R v Chan
[2010] VSC 312
•13 July 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
CRIMINAL DIVISION
S CR 2010 0060
| THE QUEEN |
| v |
| NEWTON CHAN |
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JUDGE: | T FORREST J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 21 and 22 June 2010 | |
DATE OF SENTENCE: | 13 July 2010 | |
CASE MAY BE CITED AS: | R v Chan | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 312 | |
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CRIMINAL LAW – Sentence – Stock market manipulation – s1041A Corporations Act 2001 (Cth) – General deterrence – Crimes Act 1914 (Cth) s 16A (2) (p) – Family hardship – Exceptional circumstances.
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APPEARANCES: | Counsel | Solicitors |
| For the Crown | Mr R Maidment SC and Mr D Gurvich | Commonwealth Director of Public Prosecutions |
| For the Accused | Mr R Richter QC and Mr S Rubenstein | Norton Rose |
HIS HONOUR:
Mr Chan, you have pleaded guilty to eight counts of market manipulation contrary to s 1041A of the Corporations Act 2001 (Cth) and one count of providing false and misleading information in an ASIC examination contrary to s 64 of the Australian Securities and Investments Commission Act 2001 (“ASIC Act”). The maximum penalty for each Corporations Act offence is five years’ imprisonment or a fine of $22,000 or both. The maximum penalty for the ASIC Act offence is two years’ imprisonment or a fine of $11,000 or both.
Market Manipulation Charges
An agreed statement of facts has been prepared. It is a comprehensive exposition of your actions and the context in which you committed these offences. I have annexed that agreed statement of facts to these reasons. Accordingly, I propose to summarise your conduct relatively briefly.
In 2006 you were a respected securities trader employed in the Financial Services Group of Macquarie Equities Limited (“MEL”). Your employment entailed advising clients, usually institutions, and trading on their behalf. Macquarie Equities Limited were licensed to deal in securities on behalf of others and were a trading participant of the Australian Stock Exchange (“ASX”). You had worked in the finance industry after graduating from Monash University more than twenty years ago. You are 46 years old, married with three children – all still young – and a psychologist, Mr Patrick Newton, describes you as intellectually exceptional.
Your employment meant that you were able to trace the movements of the stock market and particular stocks on a trade by trade basis and you could enter the market yourself to place trades either on your own behalf or on behalf of those others who had authorised you to be their dealer. Your income was very high – in excess of half a million dollars per annum. In July 2005 you were made an Associate Director of MEL and in 2008 you were made a Division Director.
Bill Express Limited commenced trading under that name in July 2004. It floated on the ASX in October 2004. Its major shareholder was OnQ Group limited. You provided professional advice for this float and became acquainted with Bill Express’ principals, Hal and Ian Christiansen. Another company, Technology Business Systems (“TBS”) provided administrative and financial services to Bill Express including the management of a “treasury” bank account. Hal and Ian Christiansen had previously been directors of TBS but in 2003 the company had been transferred to Sandro Di Donato who in 2006 was the sole director.
By your pleas to the first eight charges you admit that the transactions in which you participated either had or were likely to have the effect of creating an artificial trading price for the relevant securities, namely Bill Express ordinary shares listed publicly on the ASX.
The bald facts that surround your conduct are these:
· Between 3 May 2006 to 26 March 2008 you engaged in 904 trades in which Bill Express shares were purchased. 87.5% of those 904 trades occurred late in the trading window of the ASX.
· 82.3% of all 344 bids made by you were at higher prices than any existing bid for those shares. This is to be compared to the stock market average of 33.2%.
· In total over $6m was spent purchasing these shares.
· The shares were purportedly purchased on behalf of various entities and individuals all of whom held trading accounts with MEL. These account holders were:
1.Winwood Mac account. Total amount of trades $1.499m (Charges 1 and 5).
2.Newton Chan personal account. Total amount of trades $492,060 (Charge 2).
3.Pauline Chan personal account. Total amount of trades $17,665 (Charge 3).
4.3D Sales Force Pty Ltd account. Total amount of trades $3.890m (Charges 4 and 8).
5.Ian McKenzie personal account. Total amount of trades $54,000 (Charge 6).
6.Anthony Eastwell personal account. Total amount of trades $197,300 (Charge 7).[1]
[1]I have rounded these figures. The eight charges of market manipulation are the produce of a rolled up indictment.
· In fact most of the shares were purchased at the behest of and for the benefit of Ian and Hal Christiansen. In part, shares purchased later in the offending period were funded by off market sales of Bill Express shares acquired as a product of earlier offending. You facilitated these off market trades.
· Trading occurred on 169 of 481 available trading days. In other words, on one in every three days that you worked during the offending period you participated in an illegal trade or trades.
· MEL risk management queried the manner and extent of your trading in Bill Express shares late in the offending period. You sought to deflect their inquiries.
It is clear enough how you committed charges 1 – 8 on the indictment. The much more troubling question is why you did so. I am urged by your counsel Mr Richter QC to accept your assertion that you were blinded by Ian Christiansen’s charismatic personality and your assessment of the prospects of Bill Express. I was directed to your high relative income and prior good character. It was argued that the profits you derived (in total approximately $94,000 – see agreed statement of facts para 178) were insufficient when compared with your income so as to provide any sensible motive for your offending. You deny you had any early appreciation that Ian Christiansen was seeking to artificially inflate share prices so as to stall off margin calls from banks, and you assert you believed he was merely endeavouring to respond to unfair tactics in the market place which had driven share prices down.
You gave evidence on these issues before me and were cross‑examined thoroughly and competently by Mr Maidment SC for the DPP (Cth). I do not accept that Ian Christiansen’s charisma and the prospects for Bill Express provide any satisfactory or complete explanation for your offending. You were a senior and highly respected Client Advisor within the Macquarie Group. You were and are a devoted husband and father with no history of questionable conduct. You were not an impressionable youth but a man of 42 when this offending commenced. I simply do not accept that mere charisma and glowing corporate prospects transformed you into a rogue trader.
In discussion with me, Mr Maidment suggested that the remaining parcel of one million Bill Express shares, held by you, purportedly on behalf of others and alternatively either sold by you or transferred into your superannuation account, may well provide the motive for your misconduct. Putting it less elegantly than Mr Maidment did, your head was turned not by charisma but by the prospect of one million Bill Express shares. When you received these shares (between 14 June 2006 and 3 July 2006) their value was approximately $175,000. Your receipt of these shares, it could be argued, not only provided you with a financial inducement to offend, but also explains the subsequent hold that Mr Ian Christiansen seems to have exerted over you. Whilst I regard this explanation for your conduct as more likely than the one you proffer, I am not satisfied beyond reasonable doubt that, in fact, it is the explanation for your conduct – I merely suspect it to be so. Accordingly, I am unable to reach any conclusion as to why you sought to manipulate the share price of Bill Express in the way you did.
Shortly after your last trading activity on behalf of the Christiansen’s, the company administrators were appointed to Bill Express and ultimately the company was placed in liquidation. Your conduct immediately after that time was disgraceful. I quote from your statement tendered to this Court. “Over the course of May through to July 2008, I had a number of meetings with compliance staff of Macquarie including meetings in Sydney. I was made aware that ASIC had commenced investigating the Bill Express trading. Lawyers were engaged on my behalf. Negotiations occurred between my lawyers, those of Macquarie and ASIC.” In early June 2008, and shortly before an ASIC examination scheduled for 11 June 2008, you met with Ian Christiansen, Enzo Di Donato and Peter Couper (the latter two associates of Christiansen – see Agreed Facts paras 1-12). Between you you agreed on the “story” that would be presented to ASIC as the truth. The story was designed to protect Christiansen, yourself and the other two men. You carried out your part of the bargain in your interview with ASIC on 11 June 2008. In particular, you provided false responses to questions directed at the receipt of instructions regarding the 3D account, the receipt of IOS alerts regarding the 3D Sales Force account and your holding of Bill Express stock. The prosecution points to twenty such false answers.
It is to some extent to your credit that over time you have been more open about the working of the scheme. The chronology of your dealings with ASIC after the 11 June 2008 interview is as follows:
(a)12 August 2008 – second s 19 interview.
(b)17 November 2008 – third s 19 interview.
(c)24 February 2009 – interview.
(d)21 April 2009 – Statement to ASIC.
(e)21 June 2010 – Statement to Victorian Supreme Court.
(f)21/22 June 2010 – Evidence in Victorian Supreme Court.
Until February 2010 you maintained that the scheme initiator was Hal Christiansen (then deceased). You expressed suspicions about Ian Christiansen[2] but it was only on 24 February 2010 that you included him in that characterisation in unqualified terms. Similarly, you nominated Mr Couper as the order source for the various purchases you made on the various trading accounts I have mentioned earlier. Your first mention of Ian Christiansen as a person who placed orders was on 24 February 2010 (in relation to the 3D Sales Force account and the Eastwell Account). Later you nominated Ian Christiansen as a source of orders on the Winwood Mac account, the Pauline Chan account and the Ian McKenzie account (see 21 April 2010 statement to ASIC paras 16 and 17, 21 June 2010 statement to Victorian Supreme Court paras 47, 59, 69 and 70).
[2]Interview 12 August 2008 pg 80 ff
You have undertaken to co-operate with law enforcement agencies pursuant to s 21E of the Crimes Act 1914. You have agreed to provide evidence in the prosecution of particularly Enzo Di Donato in accordance with a statement that is annexed to your s 21E undertaking. Essentially that statement recants your expressed 11 June 2008 position where you maintained that Enzo Di Donato was the order source for the 3D Sales Force trades. Mr Enzo Di Donato was present at the coffee shop meeting prior to 11 June 2008 and I understand gave evidence in a s 19 interview that accorded also with the agreed false coffee shop story. Your evidence is proposed to be called in a prosecution of Mr Di Donato for providing false and misleading information (s 64 ASIC Act 2001).
Mr Maidment SC accepted that you were entitled to some discount for your s 21E undertaking. He initially submitted that it ought be relatively limited as your future assistance appeared to be confined to the proposed prosecution of Mr Enzo Di Donato, who, on any view, is not near the top of the hierarchy that carried out these trades. As the plea developed however, and after you gave evidence, it appeared that your future assistance may be more valuable than initially perceived. The prospect of proceedings being commenced against the surviving principal of the scheme and one of his senior architects has not been ruled out.[3] ASIC takes the view that your statement of 21 June 2010 tendered on this plea makes the prospect of these proceedings more likely than otherwise it was. I am prepared to characterise your co-operation with authorities in this regard as at a reasonably high level. More generally your co-operation with authorities has developed over time although, as I have indicated, I have real reservations about your explanation for your involvement in the offending.
