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Insider Trading

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Adam Smith who is considered to be the forefather of economics was very much in favour of a free market. Smith believed that without intervention in trade that an “invisible hand”, or essentially the trader’s and buyer’s own interests in the transaction would ultimately determine or guide the best price or outcome for all concerned.  Obviously the Australian Stock Exchange does not operate in a free a market however, in an endeavour to allow the market to settle or determine the value of securities, both theCorporations Act (Cth) 2001 “the Act” and Chapter 3 of the ASX Listing Rules have continuous disclosure requirements to the market that apply to certain entities (as per Part 1.2A and ss674-675 of the Act).

It follows from the above, that for those dealing in securities with inside information (as defined under s1042A of the Act) have an unfair advantage compared to the rest of the market. Hence, the courts take a very tough stance on those who take advantage of such information, as per McCallum J in R v Glynatsis [2013] NSWCCA 131, at [79]:

The acquisition or disposal of financial products by people having the unfair advantage of inside information is criminalised because it has the capacity to unravel the public trust which is critical to the viability of the market. It is, as previously observed by this Court, a form of cheating. The fact that people of otherwise good character and compelling personal circumstances are tempted to engage in such conduct emphasises the need for the clear deterrent that insider traders should expect to go to gaol.

Hence, the offence provision s1043A of the Act – Prohibited conduct by person in possession of inside information (see below). Section 1043A(1) deals with offences of trading in securities with inside information whereas, s1043A(2) deals with offences of providing information or “tipping”. The defences for these offence are set out under s1043M (see below).

The relevant penalties are set out at item 310 of schedule 3 of the Act – which are:

In the case of an individual, imprisonment for 10 years or a fine the greater of the following:

(a) 4,500 penalty units ($495,000);

(b) if the court can determine the total value of the benefits that have been obtained by one or more persons and are reasonably attributable to the commission of the offence–3 times that total value;

or both.

In the case of a body corporate, a fine the greatest of the following:

(a) 45,000 penalty units ($4,950,000);

(b) if the court can determine the total value of the benefits that have been obtained by one or more persons and are reasonably attributable to the commission of the offence–3 times that total value;

(c) if the court cannot determine the total value of those benefits–10% of the body corporate’s annual turnover during the 12-month period ending at the end of the month in which the body corporate committed, or began committing, the offence.

The relevant legislation and two cases are set out below namely, Hartman v R [2011] NSWCCA 261 which deals with Insider Trading and the case of Khoo v R [2013] NSWCCA 323 in relation to “tipping”. 

CORPORATIONS ACT 2001 – SECT 1042A

Definitions

                   In this Division:

“able to be traded ” has a meaning affected by section 1042E.

Division 3 financial products means:

                     (a)  securities; or

                     (b)  derivatives; or

                     (c)  interests in a managed investment scheme; or

                    (ca)  debentures, stocks or bonds issued or proposed to be issued by a government; or

                     (d)  superannuation products, other than those prescribed by regulations made for the purposes of this paragraph; or

                     (e)  any other financial products that are able to be traded on a financial market.

“generally available ” , in relation to information, has the meaning given by section 1042C.

“information ” includes:

                     (a)  matters of supposition and other matters that are insufficiently definite to warrant being made known to the public; and

                     (b)  matters relating to the intentions, or likely intentions, of a person.

“inside information ” means information in relation to which the following paragraphs are satisfied:

                     (a)  the information is not generally available;

                     (b)  if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products.

“material effect ” , in relation to a reasonable person’s expectations of the effect of information on the price or value of Division 3 financial products, has the meaning given by section 1042D.

“procure ” has a meaning affected by section 1042F.

relevant Division 3 financial products , in relation to particular inside information, means the Division 3 financial products referred to in paragraph (b) of the definition of inside information.

CORPORATIONS ACT 2001 – SECT 1042C

When information is generally available

             (1)  For the purposes of this Division, information is generally available if:

                     (a)  it consists of readily observable matter; or

                     (b)  both of the following subparagraphs apply:

                              (i)  it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in Division 3 financial products of a kind whose price might be affected by the information; and

                             (ii)  since it was made known, a reasonable period for it to be disseminated among such persons has elapsed; or

                     (c)  it consists of deductions, conclusions or inferences made or drawn from either or both of the following:

                              (i)  information referred to in paragraph (a);

                             (ii)  information made known as mentioned in subparagraph (b)(i).

             (2)  None of the paragraphs of subsection (1) limits the generality of any of the other paragraphs of that subsection.

CORPORATIONS ACT 2001 – SECT 1042D

When a reasonable person would take information to have a material effect on price or value of Division 3 financial products

                   For the purposes of this Division, a reasonable person would be taken to expect information to have a material effect on the price or value of particular Division 3 financial products if (and only if) the information would, or would be likely to, influence persons who commonly acquire Division 3 financial products in deciding whether or not to acquire or dispose of the first-mentioned financial products.

CORPORATIONS ACT 2001 – SECT 1042F

Inciting, inducing or encouraging an act or omission constitutes procuring the omission

             (1)  For the purposes of this Division, but without limiting the meaning that the expressionprocure has apart from this section, if a person incites, induces, or encourages an act or omission by another person, the first-mentioned person is taken to procure the act or omission by the other person.

             (2)  Subsection (1) does not limit the application in relation to provisions in this Division of:

                     (a)  section 6 of the Crimes Act 1914 ; or

                     (b)  section 11.1, 11.2, 11.2A, 11.4 or 11.5 of the Criminal Code.

CORPORATIONS ACT 2001 – SECT 1043M

Defences to prosecution for an offence

             (1)  In a prosecution of a person for an offence based on subsection 1043A(1) or (2), it is not necessary for the prosecution to prove the non-existence of facts or circumstances which, if they existed, would, by virtue of section 1043B, 1043C, 1043D, 1043E, 1043F, 1043G, 1043H, 1043I, 1043J or 1043K, preclude the act or omission from constituting a contravention of subsection 1043A(1) or (2), as the case may be, but it is a defence if the facts or circumstances existed.

Note:          A defendant bears an evidential burden in relation to the facts or circumstances. See subsection 13.3(3) of the Criminal Code .

             (2)  In a prosecution brought against a person for an offence based on subsection 1043A(1)because the person entered into, or procured another person to enter into, a transaction or agreement at a time when certain information was in the first-mentioned person’s possession:

                     (a)  it is a defence if the information came into the first-mentioned person’s possession solely as a result of the information having been made known as mentioned in subparagraph 1042C(1)(b)(i); and

                     (b)  it is a defence if the other party to the transaction or agreement knew, or ought reasonably to have known, of the information before entering into the transaction or agreement.

Note:          A defendant bears an evidential burden in relation to the matters referred to in paragraphs (a) and (b). See subsection 13.3(3) of the Criminal Code .

             (3)  In a prosecution against a person for an offence based on subsection 1043A(2) because the person communicated information, or caused information to be communicated, to another person:

                     (a)  it is a defence if the information came into the first-mentioned person’s possession solely as a result of the information having been made known as mentioned in subparagraph 1042C(1)(b)(i); and

                     (b)  it is a defence if the other person knew, or ought reasonably to have known, of the information before the information was communicated.

Note:          A defendant bears an evidential burden in relation to the matters referred to in paragraphs (a) and (b). See subsection 13.3(3) of the Criminal Code .

CORPORATIONS ACT 2001 – SECT 1043A

Prohibited conduct by person in possession of inside information

             (1)  Subject to this Subdivision, if:

                     (a)  a person (the insider ) possesses inside information; and

                     (b)  the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information;

the insider must not (whether as principal or agent):

                     (c)  apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or

                     (d)  procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products.

Note 1:       Failure to comply with this subsection is an offence (see subsection 1311(1)). For defences to a prosecution based on this subsection, see section 1043M.

Note 2:       This subsection is also a civil penalty provision (see section 1317E). For relief from liability to a civil penalty relating to this subsection, see sections 1043N and 1317S.

             (2)  Subject to this Subdivision, if:

                     (a)  a person (the insider ) possesses inside information; and

                     (b)  the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information; and

                     (c)  relevant Division 3 financial products are able to be traded on a financial market operated in this jurisdiction;

the insider must not, directly or indirectly, communicate the information, or cause the information to be communicated, to another person if the insider knows, or ought reasonably to know, that the other person would or would be likely to:

                     (d)  apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or

                     (e)  procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products.

Note 1:       Failure to comply with this subsection is an offence (see subsection 1311(1)). For defences to a prosecution based on this subsection, see section 1043M.

Note 2:       This subsection is also a civil penalty provision (see section 1317E). For relief from liability to a civil penalty relating to this subsection, see sections 1043N and 1317S.

             (3)  For the purposes of the application of the Criminal Code in relation to an offence based on subsection (1) or (2):

                     (a)  paragraph (1)(a) is a physical element, the fault element for which is as specified in paragraph (1)(b); and

                     (b)  paragraph (2)(a) is a physical element, the fault element for which is as specified in paragraph (2)(b).

CORPORATIONS ACT 2001 – SECT 1043N

Relief from civil liability

                   In proceedings against a person under Part 9.4B (including under section 1317HA) relating to a contravention of subsection 1043A(1) or (2), the court may relieve the person wholly or partly from liability if it appears to the court that:

                     (a)  in any case–the circumstances in any of the sections referred to insubsection 1043M(1) applied; or

                     (b)  in the case of subsection 1043A(1)–the circumstance referred to in paragraph 1043M(2)(a) or (b) applied; or

                     (c)  in the case of subsection 1043A(2)–the circumstance referred to in paragraph 1043M(3)(a) or (b) applied.

CORPORATIONS ACT 2001 – SECT 1043O

Powers of Court

                   If, in a proceeding instituted under this Act, the Court finds that a contravention of section 1043A has occurred, the Court may, in addition to any other orders that it may make under any other provision of this Act, make such order or orders as it thinks just, including, but without limiting the generality of the above, any one or more of the following orders:

                     (a)  an order restraining the exercise of rights attached to Division 3 financial products;

                     (b)  an order restraining the issue of Division 3 financial products;

                     (c)  an order restraining the acquisition or disposal of Division 3 financial products;

                     (d)  an order directing the disposal of Division 3 financial products;

                     (e)  an order vesting Division 3 financial products in ASIC;

                      (f)  an order cancelling an agreement for the acquisition or disposal of Division 3 financial products;

                     (g)  an order cancelling an Australian financial services licence;

                     (h)  for the purpose of securing compliance with any other order made under this section, an order directing a person to do or refrain from doing a specified act.

Hartman v R [2011] NSWCCA 261 (7 December 2011)

 

Court of Criminal Appeal

New South Wales

Case Title:

Hartman v R

  

Medium Neutral Citation:

[2011] NSWCCA 261

  

Hearing Date(s):

9 November 2011

  

Decision Date:

07 December 2011

  

Jurisdiction:

 
  

Before:

Whealy JA

Adams J

Latham J

  

Decision:

The orders of the Court are:-

1. Leave to appeal is granted.

2. The appeal is allowed and the sentences passed upon the offender on 2 December 2010 are quashed.

3. In lieu thereof, the following sentences are imposed:-

(a) In relation to count 1, having regard to the Schedule of offences, the offender is sentenced to a term of imprisonment of 2 1/2 years commencing on 2 December 2010 and expiring on 1 June 2013.

(b) In relation to counts 2-19, the offender is sentenced to a term of imprisonment for 2 years, each term to commence on 2 December 2010 and expiring on 1 December 2012.

(c) In relation to count 20, having regard to the Schedule of offences, the offender is sentenced to a term of imprisonment for 18 months commencing on 2 June 2012 and expiring on 1 December 2013.

(d) In relation to counts 21-25, the offender is sentenced to a term of imprisonment of 16 months, each term to commence on 2 June 2012 and expiring on 1 October 2013.

(e) We specify a single pre-release period of imprisonment of 15 months to commence on 2 December 2010 and to expire on 1 March 2012. We order that, upon the expiry of the 15 month period of imprisonment specified, the offender be released upon his entering into a recognisance self in the sum of $1,000 to observe and comply with the conditions set out in the document annexed hereto and marked “A”. In compliance with the provisions of s 20 Crimes Act 1914 (Cth), the obligation to so observe and comply will be for a period of 18 months from 1 March 2012.

