R v Hildebrandt
[2014] VSC 321
•4 July 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
CRIMINAL DIVISION
S CR 2013 0116
| THE QUEEN |
| v |
| MARK McLEAN HILDEBRANDT |
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JUDGE: | EMERTON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 - 6 May 2014 |
DATE OF SENTENCE: | 4 July 2014 |
CASE MAY BE CITED AS: | R v Hildebrandt |
MEDIUM NEUTRAL CITATION: | [2014] VSC 321 |
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CRIMINAL LAW – Sentence – Eight counts of making improper use of a position as an employee of a responsible entity to gain, directly or indirectly, an advantage – Guilty plea - Sentence of 22 months imprisonment, to be released on recognizance after serving eight months – ss 601FE(4) and 1131(1) of the Corporation Act 2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Crown | Mr N Robinson QC Mr P Doyle | Office of Public Prosecutions |
| For the Accused | Mr C Heliotis QC Mr J Gullaci | Tony Hargreaves & Partners |
HER HONOUR:
Mark McLean Hildebrandt, you have pleaded guilty to eight counts of making improper use of your position as an employee of Vanguard Investments Australia Limited (‘Vanguard’) to gain, directly or indirectly, an advantage for yourself contrary to s 601FE of the Corporations Act 2001 (Cth).
Vanguard is a responsible entity for the purposes of Chapter 5C of the Corporations Act, by which managed investment schemes are regulated. Vanguard is an index fund manager and is the responsible entity for approximately 37 funds valued at approximately $58 billion.
You were employed by Vanguard as a portfolio manager from July 2008 until April 2011, when your employment was terminated due to your offending conduct.
On 63 separate days between 18 May and 6 December 2010, you improperly used your position as a portfolio manager employed by Vanguard to gain advantage for yourself by placing orders for financial products on Vanguard’s account which were intended to trade with orders placed by you on your personal account. The trading conducted by you is reflected in the eight charges of a rolled up indictment, each charge reflecting trading during each of the eight months of the offending conduct. Each count is therefore a collection of a large number of individual counts bundled up into a single count.
The maximum penalty on each charge is 5 years imprisonment and a fine of 2000 penalty units. Pursuant to s 16A(1) of the Crimes Act 1914 (Cth), the Court must impose a sentence or make an order that is of a severity appropriate in all the circumstances of the offence. This is reinforced by s 16A(2)(k), which requires the Court to take into account the need to ensure that you are ‘adequately punished for the offence’.
For the reasons that follow, I consider your offending to be serious and, although I have taken into account all the matters raised by you in mitigation, a prison sentence is necessary to ensure that you are adequately punished for your offending and to serve as general deterrence, having regard to the apparent ease with which crimes such as yours can be committed and concealed. I propose to impose a total effective sentence of 22 months, but order that you be released on your own recognisance after eight months.
Nature and circumstances of the offences
In this proceeding, an agreed statement of facts has been prepared which has been of great assistance to me in understanding the circumstances surrounding the charges to which you have pleaded guilty. The nature and circumstances of your offending are as follows.
Vanguard portfolio managers are responsible for investing funds in the portfolios they manage, such that the funds remain invested within the established guidelines and tolerances for that particular portfolio. You were authorised to trade or to provide instructions to trade on behalf of Vanguard from 21 July 2008 onwards. During 2010, you were the portfolio manager specifically responsible for managing certain Vanguard funds, including the Vanguard International Shares Index Fund (‘VISIF’) and Vanguard International Shares Index Fund (Hedged) (‘VISIFH’).
On over 63 separate days between 18 May and 6 December 2010 you placed orders, ostensibly on behalf of VISIF or VISIFH, to buy and sell futures contracts on the Bourse de Montreal. The Bourse de Montreal is the financial derivatives exchange of Canada offering, inter alia, trading in interest rates, index and equity derivatives. The S&P/TSX 60 is an index comprising the 60 largest companies traded on the Toronto Stock Exchange. Futures contracts in this index (known as ‘SXF’) are traded on the Bourse de Montreal.
The SXF orders for Vanguard placed by you were intended to trade with your personal orders and substantially did so.
