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Supreme Court 12 June 2015

R v Joffe; R v Stromer

[2015] NSWSC 741

Fraud & dishonesty
CRIMINAL LAW SENTENCE INSIDER TRADING OFFENCES OFFENDERS GUILTY PLEAS WHETHER FULL TIME CUSTODY APPROPRIATE

Citation: R v Joffe; R v Stromer [2015] NSWSC 741
Court: Supreme Court of New South Wales
Date: 12 June 2015
Judge(s): R A Hulme J

Background

The two offenders were close friends of over ten years. The first offender was an associate analyst at Moody's Investor Service, where his role gave him access to confidential, market-sensitive information about publicly listed companies. The second offender worked in his father's property and aged care business and shared an interest in securities trading.

Over a period of several months in 2006, the first offender passed inside information to the second offender on three occasions, each time prompting the second offender to trade in the relevant securities. The transactions involved shares in Auckland International Airport and Contracts for Difference (CFDs) in Alinta Infrastructure Holdings and AWB Limited. The inside information in each case arose from confidential briefings the first offender received through his employment at Moody's.

The first offender pleaded guilty to two counts of procuring the second offender to acquire relevant securities while in possession of inside information, with a third similar offence taken into account. The second offender pleaded guilty to two counts of acquiring relevant securities while in possession of inside information. At the time of the offending, each offence carried a maximum penalty of five years' imprisonment and/or a $220,000 fine.

  • What sentences were appropriate for insider trading offences committed in 2006, given the applicable maximum penalties at that time?
  • How should the seriousness of the offending be assessed as between the two co-offenders, one of whom procured the other and occupied a position of professional trust?
  • Whether full-time custodial sentences were required, or whether suspended sentences or intensive correction orders were appropriate alternatives, having regard to the strong subjective cases of both offenders.
  • What weight should be given to the significant delay between the offending (2006) and sentencing (2015) in determining the appropriate sentence?
  • What impact should each offender's mental health issues have on the assessment of moral culpability and the severity of the sentence?

Decision

Hulme J assessed the objective seriousness of the offending at below the midrange for the first offence involving Auckland Airport (profit of approximately $359) and just within the midrange for the more significant second offence involving Alinta Infrastructure Holdings. The first offender's breach of his employer's explicit trading policies and codes of conduct made his culpability greater than the second offender's, but his mental health issues operated to reduce his moral culpability to some degree.

The court gave meaningful weight to the lengthy delay between the commission of the offences and the sentencing proceedings, spanning approximately nine years. That delay was relevant to the overall sentencing exercise, including the impact on both offenders' rehabilitation and their subjective circumstances over that period.

Both offenders were found to have strong subjective cases. The court acknowledged the general deterrence rationale as significant in insider trading matters, given the inherent difficulty of detecting such offences, but found that deterrence was tempered to some extent by the mental health issues of both offenders. The court rejected the Crown's submission that nothing less than full-time custody was warranted, and instead concluded that suspended sentences were appropriate in both cases. The first offender received a longer aggregate sentence, reflecting the additional offence taken into account and the aggravating features of his role as the procurer who acted in breach of professional trust.

Orders Made

First offender (procurer):
- Count 1: Imprisonment for 1 year 3 months from 12 June 2015
- Count 2 (including additional offence taken into account): Imprisonment for 1 year 9 months from 12 December 2015
- Released forthwith on recognizance of $1,000 on condition of good behaviour for 2 years 3 months from 12 June 2015 (sentences suspended)

Second offender (acquirer):
- Count 3: Imprisonment for 1 year 3 months from 12 June 2015
- Count 4: Imprisonment for 1 year 6 months from 12 December 2015
- Released forthwith on recognizance of $1,000 on condition of good behaviour for 2 years from 12 June 2015 (sentences suspended)

Key Takeaways

  • Suspended sentences remain available for insider trading offences in appropriate circumstances, notwithstanding the Crown's position that the gravity of such offending ordinarily demands full-time custody.
  • Significant delay between the commission of offences and the sentencing hearing is a relevant consideration in the overall sentencing exercise, capable of affecting the weight given to various sentencing objectives.
  • Mental health issues can reduce an offender's moral culpability and temper the weight given to general deterrence, even where general deterrence is recognised as particularly important due to the difficulty of detecting insider trading.
  • A higher level of culpability attaches to the person who procures the trading, especially where that person occupies a position of professional trust and is subject to explicit employer policies prohibiting the misuse of confidential information.
  • The Supreme Court confirmed the approach of using comparable cases as a yardstick, consistent with Hili v The Queen; Jones v The Queen (2010) 242 CLR 520, to check the appropriateness of a provisional sentencing view rather than as a primary determinant of sentence.

Legislation and Cases Referenced

Legislation:
- Corporations Act 2001 (Cth), Division 3, Part 7.10; ss 1043A(1)(c), 1043A(1)(d), 1311(1)
- Crimes Act 1914 (Cth), ss 16A(1), 17A
- Proceeds of Crime Act 2002 (Cth), s 320(a)

Cases:
- Hili v The Queen; Jones v The Queen [2010] HCA 45; 242 CLR 520
- Director of Public Prosecutions (Cth) v De La Rosa [2010] NSWCCA 194; 79 NSWLR 1
- DSJ v R; NS v R [2012] NSWCCA 9
- DSJ v R; NS v R [2014] NSWCCA 77
- Hartman v DPP [2011] NSWCCA 261; 87 ACSR 52
- Joffe v R; Stromer v R [2012] NSWCCA 277
- Joffe v The Queen; Stromer v The Queen [2013] HCATrans 109
- Khoo v R [2013] NSWCCA 323
- R v Doff [2005] NSWCCA 119; 54 ACSR 200
- R v Hill; R v Kamay [2015] VSC 86
- R v McKay [2007] NSWSC 275; 61 ACSR 470
- R v Rivkin [2003] NSWSC 447; 198 ALR 400