  

Catchwords:

CRIMINAL LAW – Sentencing appeal – insider training offences – error by trial Judge in reflecting assistance to authorities

CRIMINAL LAW – matters relevant to re-sentence – need for general deterrence in insider trading offences – subjective circumstances – co-operation with authorities – future assistance – whether psychiatric condition relevant – whether connected to offences – gambling addiction – remorse – rehabilitation – Ellis discount

  

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth), s 13

Corporations Act 2001 (Cth), ss 1043A(1), (2),1311(1)

Crimes Act 1914 (Cth), ss 16A, 16BA, 19AC,21E

Criminal Appeal Act 1912, s 6(3)

Proceeds of Crime Act 2002 (Cth)

  

Cases Cited:

BP v R [2010] NSWCCA 159; (2010) 201 A Crim R 379

DPP (Cth) v De La Rosa (2010) 205 A Crim R 1;[2010] NSWCCA 194

Director of Public Prosecutions (Cth) v El Karhani(1990) 21 NSWLR 370; A Crim R 123

Hili v R (2010) 85 ALJR 196

Johnson v the Queen [2004] HCA 15; (2004) 78 ALJR 616

KT v R [2008] NSWCCA 51; (2008) 182 A Crim R 571

Lodhi v The Queen [2007] NSWCCA 360; [2007] 179 A Crim R 470

McQuoid [2010] 1 Cr App R (S) 43

MS2 and Ors v Regina [2005] NSWCCA 397; (2005) 158 A Crim R 93

R v Ellis (1986) 6 NSWLR 603

R v Hartman (2010) 81 ACSR 121; [2010] NSWSC 1422

R v Hearne [2001] NSWCCA 37; (2001) 124 A Crim R 451

R v Letteri (NSW CCA unreported 18 March 1992)

R v Rollins [2011] EWCA Crim 1825

R v Wright (1997) 93 A Crim R 48

  

Texts Cited:

 
  

Category:

Principal judgment

  

Parties:

Applicant – John Joseph Hartman

Respondent – Commonwealth Director of Public Prosecutions

  

Representation

  

– Counsel:

Applicant – Mr T Game SC/S Buchen

Crown – Mr R Beech-Jones SC

  

– Solicitors:

Applicant – Johnson Winter Slattery

Crown – Commonwealth Director of Public Prosecutions

  

File number(s):

CCA 2010/65592

 

Decision Under Appeal

  

– Court / Tribunal:

 
  

– Before:

McClellan CJ at CL

  

– Date of Decision:

02 December 2010

  

– Citation:

R v Hartman (2010) 81 ACSR 121; [2010] NSWSC 1422

  

– Court File Number(s)

2010/65592

  

Publication Restriction:

 

JUDGMENT

THE COURT: This is an application for leave to appeal by John Joseph Hartman (“the applicant”). It relates to sentences imposed by his Honour Justice McClellan CJ at CL (the sentencing judge) on 2 December 2010 ( R v Hartman (2010) 81 ACSR 121; [2010] NSWSC 1422).

2  The applicant had pleaded guilty to nineteen charges of insider trading contrary to ss 1043A(1) and 1311(1) of the Corporations Act 2001 (Cth) (Counts 1-19) and six charges of communicating inside information contrary to ss 1043A(2) and 1311(1) of the Corporations Act (Counts 20-25). The applicant also admitted his guilt in relation to further charges of a like kind that were listed on a schedule. The additional insider trading matters were taken into account in the sentence imposed for Count 1, while the additional ‘tipping’ matters were taken into account in the sentence imposed for Count 20. Each offence carried a maximum penalty of imprisonment for five years and/or a maximum fine of $220,000.

3  In general terms, the applicant had traded with, and communicated to another person, inside information over an 18-month period. This was between about the middle of 2007 and up to early January 2009. The “information” consisted of targets set for the acquisition and disposal of shares. These targets were set by the applicant’s employer Orion Asset Management Limited (Orion). The applicant was employed by Orion as an equities dealer. In that capacity, he acquired the “information” of the target set by Orion’s portfolio managers. The applicant used the information to engage in “front-running”; off-market trading in Contracts for Difference (CFDs). This occurred from about the middle of 2008 to January 2009. Earlier, from mid 2007 to mid 2008, the applicant had passed inside information to a close friend (Mr Curtis) knowing that he would acquire CFD’s in the relevant stock (the tipping offences). Prior to sentence, the applicant had consented to forfeiture of $1,575,949.43 under the Proceeds of Crime Act 2002 (Cth). This represented the substantial portion of the total profit particularised in the charges.

4  The applicant was sentenced to an aggregate term of imprisonment of four and a half years. A single non-parole period of three years was fixed. The non-parole period commenced on 2 December 2010 and is to expire on 1 December 2013. The individual sentences imposed on the applicant were as follows:

Count #1 3 years imprisonment Commenced: 2.12.10

Expires: 1.12.13

Counts #2-19 2 years imprisonment Commenced: 2.12.10

Expires: 1.12.12

Count #20 2 years imprisonment Commences: 2.6.13

Expires: 1.6.15

Counts #21-25 18 months imprisonment Commences: 2.6.13

Expires: 1.12.14

5     The insider trading sentences were made concurrent with one another, as were the tipping sentences. The latter, however, were then partially accumulated upon the sentence for Count 1. The sentence structure involves a substantial measure of accumulation between the two groups of sentences. The tipping sentences share only six months of concurrency with the sentence for Count 1 and they commence after the expiration of the sentences for Counts 2-19.

Grounds of Appeal

6     The applicant contends that the sentences imposed upon him were unduly severe in all the circumstances of the case such that lesser sentences are warranted in law: s 6(3) of the Criminal Appeal Act 1912 . The particulars of error contained in the Grounds of Appeal are as follows:

(1) The Sentencing Judge erred in the manner in which he had regard to the applicant’s assistance to the authorities.

(2) The sentence for the group offences did not adequately reflect the applicant’s assistance to authorities.

(3) The Sentencing Judge erred by failing to have regard to the applicant’s demonstrated contrition.

(4) The Sentencing Judge erred by determining that there was a need to reflect general deterrence in the sentence passed upon the applicant.

7     (On the hearing of the application for Leave to Appeal, Ground 4 was modified. It was argued that the Sentencing Judge placed too much weight on the aspect of general deterrence and had failed to give adequate weight to the applicant’s subjective circumstances. In other words, it was conceded that there was a need to reflect general deterrence in the sentences but that this aspect of the sentence was modified by other matters, particularly the applicant’s mental health problems).

Facts Relating to the Offences

8     There was an agreed statement of facts before the Sentencing Judge. Its contents are set out in full in his Honour’s remarks on sentence. We shall briefly summarise the relevant facts.

9  The applicant commenced employment as an equities dealer at Orion on 27 March 2006. He was then 20 years of age. His task involved the buying and selling of shares to align the target and actual weight of shares held on behalf of Orion’s clients. He would do this through a number of brokers utilised for this purpose by Orion.

10          The stocks were bought and sold by Orion as fund manager on behalf of its clients. The level of stock held by Orion in any particular security was the ongoing responsibility of Orion’s portfolio managers. It was they who set targets for the acquisition or disposal of specific stocks in order for Orion to maintain the best possible stock portfolio on behalf of its clients. The desired level of acquisition or disposal or particulars stocks was known as “target portfolio weights”.

11          The target portfolio weights for each of Orion’s investment options were recorded by Orion’s portfolio managers in an electronic spreadsheet which was linked to Orion’s dealing system. From the dealing system, the applicant was able to see the difference between the target quantity (based upon the target portfolio weights) and the actual quantity of shares held on behalf of Orion’s clients.

12          The applicant accessed Orion’s dealing system throughout his working day. This enabled him to carry out his role as an equities dealer. From time to time, he was also provided with verbal instructions from the portfolio managers with regard to the manner in which particular shares should be bought or sold. This access and these instructions meant that the applicant was privy to information that enabled him to observe and generally effect:

(a) the time at which shares were bought or sold;

(b) the price at which shares were bought or sold;

(c) the quantity of shares bought or sold; and

(d) the stockbrokers to be used to buy or sell shares.

13 It was often the case that the portfolio targets involved the buying or selling of significant volumes of a particular stock. In the course of buying or selling in significant volumes, the applicant came to appreciate that large volume trading could potentially have the effect of lowering or raising the price of the stock within a short time frame.

14          Early in his employment career, in August 2006, the applicant had opened for his own benefit an IG Markets Ltd (IG Markets) trading account. IG Markets is part of the IG Group based in the United Kingdom. Its clients include brokers, fund managers and private investors such as the applicant.

15          The insider trading offences arose out of conduct by the applicant in which he used financial products offered by IG Markets in the forms of CFDs. A CFD is a derivative, the value of which is determined by the price of an underlying share. CFDs on individual shares are different to buying or selling the underlying shares in a number of respects. First, the CFD trader only has to pay a margin, usually about 10% of the total contract value, rather than having to pay the total transaction amount, as would be required if the underlying shares were bought. Secondly, unlike a share transaction, when a CFD is sold (“taking a short position”) there is no need for a CFD trader to later acquire the underlying shares for transfer upon settlement. Thirdly, interest is calculated daily on a CFD trader’s overnight position. Once a CFD position is open, it can generally be held open for as long as a CFD trader wishes. CFD trading is generally regarded as highly risky. While there is a greater potential to maximise returns, there is equally a greater potential to suffer large losses in a short time period.

16          The Australian Securities and Investment Commission (ASIC) in its Report 205 at July 2010 describes CFDs in these terms:

CFDs are a highly geared derivative product that allows traders to take a position on the change in the asset of an underlying asset or security…CFDs allow traders to take a short or long position on changes in the value of underlying assets through entering into a swap-style arrangement with the CFD issuer. A trader entering into a long position (buying a CFD), for example, is betting that the price of the underlying share will move higher relative to today’s price. In contrast, a trader taking a short position (selling a CFD) is betting that the price will move below today’s price.

In an associated document in evidence before the Sentencing Judge (ASIC Financial Tips and Safety Checks, Exhibit 3) the following warning was given:

Essentially, under a CFD you are borrowing money to bet on the short term movement of share prices. If you are right you make money. If you’re wrong you lose…CFDs are generally highly geared products. This means your stake will generally only be a fraction of the market value of the shares you’re contracting for…You’re effectively gambling a much larger amount of money than if you went to the casino or racetrack. You therefore face potentially unlimited losses.

17 Initially, the applicant used his trading account with IG Markets for personal trading. This trading did not involve the use of inside information. Overall, it seems he lost money in relation to this early period of trading and his account was suspended for a time. From about mid 2008, the applicant re-commenced trading in CFDs after he had reopened his IG Markets accounts. These later trades were made based on the information the applicant received about trades Orion intended to make in the same stock. As he said in his statement to ASIC (Exhibit A, para 20):

If I saw that Orion needed to trade in a stock and that may have a material impact on the price of the stock, then I would trade for myself personally and then trade out of the position when I thought it was appropriate for my personal best interests.

In the same statement, the applicant indicated that his ability to trade using the insider information was constrained initially because of his financial position. Over time, however, the size of the trades he could make on his IG Markets accounts grew quite significantly. It appeared the account was in his own name and when it was initially opened, it was done so by use of an Orion letterhead document. There was no suggestion that a false name or false address or anything of that kind had been used.

18 It is necessary to backtrack to deal with the offences relating to the communications given to Mr Curtis. Mr Curtis was a childhood friend of the applicant. Inside information was communicated by the applicant to Mr Curtis during the period May 2007 to mid June 2008. Discussions between the two young men lead to a mutual understanding that Mr Curtis would trade in CFDs using inside information communicated to him by the applicant. Mr Curtis would provide the capital and the applicant would provide the information. This information, once again, related to Orion’s intended trading in the shares and entities listed on the Australian Securities Exchange.

19          Mr Curtis purchased two Blackberry phones and these were used in their communications with one another. It was Mr Curtis’ idea that communications should take place in this manner because the consequence would be that data would not be left on telecommunication services. It appears that it was agreed between the applicant and Mr Curtis that this system of messaging would also coordinate the taking up of a CFD position by Mr Curtis before the applicant commenced his trading in the shares of the same entity. This was done to maximise the likelihood that the share price would move in the same direction as the CFD taken out by Mr Curtis. The proposal involved, after the distribution of brokerage and other expenses, a sharing of profits.

20          The applicant stopped passing on information to Mr Curtis in about June 2008. By this stage, his financial circumstances had changed and he decided he would use the Orion trading information himself using his IG Markets account. He told Mr Curtis “I just can’t keep on giving you this information”.

21          In his statement to ASIC, the applicant said that when he started work at Orion, he had signed a personal trading policy document. This instructed him in relation to the insider trading laws and warned him against conflicts of interests that might arise between Orion, Orion’s clients and his personal trading activities. His supervisor Tim Ryan told him that Orion strongly discouraged personal trading. The policy made it clear that he was required to notify Orion and obtain permission from his supervisor in relation to any personal transactions. In that situation, he was required to fill out a form and disclose the identity of his broker, how many shares he had bought and the price.

