YFFM and Australian Securities and Investment Commission
[2010] AATA 340
•7 May 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 340
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/0595
GENERAL ADMINISTRATIVE DIVISION ) Re YFFM Applicant
And
Australian Securities and Investment Commission
Respondent
DECISION
Tribunal Mr S Penglis, Senior Member Date7 May 2010
PlacePerth
Decision 1. The reviewable decision of the respondent dated 4 February 2009 is affirmed.
2. Subject to any order to the contrary being made within 10 days from the date hereof, the Tribunal’s orders made on 6 March 2009 shall stand revoked.
.....(sgd) Mr S Penglis...........
Senior Member
CATCHWORDS
Corporations law – banning order – alleged contravention of the “insider trading” provisions of the Corporations Act – applicant banned for 5 years – decision affirmed – turns on its own facts
Legislation
Corporations Act 2001 sections 920A, 920B and section 1043A
Cases
Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35
Briginshaw v Briginshaw (1938) 60 CLR 336
Dollas-Ford and Australian Securities and Investments Commission [2006] AATA 835
R v Hannes (2000) 36 ACSR 72
YFFM and Australian Securities and Investments Commission [2009] AATA 409
YFFM and Australian Securities and Investments Commission [2009] AATA 489
REASONS FOR DECISION
7 May 2010 Mr S Penglis, Senior Member 1. The applicant is an “authorised representative” within the meaning of the Corporations Act 2001 and has worked in that capacity since 1997.
2. On 4 February 2009, a delegate of the respondent made an order pursuant to sections 920A and 920B of the Corporations Act prohibiting the applicant from providing any financial services for a period of 5 years.
3. The applicant seeks to have this Tribunal review and set aside that decision.
The Reviewable Decision
4. By letter dated 7 August 2008, a delegate of the respondent wrote to the applicant advising of the delegate’s concern “that as a result of your conduct between 19 July 2006 and 9 August 2006
· you may not have complied with a financial services law …
· ASIC has reason to believe that you will not comply with a financial services law …”.
5. The letter noted that the delegate had been appointed “to decide what, if any, action should be taken against you arising out of these concerns, and specifically, whether a banning order should be made against you under section 920A of the Act”.
6. The letter offered the applicant an opportunity of a hearing pursuant to section 920A (2) of the Corporations Act before the delegate made her decision.
7. Provided with the letter were “areas of concern” and a list of the documents upon which those concerns were said to be based.
8. Numbered paragraphs 5, 6, 7 and 8 of the “areas of concern” provided as follows:
“5.On 12 July 2006, VSL (being Vision Systems Limited, a public company whose ordinary shares were listed on the Australian Stock Exchange) signed a confidentiality agreement with a company incorporated in the United States of America by the name of Ventana Medical Systems Inc (Ventana). The agreement was entered into for the purpose of assisting Ventana conduct due diligence on the VSL Group in relation to a potential offer by Ventana or a related body corporate of Ventana to acquire 100% ownership and control of the VSL Group. In the event that Ventana satisfactorily completed its due diligence the proposed merger price was $2.55 per VSL share adjusted for any capital return on distribution.
6.A general meeting of VSL’s shareholders on 14 July 2006 approved a capital return of 40 cents per share.
7.The confidentiality agreement provided for a six week exclusivity period”.
8.By reason of the matters in paragraphs 5 to 7, it was likely there would be a
merger/takeover proposal for VSL at a price of about $2.15 per share before 23
August 2006 (the Information)”.
9. The “areas of concern” went on to state that the Information was not generally available until, at the earliest, 10 August 2006 (when Vision Systems Limited (“VSL”) issued an ASX market release announcing a trading halt), that if the Information were generally available, a reasonable person would expect it to have a material effect on the price of shares in VSL and that, as a consequence, the Information was “inside information” within the meaning of section 1042A of the Corporations Act.
10. The “areas of concern” then particularised a number of telephone conversations between the applicant and various third parties (most of whom were client’s of the applicant) between 19 July 2006 and 8 August 2006 in the following terms:
“ 19.1 On 19 July 2006:
(a) you said to Mr Jefferies:
“…there could possibly be a takeover or something in the future…”
(b) you said to Mr Neilsen:
“… there’s a rumour that it’s going to be taken over… the price is gong to be about $2.20…”; and
“…Something’s going to happen here, I’m fairly, you know, certain…”
19.2 On 24 July 2006 you said to Dr Porter:
“… I’m purely on takeover speculation here…”;
And in response to his question “you think someone is going to take it over?” you replied “I think so yeah… I do believe they are going to be taken over”
19.3 On 25 July 2006:
(a) after Mr Neilsen referred to AMP selling a couple of million VSL shares and asking “surely they’d know a bit?” you said:
“… not necessarily…they wouldn’t be aware … that’s just them re-weighting `portfolios or whatever … just because they’re a fund manager doesn’t mean they know what’s going on … I know yeah well, there’s this, it’s this consolidation that I was talking about … it’s all gonna start … don’t worry about it …”
(b) you said to Mr Langsford:
“… there is a rumour there is going to be a takeover for them… the price is going to be $2.20 … I don’t think that the rumour is well established… “
19.4On 28 July 2006,after Mr Neilsen asked “I hope the Vision’s gonna come through nice … when did you say a couple of weeks now?” you said:
“… it should be a couple of weeks now, should be a couple…”
19.5On 2 August 2006, after Mr Neilsen asked “… those VSL shares… you’re pretty confident with them are you?” you said:
“Yeah, I am.”
Later that same day Mr Neilsen asked “… what about this Vision thing. Is it going to get going?” You said:
“Yes, yeah, yeah, yeah, … I spoke to my contact today … and he says very close Rob.”
19.6 On 4 August 2006:
(a) you said to Mr Langsford:
“… my understanding is it’s about two weeks away now… my mail is pretty good… they’re telling me that it’s not too far away…”
(b) you said to Mr Moschilla:
“… there is a stock you could buy, I believe the rumours are it’s gonna be taken over… rumour is it’s gonna be taken over…”
And in response to his question “is that from a good source do you reckon?” you replied “pretty good I think Jerry but one can never be a hundred percent sure.”
(c) you said to Mr Hughes:
“… there’s rumour around about this company of a possible takeover… ‘cause you know the rumours are around that there’s going to be a takeover bid, and if that’s true, then you know the story is the price is gonna be about $2.20…”
19.7 On 7 August 2006 you said to Mrs Jefferies:
“… there’s a little rumour going around that there might be a takeover… There is, as I said, talk of a takeover…”
19.8 On 8 August 2006:
(a) you said to Dr Porter:
“… I think ‘cause it’s gonna be taken over I reckon”;
And in response to his question “so people are getting wind of it?” you replied “I think so yeah…”
(b)in response to a question from Dr Moschilla “what shall we do, hold or…?” you replied “ …hang on mate yeah hang on… “
(c) you said to Mr Hughes:
“it’s had a pretty good run but … as I said to you I think you know there’s rumours that it’s gonna be taken over … I’d say something big’s going on …”
(d) you said to Ms Cocks:
“… there’s rumours there’s going to be a takeover…”
(e) you said to Mark McKenzie:
“… there’s gonna be a takeover … $2.20.”