[3]T 181.
As I have stated, I am unable to reach any conclusions as to your motives for participating in the market manipulation. It is an agreed fact, however, that you profited from your dealings. Of the shares you purchased in your name the total profit to you was $95,128.65.[4] $63,248.50 of this profit or benefit in the form of Bill Express shares was transferred into your Superannuation Fund account in April 2008 and was worthless within weeks. Additionally you received total commissions on the impugned trading of $34,182.62 as before tax income.
[4]Agreed facts paras 178-179.
In addition to the nine charges to which you have pleaded guilty you have consented to four further charges being taken into account pursuant to s 16BA Crimes Act. These are all offences committed contrary to s 1101F Corporations Act 2001 (Cth). In short they relate to the means by which you committed charges 1, 4, 6 and 7. All of these charges relate to your falsely entering on the Press Order System the names of persons who were purported to be the “order givers”.
You are entitled to the benefit of your plea of guilty. It has been entered at an early stage. By your plea you have saved the community the expense of a committal and a trial. Witnesses have also been spared the inconvenience and anxiety that such proceedings create. I also regard your plea as some evidence of contrition. On 14 July 2008 you were invited to Mr Ian Christiansen’s house. There he gave you a computer memory stick with in effect “your script” for answering future questions put to you by investigators. It is to your credit that you did not stick to that script and in fact supplied that memory stick to investigators together with an account of the circumstances in which you acquired it. I regard this as strong, if slightly belated, evidence of contrition.
You have no prior convictions and are entitled to some benefit for this. It has often been observed by sentencing courts that prior good character is not as significant a mitigating factor for this type of offending as it is for other types of offences.[5] Nevertheless your prior good character informs aspects of personal deterrence, rehabilitation, adequateness of punishment and the genuineness of your asserted contrition. Character evidence was called on your behalf and numerous testimonials were tendered on the plea. You have a strong group of friends who are standing by you in your crisis as you have stood by many of them in difficult times in their lives. In considering what weight to give this aspect I must, however, not overlook the fact your offending was not a once only aberration. It occurred over 22 months[6] and involved 344 bids being entered in the trading system. The course of offending is therefore protracted and persistent.
[5]R v El Rashid (unreported, NSWCCA, 7 April 1995); R v Rivkin [2004] NSWCCA 7.
[6]Twenty four months if the false evidence count is considered as part of the course of conduct.
Upon conviction you will be disqualified from managing a corporation, and thus disqualified from holding corporate office.[7] This is a penalty in itself and I am entitled to and do take it into account. You are now, I am told, a bankrupt and your career is in ruins. It is, I consider, highly unlikely that you will ever be able to return to the financial services industry – the only area of occupation you have ever known. You consented to a banning order made by ASIC, under s 920A and s 920B of the Corporations Act that prohibits you from providing any financial services for a period of five years.
[7]Section 206B Corporations Act (Vic).
I regard your prospects for rehabilitation as high. You with Vivienne, your wife, have successfully raised your still young family. You are bright, well liked and still young enough to offer the community a considerable amount even if it is not in the financial services industry. You are a devoted husband and father. I shall return to this aspect when referring to your wife’s illness.
Section 780A of the Corporations Act states the objects of Chapter 7 (which includes section 1041A). One is to ensure fair, orderly and transparent markets for financial products. If the markets lack integrity, public confidence in them is necessarily eroded. The object of s 1041A is to protect the securities market from “artificial or managed manipulation.”[8] Your conduct in facilitating the efforts of Hal and Ian Christiansen to artificially inflate the closing price of Bill Express securities therefore must be viewed seriously. The impact of your conduct is not felt merely by those tempted to purchase Bill Express shares in an artificial market or the banks who otherwise would be entitled to a margin call from exposed shareholders; it is felt by the entire securities market, a market that you understood intimately. The aspect of general deterrence must play a significant role in this sentencing exercise. I have reluctantly reached the conclusion that the only sentence appropriate in the circumstances is a sentence of imprisonment, part of which is to be served immediately. I consider that it is only by the imposition of such a sentence that others considering manipulating the market in some way will pause to think about the potential consequences of their actions.
[8]North v Warra Developments (1981) 148 CLR 42 at 58-59 per Mason J. His Honour was dealing with the then s 70 and an allegation that manipulation had created a false appearance of active trading. In ASIC v Soust [2010] FCA 68 Goldberg J saw no reason why the same reasoning ought not apply to breaches of s 1041A and s 1041B (1) (b) of the Corporations Act. I respectfully agree.
There is one other matter of significance in this sentencing exercise. In May 2009, your wife Vivienne was diagnosed with left sided breast cancer. Her pathology revealed an 18 mm Grade 2 invasive ductal cancer. She has undergone a double mastectomy [9] two cycles of chemotherapy and is currently about to conclude a twelve month course of Herceptin. The chemotherapy has brought on early menopause. She suffers from symptoms of depression and is receiving psychological treatment and medication for this. In your absence she will be responsible for the care of Jack, James and Kate, whose ages span from 15 down to 9. Each of your wife’s treating medical practitioners express concern for Vivienne’s capacity to manage as a mother and for her mental health.
[9]Report of Dr Jane 31 May 2010.
Before I can consider the probable effect that any sentence or order under consideration will have upon your family, I must be satisfied that those circumstances that impact upon your family are exceptional.[10] It is to be expected that any term of imprisonment will visit hardship upon a prisoner’s dependants. It is the “tragic but inevitable consequence of almost every conviction and penalty recorded in a criminal court.”[11] What must be demonstrated is more than that. There must be cogent evidence of “exceptional hardship…….. considerably more severe than normal for a family where the father is imprisoned.”[12] Your wife’s illness was diagnosed after your offending ceased. Her treating doctor, Dr Fiona Jane, in a report of 31 May 2010 has stated “obviously Vivienne has been through an enormous amount in the past 12 months,[13] surgeries, chemotherapy, Herceptin therapy and depression, at the same time as her husband has been facing the current charges.” The invasive ductal cancer is of an aggressive type that carries with it a higher risk of recurrence.[14] In the second half of 2008 your mother-in-law was diagnosed with advanced uterine cancer and succumbed within months. Your father died in 2004 and your mother lives interstate. I accept that without your presence in the family a very heavy burden will fall upon your wife. After anxious consideration, I have concluded that the hardship that will be visited upon your wife and your children by your imprisonment is considerably beyond what might otherwise have been the case and is appropriately characterised as exceptional. I have made a significant allowance for this when determining the actual time that you will be required to serve in custody.
[10]R v Matthews 130 FLR 230; Markovic v The Queen; Pantelic v The Queen [2010] VSCA 105 particularly at paras [1] – [21].
[11]R v Edwards (1996) 90 A Crim R 510 per Gleeson CJ (James and Ireland JJ agreeing) citing with approval R v Wirth (1976) 14 SASR 291 per Well J.
[12]Nguyen v R [2007] WASCA 72 [37] and [38] citing with approval a passage from Sentencing: State and Federal Law in Victoria (2nd edition) Fox & Freiberg pgs 342-344.
[13]Report of Dr Fiona Jane. Exhibit 1. Tab 2.
[14]Report of Dr Serene Foo, oncologist. Exhibit 1 Tab 1.
On Count 1 you are sentenced to 9 months imprisonment.
On Count 2 you are sentenced to 5 months imprisonment. I direct that one month is to be served cumulatively with the sentence on Count 1.
On Count 3 you are sentenced to one month imprisonment to be served wholly concurrently with the sentence on Courts 1 and 2.
On Count 4 you are sentenced to 12 months imprisonment. I direct that 4 months be served cumulatively with the sentences on counts 1, 2 and 3.
On Count 5 you are sentenced to 3 months imprisonment. I direct that one month be served cumulatively with the sentences on Counts 1–4.
On Count 6 you are sentenced to one month imprisonment to be served wholly concurrently with the sentences on Counts 1-5.
On Count 7 you are sentenced to 3 months imprisonment. I direct that one month be served cumulatively with the sentences on Counts 1-6.
On Count 8 you are sentenced to 4 months imprisonment. I direct that one month is to be served cumulatively with the sentences on Counts 1-7.
On count 9 you are sentenced to 5 months imprisonment. I direct that 3 months is to be served cumulatively with the sentences on Counts 1-8.
That is a total effective sentence of 20 months imprisonment. I direct that you be released on 13 November 2010 upon you entering into a recognisance release in the/* sum of $500 to be of good behaviour for a period of 20 months.
I am required to quantify the discounts you have received for your plea of guilty and for your S 21E undertaking. The aggregate head sentence I would have imposed but for those two factors is 3 years imprisonment. I have deducted 8 months from that head sentence for your plea of guilty and a further 8 months for your S 21E undertaking.
I have prepared a schedule which sets out the commencement dates of each of the sentences that I have imposed.
Commencement of sentences:
Count Commencement date Effect 1 13/7/2010 9 months imprisonment 2 13/12/2010 5 months imprisonment, one month cumulative on Count 1 3 13/7/2010 One month imprisonment wholly concurrent 4 13/9/2011 12 months imprisonment, 4 months cumulative with Counts 1-3 5 13/7/2011 3 months imprisonment, one month cumulative with Counts 1-4 6 13/7/2010 One month imprisonment wholly concurrent 7 13/8/2011 3 months imprisonment, one month cumulative with Counts 1-6 8 13/8/2011 4 months imprisonment, one month cumulative with Counts 1-7 9 13/12/2011 5 months imprisonment, 3 months cumulative with Counts 1-8
AGREED STATEMENT OF FACTS
Background
Bill Express Limited
Bill Express Limited (ACN 090 059 564) ("Bill Express") was originally incorporated on 21 October 1999, as Dial Time Pty Limited. On 23 July 2004, the Company changed its name to Bill Express Pty Ltd.[15]
[15]023219810 - Bill Express Limited Historical Company Extract
On 19 October 2004 the fully paid ordinary shares of Bill Express were admitted to the Official List of the Australian Securities Exchange ("ASX") under the unique stock code "BXP". Official quotation of BXP shares on the ASX commenced on 21 October 2004.[16]
[16]023334383 – ASX Market Release (ASIC Document no 5E1286654)
Bill Express was a subsidiary of OnQ Group Limited ("OnQ"). During the relevant periods a principal asset of OnQ was its shareholding in Bill Express.[17]
[17]M01048994 p16 – Half-year financial report (lodged with ASIC as Document No 5E1864892)
During the relevant periods, the directors of Bill Express included, but were not limited to, Ian Douglas Christiansen ("Ian Christiansen") and Harold Edward Christiansen ("Hal Christiansen").[18] Ian Christiansen was also the Chief Executive Officer of Bill Express.[19]
[18]023219810 - Bill Express Limited Historical Company Extract
[19]M01048961 - Bill Express Limited Annual Report (ASIC Document No 5E1785419)
During the relevant periods, Ian Christiansen and Hal Christiansen were also directors of OnQ.[20] Hal Christiansen was also the Chief Executive Officer and Managing Director of OnQ.[21]
[20]023219811 – OnQ Group Limited Historical Company Extract
[21]M01048961 - Bill Express Limited Annual Report (ASIC Document No 5E1785419)
Bill Express operated both the 'DIALTIME' prepayment system for mobile telephone recharges, long distance calling cards, and internet access, and the 'BILL EXPRESS' bill payment system.[22] The Bill Express group operated an electronic network of approximately 13,000 terminals throughout Australia.[23]
[22]019120660 p6 – Bill Express Limited Prospectus
[23]M01048961 – Bill Express Limited Annual Report (ASIC Document No 5E1785419)
The revenue of Bill Express for the 2006/2007 financial year was in excess of $1 billion.[24]
[24]M01048961 pp 2,3, 56 – Bill Express Limited Annual Report (lodged with ASIC as Document No 5E1785419)
During the relevant periods Bill Express had an arrangement in place such that Technology Business Systems Pty Ltd ("TBS") and related companies provided certain services to it. These services included the provision of administration, payroll, call centre and banking services to Bill Express[25].