22          During his employment, the applicant was required on some three occasions to complete an audit form. This required him to state whether or not he had engaged in any trading during the relevant period. On each of these occasions, the applicant responded to the audit by stating that he had not been involved in trading. This was an untrue statement.

23          In evidence before the sentencing judge was a statement of Robert MacAlpine. He was a solicitor with ASIC. By August 2008, ASIC had become aware of concerns in relation to personal trading by the applicant. By late October 2008, ASIC had become aware of the trades conducted on the trading account held by the applicant with IG markets for the period between 1 October 2007 and 31 July 2008. This trading included four trades which eventually were represented by Counts 1 to 4 in the indictment.

24          By 8 January 2009, ASIC had become aware of trades on the account for the entire period from August 2008 to January 2009. ASIC was in the process of assessing this information relating to the overall trading of the applicant when events suddenly came to a head in mid January 2009.

25          The applicant received a request from IG Markets that he provide trade approval from Orion for the trades that he had done on the IG Markets account for the previous year. Written approval to this effect was required to be produced within one week, failing which, it was stated, IG Markets would present the matter to the applicant’s employer. Clearly, there was no way out for the applicant and in a state of desperation he approached his father, Dr Keith Hartman, and told him everything that he had done.

26          The applicant’s father immediately arranged an appointment for the applicant to see a solicitor, Mr Mark O’Brien and instructions were given, first, to inform Orion what had happened and secondly to make arrangements for the applicant to see ASIC with a view to making full admissions immediately.

27          The applicant wrote a meaningful letter of apology to his co-workers and employers at Orion and was notified in turn on the 20 January 2009 that his employment had been terminated. In the letter, Orion stated that it would disclose the applicant’s conduct to ASIC immediately.

28          The applicant’s voluntary recorded interview with ASIC took place on 21 January 2009. In this interview, the applicant made substantial admissions as to conduct he had engaged in while an employee of Orion. The admissions concerned:

(a) trading in CFDs that he had conducted on his account on IG markets; and

(b) his communication of confidential price sensitive Orion trading information to Mr Curtis.

29 In addition, the applicant also provided further information in the interview regarding other third party conduct not involving any transgression or misconduct on the applicant’s part.

30          Following the completion of the interview, and no doubt because of it, ASIC commenced its formal investigation under s 13 of the Australian Securities and Investments Commission Act 2001(Cth) in respect to contraventions, both by the applicant and Mr Curtis and associated entities, of offences under the Corporations Act 2001 .

31          On 22 July 2009, IG Markets commenced interpleader proceedings in the Supreme Court of Victoria in relation to the credit balance of the applicant’s trading account. Later the Commonwealth Director of Public Prosecutions (DPP) applied for orders under the Proceeds of Crime Act 2002 (Cth) in relation to the credit balance of the account, being the sum of $1,592,499.93. With the co-operation of the applicant, these proceedings were resolved by consent. The ultimate consent orders effectively dealt with the property in dispute in the interpleader proceedings.

32          By September 2009, ASIC and the applicant’s legal representatives were in discussion regarding the possibility of the applicant cooperating to resolve criminal and other actions against him. In September and October 2009, there were further interviews by ASIC with the applicant. The subject matter of these interviews extended to a range of matters in which no allegation of impropriety was made against the applicant.

33          On 24 February 2010, the applicant provided ASIC with a signed statement in which he admitted the truth of all the facts and conclusions asserted against him. He also indicated his intention to plead guilty to the 25 offences set out in the annexed document. Finally, the applicant provided ASIC with an undertaking to cooperate for the purposes of s 21E of the Crimes Act 1914 (Cth) and two forms for the purposes of s 16BA of the Crimes Act 1914.

34          On 8 March 2010, the applicant was issued with Court Attendance Notices in which he was charged with 25 offences in substantially the same form as those contained in the indictment presented before the Supreme Court. On 6 April 2010, the applicant appeared before the Downing Centre Local Court and entered a plea of guilty to the 25 charges in the Court Attendance Notices. On 6 August 2010, the applicant was arraigned before the Supreme Court of New South Wales. He entered a plea of guilty to each of the charges contained in the indictment. In addition he asked for the offences listed on the Section 16BA forms to be taken into account as a part of the sentencing process.

The Applicant’s Subjective Case – Material before the Sentencing Judge

35 The applicant presented a substantial subjective case at the sentencing hearing. For example, there was evidence to demonstrate that the applicant was fully willing to facilitate the course of justice. This was evidenced by his prompt attendance at ASIC on the 21 September 2009 and his voluntary admissions made during the first interview. It was evidenced thereafter by his facilitation of the making of the order under the Proceeds of Crime Act . It was also evidenced by his entry of a plea at the earliest available opportunity. His co-operation with authorities and the provision of assistance, both past and present, was also significant.

36          One factor of special importance in the sentencing proceedings was the material relating to the applicant’s mental illness. This, of course, had a bearing not only on the subjective case presented on his behalf but also on the issue of the overall criminality involved in the commission of the offences.

37          The evidence before the Sentencing Judge included various reports of the applicant’s treating psychiatrist, Dr Wilson, and the report of the consultant psychiatrist, Professor Jonathon Phillips.

38          Dr Wilson had treated the applicant since the time of his admission to the North Side Clinic in January 2009. He had been admitted in a distressed and suicidal state. Dr Wilson had diagnosed the applicant as suffering from a major depressive disorder with anxiety, pathological gambling and past (chronic) dysthymia. Dr Wilson stated in his report on 7 November 2009:

There was initial consideration given to the diagnosis of adjustment disorder with depressed mood, but his syndrome was much more severe, pervasive and persistent than an adjustment disorder. The pre-existing dysthymia and strong family history further contributed to the diagnosis of major depressive order.

39 In relation to the gambling addiction, referred to in his reports, Dr Wilson said:

Mr Hartman meets diagnostic criteria for pathological gambling. This includes preoccupation with gambling, a need to gamble increasing amounts of money, plus feeling gambling is pointless if you cannot gamble large amounts. He gambles to relieve dysphoria and as a way of achieving a sense of escape…as mentioned, some of Mr Hartman’s stock market activity appears to constitute gambling behaviour also.

Dr Wilson developed this at page 3 of his report when he said:

There are elements of Mr Hartman’s approach to his work in share trading that are closely akin to gambling. Mr Hartman describes a similar “rush” and excitement with share trading to gambling. The share trading also has a compulsive quality and often interferes with normal social and home function. A striking example is that Mr Hartman would wake through the night and check the price of various shares. He had his bedroom set up so that he faced the computer screen. Because he could not view the screen from the lying position, he kept binoculars with him, and viewed the screen through these throughout the night.

40 It appears that shortly prior to the sentencing hearing, the applicant suffered a brief relapse in relation to his gambling addiction. He had been free from gambling activities for quite a considerable time prior to this relapse. Dr Wilson had attempted to pre-empt this in his earlier work with the applicant. In his September 2010 report he said:

In the light of our work and various discussions, John and I together formulated his difficulties as involving a combination of factors such as being heavily prone to addiction, being inexperienced and foolish with regard to judgment as well as suffering significant depression and trying in a sense to self medicate by way of gambling which included his illegal activities.

41 The reasons for the applicant’s depressive condition were not in issue. It appears to have been generally accepted at the sentence hearing that the applicant’s serious depressive problems began when he was in his last year at school. Prior to this time, he had been a relatively happy boy, successful in many areas of his schooling and popular with his many friends. There was however, as Dr Phillips in his reports noted, a strong family history of psychiatric disorder. Up until his final year at school, the applicant had recorded a generally happy family life but his situation changed dramatically when his brother Alex was diagnosed with serious bi-polar disorder at the age of eighteen. Alex made a suicide attempt at the time. He was treated by psychiatrists and found to be medication resistant. There were involuntary admissions to hospital. These events, according to the applicant’s father and teachers, had a significant effect on him and led to serious changes in his personality and behaviour.

42          In his September 2010 report, Dr Phillips expressed the opinion that the applicant suffered chronic depression spectrum symptoms and that these, according to reliable material, had been in existence at the time of the commission of the offences. Dr Phillips thought it probable that the applicant had sought temporary relief from his dysphoric state through his illegal activities. He explained that relief, at least in part, was achieved through his personal trading activities and through gambling. However, he did not believe that the applicant had a personality disorder in those regards. He concluded in this report:

Mr Hartman has a clear understanding of his wrongdoing. He does not deny his illegal actions. He recognises that he will be punished for his illegal actions and is trying to make adjustment to this. He is ashamed by his illegal actions and is contrite. He is not psychopathic by disposition. He committed his illegal actions at a time when his thinking was altered because of his chronic depression symptoms with motivation at the time principally to lift himself (albeit in a temporary matter) above his anhedonic symptoms. He remains in therapy with Dr Wilson and has reached a point in the process of treatment where it is highly unlikely that he will offend again.

43 We turn next to consider a third factor that was of importance in the sentencing hearing.

44          The material before the Sentencing Judge relating to the applicant’s provision of assistance to the authorities and cooperation with them was beyond doubt compelling. Indeed, at the hearing, the experienced Crown Prosecutor informed the Sentencing Judge that the assistance he had provided was “substantial” and “significant”. The learned Crown Prosecutor added (Transcript 101):

What happened as well was that not only was there a plea, but there was, I am instructed, a disclosure of his own activity as regards a number of activities that he had been involved in. It does not happen often in cases such as this…the number of cases that people expose, frankly, the whole of their activity is unusual and it is sought to be encouraged by the investigator involving these matters and sought to be encouraged by the only way that is possible by your Honour dealing with it here.

Mr MacAlpine in his statement said (Appeal Book 240-241):

[42] The offender’s assistance to ASIC commenced with his participation in an interview on 21 January 2010.

[43] The offender’s participation in the interview provided ASIC with assistance in a number of ways:

(a) he identified and explained conduct that he had engaged in;

(b) he identified and explained conduct that he alleged Mr Curtis had engaged in;

(c) he identified sources of evidence for ASIC to pursue in an investigation of possible offences;

(d) his admissions were made voluntarily under caution with consequent evidential and not merely informational value; and

(e) savings in ASIC’s time and resources flowing from the assistance referred to in (a)-(d).

[44] I believe that the offender was candid and truthful in interview.

45 Mr MacAlpine made it clear that, in the absence of information being disclosed by the applicant, ASIC would not have identified the tipping offences nor would they have been likely to have obtained material that assisted them in the investigation as to whether Mr Curtis had himself engaged in insider trading. He fairly stated that without the assistance of the applicant, there would not have been sufficient admissible evidence to prove the tipping offences to the required standard in a defended prosecution.

46          In relation to the final statement made by the applicant in February 2010, Mr MacAlpine said that the provision of this statement enabled the charging and prosecution of the applicant to be commenced earlier than it could otherwise have been. It saved ASIC from deploying resources to obtain most of the witness statements that would have been needed for a full brief of evidence against the applicant. Mr MacAlpine also made reference to the manner in which the applicant had given an undertaking to assist and give evidence in any proceedings against Mr Curtis. Although no decision had been made as to whether any charges would be brought against Mr Curtis, it was stated that the applicant would be a crucial witness in any future criminal or civil proceedings against Mr Curtis. He reiterated that the applicant had also provided information and assistance in relation to further matters in which it was not alleged the applicant had any involvement. This assistance was also provided on a voluntary basis.

47          In the concluding portion of his statement, Mr MacAlpine said:

[68] Since participating in the interview on 21 January 2009, the offender has at all times assisted ASIC in a timely and effective manner.

[69] I consider that the offender has made a genuine effort to fully cooperate with ASIC’s investigators and lawyers and to be full and frank in each interview he has attended.

[70] The offender’s disclosure of information to ASIC has included voluntary admissions as to his own involvement in conduct contravening the Corporations Act 2001. These included admissions by the offender that he communicated inside information to Mr Curtis which ASIC would have otherwise been unlikely to identify or be able to prove by admissible evidence to a required standard.

[75] It is inherently difficult to obtain the evidence necessary to prove insider trading offences and for this reason it is of significant assistance to ASIC if persons voluntarily disclose details of their own conduct or the conduct of others.

48 Mr Hartman gave evidence at the sentence hearing before the Sentencing Judge and submitted himself for cross-examination. In his evidence in chief, he confirmed the facts to which earlier reference had been made . He gave evidence that he had paid tax on the profits he made from the illegal trades and that he had openly conducted the IG Markets account in his own name. However, he agreed that he had lied in relation to the audit statements made to his employer as to whether he had been trading during the relevant period. At Appeal Book 69 the following passage occurs in his evidence in chief:

Question: Alright. Now in terms of how you, shall I say, felt when you made CFD trades, in your own words, what were your feelings, shall I say, when you made these trades?

