and Lukas Kamay v The Queen
[2015] VSCA 296
•13 November 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCR 2015 0103 | |
| LUKAS KAMAY | Applicant |
| v | |
| THE QUEEN | Respondent |
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| JUDGES: | WARREN CJ, REDLICH and KAYE JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 8 October 2015 |
| DATE OF JUDGMENT: | 13 November 2015 |
| MEDIUM NEUTRAL CITATION: | [2015] VSCA 296 |
| JUDGMENT APPEALED FROM: | [2015] VSC 86 (Hollingworth J) |
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CRIMINAL LAW – Insider trading – Sentence – Seven years’ imprisonment – Largest sentence in insider trading case – Sections 1043A and 1311(1) Corporations Act – Whether sentencing judge gave too much weight to profit in determining seriousness of offending – Quality of inside information enabled large profits to be made within short period of time with low risk – Relevance of impact on market – Absence of identifiable victim – Counter parties to trading considered victims – Use of inside information damages integrity of market – Leave to appeal granted – Appeal dismissed.
CRIMINAL LAW – Insider trading – Sentencing – Mitigating factors – Relevance of youth of offender and previous good character and loss of profession in contemporary business world – Importance of general deterrence in white collar crimes – Hartman v DPP (Cth) [2011] NSWCCA 261, DPP (Cth) v Gregory [2011] VSCA 145, Khoo v The Queen [2013] NSWCCA 323, applied.
CRIMINAL LAW – Insider trading – Sentencing – Co-offenders – Parity – Co-offenders charged with different offences – Green v The Queen (2011) 244 CLR 462, Farrugia v The Queen [2011] VSCA 201, considered – Significant differences in roles of co-offenders.
CRIMINAL LAW – Dealing in the proceeds of crimes – Section 400.4 Criminal Code –Concealment not element of offence of money laundering – No error by sentencing judge.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr C B Boyce SC with Mr A T Conley | Anthony Isaacs |
| For the Crown | Mr R J Bromwich SC with Mr D J Lane | Director of Public Prosecutions (Cth) |
WARREN CJ
REDLICH JA
KAYE JA:
Overview
On 10 December 2014, the applicant pleaded guilty to four charges of insider trading, one charge of dealing in the proceeds of crimes being $100,000 or more and two charges of dealing in identification information using a carriage service. He was sentenced as follows:
| Charge | Offence | Maximum | Sentence | Cumulation |
| 6 | Insider trading [Corporations Act 2001 (Cth) ss 1043A and 1311(1)] | 10 years and/or $765,000 fine (or three times the total value of benefits obtained) [Corporations Act 2001 (Cth) ss 1043A and 1311(1) and Schedule 3] | 2 years | 6 months |
| 7 | Dealing in identification information using a carriage service [Criminal Code (Cth) s 372.1A(1)] | 5 years and/or $51,000 fine [Criminal Code (Cth) s 372.1A(1)] | 3 months | - |
| 8 | Insider trading | 10 years and/or $765,000 fine (or three times the total value of benefits obtained) | 4 years | 9 months |
| 9 | Insider trading | 10 years and/or $765,000 fine (or three times the total value of benefits obtained) | 4 years | 9 months |
| 10 | Insider trading | 10 years and/or $765,000 fine (or three times the total value of benefits obtained) | 5 years | Base |
| 11 | Dealing in the proceeds of crimes being $100,000 or more [Criminal Code (Cth) s 400.4(1)] | 20 years and/or $204,000 fine [Criminal Code (Cth) s 400.4(1)] | 1 year | 3 months |
| 12 | Dealing in identification information using a carriage service | 5 years and/or $51,000 fine | 3 months | - |
Total Effective Sentence: | 7 years and 3 months | |||
Non-Parole Period: | 4 years and 6 months | |||
Pre-sentence Detention Declared: | 97 days | |||
6AAA Statement: | 10 years’ imprisonment (NPP: 6 years and 6 months) | |||
Other orders: | N/A | |||
In summary, the applicant, who at the time was an associate director with the National Australia Bank (‘NAB’) at its wholesale foreign exchange sales desk, and his co-offender, Hill, who worked as an analyst with the Australian Bureau of Statistics (‘ABS’), agreed that Hill would provide the applicant with highly sensitive unpublished ABS information which the applicant would then use to conduct trades of margin FX contracts on the foreign exchange derivatives market. The applicant made trades both within, and beyond, the scope of his agreement with Hill, and in so doing made vast profits — in fact, the largest profits realised in an insider trading case in this country to date.
The applicant now seeks leave to appeal his sentences, primarily on the basis that the sentencing judge placed too much weight on the question of profit in sentencing him. The profit made by the applicant in respect of each of the charges of insider trading was as follows:
Charge
Sentence Cumulation Amount of profit Number of occasions of trades[1] 6
1st Pepperstone Account2 years 6 months $194,000 21 8
2nd Pepperstone Account4 years 9 months $956,000 13 9
1st Axicorp Account4 years 9 months $601,000 3 10
2nd Axicorp Account5 years Base $5,372,000 8 [1]Note: The reference to ’trades’ refers to the number of occasions on which contracts were traded. On any given occasion, a number of contracts were able to be traded, ranging on any given occasion from 20 contracts to 4800 contracts.