[25]M01352355 – Statement of Sandro Di Donato
The services provided by TBS to Bill Express during the relevant period included the management of a 'treasury' bank account ("TBS treasury account").
During the relevant periods, the sole director of TBS was Sandro Di Donato. Ian Christiansen and Hal Christiansen had previously been directors of TBS until 2003 when the company was transferred to Sandro Di Donato.[26]
[26]023219813 – Technology Business Systems Historical Company Extract
The Chief Financial Officer of OnQ was Peter Couper ("Couper").
During the relevant periods Couper would also direct payments from the TBS treasury account[27].
[27]M01352356 – Statement of Tracey Wegener
Newton Chan
During the period 3 April 2003 to 8 August 2008 Newton Chan ("Chan") was employed by Macquarie Bank Limited as a Senior Client Advisor within the Financial Services Group division of Macquarie Equities Limited ("MEL").[28]
[28]M01048249 – Signed employment agreement between Chan and MEL
Primarily an Institutional Equities Dealer, Chan has been employed in the financial services industry for approximately 20 years. On 1 July 2005 Chan was promoted to Associate Director and on 1 July 2008, promoted to Division Director[29].
[29] M01377407 – Statement of Brad Veale
MEL is a brokerage services company that holds Australian Financial Services Licence number 237504. This licence effectively enables MEL to
a. Provide financial product advice in relation to securities; and
b. Deal in (including by acquiring or disposing) securities on behalf of another person.[30]
[30]M00849667 – MEL Dealers Licence
MEL is a Trading Participant of the ASX.[31]
[31]M01048965 – Statement of Richard Flynn
Chan's duties at MEL included the taking and placing of orders from clients to transact in securities listed on the ASX and foreign equities markets. Additionally, Chan was also involved in the Public Offering and floating of Bill Express for listing on the ASX. [32]
[32]M01377387 – Statement of Malcolm Cameron
Chan's client base primarily consisted of Institutional clients (ie large entities such as banks, insurance companies, managed funds etc).
Chan's MEL advisor code was 'NXC'.
Entry of Orders onto ASX
IRESS Ordering System
MEL utilise an electronic order management system for trading conducted on behalf of its clients on the ASX. This system is known as IRESS Ordering System ("IOS").[33]
[33]M01377407 – Statement of Brad Veale, explanation of IOS
MEL client accounts are managed within IOS and contain client account information including portfolio summaries, filled/unfilled orders and persons authorised to operate share trading accounts.
To facilitate client orders onto the ASX, MEL staff enter client instructions into IOS. Client order details required to be entered into IOS include:
a. Stock code (the 3-letter stock code of the security to be bought or sold);
b. Price (whether it be 'at limit', that is a specified price, or market order, that is the prevailing price at time of order);
c. Volume (number of shares to be bought or sold);
d. Order Giver (name of the natural person who provided the instructions); and
e. Any other instructions provided by client.
All orders created in IOS are allocated a unique order number.
IOS enables the creation of 'Advisor Working' orders. An Advisor Working order is an order, typically of a large volume, where the entire volume of the order is not necessarily to be entered on the ASX at once. Rather the client advisor is able to determine the manner in which the order is to be executed. For example, a client advisor may create an Advisor Working order for a total volume 1,000,000 shares to be purchased but instruct that it be filled (executed) by way of a number of smaller volume purchases. Rather than submitting the entire volume, the client advisor is able to submit smaller volumes of the order to the MEL Designated Trading Representative ("DTR") as and when the advisor sees fit.
Every order is subjected to internal MEL filter parameters prior to being submitted to the DTR. The advisor (or advisor assistant) responsible for creating the order is notified if the order breaches one or multiple filter parameters by way of an alert message. The advisor (or advisor assistant) is then required to confirm that they wish to proceed with the order to be placed into ITS. If the advisor or advisor assistant confirms the order, it is then routed to the DTR for entry onto ASX. [34]
[34]M01377407 – Statement of Brad Veale
A DTR is licensed by the ASX and authorised to place orders to buy and sell equities into the ASX trading platform (known as the Integrated Trading System, “ITS”) on behalf of the responsible Trading Participant. Orders are entered onto ITS through a dedicated terminal.[35]
[35]M01048965 – Statement of Richard Flynn
During the relevant periods it was MEL practice for DTR's to input the relevant client advisor reference, followed by the unique order number (as created by IOS) in the 'BuyOpRef' field within ITS for order identification purposes. The client advisor code reference allocated by MEL to Chan during the relevant period was NXC.[36]
[36]M01377407 – Statement of Brad Veale
ITS
The Trading Participant's broker identification number is automatically recorded in ITS when the DTR makes an entry (eg order to buy "Bid" or order to sell "Ask"). The broker identification number allocated by the ASX for MEL is 244.[37]
[37]M01048965 – Statement of Richard Flynn explaining ASX trading platforms SEATS & ITS
ITS is a priority based trading system. Accordingly all Bids that are entered into ITS are, until they are traded or cancelled, given priority and displayed on ITS in order of:
a. Firstly, price. That is, the Bid with the highest price is displayed first and that with the lowest price is displayed last. A Bid with a higher price is transacted as a trade before a Bid with a lower price; and
b. Secondly, time of entry into ITS. That is, a Bid entered earlier in time transacts as a trade before a Bid entered subsequently.
The current Bids on ITS for any given security are commonly referred to as comprising the 'Bid Schedule'.
All Asks that are entered into ITS are, until they are traded or cancelled, given priority and displayed on ITS in order of:
a. Firstly, price. That is, the Ask with the lowest price is displayed first and that with the highest price is displayed last. An Ask with a lower price is transacted as a trade before an Ask with a higher price; and
b. Secondly, time of entry into ITS
The current Asks on ITS for any given security are commonly referred to as comprising the 'Ask Schedule'.
A trade in a security occurs automatically when the price of a Bid and an Ask for that security overlaps on ITS. That is, either
a. The price of a Bid and an Ask are the same; or
b. The price of a Bid is greater than the price of an Ask.
Typically, when discussing the 'market' for any given security the price of the priority Bid, the priority Ask and the last traded price are quoted. This is generally referred to as the 'Bid/Ask Spread'.
The closing price for any given security is determined by the final traded price for the day. Trading in securities listed on the ASX occurs during the "Open" phase, which is conducted between 10:00am and 4:00 each trading day. Between 4:00pm and 4:10pm, trading ceases although there remains an opportunity for orders to be entered, amended or cancelled. At a random time between 4:10pm and 4:12pm[38] on each trading day there is a Closing Single Price Auction ("CSPA"), where any overlapping Bids and Asks are traded. The CSPA effectively sets the final closing price for securities traded in a company.
[38] Prior to 17 July 2006 the Closing Single Price Auction took place at approximately 4:15pm each trading day.
Up to 29 September 2006, all trading in quoted equities on ASX was conducted by a screen based, computerised trading system known as the Stock Exchange Automated Trading System ("SEATS"). All users of SEATS were licensed. SEATS was owned and operated by ASX Operations Pty Limited, a wholly owned subsidiary of ASXL.
There is no relevant difference between SEATS and ITS. Any reference to ITS should be taken to include a reference to SEATS where a particular process was effected prior to 30 September 2006.
Trading in BXP by Chan
During the charge periods Chan was responsible for purchasing and selling BXP through a number of MEL share trading accounts, including but not limited to:
a. Account number 2628058 held in the name of Winwood Mack Productions Pty Ltd ("Winwood Mac account") - specifically between 3 May 2006 to 14 June 2006; and 8 February 2008 to 22 February 2008;
b. Account number 2187496 held in the name of Newton Chan ("Chan account") - specifically between 14 June 2006 to 17 July 2006;
c. Account number 2547594 held in the name of Mrs Pauline Chan & Wesley Chan (Pauline Chan Super Fund) ("Pauline Chan account") - specifically between 16 June 2006 to 3 July 2006;
d. Account number 2638688 held in the name of 3D Salesforce Pty Ltd ("3D Salesforce account") - specifically between 12 July 2006 to 17 January 2008; and 4 March 2008 to 26 March 2008;
e. Account number 2622807 held in the name of Ian Winwood McKenzie ("McKenzie account") - specifically between 22 February 2008 to 26 February 2008; and
f. Account number 2777512 held in the name of Anthony James Eastwell ("Eastwell account") - specifically between 26 February 2008 to 4 March 2008
collectively referred to as "the relevant accounts"[39].
[39]M01377407 – Statement of Brad Veale evidencing all future references of volumes & values of shares traded through relevant accounts
Section 1041A Corporations Act 2001 (Cth) charges
Count One [3 May 2006 – 14 June 2006]
Winwood Mac Account
Ian Winwood McKenzie ("McKenzie") was during the relevant period:
a. one of four shareholders in Technology Business Holdings Pty Ltd ("TBH") (the ultimate holding company of TBS);
b. a director, together with Sandro Di Donato, of Technology Business International Pty Ltd ("TBI")[40]; and
[40]023334379 – Technology Business International Pty Ltd Historical Company Extract; 023334380 - Technology Business Holdings Pty Ltd Historical Company Extract
c. the sole director and shareholder of Winwood Mack Productions Pty Ltd ("Winwood Mac").[41]
[41]023219815 - Winwood Mack Productions Pty Ltd Historical Company Extract
On 5 May 2006, at 8:24am a New Account Application form was sent by facsimile (bearing 'OnQ' facsimile header details) to MEL. Following this facsimile, the Winwood Mac account was opened with MEL. Chan is recorded on the account opening documentation as the responsible MEL client advisor. McKenzie is the only person recorded as having authority to operate the Winwood Mac account[42].
