Insider trading is the act of acquiring, disposing of or trading financial products or instruments in response to inside information or knowledge. Insider trading is not just limited to the actions of the person who initially possesses the relevant information, but also extends to any other person to whom the information may have been communicated to, who then relies on that information to acquire, dispose of or trade financial products or instruments.
Inside information is information which is not generally available or if it were generally available, would be reasonably expected to have a material effect on the price of the product or instrument.[1]
Insider trading is classified as prohibited conduct and carries with it substantial penalties.
What are the penalties?
The Australian Securities & Investments Commission (“ASIC”), in collaboration with the Commonwealth DPP, prosecutes those who are suspected of conducting insider trading activities.
For an individual, the applicable penalties for insider trading and market manipulation are:
- The greater of $495,000, or three times the profit gained or loss avoided; and/or
- Up to 10 years imprisonment.[2]
For a corporation, the applicable penalties are the greater of the following:
- $4.95 million;
- Three times the profit gained or loss avoided; or
- Up to 10% of the body corporate’s annual turnover in the relevant period.[3]
In determining the punishment and Sentence for insider trading, ASIC has outlined 17 different factors which are to be taken into consideration:[4]
- Amount of profit made;
- Character of the offender ;
- Any expression of remorse or contrition;
- Any extra-curial punishment;
- General deterrence;
- Manner in which the information was acquired;
- Personal circumstances of the offender;
- Any breach of confidence;
- Manner in which the trial was conducted and guilty plea;
- Relationship with the relevant company;
- Any delay in prosecution;
- Prospects of rehabilitation;
- Relationship with the securities industry;
- Specific deterrence;
- Acceptance of pecuniary penalty order;
- Amount of money wagered; and
- Any hardship to the offender’s family.
In addition to criminal penalties, ASIC may also seek civil penalties.
What are the exceptions and defences to the offence?
There are several defences and exceptions for insider trading.
The exceptions for insider trading are provided by the Corporations Act. These exceptions are:
- Exception for underwriters;
- Exception for acquisition pursuant to legal requirements;
- Exception for information communicated pursuant to a legal requirement;
- Chinese wall arrangements by bodies corporate; and
- Chinese wall arrangements by partnerships
The main defence provided by statute is the knowledge defence, whereby a person does not commit the offence by “entering into a transaction or agreement in relation to financial products issued by another person merely because the person is aware that he or she proposes to enter into, or has previously entered into or proposed to enter into, one or more transactions or agreements in relation to financial products issued by the other person or by a third person”.[5]
If you are investigated by ASIC and charged with insider trading, you should immediately seek legal advice. KPT Criminal Lawyers will help you secure the best outcome through our proven experience and expertise.
*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*
[1] Corporations Act 2001 (Cth) s1043A
[2] ASIC – “Insider trading and market manipulation” 13 August 2010
[3] Ibid
[4] Ibid
[5] Corporations Act 2001 (Cth) s1043H
