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Supreme Court 20 May 2011

REGINA v DALZELL

[2011] NSWSC 454

Fraud & dishonesty

Citation: [2011] NSWSC 454
Court: Supreme Court of New South Wales
Date: 20 May 2011
Judge(s): Hall J

Background

The offender was a Senior Manager in KPMG's Financial Advisory Services Division, engaged from June 2006 as part of a team advising a company called Promentum Limited on a potential acquisition. While in possession of confidential, price-sensitive information relating to that acquisition process, he purchased 40,000 fully paid ordinary shares in Promentum.

The offender was charged with insider trading contrary to sections 1043A and 1311(1)(a) of the Corporations Act 2001 (Cth). He was initially charged in the Local Court in November 2009, and the matter proceeded by way of paper committal to the Supreme Court in July 2010. He indicated an intention to plead guilty shortly after committal and agreed to a statement of relevant facts.

The sentencing hearing took place in March 2011. The defence submitted that the offence fell at the lower end of seriousness, distinguishing it from cases involving company directors and others with formal fiduciary positions. The Crown maintained that general deterrence remained a significant sentencing consideration regardless.

Legal Issues

  • What was the objective gravity of the insider trading offence, having regard to the agreed facts?
  • What weight should be given to general deterrence in sentencing for insider trading, particularly where the offence may be characterised as falling at the lower end of seriousness?
  • Whether an Intensive Correction Order (ICO) was an appropriate vehicle for serving the term of imprisonment imposed.

Decision

Issue 1: Seriousness of insider trading and general deterrence

Hall J affirmed that insider trading is inherently a serious offence, even where it can be characterised as occurring at the lower end of the spectrum. The court drew on R v Rivkin and R v Doff to confirm that the capacity to undermine public confidence in the integrity of securities markets exists regardless of the scale of the particular transaction. General deterrence therefore remains a weighty consideration in all insider trading cases.

The court accepted that the offender's conduct could be distinguished in some respects from insider trading by company directors or those with formal fiduciary duties. However, Hall J emphasised that persons in professional advisory roles who receive price-sensitive information are expected to conform to exacting standards of honesty, and that transgressions by such persons must be met with a clear sentencing response. The legislature's subsequent increase of the maximum penalty (from 5 years and/or $220,000 to 10 years and/or a fine) was noted as reflecting the seriousness with which Parliament regards such offending, though the lower maximum applicable at the time of the offence governed the sentencing exercise.

Issue 2: Sentence and Intensive Correction Order

Hall J imposed a term of imprisonment of 2 years. Rather than directing that the sentence be served by full-time custody, the court made an Intensive Correction Order (ICO) under section 7(1) of the Crimes (Sentencing Procedure) Act 1999, directing that the sentence be served in the community. The ICO included the mandatory conditions under section 81 of the Crimes (Administration of Sentences) Act 1999 and Regulation 175 of the Crimes (Administration of Sentences) Regulation 2008, including a minimum of 32 hours of community service work per month. An additional condition was imposed requiring the offender to comply with any supervisor's directions regarding permissible occupation and employment.

Orders Made

  • The offender was sentenced to a term of imprisonment of 2 years, commencing 20 May 2011 and expiring 19 May 2013.
  • An Intensive Correction Order was made under s.7(1) of the Crimes (Sentencing Procedure) Act 1999, directing that the sentence be served by way of intensive correction in the community.
  • The ICO included mandatory conditions under s.81 of the Crimes (Administration of Sentences) Act 1999 and Regulation 175 of the Crimes (Administration of Sentences) Regulation 2008, including a minimum of 32 hours of community service per month.
  • An additional condition required the offender to comply with any supervisor's directions as to permissible occupation and employment.
  • The offender was directed to report to the specified Local Office of the Corrective Services Department on 1 June 2011, or such other date as determined by the Commissioner.

Key Takeaways

  • Insider trading remains a serious criminal offence warranting significant deterrent sentences even where the particular instance is characterised as falling at the lower end of seriousness; the capacity to undermine market integrity and public confidence does not depend on the scale of the transaction.
  • Professional advisers who receive price-sensitive information in the course of their work, such as those employed in financial advisory roles, are held to exacting standards of honesty, and a custodial response is the norm for breaches.
  • Under the Corporations Act as it stood in November 2006, the maximum penalty for insider trading was 5 years imprisonment and/or a $220,000 fine; that maximum has since been increased to 10 years, reflecting Parliament's stronger denunciatory stance.
  • An Intensive Correction Order under s.7(1) of the Crimes (Sentencing Procedure) Act 1999 was available and was used in this case to direct that a two-year term of imprisonment be served in the community, subject to mandatory and additional conditions including community service and supervision of employment activities.
  • General deterrence carries particular weight in insider trading sentencing because such offences are committed by persons in positions of professional trust, making a clear public signal an essential element of any proportionate sentence.

Legislation and Cases Referenced

Legislation
- Corporations Act 2001 (Cth)
- Crimes Act 1914 (Cth)
- Crimes (Administration of Sentences) Act 1999
- Crimes (Administration of Sentences) Regulation 2008
- Crimes (Sentencing Procedure) Act 1999
- Crimes (Sentencing Procedure) Regulation 2010

Cases
- ASIC v Fortescue Metals Group Limited (No 5) [2009] FCA 1586; (2009) 264 ALR 201
- DPP v Bulfin (1998) 4 VR 114
- DPP (Cth) v El Karhani (1990) 21 NSWLR 370
- DPP v O'Reilly [2010] VSC 138
- Einfeld v R [2010] NSWCCA 87; (2010) 266 ALR 598
- Hili v The Queen [2010] HCA 45; (2010) 272 ALR 465
- R v Doff (2005) ACLC 317; [2005] NSWSC 50
- R v Douar [2005] NSWCCA 455; (2005) 159 A Crim R 154
- R v Firns (2001) 51 NSWLR 548
- R v Hinton (2002) 134 A Crim R 286
- R v McQuoid [2009] EWCA Crim 1301
- R v Pantano (1990) 49 A Crim R 328
- R v Rivkin [2003] NSWSC 447; (2003) 198 ALR 400
- R v Rushby (1977) 1 NSWLR 594
- R v Williams (2005) 216 ALR 113