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Supreme Court 15 February 2013

R v ZHU, Bo Shi

[2013] NSWSC 127

Fraud & dishonesty
CRIMINAL LAW INSIDER TRADING SENTENCING PRINCIPLES FOR SUCH OFFENCES MITIGATING FACTORS UNETHICAL WORK ENVIRONMENT

Citation: R v ZHU, Bo Shi [2013] NSWSC 127
Court: Supreme Court of New South Wales
Date: 15 February 2013
Judge(s): Hall J

Background

The offender, an investment banking professional, pleaded guilty to three rolled-up counts of insider trading contrary to s 1043A(1)(d) and s 1311(1)(a) of the Corporations Act 2001 (Cth). The offending spanned four and a half years and occurred across three separate periods of employment: at Caliburn Partnership Pty Ltd (a corporate advisory firm), Credit Suisse Management (Australia) Pty Ltd (a multinational financial services company), and Hanlong Mining Investments Pty Ltd (the Australian subsidiary of a Chinese conglomerate).

Each count was "rolled up," meaning it encompassed multiple individual transactions rather than a single discrete act. The Caliburn count involved three sets of transactions, the Credit Suisse count involved two transactions, and the Hanlong Mining count involved five sets of transactions. The offending therefore reflected a sustained and repeated pattern of conduct across different employers and roles.

Because the offences were Commonwealth offences, sentencing was governed by Part 1B of the Crimes Act 1914 (Cth), which sets out mandatory considerations and requires the court to be satisfied that no sentence other than imprisonment is appropriate before imposing a custodial term.

  • What sentencing principles apply to insider trading offences under the Corporations Act 2001 (Cth)?
  • What weight should be given to general deterrence in the context of "white collar" offences that are difficult to detect and prosecute?
  • How should the rolled-up nature of the counts affect totality and the accumulation or concurrence of sentences?
  • Whether mitigating factors, including the offender's prior good character, genuine contrition, rehabilitation prospects, and an allegedly unethical work environment, warranted a reduction in sentence.
  • Whether alternatives to full-time custody, such as home detention or an intensive correction order, were appropriate in the circumstances.
  • Whether a fine should be imposed in addition to imprisonment.

Decision

Hall J confirmed that insider trading is a serious criminal offence because it undermines the integrity of the securities market, erodes public confidence in commercial institutions, and exploits a position of trust and confidentiality for personal gain. The NSW Court of Criminal Appeal has characterised it as a form of cheating or fraud. The court accepted that insider trading is not victimless: each illegal transaction may impose a cost on those who traded or held positions without access to the inside information.

General deterrence was identified as a particularly important consideration. Because insider trading offences are difficult to detect, investigate, and prosecute, the court emphasised that the "real bite" of general deterrence only takes effect when an actual custodial sentence is imposed, citing Braun v R (2008) 190 A Crim R 497. The Crown's submission that neither home detention nor an intensive correction order would adequately reflect the seriousness of the conduct and the need for deterrence was accepted.

Mitigating factors were nonetheless taken into account. These included the offender's guilty pleas, prior good record, genuine contrition, and rehabilitation prospects. The court also had regard to submissions concerning the work environment at one or more of the employing firms, which was characterised as unethical. The amount of profit derived was treated as relevant, but the amount invested was identified as the more important indicator of criminality, consistent with R v Doff [2005] NSWSC 50.

Having weighed all factors, Hall J concluded that full-time custodial sentences were required for all three counts. The court determined that no fine was necessary given the other circumstances, including the punishment already imposed by the sentencing orders.

Orders Made

  • Caliburn count: Fixed term of imprisonment of six months, commencing 15 February 2013 and expiring 14 August 2013.
  • Credit Suisse count: Fixed term of imprisonment of three months, commencing 15 February 2013 and expiring 14 May 2013 (served concurrently with the Caliburn sentence).
  • Hanlong Mining count: Term of imprisonment of two years, commencing 15 May 2013 and expiring 14 May 2015, with release directed after 12 months (14 May 2014) on a recognisance of $1,000 to be of good behaviour during the balance of the term.
  • Total effective pre-release period: 15 months, from 15 February 2013 to 14 May 2014.
  • No fine imposed.

Key Takeaways

  • Insider trading under the Corporations Act 2001 (Cth) is treated as a serious criminal offence capable of undermining the integrity and efficacy of public securities markets, and courts have characterised it as a form of cheating or fraud even where its consequences are less immediately visible than general fraud.
  • General deterrence carries particular weight in sentencing for white collar offences that are difficult to detect and prosecute; the Supreme Court reaffirmed that full-time custody is generally necessary for deterrence to have meaningful effect in this context.
  • Where insider trading charges are rolled up, the rolled-up character is relevant to totality considerations, specifically the question of whether sentences should be accumulated or made concurrent, but does not prevent an assessment of the full criminality disclosed within each count.
  • The amount invested, rather than the profit ultimately derived, is the more significant indicator of an offender's criminality in insider trading cases.
  • Mitigating factors such as guilty pleas, prior good character, genuine contrition, rehabilitation prospects, and an unethical work environment are cognisable in sentencing, but in this case they did not displace the need for full-time custodial sentences across all three counts.

Legislation and Cases Referenced

Legislation
- Corporations Act 2001 (Cth), ss 1043A(1)(d), 1311(1)(a)
- Crimes Act 1914 (Cth), Part 1B, ss 16A, 17A, 20AB
- Crimes (Sentencing Procedure) Act 1999 (NSW)
- Proceeds of Crime Act

Cases
- Braun v R (2008) 190 A Crim R 497; [2008] NSWCCA 269
- DPP v O'Riley [2010] VSC 138
- Hartman v R (2011) 87 ACSR 52; [2011] NSWCCA 261
- Hili v The Queen; Jones v The Queen [2010] HCA 45; (2010) 85 ALJR 195
- Pearce v The Queen (1998) 194 CLR 610
- R v Agius; R v Zerafa [2012] NSWSC 978
- R v Bateson [2011] NSWSC 643
- R v de Silva [2011] NSWSC 243
- R v Doff (2005) 55 ACSR 200; [2005] NSWCCA 119; [2005] NSWSC 50
- R v Firns [2001] 51 NSWLR 548
- R v Hartman [2010] NSWSC 1422
- R v McKay (2007) 61 ACSR 470
- R v McQuoid [2009] EWCA Crim 131; [2009] 4 All ER 388
- R v Pantano (1990) 48 A Crim R 328
- R v Rivkin (2003) 198 ALR 400; 45 ACSR 366; [2003] NSWSC 447; [2004] NSWCCA 7