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10
Court of Criminal Appeal 20 December 2013

Khoo v Regina

[2013] NSWCCA 323

Also reported as (2013) 237 A Crim R 221
Fraud & dishonesty
CRIMINAL LAW APPEAL AGAINST SENTENCE INSIDER TRADING TIPPING WHETHER SENTENCE MANIFESTLY EXCESSIVE

Citation: Khoo v Regina [2013] NSWCCA 323
Court: NSW Court of Criminal Appeal
Date: 20 December 2013
Judge(s): Leeming JA, Bellew J, RS Hulme AJ

Background

The appellant had been convicted in the District Court of multiple offences of "tipping" under s 1043A(2) of the Corporations Act 2001 (Cth). Tipping involves communicating price-sensitive, non-public information to another person in circumstances where that person is likely to trade on it. The sentencing judge, Marien DCJ, imposed sentences of full-time imprisonment.

The appellant sought leave to appeal against those sentences. Several grounds were advanced, including that individual mitigating factors had not been properly weighed and that the sentences were, overall, manifestly excessive.

  • Whether the sentencing judge failed to take proper account of individual mitigating factors.
  • Whether the sentences of full-time imprisonment were manifestly excessive.
  • Whether the objective criminality of "tipping" is necessarily less serious than insider trading involving actual trading by the insider.
  • Whether the principle in R v Glynatsis [2013] NSWCCA 131, that insider traders should expect to go to gaol, applied equally to tipping offences.

Decision

The Court of Criminal Appeal unanimously dismissed the appeal, granting leave but upholding the sentences imposed below.

On the question of full-time imprisonment, the Court affirmed the reasoning in R v Glynatsis that persons who misuse inside information, including by tipping, should expect a custodial sentence. Leeming JA held that this principle was not merely obiter in Glynatsis, having been treated as dispositive by two members of that Court. His Honour further noted that the doubling of the maximum penalty from 5 to 10 years imprisonment by the Corporations Amendment (No 1) Act 2010 reinforced the legislative intent to treat insider trading offences seriously.

The appellant argued that tipping was inherently less criminal than actual insider trading because no trade occurs until the tippee acts. The Court rejected this reasoning. Leeming JA observed that the dissemination of inside information to a tippee may in fact pose a greater threat to market integrity than the insider trading itself, given the potential for that information to spread more widely. His Honour drew support from a 1986 issues paper prepared for the National Companies and Securities Commission and from United States authority, noting that the "victims" of such conduct are not merely those who trade opposite the tippee but the investing public at large, who suffer a loss of confidence in the integrity of the market.

Bellew J identified a non-exhaustive list of factors relevant to the objective seriousness of tipping offences, including the nature and importance of the information disclosed, the extent of its disclosure, whether the offender knew it would be used for trading, any breach of trust involved, sophistication or subterfuge, whether the conduct was a course of conduct, and the extent of any profit made. RS Hulme AJ reviewed each ground in detail and concluded that, while some individual sentences might have been high for a first offender viewed in isolation, the overall effective sentence was within the legitimate range of the sentencing discretion. Leave to appeal was granted, but the appeal was dismissed.

Orders Made

• Leave to appeal be granted
• Appeal be dismissed

Key Takeaways

  • The Court of Criminal Appeal confirmed that the principle in R v Glynatsis, that persons who misuse inside information should expect full-time imprisonment, applies equally to "tipping" offences under s 1043A(2) of the Corporations Act, not only to insider trading involving actual trading by the insider.
  • No a priori rule exists that tipping is necessarily less criminal than insider trading. Within the category of tipping offences, degrees of criminality vary according to the circumstances of each case.
  • Tipping may, in some circumstances, pose a greater threat to market integrity than the insider trading itself, because information disseminated to third parties has the potential to spread more broadly and create a more widespread imbalance.
  • Bellew J articulated a list of factors relevant to assessing the objective seriousness of tipping offences, including the nature of the information, the extent of disclosure, knowledge that it would be used for trading, breach of trust, sophistication, whether conduct was repeated, and any profit made.
  • In applying federal sentencing consistency principles from Hili v The Queen, intermediate appellate courts should not depart from what other Australian intermediate appellate courts have decided on federal offences unless convinced the prior decision is plainly wrong.

Legislation and Cases Referenced

Legislation
- Corporations Act 2001 (Cth), ss 1042A, 1043A(1) and (2)
- Corporations Amendment (No 1) Act 2010 (Cth)

Cases
- R v Glynatsis [2013] NSWCCA 131
- Hili v The Queen [2010] HCA 45; 242 CLR 520
- Green v The Queen [2011] HCA 49; 244 CLR 462
- R v Rivkin [2004] NSWCCA 7
- Pearce v R (1998) 194 CLR 610
- R v XY [2013] NSWCCA 121
- Ex parte King; Re Blackley (1938) 38 SR (NSW) 483
- Fridrich v Bradford 542 F 2d 307 (6th Cir, 1976)
- R v Zerafa [2013] NSWCCA 222
- Hartman v R [2011] NSWCCA 261
- R v Dalzell [2011] NSWSC 454
- R v De Silva [2011] NSWSC 243
- R v O'Brien [2011] NSWSC 1553
- DPP v Lindskog [2013] VCC (unreported)
- R v Ellis (1986) 6 NSWLR 603
- R v Morgan (1993) 70 A Crim R 368
- R v Hinton [2002] NSWCCA 405
- R v Olbrich (1999) 199 CLR 270
- R v Taylor [2000] NSWCCA 442
- R v Mungomery [2004] NSWCCA 450