strong subjective case and his Honour seems to have accepted that the offending occurred in the context of the offender having been unable to find a remunerative job, having growing financial pressures, having been in fear of being unable to support his family and, while knowing he was close to the line, convinced himself that he was still operating within the law. The sentence imposed on the first count was a pecuniary penalty of $15,000. The sentences imposed on the other counts were each of 6 months imprisonment accumulated so as to total an effective 12 months. However there was also a direction that the offender was to be forthwith released on a recognisance release order to be of good behaviour for 18 months.
95. It is apparent that the sentence imposed on the Applicant was more severe than in the cases just mentioned. However, as has been said on many occasions, sentencing is a discretionary exercise and while a judge should have regard to earlier sentences as a guide - Hili v The Queen [2010] HCA 45 at [54] - such earlier decisions are not a straightjacket into which a new sentence must fit. Judges may legitimately differ as to, inter alia, the objective seriousness of an offence, the degree of importance that should be given to general deterrence and as to the nature of the sentence appropriate to meet that importance.
96. In this case Marien DCJ referred expressly in a little detail to R v Glynatsis [2013] NSWCCA 131 and R v O'Brien [2011] NSWSC 1553, differing as he was entitled to do, with the conclusion of Hoeben J as to the objective serious of the offending in that case.
97. As counsel for the Applicant urged in support of ground 1, there was unchallenged evidence in the case that:-
...insider trading offences are generally very difficult to detect, investigate and prove beyond reasonable doubt.
98. Similar statements are to be found in Hartman v R [2011] NSWCCA 261 at [96] and R v Rivkin [2003] NSWSC 447 at [44].
99. Given the importance to the securities market generally of its integrity and the importance to those involved in significant transactions in that market of being able to keep confidential information concerning imminent or potential transactions, the difficulty to which reference was made means that general deterrence must be given substantial weight.
100. And the need for such deterrence argues for full time custody - see R v Taylor [2000] NSWCCA 442; R v Hinton [2002] NSWCCA 405; (2002) 134 A Crim R 286. True it is that in those cases the contrast was between full time custody and a suspended sentence but they make the point that a strong need for general deterrence argues for full time custody. While undoubtedly many sentences of other than full time custody involve more than the proverbial slap on the wrist, such sentences all have within them an element of leniency and are calculated to not have the same deterrent effect as does full time custody.
101. While in this case there were undoubtedly factors arguing for leniency, it must also be remembered that the Applicant's conduct in each offence amounted to deliberate criminality in full knowledge of that fact and that such conduct was repeated. In my view Marien DCJ was well entitled to impose a sentence of full time custody.
102. The question then arises as to the length of the sentences, individually and overall. It was pointed out that the sentences of 9 months on counts 1 and 2 if after a discount of the order of 40% indicates a starting point of 15 months and the sentences of 1 year and 8 months after a discount of the order of 30% indicates a starting point of the order of 2 years and 5 months. It was submitted that these periods were unduly high when compared with the maximum sentences of 5 years and 10 years respectively.
103. The matter is complicated because of the concurrency of the sentences imposed by his Honour. I accept that a similar approach has been taken in the earlier cases to which I have referred but certainly in this case I find his Honour's approach impossible to reconcile with the decision of the High Court in Pearce v R [1998] HCA 57; (1998) 194 CLR 610. Even if there was some commonality in motive the criminality in each of the Applicant's offences was distinct from the criminality in the others.
104. Considered in isolation I think that the sentence imposed for the Applicant's first offence was high, indeed manifestly excessive for a first offender. However, were I disposed to interfere with it, I would then partially accumulate on it what I think is appropriate for the Applicant's second offence. The result would not be less than the 9 months term that Marien DCJ imposed for these offences. I would take a similar approach to the sentences on counts 3 and 4 although the principle of totality would operate to limit the total sentence. However, again, the effective sentence would not be less than the 23 months with an effective 14 months non-parole period that Marien DCJ imposed.
105. Neither party sought that the Court adopt the approach referred to in the immediately preceding paragraph and the issue not having been raised for the Court's determination I am content to ignore it.
106. In the result, because I think that the length of the ultimate sentence imposed by Marien DCJ was within the legitimate exercise of his sentencing discretion I propose that leave to appeal be granted but that the appeal be dismissed.
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