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Supreme Court 15 June 2016

R v Curtis (No 2)

[2016] NSWSC 795

Fraud & dishonesty
CRIME APPLICATION FOR A DIRECTED VERDICT CONSPIRACY

Citation: R v Curtis (No 2) [2016] NSWSC 795
Court: Supreme Court of New South Wales
Date: 15 June 2016
Judge(s): McCallum J

Background

The accused was tried by jury on a single count of conspiracy to commit the offence of insider procuring, contrary to s 1043A(1)(d) of the Corporations Act 2001 (Cth). That provision, broadly speaking, prohibits a person in possession of inside information from procuring another person to buy or sell certain financial products. The Crown alleged that the accused and a co-conspirator, an equities dealer at a large fund manager, agreed to exploit the dealer's confidential knowledge of his employer's trading intentions by "front-running" those trades using contracts for difference.

The Crown's case rested primarily on the evidence of the co-conspirator, who described the arrangement under which he would identify trading opportunities based on his employer's intentions and send instructions to the accused by secure Blackberry messaging. Documentary evidence recorded 45 occasions on which the accused's trading vehicle, a company he controlled, opened positions in the same shares Orion Asset Management was buying or selling on the same day, in most cases shortly before Orion's trading began.

At the close of the Crown case, the accused brought two applications heard in the absence of the jury: an application for a directed verdict of not guilty, and an application to dismiss the conspiracy charge in the interests of justice under s 11.5(6) of the Criminal Code (Cth). McCallum J dismissed both applications and reserved reasons. The jury subsequently returned a verdict of guilty on 2 June 2016.

Legal Issues

  • Whether the Crown had adduced sufficient evidence to support a verdict of guilty, specifically whether evidence existed to establish the objective materiality of the alleged inside information, the co-conspirator's subjective knowledge of materiality, and the accused's intention that the offence of insider procuring would be committed.
  • Whether the offence of conspiracy to commit insider procuring is conceptually sound where the inside information did not yet exist at the time the agreement was entered into, and whether belief (as opposed to actual knowledge) about future information suffices for the mental element.
  • Whether the interests of justice required dismissal of the conspiracy charge under s 11.5(6) of the Criminal Code, in circumstances where the accused alleged that substantive offences could have been charged instead.

Decision

Issue 1: Conceptual validity of conspiracy based on future inside information

The accused argued that, because the inside information had not yet come into existence when the agreement was made, the Crown could not prove the required mental element. McCallum J rejected this argument. Conspiracy criminalises the act of entering into an agreement to commit an offence in the future, so expressing its elements in the future subjunctive is inherent to the offence (at [23]-[24]). The relevant question, following the High Court's analysis in The Queen v LK, was whether the accused and co-conspirator knew or believed that the information Hartman would later possess would be inside information, not whether the information actually existed at the time of the agreement (at [25]-[26]). Proof of belief, rather than actual knowledge, satisfies this mental element (at [29]-[31]).

Issue 2(a): Objective materiality of the alleged inside information

The accused contended the Crown led no evidence capable of establishing that Orion's trading intentions were objectively material. McCallum J found that the accused's submissions misidentified the relevant point in time: the jury had to assess whether, at the time the agreement was entered into, the information Hartman would receive in the future would be material, not whether particular information possessed at the time of each of the 45 trades was material (at [41]-[42]). The evidence established that Hartman received daily instructions to buy or sell large volumes of shares on behalf of a fund manager with approximately $7 billion under management, that he knew the information was confidential and not generally available, and that Orion's trading could affect share prices. That evidence was sufficient for the jury to conclude that the future information would meet the statutory materiality test (at [54]). The absence of expert evidence on materiality was not determinative, as materiality in this context was not so technical as to be beyond a lay jury's capacity (at [56]). The accused's argument that the real inside information was Hartman's aggressive trading style rather than Orion's underlying intentions was rejected as a false dichotomy: the raw information about trading intentions remained capable of satisfying the statutory test (at [62]).

