Batros and Australian Securities and Investments Commission
[2016] AATA 519
•22 July 2016
Batros and Australian Securities and Investments Commission [2016] AATA 519 (22 July 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2016/1384
Re
Ryan Anthony Batros
APPLICANT
And
Australian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal The Hon. D Cowdroy OAM QC, Deputy President
Date 22 July 2016 Place Sydney The Tribunal refuses the Applicant’s application under section 41(2) of the Administrative Appeals Tribunal Act 1975.
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The Hon. D Cowdroy OAM QC, Deputy President
CATCHWORDS
PRACTICE AND PROCEDURE – application for stay of decision – banning order prohibiting Applicant from providing any financial services – prospects of success of substantive application – financial hardship caused to Applicant – public interest – application refused
LEGISLATION
Corporations Act 2001 (Cth) ss 920A, 920B, 1043K
CASES
Re Scott and Australian Securities and Investments Commission [2009] AATA 798
Re YFFM and Australian Securities and Investments Commission [2010] AATA 340
Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another (2009) 181 FCR 130Re Oaklands and Australian Securities and Investments Commission [2011] AATA 199
REASONS FOR DECISION
The Hon. D Cowdroy OAM QC, Deputy President
22 July 2016
FACTS
Before the Tribunal is a request for a stay order brought by the Applicant pursuant to section 41(2) of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”). The application for the stay was filed on 17 March 2016 and is made in respect of a decision made by the Respondent on 8 March 2016. Such decision found that the Applicant had breached the provisions of section 1043A(1)(c) of the Corporations Act 2001 (Cth) (“the Corporations Act”) because of insider trading. In consequence of such finding, a banning order was made against the Applicant pursuant to ss 920A(1) and 920B(2) of the Corporations Act, prohibiting him from providing any financial services for a period of five years.
In reaching this decision, the delegate found:
(a)At all relevant times, ordinary shares in Metals of Africa Limited (“Metals of Africa”) (“the MTA”) and company options in Metals of Africa (“the MTAO”) were Division 3 financial products to which the insider trading prohibitions as found in Part 7.10 of the Corporations Act applied;
(b)The information contained in the announcement dated 3 September 2014 to the ASX titled “Placement and rights issue to raise over $5M” (“the announcement”) would have been expected to, and did in fact, have an effect on the price and the value of the MTA and the MTAO and this was “material” information to Metals of Africa;
(c)There was no information available in the market about a proposed capital raising for Metals of Africa until the announcement;
(d)This information was not generally available at the time the Applicant executed orders to sell MTA and MTAO on 25 and 26 August 2014 or until the announcement; and
(e)It therefore followed that the information was “inside information” as defined in sections 1042A, 1042C and 1042D and for the purposes of section 10443A(1)(b) of the Corporations Act.
The delegate was satisfied that:
(f)It was not a coincidence that the Applicant had executed the sell orders for the MTA and MTAO on behalf of at least two persons who are personally connected to him, and that the Applicant executed the orders to sell at the time when he knew that the clients would be likely to benefit, as he knew MTA and MTAO would be sold at a better price than after capital raising; and
(g)As an experienced trader, the Applicant knew, or ought reasonably to have known, that the information was not generally available, and, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of the MTA or MTAO.
By reason of the above, the delegate was satisfied that the Applicant had contravened section 1043A(1)(c) of the Corporations Act.
THE BASIS OF THE STAY APPLICATION
The present application is supported by an affidavit of the Applicant sworn on 3 May 2016. Submissions were made orally on behalf of both parties.
The reasons relied upon by the Applicant in support of the stay application are essentially those set out in the reasons for the Application for Review.
Firstly, the Applicant claims that the evidence did not reasonably support a finding of a contravention of the Corporations Act by the Applicant. Secondly, it is submitted that the Applicant acted reasonably in seeking, receiving and following, the directions (or lack thereof) from Morgans Financial Limited (“Morgans”), an Australian financial services licensee. Thirdly, it is submitted that a banning order made for a period of five years is excessive.
