Insider Trading Laws, Punishments & Case Studies

Insider Trading

Describe about the Insider Trading for Laws, Punishments, Case Studies.

Criminology defines corporate crime in many ways. Crime committed by a Company, Crime committed by someone outside the Company or a crime committed by someone inside the Company all come together under the term ‘Corporate Crime’ (Crowe, 2015).

Corporate Crime can be of many types. All of the acts mentioned below may come under the tag of Corporate Crime:

False presentation of a Company’s Financials

Bribery with commercial agenda

Unlawful fund handling

Dissemination of false information while marketing the company products

Exploiting stock market pricing etc

Criminal Law is applicable in any of the cases mentioned above. The presiding Legislature decides the amount of damage that any of the above acts may cause to a company or to the State and the individuals residing there. Depending on the severity of the act, penalty is decided.

In the Countries which are economically advanced, Corruption and bribery for commercial purposes have become issues of continued concern.

Apart from corruption and bribery, Insider trading has become one of the most concerning issues in the present day corporations (Legislation, 2016).

Insider trading is one of the grave concerns for the present day corporations. An insider of a company may have a number of information which is not available for people outside the company. The general public who do not have these internal information of a Company, fall victim when the person inside the Company uses these confidential information for selling or buying stocks / securities of the company. The outsiders or the people who are not   part of the company, invest in the stocks / securities of the company without knowing those precious information which provide larger profits to the people inside the company (Austlii, 2001).

Therefore, it may be said that the people who are inside the company make undue profit by means of unethical means.

There is a conflict among economists regarding the legality of insider trading. Some find it ethical and good for economy of a country as it increases the cost of capital for the issuers of securities and some find it completely unethical and wish to impose legal banning on it. The rules for insider trading vary for different countries. The rules are somewhat complex in nature also.

In the year 2015, the most significant verdict in the history of insider trading was given by the Supreme Court Justice Ms Elizabeth Hollingworth. The case was fought between the Queen of Australia and Mr Lukas Kamay, a former NAB banker and a former analyst from Australian Bureau of statistics, Mr Christopher Hill. Both Kamay and Hill was sentenced to Jail for that Insider Trading offence.

The Case of Lukas Kamay vs the Queen

Mr Lucas was imprisoned for Seven years and three months and Mr Hill was sentenced for three Years approximately. Ms Elizabeth Hollingworth, Hon’ble Justice of Supreme Court of Australia, commented that the case was the worst example of Insider Trading in the country of Australia.

Hill, a former analyst of ABS copied some of the internal information of his company and sent them via his mobile phone to Lukas Kamay. The sent information consisted of the labour force, new expenditure in Capital; retail dealings etc of the Company. Kamay used this important information to strike hugely profitable trading deals. Kamay made a profit of 2 Lakhs 84 thousnad dollars out of the deal. He accumulated a profit of approximately 7 Million dollars within a few months. Throughout this unethical practice, Hill went on passing important and confidential information from his own company to Kamay. The information he passed on to Kamay included very important and confidential financial information of his company. According to Justice Hollingworth, the whole unlawful process was driven by highest level of greed and by the single reason of financial profit. The Judge while passing her sentence mentioned that both Kamay and Hill had pleaded guilty in advance and as they were very young, they could start their life afresh after successful rehabilitation (Vines, 2015).

Hill was unaware that Kamay had dealings with a number of confidential forex accounts for trading with companies like Axigroup and Pepperstone. Both these Organisations had gone to Australian Securities and Investment Commission reporting about the mistrustful trading. By these tradings Kamay earned approximately 7.2 million Dollars wheras Hill could make only a profit of 19,500 Dollars.

Kamay was charged with several offences like Insider Trading, Identity theft and illegal money handling. He pleaded guilty for these charges.

Psychological analysis of the two offenders gave different results. While the analysis of Kamay revealed that he had a narcissistic attitude and was not very repentant for his deeds, Hill was in a depressed and very repentant state of mind.

Keeping the age of these two offenders and their earlier clean record, the Judge decided to hand them light sentences so that they could successfully rehabilitate post their punishment (Theaustralian, 2015).

In a very recent case of insider trading Mr oliver Curtis was handed two years of imprisonment by Justice Lucy McCallum. Curtis was an employer of the investment Bank of Transocean group. During the year 2007-2008, he was charged with the offence of insider trading.

Oliver Curtis Case and Imprisonment

The Justice commented that Curtis was completely aware of his wrong-doings and deals which were illegal in nature and he collaborated with one of his best friends to use insider trading to its fullest to make illegal profit out of it. She also remarked that Curtis did not show any repentance or remorse for his misdeeds. The publicist wife of Curtis pleaded not-guilty for her husband.

The Justice passed her verdict with a clear saying that the offender Curtis in this case has not shown any remorse for his wrong doings which has forced her a to pass a sentence against him. Curtis was handed with one year imprisonment and was also served with a good behavior order for another year.

Mr Hartman the co-offender in this case who aided Curtis in his illegal insider trading dealings, had admitted of his offence and expressed his repentance for his wrong-doings. But, Curtis was non-committal of his offence till the very last. The Judge while passing her sentence said that she thought that Curtis was not of the material or mental intent to repeat the same nature of offence in future.

She also said that the family of Curtis well supportive and financially well-placed. Therefore the imprisonment would not affect them in a harsh manner. She also commented that the damage in the professional reputation of Curtis may not be matter of great concern as his father was a successful banker and was capable of looking after him (Whitbourn, 2016).

She believed that Curtis’s bonding with his family may help him to come out clean after a successful rehabilitation.