Issue 2(b): Subjective knowledge of materiality

The accused submitted the evidence could not establish that the co-conspirator subjectively knew or believed the information would be material. McCallum J rejected this, again on temporal grounds: the submissions focused on what Hartman knew at the time of each trade rather than at the time the agreement was made (at [66]). The court further noted that the accused himself was not required to possess inside information; the Crown needed only to prove that both men knew or believed Hartman would possess inside information when procuring the accused to trade (at [67]-[68]).

Issue 2(c): The accused's intention that the offence would be committed

The accused argued the Crown established at most recklessness as to whether Hartman would possess inside information, which would be insufficient. McCallum J disagreed (at [72]-[74]). The court characterised the Crown's case on intention as strong, having particular regard to evidence of the purchase of a Blackberry for covert communication, discussions about the device's undetectable messaging facility, and the accused's opening of a separate trading account the day before the first of the 45 trades (at [74]).

Issue 3: Dismissal in the interests of justice under s 11.5(6)

The accused argued the conspiracy charge was used to circumvent the need to prove that he personally possessed or knew of inside information, and that this constituted an unfair use of the conspiracy vehicle where substantive offences could have been charged. McCallum J declined to exercise the power under s 11.5(6). The principles from R v Hoar do not create an immutable rule that a conspiracy charge must be dismissed whenever a substantive offence could have been charged (at [84]). The court found no substantive offence under s 1043A had been clearly identified by the accused as available on the evidence, given that the accused was not the insider and had not received the inside information directly (at [86]). A conspiracy charge served the interests of justice here: the case to support the conspiracy was relatively straightforward, whereas prosecuting 45 separate substantive offences would have been significantly longer and more complex (at [88]).

Orders Made

  • Accused's application for a directed verdict dismissed.
  • Accused's application for an order dismissing the conspiracy charge dismissed.

Key Takeaways

  • A conspiracy to commit insider procuring does not require proof that the accused possessed, or was ever communicated, the actual inside information. The Crown need only prove that the accused knew or believed the insider would possess inside information at a future time when procuring the accused to trade (at [67]-[68]).
  • Proof of belief, as opposed to actual knowledge, satisfies the mental element required for the offence of conspiracy to commit insider procuring under s 1043A(1)(d) of the Corporations Act, consistently with the High Court's reasoning in The Queen v LK (at [29]-[32]).
  • Where inside information has not yet come into existence at the time a conspiratorial agreement is made, there is no conceptual deficiency in a charge of conspiracy: the future subjunctive expression of the elements is inherent to any conspiracy offence, and the relevant assessment is what the parties knew or believed about the information that would be obtained (at [23]-[28]).
  • Information about the trading intentions of a major institutional fund manager, with billions of dollars under management and an intention to buy or sell millions of dollars' worth of a particular stock on a particular day, is capable of constituting inside information within the meaning of s 1042A of the Corporations Act without expert evidence, the question being one falling within the ordinary capacity of a jury (at [56]-[58]).
  • The power under s 11.5(6) of the Criminal Code to dismiss a conspiracy charge in the interests of justice is not engaged merely because substantive charges could have been preferred. The remarks in R v Hoar about the undesirability of conspiracy charges do not create an immutable rule, and the interests of justice may affirmatively favour a conspiracy charge where it simplifies proceedings compared with multiple substantive counts (at [84]-[88]).

Legislation and Cases Referenced

Legislation
- Corporations Act 2001 (Cth)

Cases
- Doney v The Queen (1990) 171 CLR 207
- Elomar v R [2014] NSWCCA 303; 300 FLR 323
- May v O’Sullivan (1955) 92 CLR 654
- Giorgianni v The Queen (1985) 156 CLR 473
- R v Curtis [2016] NSWSC 660
- R v Hoar (1981) 148 CLR 32
- R v Mok (1987) 27 A Crim R 438
- R v Shepherd (1988) 37 A Crim R 303
- The Queen v LK [2010] HCA 17; 241 CLR 177