Lukas Kamay, 26, (former NAB banker), and Christopher Hill, 25, (former Australian Bureau of Statistics (ABS) employee) were both sentenced to record length jail terms for insider trading on Tuesday (17 March 2015) after they pleaded guilty.
Kamay was sentenced to seven years and three months in prison with a non parole period of four and a half years. Hill was jailed for three years and three months and must serve a minimum term of two years.
In this article, Partner Michael Hansel discusses the record penalties imposed in the recent NAB/ABS insider trading scam that has been described by Court Justice Elizabeth Hollingworth and DPP Prosecutor Mr Robert Bromwich SC as “the worst instance of insider trading to come before the courts in Australia”.
Key Points
- Kamay made an estimated $7 million profit by using unreleased ABS data provided by Hill to make foreign exchange trades. Hill only received approximately $20,000 from Kamay in the scam.
- Kamay and Hill have both been sentenced to jail sentences, with Kamay’s the longest ever imposed in Australia for insider trading after the maximum criminal penalties were doubled in 2010.
- The judge has used the jail sentences to serve as a deterrent to other young people from committing corporate crime.
The ABS insider trading case
Kamay used confidential and price sensitive ABS economic data provided by his university friend, Hill, to trade in foreign exchange derivative contracts and is alleged to have made profits of over $7 million.
On a number of occasions Hill provided confidential data on jobs, retail sales, building approvals, capital expenditure and housing finance. The release of this type of data will often affect the value of the Australian dollar and Kamay would use the data to buy foreign exchange derivative contracts in the minutes before the regular 11:30 AM release of the ABS data, and then sell the contracts shortly after.
The scam was uncovered by a broker who noticed that his client (Kamay) was making significant bets on the Australian dollar shortly before the announcement of important economic news. He discovered on LinkedIn that Kamay was friends with an ABS employee (Hill) and notified the Australian Federal Police which sparked a nine month surveillance operation (Operation Leith) where Hill and Kamay were monitored in their offices using surveillance cameras and phone taps.
Record jail sentences
Kamay pleaded guilty to seven charges including insider trading, identity theft and money laundering charges. Hill pleaded guilty to six offences including insider trading, identity theft and breach of public office.
Kamay was sentenced to seven years and three months in prison with a non parole period of four and a half years. Hill was jailed for three years and three months and must serve a minimum term of two years.
Kamay’s sentence is by far the longest ever imposed in Australia, after the maximum jail term for insider trading was doubled to 10 years in 2010.
Supreme Court Justice Elizabeth Hollingworth said she would have sentenced him to more than 10 years jail (a fine can be imposed too) but for his guilty plea and that she wanted to deter other young people in the corporate world from engaging in criminal conduct.
Justice Hollingworth said Kamay's behaviour was "carefully planned and premeditated" and said the motivation of both men for committing the offences was “personal greed, pure and simple".
What is insider trading?
The insider trading laws mean, in broad terms, that if a person has inside information they must not:
- trade certain financial products (such as shares) using inside information;
- procure another person to trade with inside information; or
- communicate inside information for the purpose of another person trading with that information.
“Inside information” is essentially information which is not generally available and which, if it was generally available, a reasonable person would expect to have a material effect on the price or value of prescribed financial products.
Insider trading penalties
The potential penalties for insider trading are severe and a jail term is generally imposed. This is because insider trading is a form of fraud which damages market integrity and the public’s trust in the market, which is critical to its viability.
Insider trading is both a criminal and a civil offence under the Corporations Act 2001 (Cth).
For the criminal offence, where insider trading would need to be proven beyond a reasonable doubt, the penalties were doubled in 2010. For an individual the maximum is now imprisonment for up to 10 years and/ or a fine of $765,000 or three times the benefit gained (whichever is greater).
For the civil offence, where insider trading only needs to be proven on the balance of probabilities, the maximum penalty for an individual is $200,000.
In March 2014, ASIC released a report, “Report 387: Penalties for corporate wrongdoing” calling for tougher civil penalties in Australia which are out of sync with many international counterparts.
Catching the offenders
Since 2009 ASIC has prosecuted approximately 34 insider trading matters. Of those matters, 23 have been successful with four still before the courts. Apart from relying on tip-offs there are a number of ways that insider’s might be caught:
- Suspicious activity reporting obligations
- Since November 20121 a market participant (such as a broker) must notify ASIC if it has reasonable grounds to suspect that a person has placed an order or entered into a transaction while in possession of inside information. There is a $20,000 penalty for failing to comply.
- ASIC’s monitoring of insider trading
- ASIC has a real-time market surveillance system, known as Market Analysis Intelligence (MAI) which went live in late 2013 and enables ASIC to detect, investigate and prosecute trading breaches.
- The MAI provides sophisticated data to identify suspicious trading in real time and across markets. The MAI is built around algorithmic trading technology and allows ASIC to analyse trade data for patterns and relationships.
- Queries from ASIC during deals
- After a transaction is announced, ASIC will look back over the share price movements around the time of the transaction and see if there are any unexplained fluctuations. There are invariably fluctuations and advisors are frequently asked to (voluntarily) provide details about who knew about the deal and when, and if the advisors are aware of any information which has not been disclosed.
For more information or discussion, please contact HopgoodGanim's Corporate and Commercial practice.