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Insider Trading 1

INSIDER TRADING- NEW SOUTH WALES IN R v CURTIS (No 3) [2016] NSWSC 866.

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Insider Trading 2

Introduction:

Definition of Insider Trading:

Insider trading can be defined as the act of buying or selling or conspiring to buy or sell

tradable financial products like stock, based on inside information. Section 1042 of the

Corporations Act

specifies financial products to include securities, derivatives, interests in

managed investments, debentures, and stocks/bonds issued by the government or proposed to be

issued, superannuation products or any other financial products that can be traded on a financial

market. Inside information is explained to mean information that is generally not available, and

which, if it were generally available, a reasonable person would expect it to affect the valuation

of the aforementioned financial products.

Facts of R v Curtis:

Mr. Curtis who worked in the financial sector got into an illegal agreement with his

friend, Mr. Hartman, an equities dealer employed by Orion Asset Management Ltd. Orion’s

main business was managing investments and to that end bought and sold large volumes of

shares consistently. Its main clients included superannuation fund managers. Its senior

investment managers were the ones responsible for choosing stocks which would go into its

investment portfolios. They also did target weighting of each of the stocks and tried to manage

the investment so much so that the actual weighting came as close as the target weighting.

Part of Mr. Hartman’s job was to execute financial trade on behalf of Orion with a

relative amount of discretion. To that end, he knew the scope of volume of shares Orion would

acquire and dispose of on a daily basis and within a specific price range. Ultimately, he came to

Corporations Act 2001 (cpt).

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acknowledge the amount of clout Orion’s daily financial trading had, affecting the value of

different shares because of the large volumes it traded. This information was not publicly

available and if it were, a reasonable person would expect it to affect the price and value of

different shares. He would then relay this information to Mr. Curtis who would buy or sell the

Contracts for Difference (CFDs) in those shares and they would split the profits between them.

To make their dealings more covert, Curtis told Hartman about a secure, virtually undetectable

communication mode known as “pinning” using a Blackberry phone.

Mr. Curtis then opened a CFD trading account in the name of a company in which he was

the sole director. Using the Blackberry phones, the two began the first round of 45 trades which

were considered by the Crown as being overt acts of effecting their illegal agreement. Mr. Curtis

would then use his company to trade in CFD stocks, relying on information relayed to him by

Mr. Hartman via the Blackberry pinning method. In most cases, he would open a CFD just

before Orion began trading and close it up just before Orion finished its market day. This

happened over a period of time. It is estimated that of the 45 transactions undertaken with the

collaboration between the two, they realized a profit of $1.43 million.

The decision of the court:

The presiding judge, McCallum acknowledged the jury’s decision to find Curtis guilty of

an offence, contrary to section 1043A (1) (d) and 1311(1) (a) of the Corporations Act

, of

conspiracy to commit an offence of conspiracy trading. Additionally, she acknowledged her

A person who does an act or thing that the person is forbidden to do by s 1043A (1)(d) is guilty of an offence by

virtue of s 1311(1)(a) of the Corporations Act.

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obligation under the Crimes Act

to mete out a sentence whose severity depended on the

circumstances of the case.

When assessing the nature and circumstances of the offence committed, she considered

the duration of the conspiracy and Mr. Curtis’ role in implementing it. The evidence presented

before her indicated the fact that Mr. Curtis was a willing and equal participant in the unlawful

agreement. Considering the fact that he had been the one to suggest the use of the ‘undetectable’

pinning on the Blackberry phones and then subsequently provided the initial funds to conduct the

trading, his intentional role was undeniable. The fact that it is Mr. Hartman who was the insider

and to that extent Mr. Curtis had not breached anything, the fact that he knew the source of that

information was unlawful is an indicator that he was complicit in Hartman’s offence. The judge

also considered the fact that Curtis participated in this endeavor for 14 months and totaling up to

45 trades with instructions whose legality he knew was suspect, and made plenty of profit as a

result for him and his friend, Hartman. It was obvious that both men’s motives were personal

gain.

When considering whether any loss or damage accrued from this crime, the judge insisted

that it is wrong to consider white collar crime as being victimless, as it harms the financial

community at large by hurting its reputation as being a level playing field. The insider trading

had caused significant damage on the price and value of the Contracts for Difference (CFDs)

thus the conspiracy ought to be punishable just like any other crime. The judge insisted on a

prospect of up to five years in prison, a fine of $220,000, or both. He added that eighteen months

would be insufficient. According to the judge, the minimum jail term Mr. Curtis ought to have

.Under s 11.5(1), a person who conspires with another person to omit an offence punishable by imprisonment for

more than 12 months, or by a fine of 200 penalty units or more, is guilty o the offence of conspiracy to commit

that offence and is punishable as if the offence to which the conspiracy elates had been committed.

Insider Trading 5

served would be twenty four months on the condition that the sentence reduction received by

Curtis’ accomplice, Mr. Hartman, for cooperating with the authorities is done away with.

The final sentence by the judge thus stood at a maximum of five years in prison, a fine of

$220,000, or both based on one count of conspiracy to sub section 11.5 (1) of the Criminal Code

(Cth) to commit an offence, being the contravention of the sub sections 1131 (1) and 1043A (1)

(d) of the Corporations Act 2001 (Cth). The court ordered that Mr. Curtis be released after

serving one year in prison only if he exhibited good behavior within the twelve months.