Answer: The way that I was feeling around the time, I was in a very depressed state and the CFD trading gave a feeling similar to that of gambling.

Question: And was that a good feeling?

Answer: It was a rush of adrenalin similar to gambling.

Question: Alright and did you make both big losses and big gains?

Answer: Yes.

Question: Sometimes after many hundreds of thousands of dollars at once?

Answer: Yes.

The applicant, in evidence, revealed a somewhat contrasting aspect of his life that ran counter to his illegal behaviour. During the time when it was occurring, he was working as a volunteer doing community work at Theresa House which is a shelter for homeless men. He would do this once or twice a month and the work required him to stay overnight, sleeping in a terrace in Redfern that provided emergency accommodation for twelve homeless people. The work was done by himself and another volunteer over a period of years. Secondly, he revealed that after he had lost his position with Orion and following his treatment at Northside Clinic, he had received the assistance and guidance of a Jesuit priest, Father Steve Sinn who was the parish priest at St Canices at Elizabeth Bay. In effect, following this, the applicant became the priest’s personal assistant helping him especially with the parish work involving the care of homeless people and disadvantaged refugees in the local community. He worked in this capacity as a volunteer, wage-free for nearly two years. Father Sinn, as did others, provided a powerful reference at the sentencing hearing.

49 The pre-sentence report prepared in June 2010 generally corroborated all the matters to which we have made reference. The Probation and Parole officer in charge, Ms Gloria Enfield, said in relation to the mental health issue:

It appears that Mr Hartman first experienced feelings of depression during his later years of high school which corresponded with the time [when] one [of] his brothers became seriously unwell with a psychiatric illness, which was later diagnosed as bi-polar disorder. His depression remained untreated for several years, however after his illegal behaviour became known, Mr Hartman began treatment with a psychiatrist, initially twice weekly. In the past he has experienced feelings of suicidal ideation and he had begun to plan how he would suicide, although at the time of his interview with this service, he indicated he was no longer feeling suicidal…In January 2009 Mr Hartman was admitted to a residential psychiatric unit, where he stayed for three weeks while treatment was commenced. He has been diagnosed with a major depressive disorder and anxiety and remains on medication for these, as well as engaging in regular counselling.

In the concluding part of the report, Ms Enfield said:

Presenting as a cooperative albeit anxious person, Mr Hartman appears to have the benefit of stable formative years, raised by parents who remain emotionally supportive of him, despite their bewilderment of their son’s offending behaviour. Inquires indicate that Mr Hartman began to experience depression when he was about sixteen years old, at about the time one his brothers developed a serious psychiatric illness. In his late teens, Mr Hartman developed a gambling dependency which in part has been a means, however dysfunctional, of his attempting to deal with his feelings of depression. His psychiatrist also believes his gambling dependence may have played a role in his cognitions in the workplace…He appears to have developed significant insight into what influenced his illegal behaviour and it is encouraging that he appears committed to maintaining the constructive changes he has brought to his life. The emotional support Mr Hartman receives from his family is also a positive element in his life.

The Sentencing Judge’s Remarks

50 The Sentencing Judge gave careful consideration to the situation of the offender. He was satisfied that the offences were serious, particularly as they had been carried over a period of about nineteen months. His Honour said (para 45 ROS):

It must be remembered that his crimes were not victimless. Each illegal transaction was likely to have a cost to someone who either traded or held their position without the benefit of the knowledge available to the offender. The offender set about systematically trading in breach of the law for the sole purpose of enhancing his personal wealth at the expense of others. The evidence which I accept indicates that the insider trading charges alone made him a total profit in excess of $1.9 million.

[46] The Courts have said on many occasions that general deterrence is of particular significance in relation to white-collar crime. This is particularly the case in relation to insider trading offences which by their nature are easy to perpetrate but difficult to identify. Whereas in the present case the course of offending conduct results in the commission of multiple offences, a sentence of imprisonment is inevitable. I appreciate that the trades which the offender was making were not made in conventional markets but I do not accept that as a consequence the need for general deterrence is diminished.

[47] Although the offender has suffered from psychiatric difficulties, the need for a sentence which reflects general deterrence is such that his psychiatric illness is of only limited significance in the present case. There can be no doubt that notwithstanding any illness he may have been suffering from, he knew that what he was doing was wrong and a breach of the law.

It appears that the Sentencing Judge accepted that the offender had been suffering from a psychiatric illness as the medical reports had indicated, and that it was related to the gambling and illegal trading. His Honour said (para 37 ROS):

It would seem that the thrill of his illegal trades was similar to the thrill he received from a gamble on a horse or a play at the casino. His need for a “thrill” may be related to his psychiatric problems to which I have referred again below. In part his behaviour may be explained by those problems but it cannot be excused.

51 The Sentencing Judge acknowledged the contrition expressed by the applicant for his offending and for the hurt he had caused his family and others. His Honour acknowledged the assistance given to ASIC and indicated that he would give a discount of the type discussed in R v Ellis (1986) 6 NSWLR 603. He determined the appropriate discount in that regard to be 10 per cent. He also noted that the applicant was prepared to give evidence against another person and thereby was entitled to a further discount in that regard. This discount was determined to be 10 per cent in relation to the sentence for the tipping offences to which his offer to give evidence related. His Honour also accepted that the applicant was entitled to the maximum discount of 25 per cent for his plea of guilty in that he had thereby demonstrated a willingness to facilitate the course of justice.

52          The Sentencing Judge was rather more guarded in relation to the prospects of rehabilitation. This was because of the gambling relapse a short time before the sentencing hearing. Had it not been for that situation, it appears that his Honour would have accepted that the applicant was fully rehabilitated. However, his Honour noted that it would be unlikely that the applicant would ever again secure employment in a position where he would be able to trade with inside information in the financial markets.

53          Generally, his Honour was critical of that segment of the business world that allowed a person of the applicant’s youth and immaturity to be beguiled by the enormous salaries and rewards that were given to him for what was, as his Honour described it, a “responsible clerical position”. His Honour adopted Dr Hartman’s description of the world in which his son was employed as “plastic”. This, according to his Honour, was a world, which, while the applicant was still at university, corrupted his values and resulted in him pursuing “the high life” without regard for whether or not he was committing criminal offences. His Honour was also critical of the lack of effective supervision provided to the applicant. He said:

The temptations are so great and the potential rewards so significant that the fall into criminality of individuals is a significant risk.

54 The Sentencing Judge took into account the applicant’s good character and the fact that he had never come under adverse notice prior to these offences.

55          His Honour then imposed the sentences to which we have made reference at the commencement of these reasons. It is clear from his Honour’s remarks that his Honour accepted the submissions of the Crown and Mr Game SC that the structure of the sentences should be determined by grouping the two sets of offences and providing concurrency within each group but allowing for accumulation as between them. His Honour said (57-59 ROS):

[57] The sentences I propose compared with the extensive criminality of the offender may, to some people, seem to be lenient. This is in large part due to the Crown’s concession that I should consider the offences as two sets of offences reflecting the two statutory provisions which were breached and assume a total maximum penalty of ten years imprisonment, being five years for each set.

[58] Furthermore, although the offender must be adequately punished and others deterred, I am mindful of his relative youth, psychiatric illness and the possibility, notwithstanding my reservations, of his future rehabilitation.

[59] In all the circumstances I have decided that the sentence which I impose for the insider trading offences should be discounted by a total of 25%, the discount for the tipping offences will be 45%. The latter includes a discount of 10% conditional upon the offender giving evidence in the contemplated proceedings against the alleged co-offender and also includes the Ellis discount.

Commentary on the Sentences

56 As can be seen, count 1 attracted a sentence of three years. Counts 2-19 attracted a sentence of two years each with all sentences to commence on 2 December 2010. Thus, but for the discount of 25 per cent, these sentences would have been four years and two years eight months respectively.

57          The Sentencing Judge applied a discount of 45 per cent for the tipping offences which reflected a 25 per cent discount for the plea at the earliest opportunity, the 10 per cent portion of the discount depended upon the applicant giving evidence in accordance with his undertaking in other proceedings and a further discount was given of 10 per cent, being the ” Ellis ” discount.

58          On count 20 the applicant received a sentence of two years and on counts 21-25 he received a sentence of 18 months each, with all to be wholly concurrent. Thus, but for the 45 per cent discount, these sentences would have been just over three years and seven months, and just over two years and eight months respectively.

59          The ratio between the non-parole period fixed by his Honour and the overall sentence was 66 per cent. Neither party has suggested any error on his Honour’s part in the fixing of the non-parole period (see Hili v R (2010) 85 ALJR 196 which rejected the application of any “norm” involving an accepted ratio of 60-66 per cent between the overall sentence and non-parole period for federal offences).

Resolution of the Appeal

60 In relation to grounds 1 and 2, the complaint is made first that no discount was applied to the insider trading sentences to reflect any aspect of the applicant’s past assistance to authorities. Secondly, it is said that the composite discount applied to the tipping sentences did not expressly include a discount for past assistance given by the applicant in relation to those offences.

61          In its written submissions, and orally before this Court, the Crown, through Mr Beech-Jones SC, conceded that the sentencing Judge had fallen into error in relation to each of these matters. Secondly, although the Crown submitted that the Court might redress the error by simply readjusting the relevant discounts, it was accepted that, as a matter of principle, this Court was bound to re-sentence the applicant and, in so doing, was entitled, if thought appropriate, to approach the re-sentencing exercise from a broad perspective. Given the complexity of the matters involved, we determine that we should approach the imposition of sentence as a full re-exercise of the sentencing discretion.

Additional material available on the re-sentencing exercise

62 A considerable body of evidence has been placed before the Court for its use in re-sentencing the applicant. We shall briefly identify this material.

63          First, there is Exhibit A, an affidavit from Robert MacAlpine, the senior lawyer in one of ASIC’s market integrity deterrence teams. This affidavit provides detail of the assistance that has been given by the applicant to ASIC since the time of his sentence. For obvious reasons, we do not propose in this decision to detail the assistance which has been provided. It is sufficient to say that it has been significant in terms of both time and output. Whether any other person will be prosecuted in relation to the material provided by the applicant has not yet been decided by ASIC. The applicant remains bound by his undertaking to provide assistance in any future criminal or civil proceedings instituted against Mr Curtis for offences of contravening the Corporations Act 2001 . Mr MacAlpine states:

I consider that the applicant has made a genuine effort to fully co-operate with ASIC’s investigators and lawyers whenever he has been asked for assistance or information.

64 Exhibit B is an affidavit by the applicant sworn 8 October 2011. It details his progress in prison. He has made good use of his time completing a real-estate course with TAFE and is presently engaged in a building and construction course with the same educational institution. The applicant has also participated in a prison based addiction program. Although this did not relate to gambling addiction, the applicant has endeavoured to use the program to his advantage, having regard to his own particular problem. There are other courses that he has completed whilst in custody.

65          The applicant states that he currently holds the position of head library clerk. This gives him a fairly high degree of responsibility in the prison. His role includes maintaining the library, processing book loans and helping inmates to access library services. He also helps inmates, particularly those of a foreign background or those with poor English skills to understand and type legal documents such as immigration applications. It appears to be accepted that he has been well behaved in custody and there have been no adverse findings against him.

66          The applicant is currently housed in a facility which accommodates inmates in protective custody. Regrettably, the applicant’s own situation in relation to receiving adequate treatment of a psychiatric nature while in custody is disappointing. He has, despite his efforts, been able to see a psychologist on one occasion only. It took three months to organise and the consultation lasted for about 5 minutes. There does not appear to be any opportunity for regular consultation with a psychiatrist or psychologist in the applicant’s present circumstances. The applicant would like (and needs in the interest of rehabilitation) to receive some assistance in custody in relation to therapy or participation in programs that would help him overcome his gambling addiction but regrettably these do not appear to be available.

67          The applicant expresses very clearly his remorse in relation to the offences. He also presents a clear understanding of the circumstances which have led to the unfortunate situation in which he now finds himself. Finally, we should mention o element of concern in the affidavit. This relates to the abuse and threats he has received because it is known that he is giving some assistance to the authorities. He has not been, to this point, physically assaulted but has been verbally abused on a number of occasions for assisting authorities in relation to a former friend. He has received several threats of violence.

68          Exhibit C is material collated by the applicant’s solicitor Mark O’Brien. It includes evidence to support the applicant’s success in the courses he has been doing through TAFE. Secondly, there is a further reference from Father Sinn. He has visited the applicant in prison on three or four occasions. The letter is very persuasive on the issue of rehabilitation. Father Sinn says:

No one wants to be in prison. Having said that, John has made the best of the circumstances. …John has learnt so much during his time at [prison]; he does not take for granted the love of his family or friends; he has come to understand himself more deeply and to be in touch with his true self, his humanity. It may seem obvious, but out there in the commercial world the humanity of young people is not nurtured. He is aware as never before that he is prone to depression and that gambling is no way to medicate. He is aware of the importance of relationships in his life. This growth and awareness is the foundation that he is building his life on and has given him peace with himself. I look forward to seeing him soon and being part of his life in the years to come.