19.9 On 9 August 2006:
(a) you said to Mrs Jefferies:
“… the rumour is, there’s going to be a takeover…”
(b) you said to Mr Neilsen;
“… definitely something’s going on there…”
(c) you said to Dr Moschilla:
“…something’s gonna go on there mate…just steady as she goes…just hold on, hold on don’t panic…”
20. Between 19 July 2006 and 9 August 2006, there were no rumours of a merger or takeover of VSL.
21.On 18 July 2006 you had emailed Rocco Tassone, a client adviser of Bell Potter Securities Limited, asking for research on VSL. He replied “Hahaha, only 2004 last note on it sorry”.
22.On 18 July 2006 you also emailed Troy Valentine, a stockbroker for Patersons Securities Limited, asking if he had any research on VSL. He was unable to send you any research that day.
23.On 8 August 2006 you asked Mark McKenzie to email you a copy of the Austock Equities Research September quarter report for VSL for “a bit of protection”. …”
11. The “areas of concern” then identified three “concerns” as follows:
· the applicant may have failed to comply with section 1043A(1), which is a financial services law within the meaning of section 761A of the Corporations Act, in that it appeared that the applicant had procured another person to acquire shares in VSL while in possession of inside information (Concern 1); and that
· the applicant may have failed to comply with section 1043A(2), which is a financial services law within the meaning of section 761A of the Corporations Act, in that it appeared that the applicant communicated inside information to another person knowing that the other person would be likely to acquire VSL shares (Concern 2);
· by reason of the Concern 1 and Concern 2 the respondent may have reason to believe that the applicant will not comply with a financial services law in the future within the meaning of section 920A(1)(f) (Concern 3).
12. As a result of preliminary submissions made on behalf of the applicant, the delegate decided to excise Concern 3 from the “areas of concern” and “relisted the matter for hearing on 17 December 2008 to enable (the applicant) to present evidence and submissions on the remaining substantive matters”. A statement of reasons for the order notes that the applicant “decided to proceed by way of written submissions only”.
13. The delegate reviewed the evidence before her and concluded that she was “satisfied that the only inference that can be drawn from (the applicant’s) telephone conversations between 19 July 2006 and 9 August 2006 and the preceding emails is that (the applicant) knew that there would be a likely merger/takeover proposal for VSL at the price of about $2.20 by mid-August at the latest”, that “$2.20 is “about” $2.15” and that therefore the applicant possessed the Information.
14. The delegate went on to consider various of the lawfully recorded telephone conversations between the applicant and third parties and in each case concluded that she had “no doubt that (the applicant) said these words to induce and encourage (the relevant third party) to acquire shares in VSL”.
15. The delegate also concluded that the applicant “knew or ought reasonably to have known that the Information was not generally available and if it were generally available, a reasonable person would expect it to have a material effect on the price of VSL shares”.
16. As it was common cause that the shares in VSL are relevant Division 3 financial products within the meaning of the definition in section 1042A, the delegate concluded that the applicant had failed to comply with section 1043A(1) of the Corporations Act. “Concern 1” was therefore upheld.
17. The delegate also upheld “Concern 2”. Again the delegate referred to various lawfully recorded telephone conversations between the applicant and third parties and concluded that, by those conversations, the applicant had communicated inside information to the clients knowing that they would be likely to acquire VSL shares contrary to section 1043A(2) of the Corporations Act.
18. The delegate then went on to consider the proper exercise of the discretion whether to impose a banning order and, if so, its duration. The delegate did so in the following terms:
“ 83. In Re Felden and ASIC (2003) 73 ALD 149, the Administrative Appeals Tribunal said, at (399), the primary consideration to which the Tribunal must have regard in determining whether to impose a banning order and, if so, its duration, is the need to maintain the confidence of investors and to encourage participation in the securities industry,
84. While the purpose of a banning order is not to punish the subject of the order but to protect the public, the High Court in Rich v Australian Securities and Investments Commission (2004) 78 ALJR 1354 recognises that disqualification provisions also have the objectives of personal and general deterrence.
85.General deterrence is a particularly important consideration in relation to insider trading. Insider trading undermines the efficacy and integrity of the market in public securities: R v Hannes [2002] 173 FLR 1. Insider trading is difficult to detect and investigate. There is a need to discourage illegal and unethical behaviour among those who have a close connection to the stock market.
86.(The applicant) is 44 years old, He graduated with an honours degree in economics at the end of 1996. He has worked in the financial services industry since April 1997. He is currently employed as an authorised representative by (X) Pty Ltd. He has a previously unblemished record. Numerous referees attest to his exemplary character, integrity, history of public service and unblemished record. The allegations of insider trading are described by the referees as totally out of character.
87.The conduct which I have found established against (the applicant) is not a particularly bad case of insider trading. It took place over a short period of time. (The applicant) himself did not profit.
88.I note that (the applicant) has previously offered an enforceable undertaking under s93AA of the Australian Security and Investments Commission Act 2001 which has been rejected.
89Balancing the considerations, I am satisfied that the public interest considerations outweigh the personal hardship to the applicant and that the imposition of a banning order is warranted. A banning order will give the public confidence that there are consequences for a person who fails to comply with financial services law. Also, it is important that others in the financial services industry know that action may be taken against them if they fail to comply.
90.ASIC has published Regulatory Guide 98: Licensing: Administrative action against financial services providers I (RG 98). In my view, the conduct which I have found established falls in the banning from 3-10 years category in Table 2 of RG 98. Taking into account the applicant’s personal circumstances and the circumstances of the offending, the banning period should be at the lower end of the middle range.
91.I have considered whether I should include in the banning order a provision allowing (the applicant) to provide financial services under his current authorisation from (X) Pty Ltd subject to the proposed conditions. have decided not to do so. Conditions (a) to (c) appear to add little, if anything, to what is expected of a financial services licensee and its authorised representative. Other conditions would require regular monitoring by ASIC, which is not appropriate. Failure to give full effect to the banning order is the circumstances would erode public confidence in the efficacy of banning orders.
92.I am satisfied that in all circumstances, a banning order prohibiting (the applicant) fro providing any financial services for a period of five years is justified.”
The Corporations Act
19. As has been noted, the reviewable decision is dated 4 February 2009 and is to prohibit the applicant from providing any financial services for a period of 5 years pursuant to sections 920A(1) and 920B(2) of the Corporations Act. The basis for the decision was a finding that the applicant had contravened sub-sections 1043A(1)and (2) of the Corporations Act.
20. Section 1043A (1) of the Corporations Act relevantly prohibits a person who possesses “inside information” and who knows or ought reasonably to know that the information is not generally available and that if the information were generally available a reasonable person would expect it to have a material effect on the price or value of shares, from (amongst other things) procuring another person to acquire those shares.
