Insider Trading

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Written by Richard Mayo, Senior Criminal Lawyer.
Richard has a wealth of experience in corporate crime and has spent time with both state and Commonwealth DPPs.
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What is inside information?

It’s information that’s not generally available, which is likely to have an effect on the value of a financial product.

What financial products are included?

Financial products included under insider trading law include all securities that can be traded on the stock exchange.

What is the offence?

It is an offence under the Corporations Act to trade using inside information, or communicate inside information to others who will, or are likely to, trade on the inside information.

What the prosecution must prove - the elements of the offence:

1. That you possess information which is likely to have a material effect on the value of a particular financial product that is able to be traded on a financial market 2. That you know (or ought reasonably know) that the information is not generally available 3. That you (or your agent) trade in that particular financial product; or you tell someone else about the information knowing that that the other person will trade in the product.

Financial products are broadly defined under Division 3 of the Corporations Act and importantly contain all securities able to be traded on a financial market.

The prosecution does not require proof that you knew the information was not available and may have a material effect, it merely requires that a reasonable person would have that belief.

Common ways in which this might occur

• You work for the company and through that work you have become aware of a major new opportunity or significant problem which is not known to the public yet. You know it will affect the share price, so you either buy or sell shares, or procure friends and family to do so for you.

• You work in a field such as accounting or law and have acquired information through your work about a significant opportunity or problem with the company.

• Someone within the industry has revealed important information to you about the company or its competitors which is not known to the public yet.

Possible defences

There are a number of statutory exceptions to this law (Section 1043B-J of the Corporations Act) which relate to specific types of financial products. These include exceptions for insurance underwriters and the revealing of information under legal obligation.

There is also an exception where the communication of the information is done by a publisher in their usual course of business, with no intent to contravene this law. (Section 1044A of the Act)

Maximum penalty

The maximum penalty for this offence is five years’ imprisonment and/or a $220,000 fine.

An offence which may be tried before a jury. These offences are dealt with in the District Court.

Which court is likely to hear the matter?

This matter is indictable and will be dealt with in the District Court.

For more information:

Contact one of our team of specialist corporate crime lawyers at Armstrong Legal on 9261 4555.

Written by Richard Mayo. Richard has a wealth of experience in corporate crime and has spent time with both state and Commonwealth DPPs.