69 A further annexure is an updated report from Professor Jonathon Phillips. This report essentially summarises all of the psychiatric evidence at the sentencing proceedings and addresses the issue of the relationship between the applicant’s psychiatric condition and the commission of the offences which have seen him incarcerated. These matters were, of course, raised before the sentencing Judge, but for more abundant caution, Professor Phillips has re-addressed them. It will be sufficient to note paragraph 50 of the report:

With respect, and as stated in my first report, I believe it is critical in Mr Hartman’s case to note that his criminal behaviour occurred at a time of mental disturbance. The pattern is simple. Mr Hartman had a major depressive disorder of several years duration at the time. He attempted to escape chronic anhedonic feelings by seeking a “rush”. He did this through hazardous drinking, the use of elicit psycho-active drugs, gambling and illegal trading. The aim was identical across the activities, simply to achieve a “rush”. Seeking the “rush” became a compulsive behaviour over which he had very little control.

70 The final affidavit (Exhibit D) annexed a report from Dr Craig Wilson. He had visited the applicant in prison on 3 November 2011. This report sought to provide a current assessment for the applicant’s condition.

71          There are really two strands to Dr Wilson’s observations. First, he expressed disappointment that the applicant had not been able to obtain the type of psychiatric treatment and assistance he had hoped would be available to the applicant in custody. He expressed the opinion that it was “very disappointing” that someone who had had such severe mental illness difficulties in the past has not had any appropriate psychiatric review. Similarly, he was “disappointed” that the prison did not provide any specialised program for people suffering from a gambling addiction. In addition, he noted there had been no psychological intervention to assess, address or explore relapse prevention with regard to the applicant’s depressive illness.

72          On a more hopeful note, Dr Wilson was pleased with the applicant’s present mental state. He noted that there had been no serious resurgence of his depressive symptoms and particularly no aspect of suicidality. His observations were that the applicant was physically well and that mentally he was making the best of his situation in custody. He thought that there was a very low risk of any re-offending. In his report he said:

Since the day he made his confession to ASIC, Mr Hartman has gradually regained his previous closeness to his family, has reconnected with his values of integrity and hard work, and reaserted the value of community service in his life. Through his help seeking behaviour he has gained greater insight into his susceptibility to depressive illness and his lifelong vulnerability to gambling addiction in its varied forms.

73 In relation to the link between the applicant’s depression and the offending behaviour, Dr Wilson said:

Addiction illnesses (including gambling addiction) and mood disorders are known to be frequently co-morbid and exacerbate each other’s clinical course. From another perspective, the addictive behaviour of both Mr Hartman’s illegal trading activities and his gambling can be viewed as coping strategies to deal with dysphoric feelings and mood states associated with depression. They are, of course, inadequate coping mechanisms, but the sense of “rush” or “buzz” that Mr Hartman has described, and problem gamblers in general are known to feel, does serve to compensate for flat, withdrawn and negative feelings of depressive illness. It provides a brief respite from the dysphoric state, but of course has an addictive and compulsive quality directly akin to substance addiction, and ultimately serves to worsen a depressive condition rather than ameliorate it.

1  In summary, Dr Wilson said:

In my opinion as Mr Hartman’s treating psychiatrist he is coping reasonably with the difficulties of incarceration. He is however receiving inadequate care and treatment. It is unfortunate that sufficient and appropriate treatment modalities are not available or provided to Mr Hartman and I am certain that he would be well engaged with and receiving far superior treatment if not in custody. Mr Hartman seems generally remorseful and keen to embrace a future congruent with his re-focused core values. It is my hope that he achieves freedom from custody while he is able to maintain his good spirits and momentum for positive change.

Re-sentencing the applicant

74 We turn now to re-sentence the applicant.

75          First, we bear in mind (as did the sentencing Judge) that the statutory obligation (s 16A(1) Crimes Act (Cth) ) is to impose a sentence that is of a severity appropriate in all the circumstances of the offence. Secondly, we acknowledge the need to take into account a number of the relevant aspects of s 16A(2) of the Act . In particular, there is a need in the present re-sentencing exercise to consider the following matters especially:

The applicant’s contrition and remorse in relation to his offending;

The applicant’s plea of guilty and its circumstances;

His co-operation with authorities “in the investigation of the offence or other offences”;

His youth, relative immaturity and his psychiatric condition;

The applicant’s prospects of rehabilitation;

The need to ensure the applicant is adequately punished for the offence.

76 Thirdly, it is necessary to acknowledge that general deterrence, although not listed in s 16A(2), is an important general principle of sentencing and needs to be taken into account ( Director of Public Prosecutions (Cth) v El Karhani (1990) 21 NSWLR 370; 51 A Crim R 123; Lodhi v The Queen [2007] NSWCCA 360; [2007] 179 A Crim R 470 at [81] per Spigelman CJ). Indeed, all of the well known objects established by common law principles apply to the sentencing of a Federal offender: Johnson v The Queen [2004] HCA 15; (2004) 78 ALJR 616 per Gummow, Callinan and Heydon JJ at 622 [15].

77          With those matters in mind, we begin with an acceptance of the proposition that the circumstances of the present offence satisfy us that no sentence other than imprisonment is appropriate. Of course, the offender has already been in prison for nearly a year. However, we consider that the sentencing Judge was correct in recognising that a sentence of full time imprisonment was appropriate in the present matter. This was accepted on the applicant’s behalf at the original hearing and there is no dispute with the proposition upon appeal.

78          Secondly, we accept the argument of the Crown that the offences in the indictment (and the offences in the table) are serious offences as was the general course of criminal conduct engaged in by the applicant. With one addition, we respectfully adopt the sentencing Judge’s statement at paragraph 44:

The offender engaged continuously in serious criminal conduct over a period of 19 months. His offences were serious. His conduct was both in breach of the law and contrary to his obligations to his employer. He was aware of those obligations which had been communicated to him in writing. Furthermore he had responded to questions from his employer asking whether he was trading on his own account by lying and falsely stating that he was not trading.

79 The addition to which we have made reference arises out of the evidence of Dr Wilson and Professor Jonathan Phillips. This evidence establishes to our satisfaction that there was a nexus between the applicant’s psychiatric condition, his gambling addiction and the commission of these offences, especially the insider trading offences. We accept that there is a foundation for it in the applicant’s evidence (see para 48 above) although we acknowledge, as the Crown submitted, that an important aspect of the applicant’s motivation in committing both groups of offences was to make profits for himself.

80          In DPP (Cth) v De La Rosa (2010) 205 A Crim R 1; [2010] NSWCCA 194 McClellan CJ at CL helpfully set out at [177] in short form the principles which have been developed and applied in sentencing an offender who was suffering from a mental illness, an intellectual handicap or other mental problem. Two aspects of the summary are relevant in the present matter and bear repetition:

81 Where the state of a person’s mental health contributes to the commission of the offence in a material way, the offender’s moral culpability may be reduced. Consequently the need to denounce the crime may be reduced with a reduction in the sentence [authorities omitted].

82 It may also have the consequence that an offender is an inappropriate vehicle for general deterrence resulting in a reduction in the sentence which would otherwise have been imposed [authorities omitted].

83 The Crown argued that the factual situation in the present matter did not compel this Court to disregard general deterrence. In that regard, the Crown referred to the observations by Gleeson CJ in R v Engert(1995) 84 A Crim R 67 where his Honour said:

… in truth however, for the reasons given at the commencement of this Judgment, the question of the relationship, if any, between the mental disorder and the commission of the offence, goes to circumstances of the individual case to be taken into account in the application of the relevant principles. The existence of such a causal relationship in a particular case does not automatically produce the result that the offender will receive a lesser sentence, any more than the absence of such a causal connection produces the automatic result that an offender will not receive a lesser sentence in a particular case.

84 Gleeson CJ had earlier said, at the commencement of his judgment, (at [69]):

It is therefore erroneous in principle to approach the law of sentencing as though automatic consequences follow from the presence or absence of particular factual circumstances. In every case, what is called for is the making of a discretionary decision in the light of the circumstances of the individual case, and in light of the purpose to be served by the sentencing exercise.

85 The Crown also made reference to the remarks of Hunt CJ at CL in R v Wright (1997) 93 A Crim R 48 at [52]. In that decision the Chief Judge had discussed the accepted principle of sentencing that general deterrence should often be given very little weight in the case of an offender suffering from a mental disorder or abnormality on the basis that such an offender could not to be regarded as an appropriate medium for making an example to others. At the end of the discussion, his Honour had said:

The means by which the courts give effect to that principle (as an instrument of social administration) is to moderate the consideration of general deterrence to the circumstances of the particular case. But, if the offender acts with knowledge of what he is doing and with knowledge of the gravity of his actions, the moderation need not be great.

86 The Crown placed particular emphasis on this last paragraph.

87          For our part, we do not consider that the particular paragraph relied on by the Crown in the reasons of Hunt CJ at CL carries with it the notion that, in a situation where an offender acts with knowledge of what he is doing and is aware that it is wrong, his mental condition will have no impact on the issue of general deterrence and may accordingly be disregarded. Nor do we consider that, when read in context, his Honour’s remarks suggested that the significance of psychiatric condition in such a case will always be minimal.

88          In the earlier part of the discussion Hunt CJ at CL had said:

It is an accepted principle of sentencing that general deterrence should often be given very little weight in the case of an offender suffering from a mental disorder or abnormality because such an offender is not an appropriate medium for making an example to others. In most of the cases in which that principle is applied, the offender has suffered from a significant mental illness or retardation, but such a condition is not a necessary condition for the principle to be applied . Considerations of general (or even personal) deterrence are not rendered completely irrelevant, and the significance of the offender’s mental incapacity is to be weighed and evaluated in the light of the particular facts and circumstances of the individual case . [our emphasis]

89 It might be observed in the same case that Gleeson CJ, while in general agreement with Hunt CJ at CL’s reasons said :

My views on the significance, for sentencing purposes, of the presence of a psychiatric condition in an offender, are set out in the case of Regina v Engert , and it is not necessary to repeat them. The particular reason given by Hunt CJ at CL which constitutes the basis of my agreement with the orders he proposes, is that, in the present case, the learned sentencing judge allowed the subjective features of the respondent to outweigh the significance properly to be attached to the extremely serious objective circumstances of the case.

90 In Engert , Gleeson CJ had cited with approval the remarks of Badgery-Parker J in R v Letteri (NSW CCA unreported 18 March 1992):

The principle then is clear enough. It is correctly stated as follows: that whereas general deterrence is a relevant consideration in every sentencing exercise, it is a consideration to which less weight should be given in the case of an offender suffering from a mental disorder or severe intellectual handicap. In an extreme case, the proper application of this principle may produce the result that considerations of general deterrence are totally outweighed by other factors. In every case it is a matter of balancing the relevant factors in a manner no different from that which is involved in every sentencing exercise.

91 Gleeson CJ “emphasised” the concluding sentence in this passage.

92          Our conclusions on this matter may be shortly stated. First, there is no doubt that the applicant knew what he was doing and knew that his actions were wrongful. Secondly, his actions were in part motivated and prompted by a wish to make profits from his own trading and the trade initiated by Mr Curtis. Thirdly, he was throughout the period suffering from a genuine and long term depression spectrum from which he sought relief in gambling and other dangerous activities. Fourthly, his psychiatric condition contributed to his compulsive trading activity which, in his perception, gave him temporary but misguided relief from his major depressive symptoms. This trading activity was in fundamental respects a form of highly leveraged gambling akin to the other types of gambling in which he had engaged. It led on occasions to significant profits but it also led on other occasions to significant losses. Accordingly, there was a mixed and highly complex group of motivations for his illegal activity part of which was rightly attributed to his psychiatric condition. His own evidence before the sentencing Judge establishes the nature of the transient “buzz” that his illegal activities gave him.

93          It follows, in our opinion, that, while the offences were undoubtedly serious, there must be some moderation given to the aspect of general deterrence because of the applicant’s mental condition (s 16A(2)(m) Crimes Act 1914 (Cth) ). Moreover, to a limited degree, the applicant’s moral culpability is accordingly lessened.