While closing her judgment, she also said that the so called white-collar crime like Insider Trading affects the life of individuals who are into trading and thus causes great damage to community.

Her judgment was largely influenced by the fact that Curtis did not show any amount of repentance during his trial for his wrong doings.

In both the cases, the nature of crime was almost the same, using insider information of a company to use them for personal benefit and illegal money-making. But the approaches of the judges were a little different.

In the case of Kamay and Hill, the Judge Ms Hollingworth gave much importance on the fact that both the offenders were very repentant for the misdoings and pleaded guilty. Though there was a difference between the psyche of the offenders in this case, but none of them were believed to repeat their offence once again. The sound nature of their family background was also into playing while the Judge decided upon her sentence. She believed in both the offender’s case, rehabilitation in a successful manner was a possibility. But the most important part of her judgment was based upon the amount of money involved into the case. The huge amount of money which was illegally accumulated by Kamay played a big role in his long imprisonment of approximately seven years. The Judge believed that the amount was so large that the victimization of the general traders was of more severe in nature than any other cases of the past.

Comparison in the Approaches of the Judges in the Cases Mentioned Above

In the case of Curtis Hartman, the Judge emphasized on the observation that unlike Mr Hartman, Curtis was not at all repentant of his misdoings and he did not plead guilty also. But keeping in mind his professional efficiency, his earlier record and his close affinity towards his family, the Judge decided that he is unlikely to repeat his offence. Also the amount of money illegally handled in this case was not of that enormous magnitude. So she decided for a sentence of shorter time period within which she believed rehabilitation would be possible in successful manner (Piotrowski, 2016).

Kamay pleaded guilty for his offence and though he was handed over with a long period of imprisonment, approximately of seven years, the Judge considered his repentance for his misdeeds as a good sign and despite the magnitude of the financial involvement in the case, she handed over a judgment with consideration with the belief that it may lead to the path of the offender’s successful rehabilitation.

The principle of parity plays a huge role in influencing the nature of judgment passed by a Judge. In the same case of Kamay and Hill, hill was handed with lighter sentence than Kamay because of the evidence provided after his psychoanalysis which showed that he was extremely remorseful and completely aware of his misdoings. Also the amount of profit cumulated illegally was less in his case. Therefore, he was handed over with lighter sentence than that handed to Kamay.

Similarly, in the case of Curtis and Hartman, Curtis was handed with a punishment more severe in nature than Hartman. Curtis was nonchalant with the crime he committed; he did not play guilty also. On the other hand, Hartman pleaded guilty and was very remorseful for his doings. So, the judgment was also more considerate to him than that to Curtis.

Australia Security and Investment commission (ASIC) looks after maintaining the regulations in equity capital market. The purpose is to create a secured environment for investment so that the domestic and foreign investors feel encouraged. By several methods like surveillance, prosecution and enforcement, ASIC tries to reduce the loss of shareholders.

A key role of ASIC is to find out illegal corporate dealings like insider trading which may affect the future of other lawful traders. By tracking down such criminal activities and taking prosecution action against the offenders is a major role played by it (Asic, 2016).

Trading by a person who is an insider of a company is a matter of legal concern. But in a recent development, corporate act is allowing the insiders of a company to trade with its shares in a legalized manner. Under this regulation, an insider of a company may place a plan to trade with company shares well in advance, at a time when he does not have any inside information of the company. He may have the right to deal with the shares according to his preplanned strategy. Thus the violation of corporate law may be avoided. But there are confusions over the possibilities of manipulation of inside information in this type of activity.

Conclusion:

The fine line between legalized and unrealized Insider trading makes the nature of offences more complex day by day.  As an Insider of a company, one person should be extremely cautious about his dealings and handlings of information and trading in order to avoid unwanted situations of prosecution and punishment. 

References:

Asic. (2016, April 20). Asic. Retrieved October 06, 2016, from Asic: https://asic.gov.au/about-asic/what-we-do/our-role/

Austlii. (2001). Commonwealth Consolidated Acts. Retrieved October 06, 2016, from Austlii: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s1043a.html

Crowe, E. (2015, June 01). What Is Criminology? - Definition, History & Theories. Retrieved October 06, 2016, from study: https://study.com/academy/lesson/what-is-criminology-definition-history-theories.html

Legislation. (2016, August 24). Criminal Code 2002 . Retrieved October 06, 2016, from Legislation: https://www.legislation.act.gov.au/a/2002-51/current/pdf/2002-51.pdf

Piotrowski, D. (2016, June 23). Mr Curtis has not embraced responsibility for his offending. Retrieved October 06, 2016, from Dailymail: https://www.dailymail.co.uk/news/article-3655845/Oliver-Curtis-sentencing-Roxy-Jacenko-s-husband-face-jail-insider-trading.html

Theaustralian. (2015, March 17). Lukas kamay jailed for seven years. Retrieved October 06, 2016, from Theaustralian: https://www.theaustralian.com.au/business/insider-trader-lukas-kamay-jailed-for-seven-years/news-story/952d8812aa879f484214f7a5ebb3cae1

Vines, H. (2015, March 16). 'Greedy' pair Lukas Kamay, Christopher Hill jailed over $7 million ABS insider trading scam. Retrieved October 06, 2016, from Abc: https://www.abc.net.au/news/2015-03-17/pair-sentenced-over-abs-insider-trading/6324526

Whitbourn, M. (2016, June 02). Oliver Curtis, husband of Roxy Jacenko, jailed for insider trading. Retrieved October 06, 2016, from Smh: https://www.smh.com.au/nsw/oliver-curtis-husband-of-roxy-jacenko-jailed-for-insider-trading-20160623-gpputd.html