21. Section 1043A(2) of the Corporations Act relevantly prohibits a person who possesses “inside information” and who knows and ought reasonably to know that the information is not generally available and that if the information were generally available a reasonable person ought expect it to have a material effect on the price or value of shares and the shares are able to be traded on a financial market in Australia, from (amongst other things) directly or indirectly communicating the information to another person if he knows or ought reasonably to know that the other person was likely to acquire such shares.
22. A contravention of either section 1043A(1) or (2) of the Corporations Act is a criminal offence.
The Evidence
23. The applicant adduced no evidence other than in support of submissions as to penalty. It was common cause before the Tribunal that the respondent had referred the matter to the Commonwealth Director of Public Prosecutions and that, as of the date of the hearing, no decision had been made by the Director as to whether or not charges ought be laid against the applicant. Accordingly, in not giving evidence before the Tribunal, the applicant was exercising his undoubted right not to say or do anything that may incriminate himself. Of course, no inference adverse to the applicant can be drawn as a result of the applicant availing himself of the privilege against self incrimination (and nor did the respondent suggest otherwise).
24. In this context I consider it appropriate to repeat what is said at [55] of my interlocutory decision in this matter ([2009] AATA 489), namely:
“It is, of course, a trite proposition that the Evidence Act, 1995 (Cth) does not apply to proceedings before the Tribunal. Accordingly, section 128 of the Evidence Act, which is designed to protect the evidence given in proceedings to which the Act applies from being used against the person giving the evidence in subsequent criminal proceedings where the person would otherwise be able to invoke the privilege against self-incrimination, does not apply to evidence given in this Tribunal. I note that although similar provisions exist in at least some State equivalents of this Tribunal (see, for example, s68 of the State Administrative Appeals Tribunals Act, 2004 (WA), the AAT Act contains no such provision”.
25. The evidence relied upon by the respondent was entirely documentary, and included the following transcripts of lawfully recorded telephone conversations between the applicant and various other persons.
Mr Jefferies
26. On 19 July 2006, the applicant had a telephone conversation with Mr Jefferies in which, amongst other things, the following was said:
“Applicant: Aah, look I’ve had a few hearing people rumours about a company called … Vision Systems. The code’s VSL
Jefferies: I do have a bit of trouble hearing
Applicant: Oh, I’ve had a couple of people ring up about a company called Vision Systems: VSL
Jefferies: Yeah?
Applicant: Yeah they just… they did… they’ve gone ex to capital return a few days ago but, you know, a few people have rung up and said that um, they’re hearing that um, there could possibly be a takeover or something in the future. I mean I don’t, I don’t know, they don’t look too bad… but they’re about a $1.49, they could be worth a punt if ya wanna.
Jefferies: If I wanna have a punt?
Applicant:Yeah, if you wanna have a punt, you don’t have to but, you know
Jefferies: Yeah
Applicant: Otherwise umm, that’s about it really everything’s (UNCLEAR) as she goes we just see what happens
Jefferies: Yeah I’ll watch the Vision Systems
Applicant:Yeah have a look, V for Victor”.
27. On 7 August 2006 Mr Jefferies instructed the applicant to buy 2000 VSL shares at $1.58. On 15 August 2006 Mr Jefferies instructed the applicant to sell the 2000 VSL shares at $2.11.
Mr Neilsen
28. Also on 19 July 2006, the applicant telephoned his client, Mr Neilsen. For some reason they got cut off and Mr Neilsen returned the applicant’s call. They then had a conversation in which, amongst other things the following was said:
“Applicant: Oh, no, that, that’s all right. Um, I know you don’t have money…but I want you to ah, even if you do this, you know, er, (UNCLEAR), I’ve got a company called Vision Systems
Neilsen: Aha..
Applicant: VSL
Neilsen: I’ve sought of watched it a bit.. Vision, yeah
Applicant: Yep
Neilsen: Is it VIS is it?
Applicant: VSL... “V” is for Victor, “S” is for Sam and “L” for Larry
Neilsen: Aha
Applicant: Okay? My.. I’ve had a few people ring up in the last couple of days, apparently there’s a rumour that it’s going to be taken over..
Neilsen: Okay
Applicant: All right? And the price if going to be about $2.20. They’ve just had the capital return of about 40cents, all right, so..
Neilsen: So it’s pretty good..
Applicant: Yeah so um, you know but, they’ve been around a while; they’ve got money and stuff so.. might be worth aah..
Neilsen: Having a little punt of it
Applicant: Yeah
Neilsen: Okay, I’ll check that out..
Applicant: All right
Neilsen: Thanks for that…
Applicant: Okay and I got those shares.. it was 8,000 wasn’t it?
Neilsen: Yep, that’s right, two lots of four or whatever (UNCLEAR) good
Applicant: Done.. no worries
Neilsen: Great, thanks for that.. I’ll, I’ll, umm, organise a cheque umm…
Applicant: No, no problem, yeah no worries at all. See ya Flemming..
Neilsen: Okay bye …”
29. Mr Neilsen placed buy orders with the applicant for 20,000 VSL shares on 19 July, for 50,000 VSL shares on 20 July and for 40,000 VSL shares on 24 July.
30. On 25 July 2006, the applicant and Mr Neilsen had a further telephone conversation, (Mr Neilsen calling the applicant) in which the following was said:
“Applicant: Flemming, how you going?
Neilsen: Good thanks. Got my email there?
Applicant:Umm
Neilsen: About VSL, I just, just errr.. AMP’s sold off a couple of million of them I was a bit surprised
Applicant: Umm
Neilsen: Surely they’d know a bit?
Applicant: Well not necessarily
Neilsen: Cos, that’s why, I was wondering why it was quite easy to get a hold of this stuff
Applicant: Yeah, I wouldn’t , I wouldn’t worry about that.. I don’t think it’s got anything to do with..
Neilsen: Okay
Applicant: I mean.. they wouldn’t be aware so.. that’s just them re-waiting for the folio’s or whatever
Neilsen: Yeah nah, I just I just thought oh well.. they obviously don’t have any idea
Applicant: Nah they don’t, I mean jut because they’re a fund manage doesn’t mean they know what’s going on
Neilsen: I thought, I thought that’s what they try and tell us
Applicant: That’s what they try and tell us but, you know, that why they you know, um, when they bought Iron Ore Holden’s, they um, they sold it he first day you know? And they bought $500 grands worth.. so they don’t know what’s going on
Neilsen: Yeah. Okay I see the Iron Ore companies are taking a bit of a pull together eh?
Applicant: Yeah I know yeah well, there’s, this, its this consolidation that I was talking about..
Neilsen: Yeah
Applicant: Its all gonna start..
