Insider Trading in Australia: What You Need to Know
Insider trading refers to the practice of buying or selling securities in a company based on non-public information that could influence the price of those securities. In Australia, insider trading is considered a serious offence and can result in significant penalties for those found guilty.
What is Insider Trading in Australia?
Insider trading is defined under Australian law as the use of inside information. To trade in financial products such as shares, bonds, and other securities is included in this definition. Inside information includes any information that is not generally available to the public and that, if it were, could have a material impact on the price of the securities in question. Examples of inside information include confidential information about a company’s financial performance, management decisions, or potential mergers or acquisitions.
Is Insider Trading Illegal in Australia?
Yes, insider trading is illegal in Australia under the Corporations Act 2001. The act prohibits insider trading in all financial products, including securities, derivatives, and managed investment schemes. Penalties for insider trading can include imprisonment, fines, and disqualification from managing corporations.
According to Section 1043A of the Corporations Act 2001, insider trading is defined as prohibited conduct. This section stipulates that a person (referred to as the “insider”) must not apply for, acquire, or dispose of financial products or enter into an agreement to do so if they possess inside information or know, or should reasonably know, that the information is inside information. The insider is also prohibited from procuring another person to apply for, acquire, or dispose of financial products or enter into an agreement to do so. Additionally, the insider is prohibited from directly or indirectly communicating the information to another person who they know, or should reasonably know, would apply for, acquire, or dispose of financial products or enter into an agreement to do so.
Inside information refers to information that is not generally available and would have a material effect on the price or value of financial products. Information is considered generally available if it is observable or has been made known in a manner that would bring it to the attention of people who commonly invest in products whose price might be affected by the information. Additionally, a reasonable period for it to be spread among those people must have elapsed, or it must consist of deductions, conclusions, or inferences made or drawn from the observable matter. Information has a material effect on the price or value of a product if it would influence people who commonly acquire those products in deciding whether to acquire or dispose of them.
Financial products refer to securities, derivatives, interests in managed funds, stocks, bonds, and superannuation products.
Insider Trading Penalty in Australia
If an individual is convicted of insider trading in Australia, they can face imprisonment for up to 10 years and/or a fine of either the greater of $495,000 or three times the profit gained or loss avoided. The penalties for a company, the maximum penalty is the greater of $4.95 million, three times the profit gained or loss avoided, or 10% of the company’s annual turnover in the relevant period. The Australian Securities and Investments Commission (ASIC) may decide to seek civil penalties instead of criminal penalties, in collaboration with the Commonwealth Director of Public Prosecutions.
How Does Insider Trading Get Investigated in Australia?
Insider trading is investigated in Australia by the Australian Securities and Investments Commission (ASIC), which is the government agency responsible for enforcing corporate laws and regulations. ASIC can investigate suspected cases of insider trading and can use its powers to compel individuals and companies to provide information and documents.
When investigating insider trading, ASIC may use a range of methods, including surveillance, data analysis, and interviews with witnesses and suspects. If ASIC suspects that insider trading has occurred, it may take enforcement action, such as prosecuting the individuals or companies involved.
Examples of Insider Trading in Australia
There have been several high-profile cases of insider trading in Australia. Here are a few examples:
- The Leighton Holdings Case: In 2012, ASIC commenced civil penalty proceedings against Leighton Holdings and two of its former executives for allegedly engaging in insider trading. The case alleged that the executives were aware of the company’s poor financial performance before it was publicly disclosed and sold shares in the company.
- The NAB Case: In 2017, National Australia Bank (NAB) employee Lukas Kamay was sentenced to seven years in prison for insider trading. Kamay used confidential economic data from the Australian Bureau of Statistics to trade on the foreign exchange market, resulting in profits of over $7 million.
- The MYOB Case: In 2019, two former employees of MYOB were charged with insider trading. The charges alleged that the employees used confidential information about the company’s financial performance to trade on the stock market, resulting in profits of over $70,000.
- The Sundance Resources Case: In 2014, six people were charged with insider trading in relation to Sundance Resources, a mining company. The charges alleged that the defendants were aware of confidential information about the company’s proposed takeover and used this information to trade on the stock market.
These cases demonstrate the seriousness with which insider trading is treated in Australia and the significant penalties that can result from engaging in such conduct.
Australia's Biggest Insider Trading Case
One of the most significant insider trading cases in Australia’s history involved former directors of the mining company, AWB Limited. In 2009, ASIC alleged that former directors of AWB Limited had engaged in insider trading by purchasing shares in the company based on inside information about the impending announcement of a profit upgrade. The profit upgrade announcement subsequently caused a significant increase in the price of AWB Limited shares.
ASIC’s investigation led to charges being laid against eight former directors, including the former chairman and CEO of AWB Limited. In 2012, five of the former directors pleaded guilty to insider trading, and the other three were found guilty by a jury. The court ordered the eight individuals to pay a total of $30 million in fines and disgorgement of profits.
If you have been charged with a insider trading offence or are being investigated for insider trading, contact our fraud lawyers in Sydney.
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