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Supreme Court 19 December 2012

Regina v Fysh (No 4)

[2012] NSWSC 1587

Fraud & dishonesty
CRIME SENTENCING INSIDER TRADING SERIOUSNESS OF OFFENDING

Citation: Regina v Fysh (No 4) [2012] NSWSC 1587
Court: Supreme Court of New South Wales
Date: 19 December 2012
Judge(s): McCallum J

Background

The offender was a very senior executive at BG Group plc, a large UK-based multinational energy company. He held the position of Executive Vice President and Regional Managing Director, and sat on the company's Group Executive Committee, which was responsible for the overall global management of BG's business.

In late 2007, the offender purchased 250,000 shares in Queensland Gas Company Ltd (QGC) across two transactions: 240,000 shares on 2 December and a further 10,000 shares on 3 December. A jury found that he made those purchases while in possession of inside information concerning a proposed strategic alliance between QGC and BG Group. The inside information related to BG's pursuit of a coal seam gas source in eastern Australia, a strategy the offender had been directly involved in at the executive level.

The offender had been tried on four counts of insider trading under the Corporations Act 2001 (Cth). He was acquitted on the first two counts (relating to shares in a different company, Arrow Energy) but convicted on the third and fourth counts relating to the QGC purchases. The sentencing proceedings also included a claim by the Commissioner of the Australian Federal Police for a pecuniary penalty order under the Proceeds of Crime Act 2002 (Cth).

  • What sentence was appropriate for two counts of insider trading, having regard to the maximum penalties in force at the time of the offences (5 years' imprisonment and a $220,000 fine per count)?
  • Whether the seriousness of the offending and the need for general deterrence required full-time imprisonment, or whether a non-custodial alternative such as home detention or an intensive correction order was open.
  • What findings of fact, consistent with the jury's verdicts, could be made for the purposes of sentencing?
  • What minimum term of actual custody was required, taking into account relevant mitigating factors?

Decision

McCallum J began by examining the nature of insider trading as a criminal offence. Her Honour noted that the insider trading provisions of the Corporations Act exist to promote fair, orderly and transparent markets, and that trading on inside information has the capacity to undermine the public trust on which financial markets depend. Drawing on Court of Criminal Appeal authority, her Honour confirmed that insider trading is a serious offence requiring a stern sentencing approach, with a considerable deterrent element, and that offending by persons in positions of trust can normally be expected to attract custodial sentences.

Her Honour made findings of fact consistent with the jury's verdicts. The offender had attended a presentation to the Group Executive Committee in mid-2007 that canvassed BG's coal seam gas strategy, and had been personally involved in shaping documents related to that strategy. The court was satisfied that his subsequent purchase of QGC shares was made while he possessed inside information about the proposed BG-QGC alliance. Her Honour also noted that, even though the offender was acquitted in relation to Arrow Energy shares, the proximity of those purchases to his employer's business objectives ought to have heightened his awareness of the need for propriety.

On the question of sentencing alternatives, the court rejected the offender's submission that an intensive correction order would be sufficient. The Crown submitted that no alternative to full-time imprisonment could adequately reflect the seriousness of the conduct and the need for general deterrence, and that proceeding otherwise would constitute appellable error. Her Honour accepted that submission. Despite giving significant weight to mitigating factors, including the offender's cooperation, character references, and the low likelihood of re-offending, the court concluded that a sentence of full-time imprisonment was required.

The court imposed an aggregate sentence of 2 years, with the two sentences to be served concurrently, and set a minimum term of 12 months before the offender could be released on recognisance.

Orders Made

  • Count 3 (acquisition of 240,000 QGC shares on 2 December 2007): imprisonment for 2 years, commencing 11 December 2012 and expiring 10 December 2014, with release directed on 10 December 2013 on a recognisance of $1,000 (without surety) to be of good behaviour for the balance of the term.
  • Count 4 (acquisition of 10,000 QGC shares on 3 December 2007): imprisonment for 18 months, commencing 11 December 2012 and expiring 10 June 2014, with release directed on 10 December 2013 on a recognisance of $1,000 (without surety) to be of good behaviour for the balance of the term.
  • Both sentences to be served concurrently, producing a total minimum custodial period of 12 months.

Key Takeaways

  • Insider trading by a senior corporate officer, committed in direct connection with the officer's employer's business strategy, represents a serious instance of the offence warranting full-time imprisonment rather than a non-custodial sentencing alternative.
  • The Court of Criminal Appeal's position, affirmed here, is that insider trading sentencing calls for a stern approach with a significant deterrent element, and that offending by persons in positions of trust ordinarily warrants both custodial sentences and pecuniary penalties.
  • Where an offender is sentenced after trial for a Commonwealth offence, findings of fact adverse to the offender must be established beyond reasonable doubt; favourable findings may be made on the balance of probabilities or accepted if the Crown does not dispute them.
  • Mitigating factors, including cooperation with authorities, good character references, and a low risk of re-offending, may affect the minimum term to be served but do not necessarily displace the need for a full-time custodial sentence in insider trading cases of this gravity.
  • Under the Crimes Act 1914 (Cth), a court sentencing a federal offender to imprisonment must be satisfied that no other sentence is appropriate in all the circumstances; in this case, the court found that the seriousness of the offending and general deterrence left no room for a non-custodial alternative.

Legislation and Cases Referenced

Legislation
- Corporations Act 2001 (Cth), ss 760A, 1043A(1)(c), 1311(1)(a), and Schedule 3
- Crimes Act 1914 (Cth), ss 16A, 17A, 20AB
- Crimes (Sentencing Procedure) Act 1999 (NSW), s 69
- Proceeds of Crime Act 2002 (Cth)

Cases
- Hartman v R [2011] NSWCCA 261; (2011) 87 ACSR 52
- Hili v R; Jones v R [2010] HCA 45; (2010) 242 CLR 520
- Pearce v The Queen [1998] HCA 57; (1998) 194 CLR 610
- R v Bateson [2011] NSWSC 643
- R v Dalzell [2011] NSWSC 454; (2011) 83 ACSR 407
- R v Doff [2005] NSWCCA 119
- R v El Karhani (1990) 21 NSWLR 370
- R v Fysh [2012] NSWSC 1266; (No 2) [2012] NSWSC 1340; (No 3) [2012] NSWSC 1390
- R v Hannas [2002] NSWSC 1182; (2002) 173 FLR 1
- R v Hinton [2002] NSWCCA 405; (2002) 134 A Crim R 286
- R v O'Brien [2011] NSWSC 1553
- R v Rivkin [2004] NSWCCA 7; (2004) 184 FLR 365
- R v Togias [2001] NSWCCA 522; (2001) 127 A Crim R 23
- Rich v ASIC [2004] HCA 42; (2004) 220 CLR 129