Appropriateness of the Penalty:

The decision made by the jury was certainly appropriate as all the facts found in the case

were regarded as crimes based on the various laws in place. With reference 1311 (1) (a), a

person can be found to be guilty of doing any acts that are forbidden in section 1043A (1) (d). As

a result, Mr. Curtis was undoubtedly guilty by virtue of having committed the crimes prohibited

in s1043A (1) (d). Based on these two articles, he was certainly an insider.

Under section 11.5 (1) of the Criminal Code (Cth), ‘a person who conspires with another

person to commit an offence punishable by imprisonment for more than 12 months, or by a fine

of 200 penalty units or more, is guilty of the offence of conspiracy to commit that offence and is

punishable as if the offence to which the conspiracy relates had been committed.’ The offence

perpetrated by the defendant, Mr. Curtis, as at the time carried with it a maximum sentence of

five years or a fine of $220,000, or both. Based on the quote section of the Criminal Code above

the offence of conspiring to commit the crime of insider trading was treated as if the actual

offence of insider trading had been executed.

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Section 11.5 (2) of the Criminal Code further dictates that for a person to be found guilty of the

offence of conspiracy to commit an offence as; ‘the person must have entered into an agreement

with one or more other persons; the person and at least one other party to the agreement must

have intended that an offence would be committed pursuant to the agreement and; the person or

at least other party to the agreement must have committed an overt act pursuant to the agreement.

Mr. Curtis had entered into an agreement with Mr. Hartman thus making him qualify

for the first criteria of concluding that he was guilty as charged. More so, Mr. Hartman and Mr.

Curtis ensured that the offence was committed as per the agreement. This is evidenced by the

fact that Mr. Hartman provided the defendant with the instructions to engage in the trading of

Contracts for Differences (CFDs); a plan that they deemed profitable. This unquestionably

fulfills the second criteria for finding someone guilty with an offence of conspiracy to commit an

offence. Lastly, Mr. Curtis engaged in an overt act of using a communication method that

involved use of a blackberry phone which was secure. The communication method was known

as PIN messaging which was virtually undetectable.

The offence of conspiracy illegalizes the nascent phases of conspiring to commit an

offence. Consequently, the conspiracy acts done by Mr. Curtis and Mr. Hartman even before

actualizing the plan were virtually illegal hence they were subject to legal action.

Implications flowing from the case:

Pursuant to the court’s decision in the above case, all indicators point towards the court’s

new zero tolerance policy against insider trading. Considering other recent high-profile cases

that landed traders in jail such as Steven Xiao who was sentenced to 8 years, 3 months and

Lukas Kamay who was sentenced 7 years 3 months, the AISC seems to be sending a clear

Insider Trading 7

message that insider trading is considered a very serious offence and will be attracting harsher

penalties

. It is worth noting that while Curtis was not the ‘insider’ in the insider trading offence,

the law is intent on pursuing all participants involved in the vice. In this case, that includes Curtis

who was a co-conspirator who was intentionally involved in the trading.

Compared to the previous regime, the legal consequences of insider trading were more

lenient. However, policies changed in December 2012 when the maximum penalty prescribed for

the offence was doubled from 5 years to 10 years imprisonment. Additionally, the punitive fines

were increased from $220,000 to $490,000 or in the alternative, three times the amount of

benefits accrued from the unlawful trading.

Looking at these penalties, it is possible that Curtis may have gotten away easier because

he committed the offence when the other regime was still in play and therefore was sentenced

under it. However, the ASIC chairman did not mince his words when he proclaimed that it is

much easier now for them to detect those involved insider trading, and he will ensure they are

pursued and prosecuted where possible.

Gitanjali Sigh, “Harsher Penalties for Insider Trading”Link: www.wolterskulwercentral.com.au/legal/harsher-

penalties-insider-trading/

Insider Trading 8

Bibliography

J., S., C. (1997). The SEC Enforcement’s Insider Trading Program. 1st ed. Texas, Travis

County.: The Law Offices of Jason S. Coomer, PLLC, pp.23-25.

Anon, (2017). [online] Available at: http://.www.sec.gov [Accessed 21 Apr. 2017].

Kesici, E. (n.d.). Bilgi Suistimali Suuu, Suua liikin Tedbirler ve Allnan Tedbirlerin Etkinliii

(Insider Trading, Measures of Insider Trading and Effectiveness of Measures). SSRN

Electronic Journal.

Ochs, B. (2007). The SEC's enforcement of procedures to prevent insider trading. Journal of

Investment Compliance, 8(3), pp.5-18.

Silver, C. (1985). Penalizing Insider Trading: A Critical Assessment of the Insider Trading

Sanctions Act of 1984. Duke Law Journal, 1985(5), p.960.

Texas Lawyer Jason S Coomer is the author of Texas Lawyers .com directory that includes

austin texas attorneys, a. (2017). TexasLawyers.com - Texas Law, Texas Lawyers, and Legal

Topics. [online] Texaslawyers.com. Available at: http://www.texaslawyers.com [Accessed

21 Apr. 2017].

W, M. (2016). Verdict:. Oliver, husband of Roxy Jacenko, guilty of insider trading., p.5.

W., M. (2016). . Oliver Curtis insider trading; what the jury did not hear.. 1st ed. The Sydney

Morning Herald., pp.10-12.

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