The affidavit filed in support of the application seeks to raise numerous matters relating to conversations which the Applicant alleges took place with officers of Morgans and the lack of any instruction he received concerning the implementation of “execution only” orders, namely orders which were to be implemented at the client’s request in the absence of any advice being provided to the client. As appears from the decision under review, the Applicant was engaged as an authorised representative of Morgans in the period 17 January 2012 to 29 August 2014. Between 1 June 2013 and 29 August 2014, the Applicant worked as a private client advisor and was based at Morgans’ offices in Melbourne.
In 2013 the Applicant became involved in a relationship of a business nature with two of the directors of Metals of Africa.
According to the decision under review, on 31 July 2014 it became apparent that a source of finance would be provided to Metals of Africa to assist in raising capital of between $3 million and $5 million. On 21 August 2014 Metals of Africa requested a trading halt on its shares pending the release of an announcement. On the same day Mr Polinelli, a director of Morgans, forwarded to the Applicant an email attaching an email dated 31 July 2014, which he had sent to Ms Cherie Leeden, one of the directors of Metals of Africa with whom the Applicant was well acquainted. Such email made an offer to Metals of Africa to assist in their capital raising matter.
On 22 August 2014 the Applicant was on holiday in Queensland. He stated that he did not read the attached email of Ms Leeden. Irrespective, on 25 August 2014 he executed new sell orders in the companies on account of a client and on account of Ms Patricia Batros. Later that morning, the Applicant executed two further new sell orders for another client. When the sell orders were discovered, Mr Polinelli asked for an explanation from the Applicant concerning the placement of the sell orders. The Applicant replied stating that the orders had been placed “a long time ago”. Later that day the Applicant executed further sell orders. On the following day, the Applicant executed further new sell orders on the companies although he was notified in the morning of that day by Morgans that he was “over the wall”.
The reference to “over the wall” is a reference to a form which had been signed by the Applicant. The form prohibited the Applicant engaging in certain conduct of the kind which has led to the adverse finding against him. Irrespective of the notification from Morgans, the Applicant continued thereafter to execute another sell order on the account of Patricia Batros.
The gravamen of the Applicant’s defence lies in his assertions that Morgans did not provide him with sufficient guidance. This claim was raised before the delegate of ASIC but was rejected upon the basis that the Applicant, because of his experience, must have been aware of the fact that he was relying upon information which was not available to the public at the time that he applied for the execution of the orders.
Before the Tribunal it was asserted on behalf of the Applicant that the trades were not executed by the Applicant, but were in fact executed by Morgans when they inserted the trades into their computer system. It does not appear that such a claim was made before the delegate of ASIC.
The Applicant submits that he will suffer great hardship if the stay is not granted as he will be unable to obtain employment whilst the findings of the delegate remain against him. The Applicant has committed no prior breaches of the Corporations Law. Further, he claims the breaches resulted solely because he was not able to obtain advice from Morgans as to whether the orders could be executed, and lastly, the penalty imposed is excessive.
RELEVANT LAW
The Tribunal is vested with power under section 41(2) of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”) to grant a stay affecting the operation of the decision where it is of the opinion that it is desirable to do so. There are numerous authorities which state the principles which are to guide the Tribunal in making the assessment of whether a stay should be granted. The factors to be considered include the prospects of success of the proceedings, the consequences for the applicant if a stay is refused, the public interest, whether the application for review would be rendered nugatory if a stay were not granted, whether there are consequences for the Respondent in carrying out its functions, and other matters such as the length of time the ban has already been in place and the period of time between the determination of the stay application and the determination of the substantive application: see Re Scott and Australian Securities and Investments Commission [2009] AATA 798. Where the breach involves the Corporations Act, it has been held that a further consideration arises, namely the fact that the conduct strikes “at the foundation upon which securities markets operate”. Such provisions have been described as fundamental provisions and any contravention of such provisions constitutes a serious matter: see Re YFFM and Australian Securities and Investments Commission [2010] AATA 340.
In Australian Securities and Investments Commission v Administrative Appeals Tribunal and Another (2009) 181 FCR 130, the Full Court of the Federal Court of Australia at [71] said:
The scheme which Parliament has established in the Corporations Act, and the public interest in the right of the market to know relevant information as soon as practicable, must be treated as a fundamental element in the decision-making process required under s 41(2) of the AAT Act.