94          We do not agree, however, that, in the circumstances of this matter, the applicant’s youth and relative immaturity have any role to play in downgrading or lessening the importance of general deterrence. We recognise that in some cases these factors may be both relevant and important on the issue ( MS2 and Ors v Regina [2005] NSWCCA 397; (2005) 158 A Crim R 93 per Simpson J at [9]; Adams J at [15]-[16]; BP v R [2010] NSWCCA 159; (2010) 201 A Crim R 379 per Hodgson JA at [3]-[6], but see, Johnson J at [74]-[75]; R v Hearne [2001] NSWCCA 37; (2001) 124 A Crim R 451 at 458; KT v R [2008] NSWCCA 51; (2008) 182 A Crim R 571 at 577-578). We do not consider in the present matter that they are relevant and important in that way. The applicant was operating in the adult sphere of business and commerce in every respect, and of course he was himself an educated and worldly young adult in every sense of the word. The Court cannot lose sight of the need to deter young adults from taking the significant financial advantages offered by the contemporary business world in circumstances where, at the same time, they reject the legal and moral constraints properly imposed upon their commercial behaviour.

95          Mr Game also argued that the applicant’s choice of trading, namely, off-market highly geared derivatives, might be viewed as less culpable than if he had been trading in the underlying shares. We are unable to accept this argument. It needs to be remembered that insider trading not only has the capacity to undermine the integrity of the market, it also has the potential to undermine aspects of confidence in the commercial world generally. The principles of confidentiality and trust are fundamental to the operation of many commercial transactions. As the applicant’s employer recognised, advance knowledge by its employees of proposed trades of a significant kind required, as a matter of trust, that they remain in the realm of confidentiality. Insider trading is a form of cheating. Put bluntly, it is a form of fraud, even though its consequences may be more opaque than general fraud ( McQuoid [2010] 1 Cr App R (S) 43; R v Rollins [2011] EWCA Crim 1825).

96          We do not consider that the applicant is entitled to an Ellis discount in relation to the insider trading charges although we acknowledge that we should take into account, as part of his assistance and co-operation with the authorities, the fact that he voluntarily attended ASIC and made full admissions before any formal investigation commenced into those matters.

97          The assistance and co-operation provided by the applicant to ASIC was and is considerable in the present matter. We take this into account as required by s 16A(2)(h) of the Act and we do so in our recognition of the difficulties involved in investigating, prosecuting and proving insider trading offences.

98          We also take into account and recognise the contrition expressed in practical terms by the applicant since January 2009 and his continuing expressions of remorse. While recognising the difficulties he will have upon release from custody in relation to combating his gambling addiction, we consider overall that his prospects of rehabilitation are good. He will have the support of his partner, his family, Father Sinn and others who care for him and these will be important factors in his rehabilitation.

99          It is desirable, in the circumstances of the present matter, that we specify a discount of 25% for the plea of guilty. In relation to the applicants undertaking to co-operate and provide for future assistance to the authorities, it is necessary for us to specify a discount. There is no reason to depart from the discount of 10% arrived at by the sentencing Judge in his decision and accordingly we ascribe that percentage for future assistance.

100      We have taken into account, as we have said, the high degree of the applicant’s co-operation and assistance given to date in relation to both groups of offence. We have also taken into account the past assistance given in relation to the investigation by ASIC into possible offences committed by another person. In relation to the tipping offences, a further measure of leniency is extended to the applicant for the Ellis factor but, as with the other matters we have mentioned in this paragraph, there is no need for us to quantify this aspect. Given the multiplicity of the charges and the fact that, if the appropriate discounts were accumulatively applied without qualification, the resulting sentences would be manifestly too lenient so that further adjustment of the sentences would be necessary, we do not think that it would be useful to quantify the discount ultimately provided more than to indicate that it is substantial. It should also be noted that, having regard to the number of distinct offences committed and the lengthy period they covered the degree of concurrency we provide also extends a further degree of leniency.

101      What then is the appropriate sentence to be imposed? We agree with the sentencing Judge that the 16BA Schedule offences in relation to the insider trader offences should be considered in relation to count 1. In the same way, the tipping offences in the Schedule should be considered in relation to count 20. In our view, having regard to all the matters we have considered, and taking into account all the factors we have mentioned, an appropriate sentence in relation to count 1 is a term of 2 1/2 years imprisonment commencing on 2 December 2010 and expiring on 1 June 2013. In relation to counts 2-19 we consider that the appropriate sentence is a term of 2 years imprisonment each term to commence on 2 December 2010 and to expire on 1 December 2012.

102      In relation to the first tipping offence (count 20), and having regard to the Schedule offences in respect of that count, an appropriate sentence is a term of 18 months imprisonment to commence on 2 June 2012 and expiring on 1 December 2013.

103      In relation to counts 21-25 we consider an appropriate term of sentence for each count is 16 months each term to commence on 2 June 2012 and expiring on 1 October 2013.

104      As a consequence, the overall term of the sentence will be 3 years. The terms of s 19AC of theCrimes Act 1914 (Cth) require that we make a recognisance release order in those circumstances. This section allows for conditional release of an offender after conviction. Section 19AB of the Actrequires that we direct, by order, that the applicant be released after he has served a specified period of imprisonment in respect of the offences. The terms of the recognisance for the purposes of the release will require the applicant to comply with conditions set by the Court. There has been, we have been informed, considerable discussion between the Crown and the appellant’s legal representatives in that regard. There has been liaison in relation to appropriate terms with the probation and parole service. As a consequence, while the Crown is not conceding that such an order should be made, the Court has been provided with a document containing 14 draft conditions of an order that is generally thought appropriate as between the parties and the probation and parole service.

105      In arriving at an appropriate pre-release period of imprisonment in the present matter, we particularly take into account two matters: first, the highly favourable material provided for the purposes of the re-sentencing exercise and secondly, the stringent nature of the conditions provided for in the document we have referred to in the preceding paragraph. As to the first, we stress the applicant’s rehabilitation in custody, his continued remorse and his level of continuing assistance to the authorities. As to the second, we note that the conditions are aimed at preventing the applicant’s relapse into criminal behaviour but, more significantly, they provide a regime of treatment which, it appears, is not available to him in custody and which will, in the nature of things, promote and enhance his re-entry into the wider community. In the exceptional circumstances of this matter, and for all the reasons outlined in this decision, the pre-release period we have selected is 15 months.

106      We propose to specify a single pre-release period of imprisonment of 15 months to commence on 2 December 2010 and to expire on `1 March 2012. This means that we shall order the release of the applicant to take effect on 1 March 2012 upon the proviso that he enter into a recognizance to comply with the conditions contained in the draft document that is annexed to these reasons. The period during which the conditions will operate and in respect of which compliance is required is to be 18 months.

107      The orders of the Court are:

1. Leave to appeal is granted.

2. The appeal is allowed and the sentences passed upon the offender on 2 December 2010 are quashed.

3. In lieu thereof, the following sentences are imposed:

(a) In relation to count 1, having regard to the Schedule of offences, the offender is sentenced to a term of imprisonment of 2 1/2 years commencing on 2 December 2010 and expiring on 1 June 2013.

(b) In relation to counts 2-19, the offender is sentenced to a term of imprisonment for 2 years, each term to commence on 2 December 2010 and expiring on 1 December 2012.

(c) In relation to count 20, having regard to the Schedule of offences, the offender is sentenced to a term of imprisonment for 18 months commencing on 2 June 2012 and expiring on 1 December 2013.

(d) In relation to counts 21-25, the offender is sentenced to a term of imprisonment of 16 months, each term to commence on 2 June 2012 and expiring on 1 October 2013.

(e) We specify a single pre-release period of imprisonment of 15 months to commence on 2 December 2010 and to expire on 1 March 2012. We order that, upon the expiry of the 15 month period of imprisonment specified, the offender be released upon his entering into a recognisance self in the sum of $1,000 to observe and comply with the conditions set out in the document annexed to hereto and marked “A”. In compliance with the provisions of s 20 Crimes Act 1914 (Cth), the obligation to so observe and comply will be for a period of 18 months from 1 March 2012.

Annexure “A”

Conditions of a Recognizance release order under the Crimes Act 1914 (Cth) – John Joseph HARTMAN – (herein called “the offender”)

The offender upon entering into a security, self in the sum of $1,000, undertakes that he will be of good behaviour for the period of this recognizance and that he must comply with the following conditions, oversight of which is to be administered by an officer of the Probation and Parole Service (“the officer”): –

1. The offender must comply with any reasonable direction given by the officer in relation to the matters referred to below.

Treatment obligations

2. The offender must seek a comprehensive mental health assessment as soon as possible after his release and in any event, within 28 days from release, from Dr Craig H. Wilson, to determine what is required for treatment of any psychiatric or psychological condition the offender may be found by Dr Wilson to have, including any addiction or addictive behaviour such as, but not limited to, any gambling addiction.

3. The offender must accept such psychological and psychiatric treatment as may reasonably be provided or suggested by Dr Wilson, including counselling, psychological therapy and any anti-psychotic or other psychiatric medication as prescribed.

4. The offender must attend all appointments for medical and psychiatric consultations, psychological consultations, and other testing or therapy session as may reasonably be directed by Dr Wilson.

5. Should Dr Wilson for any reason or reasons be unwilling or unable to provide or continue to provide the offender with any treatment for any reason because of Dr Wilson’s assessment that the continuation of such treatment is unnecessary or for any other reason or reasons, the offender must:

(a) immediately seek a written report from Dr Wilson as to those reasons; and

(b) provide a copy of the report to the officer within 48 hours of its receipt by the offender; and

(c) insofar as the officer reasonably requests it, engage an alternative medical, psychological or therapeutic practitioner and seek such other treatment or therapy within such time as the officer reasonably directs, and obtain assessment and treatment, if provided or suggested by that alternative practitioner of the kind referred to in paragraph 3 above and further, comply with the requirements of paragraph 4 as if that paragraph referred to such alternative practitioner.

6. The provisions of paragraphs 3, 4 and 5 apply to any such alternative practitioner, so far as they can, as if they referred to that practitioner rather than to Dr Wilson.

7. The offender must disclose to the officer the identity of any such alternative practitioner or other medical or mental health practitioner that he consults, within 48 hours of such consultation.

Disclosure of information

8. The offender must waive the confidentiality of information disclosed by him to treating psychiatrists, psychologists and any other person from whom treatment for any psychiatric or mental health condition, including but not limited to any gambling addiction, is sought or obtained, so as to permit that information to be provided to the officer on that officer’s request.

9. The offender consents to the officer, officers of the Australian Securities and Investments Commission and officers of the Commonwealth Director of Public Prosecutions accessing all information regarding his psychiatric or mental health condition, including but not limited to any gambling addiction, which may include confidential medical information disclosed in the course of his treatment but such consent is limited to access:

(a) for the purpose of assessing compliance with the terms of this recognizance; and/or

(b) for the purpose of considering and carrying out such action as may be permitted by law in respect of alleged non-compliance by the offender with such terms.

Participation in residential gambling program

10. The offender is to attend a residential gambling program approved by Dr Wilson within 3 months of release from custody, such as the 5-week in-patient stay program run by the South Pacific Clinic or the 3-week in-patient stay program run by St John Of God Hospital, Richmond, and is to remain there for treatment for such period as Dr Wilson deems appropriate.

11. The offender must disclose to the officer particulars of the residential program within 48 hours of admission to the program.

12. The offender must refrain entirely from gambling.

Employment

13. The offender, if unemployed, is to enter employment arranged or agreed on by the Officer or make himself or herself available for employment, training or participation in a personal development program as instructed by the Officer.

14. The offender must not engage in any activity, paid or unpaid, involving the control of money or assets of other people or organisations.

Khoo v Regina [2013] NSWCCA 323 (20 December 2013)

 

Court of Criminal Appeal

New South Wales

Case Title:

Khoo v Regina

  

Medium Neutral Citation:

[2013] NSWCCA 323

  

Hearing Date(s):

8/11/13

  

Decision Date:

20 December 2013

  

Before:

Leeming JA at [1];

Bellew J at [12];

RS Hulme AJ at [23]

  

Decision:

Leave to appeal granted. Appeal dismissed.

