What’s the harm in some close high school friends talking about their jobs and helping each other out a bit with money? Evidently a lot – the recent case of Oliver Curtis and John Hartman shows clearly that Australia’s financial regulator is ready, willing and able to crack down on insider trading. Both men have now be convicted, with one having already served a 15-month prison sentence.
The Curtis and Hartman case
Hartman and Curtis grew up in Mosman and went to the same high school. After graduation and university, they hatched a plan for Hartman, who was working at Orion Asset Management and so unable to trade shares in his company, to secretly provide Curtis with information for when to buy and sell high-risk financial products. 45 trades later, between May 2007 and June 2008 – the pair had made a $1.4 million profit.
It was in 2009 that Hartman’s personal bank account was investigated by the Australian Securities and Investments Commission after information was passed on from the ASX. Hartman soon spilled, handing over his Blackberry which was used to pass encrypted messages to Curtis. His early cooperation and promise to testify against Curtis landed him a discounted sentence of 15 months down from a maximum of 4 years. After many years of Supreme Court proceedings, Curtis has finally been convicted of conspiring to commit insider trading. Whilst he is yet to be sentenced, the maximum jail term of 10 years, a $495,000 fine or three times the benefit gained will likely apply.
The ASIC approach
Before 2010 the ASX was the primary body supervising the behaviour and conduct of individuals on the stock market. After potential issues of bias or influence, such responsibility was passed onto ASIC to include both a supervisory and prosecutorial role. Since then, the time to begin prosecutions has dropped significantly. Former Deputy Commissioner Belinda Gibson continued a ‘conversational’ approach to enforcement, instead of straight through the courts, an approach influenced by how the US’s Securities and Exchanges Commission operates. This approach is reflected in the statistics – most people caught out by ASIC end up pleading guilty and cooperating with investigators; conviction rates have increased; and where cases do go to court, the penalties imposed are heavier. The courts have issued several imprisonment terms of over 5 years, often those directing or aggressively engaging in insider trading over a long period of time.
The new powers for ASIC coincided with increased penalties (including the doubling of imprisonment terms) and more information received from better relationships with the Australian Federal Police and the Commonwealth Department of Prosecutions.
What it means for companies
The increased effectiveness and willingness for prosecution by ASIC, coupled with increased surveillance powers, means that companies should have strong compliance and training mechanisms and internal surveillance systems to catch out potential misconduct before it gets serious. Time will tell whether ASIC can continue this approach and its impact on the market – however, this recent Hartman and Curtis case indicates that whilst ASIC is strong at detection and prosecution, such instances of illegal conduct continues under ASIC’s nose.
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