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Director who engaged in insider trading walks free
April 17, 2010
JOHN Francis O'Reilly, a former director who pleaded guilty to insider trading, has averted jail after a judge said the businessman's judgment was ''clouded'' at the time and the nature and value of the shares he traded did not mark the offence as particularly serious.
In sentencing O'Reilly, Justice Terry Forrest of the Victorian Supreme Court said the former Lion Selection director had obtained only a ''modest'' $29,045 profit from his purchase and sale of 50,000 Indophil Resources shares in mid-2008.
The judge said that while the most troubling aspect of O'Reilly's conduct was that he traded shares as a ''true insider'' - from inside the boardroom - he acknowledged that O'Reilly conducted only one trade and did not embark on a sustained course of trading.
O'Reilly was convicted of one count of insider trading. Justice Forrest imposed a jail sentence of 10 months and then wholly suspended the term, allowing O'Reilly to walk free. Justice Forrest said that but for the guilty plea, O'Reilly would have been sentenced to 13 months' jail and ordered to serve a minimum of five months.
O'Reilly must be of good behaviour for 18 months and pay a $500 bond. The court also imposed a $30,000 pecuniary penalty on top of the $61,600 that O'Reilly must forfeit under the Proceeds of Crime Act. O'Reilly bought $38,880 of Indophil shares in May 2008, when he was privy to confidential information as Lion negotiated to sell its 25 per cent Indophil stake to Xstrata - a move that would trigger a takeover of Indophil and send its shares higher.
''By your conduct you have misled your fellow directors, acted in contravention of Lion's security trading policy, misled your shareholders and the Australian Securities Exchange, and undermined the integrity of the securities market,'' Justice Forrest said yesterday.
He said the ''objective gravity'' of O'Reilly's offence emerged after considering that, as a director, O'Reilly was a ''true insider'', but he did not try to conceal the trading through secret or nominee accounts. This ''relative lack of sophistication'' suggested ''that your judgment was clouded at this time'', the judge said.
''Thirdly, I do not regard the nature of the trade, the amount invested or the anticipated profit as falling into a particularly grave or serious category. You did not seek to multiply your anticipated profit by choosing an exotic method of trading, nor did you invest a really large sum of money.''
Justice Forrest said he considered it a ''mid-range example of a serious offence'' and accepted O'Reilly's conduct was ''an aberration''.
Ian Ramsay, director of Melbourne University's Centre for Corporate Law and Securities Regulation, suggested the sentence appeared ''relatively modest'' considering several earlier insider trading cases had attracted jail or periodical detention sentences.
Professor Ramsay argued that the number of insider enforcement actions in Australia and the penalties tended to be ''relatively light'' compared with overseas.
''I actually think the Australian insider trading law is a mess in some respects,'' he said. In some ways it was too broad, he said, adding: ''You could be an insider by picking up a piece of paper on Collins Street.''
And in other areas, the legislation was too proscriptive.
''What you do come to quickly, though, is the realisation that courts typically do not impose terms of imprisonment for offences under the Corporations Act,'' he said.