Hill pleaded guilty to four charges of abuse of public office, one charge of dealing in identification information using a carriage service and one charge of insider trading. Hill was sentenced as follows:
Charge
Offence
Maximum
Sentence
Cumulation
1 Abuse of public office [Criminal Code (Cth) s 142.2(1)] 5 years [Criminal Code (Cth) s 142.2(1)] 2 years
9 monthsBase 2 Abuse of public office 5 years 2 years
9 months- 3 Dealing in identification information using a carriage service 5 years and/or $51,000 fine
3 months - 4 Abuse of public office 5 years 2 years
9 months- 5 Abuse of public office 5 years 2 years
9 months- 6 Insider trading 10 years and/or $765,000 fine (or three times the total value of benefits obtained) 2 years 6 months Total Effective Sentence: 3 years and 3 months Non-Parole Period: 2 years Pre-sentence Detention Declared: 98 days 6AAA Statement: 4 years 6 months (NPP: 3 years)
The applicant seeks leave to appeal on the following grounds:
1.The learned sentencing judge erred by failing properly to discriminate between the applicant’s four separate counts of insider trading.
2.The learned sentencing judge erred by failing properly to take into account the profit derived by the applicant on each separate count of insider trading, namely, by placing too great an emphasis on this profit as a means of constituting the primary basis for discrimination in sentence on these charges.
3.The learned sentencing judge erred by discriminating in sentence unreasonably as between the applicant and his co-offender.
4.The learned sentencing judge erred by imposing individual sentences, a total-effective head sentence and non-parole period that were manifestly excessive in all the circumstances.
5.The learned sentencing judge erred by ordering cumulation on the sentence imposed in respect of charge 11.
For the reasons that follow, we would grant leave to appeal, but dismiss the appeal.
Background
Circumstances of the offending
Between August 2013 and May 2014, the two co-offenders had an agreement whereby Hill would provide to the applicant sensitive and unpublished ABS ‘main economic indicators’ (‘MEI’) information. The applicant would use that information to conduct trades of margin FX contracts on the foreign exchange derivatives market.
The applicant met Hill in 2007 while studying economics and commerce at university. Following his graduation in 2011, the applicant worked with JB Were and subsequently obtained a role with NAB working on its wholesale foreign exchange sales desk as an analyst. Within a couple of years, the applicant was promoted to the position of associate director.
Hill obtained employment with the ABS as an analyst where his primary responsibility involved the analysis of data for the monthly labour force figures. Hill would also assist with analysis of building approvals data and had access to all data for retail trade and private new capital expenditure (‘CAPEX’). These types of data formed part of the MEI information, which was kept in strict confidence until its release.
Following their graduation from university, Hill and the applicant continued to share a number of mutual friends. In May 2013, they each attended a birthday party and they discussed Hill’s ability to access MEI information. Over the following months they had a number of discussions about the possibility of using embargoed MEI information to trade in margin FX contracts. The applicant was the person who first floated the idea of engaging in insider trading.
The essence of the agreement was that Hill would obtain and provide embargoed MEI information to the applicant who would then, on the basis of that information, either buy or sell margin FX contracts. The sentencing judge explained that method of trading and MEIs as follows:
A margin FX contract is a financial product that is a derivative. Its value is derived from the value of an underlying currency exchange rate. In effect, such a contract allows a trader to speculate on future price movements in an underlying currency pair (for example, the Australian dollar versus the US dollar), without actually acquiring the underlying currency.
Margin FX contracts are contracts to buy or sell to another contracting party. They are not traded on an open market or through a central exchange.
This type of trading is leveraged, which means that a trader is only required to pay a fraction of the value of the underlying currency by way of deposit (the margin), to obtain the full benefit or detriment of changes in the price of the underlying currency. The amount required to be provided for each contract is determined by the margin FX contract provider, depending on a trader’s risk profile.
The fact that the trading is leveraged also means that a trader can make correspondingly larger profits or losses from relatively small changes in the value of the underlying currency.
Main economic indicators (‘MEIs’) are released on a monthly or quarterly basis by the ABS, and are important statistics that inform government, business and the community about the state of the Australian economy and labour market. Due to the market sensitive nature of MEIs, they are treated as highly confidential and kept under strict embargo until official release at 11.30 am on their scheduled release date. The announcement of such data has an impact on the value of the Australian dollar against other currencies.[2]
[2]DPP (Cth) v Hill [2015] VSC 86, [4]–[8] (‘Reasons’).
The agreement between the applicant and Hill extended to ensuring that some trades would deliberately result in a loss (to give the appearance of a normal trading pattern) and Hill and the applicant agreed that further communications would either be in person, or via phone services falsely created using personal identification details of other people. Hill and the applicant agreed that the trading would continue for a period of approximately 12 months with the aim of achieving a balance of $200,000 which, allowing for taxes, would result in Hill and the applicant each receiving $50,000.
Pursuant to that agreement, on 9 August 2013, the applicant opened an account with Pepperstone, a foreign exchange contract provider (‘the first Pepperstone account’) and completed a number of trades of margin FX contracts throughout August 2013. Between 12 September 2013 and 8 May 2014, there were a total of 21 occasions of margin FX contract trades conducted through this account using MEI information provided by Hill. Sixteen of those occasions resulted in a total profit of almost $284,000, and five resulted in deliberate losses totalling around $89,000. Those trades resulted in a net profit of around $195,000, an amount within the scope of their agreement (charge 6).