[42]M01259883 – Account Opening Application – Winwood Mac account
During the period 3 May 2006 to 14 June 2006 a total of 6,396,000 BXP shares, valued at $1,187,024.90 (including brokerage), were purchased through the Winwood Mac account. These shares were purchased against order numbers 1680536 and 1765829 by way of 77 Bids entered into SEATS.
The $1,187,024.90 worth of BXP shares purchased through the Winwood Mac account were settled by way of cheque payments drawn on McKenzie's St George bank account[43].
[43]M01354992 – Statement of Candice Best
During the period 3 May 2006 to 20 June 2006 a total amount of $1,192,174.26 was transferred from the TBS treasury account to McKenzie's St George bank account.
Telephone and email records do not show any communication between Chan and McKenzie during this period. However, relevant call charge records evidence telephone communication between Chan and Ian Christiansen, and Chan and Hal Christiansen in close proximity to:
·Times following a fall in the BXP share price;
·Times preceding Bids being entered into and/or amended into SEATS against the Winwood Mac account.
Additionally, Chan arranged for a number of Bids to be entered and/or amended during telephone conversations with Ian Christiansen[44].
[44]M01479669 - Statement of Nathan Grogan
45. During the period 3 May 2006 to 14 June 2006, there were 30 trading days. Trading in BXP occurred through the Winwood Mac account on 20 of these days[45].
[45]M00390584 –Statement of David Fong
46. During this period, 77 Bids were entered into the market on behalf of the Winwood Mac account, which resulted in 196 trades and represented 40% of all Bids entered into the market for BXP, and accounted for 25% of all trades, 29.4% of volume, 48.7% of late trades ("late" defined as within 20 minutes of the end of the Open phase), 46.7% of the last trades of the day, and 75% of the trades during the CSPA[46]. Additionally,
[46]M00390584 –Statement of David Fong
·75.3% of Bids were at higher prices than the existing priority Bid (i.e. they set a higher price for the priority Bid). By comparison, 609 Bids were entered by the rest of the market, of which 25.3% set new priority Bids;
·12.2% of trades were at higher prices than the previous trade prices. By comparison, of 589 trades executed by the rest of the market, 8.3% were at higher prices that the previous trade prices; and
·24 price increases were caused. Of these, 37.5% were late trades, 20.8% were the last trade of the day, and 4.2% were trades executed during the CSPA. By comparison, of the 49 price increases caused by the rest of the market during the same periods, 8.2% were late trades, 8.2% were the last trade of the day, and 2.0% were trades during the CSPA. [47]
[47]M00390584 –Statement of David Fong
Count Two [14 June 2006 – 17 July 2006]
Chan Account
On 15 April 2003 the Chan account was opened with MEL. No person other than Chan is recorded as having any authority to operate the account[48].
[48]M00930783 – Account Opening Form re Chan account
The Chan account was a MEL 'Direct Trade' account. A Direct Trade account enables orders (i.e. Bids or Asks) to be submitted onto ITS electronically and without the need for any intervention by the DTR[49].
[49]M01377407 – Statement on Brad Veale
During the relevant period, Chan commenced trading in BXP through the Chan account on 14 June 2006 (the day he ceased trading through the Winwood Mac account).
During the period 14 June 2006 to 17 July 2006 a total of 2,917,293 BXP shares, valued at $492,060.34 (including brokerage), was purchased through the Chan account. These shares were purchased by way of 33 Bids entered into SEATS. These Bids entered into SEATS all bear MEL's DT (or Direct Trade) reference[50].
[50]M01048968 – IOS Audit Trail report
Relevant call charge records evidence telephone communication between Chan and Ian Christiansen in close proximity to:
·Times following a fall in the BXP share price; and
·Times preceding Bids being entered into and or amended into SEATS against the Chan account. [51]
[51]M01479669 - Statement of Nathan Grogan
The $492,060.34 worth of BXP shares purchased through the Chan account were settled by way of funds drawn on Chan's CBA bank account.
During the period 15 June 2006 to 5 July 2006 a total amount of $525,805.72 was transferred from the TBS treasury account to Chan's CBA bank account. [52]
[52]M01354992 – Statement of Candice Best
The transfers of funds from the TBS treasury account were often for the same amounts required to be paid by Chan to MEL and followed requests for funds from Chan to Couper. An example of one such request and subsequent payment can be seen in an email sent by Chan on 30 June 2006[53]. The contents of the email are:
[53]M00507451 – Extract of email from Chan to Couper
'Hello Peter,
We have purchased 250,000 shares @ 0.17 cents today for consideration of $42,500. Please acknowledge receipt of email.
Regards
Newton
Newton Chan
Associate Director'
As a result, on 3 July 2006 an amount of $42,500.00 was transferred from the TBS treasury account to the Chan account.[54]
[54]M00153471 p30 – Account statement re Chan bank account
Of the shares Chan purchased on his account, between 27 December 2006 and 29 February 2008 Chan sold a total of 355,900 BXP shares valued at $52,340.20 on market. Included in this amount are 100,000 BXP shares purchased by Chan prior to the relevant period. The proceeds from these sales were credited to the Chan trading account. There is no evidence of these funds ever being repaid to the TBS treasury account or any other related entity.
Of the shares Chan purchased on his account, a volume of 1,917,293 was transferred in November 2006. The circumstances surrounding this transfer and the application of funds received by Chan from it is discussed further at paragraph 79.
On 2 April 2008, Chan transferred his BXP holdings (744,100) into his superannuation account. The price for BXP shares at this time was 8.5 cents representing a value of $63,248.50[55].
[55]M00930689 – Computershare movement records for BXP shares held by Chan
During the period 14 June 2006 to 17 July 2006, there were 24 trading days. Trading in BXP occurred through the Chan account on each of these days.
During this period, the 33 Bids entered into the market on behalf of the Chan account resulted in 100 trades and represented 7.9% of all Bids entered into the market for BXP, accounted for 20.2% of all trades, 19.5% of the volume, 54.1% of late trades, 25% of the last trades of the day, and 62.5% of the trades during the CSPA[56]. Additionally,
[56]M00390584 –Statement of David Fong
·72.7% of Bids were at higher prices than the existing priority Bid. By comparison, 387 Bids were entered by the rest of the market, of which 27.6% set new priority Bids;
·14% of trades were at higher prices than the previous trade prices. By comparison, of 394 trades executed by the rest of the market, 9.1% were at higher prices than the previous trade prices; and
·14 price increases were caused. Of these, 57.1% were late trades, 7.1% were the last trade of the day, although none were executed during the CSPA. By comparison, of the 36 price increases caused by the rest of the market during the same period, 5.6% were late trades, 5.6% were the last trade of the day, and 2.8% were trades during the CSPA[57].
[57]M00390584 –Statement of David Fong
Count Three [16 June 2006 – 3 July 2006]
Pauline Chan Account
During the period in which Chan was trading in BXP through his personal account (charge two), he was also trading in BXP through his mother's superannuation account, namely the Pauline Chan account.
During the period 16 June 2006 to 3 July 2006 a total of 101,000 BXP shares, valued at $17,665.65 (including brokerage), was purchased through the Pauline Chan account. These shares were purchased against order numbers 1772499, 1788927 and 1798238 by way of 16 Bids entered into SEATS.
During the period 16 June 2006 to 3 July 2006, there were 12 trading days. Trading in BXP occurred through the Pauline Chan account on 9 of these days.
During this period, the 16 Bids entered into the market on behalf of the Pauline Chan account resulted in 17 trades and represented 7.1% of all Bids entered into the market for BXP, accounted for 6.6% of all trades, 1.3% of the volume, 43.3% of late trades, 66.7% of the last trades of the day, and 100% of the trades during the CSPA[58]. Additionally,
[58]M00390584 –Statement of David Fong
·87.5% of Bids were at higher prices than the existing priority Bid. By comparison, 210 Bids were entered by the rest of the market, of which 23.3% set new priority Bids;
·76.5% of trades were at higher prices than the previous trade prices. By comparison, of 239 trades executed by the rest of the market, 7.5% were at higher prices than the previous trade prices; and
·13 price increases were caused. Of these, 92.3% were late trades, 38.5% were the last trade of the day, although none were executed during the CSPA. By comparison, of the 18 price increases caused by the rest of the market during the same period, 5.6% were late trades, none were executed by the market during the CSPA[59].
[59]M00390584 –Statement of David Fong
Count Four [12 July 2006 – 17 January 2008]
3D Salesforce Account
Since approximately 2001 Enzo Di Donato ("Di Donato"), in various professional capacities including engagement as a sales person, has been associated with Ian and Hal Christiansen and their associated companies, including Bill Express.
During the relevant period Di Donato was the sole director and shareholder of 3D Salesforce Pty Ltd ("3D Salesforce").[60]
[60]023219812 – 3D Salesforce Pty Ltd Historical Company Extract
On 12 July 2006 at 2:10pm a facsimile (bearing 'Bill Express' header details) was sent to Chan at MEL. Following this facsimile, Chan arranged for the 3D Salesforce account to be opened with MEL. On the account opening documentation were instructions advising the MEL back office staff that the opening of the 3D Salesforce account was urgent due to the client wishing to trade on that day.[61]
[61]M01259830 – Account opening form re 3D Salesforce Account
Chan is recorded on the account opening documentation as the responsible MEL client advisor. No person other than Di Donato is recorded as having any authority to operate the 3D Salesforce account.
On 12 July 2006, Chan commenced trading in BXP through the 3D Salesforce account, by arranging for a Bid for 150,000 BXP shares at a price of 19 cents to be entered into SEATS at 3:55pm. The DTR reference allocated to this Bid was 'NXC' (Advisor Code allocated by MEL to Chan). This Bid traded in its entirety and resulted in a price increase of 1.5 cents (from 17.5 to 19 cents). MEL subsequently booked these shares to the 3D Salesforce account.[62]
[62]M00930790 – MEL Course of Sales report
During the period 12 July 2006 to 26 March 2008 a total of 21,581,405 BXP shares, valued at $3,899,346.43 (including brokerage), was purchased through the 3D Salesforce account.
The $3,899,346.43 worth of BXP shares purchased through the 3D Salesforce account were settled by way of payments drawn on a number of bank accounts held in the name of 3D Salesforce ("3D Salesforce bank accounts").