Neilsen: Well I hope it brings in out one as well
Applicant: Yeah it will
Neilsen: And ah, at least as a better price though,
Applicant: Yeah it will
Neilsen: It’s a bit weak at the moment
Applicant: Yeah I know it looks shit, but don’t worry about it
Neilsen: ok good.. I won’t worry
Applicant: Good onya Flemming
Neilsen: Thanks…
Applicant: Bye
Neilsen: Bye …”
31. On 26 July Mr Neilsen placed with the applicant a further order for 60,000 VSL shares.
32 On 28 July a further telephone conversation took place between the applicant and Mr Neilsen, again Mr Neilsen calling the applicant. After discussing other stock, the conversation turned to VSL shares as follows
“Neilsen: I hope the Vision’s gonna come through nice, did you, when, when did you say a couple of weeks now
Applicant: It should be a couple of weeks now, should be a couple so
Neilsen: okay so we’ll see how that goes, ‘cause it’s been I mean it’s been rock steady
Applicant: It has, the fact that AMP are out, and it’s still moving
Neilsen: Yeah I know, but uh
Applicant: (UNCLEAR) absorbed it
Neilsen: Yeah it is absorbing it which is very good
Applicant: Yes
Neilsen: ‘Cause normally when the big interests go they can push the price down a bit
Applicant: Exactly
Neilsen: Yep okay, great thanks …”
33. On 2 August the applicant called Mr Neilsen. After discussing other matters, the conversation turned to VSL shares in the following terms
“Neilsen: listen, those VSL shares
Neilsen: You’re pretty confident with them are you?
Applicant: Yeah, yeah I am… “
34. Later that day Mr Neilsen telephoned the applicant. After dealing with shares in another company, the conversation turned to VSL shares in the following terms
“Neilsen: Great thanks… and what about this Vision thing is it going to get going?
Applicant: Yes, yeah yeah yeah … it’s a, I spoke to my contact today
Neilsen: And he’s still happy?
Applicant: and he says “very close”…
Neilsen: Great, okay because it just looks very weak
Applicant: I know, but then, you know
Neilsen: it’s always too good beforehand because people can’t fiddle
Applicant: exactly…”
35. On 4 August Mr Neilsen placed with the applicant a further order for 30,000 VSL shares.
36. That trade was preceded by a telephone call that same day which the applicant placed to Mr Neilsen in the following terms
“Neilsen: Hi Flemming here
Applicant: the applicant here Flemming
Neilsen: I’m good thanks just in between patients at the moment..
Applicant: Oh okay
Neilsen: How, how’s the market going?
Applicant: Oh it’s down 42,
Neilsen: Ooh
Applicant: But we’ve started to get some movement now in VSL it’s 154.55
Neilsen: Wow, that’s a bit of a jump
Applicant: Yeah and the volumes ah, about 170,000 so..
Neilsen: (UNCLEAR)
Applicant: Yeah you’re got 100 and.. whatever it is.. 70,000 odd-thousand so..
Neilsen: What did they open at today?
Applicant: 149..
Neilsen: 149..
Applicant: from 156
Neilsen: Why don’t you .. give me another 30,000 will ya …?
Applicant: All right
Neilsen: Okay
Applicant: Okay
Neilsen: Might as well, I trust you …
Applicant: Yeah oh, well thanks Flemming, I know you do, but I wasn’t really telling ya to buy more..
Neilsen: No, no, I was waiting to see which way it would go and obviously it got a bit more of a movement I noticed it seemed to be a drop and then suddenly something has happened and it seems to have started moving again
Applicant: Yeah.. all right
Neilsen: Thank you, have a good day
Applicant: You too mate
Neilsen: Bye
Applicant: Bye …”
37. The final conversation in evidence between the applicant and Mr Neilsen was on 9 August 2006. Insofar as it concerns VSL shares, it was in the following terms
“Applicant: VSL hit 170 yesterday
Neilsen: Yep
Applicant: Is going to open about 162.5 today
Neilsen: So it’s just weakened off a bit
Applicant: Yeah but I mean ah definitely something’s going on there so…
Neilsen: Yeah, I hope so, it would be a good one to (UNCLEAR) ….”
Dr Porter
38. On 24 July 2006, Dr Porter telephoned the applicant. During a lengthy conversation, the following exchange occurred with respect to VSL:
“Porter:... I had a little look at Vision
Applicant: Yep
Porter: Um, I assume that there was this capital return but we have missed that have we?
Applicant: Yeah, you have yeah, I’m purely on takeover speculation here
Porter: Right
Applicant: Purely on takeover speculation
Porter: Isn’t that just going to fall by a whole lot when they give the capital management back?
Applicant: Well it’s already, it’s already gone
Porter: Oh okay
Applicant: It’s already gone XEX the capital return
Porter: Oh I see
Applicant: Yeah
Porter: So it sold down did it?
Applicant: Yeah, that’s, that’s already happened
Porter - Okay
Applicant: Happened on the 14 July
Porter: And you think someone is going to take it over?
Applicant: I think so yeah
Porter: Okay
Applicant: So that’s the only reason why I’m saying that one and I think downside is limited …”
39. Later in the conversation the applicant again said “I do believe they are going to be taken over”.
40. Later that day Dr Porter (with another) placed with the applicant an order for 30,000 VSL shares.
41. On 8 August the applicant and Dr Porter spoke again, Dr Porter ringing the applicant. The conversation covered various stocks. Insofar as it related to VSL it was in the following terms
“Applicant: …That Vision systems has started to move…
Porter: Oh yeah I saw that, is there any reason for that
Applicant: Well I think ‘cause it’s going to be taken over I reckon
Porter: So people are getting wind of it?
Applicant: Yeah I think so yeah that is all good cause it means if it is, whoever’s thinking of doing it better hurry up and do it, you know…”
Mr Langsford
42. On 25 July 2006 the applicant telephoned Mr Langsford. After discussing the market generally and another stock, the conversation turned to VSL in the following terms
“Applicant: So now, there is a company called Vision Systems, code’s VSL,
Langsford: VSL yeah
Applicant: They make money, pay dividends, divvy’s about 3.2%, just recently they did a capital return, I mean if went ex on the 14th of July, the capital return is 40 cents a share
Langsford: Wow
Applicant: Which is pretty good
Langsford: Very good
Applicant: Now the thing about it is though, there is a rumour there is going to be a takeover for them
Langsford: Uh huh
Applicant: The price is going to be $2.20
Langsford: Righteo, what are they trading at now
Applicant: $1.48, $1.48 and a half, downside’s about a $1.54 the other day
Langsford: Yeah
Applicant: you know, so the actual is not a bad price but I don’t think that downside is that….
Langsford: Mm
Applicant: Also I don’t think that, I don’t think that the rumour is well established, right, so, um. It could be worth a punt
Langsford: Yeah VSL alright
Applicant: Yeah
Langsford: I’d probably have to, right now I’d have to sell something…. To er
Applicant: get in…”
43. A further conversation occurred on 4 August. The applicant telephoned My Langsford and asked “shall we have a crack at these Vision Systems?”. During the conversation the applicant said “how I would play at this stage, play this cause I don’t really … my understanding is it’s about two weeks away now … right?”
44. Later in the conversation the following exchange took place:
“Applicant: I …. my mail is pretty good
Langsford: Yeah all right
Applicant: They’re telling me that it’s not too far away so….