The applicant opened a second trading account with Pepperstone on 2 September 2013 (‘the second Pepperstone account’). Hill was not aware of this account. Between 12 September 2013 and 27 February 2014, the applicant made margin FX contract trades on 13 occasions through this account using MEI information provided by Hill. Twelve of those occasions resulted in a total profit of just over $956,000, and one occasion resulted in a deliberate loss of almost $14,000. The net profit of the trades on this account was more than $956,000 (charge 8).
The applicant opened a third and a fourth trading account in January and February 2014 respectively. On these occasions, the accounts were opened with a foreign exchange contract provider called AxiCorp. Hill was not aware of the existence of either of these accounts nor was he aware of the trades made through them.
With respect to the third account (‘first Axicorp account’), between 3 February 2014 and 13 February 2014, the applicant conducted margin FX contract trades on three occasions through this account using MEI information provided by Hill. The net profit of the trades on this account was approximately $601,000 (charge 9).
With respect to the fourth account (‘second Axicorp account’), between 27 February 2014 and 8 May 2014, the applicant conducted margin FX contract trades on eight occasions. Six of those occasions resulted in a total profit of almost $6,188,000 and two resulted in deliberate losses totalling almost $816,000. The net profit of the trades on this account was just over $5,372,000. Of the eight trading occasions on this account, three of them were so large that they resulted in a profit of more than $1 million each (charge 10).
Trading on the four accounts was able to be conducted online through the ‘MetaTrader4’ (‘MT4’) trading platform. The MT4 trading platform can be downloaded as an application on a smartphone. To trade using the MT4 application, an account holder simply needs to open the MT4 application on their phone to submit orders through their nominated accounts. To submit an order for a margin FX contract through MT4, the trader needs to select the pair, the contract quantity and nominate whether they want to buy or sell. The trader will then need to confirm the order. An existing position can be closed out by selecting the position in MT4 and clicking the close button.
The amount of profit or loss realised on a margin FX contract is the net difference between the opening price and the closing price of the contract, multiplied by the contract quantity. The leveraged nature of the trading to which the sentencing judge referred meant that for each $400 traded, the applicant needed to have $1 in his account. On each occasion of trading, a number of contracts were able to be traded, ranging on any given occasion from 20 contracts to 4800 contracts. In practical terms, this meant that where, for example, the applicant was trading in the volume of 4800 contracts, he was required to have $1.2 million dollars in his account. As will be seen below, as the applicant’s occasions of trading increased, so too did his number of contracts traded on any occasion.
In total, the applicant made a gross profit of more than $8 million and a net profit of more than $7 million. Less than $200,000 of that amount was obtained in accordance with the initial agreement with Hill.
Hill was not aware of the trading carried out on the second, third or fourth accounts and had no idea that the applicant had gone so far beyond the limit to which they had agreed in mid-2013. Hill received less than $20,000 from his participation in the offending. The applicant gave Hill $13,000 cash in December 2013 and a further $6,500 cash in April 2014. The applicant retained the balance of the profits.
On 14 March 2014, the applicant withdrew $5 million from the fourth account and transferred it to a NAB account in preparation for an anticipated purchase of one of four units in Albert Park being renovated on the TV series The Block. On 8 April 2014, after successfully winning the auction for one of the units, the applicant entered into a contract to purchase the unit for $2,375,000. On 9 April 2014, the applicant arranged for a personal cheque of $237,500 to be drawn against his NAB account and paid to the vendor’s representative by way of deposit. The purchase was not finalised prior to the applicant’s arrest on 9 May 2014.
Arrest and Committal
On 21 February 2014, following reports of suspected insider trading from Pepperstone and Axicorp, the Australian Securities and Investments Commission and the Australian Federal Police began a joint investigation into the applicant and Hill. On 9 May 2014, police executed search warrants at each of their homes and seized a number of items. They were each arrested on that day.
Following his arrest, the applicant took part in an interview with investigators in which he answered some general questions but otherwise answered no-comment. In a second interview with investigators on 3 July 2014, the applicant made full admissions as to his offending.
Sentencing Remarks
The sentencing judge considered that the applicant’s offending constituted a ‘very serious example’ of the offence[3] and ‘the worst instance of insider trading to have come before the courts in this country.’[4] Her Honour observed that the gross profit of $8 million was, by a very considerable margin, the largest insider trading profit to come before an Australian court.[5] She further observed that in December 2010, the maximum penalty for insider trading had been effectively doubled to imprisonment for 10 years (and/or a fine of the greater of $765,000 or three times the total value of the benefits attributable to the offence), and said this penalty, the highest penalty provided for in the Corporations Act2001, reflected the seriousness with which the legislature regarded the offence.[6] Her Honour recognised that the sentences of seven years in total on the four charges of insider trading was the largest sentence ever imposed in Australia for such offending.
[3]Reasons [50].
[4]Ibid [56].
[5]Ibid.
[6]Ibid [49].
Grounds 1, 2 and 4
Grounds 1 and 2 relate only to the four insider trading charges (charges 6, 8, 9 and 10), and the disparity between the sentences imposed on each charge. The Director characterised grounds 1 and 2 as particulars of the manifest excess ground (ground 4). Given that the question of manifest excess is inextricably linked to the question of whether the sentencing judge gave too much weight to the profits made in relation to each charge of insider trading, we will deal with these three grounds together.
