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Supreme Court 14 December 2011

R v O'BRIEN

[2011] NSWSC 1553

Fraud & dishonesty
CRIMINAL LAW INSIDER TRADING SENTENCING PLEA OF GUILTY FAVOURABLE SUBJECTIVE FEATURES .

Citation: R v O'Brien [2011] NSWSC 1553
Court: Supreme Court of New South Wales
Date: 14 December 2011
Judge: Hoeben J

Background

The offender was a senior financial services professional employed as Director of Business Development at Georgeson Shareholder Communications Australia Pty Ltd, a company specialising in advising corporations on extraordinary transactions such as takeovers and mergers. Through his role, he routinely received confidential information about proposed transactions affecting the value of ASX-listed shares. He was aware at all times of the legal prohibitions against insider trading under the Corporations Act 2001 (Cth).

Between June 2010 and January 2011, the offender used that confidential information to acquire shares in four ASX-listed companies through a superannuation fund trading account. He did so in his capacity as trustee of the O'Brien Family Superannuation Fund, which he operated jointly with his elderly mother. His employment was terminated in February 2011 on the basis of serious and wilful misconduct.

On 5 August 2011, the offender pleaded guilty on arraignment to four counts of insider trading contrary to sections 1043A(1) and 1311(1)(a) of the Corporations Act. The matter came before the Supreme Court for sentencing.

  • What was the appropriate sentence across four counts of insider trading, having regard to the factors in section 16A(2) of the Crimes Act 1914 (Cth)?
  • How should the court weigh the objective seriousness of the offending against the offender's favourable subjective circumstances?
  • What discount should be applied for the guilty plea entered at arraignment?
  • Was a custodial sentence, a community-based order, or another disposition appropriate in the circumstances?

Decision

Hoeben J conducted a detailed analysis of the section 16A(2) Crimes Act 1914 (Cth) factors governing federal offence sentencing. On the objective seriousness of the offending, his Honour noted that insider trading undermines the integrity and efficiency of financial markets and erodes public confidence in those markets. The offending involved a deliberate and repeated misuse of confidential information obtained through a position of trust over a period of approximately seven months.

However, his Honour also found a number of significant mitigating factors. The offender had no prior criminal history, cooperated with ASIC's investigation, pleaded guilty at the earliest opportunity, and expressed genuine remorse. The financial profit from the trading, while not trivial, was not at the higher end of the scale for this type of offending. Proceeds of crime orders had already been made or were anticipated, effectively removing any financial benefit the offender retained.

The court considered the offender's favourable personal circumstances, including references attesting to his good character, his stable family situation, his cooperation with authorities, and the significant collateral consequences he had already suffered, including loss of employment and reputational damage. His Honour acknowledged that general deterrence carries significant weight in white-collar financial crime of this nature, but balanced that against the offender's low prospects of reoffending and his genuine rehabilitation prospects.

Hoeben J determined that a sentence of imprisonment was warranted given the seriousness of the conduct, but that the sentence was appropriately served in the community by way of an Intensive Correction Order rather than full-time custody. Each of the four counts attracted a concurrent sentence of two years imprisonment, to be served under intensive correction conditions.

Orders Made

  • The offender was sentenced to two years imprisonment on each of the four counts, with all terms to run concurrently, commencing 30 January 2012 and expiring 29 January 2014.
  • Pursuant to section 7(1) of the Crimes (Sentencing Procedure) Act 1999 (NSW), an Intensive Correction Order was made, directing that the sentence be served in the community.
  • The Order included mandatory conditions under section 81 of the Crimes (Administration of Sentences) Act 1999 (NSW) and the relevant regulations, including requirements to report to Corrective Services NSW, reside at approved premises, complete a minimum of 32 hours of community service work per month, submit to supervision and monitoring, and engage in activities addressing offending behaviour.
  • The court declined to make a Recognizance Release Order under section 19AD of the Crimes Act 1914 (Cth), being satisfied that such an order was not appropriate in the circumstances.

Key Takeaways

  • Insider trading offences are regarded by the courts as serious because they undermine the integrity of financial markets and public confidence in them; this consideration weighs heavily in favour of general deterrence at sentencing.
  • A guilty plea entered at arraignment, combined with cooperation with the investigating regulator, genuine remorse, and an absence of prior criminal history, can together produce a meaningful reduction in the sentence that would otherwise be imposed.
  • Where proceeds of crime orders have already addressed the financial benefit of the offending, the sentencing court may take that into account when assessing the overall just punishment required.
  • Under section 7(1) of the Crimes (Sentencing Procedure) Act 1999 (NSW), a court may impose imprisonment and simultaneously direct that the sentence be served by way of Intensive Correction in the community, even in cases of serious white-collar crime, where favourable subjective features are sufficiently strong.
  • Section 16A(2) of the Crimes Act 1914 (Cth) requires federal sentencing courts to work through a structured list of considerations; this decision illustrates how those factors are weighed and balanced against one another in an insider trading context.

Legislation and Cases Referenced

Legislation:
- Corporations Act 2001 (Cth), ss 1043A(1), 1311(1)(a), Schedule 3
- Crimes Act 1914 (Cth), s 16A(2), s 19AD
- Crimes (Sentencing Procedure) Act 1999 (NSW), s 7(1)
- Crimes (Administration of Sentences) Act 1999 (NSW), s 81
- Proceeds of Crime Act 2002 (Cth)

Cases:
- Cameron v The Queen (2002) 209 CLR 339
- Hili v The Queen; Jones v The Queen [2010] HCA 45
- Markarian v R [2005] HCA 25, (2005) 228 CLR 357
- R v Corner (NSWCCA, unreported, 19 December 1997)
- R v Doff [2005] NSWCCA 119
- R v El Karhani (1990) 21 NSWLR 370
- R v El Rashid (NSWCCA, unreported, 7 April 1995)
- R v Pantano (1990) 49 A Crim R 328
- R v Rivkin [2004] 184 FLR 365
- R v Thomas (1998) 96 A Crim R 32
- R v Thomson; R v Houlton [2000] NSWCCA 309, (2000) 49 NSWLR 383
- Rich v ASIC [2004] HCA 42, (2004) 220 CLR 129
- Tyler v R; R v Chalmers (2007) 173 A Crim R 458