The funds that enabled payments to be drawn on the 3D Salesforce bank accounts were sourced primarily from:
a. The TBS treasury account. During the relevant period a total amount of $2,136,190 was transferred from the TBS treasury account to the 3D Salesforce bank accounts[63]; and
[63]M01354992 – Statement of Candice Best
b. Proceeds from the sale of BXP shares during the relevant period, discussed further at paragraph 76 onwards.
There is no evidence of any communication between Chan and Di Donato during the periods in which BXP shares were purchased or sold through the 3D Salesforce account. However, relevant call charge records evidence telephone communication between Chan and Ian Christiansen, and Chan and Couper in close proximity to:
· Times following a fall in the BXP share price; and
· Times preceding Bids being entered into and or amended into SEATS against the 3D Salesforce account.
Additionally, Chan arranged for a number of Bids to be entered and or amended during telephone conversations with Ian Christiansen and Couper. [64]
[64]M01479669 - Statement of Nathan Grogan
During the period 12 July 2006 to 17 January 2008, there were 386 trading days. Trading in BXP occurred through the 3D Salesforce account on 105 of these days.
During this period, the 179 Bids entered into the market resulted in 469 trades and represented 3.0% of all Bids entered into the market for BXP, accounted for 7.0% of all trades, 6.8% of the volume, 26.5% of late trades, 18.2% of the last trades of the day, and 15.5% of the trades during the CSPA[65]. Additionally,
[65]M00390584 –Statement of David Fong
· 88.3% of Bids were at higher prices than the existing priority Bid. By comparison, 5802 Bids were entered by the rest of the market, of which 34.4% set new priority Bids;
· 25.4% of trades were at higher prices that the previous trade prices. By comparison, of 6256 trades executed by the rest of the market, 9.0% were at higher prices that the previous trade prices; and
· 119 price increases were caused. Of these, 50.4% were late trades, 35.3% were the last trade of the day, and 8.4% were trades executed during the CSPA. By comparison, of the 562 price increases caused by the rest of the market during the same period, 8.9% were late trades, 8.5% were the last trade of the day, and 7.7% were trades during the CSPA[66].
[66]M00390584 –Statement of David Fong
Sale / Transfer of Shares
During this charge period, from time to time Chan arranged for a number of BXP shares to be sold by off market transfers, by the completion of Australian Standard Transfer Forms ("transfer forms"), that is, not effected on ITS. On at least 2 occasions (23 November 2006 and 16 April 2007) 3D Salesforce sold its BXP holdings by executing transfer forms[67] and re-commenced purchasing BXP shares on-market (i.e. through ITS) at a higher price per share on the same or next day.
[67]M00153567&M00931000 – Australia Standard Transfer forms
The funds obtained by 3D Salesforce from its sales of BXP holdings were then predominantly used to continue purchasing further BXP shares on-market.
During the period 12 July 2006 to 23 November 2006, a total of 4,102,316 BXP shares had been purchased on-market through the 3D Salesforce account.
On 23 November 2006, Chan arranged for a total of 12,000,000 BXP shares held by the relevant accounts to be sold off market at a price of 17 cents per share by way of transfer forms. Included in this sale were:
· 4,102,316 shares held by 3D Salesforce;
· 5,980,391 shares held by Winwood Mac[68]; and
[68]M00153552 – Australian Standard Transfer form
· 1,917,293 shares held by Chan.
The following day, Chan recommenced purchasing BXP shares through the 3D Salesforce account on-market and arranged for 2 Bids to be entered into ITS (Bid for 200,000 at 17.5 cents and Bid for 1,000,000 at 18 cents)[69].
[69]M01048079 – IOS Audit Trail report
On 29 November 2006 at 3:31pm Couper sent an email to Chan with the subject title 'Transfer of funds'[70]. In this email Couper provided bank account details to Chan and directed that $1 million be transferred to the McKenzie bank account and $300,000.00 be transferred to the 3D Salesforce account.
[70]M01255431 – Email dated 29 November 2006 from Couper to Chan
The proceeds of funds from the off market transfer of 12,000,000 BXP shares were disbursed by MEL as follows:
a. 3D Salesforce – on 29 November 2006 MEL credited an amount of $697,393.72 against the 3D Salesforce account. Of this amount, MEL subsequently debited an amount of $391,278.06 to settle outstanding share purchases. On 29 November 2006 MEL transferred an amount of $300,000.00 to the 3D Salesforce account[71];
[71]M00153507 – Client ledger for 3D Salesforce account
b. Winwood Mac – on 29 November 2006 MEL credited an amount of $1,016,666.47 against the Winwood Mac account[72]. On 13 December 2006 MEL drew a cheque for an amount of $1,016,666.47 payable to 'Winwood Mack Productions Pty Ltd'[73]; and
[72]M00153921 – Client ledger for Winwood Mac account
[73]M01354997 – MEL Cheque issued for $1,016,666.47
c. Chan – on 29 November 2006 MEL credited an amount of $325,939.81 against the Chan account.[74] On 4 December 2006 Chan sent a facsimile to the MEL back office directing that an amount of $325,938.81 be transferred from his account to the 3D Salesforce account[75]. This transfer occurred on 12 December 2006. This amount of $325,938.81 was subsequently used for the purchase of further parcels of BXP shares through the 3D Salesforce account.
[74]M00153872 – Client ledger for Chan account
[75]M00153638 – Facsimile dated 4 December 2006 from Chan to Chris Bristow
Count Five [8 February 2008 – 22 February 2008]
Winwood Mac Account
This charge relates to the Winwood Mac account, the same account as charge one. During the period 8 February 2008 to 22 February 2008 a total of 2,000,000 BXP shares, valued at $312,009.58 (including brokerage), were purchased through the Winwood Mac account. These shares were purchased against order number 3246639 by way of 8 Bids entered into ITS.
The $312,009.58 worth of BXP shares purchased through the Winwood Mac account were settled by way of cheque payments drawn on McKenzie's St George Bank account.
During this period a total amount of $375,000.00 was transferred from either the TBS treasury account or ANZ bank account held in the name of OnQ Group Ltd to McKenzie's St George bank account[76].
[76]M01354992 – Statement of Candice Best
There is no evidence of any communication between Chan and McKenzie during this period. However, relevant call charge records evidence telephone communication between Chan and Couper in close proximity to:
·Times following a fall in the BXP share price;
·Times preceding Bids being entered into and or amended into SEATS against the Winwood Mac account. [77]
87. During this period, there were 11 trading days. Trading in BXP occurred through the Winwood Mac account on 8 of these days[78].
88. During this period, 8 Bids were entered into the market on behalf of the Winwood Mac account, which resulted in 24 trades and represented 13.8% of all Bids entered into the market for BXP, accounted for 45.3% of all trades, 63.0% of volume, 9.1% of late trades ("late" defined as within 20 minutes of the end of the Open phase), 40.0% of the last trades of the day, and 0% of the trades during the CSPA[79]. Additionally,
·62.5% of Bids were at higher prices than the existing priority Bid (i.e. they set a higher price for the priority Bid). By comparison, 50 Bids were entered by the rest of the market, of which 16.0% set new priority Bids;
·12.5% of trades were at higher prices than the previous trade prices. By comparison, of 29 trades executed by the rest of the market, 13.8% were at higher prices that the previous trade prices; and
·3 price increases were caused. Of these, 0% were late trades, 0% were the last trade of the day, and 0% were trades executed during the CSPA. By comparison, of the 4 price increases caused by the rest of the market during the same periods, 25.0% were late trades, 25.0% were the last trade of the day, and 0% were trades during the CSPA[80].
Count Six [22 February 2008 – 26 February 2008]
McKenzie Account
[77]M01479669 - Statement of Nathan Grogan
[78]M00390584 –Statement of David Fong
[79]M00390584 –Statement of David Fong
[80]M00390584 –Statement of David Fong
This charge relates to a further account held by McKenzie, see paragraph 39. On 27 March 2006 the McKenzie account was opened with MEL. Chan is recorded on the account opening documentation as the responsible MEL client advisor. No person other than McKenzie is recorded as having any authority to operate the McKenzie account[81].
[81]M01259883 – Account Opening Application – McKenzie account
On 22 February 2008 Advisor Working order number 3281096 was created in IOS against the McKenzie account. This order was for the purchase of 2,000,000 BXP shares at a limit of 15 cents[82].
[82]M00930822 – IOS Audit Trail Report
Between 22 February 2008 and 26 February 2006, a total of 355,000 BXP shares valued at $53,835.75 (including brokerage), was purchased through the McKenzie account. These shares were purchased against order number 3281096 by way of 2 Bids entered into ITS on 22 February 2008.
On 26 February 2008, order number 3281096 was cancelled in IOS.
Chan arranged the 2 Bids to be entered into ITS on behalf of the McKenzie account on 22 February 2008 at 11:09am. These Bids followed a fall in the BXP share price due to an unrelated trade in the market (at 11:00am) and telephone communication between Chan and Couper (at 11:06am).
The 2 Bids entered into the market resulted in 10 trades. These trades represented 47.6% of all trades, 50.2% of volume traded and was the last trade of the day on 1 occasion[83].
Count Seven [26 February 2008 – 4 March 2008]
[83]M00390584 –Statement of David Fong
Eastwell Account
Anthony Eastwell ("Eastwell") has been a close friend of Ian and Harold Christiansen for approximately 20 years. Ian Christiansen was best man at Eastwell's wedding.[84]
[84]M01048226 – Statement of Anthony Eastwell
On 19 February 2008, the Eastwell account was opened with MEL. Chan is recorded on the account opening documentation as the responsible MEL client advisor. No person other than Eastwell is recorded as having any authority to operate the Eastwell account.[85]
[85]M01259886 – Account opening form re Anthony Eastwell
On 26 February 2008, Chan commenced trading in BXP through the Eastwell account. On this day, at 11:34am (4 minutes after cancelling McKenzie order number 3281096) Advisor Working order number 3288709 was created in IOS against the Eastwell account. This order was for the purchase of 1,300,000 BXP shares at a limit of 15 cents[86].
[86]M00930842 – IOS Audit Trail Report
During the period 26 February 2008 to 4 March 2008 a total of 1,300,000 BXP shares, valued at $186,490.25 (including brokerage), were purchased through the Eastwell account. These shares were purchased against Advisor Working order 3288709 by way of 15 Bids entered into ITS.
The $186,490.25 worth of BXP shares purchased through the Eastwell account were settled by way of payments drawn on a number of bank accounts held in the name of Eastwell.
During the period 24 January 2008 to 7 March 2008 a total amount of $200,000.00 was transferred from the TBS treasury account to Eastwell's bank accounts[87].