Weight attached to profit
The applicant submits that the sentencing judge placed too much weight on the profit gained from the offending the subject of each charge, and that it was an error to treat the profit derived in each instance as the ‘main material discriminating feature’ in sentencing the applicant. By reference to charge 10 as an example, the applicant contends that it is difficult to see how, having pleaded guilty, shown remorse, not acted in breach of trust and disgorged the entirety of his profits, he can fall to be sentenced within the range of 50% of the maximum available penalty. Whilst acknowledging that general deterrence has a particularly important role to play in insider trading cases, the applicant’s counsel submits that in some respects, the applicant has been ‘sacrificed on the altar of general deterrence’.
The applicant submits that the amount invested, rather than profit, could be used to gauge seriousness, but whether the profit derived or amount invested is ultimately used as a relevant integer of seriousness, these particular values are simply two among many considerations relevant to determining the seriousness of the offending. The applicant drew upon the remarks of T Forrest J in Director of Public Prosecutions v O’Reilly,[7] who, in sentencing an insider trader, said that:
[t]he objective gravity of the offending will depend on factors such as the position of the accused; if the accused is a true insider he will be viewed more seriously than the recipient of a ‘hot tip.’ It will depend on whether elaborate steps have been undertaken to disguise the identity of the purchaser or otherwise disguise the transaction. The amount invested is a relevant factor, as is the anticipated gain. Similarly, the impact upon any victim is a relevant factor.[8]
[7][2010] VSC 138 (‘O’Reilly’).
[8]Ibid [18].
The applicant relied upon a constellation of mitigating factors which he submits show that the sentences were manifestly excessive, namely his guilty plea at the first reasonable opportunity;[9] his relative youth and immaturity;[10] his good work ethic and success at university;[11] his volunteer work;[12] his promising professional career that had been ‘thrown away’ as a result of his offending;[13] the highly competitive work environment which drove him to succeed;[14] his lack of prior convictions;[15] his extensive references and support, confirming his offending was totally out of character;[16] his excellent prospects of rehabilitation and the unlikelihood that he would offend again;[17] and the forfeiture of non-tainted property to the value of $160,000.[18] Where there were so many mitigatory factors, the applicant submits it is difficult to avoid the conclusion that but for the level of profit, it would not have been found in the court below that the applicant’s overall offending was ‘the worst instance of insider trading to have come before the courts in this country.’[19]
[9]Reasons [88].
[10]Ibid [94].
[11]Ibid [77]–[78].
[12]Ibid [78].
[13]Ibid.
[14]Ibid [81].
[15]Ibid [82].
[16]Ibid [83].
[17]Ibid [85].
[18]Ibid [89].
[19]Ibid [56].
The applicant points to the fact that it could be readily inferred that much more serious instances of insider trading could occur, involving much larger profits. The applicant submits the sentencing judge erred in attaching such weight to the level of profits and discriminating between the charges by reference to the level of profits. That submission cannot be sustained.
In R v Glynatsis,[20] the New South Wales Court of Appeal (Hoeben CJ, with whom Rothman and McCallum JJ agreed), allowed a Crown Appeal as to manifest inadequacy in relation to insider trading conducted over a period of 12 months. In that case, the defendant fell to be sentenced on nine counts of insider trading, where each count related to profits ranging from $380 to $24,000 (including some counts where the prisoner suffered an unintentional loss). The respondent was given a total effective sentence of two years, to be served by way of intensive correction in the community. The Crown successfully argued that the relatively low profit should not have been given such substantial weight in that case, as in some instances of the prisoner’s offending, the outlay of money was far greater than the actual profit realised.[21] In the course of accepting the Crown’s argument, Hoeben CJ (with whom Rothman and McCallum JJ agreed) observed that profit may be a relevant factor in certain circumstances:
Clearly profit is a relevant factor and was properly taken into account by his Honour. It could become an important factor if for a comparatively small investment, a very large profit were made. In most situations, however, the better indicator of the extent of the criminality must be the size of the transaction and the best way of assessing that is by reference to the amount of money invested, or placed at risk.[22]
[20][2013] NSWCCA 131 (‘Glynatsis’).
[21]For example, in relation to count 1, the total consideration was $94,658, whereas the profit was $23,737; count 2 involved total consideration of $23,880 while total profit was only $380.
[22]Glynatsis [2013] NSWCCA 131, [54] (emphasis added).
The sentencing judge here stated that in some instances of insider trading, the amount invested may be a ‘more important indicator of criminality than the profit made.’[23] Her Honour observed that the nature of margin FX derivative trading at a high ratio was such that ‘[the applicant] only needed to invest a small amount of [the applicant’s] own money to make very substantial profits or losses.’[24] Such profits were able to be made in a relatively short period of time with ‘considerable certainty in an otherwise volatile market.’[25] Her Honour recognised that it was necessary to have regard to the circumstances within which such large profits were ultimately made. The sentencing judge made clear that while she considered that profit was a relevant consideration in distinguishing between the counts, that the nature and value of the information, which enabled the applicant to yield enormous profits over a small period of time with relatively low outlay, were also important determinants:
Of the three insider trading offences that you committed on your own, Mr Kamay, I regard charge 10 as the most serious. In saying that, I have had particular regard to the size of the profit (more than $6 million gross) made over a relatively small number of trades, using the second AxiCorp account. By the time of these trades, you were trading with absolute confidence in the value of the inside information.[26]
[23]Reasons [54].
[24]Ibid [55].
[25]Ibid.
[26]Ibid [57].