Langsford: Okay, excellent…”
45. That day Mr Langsford placed with the applicant an order to buy 10,000 VSL shares.
Dr Moschilla
46. On 4 August 2006 the applicant telephoned Dr Moschilla and, after exchanging pleasantries, the following exchange occurred:
“Applicant: Ah, there is a stock you could buy, I believe the rumours are it’s gonna be taken over
Moschilla: Ok, what’s that?
Applicant: It’s called Vision Systems
Moschilla: Vision, oh that sounds like another sort of medical company
Applicant: Ah well they’re, there are, they do um, they supply medical and fire equipment, security products
Moschilla: Right
Applicant: The make money, they pay dividends, they just did a 40 cent capital return not very long ago
Moschilla: Yep
Applicant: Rumour is it’s gonna be taken over
Moschilla: Yeah
Applicant: Um, they’re 155, 156
Moschilla: Is that from a good source do you reckon?
Applicant: Pretty good I think Jerry but one can never be 100% sure
Moschilla: Never be sure…”
47. On that day Dr Moschilla placed with the applicant a buy order for 6400 VSL shares.
48. On 8 August the applicant telephoned Dr Moschilla to advise him that VSL shares were at $1.70. The applicant told Dr Moschilla “I think something’s going on” and to “hang on” when asked whether to hold the shares.
49. The applicant and Dr Moschilla spoke again on 9 August. The applicant told Dr Moschilla “that VSL is still going well, 1.65”. When Dr Moschilla asked whether “just hold on to them?” the applicant told Dr Moschilla “Something is gonna go on there mate…just steady as she goes… hold on don’t panic”.
Mrs Jefferies
50. On 7 August 2006 the applicant received a telephone call from Mr Jefferies. Mr Jefferies put his wife on the phone, who had a conversation with the applicant in which Mrs Jefferies said she hadn’t heard “what you said to Phil, so I’m sorry, I don’t know” to which the applicant said “Oh I just got … there’s just a little company, there’s a little rumour going around that there might be a takeover that’s all … that’s all it is, you know they’ve had a bit of a … they’ve picked up pretty strongly today, they drift back a bit, but they still don’t look too bad, so I mean, you could say, ah, it’s a punt, nothing more nothing less”.
51. A further conversation took place between Mrs Jefferies and the applicant on 9 August in which the applicant said “The rumour is there’s going to be a takeover, you know, so that’s basically that. So if you wanna, I mean if you wanna, buy a couple of thousand”. Notwithstanding, Mrs Jefferies did not purchase and VSL shares.
Mr Hughes
52. Mr Hughes is the son of Mr & Mrs Jefferies.
53. During a lengthy telephone conversation between Mr Hughes and the applicant, the applicant said to Mr Hughes “now I want you to have a look at a stock … it’s called Vision Systems”. The applicant said “have a look at it. Um, there’s rumours around about this company of a possible takeover … so it’s a punt ok …make no mistake about that, alright”.
54. The applicant also said “it’s a solid little company but just have a look have a read, you know you might want to have a 10 grand punt on it … ‘cause you know the rumours are around that there’s going to be a takeover bid, and if that’s true then you know the story is the price is gonna be around $2.20”.
55. On 8 August Mr Hughes telephoned the applicant to discuss various matters. During the conversation the applicant raised the topic of VSL by stating “that Vision Systems I told you about it starting to creep up as well”. In response to observations made by Mr Hughes, the applicant said “you know so it’s had a pretty good run, but um you know as I said to you I think you know there’s rumours that it’s gonna be taken over so that’s what I think um is pushing it, and then the volume was pretty big yesterday so… yeah, the volume yesterday was quite big so time will tell whether you know, whether there’s any truth behind you know what I mean”.
56. Later in the conversation the applicant said “I’d say something big’s going on but one can never be 100% sure but it looks pretty good …”.
57. Mr Hughes did not purchase any VSL shares.
Mr McKenzie
58. On 8 August 2006, the applicant had a telephone conversation with another stockbroker, Mr McKenzie. The applicant was returning a call Mr McKenzie had left on the answering machine of one of the applicant’s work colleagues. After informing Mr McKenzie that his colleague was away for a week, the following conversation took place
“Applicant: At the wineries
McKenzie: … look I was just uh touching base and um saying um, yeah Vision looks very good, at the moment
Applicant: Yeah oh did he give you that did he
McKenzie: Yeah well un I, I stock also (illegible)
Applicant: Do they?
McKenzie: Yeah um, I’ve got their reports, it’s in their uh September Quarterly
Applicant: Oh okay
McKenzie: But this is when the price was at a dollar ninety three, but obviously they did a capital return of 40 odd cents
Applicant: Yeah
McKenzie: They’ve got a, 12 month over 2.10 on it
Applicant: Yeah well
McKenzie: It could be three dollars a share in 18 months, but um
Applicant: There’s gonna be a take over
McKenzie: Yeah so well that’s what I’m also hearing so uh
Applicant: $2.20
McKenzie: Oh right…”
Issue for Determination
59. The issue for determination is whether, based on the evidence adduced at the hearing of the application, I am satisfied that the applicant has contravened section 1043A of the Corporations Act.
60. Having regard to the serious nature of the allegations made against the applicant (i.e. contravention of the Corporations Act) and the serious consequences which would flow from a finding of contravention (i.e. the making of a banning order), the decision of the High Court of Australia in Briginshawv Briginshaw (1938) 60 CLR 336 requires a very high level of satisfaction before such findings may be made.
61. Does the evidence establish that the applicant knew “it was likely there would be a merger/takeover proposal for VSL”?
62. It is clear that the applicant possessed information that caused him to inform clients and others that a takeover proposal for VSL was likely. The evidence clearly establishes, and the applicant did not seriously contend to the contrary, that the applicant had received and communicated information about a prospective takeover proposal for VSL. I so find. In this regard, the applicant’s case was that the Tribunal could not fairly discount the possibility that such information was of a speculative nature based on market rumours and that therefore the Tribunal ought not find as a fact that the applicant in fact knew “it was likely that there would be a merger/takeover proposal”. I will return to consider this issue later.
63. The second matter considered is whether the facts establish that the applicant knew that the likely takeover proposal for VSL would be “at a price about $2.15 per share”.
64. In his telephone conversations with Mr Neilsen on 19 July 2006, with Mr Langsford on 25 July 2006, with Mr Hughes on 4 August 2006 and with Mr McKenzie on 8 August 2006 the applicant said that the price is going to be (or be about) about $2.20.
65. I find that $2.20 is “about $2.15” and therefore finds that the applicant knew that the takeover price would be $2.20 and that this is “about $2.15” per share.
66. The third matter to consider was whether the applicant knew that the takeover would be “before 23 August 2006”.
67. In this regard the following evidence is relevant:
a) On 28 July 2006, the applicant said to Mr Neilsen “…. It should be a couple of weeks now”.
b) On 2 August 2006 the applicant to Mr Neilsen and said he had spoken to his contact that day and that he was told it was “very close”.
c) On 4 August 2006 the applicant said to Mr Langsford “….my understanding is it's about two weeks away now…”
68. There is no evidence to establish that the date of 23 August 2006 was a date known by the applicant. However, it is clear from the above that, as for when the takeover would likely occur, the applicant knew it would be in a period that accorded with the “areas of concern” that had been provided to the applicant by the respondent, namely a date before 23 August 2006.
