David Jones insider trading case could be reopened: ASIC

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ASIC has said it would consider re-opening the closely-scrutinised David Jones insider trading case if more evidence comes to light.

In a 3,000 word opening statement during an oversight of ASIC at the Parliamentary Joint Committee (PJC) for corporations and financial services on Friday, the commission used the David Jones debacle as an example to highlight one of its three upcoming priorities: Fair and efficient markets.

It said there has been much interest in the ASIC investigation into the share trading of David Jones’ two directors and a merger proposal from Myer, however there was insufficient evidence for enforcement and ASIC had no choice but to send the retail giant a “no further action” letter.

“The decision is not an exoneration or a tick of approval and if more evidence comes to light, the matter can be re-opened,” the statement said.

The three-month investigation was launched after news emerged of a merger proposal from Myer on October 28 - the day before David Jones directors Leigh Clapham and Steve Vamos bought shares in the retailer, reported the Sydney Morning Herald.

But after the ASIC decision to exonerate the directors, many were left wondering on what grounds the evidence wasn’t sufficient.

The Herald published comments made by a corporate law lecturer at the University of Sydney’s business school, who said it seemed a clear example of insider trading.

''Of course these guys would have known the potential offer was made to the board … if this fell outside the terms of what ASIC has already considered, then the regulator should be re-evaluating its investigation,'' said Juliette Overland.
ASIC’s opening statement to the PJC sought to explain why: it could not prove the trader knew or ought to have known the information was material and not publicly available, and there was not sufficient evidence to show the information was material in that the information alone would have an effect on the price or value of the company’s shares.

To prosecute for insider trading, the commission said it is required to prove that each of four points of evidence are met.

ASIC’s investigation into David Jones came unstuck on the third and fourth point.

The first two are: that the traders actually had the information; and that the information needs to be “inside” information and not generally known to the rest of the market.

“However, regardless of whether director share trading is legal or not in any given case, every director needs to consider how that trading might be viewed by the market,” said ASIC’s statement.
These comments come hot on the heels of a senate inquiry into ASIC’s performance, which is due to be reported on by May 30.

The commission conceded to the inquiry that its penalties have not been comprehensively reviewed for over a decade and, in many cases, do not meet community expectations.

Subsequently, ASIC has released a report reviewing penalties in Australia for corporate wrongdoing to assess whether they are proportionate and consistent.

Chairman Greg Medcraft said stronger penalties would be required in future.

“The public expects ASIC to take strong action against serious corporate wrongdoers. Those who break the law and cause severe damage should face tough penalties,” he said. “This will make them and others think twice about breaking the law.”

The report showed that in comparison to other Australian regulators, the maximum civil penalties available to ASIC are lower than those available to other regulators and are fixed amounts, not multiples of the financial benefits obtained from wrongdoing.

The University of New South Wales faculty of law notes that Australian maximum civil penalties for insider trading are $200,000; however they are unlimited in Hong Kong and the United Kingdom, in the US the greater of $1,100,000 or three times the benefit gained, and in Canada $1,050,000.

ASIC has also recently published its seventh report on the supervision of Australian financial markets and market participants.

It shows that through the use of a new system that identifies suspicious trading in real time and across markets, the majority of ASIC’s alerts, inquiries, notices and action increased in the second half of 2013.


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