During the course of oral submissions, the Director relied on a colour-coded Excel spreadsheet,[27] which set out the trading activity, including profit made, length of time of each trading occasion (including minutes and seconds) and number of contracts traded on each occasion, for each of the four trading accounts. The spreadsheet demonstrated that profit, and in particular, the way in which the profit was made, was an extremely important factor in determining the objective seriousness of the offending. It showed that large volumes of money were able to be made in a short period of time because the quality of the inside information made the outcome of the trading highly predictable.
[27]Originally Exhibit 1 at the plea of the applicant.
Certain conclusions may be drawn from the information in the table. The first is that the way in which the applicant traded demonstrated that his precision and confidence grew over the course of offending. It can be seen, for example, that in his first trade on 12 September 2013, the total number of contracts traded was 30, realising a profit of $13,508. However, on 10 April 2014, the applicant traded 2800 contracts, realising a profit of $1,114,961.20. Similarly, on 5 May 2014, the applicant traded 4800 contracts, realising a profit of $344,899.91 This increase in numbers of contracts traded demonstrated the calculated and confident way in which the applicant was able to trade.
Secondly, large amounts of profit were able to be realised in matters of minutes, and sometimes seconds. For example, in the first trade made by the applicant in the second Pepperstone account on 12 September 2013, the applicant made a profit of $7,731.38 within 40 seconds by trading 20 contracts. On 6 March 2014, using his second Axicorp account, the applicant was able to trade 2700 contracts, and make a profit of $1,231,461.86 within 20 minutes. In the same account on 13 March 2014, the applicant made his first trade at 11:10am, and closed out his last contract at 11:35am. In that time he traded 4500 contracts, and made a profit of $2,537,007.89. The short time frame within which the applicant was able to generate enormous profits is illustrative of the high quality of the information provided by Hill to the applicant. The predictable large scale profits that could readily be made from the exploitation of the confidential information provides a measure as to its value and informs the objective gravity of the offending.
The duration of the trading period and the number of trades
The applicant next submits that the length of the trading period and the number of trades were also relevant and more important than profit in determining seriousness. The applicant points to the disparity between the sentences imposed on charge 6 (two years’ imprisonment), which was committed over the entire period of offending and involved a profit of $194,000; and charge 9 (four years’ imprisonment) which involved offending over a period of 10 days, where three transactions yielded a profit of $601,000. The applicant submits that the shorter period of time of offending under charge 9 diminished the objective seriousness of the offending, as did the number of trades.
We reject this submission. The number of trades and the period of trade were not, in this case, prime objective indicia of the gravity of offending. Profit may be a poor indicator where, for example, the amount of profit rests largely upon chance or factors beyond the offender’s control, but where gains, as in this case, are nearly certain, profit will ordinarily be an important if not a prime indicium of the objective seriousness of the offence.
In O’Reilly,[28] T Forrest J found that the low profit, as well as the unsophisticated way in which the trades were conducted, meant that the offending in that case fell at the lower end of seriousness. T Forrest J drew a distinction between investing on a ‘sure thing’ and simple purchase of stock, in finding that the particular offending in that case fell at the lower end of seriousness:
I do not regard the nature of the trade, the amount invested or the anticipated profit as falling into a particularly grave or serious category. The trade was simply an outright purchase, uncamouflaged in the way that I have described. There are, as was observed in discussion with counsel, ways in which a sophisticated investor can ramp up returns when investing on a sure thing. Contracts for Difference spring readily to mind. You did not seek to multiply your anticipated profit by choosing an exotic method of trading, nor did you invest a really large sum of money. The anticipated and actual profits were modest.[29]
[28][2010] VSC 138.
[29]Ibid [24].
Similarly, in R v Joffe,[30] Hulme J said that the quality or ‘grade’ of the inside information was a relevant consideration in determining the seriousness of the offending.[31] Hulme J noted that
[i]n assessing this [the grade of information] it is appropriate to keep in mind that the essential aspect of ‘inside information’ is that if it was generally available, it might have a material effect on the price or value of the financial product in question.
A high degree of materiality would generally lead to a finding of greater objective seriousness; a low degree of materiality might, but not necessarily, lead to a finding of low objective seriousness; and knowledge by the offender of the degree of materiality would bear upon moral culpability.[32]
[30][2015] NSWSC 741.
[31]Ibid [98].
[32]Ibid [98]–[99].
The quality of the inside information
As the Director submitted, when one undertakes a contextual analysis, which encapsulates a number of factors relating to each charge, the sentencing judge was correct in treating charge 6 as the least serious instance of trading. The total number of contracts, and the ratio of profit made to number of contracts, demonstrates the calculated and predictable manner in which the applicant was able to turn a large profit. For example, the total number of contracts traded over almost eight months in respect of charge 6 was 1205, yielding a total profit of $194,000, after one accounts for the deliberate losses of $89,383.90. For charge 9, however, 1500 contracts were traded on only three days (over a span of 10 days) generating a profit of over $601,000 with no deliberate losses. Charge 9 demonstrated the pattern of acceleration with which the applicant had begun to trade and which, because of the profit generated, explained the difference in sentence to charge 6. Similarly in respect of charge 8, where offending occurred on 13 occasions over a period of just over five months, 2765 contracts were traded, yielding a profit of $956,000, including one deliberate loss of $13,677.