  

Catchwords:

CRIMINAL LAW – appeal against sentence – insider trading – tipping – whether sentence manifestly excessive – whether sentencing judge failed to take proper account of individual factors

  

Legislation Cited:

Corporations Amendment (No 1) Act 2010 (Cth)

Corporations Act 2011 (Cth)

  

Cases Cited:

DPP v Lindskog [2013] VCC (unreported, Parsons CCJ, 14 March 2013)

Fridrich v Bradford [1976] USCA6 586; 542 F 2d 307 (6th Cir, 1976)

Ex parte King; Re Blackley [1938] NSWStRp 26;(1938) 38 SR (NSW) 483

Green v The Queen [2011] HCA 49; 244 CLR 462

Hartman v R [2011] NSWCCA 261

Hili v The Queen [2010] HCA 45; 242 CLR 520

Pearce v R [1998] HCA 57; (1998) 194 CLR 610

R v Dalzell [2011] NSWSC 454

R v De Silva [2011] NSWSC 243

R v Ellis (1986) 6 NSWLR 603

R v Glynatsis [2013] NSWCCA 131

R v Hinton [2002] NSWCCA 405; (2002) 134 A Crim R 286

R v Morgan (1993) 70 A Crim R 368

R v Mungomery [2004] NSWCCA 450

R v O’Brien [2011] NSWSC 1553

R v Olbrich (1999) 199 CLR 270; [1999] HCA 54

R v Rivkin [2004] NSWCCA 7

R v Taylor [2000] NSWCCA 442

R v XY [2013] NSWCCA 121

R v Zerafa [2013] NSWCCA 222

RR v R [2011] NSWCCA 235; 216 A Crim R 489

  

Texts Cited:

National Companies and Securities Commission, Insider Trading Legislation for Australia: An Outline of the Issues and Alternatives (AGPS,1986,)

R Baxt, A Black and P Hanrahan, Securities and Financial Services Law (LexisNexis. 8th ed, 2012.)

  

Category:

Principal judgment

  

Parties:

John Khoo (Applicant)

Regina (Respondent)

  

Representation

 
  

– Counsel:

Counsel:

M Thangaraj SC (Applicant)

MMG McHugh SC (Respondent)

  

– Solicitors:

Solicitors:

Amond Legal (Applicant)

Commonwealth Director of Public Prosecutions (Respondent)

  

File Number(s):

2012/386642

  

Decision Under Appeal

 
  

– Before:

Marien DCJ

  

– Date of Decision:

08 August 2013

  

– Court File Number(s):

2012/386642

  

Publication Restriction:

None

  

JUDGMENT

108               LEEMING JA: I have had the advantage of reading, in draft, the judgment of R S Hulme AJ. I agree with his Honour’s reasons and conclusions. I also agree with the additional observations of Bellew J. I wish to provide the following additional reasons why ground (viii), which asserted that the sentence of full time imprisonment was manifestly excessive, should be rejected.

109               I start with authority. In R v Glynatsis [2013] NSWCCA 131, McCallum J said at [79]:

“The acquisition or disposal of financial products by people having the unfair advantage of inside information is criminalised because it has the capacity to unravel the public trust which is critical to the viability of the market. It is, as previously observed by this Court, a form of cheating. The fact that people of otherwise good character and compelling personal circumstances are tempted to engage in such conduct emphasises the need for the clear deterrent that insider traders should expect to go to gaol.”

The applicant submitted that that passage was obiter, and distinguishable from the “tipping” offences he had committed. I disagree.

110               First, the passage was not obiter. It was a summary statement of her Honour’s reasons for agreeing with the orders proposed by Hoeben CJ at CL. Moreover, the third member of the Court, Rothman J, expressly associated himself with it. It follows that the passage amounts to reasoning which two members of the Court treated as dispositive. If it were a principle of law, it would be ratio, for, as Jordan CJ said, “we are not entitled to pick out one reason for the judgment as the ratio decidendi and neglect the other”: Ex parte King; Re Blackley [1938] NSWStRp 26; (1938) 38 SR (NSW) 483 at 490.

111               Secondly, the distinction between ratio decidendi and obiter dicta is not directly applicable to appellate statements about the sentencing process. Nevertheless, the applicant was correct to appreciate that the passage in Glynatsis was a substantial obstacle to his submission. The need for consistency in sentencing under federal law is self-evident, and in considering the sufficiency of sentences passed on federal offenders, intermediate appellate courts should not depart from what is decided by other Australian intermediate appellate courts, “unless convinced that the decision is plainly wrong”: Hili v The Queen [2010] HCA 45; 242 CLR 520 at [57]. This is not the occasion to consider what is meant by “plainly wrong” in this context (which has been examined by Heydon J inGreen v The Queen [2011] HCA 49; 244 CLR 462 at [83][87] and Basten JA in R v XY [2013] NSWCCA 121 at [30][40]), for in my view the passage is plainly right, at least in relation to the present form of the legislation. How else to construe the increase in maximum penalty from 5 to 10 years imprisonment? (See item 310 of Schedule 3 of the Corporations Act 2001 (Cth), amended byCorporations Amendment (No 1) Act 2010; some of Mr Khoo’s offences preceded the amendment.)

112               Thirdly, the approach contained in Glynatsis – that offenders should expect to go to gaol – ought not be read as confined to insider trading as opposed to “tipping”. True it is that her Honour’s proposition was expressed to be based upon the acquisition or disposal of financial products. But s 1043A(2) of the Corporations Act applies only when there is a trade or likely trade, and the same unravelling of public trust occurs when inside information is communicated in those circumstances. There is no sound basis in the text of the statute, or the penalty imposed for its contravention, or the legislative purpose, to distinguish insider trading forbidden by s 1043A(1) from “tipping” forbidden by s 1043A(2). The primary contravention is the misuse of “inside information” as defined by s 1042A (broadly, market-sensitive information which is not generally available).

113               Central to Mr Khoo’s submission on this issue was the proposition that the offence of insider trading involved more elements than tipping (possession and use of insider information plus trading) and was therefore necessarily more objectively criminal. As it was put by his counsel, “until there’s a trade, the impact on the integrity of the market is not affected”.

114               To the extent that the legislation protects equality of information in a fair market, Mr Khoo’s submission cannot be true. The dissemination of information to a “tippee” may indeed be a greaterthreat to market integrity than actual trading by an insider. There is no novelty in that observation. The issues paper prepared for the National Companies and Securities Commission, Insider Trading Legislation for Australia: An Outline of the Issues and Alternatives (1986, AGPS) stated at p 62:

“Indeed, because of the ready transmissibility of information, tipping is arguably a more serious threat to the integrity of the securities market than trading, for the more widespread it becomes the greater will be the potential for trading.”

115               That passage cited the concurring judgment of Celebrezze J in Fridrich v Bradford [1976] USCA6 586; 542 F 2d 307 at 327 (1976), who said:

“Tipping because it involves a more widespread imbalance of information presents an even greater threat to the integrity of the marketplace than simple insider trading. Tipping, by its very nature, is a more open-ended violation than that of the insider who enters the market, trades on his own account and withdraws.”

116               Care must be taken in relying on United States decisions (which are a product of a body of judge-made law derived from high level prohibitions against market fraud: see R Baxt, A Black and P Hanrahan, Securities and Financial Services Law, 8th ed (2012) LexisNexis, at 690-692). But what Celebrezze J said is (to my mind self-evidently) correct.

117               Further, it is clear that the “victims” of insider trading are not merely those participants who trade, but the investing community at large, because the injury derives from “the loss of confidence in the efficacy and integrity of the market in public securities”: R v Rivkin [2004] NSWCCA 7 at[412]. “Tipping” is no different. The vice of tipping is not confined to the individual securities which are traded by the tippee. Where the size of the trade is small compared with daily turnover (which will be most cases), it is no answer to the objective criminality to submit, as Mr Khoo in substance did, that the trade made not a jot of difference to the price. Indeed, although it is unnecessary for present purposes to express a concluded view, it seems plausible that the impact of tipping extends beyond the particular security. Australian securities markets are relatively attractive to local and overseas investment because there is perceived to be an efficient and effective regime protecting their integrity. The attractiveness of the market as a whole is impacted by the unequal dissemination of information.

118               Mr Khoo’s submission that the criminality of insider trading inevitably exceeds that of “tipping” must be rejected. There is no a priori rule that mandates that tipping is less criminal than insider trading. Both are forms of conduct prohibited by subsections (1) and (2) of the same section. Within the class of conduct which contravenes s 1043A(2), there are varying degrees of criminality (contrast communicating inside information to a relative in need to communicating the same information to a broker, for reward, in the belief that it will be disseminated more broadly). The relevant factors in any particular case are identified by Bellew J. Those factors were taken into account by the sentencing judge, as R S Hulme AJ has explained in detail, and I respectfully agree with his Honour’s conclusion that the ultimate sentence imposed was within the range open to the sentencing judge.

119               BELLEW J: I have had the advantage of reading, in draft, the judgment of R S Hulme AJ. I agree with his Honour’s reasons, and the orders that he proposes. I have similarly had the advantage of reading, in draft, the judgment of Leeming JA and I also agree with his Honour’s observations.

120               However, I wish to add the following observations in respect of ground (viii) which asserted that the sentences imposed were manifestly excessive.

121               In my view, the factors relevant to an assessment of the objective seriousness of so-called “tipping” offences include (although are not limited to) the following:

the nature and importance of the information which was disclosed;

the extent of the disclosure;

whether the offender knew that the person(s) to whom the information was disclosed would use it for the purposes of trading and/or profit taking;

the nature and extent of any breach of trust involved in such disclosure;

whether such disclosure involved any element of sophistication or subterfuge;

whether the offending involved a course of conduct; and

the extent of any profit made, be it by the offender or by those to whom the information was disclosed.

122               In the present case Judge Marien found that the offending was toward the mid range of objective seriousness. Taking into account the factors to which I have referred, that finding was clearly open.

123               The information disclosed by the applicant in the present case was, in each instance, properly described by the sentencing judge (at ROS 30) as being of a “high quality”. It related to significant take-over bids and its general nature was such that, once publicly released, it would be expected to have an immediate effect upon the relevant share price. The fact that the people to whom the applicant disclosed the information were friends does not, in my view, render that aspect of his conduct any less serious. The more important consideration is that once the information was disclosed, the applicant lost control over it.

124               Moreover, Judge Marien found (at ROS 22) that it was highly likely that the applicant acted in the knowledge that those to whom he passed the information would use it to trade. He also found (at ROS 22) that the applicant hoped that a profit would be made, and (at ROS 33) that the applicant was motivated by a desire that such a profit would in fact eventuate.

125               The applicant obviously knew that the information was highly confidential. In the case of the offences relating to Macarthur Coal, he had been a member of the relevant advisory team for more than two months in the period leading up to the date of his offending. His role included providing advice as to the proposed takeover, as a consequence of which confidential information was communicated to him. The fact that such information was communicated in a partially coded form necessarily served as a constant reminder to the applicant of the need to protect its confidentiality. Moreover, as a condition of his employment, the applicant had been made aware of relevant policies, and had undergone training, which focussed upon the necessity to preserve the confidentiality of such information, and the legal prohibitions against insider trading.

126               All of these matters lead to Judge Marien finding (at ROS 29) that the applicant’s conduct constituted a gross breach of trust. That finding was clearly open, even in circumstances where the applicant’s conduct did not involve any element of sophistication or subterfuge (see R v De Silva[2011] NSWSC 243 at [61]).

127               It was also relevant for Judge Marien to take into account the fact that the applicant’s offending was not limited to one isolated instance. He disclosed information on four separate occasions, to two separate individuals, over a period of ten months. The recipients of the information derived total profits exceeding $100,000.00. As I have previously noted, Judge Marien not only found that the applicant had hoped that such profits would eventuate, but that he was motivated by a desire that they would.

128               I would, for my part, eschew the use of labels such as “true insider” to describe the applicant’s position and offending (see De Silva (supra) at [61]). Such an approach has the capacity to obscure an assessment of what the applicant actually did (see R v Olbrich (1999) 199 CLR 270; [1999] HCA 54 at 279; [19]). The important consideration is that the applicant’s position gave him access to confidential information. In the circumstances I have summarised, and which are more fully set out in the reasons of Judge Marien, the applicant used that information in a way which had the capacity to cause damage not only to the market, but to those who invested in it.

129               In my view, all of these matters supported Judge Marien’s conclusions as to the objective seriousness of the offending. General deterrence remained an important consideration (seeHartman v R [2011] NSWSC 261 at [77]) particularly in light of the difficulty in detecting offending of this nature. Even allowing for the applicant’s subjective case, the overall sentence imposed was not manifestly excessive.

130               R S HULME AJ: On 8 August 2013, the abovenamed Applicant was sentenced by Judge Marien SC in respect of 4 offences arising pursuant to the terms of s 1043A(2)(d) of theCorporations Act 2011 (Cth). The offences were to the effect that:

Between … and … whilst in possession of inside information concerning (a named company) that was not generally available, being information which if it was generally available a reasonable person would expect to have a material effect on the price of the Division 3 financial products in (the company) and being information which the defendant knew, or ought reasonably to have known –

(i) was not generally available, and

(ii) if it were generally available, a reasonable person would expect it to have a material effect on the price or value of the relevant Division 3 financial products,

directly communicated the inside information to another, knowing that person would, or would be likely to acquire relevant Division 3 financial products in the company.