In overview, the SXF orders that you placed on the Bourse de Montreal:
(a)were each placed between the hours of 8.00pm and 11.15pm AEST during the Bourse’s relatively illiquid early trading sessions;
(b)were each placed after you logged in to remotely access the Vanguard network;
(c)were placed by means of direct market access facilities provided by international brokers (UBS AG, Credit Suisse AG or Morgan Stanley);
(d)were placed in volumes significantly larger than usual;
(e)were placed in very close proximity to orders placed by you using your own personal trading account;
(f)traded in part with your orders;
(g)followed a pattern of initial orders being subsequently reversed during the same early trading session by way of placing corresponding opposing orders for the same or similar quantities;
(h)constituted an unusually large number of such intraday reversals;
(i)in almost every case were placed at a price unfavourable to Vanguard in the case of orders to buy SXF, at a higher price than the existing best bid; in the case of orders to sell SXF, at a lower price than the existing best ask; and
(j)were subsequently entered into Vanguard’s order recording system under the user name ‘mahil’, which was allocated to you over the relevant period.
The improper use that you made of your position consisted of placing matching fund orders against your own personal orders with the intention of gaining an advantage for yourself. Because the positions which were opened in the market by you were unfavourable to the relevant Vanguard fund and favourable to your personal trading account, the opening positions you entered were likely to result in a personal profit to you and a loss to the fund.
You made a personal profit on all but two occasions of trading that are the subject of these charges.
The prosecution asserts that trades resulting from your orders realised a total profit to you of AUD$636,176.03.[1] This amount was calculated by the Australian Securities and Investments Commission (‘ASIC’) as the profit attributable to the total trade volume for each relevant trading day.
[1]CAD$610,707.20.
The quantum of the advantage obtained by you is not an element of the offences to which you have pleaded guilty. Nonetheless, there was considerable argument at the plea hearing about the profit that you made from the relevant transactions and I will deal with that question presently.
Whatever the advantage obtained, there was on any view a course of criminal conduct by you that was protracted and by which you gained an impermissible and improper advantage.
Your counsel, Mr Heliotis QC, raised three matters that he submits are relevant to assessing the gravity of your conduct:
(a) First, your offending arose in the context of your wishing to test alternate direct market access platforms for use generally by Vanguard traders and not as part of a preconceived plan to gain an advantage for yourself; and
(b) secondly, your legitimate desire to test platforms was taken off course by your perseverative tendencies and lack of judgement caused or contributed to by a frontal lobe injury suffered as a child and an undiagnosed obsessive-compulsive disorder; and
(c) thirdly, the quantum of the advantage to you from the trading is in fact considerably less than the quantum asserted by the prosecution and more likely (only) in the region of $200,000.
It is convenient to consider the first two of these matters together, because they are interrelated.
You maintain that you became involved in the offending in the context of wishing to test alternative direct market access platforms. You say that you were authorised to conduct such testing by your superiors at Vanguard.
The prosecution concedes that it cannot prove beyond reasonable doubt that, at the time you commenced placing orders on behalf of Vanguard funds on the Bourse de Montreal, you were not doing so in the context of testing alternative direct market access platforms. It is common ground that during 2010, you informed your manager at Vanguard that you wanted to explore the use of other direct market access platforms for trading. A small number of emails referring to testing and/or the use of alternative trading platforms from you to some of your colleagues dating from just prior to the offending period and from August 2010 were in evidence before me.
Mr Heliotis submits that you should not be sentenced on the basis that you sat down and worked out a scheme by which you could cheat Vanguard or gain an advantage for yourself by using your position at Vanguard. He submits that the Court should see your crimes as opportunistic and as arising from a genuine desire to test alternative programs as a result of which you were able to make a profit for yourself.
Mr Heliotis concedes that once the profiting started, there was no doubt that you then knew exactly what you were doing, and you were making a profit from the testing. Nonetheless, he submits that the Court should find that the profiteering was a by-product of a legitimate testing program engaged in by you. In other words, the appropriate way for the Court to look at your conduct is that it started opportunistically when a legitimate desire to test platforms resulted in a profit for you and thereafter you traded with the mixed desire to test and make a profit.
Mr Heliotis put forward a number of explanations as to why you would carry out the testing at home after working hours and why you chose to trade in an illiquid market. The illiquid market meant, so he contended, that ‘somebody had to provide an opposing side to the trade’ and that is why you used your own money, knowing full well that you were not going to make a loss on the transaction. The profits you made were greater than you anticipated because you did not always close against Vanguard, and market movements resulted in increases in your profits.