The juxtaposition between the way in which the trades were conducted, including the total number of contracts traded and the time within which profit was able to be made, demonstrated that the confidence with which the applicant was trading evolved over the course of offending. The calculated way in which the applicant was able to generate profit can perhaps best be seen by the increase in the volume of contracts traded in any instance. By late February 2014, the applicant had begun to trade in contract volumes in the thousands. On 5 May 2014, the applicant traded 4800 contracts, which, as we have said, required him to have $1.2 million in his trading account. There can be no doubt that the applicant operated and traded in a meticulous and calculated fashion with the knowledge that the confidential information gave him a certain and unfair advantage in the marketplace. The Director rightly pointed out that the fact that the applicant intentionally made losses, and made an average of $313 profit on each contract, meant that the applicant was working within a very predictable and considered environment. This confidence and certainty of outcome demonstrated that the contextual framework within which the profit was made justified the disparity of sentencing.
Relevance of ease of trading
The applicant originally submitted that the fact that the applicant was merely trading on his mobile phone for relatively short periods of time should be viewed as relevant to the degree of criminality, but it was conceded in oral argument that this is clearly a factor which cuts both ways. The speed and efficiency with which the applicant was able to dishonestly generate highly predictable profits within a short amount of time, by the utilisation of highly sensitive information, required sentences which would satisfy the principles of general deterrence and denunciation, namely to deter young adults in the contemporary business world who seek to secure large financial benefits by dishonest commercial behaviour.
Relevance of size and liquidity of market
The applicant also submits that it was not logical to compare the profit made in one market against profit made in another — comparing for example, profits able to be made trading in a derivatives market and trading in the open stock market. Rather, the applicant submits that in order to determine the seriousness of offending, the size and liquidity of the market and the capacity of the offender to distort that liquidity need to be examined. The applicant placed reliance on the fact that the margin FX market is a highly volatile market of high liquidity, and that in such a market, the applicant’s profit was a mere ‘drop’ in what was described as virtually an ‘ocean of liquidity’.
Counsel for the applicant conceded that the authorities clearly demonstrate that even where it can be shown that the insider trading had no distorting effect on the market, general deterrence is still an important factor in sentencing in order to protect the integrity of the market.[33] He submits however that where the market is found to have been distorted, then a more severe penalty should be imposed. The subject case involved no such distortion.
[33]See, eg, Glynatsis [2013] NSWCCA 131, [79]; O’Reilly [2010] VSC 138, [19]; R v Joffe [2015] NSWSC 741, [97].
We do not accept the contention that the applicant’s offending, even if merely a ‘blip’ in the margin FX trading market, could be considered significantly less serious as a result. The nature of the market is not a critical indicium of objective gravity if it provides a playing field in which the ‘inside’ information received gives the trader an upper hand and enables him to make a large profit in an exceptionally short period of time, thereby damaging the integrity of the market and causing substantial losses to third parties.
No identifiable victims
An examination of profits derived could not be divorced from an analysis of loss, yet the applicant’s counsel at times went close to asserting that this was a victimless crime. Due to the nature and size of the market, he said there were no ‘identifiable victims’ who had sustained a loss and that that was a factor that should have been taken into account in assessing culpability. The applicant submitted that the size and liquidity of the market meant that it could not be said that the applicant had intentionally deprived any distinct person, or any specific market, of funds to which they were entitled.
The Director, conversely, submits that in such a market it can be reasonably inferred that for every profit made by the applicant, either a person or group of persons would bear the equivalent loss. The Director submits that though the applicant’s profit may not be directly referrable to another’s loss, the nature of margin FX trading is such that the counterparty to the applicant’s trade will usually be engaging in a number of other contracts, which will essentially be offsetting contracts.
We consider that it is artificial to say that there is no victim to the applicant’s offending. The applicant’s misuse of insider information meant that others were unfairly disadvantaged. The nature of margin FX contracts is that counterparties will enter trades within the same market, and as such, someone must suffer loss at the gain of the applicant. Pepperstone and Axicorp make their profit from the margin between the two sides of any sets of transactions. Their margin should be arrived at by a market outcome where everyone is trading fairly with no advantage.
Further, the integrity of the market is often viewed as the identifiable victim in insider trading cases. In Hartman v Director of Public Prosecutions (Cth),[34] the prisoner, who was employed as an equities dealer, acquired information related to targets set for the acquisition and disposal of shares. Over a period of 18 months he engaged in ‘front running’ off-market trading in contracts for difference, and derived profits in excess of $1.9 million from offending conduct. The prisoner submitted that the choice of trading, that is, off-market highly geared derivatives, might be viewed as less culpable than if he had been trading in the underlying shares. This argument was ultimately rejected by the NSW Court of Criminal Appeal.[35] Whealy JA, Adams and Latham JJ said:
[i]t needs to be remembered that insider trading not only has the capacity to undermine the integrity of the market, it also has the potential to undermine aspects of confidence in the commercial world generally. The principles of confidentiality and trust are fundamental to the operation of many commercial transactions. As the applicant’s employer recognised, advance knowledge by its employees of proposed trades of a significant kind required, as a matter of trust, that they remain in the realm of confidentiality. Insider trading is a form of cheating. Put bluntly, it is a form of fraud, even though its consequences may be more opaque than general fraud.[36]
[34][2011] NSWCCA 261 (‘Hartman’).
[35]Ibid [94].
[36]Ibid (citations omitted).