[87]M01354992 – Statement of Candice Best
There is no evidence of any communication between Chan and Eastwell during the periods in which BXP shares were purchased through the Eastwell account. However, relevant call charge records evidence telephone communication between Chan and Ian Christiansen, and Chan and Couper in close proximity to:
· Times following a fall in the BXP share price; and
· Times preceding Bids being entered into and or amended into SEATS against the Eastwell account[88].
[88]M01479669 - Statement of Nathan Grogan
Eastwell states that he never provided any instructions to Chan or any other MEL staff to purchase any shares through the Eastwell account.[89]
[89]M01048226 – Statement of Anthony Eastwell
During the period 26 February 2008 to 4 March 2008, there were 6 trading days. Trading in BXP occurred through the Eastwell account on each of these days.
During this period, the 15 Bids entered into the market resulted in 32 trades and represented 30% of all Bids entered into the market for BXP, accounted for 43.8% of all trades, 19.6% of the volume, 50% of late trades and 66.7% of the last trades of the day[90]. Additionally,
· 66.7% of Bids were at higher prices than the existing priority Bid. By comparison, 35 Bids were entered by the rest of the market, of which 20% set new priority Bids;
· 15.6% of trades were at higher prices that the previous trade prices. By comparison, of 41 trades executed by the rest of the market, 4.9% were at higher prices that the previous trade prices; and
· 5 price increases were caused[91].
Count Eight [4 March 2008 – 26 March 2008]
[90]M00390584 –Statement of David Fong
[91]M00390584 –Statement of David Fong
3D Salesforce Account
This charge relates to transactions conducted on the 3D Salesforce account, see paragraphs 65-68. During the period 4 March to 26 March 2008, there were 15 trading days. Trading in BXP occurred through the 3D Salesforce account on 14 of these days.
During this period, the 14 Bids entered into the market resulted in 56 trades and represented 17.5% of all Bids entered into the market for BXP, accounted for 50.0% of all trades, 39.3% of the volume, 64.7% of late trades, 57.1% of the last trades of the day, and 75.0% of the trades during the CSPA[92]. Additionally,
·92.9% of Bids were at higher prices than the existing priority Bid. By comparison, 66 Bids were entered by the rest of the market, of which 33.3% set new priority Bids;
·8.9% of trades were at higher prices that the previous trade prices. By comparison, of 56 trades executed by the rest of the market, 14.3% were at higher prices that the previous trade prices; and
·5 price increases were caused. Of these, 40.0% were late trades, 60.0% were the last trade of the day, and 0% were trades executed during the CSPA. By comparison, of the 8 price increases caused by the rest of the market during the same periods, 12.5% were late trades, 25.0% were the last trade of the day, and 0% were trades during the CSPA[93].
[92]M00390584 –Statement of David Fong
[93]M00390584 –Statement of David Fong
Collective Analysis of Trading Through Relevant Accounts
During the relevant periods there were 481 trading days. Trading occurred through the relevant accounts on 169 of these days and included the placement of 344 Bids into SEATS/ITS.
During this period, the 344 Bids entered into the market resulted in 904 trades and represented 4.7% of all Bids entered into the market for BXP, accounted for 10.9% of all trades, 11% of the volume, 33.8% of late trades, 23.4% of the last trades of the day, and 23.4% of the trades during the CSPA[94]. Additionally,
· 82.3% of Bids were at higher prices than the existing priority Bid (i.e. they set a higher price for the priority Bid). By comparison, 6,966 Bids were entered by the rest of the market, of which 33.2% set new priority Bids;
· Of the 904 trades, 184 or 20.4% resulted in price increases compared to 9.1% by the rest of the market; and
· Of the 184 price increases caused, 50% were late trades, 31.5% were the last trade of the day, and 6% were trades executed during the CSPA. By comparison, of the 672 price increases caused by the rest of the market during the same periods, 8.9% were late trades, 9.1% were the last trade of the day, and 7.3% were trades during the CSPA[95].
MEL Risk Management Queries (relevant to Counts Four to Eight)
[94]M00390584 –Statement of David Fong
[95]M00390584 –Statement of David Fong
January 2008 – Review of 3D Salesforce trading in BXP
On 8 January 2008 in MEL's offices Chan had a conversation with a colleague, client Advisor Matthew Cryer ("Cryer"). During the course of the conversation Chan stated the following:
a. Chan was shortly to start his overseas holiday;
b. An unfilled order for the purchase of BXP existed in IOS with respect to the 3D Salesforce account;
c. Whilst Chan was overseas Couper would be calling the MEL office for the purpose of placing orders against that 3D Salesforce order; and
d. When Couper called with these orders Cryer was to "look after him".[96]
[96]M01352096 – Statement of Matthew Cryer
During the period 8 January 2008 to 26 January 2008 Chan was in the United States of America. During that time Chan, on numerous occasions, contacted his assistant Jessica Makin ("Makin") and Cryer (by way of Email and telephone communication) instructing them to enter, amend and cancel Bids for BXP with respect of the 3D Salesforce account.[97]
[97]M01352096 – Statement of Matthew Cryer; M01353150 – Statement of Jessica Makin
On 18 January 2008 MEL Risk Manager Natina Bonadonna ("Bonadonna") reviewed a number of Bids that Chan had arranged to be placed into ITS on behalf of the 3D Salesforce account near the close of trading on 14, 15 and 16 January 2008.[98]
[98]M01377239 – Statement of Natina Bonadonna
On this day and following her review of the recent trading in BXP, Bonadonna had a number of telephone conversations with Chan. Bonadonna informed Chan that MEL was looking at the recent trading pattern in BXP and directed that he not trade in BXP on behalf of the 3D Salesforce account unless he advised her first.[99]
[99]M01377239 – Statement of Natina Bonadonna
On 22 January 2008 Bonadonna emailed Makin concerning a dishonoured payment for BXP shares on the 3D Salesforce account. Makin in turn emailed Chan requesting his permission to contact Couper about this, which he granted.[100]
[100]M01255462 – Series of Emails discussed by Makin in statement M01353150
On 26 January 2008, Chan returned to Australia.
No trading in BXP was conducted through the 3D Salesforce account between 18 January 2008 to 3 March 2008. However, following his return to Australia, Chan recommenced trading in BXP through the Winwood Mac account.
During the period 8 February 2008 to 22 February 2008, Chan traded in BXP shares through the Winwood Mac account [see charge five].
11 February 2008 – Involvement with BXP Questioned
On or around 11 February 2008 MEL State Manager and Executive Director Malcolm Cameron ("Cameron") had a conversation with Chan[101]. During the course of their conversation Cameron queried Chan why he was involving himself with BXP shares. During this conversation the following comments were made:
a. Chan said he was following his client's instructions;
b. Chan said he would ensure that he informed the client that he would no longer accept any orders that would have the effect of increasing the BXP share price towards the close of trading. He further stated that any future orders would be "at market" price; and
c. Cameron suggested to Chan that he stop trading in BXP as his conduct in relation to trading in BXP was "casting a shadow over his [Chan's] business".
[101]M01377387 – Statement of Malcolm Cameron
On 22 February 2008, Chan commenced trading in BXP shares through the McKenzie account. On this day, through IOS order number 3281096 (McKenzie account), Chan arranged for 2 Bids to be entered into ITS[102].
[102]M00930822 – IOS Audit Trail report
26 February 2008 – Eastwell Crossing
On 26 February 2008 at 11:30am, Chan cancelled McKenzie order number 3281096.
At 11:34, Chan created Advisor Working order 3288709 through the Eastwell account and commenced purchasing BXP shares through the Eastwell account[103].
[103]M00930842 – IOS Audit Trail report
On 26 February 2008 at 11:48am Bonadonna sent an email to Chan in relation to trading in BXP shares[104], requesting the details of the buyers and sellers trading that day in BXP.
[104]M00153883 – Email dated 26 February 2008 from Bonadonna to Chan
Bonadonna's query related to a crossing arranged by Chan involving 2 of his client's accounts (one of which being the Eastwell account). The execution of the crossing resulted in an increase to the BXP share price of 0.5 cents, from 13.5 to 14 cents.
Later that morning Chan replied by Email to Bonadonna Advisor her that:
'The seller is Prilo Pty Ltd a/c 2184376, the buyer is Tony Eastwell a new private client a/c no. 2777512'[105].
[105]M00153883 – Email dated 26 February 2008 from Bonadonna to Chan including Chan's reply
29 February 2008 – Conflict of Interest
On the morning of 29 February 2008 Chan arranged to sell 200,000 BXP shares held in his name by entering an Ask for 200,000 at 14 cents into ITS. By 12:16pm, a volume of 44,100 remained untraded in the market. At this time, Chan arranged for a Bid for 50,000 BXP shares to be entered into ITS on behalf of the Eastwell account. This Bid immediately traded with the balance of Chan's shares on offer and resulted in a price increase of 0.5 cents, from 13.5 to 14 cents.
MEL Risk Management directed Chan that he reverse and cancel the trade for 44,100 BXP shares as it was explained to him that this conduct was an unacceptable conflict of interest.[106]
[106]M01255465 – Email dated 29 February 2008 from Wybrow to Chan
March 2008 – Late Trades
On 4 March 2008 order number 3288709 relating to the Eastwell account was completely filled (i.e. 1,300,000 BXP shares purchased since 26 February 2008).
On 4 March 2008 Chan recommenced trading in BXP shares through the 3D Salesforce account. On this day, Chan arranged for 4,200,000 BXP shares to be sold by 3D Salesforce at a price of 13.5 cents per share, valued at $560,763.00.
Following this sale, Chan created Advisor Working order number 3309043 in IOS against the 3D Salesforce account. This order was for the purchase of 1,000,000 BXP shares at a limit of 13.5 cents.
During the period 4 March 2008 to 26 March 2008, Chan arranged for 14 Bids to be entered into ITS on behalf of the 3D Salesforce account.
On 25 March 2008 at 3:46pm Chan arranged for a Bid of 500,000 BXP shares at 11.5 cents to be entered into ITS. Prior to this Bid being entered into ITS, the Bid/Ask Spread was 7.3 cents (Bid), 10 cents (Ask) and the last traded price 10 cents, following a trade by another broker minutes earlier.
Following this Bid being entered into ITS, the Bid/Ask Spread was 11.5 cents (Bid – an increase of 4.2 cents), 12 cents (Ask - an increase of 2 cents) and the last traded price 11.5 cents (up 1.5 cents).
On 25 March 2008 at 4:12pm MEL Risk Management Analyst Peter Wybrow ("Wybrow") called Chan and had a conversation in relation to the recent trading in BXP through the 3D Salesforce account. The conversation was as follows:
Wybrow said: "I have been looking at some trades in BXP on the 3D Salesforce account. Why does the client always trade so late in the day?"