Applying these principles, the Tribunal must consider the material placed before it and the circumstances relied upon by the Applicant as justifying a stay. The mere fact of lodging an application for review does not operate as a stay, as is well recognised.
CONSIDERATION
In the Tribunal’s consideration, the material relied upon by the Applicant in support of the stay falls short of establishing that the Tribunal should exercise its discretion in his favour. The decision under review raises matters which are troubling. For example it appears that even after the Applicant was clearly placed on notice by Morgans of the trades which caused it concern, the Applicant continued to effect trades whilst possessing knowledge which was not available to the general public. Such a finding suggests that the conduct engaged in was deliberate and that it was perpetrated in the full knowledge of the disapproval of Morgans. Accordingly, on the material presently available to the Tribunal, the Applicant cannot, at least in respect of these trades, rely upon the fact that he was awaiting instruction or advice from Morgans as to whether the trades could be executed.
It further appears from the available material that such trades were executed by the Applicant resulting directly from his conduct, and that any involvement by Morgans’ computer system was merely implementing the Applicant’s instructions. As such, the defence that Morgans was itself executing the orders cannot be sustained.
The assertion by the Applicant that he was in some doubt as to whether the orders could be executed was raised before the delegate. Such claim was rejected by the delegate because of the knowledge of the Applicant resulting from his involvement in the markets. On this application the Tribunal has no further material before it to indicate that the delegates’ finding was erroneous.
The hardship claimed by the Applicant is not supported by any financial data. There is, for example, no evidence put forward of whether there is employment available for the Applicant, nor of his means, his assets or his income. Accordingly the Tribunal is unable to conclude that a stay is essential for the wellbeing of the Applicant.
Against these factors the Tribunal must weigh up the provisions of the Corporations Act which prohibit insider trading. The banning order has been imposed for the protection of the public, who has a direct interest in ensuring that knowledge obtained and known by insiders only is not utilised for private gain at their expense. Accordingly, there is a very heavy onus on an applicant for a stay to show that their interests outweigh the interests of the public.
DECISION
The Applicant bears the onus of proving, by satisfying the Tribunal, that a stay is warranted: see Re Oaklands and Australian Securities and Investments Commission [2011] AATA 199. Following consideration of the factors outlined in Re Scott, in this application the Tribunal finds that the Applicant has not discharged the burden of proof. Before the Tribunal grants a stay order, it must have formed the opinion that the making of such order “is desirable…taking into account the interests of any person who may be affected by the review”: Australian Securities and Investments Commission v Administrative Appeals Tribunal (2009) 181 FCR 130. The Tribunal is unable to form such a conclusion. Accordingly, the Tribunal refuses the Applicant’s application for a stay of the decision to impose a banning order.
OTHER MATTERS
In the application for the stay, an order for non-publication was sought over ASIC’s findings and of this application. The Tribunal has no power to restrict publication of matters by ASIC where a stay of ASIC’s decision has not been granted. Further, in relation this application, the Tribunal finds that in the public interest, there is no basis for an order for confidentiality pursuant to section 35 of the AAT Act.
It may serve the interests of the Applicant if his Application for Review was given an early hearing date. Subject to the parties’ availabilities, the Tribunal may be able to allocate a hearing date in the September/October 2016 period. Consequently the Tribunal directs:
(a)The parties confer and provide the Tribunal with mutually convenient dates for the matter to be listed for a Telephone Directions Hearing in August 2016, within seven days of the publication of this decision.
(b)At least three days prior to the above mentioned Telephone Directions Hearing, the parties to file and serve:
(i)hearing certificates covering the period September and October 2016; and
(ii)an agreed timetable for the filing of material in this matter.
I certify that the preceding 26 (twenty-six) paragraphs are a true copy of the reasons for the decision herein of The Hon. D Cowdroy OAM QC, Deputy President ..............................[sgd]..........................................
Associate
Dated 22 July 2016
Date(s) of hearing 26 May 2016 Counsel for the Applicant Mr T Hartnell AM Solicitors for the Applicant RBHM Commercial Lawyers Counsel for the Respondent Mr S Rosewarne Solicitors for the Respondent Australian Securities and Investments Commission
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