The conduct of the applicant and Hill also seriously damaged the reputation of ABS in the marketplace. They caused profound distress to its employees as evidenced by the victim impact statement tendered on the plea.
In 2010, the maximum criminal penalties for insider trading were effectively doubled, from five years’ imprisonment to 10 years. The increases were designed to reflect the serious impact that insider trading can have on the Australian financial markets.[37] Though such conduct is not as prevalent in Australia as in the United States, recent cases of insider trading in Australia do demonstrate that significant sentences of imprisonment are often warranted, in recognition of the damaging effect that insider trading can have on the integrity of financial markets. One may add to these considerations the difficulty of detection of such crimes, the ease with which they may be committed and the profits that may be gained.
[37]Commonwealth, Parliamentary Debates, House of Representatives, 29 September 2010, 113 (David Bradbury).
In Glynatsis, McCallum J noted that insider trading is a serious offence, which has the potential to disrupt public confidence in the marketplace, and as such significant penalties should attach:
The acquisition or disposal of financial products by people having the unfair advantage of inside information is criminalised because it has the capacity to unravel the public trust which is critical to the viability of the market. It is, as previously observed by this Court, a form of cheating. The fact that people of otherwise good character and compelling personal circumstances are tempted to engage in such conduct emphasises the need for the clear deterrent that insider traders should expect to go to gaol.[38]
[38]Glynatsis [2013] NSWCCA 131, [79].
Relevance of youth, good character and loss of profession
The applicant relies upon his relative youth, good character, loss of profession and prospects for rehabilitation. Such factors are unexceptional in white collar crimes, including the present type of offending. The applicant was clearly a ‘rational, profit seeking individual’ who was well aware of the risk that he may be caught, yet was driven by greed and proceeded to break the law over a sustained period. In Director of Public Prosecutions (Cth) v Gregory,[39] this Court emphasised the importance of general deterrence in white collar crime, especially given the ‘fear’ that the prospect of incarceration may instil in such offenders:
In seeking to ensure that proportionate sentences are imposed the courts have consistently emphasised that general deterrence is a particularly significant sentencing consideration in white collar crime and that good character cannot be given undue significance as a mitigating factor, and plays a lesser part in the sentencing process. … Moreover, general deterrence is likely to have a more profound effect in the case of white collar criminals. White collar criminals are likely to be rational, profit seeking individuals who can weigh the benefits of committing a crime against the costs of being caught and punished. Further, white collar criminals are also more likely to be first time offenders who fear the prospect of incarceration.[40]
[39](2011) 34 VR 1.
[40]Ibid 15 [53].
In Hartman,[41] the prisoner appealed to the NSW Court of Criminal Appeal against his sentence for insider trading. Similarly to the applicant here, the applicant was a young male, aged 25, who was employed as an equities dealer with a prestigious company. The appeal was ultimately allowed on the basis of the Court finding that, on the evidence, a nexus existed between the appellant’s psychiatric condition, his gambling addiction and his commission of insider trading offences. However, the Court observed that the applicant’s youth was not a determinant that should be afforded much weight:
It follows, in our opinion, that, while the offences were undoubtedly serious, there must be some moderation given to the aspect of general deterrence because of the applicant’s mental condition (s 16A(2)(m) Crimes Act 1914 (Cth)). Moreover, to a limited degree, the applicant’s moral culpability is accordingly lessened.
We do not agree, however, that, in the circumstances of this matter, the applicant’s youth and relative immaturity have any role to play in downgrading or lessening the importance of general deterrence. We recognise that in some cases these factors may be both relevant and important on the issue. We do not consider in the present matter that they are relevant and important in that way. The applicant was operating in the adult sphere of business and commerce in every respect, and of course he was himself an educated and worldly young adult in every sense of the word. The court cannot lose sight of the need to deter young adults from taking the significant financial advantages offered by the contemporary business world in circumstances where, at the same time, they reject the legal and moral constraints properly imposed upon their commercial behaviour.[42]
[41][2011] NSWCCA 261.
[42]Ibid [92]–[93] (citations omitted).
Similarly, in Khoo v The Queen,[43] the applicant pointed to a multitude of factors which, it was submitted, pointed to a finding of manifest excess. However RS Hulme AJ, with whom Leeming JA and Bellew J agreed, considered that the objective seriousness of the conduct warranted the imposition of a period of imprisonment:
Given the importance to the securities market generally of its integrity and the importance to those involved in significant transactions in that market of being able to keep confidential information concerning imminent or potential transactions, the difficulty to which reference was made means that general deterrence must be given substantial weight.
…
While in this case there were undoubtedly factors arguing for leniency, it must also be remembered that the Applicant’s conduct in each offence amounted to deliberate criminality in full knowledge of that fact and that such conduct was repeated. In my view Marien DCJ was well entitled to impose a sentence of full time custody.[44]
[43][2013] NSWCCA 323.
[44]Ibid [99]–[101].
The applicant’s conduct being the worst instance of insider trading to have come before the courts and the sentence the most severe yet imposed for such offending, we would grant leave to appeal. The applicant’s offending was however, as the Director submitted, ‘bereft’ of redeeming features. The applicant flagrantly exploited Hill’s inside information, which was of high quality and market effect. The size of the gains made, when compared with the relatively modest outlay, were exceptional. Third parties sustained losses. The reputation of ABS was harmed.