69. I therefore find that, as for timing of the proposed takeover, the applicant knew it was likely to occur towards the middle of August 2006 (which is before 23 August 2006).
70. In this regard I note that it was submitted on behalf of the applicant that, both with respect to price and timing, the Tribunal was obliged to set aside the decision if it were not satisfied that the exact particularisation of the alleged contraventions was proved by the evidence. In this regard, the applicant relied upon decisions such as R v Hannes (2000) 36 ACSR 72 at [26-29] (per Spiegelman CJ) and Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35 at [503].
71. On behalf of the respondent it was submitted that the authorities deal with criminal law, not administrative law, and are therefore inapplicable. It was also submitted on behalf of the respondent that, in any event, the particulars provided by the respondent to the applicant in this case are in fact made out on the evidence.
72. I consider both of the submissions made on behalf of the respondent to be sound. The decision of the delegate, and now the Tribunal, is of an administrative nature. In such cases the overriding obligation is to ensure that a person in the position of the applicant is afforded natural justice. This is largely done by communicating in advance what is alleged and the evidence to be relied upon. Neither the respondent’s delegate, nor this Tribunal, is bound by the law which has developed with respect to criminal prosecutions concerning the provision of particulars and their binding nature.
73. In any event, I am of the view that the evidence bears out the particulars provided to the applicant in their terms when they are given a fair and sensible construction
74. I therefore turn to consider the applicant’s contention that the Tribunal could not fairly discount the possibility that what the applicant knew was of a speculative nature based on market. In this regard I note that it is true that the applicant often referred to there being a “rumour” of a takeover: see, for example, the applicant’s telephone conversation with Mr Neilsen on 19 July 2006, with Dr Moschilla on 4 August 2006 and with Mrs Jefferies on 7 August 2006 and on 9 August 2006. The applicant referred to it as “purely…..takeover speculation” in his telephone conversation with Dr Porter on 24 July 2006 and as a “punt” in various other telephone conversations.
75. However, other words spoken by the applicant, including in certain of the telephone conversations referred to above, can be explained only by the applicant either lying to those with whom he spoke or the applicant knowing of information above and beyond more “rumour” or “speculation”.
(a)on 24 July 2006, when asked by Dr Porter “you think someone is going to take it over?”, the applicant answered “I think so, yeah “and later said” I do believe they are going to be taken over”;
(b)on 2 August 2006, after Mr Neilsen asked “…..those VSL shares….you’re are pretty confident with them are you?”, the applicant said “Yeah, I am”. The applicant also said “I spoke to my contact today … and he says very close Rob”.
(c)on 4 August 2006, the applicant said to Mr Langsford “…. my understanding is it’s about two weeks away now….my mail is pretty good …. they are telling me that it’s not too far away….”.
(d)on 8 August 2006, the applicant said to Mr McKenzie “there’s gonna be a takeover”.
(e)on 9 August 2006, the applicant said to Mr Neilsen “….definitely something’s going on there….”.
(f)on 9 August 2006, the applicant said to Dr Moschilla “…. Something’s gonna go on there mate….”.
76. Amongst the documents tendered before the Tribunal was a witness statement of Charles Pizzey who was the Company Secretary and Chief Financial Officer for VSL during 2006. Mr Pizzey stated that a proposed merger between Ventana Medical Systems Inc (“Ventana”) and VSL was the subject of a confidentiality agreement between the companies dated 12 July 2006, that it was “highly confidential and market sensitive”, that “in addition to the board members of VSL and Ventana only a limited number of people were aware of the proposal”, that “very few brokers, possibly two or three, covered VSL, because we were a small stock” (one of whom was Craig Stranger), that a proposed merger by way of a scheme of arrangement between Ventana and VSL was not announced until after 10 August 2006 (when a trading halt was placed on the trading of VSL securities) and that:
“I was not aware of any leakage of information concerning the takeover by Ventana or any loss of confidentiality at all prior to the trading halt on 10 August 2006 and the announcement on 14 August 2008 (sic). I heard no rumours or speculation about the transaction within the market before the merger was announced”.
77. No evidence was led by the applicant to establish the existence of market rumour or speculation. Senior Counsel for the applicant did, however, rely upon material before the Tribunal to establish the existence of such rumour or speculation. In particular reliance was placed on the witness statement of Craig Stranger, a lead analyst with the Equities Research Division of Austock Securities Limited (“Austock”) who was one of the analysts who Mr Pizzey referred to as covering VSL.
78. In particular, Senior Counsel relied on the following paragraphs of that statement:
“17.In the June to August 2006 timeframe there was press both domestically and offshore suggesting VSL was a takeover candidate given its large cash balance an exposure to medical diagnostics (considered one of more attractive areas in health – particularly by US investors).
18.Most of the press, some listed below, commenced after the company went into a trading halt on 10 August 2006”.
79. Also in the material before the Tribunal was an email dated 25 March 2009 from Mr Stranger to Mr McCabe of the respondent in the following terms:
“ Michael,
Further to our discussion this morning, below I clarify paragraph 17 in my statement.
I originally believed there was press speculating Vision Systems as a takeover candidate. Upon reflection and a re-read of our reports (one in-depth version attached from March 2006), it was more-so at least 18 months of closely observing progress of the Vision Systems unit that was competing directly against US listed company Ventana. Watchers of Vision Systems had viewed the stock as a potential takeover candidate because amongst other things, Ventana has valued at +4x’s to 10x’s Vision Systems, and Vision also had over $200m net cash post the sale of the Vision Fire and Security unit.
Ventana was seen as a potential acquirer because it had between 50-70% of the market Vision was rapidly moving into.
I attached a number of reports for 18 months prior to August 2006, where Vision was regularly compared to Ventana. As per the report in March 2006 attached “1H’06 – Good top line but earnings some way off” I had a Hold recommendation. I wasn’t convinced Vision Systems was a stock worth buying as earnings disappointed and cashflow general poor.
Hope this clarifies, provides more background.”
80. The Tribunal was also taken to two Austock reports published by Mr Stranger in this regard.
81. Properly analysed, the statement made by Mr Stranger does not establish the existence of market rumour or speculation of a takeover by VSL. Moreover, at its highest, all that what Mr Stranger said is capable of establishing is a high level rumour or market speculation: not the existence of a market rumour or speculation that extended both to the likely price and timing of a takeover.
82. I thus find that the applicant knew information that was patently price sensitive: there being no suggestion on behalf of the applicant – rightly in my view – that such information, if it were more than mere rumour or speculation, did not posses that quality.