Chan said:"The client is overseas and usually trades late in the day".
Wybrow said: "We can't accept orders that may have the appearance of supporting the price"
Chan said:"I don't see the problem if the client has large volumes and usually trades late in the day"
Wybrow said: "That is irrelevant"
Chan said:"I understand your concern. I will raise your concerns with the client and be careful about the trades".[107]
[107]M01048964 pp 7-8– Statement of Peter Wybrow
ASIC Notice
On the afternoon of 27 March 2008 ASIC served a Notice on MEL relating to trading in BXP by 3D Salesforce. On or about the morning of 28 March 2008, Cameron had conversation with Chan. The conversation was as follows:
Cameron said: "We have received an ASIC notice relating to trading in BXP. Risk Management are obliged to prohibit you from trading any further in BXP"
Chan said:"I understand, however there is nothing in it. I have only been putting on Execution Only orders"
Cameron said: "Who is the client you are buying for?"
Chan said:"The client is Enzo Di Donato".
Relationship between Di Donato & OnQ
On 2 April 2008 Wybrow sent an email to Cameron requesting that Cameron ask Chan 'if he [Chan] was aware of any connection between Di Donato and OnQ'. At 10:37am Cameron forwarded Wybrow's Email to Chan and requested that he answer Wybrow's query. After Cameron sent this email to Chan the following occurred:
a. At 10:40am Chan called Ian Christiansen and they had a conversation lasting approximately 3 minutes and 30 seconds;
b. At 10:49am Chan again called Ian Christiansen and they had a conversation lasting approximately 3 minutes and 30 seconds[108]; &
c. At 10:57am Chan replied to Cameron's Email. Relevantly, in Chan's reply he stated:
'I am unaware of any association between Enzo and OnQ. As far as I understood he is a salesperson who has his own company and works for himself'.[109]
[108]M01479670 – Statement of Nathan Grogan. See Analysis of telephone communication after MEL compliance inquiries Schedule C
[109]M01255471 – Email between Chan and Cameron dated 2 April 2008; M01377387 - Statement of Malcolm Cameron
Chan Termination
On 7 August 2008 Chan called Cameron. During the course of their conversation Chan made the following admission relating to his trading in BXP:
"I did what I did not for any financial gain but out of a desire to assist a friend – Ian Christiansen".
On 8 August 2008 Chan's employment with MEL was terminated.
Charges to be taken into account pursuant to section 16BA Crimes Act (Cth) - Section 1101F Corporations Act 2001 (Cth) charges
Charge One on s16BA Schedule – relevant to Count Six
During the period between 3 May 2006 and 26 February 2008, Chan entered information into the IOS regarding the transactions he conducted using the McKenzie Account. For further information on this system, see paragraphs 20-27.
In this period two orders were created, two amendments were made to these orders, one order was deleted and one order was cancelled. On each of these occasions, Chan entered “Mr Ian McKenzie” as the “Order Giver” on the IOS.
McKenzie was the only person authorised to operate the McKenzie account. He did not instruct Chan to create, amend, delete or cancel any of the orders in this period.
During this period McKenzie did not provide any instructions to Chan or any other MEL staff to purchase any shares through the McKenzie account[110].
[110]
Charge Two on s16BA Schedule – relevant to Count One
During the period between 8 May 2006 and 4 March 2008, Chan entered information into the IOS regarding the transactions he conducted using the Winwood Mack account.
In this period six orders were created, seven amendments were made to these orders and three orders were deleted. On each of these occasions, Chan entered “Mr Ian McKenzie” as the “Order Giver” on the IOS.
McKenzie was the only person authorised to operate the Winwood Mack account. He did not instruct Chan to create, amend, delete or cancel any of the orders in this period.
During this period McKenzie did not provide any instructions to Chan or any other MEL staff to purchase any shares through the Winwood Mac account[111].
[111]M01377456 – Statement of Ian McKenzie
Charge Three on s16BA Schedule – relevant to Count Four
During the period between 8 August 2006 and 17 March 2008, Chan entered information into the IOS regarding the transactions he conducted using the 3D Salesforce account.
In this period 18 orders were created, ten amendments were made to these orders and three orders were deleted. On each of these occasions, Chan entered “Mr Enzo Di Donato” as the “Order Giver” on IOS.
Di Donato was the only person authorised to operate the 3D Salesforce Account. He did not instruct Chan to create, amend or delete any of the orders in this period.
Charge Four on s16BA Schedule – relevant to Count Seven
On 26 February 2008 Chan entered information into the IOS regarding transactions that he conducted using the Eastwell account.
On this day, one order was created. Chan entered “Mr Anthony Eastwell” as the “Order Giver” on IOS.
Eastwell was the only person authorised to operate the Eastwell account. He did not instruct Chan to create this order. [112]
[112]M01048226 – Statement of Anthony Eastwell
Eastwell did not provide any instructions to Chan or any other MEL staff to purchase any shares through the Eastwell account.[113]
Section 64 ASIC Act 2001 (Cth) charge
[113]M01048226 – Statement of Anthony Eastwell
The Notice
On 2 June 2008 ASIC served a Notice on Chan under section 19(2) of the ASIC Act ("the Notice") requiring him to attend an examination on 11 June 2008 ("the s19 examination") in relation to the investigation.[114]
[114]M01259268 - Notice under section 19(2) of the ASIC Act served on Chan
As the client advisor for the relevant accounts, Chan was in a position to provide the following information to ASIC of relevance to the investigation:
i. information about the establishment of the relevant accounts;
ii. the identity of the person or persons giving Chan the instructions to trade in BXP shares on the relevant accounts. Further, the identity of the persons giving the instructions to purchase BXP on each of the relevant accounts was a significant and important aspect of the investigation;
iii. the method by which the person or persons transmitted to Chan the instructions to trade in BXP shares on the relevant accounts;
iii. the nature of these instructions Chan received to trade in BXP shares on the relevant accounts;
iv. his own knowledge of the circumstances of the relevant accounts' dealings in BXP shares;
v. whether Chan received any IOS alerts in relation to orders for BXP shares on the relevant accounts; and
vi. the extent of Chan's personal holdings of BXP shares.
The s19 examination
On 11 June 2008 Chan, accompanied by his solicitor Peter Cash[115] of Deacons Lawyers, attended the s19 examination at ASIC's offices 120 Collins Street, Melbourne. The purpose of the examination was to obtain information in relation to the investigation.
[115]M00153634 – Signed transcript of examination
During the s19 examination Chan provided the following false or misleading responses in relation to:
a. the receipt of instructions exclusively from Di Donato regarding the 3D Salesforce account;
b. having never received instructions from Couper on the 3D Salesforce account;
c. having never received IOS alerts regarding the 3D Salesforce account; and
d. his holdings in BXP stock.
a. Instructions from Di Donato re 3D Salesforce
During the s 19 examination Chan gave the following responses, among others, when answering the Inspectors' questions in relation to Di Donato and the 3D Salesforce account:
a.) Question: "...If we can just run through the general order procedure for orders on 3D Salesforce's account, that is, Macquarie Equities Limited account 2638688. Can you detail the procedure as to how Mr Di Donato would place an order on 3D Salesforce's account 2638688?"
Answer : "He would ring through, or communicate."
b.) Question: "I guess my question is, do you remember the general style of his ordering?"
Answer: "Well, specifically, I mean I think he was, you know, direct in terms of – if that helps."
c.) Question: "Yes, and I appreciate that. Yes. So just in terms of his general style, your recollection is that he was a direct sort of instructor?"
Answer: "Yes".
d.) Question: "...So what were Mr Di Donato's orders?"
Answer: "They were execution only."
e.) Question: "...Did you receive instructions from any other person to trade on that account?"
Answer: "I don't recall ever receiving instructions from anyone else, no."
f.) Question: "But certainly if someone tried to give you an instruction on 3D Salesforce's trading account, would that appear unusual to you?"
Answer: "Well, yes. I mean in the sense that Enzo Di Donato was the person that gave the orders as I recall on a hundred per cent of the occasions."
g.) Question: "But you don't recall receiving instructions on this account from any other person other than Mr Di Donato?"
Answer: "I certainly don't recall it, no."
h.) Question: "Did you contact Enzo Di Donato?"
Answer: "Yes."
i.) Question: "And did you inform him of what the compliance officer had told you?"
Answer: "No, I wasn't – I'm trying to recall the conversation, but I was basically told to just tell him that he could no longer trade on the account."
j.) Question: "And did you tell him that?"
Answer: "Yes."
k.) Question: "And what was his response?"
Answer: "He said, “Why?” and I said, "Look, internal compliance has" – to the best of my recollection - "said that you can’t trade this account any further". So I don’t – look, I recall him asking me "Why?" and those sort of things, but, you know, I wasn’t in a position to tell him specifically. So I didn’t go on into a - a longwinded conversation around it".
l.) Question: "Yes. And did you - was that the only telephone call you had with him while you were overseas, with Mr Di Donato?"
Answer: "Oh, no, I had quite a few conversations with him, because I recall that he was still doing some trading in January and because we had no staff in the office at the time, I was effectively still dealing".
m.) Question: "So you were quite literally receiving calls on your mobile while overseas?"
Answer: "Yes."
Question: "From Enzo?"
Answer: "Yes. It might've been at the hotel, but I'm not – you know, I don't recall the day or the transactions."
n.) Question: "...So do you recall receiving calls from Mr Di Donato while overseas in this period?"
Answer: "I certainly spoke to him when I was overseas, yes."
Question: "And how did these contacts come about?"
Answer: "Well, I can't remember whether it was a mobile phone call or a hotel call."
o.) Question: "Is it the case that, I mean, you mentioned before that you don't exercise discretion. So is it the case that Mr Di Donato would have been advising you to amend these BIDs?"
Answer: "Yes."
On the basis of evidence obtained by ASIC in the course of the investigation, this information provided by Chan was false or misleading. ASIC's inquiries have identified telephone communication between Chan and Ian Christiansen, Harold Christiansen, and Couper during and proximate to orders for BXP on the 3D Salesforce account, between 12 July 2006 and 26 March 2008.
These inquiries have not identified any telephone or email contact between Chan and Di Donato on any day that an order was placed on the 3D Salesforce account between 12 July 2006 and 26 March 2008.