Mr Heliotis submits that the testing was a real thing in your mind and this becomes important because of medical evidence explaining why the testing was done over and over again. He submits that you suffered, at that stage, from reduced mental capacity in relation to the trading due to conditions recently identified that probably resulted from a head injury you suffered as a child.
At the age of eight, you were hit over the head with a cricket bat, rendered unconscious and briefly hospitalised. You have submitted report suggesting that this injury caused frontal lobe damage, which affects your ability to make value judgments and to assess risk. There is also a suggestion that this injury either brought about or exacerbated an obsessive-compulsive disorder that remained undiagnosed until recently. You have an irrational fear that your actions will hurt others. You wash your face many times a day because you are concerned that if you get sick, you will infect people around you. You check and re-check things in your home because you fear that, if you do not do so, you will expose other people to harm.
According to Mr Heliotis, this psychological vulnerability came into play in the offending when you learned of a disastrous IT project at Vanguard in 2009 that cost millions of dollars and resulted in the loss of a number of jobs. The failure of the project was later attributed to insufficient testing prior to its implementation. You say that when you started testing the alternative trading platforms, you were acutely aware that any error arising from inadequate testing might ultimately lead to another such disaster. Your concern was driven by both the frontal lobe injury, which impacted upon your judgment, and by your obsessive compulsive-disorder, which required you to test and re-test to make sure that everything was 100% correct.
It is therefore submitted on your behalf that there was a purpose to your conduct, apart from the criminal purpose of making a profit, and the overlay of the obsessive-compulsive disorder imposed a need to keep repeating the testing, to make sure that everything was working perfectly.
You have provided the Court with a variety of reports about your psychological conditions. You are currently being treated by a psychiatrist and a psychologist, and you are on medication. Your treating psychiatrist and psychologist have provided reports. Forensic reports have also been provided by Dr Mathew Barth, a forensic psychologist, and Dr Nathaniel Popp, a forensic clinical neuropsychologist, and by Dr Nicholas Bradfield, clinical neuropsychologist.
In December 2013, Dr Bradfield carried out testing that found a cognitive profile consistent with a focal right frontal lobe injury, giving rise to spatial processing difficulties and executive difficulties with planning, reasoning and self-monitoring. He observed that injuries to this region can also cause obsessive and impulsive behaviour, as well as depression.
In April 2014, Dr Barth conducted four interviews with you and subjected you to a further battery of psychological testing. He found you to have a long history of psychological and interpersonal difficulties, and that you continued to suffer with obsessive-compulsive disorder. According to Dr Barth, the offending behaviour was perpetuated by your poor coping skills and simplistic decision-making which resulted in irresponsible behaviour in a vain attempt to enhance your fragile self-esteem.
For his part, Dr Popp identified significant difficulties with decision-making and ongoing difficulties associated with failing to suppress an automatic response. Your score on the obsessive-compulsive inventory was in the clinical range. Dr Popp found that during times when your orbitofrontal cortex was taxed, there was likely to be an increase in both OCD symptomatology and neuropsychological deficits associated with reduced inhibitory control, reduced speed of information processing, increased perseverative behaviour and reduced problem-solving for novel tasks. Your decision-making was likely to be impaired during such periods, and you were likely to embark upon a poor course of action and not necessarily have the capacity to identify or reflect upon the presence or degree of error. Without external intervention, you could be captured and unable to review and modify your course of action.
According to Dr Popp, your difficulties are such that:
(a)they would have likely been present during the commission of the offences;
(b)they were possibly contributing causal factors to offences; and
(c)they were likely factors that contributed to the ongoing nature of the offences.
The relationship between the offending conduct and the ‘difficulties’ identified by Dr Popp is therefore put no higher than that those difficulties were ‘possible’ contributing factors to the offences, and ‘likely’ contributors to their ongoing nature.
In effect, Dr Popp says no more than that the frontal lobe damage and obsessive-compulsive disorder from which you suffer may have had some part to play in your offending.
I find this evidence too vague to be of much assistance. It does not distinguish between the motivator of greed (to which you have admitted by your plea of guilty) and what you could not help doing or had difficulty resisting because of your psychological conditions.
