What is Insider Trading?
Insider trading occurs when a person uses inside information to trade, or when a person gives inside information to other people so that they can use it to trade.
What is inside information?
Inside information is information that is not generally available, which is likely to have an effect on the value of a financial product.
What financial products are included?
Financial products included under insider trading law include all securities that can be traded on the stock exchange.
The elements of the offence
In order for a court to find a person guilty of insider trading, the prosecution must prove:
- That the accused possessed information which was likely to have a material effect on the value of a particular financial product that was able to be traded on a financial market.
- That the accused knew (or ought reasonably to know) that the information was not generally available
- That the accused (or their agent) traded in that particular financial product; or the person told someone else about the information knowing that that the other person would trade in the product.
Financial products are broadly defined under Division 3 of the Corporations Act and importantly contain all securities able to be traded on a financial market. The prosecution does not require proof that the accused knew the information was not available and may have a material effect. The law merely requires that a reasonable person would have that knowledge.
Common ways in which this might occur
- You work for the company and through that work, you have become aware of a major new opportunity or significant problem which is not known to the public yet. You know it will affect the share price, so you either buy or sell shares, or procure friends and family to do so for you.
- You work in a field such as accounting or law and have acquired information through your work about a significant opportunity or problem with the company.
- Someone within the industry has revealed important information to you about the company or its competitors which is not known to the public yet.
There are a number of statutory exceptions to this law (Section 1043B-J of the Corporations Act) which relate to specific types of financial products. These include exceptions for insurance underwriters and the revealing of information under legal obligation. There is also an exception where the communication of the information is done by a publisher in their usual course of business, with no intent to contravene this law. (Section 1044A of the Act)
The maximum penalty for this offence is ten years’ imprisonment and/or a $450,000 fine.
Which court is likely to hear the matter?
This matter is indictable and will be dealt with in the District Court.
If you require legal advice or representation in any legal matter, please contact Armstrong Legal.
WHERE TO NEXT?
If you suspect that you may be under investigation, or if you have been charged with an offence, it is vital to get competent legal advice as early as possible. Our lawyers are highly specialised in corporate crime and will be able to guide you through the process while dealing with the various authorities related to your matter.