In relation to the contact Chan received from the MEL Compliance officer on 18 January 2008, ASIC's inquiries indicate Chan's responses to the effect that he contacted Di Donato to pass on the Compliance Officers concerns are false or misleading. Rather, telephone analysis indicates after both of the Compliance Officers contacts with Chan, Chan immediately contacted Ian Christiansen – not Di Donato - and he and Christiansen spoke for a total of 10 minutes. [116]
[116]M01479670 – Statement of Nathan Grogan. See Analysis of telephone communication after MEL compliance inquiries Schedule C
Inquiries made by ASIC in the course of the investigation with MEL and Chan's former[117] MEL colleagues confirm that on a number of occasions Chan instructed his colleagues in person and by email to accept orders for the purchase of BXP shares on the 3D Salesforce account from Couper.[118]
[117] Chan no longer works for MEL
[118]M01353150 – Statement of Jessica Makin, MEL (referring to emails M01255456, M01255462, and M00930797); M01352096 – Statement of Matthew Cryer, MEL
b. Instructions never received from Couper on the 3D Salesforce account
During the s19 examination Chan provided the following responses, among others, when answering the Inspectors' questions in relation to Peter Couper and the purchase of BXP shares:
a.) Question: "So you've never spoken to Peter Couper in relation to purchases of BXP shares?"
Answer: "Not that I recall, no."
b.) Question: "Have you spoken to Peter Couper in relation to any specific trades that the 3D Salesforce account has been booked to?"
Answer: "I don't recall speaking to Peter Couper about 3D Salesforce."
c.) Question: "...Did Peter Couper – or has Peter Couper ever contacted you and placed an order on 3D Salesforce account 2638688?"
Answer: "I believe that to be exactly the same scenario as Ian Christiansen, so---."
Question: "So, I mean it's the case that---?"
Answer: "Well, I don't recall it happening and I can't see why it would have happened?"
On the basis of telecommunications evidence obtained by ASIC during the course of the investigation, this information provided by Chan was false or misleading. In relation to each of the relevant accounts, between 3 May 2006 and 26 March 2008 telephone communication occurred between Chan and Couper during and proximate to orders to purchase BXP arranged by Chan, and other transactions processed by Chan for BXP shares (off-market transfers and on-market crossings).
Evidence provided by MEL and Chan's former MEL colleagues confirms that on a number of occasions Chan instructed his colleagues in person and by email to accept orders for BXP shares on the 3D Salesforce account from Couper.[119] [120] [121]
[119]M01353150 – Statement of Jessica Makin, MEL (referring to emails M01255456, M01255462, and M00930797); M01352096 – Statement of Matthew Cryer, MEL
[120]M01353150 – Statement of Jessica Makin, MEL (referring to emails M01255456, M01255462, and M00930797); M01352096 – Statement of Matthew Cryer, MEL
[121]M01353150 – Statement of Jessica Makin, MEL (referring to emails M01255456, M01255462, and M00930797); M01352096 – Statement of Matthew Cryer, MEL
There were further 5 occasions when Chan emailed Couper advising Couper of his BXP purchases and requesting Couper deposit funds into his personal bank account. [122] On occasions that he was not in the office, Chan instructed colleague Rani Walsh to email Couper on his behalf to advise Couper of his BXP purchases and the cost incurred by him.[123] Following Chan's requests for payment, Couper authorised payment of the requested amounts to Chan's bank account. Under this arrangement between Chan and Couper, Chan received total payments of $525,805.72 into his personal bank account.
[122]M01479670 - Statement of Nathan Grogan, ASIC. See Analysis of Email communication Schedule D; M00390595 – Statement of Rani Walsh; M01377407 – Statement of Bradley Veale, Schedule H
[123]M01479670 -Statement of Nathan Grogan, ASIC. See Analysis of Email communication Schedule D; M00390595 – Statement of Rani Walsh; M01377407 – Statement of Bradley Veale, Schedule H
c. Never received IOS alerts regarding the 3D Salesforce account
During the s19 examination Chan provided the following response, among others, when answering the Inspectors' questions in relation to receiving IOS alerts on the 3D Salesforce account:
a.) Question: "...I just thought that you may have received an alert, but if you don't recall, that's fine?"
Answer: "Yes – I mean no, I certainly didn't receive any alerts."
On the basis of evidence obtained by ASIC during the course of the investigation, this information provided by Chan was false or misleading. Between 8 August 2006 and 20 March 2008 Chan received a total of 41 IOS Alerts for orders he placed on the 3D Salesforce account.[124]
[124]M01377407 – Statement of Bradley Veale, pp 14, 16-17; Statement of Nathan Grogan, ASIC. See Schedule A.
d. Chan’s holdings in BXP stock
During the s19 examination Chan provided the following responses, among others, when answering the Inspectors' questions in relation to his holdings in BXP stock:
a.) Question: "What's your current holding in BXP stock?"
Answer: "It's about 300,000 shares."
b.) Question: "What was your current holding earlier this year? Have you been a seller?"
Answer: "I transferred from my own name to my super fund earlier this year."
Question: "How many shares?"
Answer: "About 300,000."
On the basis of evidence obtained by ASIC during the course of the investigation, this information provided by Chan was false or misleading. At the date of the examination Chan held 744,100 BXP shares.[125]
[125]M01377407 – Statement of Bradley Veale, (producing exhibits M00153872 and M00153873) p20; M00390600 - Statement of Christopher Taylor, Computershare Investor Services Pty Ltd, pp 4-5;
The s19 examination conducted on 11 June 2008 was adjourned to a date to be fixed.
On 12 August 2008 the s19 examination was resumed. Chan, accompanied by his legal representative – Barrister Simon Rubinstein, attended the s19 examination by agreement. During the s19 examination Chan admitted under privilege that the following information he provided in the 11 June 2008 examination was incorrect[126]:
·receiving instructions on the 3D Salesforce account exclusively from Di Donato and no other person;
·having never received an order from Couper on the 3D Salesforce account; and
·having never spoken to Couper in relation to purchases of BXP shares.
The s19 examination conducted on 12 August was adjourned to a date to be fixed.
[126]M00930817 - s19 examination transcript 12 August 2008.
On 17 November 2008 the s19 examination was resumed. Chan, again accompanied by Barrister Simon Rubinstein, attended the s19 examination by agreement. During the s19 examination Chan provided further information under privilege in relation to his use of the relevant accounts to trade in BXP shares.[127]
[127]M01353147 - s19 examination transcript 17 November 2008.
Profit to the accused
In March 2006, prior to the offending, the accused purchased 100,000 BXP shares using his own funds.[128]
[128] Computershare registry printout barcoded M00930689 produced by Christopher Wilson Taylor statement barcode M00390600
Between 14 June 2006 and 3 July 2006 the accused used his personal trading account to purchase 2,917,293 BXP shares on market under his name, the conduct the subject of count two.[129] Under his arrangement with Couper the accused received $525,805.72 into his personal bank account in order to pay for these shares.[130]
[129] Computershare registry printout barcoded M00930689 produced by Christopher Wilson Taylor statement barcode M00390600; Statement of Nathan Grogan barcode M01479669 pages 26-29;
[130] Statement of Candice Best barcode M01354992 pages 18-22; Statement of Tracey Wegener barcode M01352356 referring to emails barcodes M00507438, M00507444, M00507436, M00507446, M00507452, M00507453, M01048708, and M01048710; and Schedule E attached to statement of Nathan Grogan barcode M01479669
On 28 November 2006 the accused sold 1,917,293 of the shares for $325,939.81 and remitted these funds at Couper's direction to 3D Salesforce Pty Ltd.[131]
[131] Email from Couper to Chan barcode M01255431 produced by Bradley Veale Statement barcode M01255431 (See Schedule H attached to this statement); Statement of Christopher Michael Bristow barcode M01048971 pages1-3; Statement of Candice Best barcode M01354992 pages 22, 25-26
The accused retained ownership of the remaining 1,100,000 BXP shares (inclusive of the 100,000 shares purchased in March 2006).[132]
[132] Computershare registry printout barcoded M00930689 produced by Christopher Wilson Taylor statement barcode M00390600
On three separate dates (all during the period of offending) the accused sold 355,900 of these 1,100,000 shares on market as set out below:[133]
[133] Computershare registry printout barcoded M00930689 produced by Christopher Wilson Taylor statement barcode M00390600; Chan's share trading account statement barcode M00153873 produced by Bradley Veale statement barcode M01255431
Date of sale Volume Price per share (cents) Net Proceeds (minus brokerage and GST) 27/12/06 100000 20 $19,920.10 02/01/07 100000 20.5 $20,460.05 29/02/08 155900 14 $11,960.05 TOTAL 355,900 TOTAL $52,340.20 There is no way of determining which of the share sales to attribute to those shares purchased in March 2006. For the purpose of this analysis the 100,000 shares sold by the accused on 2 January 2007 (those sold at the highest price) are nominally assigned as the shares purchased in March 2006 and are excluded from the following analysis.
Accordingly, the net profit received by the accused from the sales of the shares is $31,880.15 (total of $52,340.20 minus $20,460.05). These funds were used by Chan to replenish his margin loan account and/or to enable him to invest in other ASX-listed shares.[134]
[134] Chan's share trading account statements barcodes M00153873 and M00153873 produced by Bradley Veale statement barcode M01255431
This left the accused with 744,100 BXP shares. On 2 April 2008 the accused transferred these shares to his personal superannuation account when the market value of the shares was 8.5c per share. Accordingly, the value of this transaction to the accused's superannuation account was $63,248.50.[135]
[135] Computershare registry printout barcoded M00930689 produced by Christopher Wilson Taylor statement barcode M00390600; CHESS detail message barcode M01479584; Statement of Nathan Grogan barcode M01479669 pages 26-29
Accordingly, the net profit received by the accused is the sum of the amounts he received from the sale of the 255,900 shares being $31,880.15 and the $63,248.50 worth of BXP shares he transferred to his superannuation account on 2 April 2008.
As such the total profit is $95,128.65.[136]
[136] Statement of Nathan Grogan barcode M01479669 pages 26-29
Commissions
MEL charges clients a brokerage fee for arranging the trading of shares. The dollar value of the brokerage fee is detailed in each Contract Note produced by MEL. The accused received a percentage of the brokerage fee calculated on a sliding scale, with MEL retaining the remainder.[137] (Based on the accused's gross annual income during that period he would have received between 40 and 50% of the brokerage fee as commission. For the purpose of the calculation below a mid-point estimate of 45% has been used.)
[137] Chan's employment agreement with MEL barcode M01048249 produced by Bradley Veale statement barcode M01255431paragraphs 83 - 89
Between 5 May 2006 and 26 March 2008 the accused received commission payments of approximately $34,182.62 as a result of the trades in BXP Chan executed on the relevant accounts.[138]
[138] Statement of Nathan Grogan barcode M01479669 pages 26-29
M01377456 – Statement of Ian McKenzie
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