Nonetheless, I accept that you suffer from frontal lobe damage and an obsessive-compulsive disorder and that your culpability in respect of the ongoing offending is reduced somewhat having regard to these conditions, in that they are related to your poor judgement and perseverative nature.
I also accept that when the offending commenced, it was in the context of your desire to test alternative trading platforms. You did not sit down on the first occasion with a view to personally profiting from the testing.
The reduction in your culpability on this basis is small, however. You offended on 63 days and there was method in your offending that produced a large benefit to you. This is apparent from an analysis of your profiteering, which escalated over time. In May 2010, you traded on seven days, making a profit of $63,236.32. In June, you only traded on two days (towards the beginning of the month) and made $18,766.74. In July, you traded on eight days making a profit of $69,533.50. In August, you traded on ten days, making a profit of $87,532.76. In September, you traded on 13 days making a profit of $108,978. In October, you traded on ten days making a profit of $106,763.60. In November, you traded on ten days making a profit of $117,149.93. Finally, in December, you traded on only two days making a smaller profit of $64,214.34. This was most likely because your trading account was closed down without warning on 6 December 2010 as a result of inquiries made by the Canadian regulator. In addition, the methodology of your offending largely concealed your activities from Vanguard.
By the time you engaged in the final two days of trading in December, you had already been spoken to by Vanguard’s internal auditor and you must have known that what you were doing was wrong. In any event, you well knew throughout the whole of this period that you were not allowed to engage in personal trading of any kind without receiving prior approval and that you were subject to a complete prohibition on trading in futures contracts. You were certainly not authorised to trade against the Vanguard funds. On 1 July 2010, you declared to Vanguard that you had disposed of your only personal holding in securities on 27 April 2010 and at no time after this date did you advise Vanguard of any purchases or sales on your personal account.
In my view, the pattern of offending revealed by the monthly breakdown in occasions of offending and profits made by you shows the bulk of the offending to have been motivated by profit, that is to say, by greed. After putting your toe in the water in May, you were well able to restrain yourself in June. However, thereafter you set about in a sustained way to trade and to profit. Your profit steadily increased, including in December, when you made more than $64,000 in only two days of trading. The offending conduct was in this sense both rational and calculated. It was not the conduct of a man driven to do things by impulses beyond his control.
It is also to be observed that you successfully pursued a career in funds management here in Australia and in London for 14 years without committing criminal acts attributable to your impaired mental functioning.
As to the advantage that you gained from the prohibited trading, the prosecution submits that trades resulting from your orders realised a total profit to you of $636,176.03.[2] While the quantum of the advantage obtained by you is not an element of the offences to which you have pleaded guilty, there was considerable argument at the plea hearing about the profit that you made from the relevant transactions, as this may affect your culpability.
[2]CAD$610,707.20.
The prosecution has assessed the advantage that you gained by reference to the amounts in your trading accounts. That has been identified as the profit that you made on the occasions on which you opened by trading against the Vanguard funds.
Mr Heliotis, however, submitted that the advantage that you gained must be assessed quite differently. He submitted that the amount of profit in your trading accounts is not the amount of profit made against Vanguard. When you went into the market and opened the position, your trades were always against Vanguard because that was the purpose of the testing. However, you did not always close against Vanguard. Only some of your profit arose on opening, and that was always against Vanguard. That profit, according to Mr Heliotis, is something less than $200,000. However, in 55% of cases, you closed against the market, not against Vanguard, and you made a profit by closing on the rising market.
Mr Heliotis submitted that trading at a profit against the market is not criminal, and that you were entitled to do that on your own account. The Court should therefore quantify the gain that you made by trading in your position as an employee of Vanguard by reference only to the profit that you made by opening against the Vanguard funds. Mr Heliotis told the Court that on the occasions when you closed against the Vanguard funds, there was an overall loss to you.
I find the distinction sought to be drawn by Mr Heliotis to be illusory. It relies upon your gaining an advantage as an employee of Vanguard only upon opening (which was necessarily against Vanguard for the purposes of testing, so it is said), but then trading on your own account against the market thereafter. It ignores the fact that you knew that you could close against Vanguard if you needed to, and that the presence of the Vanguard funds in the market at the time – as your default closing position – was an important part of your freedom to trade on the market. In my view, the advantage that you gained is best quantified having regard to your overall trading profits when you opened against Vanguard.