We accept the Director’s characterisation of the sentences imposed as stern. That said, the sentences were in our view within a sound exercise of the sentencing discretion. Accordingly, these grounds fail.
Ground 3
The applicant submits that there was an unjustified disparity between the sentences imposed on the applicant and Hill. Although they were charged with distinct offences, the applicant submits that parity has a role to play. Despite the substance of their charges being different, it is said there is no rational basis for discrimination as to the structure of the sentences.
The applicant submits that Hill’s offending was serious, and committed in gross breach of trust, and that the overall sentence imposed in respect of Hill stands in stark relief to the applicant. He submits that there is no reasonable basis for the structural differences in their sentences. The applicant relies on the fact that while Hill’s charges relate to abuse of public office, the sentences were ordered to be served concurrently. By contrast, orders for cumulation were made with respect to the applicant’s insider trading charges. It was submitted that this difference enlivened the principles of parity.
The applicant relied on the decision of this Court in Farrugia v The Queen,[45] to the effect that the principle of parity can apply to those who are not co-offenders to the same charges. He relied upon the following passage from the joint reasons of French CJ, Crennan and Kiefel JJ in Green v The Queen,[46] to support his complaint as to the difference in structure of sentencing as between himself and Hill:
The foundation of the parity principle in the norm of equality before the law requires that its application be governed by consideration of substance rather than form. Formal identity of charges against the offenders whose sentences are compared is not a necessary condition of its application. Nevertheless, as Campbell JA recognised in Jimmy v The Queen, there can be significant practical difficulties in comparing the sentences of participants in the same criminal enterprise who have been charged with different crimes. The greater the difference between the crimes, the greater the practical difficulties, particularly where disparity is said to arise out of a sentence imposed on a co-offender who has been charged with an offence that is less serious than that of the appellant. The existence of those difficulties may be accepted. So too may the inability of a court of criminal appeal to undertake, under the parity rubric, a de facto review of prosecutorial charging discretions. Those practical difficulties and limitations, however, do not exclude the operation of the parity principle. The effect given to it may vary according to the circumstances of the case, including differences between the offences with which co-offenders are charged.[47]
[45][2011] VSCA 201.
[46](2011) 244 CLR 462.
[47]Ibid 473–4 [30] (citation omitted).
This argument cannot be sustained. We accept that parity principles may be invoked notwithstanding the fact that co-offenders are charged with different offences, but the distinct parts that the applicant and Hill played in the relevant criminal conduct is such that the disparity between them is justified in the circumstances.
On the sole joint charge (charge 6, insider trading), the applicant and Hill received the same sentence (two years’ imprisonment), and the same degree of cumulation (six months). Similarly, both offenders received terms of three months’ imprisonment, to be served concurrently with the other sentences, for their identity theft charges (Hill charge 3, Kamay charges 7 and 12). The differences arise between Hill’s sentence for abuse of public office, and the sentences imposed on the applicant for insider trading and money laundering.
There are such significant factors of differentiation between them that the parity principle could have little scope for application. There is a difference in the maximum penalties available for each offence (five years for the public office offence, 10 years for insider trading). The circumstances of their respective offending must include their roles in the instigation of the plan, the anticipated and actual profit made by each offender, and the extent of involvement of each in each of the trades utilising the information.
It is clear here that the different sentences imposed reflect differing degrees of culpability and the different circumstances of both the offenders and their offending. The four public office offences ordered to be served concurrently reflect the ‘totality of the criminality involved’.[48] The nature of the plan with regards to the insider trading and its implementation differed between the offenders. Hill obtained and passed on such information in the hopes of making $50,000 for himself,[49] whilst the applicant’s offending and use of the information went well beyond this plan.
[48]Reasons [42].
[49]The applicant and Hill’s plan was to make $200,000, which, once tax was taken into account, would result in a profit of $50,000 each.
The extent of the calculated nature of the applicant’s conduct can be seen in the fact that a mere 23 seconds after the applicant made his very first trade in respect of the first Pepperstone account, the applicant also commenced trading in the second Pepperstone account. It is apparent that from the outset the applicant intended to go beyond his agreement with Hill, and as such his level of culpability was rightly categorised by the sentencing judge as more serious.
Although the applicant’s offending did not involve a breach of trust against his employer, the applicant encouraged Hill’s breach with the intent of exploiting the information obtained that way. The gravamen of the offending the subject of s 1043A of the Corporations Act is the use of inside information.[50]
[50]Corporations Act 2001 s 1043A(1).
The applicant deliberately exploited Hill’s breach of trust pursuant to their mutual agreement, with the intention of enjoying the benefit of that breach of trust.
The stark differences between Hill and the applicant demonstrate that the ‘notion of equal justice’ is not offended by the sentences imposed on Hill and the applicant.
This ground is not made out.
Ground 5
There was in our opinion no error by the sentencing judge in ordering the modest cumulation on the sentence imposed in respect of the money laundering charge on charge 11.
The applicant submits that it was in error for the judge to order cumulation of three months on the sentence imposed in respect of charge 11 where there was no element of concealment.
As concealment is not an element of the offence of money laundering, its absence does not disclose error on the part of the sentencing judge. The applicant’s use of the funds is the very type of conduct the offence is intended to capture. Some cumulation was necessary in the circumstances. The purchase of the property from the proceeds of the offending was an attempt to give the proceeds of his offending a cloak of respectability.[51]
[51]Reasons [73].
As this ground is also not made out, the appeal must be dismissed.
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