83. I therefore find that:
a) the applicant knew it was likely there would be a merger/takeover proposal for VSL at a price of $2.20 (“being quoted price of about $2.15”) and that it occur sometime before 23 August 2006;
b) that information was not generally available until, at the earliest, 10 August 2006 (when VSL issued an ASX market release announcing a trading halt);
c) if that information were generally available, a reasonable person would expect it to have a material effect on the price of VSL shares;
d) the information was thus “inside information” within the meaning of s1043A of the Corporation Act;
e) notwithstanding, and in contravention of sub-section 1043A(1) of the Corporations Act, the applicant procured other persons to acquire shares in VSL whilst in possession of information and before it was publically known, including Mr Jefferies, Mr Neilsen, Dr Porter, Mr Langford and Dr Moschilla, and in contravention of sub-section 1043A(2) of the Corporations Act, the applicant communicated inside information to other persons before it was publicly known and knowing that the other person would be likely to acquire VSL shares, namely Mr Neilsen and Mr Langsford (being the only persons to whom the evidence establishes, and I find as a fact, the applicant communicated all three elements of the inside information as particularised by the respondent to the applicant.
84. Accordingly, the decision made by the respondent’s delegate that the applicant had contravened sub-sections 1043A(1) and (2) of the Corporations Act, must be affirmed.
Whether a Banning Order is warranted and, if so, for what period?
85. It was accepted by the applicant – rightly in my view - that, if I were to conclude that the applicant had contravened section 1043A of the Corporations Act, the public interest required that, a banning order be made. However, it was submitted on behalf of the applicant that the period of the banning order ought be significantly less than the five years ordered by the respondent’s delegate.
86. The principles to be applied when determining whether a banning order should be made and, if so, for what period, were not an issue.
87. The relevant authorities and principles were canvassed by me at length in Dollas-Ford and Australian Securities and Investments Commission (ASIC) [2006] AATA 835. I did so in the following terms:
“17 In determining the period for which to ban the applicant, I consider the following passage of the decision of McHugh J in the decision of Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [43] to be instructive:
‘In exercising their discretion, however, courts which administer the legislation do not concern themselves solely with the issue of whether the defendant now is or in the future will be a fit and proper person to manage corporations. They take into account a wide variety of factors in addition to determining whether any and, if so, what period of disqualification should be imposed. They consider more than the present and future fitness of the defendant to manage corporations. They take into account factors such as the size of any losses suffered by the corporation, its creditors and consumers, legislative objectives of personal hardship and the willingness of the defendant to render assistance to statutory authorities and administrators. No doubt some – maybe all – of these matters are relevant in determining whether the defendant ought to be disqualified or the period of disqualification that is required in order to protect the public. But in practice courts do not use these matters merely as evidentiary indicators of the time when the defendant will, if ever, be fit to manage corporations. Rather, they become part of a synthesis from which the judges make a value judgment concerning whether to order disqualification and, if so, the period of disqualification that should be imposed. It is not the practice of judges to say: “On the evidence, I find that after (say) five years, the defendant will be sufficiently reformed to make it safe for him or her to manage corporations.” This suggests that the disqualification provisions are not purely protective in nature’.
18. The 15 propositions stated by Santow J in Adler, are as follows:
‘1. Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards.
2. The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office.
3. Protection of the public also envisages protection of individuals who deal with companies, including consumers, creditors, shareholders and investors.
4. The banning order is protective against present and future misuse of the corporate structure.
5. The order has a motive of personal deterrence, though it is not punitive.
6. General deterrence is an object of the legislation.
7. In assessing the fitness of an individual to manage a company, it is necessary that the individual have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company.
8. Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty.
9. In assessing an appropriate length of prohibition, consideration is given to the degree of seriousness of the contraventions, the propensity of the defendant to engage in similar conduct in the future and the likely harm that may be caused to the public.
10. It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the defendant’s conduct.
11. A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming.
12. The eight criteria to govern the exercise of the court’s powers of disqualification set out in Commissioner for Corporate Affairs (WA) v Ekamper (114) have been influential. It was held that in making such an order it is necessary to assess:
(a) the character of the defendant;
(b) the nature of the breaches;
(c) the structure of the company or companies and the nature of its or their business;
(d) the interests of shareholders, creditors and employees;
(e) the risks to others from the continuation of the defendant as a director;
(f) the honesty and competence of the defendant;
(g) hardship to the defendant an to his or her personal and commercial interests; and
(h) the defendant’s appreciation that future breaches could result in future proceedings.
13. Factors that have led to the imposition of the longest periods of disqualification (that is, disqualifications of twenty-five years or more) include:
(a) large financial losses;
(b) high propensity that the defendant may engage in similar activities or conduct;
(c) activities undertaken in fields in which there was potential to do great financial damage such as in management and financial consultancy;
(d) the defendant’s lack of contrition or remorse;
(e) disregard for the law and compliance with corporate regulations;
(f) dishonesty and intent to defraud; and
(g) previous convictions and contraventions for similar activities.
14. In cases in which the period of disqualification ranged from seven years to twelve years, the factors that led to the conclusion that these cases were serious though not the “worse cases”, included:
(a) serious incompetence and irresponsibility;
(b) substantial loss;
(c) the fact that the defendant had engaged in deliberate courses of conduct to enrich himself or herself at others’ expense, but with lesser degrees of dishonesty;
(d) continued, knowing and wilful contraventions of the law and disregard for legal obligations; and
(e) lack of contrition or acceptance of responsibility, although that must be weighed against the prospect that the defendant may reform.
15. The factors leading to the shortest disqualifications (that is, disqualifications for up to three years) were:
(a) although the defendant had personally gained from the conduct, he or she had endeavoured to repay or partially repay the amounts misappropriated;
(b) the defendant had no immediate or discernible future intention to hold a position as a manager of a company; and
(c) the defendant had expressed remorse and contrition, acted on advice of professionals and had not contested the proceedings against him or her.”
19. It is also important to appreciate that numbered propositions 13, 14 and 15 of the decision of Santow J in Adler, which were referred to with approval by McHugh J in Rich, are clearly no more than instructive; they do not purport to be and are not prescriptive. I take them to be a distillation by his Honour of the various cases to which his Honour was referred in that matter in respect of the factors – not intended to be exhaustive or exclusive - which led to the imposition of varying periods of disqualification.
20. It was common cause before me that this was not one of the “worst cases” and therefore did not fall in the category of cases referred to in proposition 13 of Santow J’s decision.