I therefore consider the advantage that you gained to be a very large advantage, and this is relevant to your culpability. I accept the prosecution’s evidence and submission that the advantage that you gained by the improper use of your position as an employee of Vanguard was in the order of $630,000.
Mitigating factors
The matters that you rely on in mitigation are:
(a) your plea of guilty, saving the expense of a trial and demonstrating a willingness to facilitate the course of justice;
(b) the admissions made by you and your co-operation with ASIC;
(c) the payment of $575,000 that you made to Vanguard in restitution;
(d) the fact that you are a 41 year old man with no prior convictions and were previously of good character;
(e) delay at a number of levels: between the offending and now; between the referral by the Bourse de Montreal to ASIC and ASIC speaking to you on 31 March 2011; and between ASIC speaking to you on 31 March 2011 and the laying of charges;
(f) the fact that the offending ceased on 6 December 2010 and there has been no further offending or any other matters outstanding since then;
(g) the loss of your profession, including your disqualification from managing a corporation for a period of 5 years;
(h) your impaired mental functioning, said to be relevant not only to culpability, but the need for specific deterrence and to the way in which a sentence will weigh upon you; and
(i) your prospects for rehabilitation, which are submitted to be excellent, having regard to the absence of prior convictions or any subsequent offending, your remorse and insight, and the family support that you enjoy.
Many of these matters require consideration of your personal circumstances.
Personal circumstances
You are presently aged 41. You were born in London, but your family moved to Australia when you were three years old. Your father, who is now 75 years old, is an accountant by profession, but has established businesses involving the development and use of GPS technology, including a recently established business. Your mother, a retired orthodontist, is 71 years old. You have one sibling, a younger sister, who is a clinical youth psychologist. You were educated at Scotch College and completed a Bachelor of Economics at Monash in 1993.
Since leaving university, you have worked in the financial sector, predominantly as a trader, an equities manager and a portfolio manager. Your employers have included the National Australia Bank, the Australian Wheat Board and Barclay Global in London. You worked as a fund manager in London for two separate periods. In 2008, you returned to Melbourne, made Melbourne your base and commenced working for Vanguard as a portfolio manager.
You were suspended from Vanguard in March 2011 and dismissed a month later. You have not worked full-time since then. It is clear that your career in finance and equity trading is finished. You have found it difficult to find work in any other sector, being over-qualified for many other jobs that you can now apply for and burdened by what occurs when you give an explanation as to why you are applying for jobs. You have applied for but been unable to secure work as a financial planner, a shop assistant in a book store, and a part-time attendant at a bottle shop. You worked for six months distributing pamphlets in letterboxes up until Christmas, following which the work dried up. You have applied or intend to apply for a licence to be a tennis coach.
Your most likely future source of employment is with your father’s new company, although its future is not assured. You have been spending two days per week there on average, working without pay because the company cannot afford to pay you. Your father’s plan is that if the business takes off, you will take over the company when you are in a position to do so at law, having regard to your five year disqualification from acting in the management of a company.
In the meantime, you have been doing volunteer work for an organisation called Burke and Beyond, which supports adults with intellectual and physical disabilities. You have been volunteering there since 2013, including one day per week as part of the Next Step Program, which offers a three year transitional school program for school leavers. In this context, you have been working one-to-one with a participant with significant disabilities. The volunteer coordinator at Burke and Beyond has provided a favourable reference expressing her confidence in your capacity to contribute to the community.
You have a long history of volunteer community work, having started while still at school in 1992 and 1993, where you were a social services leader. In London, you volunteered at the Clapham Youth Centre and, upon return to Melbourne, with the Hawthorn Community Centre from 2008 to 2011.
A number of your friends have provided character references, speaking of your kindness and generosity, and your care and concern for those less fortunate.
Your family life is settled and supportive. It is evident that you have the support of your father, who intends that you work in and ultimately take over his new business if and when it is viable. Your mother and your wife, Timana Hattam, have both supported you in Court. You met Ms Hattam after the period of offending and you told her about it. She has stood by you. You were married in 2013.
Apart from what the likely consequence of your offending, Ms Hattam’s health is the biggest worry in your life. Ms Hattam was diagnosed with multiple sclerosis in March 2012. She is now expecting your first child, following IVF treatment and an earlier miscarriage. The pregnancy has consequences for her health, as she has had to suspend her medication. Although her condition is expected to remain stable throughout the pregnancy, it is likely to deteriorate once the baby is born. The baby is due towards the end of December.
