ASIC steps up measures against insider trading - Criminal Law

Australia: ASIC steps up measures against insider trading

Last Updated: 18 January 2012

Article by Murray Deakin, Sylvia Ng and Cameron Abbott

K&L Gates

At a recent Parliamentary Committee hearing ASIC chairman Greg Medcraft delivered a strong message to anybody thinking about insider trading. He confirmed that ASIC will continue its tough stance against insider trading and improve the measures that were implemented by his predecessor Tony D'Aloisio.

ASIC's approach to insider trading

Mr Medcraft stated that the corporate watchdog has the people, systems and powers to enforce action against suspected insider trading, and that an increase in recent convictions for insider trading was proof of ASIC's resolve.

Mr Medcraft has been quoted as saying: "Don't even think about it" and "Most likely if you're found guilty you'll go to jail."

The latest ASIC annual report shows that there was double the number of criminal convictions for insider trading or market manipulation than for the previous year. This reflects ASIC's commitment to achieving fair and efficient financial markets, one of three priorities ASIC has announced for the 2011-12 financial year.

Recent numbers disclosed by ASIC also point to an increase in the seriousness of insider trading, these include:

more than 27,500 tip-offs for insider trading or market manipulation
35 cases referred for formal investigation
six criminal convictions for the 2010-11 financial year
prison terms ranging from 20 months to more than four years
financial penalties ranging from A$70,000 to A$1.57 million.

The penalties are in line with the amendment to the Corporations Act 2001 (Cth) in 2010 that increased the penalties for both individuals and corporations in respect of insider trading and market manipulation.

Currently the maximum penalty for individuals for insider trading is a prison term of 10 years and/or a fine of up to A$495,000 or three times the value of the benefits obtained.

For corporations the maximum penalty is the greater of a fine of A$4,950,000 or three times the benefit obtained, or 10% of the annual turnover if the benefit obtained cannot be determined.

New industry guidelines

The Australian Financial Markets Association (AFMA) has recently released its best practice guidelines for "Handling Confidential & Price-Sensitive Information & Soundings". The guidelines are designed to establish best practice standards that will help protect investment bankers, stockbrokers, companies and their advisers from the risks of insider trading.

The new guidelines set out in detail:

how companies should approach confidentiality agreements
how to deal with people who have access to sensitive inside information
how to undertake discussions with potential investors or other interested parties when price-sensitive or inside information is involved.

These guidelines are the first that provide a solid reference point for the industry. The guidelines were developed in conjunction with ASIC in response to the Commission's approach to insider trading.

How can you protect your business?

It is important that businesses are aware of the risks of insider trading, especially in light of the recent crackdown on insider trading by ASIC.

With the release of industry best practice guidelines businesses should consider revising their compliance programs to incorporate the recommendations set out in the guidelines.

Businesses should also take strategic measures to prepare for any investigation or prosecution by a regulator.

Middletons' Competition & Regulatory Group regularly assists clients facing ASIC investigation into insider trading allegations, and is well positioned to help your business develop corporate policies to address insider trading risks and, if necessary, respond to any ASIC investigation or prosecution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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