21. As I stated in my earlier decision, the applicant’s conduct in this matter was palpably dishonest: “the conduct was very serious”. I have found that it constitutes a wilful contravention of the law. To that extent, this matter satisfies the first of the elements referred to in proposition 14 of Santow J’s decision in Adler, namely a serious act of irresponsibility. However, other factors referred to therein are not established on the evidence, including the absence of any (let alone substantial) loss, the absence of any enrichment of the applicant, the fact that this was a “once off” occurrence and the fact that the applicant has shown contrition and acceptance of responsibility
22. Whilst I accept that certain of the factors referred to in proposition 15 of the decision of Santow J in Adler are satisfied in this matter – there was no question of repaying or partially repaying the amounts misappropriated as there were no amounts misappropriated, the defendant has expressed remorse and contrition and has not contested the proceedings against her (other than, as was her right, to make submissions with respect to the appropriate penalty) and the applicant has indicated, through counsel, that she does not propose to hold a position as manager of a company -- I do not apprehend Santow J to be suggesting that, where those factors are satisfied, disqualification for up to 3 years will always be the appropriate period. Further, I do not apprehend Santow J to there be referring to matters as serous as this. …”
88. The applicant’s affidavit “as to penalty” informs, and I find as fact, as follows:
· as at 10 December 2009, the applicant was a 45 year old single male who shared a house with his brother;
· the applicant has another brother who suffers from cerebral palsy and is confined to a wheelchair;
· the applicant, with his family, financially supports that brother and the applicant pays for some of that brother’s expenses;
· the applicant’s parents are aged and suffering from various ailments arising from old age and a lifetime of hard work. Neither is gainfully employed and the applicant envisages that he will take increasing responsibility for them as they further age;
· the applicant is in a “steady relationship” which commenced in about June 2008. The applicant said “this relationship has brought increased stability to my life”;
· the applicant went to university in 1992 “as a mature age student” and graduated with an honours degree in economics at the end of 1996. In April 1997 he commenced work as an authorised representative and continues to do so;
· the applicant personally manages “over 450 client accounts, half of which I have dealt with as an adviser for 5 years. To ensure that my clients are always catered for I only ever take one week’s leave at any time”.
· the applicant’s remuneration is calculated as a percentage of the brokerage which he earns. If he writes less than $10,000 in a month, his brokerage is 40%. If he writes over $10,000 in a month then. his commission is 50%;
· in May 2008 the applicant was diagnosed with diffuse idiopathic skeletal hyperostosis. The impact of this condition is that the applicant’s thoracic spine is fusing and will eventually completely fuse over time resulting in spasms and severe back pain. The current symptoms that he experiences are back pain and muscular spasms requiring acupuncture and pain medication. He has had to curtail all physical exercise since October 2008;
· in November 2009, following magnetic resonance imaging, the applicant was advised that he had arthritis in his thoracic spine as well as diffuse idiopathic skeletal hyperostosis. He is consequently unable to undertake manual work;
· The applicant’s sole source of remuneration is his work as an authorised representative. In addition to paying his own living expenses and supporting his brother, he has personal loans and credit cards which he is obliged to service at approximately $2,000 a month.
89. As to the effect and operation of a banning order, the applicant deposed as follows
“I have considered what alternate employment might be available to me if I were unable to work in the financial services industry. I have considered the possibility of working as a real estate agent, but I am concerned that the making of a banning order against me may mean that any application for a license to be a real estate agent would be refused as I may not be regarded as of sufficiently good character or a fit and proper person.
If I am the subject of a banning order in excess of 6 months, I believe that my existing clients will move their business to another broker and my practice will be lost. I will have no income to pay normal living expenses or my legal fees in relation to the threat of criminal charges.”
90. The Tribunal received into evidence a substantial number of written character references attesting to the applicant’s general good character.
91. The applicant was cross-examined on his affidavit. The sole point of the cross-examination was to note that, in his affidavit, the applicant had not referred to the fact that he had effectively been dismissed by a former employer and the reasons for that effective dismissal. The suggestion was that the applicant had not been forthright in his evidence to the Tribunal.
92. There is nothing in that cross-examination. When the applicant swore his affidavit, the relevant correspondence which had passed between the applicant and his former employer were already in the material which had been lodged with the Tribunal. In those circumstances, the fact that the applicant did not expressly refer to this issue in his affidavit cannot be considered in any manner adverse to the applicant.
93. In all the circumstances I am satisfied that in determining the length of the banning order to be made, no element arises in respect of having to keep the applicant out of the industry for any period of time in order to protect the public: what occurred was demonstrably out of character and is not indicative of any general fault of character on the part of the applicant. The public does not need to be protected from him. That, however, is only one aspect of the equation.
94. The provisions of the Corporations Act which I have found the applicant to have contravened (for the purposes of these proceedings) strike at the foundation upon which securities markets operate. They are fundamental provisions. Any contravention of such provisions is a serious matter.
95. In this matter, the applicant would have earned commission as a consequence of various of his clients buying and selling VSL shares. I received no evidence as to the quantum of the commission which he earned. However, having regard to the number of shares which were purchased and sold, the general price at which VSL shares were trading, a general understanding as to the range of brokerage charged by broking houses in Perth and noting that the applicant’s commission would have been 40% to 50% of brokerage, I do not consider the benefit to have been significant, and I do not believe that the prospect of financial gain is what motivated the applicant to do what he did. In particular I note that the applicant did not himself trade in VSL shares.
96. Notwithstanding the absence of a motive for personal gain, the applicant’s conduct clearly satisfies the first of the elements referred to in proposition 14 of Santow J’s decision in Adler, namely serious acts of irresponsibility. However, other factors referred to therein are not established on the evidence: there is an absence of any substantial loss and, as I have noted, an absence of any substantial enrichment of the applicant. However, and unlike, for example, in Dollas-Ford, this was not a “once off” occurrence; it happened with more than one client and over a number of days. Moreover the applicant had not shown contrition or acceptance of responsibility.
97. The findings I have made clearly include factors falling within both numbered propositions 14 and 15 of the decision of Santow J in Adler. This matter therefore does not reside exclusively in either category of case: it sits somewhere in between.
98. I have had careful regard to the applicant’s personal position, both as to his health and financial position, and the consequence that a banning order of some duration will have upon him and those he supports. In the end, however, what ultimately must prevail is the public interest. I therefore ask myself the following what is the minimum period that, in all the circumstances, a person such as the applicant must be banned for the purpose of providing a sufficient deterrent to the repetition of such or similar conduct by others?
99. Weighing up all factors, I have concluded that the appropriate period for which the applicant should be banned is at least five years. Indeed, it could be said that, in all the circumstances, including the failure of the applicant to show contrition and acceptance of responsibility, a period in excess of five years could well be justified. Notwithstanding, given the delegate imposed a period of five years and the personal circumstances of the applicant, that is the period which ought stand.
Result
100. It therefore follows that, in all respects, the reviewable decision must be affirmed.
101. It should also follow that the orders which I made on 6 March 2009 (staying the reviewable decision and making an order that the reviewable decision not be published) ought now be revoked. I note, however, that I have received no submissions in that regard. Accordingly, I propose to make such an order, but conditionally so that the applicant will have an opportunity to be heard (should he wish to do so) before the order becomes unconditional. I therefore propose to order that, subject to any order to the contrary being made within 10 days from the date hereof, the orders which I made on 6 March 2009 shall stand revoked.
I certify that the 101 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S Penglis
Signed: (sgd) T Freeman..............
AssociateDate/s of Hearing 11 December 2009
Date of Decision 7 May 2010
Counsel for the Applicant Mr A J Meagher SC and Mr M D Howard SC
Solicitor for the Applicant Tottle PartnersCounsel for the Respondent Ms D Mortimer SC & Mr D Gilbertson
Solicitor for the Respondent Mr B Rasool
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