Sentencing considerations
You have pleaded guilty to using your position as a portfolio manager at Vanguard to execute trades which benefited you financially. You did so outside working hours via remote login, by trading in futures contracts in the early session of an international exchange. The methodology you adopted concealed your activities from the scrutiny of Vanguard and the regulatory authority. You were in a position of trust, responsible for placing orders to trade on behalf of funds worth billions, and the offending involved a clear breach of that trust. The offences were sophisticated, carefully orchestrated, and repeated over a sustained period of time, some eight months.
Having regard to these features, your offending is objectively serious and your culpability high, notwithstanding some impairment in your mental functioning and allowing also for the possibility that the initial trade or trades formed part of the testing that you had discussed with colleagues.
The offences to which you have pleaded guilty are commonly referred to as ‘white collar’ crimes. The courts have made many statements about the seriousness of such crime and it has been noted that it is a feature of such offending that offenders are likely to have no prior convictions, to be of good character and to have good prospects of rehabilitation. For these reasons, protection of the community does not rank as highly as a sentencing objective as it does for other crimes and specific deterrence is often not so prominent, the more significant sentencing considerations being general deterrence and punishment.
Nonetheless, your character and antecedents remain relevant to sentencing in this type of case. While this type offending is rarely committed by people with a criminal history,[3] this does not mean that prior good character is overwhelmed or swept aside in the sentencing function. Prior good character informs the aspects of personal deterrence, rehabilitation, what constitutes adequate punishment and the genuineness of any contrition.
[3]It is often their good character itself that enables them to be the repository of the trust that they have breached: R v Rivkin [2004] NSWCCA 7; R v El-Rashid (unreported, NSWCCA, 7 April 1995); R v McCoid [2009] EWCA Crim 1301.
I have considered the matters relied on by you in mitigation.
As I have already said, I am not persuaded that your psychological vulnerability reduces your culpability very much, if at all. However, I accept that your obsessive compulsive disorder, particularly your obsession with cleanliness, will make a custodial sentence in a crowded prison more onerous than it would be for a person who did not suffer from such a disorder.
The concern that you must feel about your wife’s pregnancy and your natural desire to be there for her throughout her pregnancy and during the birth will also make a prison sentence more difficult for you to bear. This sentence will mean that you will miss the birth of your child, a matter which I have taken into account.
Your plea of guilty must be given its proper weight. It is an important mitigating factor, as it has a practical benefit to the community by saving the cost of a trial. This type of case is not easy to prosecute. I accept that your plea of guilty generally demonstrates a willingness on your part to facilitate the course of justice. Furthermore, it is evidence of your contrition or remorse.
Mr Heliotis submitted that your remorse is reflected not only in your plea of guilty, but in admissions made to ASIC on 31 March 2011 and in your payment of restitution to Vanguard.
You have paid $575,000 to Vanguard in full and final settlement of Vanguard’s claim against you. The payment of restitution is relevant and mitigating. It is in indication of contrition and remorse, and ensures that you have not profited from your crimes.
The prosecution accepts that you made a relatively early plea of guilty and that the repayment of $575,000 to Vanguard is to be taken into account in sentencing. However, it submits that the contrition or remorse evidenced by your plea of guilty and the financial settlement with Vanguard must be qualified by a number of matters: first, you continued to engage in the impermissible trading after being questioned about it by Vanguard’s internal auditor; secondly, you gave false explanations to the internal auditors at that time; and thirdly, you also gave false explanations when questioned by ASIC in March 2011.
While I accept that you now present as truly remorseful for your actions, the manner in which you responded to both Vanguard’s internal auditor and to later questioning from ASIC suggests to me that your remorse was qualified, at least in the early stages when your criminality began to be exposed. You continued to trade after informing the audit team that the testing was complete and at no time did you inform anyone on the team of your personal trading. Although you told ASIC of your personal trading, you said the reason you were able to profit from the trading was ‘just luck’.
It took some time after you had been charged to enter your pleas of guilty. The proceeding did not resolve into a plea until April 2014, plea discussions having been commenced and continued from December 2013 until April 2014. The committal took place in June 2013. Mr Heliotis explained that you did not forgo your right to a committal because it was needed to resolve what he described as ‘the quantum issue’. The committal was run to aid the establishment of an appropriate factual basis for the plea. I accept that you were entitled to use the committal for this purpose before entering a plea and that following the committal it took some time for the factual basis for your plea to be agreed. I do not consider that the timing of your plea of guilty reflects any lack of contrition or remorse.
I must and do take into account your previous good character and your extensive community service. You have no prior criminal background. You have never been in any trouble with the authorities or the law, other than during his period of offending. No member of your family has ever been in trouble with the law. Mr Heliotis told the Court that part of the remorse which you feel involves the shame that you have brought upon your parents at their stage in life, and upon your wife. One of the hardest things you have had to do in your life was to face your parents and wife to tell them that you had been dishonest, that you had committed serious offences, and that the likelihood was that you would be sent to prison. Mr Heliotis also referred me to your expressions of remorse to Dr Barth and to your psychologist, Ms Vivien Mason.
I accept that you have already suffered greatly as a result of your conduct. I have been referred to various matters demonstrating the impact of your conduct on you. Apart from the shame you have brought to your family, it is clear that your career in finance and equity trading is finished. You are unlikely ever to regain employment in that sector or in any other related area. The loss of your profession is a significant punishment. Furthermore, you will be disqualified from managing corporations for a period of five years and, in the circumstances in which you find yourself, this is a penalty which I also take into account.
You have had no convictions since the offences occurred in 2010. I accept that you have excellent prospects of rehabilitation and, indeed, that your rehabilitation is well advanced.
Mr Heliotis raised delay as a further mitigating factor. The offending occurred between 18 May and 6 December 2010. Vanguard conducted an internal audit in November 2010 which led to an internal inquiry into your activities. The Bourse de Montreal received a complaint about certain conduct on the Canadian Exchange on 30 July 2010 and commenced a formal investigation into the matter on 7 October 2010, shortly thereafter identifying you as being involved. It made a formal referral to ASIC on 17 December 2010 specifically identifying your conduct. On 31 March 2011, ASIC investigators attended Vanguard’s Melbourne office and spoke to you. You made certain admissions in the course of that conversation. However, charges were not laid until 6 August 2012.
It therefore took ASIC four months from receiving the referral from the Canadian authorities to interview you and it took a further 16 months from the recorded conversation with ASIC on 31 March 2011 for charges to be laid against you.
Not all of that delay could be described as undue delay. Detection of your offending was difficult because of the way in which the offending was carried out, and the offending trades constituted a tiny proportion of the thousands of daily trades conducted on the Bourse de Montreal. As a result, the investigation involved a long and complex chain of tracing over international borders.
However, the period of 16 months between the interview with ASIC and the laying of the charges does seem to me to be protracted and the overall delay in the disposition of the charges should work in your favour, particularly as your rehabilitation is well underway. Furthermore, you have lived with the anxiety and uncertainty of the prospect of a sentence hanging over your head for some considerable period of time, making the period of delay akin to punishment in itself.
Conviction and sentence
You are convicted on the eight counts of intentionally making improper use of your position as an employee of Vanguard to gain an advantage for yourself contrary to s 601FE and s 1311(1) of the Corporations Act 2001 (Cth).
It is clear to me that you must receive a custodial sentence and that you must actually serve a period of time in custody. A custodial sentence is the only appropriate sentence having regard to the need for general deterrence and the moral culpability exhibited by your offending, which involved repeated instances of dishonesty over a protracted period of time and a significant breach of trust. As the New South Wales Court of Criminal Appeal said in R v Pogson,[4] it is important that when sentencing for market-related offences, the courts impose sentences of sufficient severity to ensure, as far as possible, that others who may be tempted to engage in dishonest conduct to the benefit of themselves or a company in which they have an interest, are dissuaded from criminal activity.
[4](2012) 82 NSWLR 60, [144].
Your offending was objectively serious. However, having regard to the delay, your psychological vulnerability, the reparation made, your previous good character and the work that you have done to rehabilitate yourself in the meantime, and making due allowance for your plea of guilty, I sentence you to 15 months’ imprisonment on each count, to be served in part concurrently and in part cumulatively, each term of imprisonment commencing one month later than the commencement date of the previous term as set out in Schedule A. Although this appears to involve a mechanistic approach, I have given consideration to the individual counts and to whether they should be treated differently. In my view, treating each count in the same way best reflects the type of offending conduct and the relatively continuous nature of the offending.
Treating the counts in this way gives a total effective sentence of 22 months’ imprisonment.
Although I am not required to do so, I indicate that in the absence of your plea of guilty to the charges, I would have sentenced you to 30 months’ imprisonment on each count with a total effective sentence of 37 months (three years and one month).
I further order that you be released after eight months on a recognizance release order in the sum of $500 without surety to be of good behaviour for a period of 12 months.
In making the recognizance release order I have taken into account the crushing effect that imprisonment will have on you, given your personal circumstances and, in particular, your psychological vulnerability and the worry that will attend your wife’s pregnancy and the birth of your child. I have taken into account that you will miss the birth of your child. I have also taken into account your previous good character, the steps you have taken to rehabilitate yourself and your excellent rehabilitation prospects overall, as well as the strong family support that you enjoy. Given your particular circumstances, I consider eight months in custody represents an adequate punishment for the offences that you have committed.
I am required by the relevant legislation to explain this sentence to you.[5] The purpose of the sentence is to reflect the gravity of the offence, but also to spare you the need to spend the whole sentence in prison.
[5]Crimes Act 1914 (Cth), s 16F(2).
You will go to prison and serve eight months. Thereafter, in March 2015, you will be released. If you are of good behaviour over the ensuing 12 months, that will be the end of your sentence. If you are not of good behaviour, you will be brought back to court and, depending on the nature and seriousness of your transgression, the court may impose a fine of up to $1,000; extend the period of good behaviour; impose a different penalty; revoke the recognizance release order and send you back to prison for the balance of your sentence; or take no action. Application can be made to this Court to discharge the recognizance or for a variation of its terms.
Schedule A
| Charge on Indictment | Conduct | Offence | Maximum | Sentence | Cumulation |
| 1 | On 7 days between 18 and 31 May 2010, the defendant placed buy and sell orders on behalf of VISIF and VISIFH which matched with orders he placed through his own personal account. Profit: 63,236.32 AUD | Improper use of position as an employee of a responsible entity of a registered scheme contrary to subsection 601FE(4) and subsection 1311(1) of the Corporations Act 2001 (Cth) | 5 years' imprisonment and/or fine of 2000 penalty units [Corporations Act (Cth) s 1311 and Schedule 3] | 15 months | Sentence to commence: 4 July 2014 |
| 2 | On 2 June and 9 June 2010, the defendant placed buy and sell orders on behalf of VISIF which matched with orders he placed through his own personal account. Profit: 18,766.74 AUD | As above | As above | 15 months | Sentence to commence: 4 August 2014 |
| 3 | On 8 days between 14 and 30 July 2010, the defendant placed buy and sell orders on behalf of VISIF and VISIFH which matched with orders he placed through his own personal account. Profit: 69,533.5 AUD | As above | As above | 15 months | Sentence to commence: 4 September 2014 |
| 4 | On 10 days between 10 and 31 August 2010, the defendant placed buy and sell orders on behalf of VISIF which matched with orders he placed through his own personal account. Profit: 87,532.76 AUD | As above | As above | 15 months | Sentence to commence: 4 October 2014 |
| 5 | On 13 days between 1 and 29 September 2010, the defendant placed buy and sell orders on behalf of VISIF which matched with order he placed through his own personal account. Profit: 108,978.84 | As above | As above | 15 months | Sentence to commence: 4 November 2014 |
| 6 | On 10 days between 5 and 29 October 2010, the defendant placed buy and sell orders on behalf of VISIF which matched with orders he placed through his own personal account. Profit: 106,763.6 AUD | As above | As above | 15 months | Sentence to commence: 4 December 2014 |
| 7 | On 10 days between 3 and 29 November 2010, the defendant placed buy and sell orders on behalf of VISIF and VISIFH which matched with orders he placed through his own personal. Profit: 117,149.93 AUD | As above | As above | 15 months | Sentence to commence: 4 January 2015 |
| 8 | On 1 and 6 December 2010, the defendant placed buy and sell orders on behalf of VISIF and VISIFH which matched with orders he placed through his own personal account. Profit: 64,214.34 AUD | As above | As above | 15 months | Sentence to commence: 4 February 2015 |
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