131               The first offence occurred between 19 September and 12 October 2010, related to a company Caledon Resources PLC and the person to whom the information was communicated was Jia Tan.

132               The second offence occurred between 1 October and 28 November 2010, related to a company Mantra Resources Ltd and the person to whom the information was communicated was Jia Tan.

133               The third offence occurred between 25 June and 7 July 2010, related to a company Macarthur Coal Limited and the person to whom the information was communicated was again Jia Tan.

134               The fourth offence occurred between 25 June and 8 July 2010, related also to Macarthur Coal Limited and the person to whom the information was communicated was David Luong.

135               The sentences imposed by his Honour were:-

Counts 1 and 2 – imprisonment for 9 months commencing on 8 August 2013; and

Counts 3 and 4 – imprisonment for one year and eight months commencing on 8 November 2013.

136               The effective sentence was thus imprisonment for 1 year and 11 months. His Honour directed the Applicant’s release on 8 October 2014, i.e. after the expiration of 14 months, conditional upon him entering a recognisance to be of good behaviour.

137               The offences arose under s 1043A, s 1311 and Schedule 3 of the Corporations Act 2001 (Cth). In the circumstances of this case the maximum penalty provided for each of the first and second offences was 5 years imprisonment and, by reason of the Corporations Amendment (No 1) Act2010 (Cth), for each of the third and fourth offences 10 years imprisonment plus a fine of $495,000.

138               The matter proceeded before his Honour largely by way of a Statement of Facts originally drafted by ASIC, but ultimately containing some amendments to which both parties had agreed. At all relevant times the Applicant was employed at the Sydney office of the Royal Bank of Canada (hereinafter referred to as “RBC”), working in the Investment Banking Team. In that capacity he routinely acquired information about proposed takeovers, mergers, acquisitions and capital raisings. He had a base salary of some $140,000 and his last annual bonus was something over $120,000.

139               In the course of his employment he had received substantial instructions on RBC’s Code of Conduct and other policies proscribing the unjustified publication and misuse of confidential information and demonstrated a knowledge and understanding of such matters. At all relevant times he was aware of the legal prohibitions on insider trading and passing on “inside information” as that term is defined in the Corporations Act 2011 (Cth) to others.

140               Mr Tan was a close friend of the Applicant. To the knowledge of the Applicant, Mr Tan had for many years been a day trader in high volumes of CFDs and other securities.

141               Mr Luong was also a close friend of the Applicant. To the knowledge of the Applicant Mr Tan had for many years been a regular day trader in CFDs and other securities.

142               The information provided by the Applicant to these persons was:-

Count 1 Guangdon Rising Assets Management Co Ltd intended to make a takeover bid for Caledon Resources PLC;

Count 2 JSC Atomredmetzoloto was planning to made an all cash takeover bid for the acquisition of Mantra Resources Limited at a price involving a substantial premium of the prevailing share price

Counts 3, 4 A client of Royal Bank of Canada would soon be launching a takeover bid for Macarthur Coal Limited

143               Although I do not think it matters, the Statement of Facts said that it was not alleged that the Applicant actually knew that Mr Tan and Mr Luong would engage in their particular trading at the time he communicated the respective pieces of information.

144               Each of Mr Tan and Mr Luong acted on the information supplied by the Applicant. Mr Tan and Mr Luong acquired financial products worth some $257,800 and $49,600 respectively. The profits made were:-

Count 1 $26,750 (approximately),

Count 2 $18,660,

Count 3 $39,820, and

Count 4 $24,987

145               The Applicant pleaded guilty to the charges against him on the first occasion when he could have done so. Earlier, he had been interviewed by officers of the ASIC and had provided a degree of co-operation referred to in more detail below.

146               The Grounds advanced in support of the challenge to the sentences imposed were:-

(i) His Honour failed to provide an appropriate discount for the admissions made by Mr Khoo to ASIC.

(ii) Given the submissions made by the Crown, his Honour erred by failing to have regard to the sentences imposed in DPP v Lindskog [2013] VCC (unreported, Parsons CCJ, 14 March 2013)

(iii) His Honour erred by failing to provide for the pregnancy termination by Mr Khoo’s partner

(iv) His Honour erred by placing undue emphasis that the fact that the offences involved tipping

(v) His Honour failed to have regard to the principles of parity.

(vi) His Honour erred by failing to have regard to the fact that the offender tipped persons who were: –

(a) not of a familial identity,

(b) in financial need.

(vii) Given his Honour imposed a sentence of full time imprisonment and Mr Khoo had cooperated with ASIC and the Crown a discount ought to have been allowed for the more difficult custodial environment.

(viii) The sentence were manifestly excessive.

147               Ground (i)

His Honour failed to provide an appropriate discount for the admissions made by Mr Khoo to ASIC.

148               In his Honour’s remarks on sentence he observed that he was satisfied that assistance offered by the Applicant to give evidence against Tan and Luong played an important role in those persons pleading guilty to charges against them. His Honour recorded that the Applicant’s pleas of guilty were entered at the earliest opportunity and he proposed to accord those pleas full weight. Later his Honour went on:-

I propose to discount the sentences that I would otherwise impose upon the offender, firstly in relation to sequences 1 and 2 for his pleas of guilty and co-operation and with some allowance of an Ellis discount by a factor in the order of 40% and in relation to sequences 3 and 4 for his co-operation and his pleas of guilty a discount in the order 35%. (sic)

149               In support of this ground attention was directed to aspects of the evidence before his Honour, in particular some remarks by an ASIC officer, a Mr Watson. Under cross-examination Mr Watson agreed that the Applicant’s “admission and concession in relation to Mantra and Caledon were very important in being able to put evidence to the DPP to be here today” and that the Crown would have had a difficulty in showing that the Applicant realised the possibility that Tan and Luong would trade if he had not made admissions in that regard. However Mr Watson was not challenged on other statements to which I now refer.

150               This evidence was to the effect that in July 2011 as an incident of its normal activities ASIC became suspicious of transactions by Mr Tan and Mr Luong involving Macarthur Coal. On 13 October 2011 the Applicant was first interviewed concerning those transactions. He made no significant admissions and denied speaking to Tan or Luong about the proposed takeover of that company. At the time and although there was then no discussion concerning Caledon and Mantra, ASIC officers contemplated they would seek to identify any other examples of insider trading by the Applicant, Mr Tan or Mr Luong.

151               On 20 October 2011 the Applicant participated in a compulsory examination. On 11 November 2011, according to the Statement of Facts, the Applicant’s solicitor met with offices of ASIC and indicated that the Applicant was willing to voluntarily co-operate with ASIC and consider pleading guilty to appropriate offences.

152               On 17 November 2011 the Applicant participated in a second voluntary interview and was asked whether he had told Tan about any other deals he had worked on. According to a statement of Mr Watson, an ASIC investigator, the Applicant referred to “some aspect of the insider trading offences relating to Caledon and Mantra” but his answers did not significantly add to ASIC’s prior knowledge of those suspected offences. His answers were relatively general and vague and he stated that he could not remember or recall various relevant details. The answers did not constitute full admissions to any offence.” Somewhat inconsistently the Statement of Facts also said that during this 17 November interview the Applicant “Made substantial admissions in relation to all of the offences …”

153               Mr Watson went on to say that even if the Applicant had provided no information about the Caledon and Mantra offences, he was certain that ASIC would have identified them by its standard investigation strategies although he conceded that he could not positively state that ASIC would have been able to prove the Caledon and Mantra offences beyond reasonable doubt in the absence of the Applicant’s admissions.

154               His Honour did not attempt to resolve the inconsistencies in Mr Watson’s evidence and of course this Court cannot do so. For my part I am not persuaded that but for the Applicant’s admissions the Crown would have had difficulty in proving that the Applicant provided information to Tan and Khoo and that he knew that they would trade.

155               One may take judicial notice of the fact that transactions in securities are recorded so there would seem to have been no difficulty in the Crown proving what Messrs Tan and Luong did. There would seem to have been no difficulty in proving that that trading was at times when the Applicant was in possession of confidential information. I would not infer that the Crown could not have proved that the Applicant and Messrs Tan and Luong were close friends and that he was aware that they were traders in securities. It was conceded that the Crown had plenty of phone records to demonstrate contact between the Applicant and those persons.

156               Of course any tribunal faced with these facts would have had to recognise the possibility that it was simply coincidence that Mr Tan traded when he did in securities in respect of which the Applicant had confidential information. However, given that this occurred 3 times, that possibility is not likely to have been accepted. The most probable inference is that Mr Tan had received the information that that Applicant had possessed. And if the inference were drawn that the Applicant had provided such information, it is almost inconceivable that he would have provided it without expecting his share trading friend to use it.

157               A similar argument may be made in the case of Mr Luong. Given Mr Luong’s dealings the subject of the charges involved only one company, the argument is weaker but the Crown could still pray in aid the similarities with Mr Tan’s dealings.

158               A further answer to the complaints made on behalf of the Applicant under this ground is that the Applicant’s admissions, though made earlier, went no further than those implicit in his plea. To regard those earlier admissions as entitling the Applicant to any substantial discount in addition to that given for the plea involves an element of double counting.

159               The submissions under this ground also contended that the Ellis discount should have been higher. In R v Ellis (1986) 6 NSWLR 603 the Chief Justice, with the concurrence of the other members of this Court, observed:-

… the disclosure of an otherwise unknown guilt of an offence merits a significant added element of leniency, the degree of which will vary according to the degree of likelihood of that guilt being discovered by the law enforcement authorities, as well as guilt being established against the person concerned.

160               When regard is had to the totality of Mr Watson’s evidence I am not persuaded that the Applicant was entitled to much by way of an Ellis discount. Nor am I persuaded that there was any other error by his Honour in the other discount or discounts he did allow.

161               This ground fails.

162               Ground (ii)

Given the submissions made by the Crown, his Honour erred by failing to have regard to the sentence imposed in DPP v Lindskog [2013] VCC (unreported, Parsons CCJ, 14 March 2013)

163               The submissions of the Crown were that the Applicant’s offending required the imposition of a custodial sentence.

164               This ground is without substance. If any authority is needed for that conclusion – and it is not – the authority may be found in the numerous decisions of this Court eschewing arguments to the effect that a decision in one case demonstrates or constitutes persuasive evidence of what should be the decision in another – see R v Morgan (1993) 70 A Crim R 368 at 371; R v Mungomery [2004] NSWCCA 450 at [5]; and RR v R [2011] NSWCCA 235; 216 A Crim R 489 at 514 [118].

165               Ground (iii)

His Honour erred by failing to provide for the pregnancy termination by Mr Khoo’s partner

166               The Applicant’s partner was a Ms Pham. His Honour made reference to the subject of this ground when he remarked:-

Ms Pham also gave evidence before me in the sentencing proceedings. She stated that she first became aware in October 2011 that the offender was being investigated by ASIC. She said, “This news came as a shock to me as it was out of character for John.” Ms Pham stated that in November 2011 she became aware the offender resigned from RBC because of the ASIC investigation. She said that at that time she discovered she had fallen pregnant with the offender and she states that the combination of the unplanned pregnancy, the ASIC investigation and the offender losing his job caused her significant emotional and mental distress. She states that in December 2011, faced with the uncertainty of the offender’s predicament and the fact that he lost his job with RBC, she made the difficult decision to have a termination of her pregnancy. She states this was a very traumatic, stressful and saddening process to deal with. She states that she was scared of facing the prospect of raising child alone.

Of course I am required under s 16A (2)(p) of the Crimes Act to take into account the effect of the sentence on the offender’s family and dependants. While I have every sympathy for Ms Pham and for the offender in relation to the decision she made, I do not regard the fact that Ms Pham made a free and considered decision to terminate her pregnancy because she was fearful of facing the prospect of raising a child alone as a matter which should mitigate the sentence.

167               The conclusion was one reasonably open to his Honour. Particularly is this so once it is recognized that the reference in s 16A(2)(p) of the Crimes Act to “the probable effect that any sentence or order under consideration would have on any of the person’s family or dependents” should be read as if it were preceded by the words “in an exceptional case” – R v Hinton [2002] NSWCCA 405; (2002) 134 A Crim R 286 at [31]; R v Zerafa [2013] NSWCCA 222 at [93].

168               This ground fails.

169               Ground (iv)

His Honour erred by placing undue emphasis that the fact that the offences involved tipping

170               This ground also is without substance. His Honour placed no such undue emphasis.

171               Certainly his Honour referred to the differences between tipping and insider trading and pointed out that the Applicant’s offences involved a gross breach of trust and that the victims of conduct such as his included the sellers who sold at prices lower than if they had been fully informed and the investing public generally because it undermined the integrity of and public confidence in the investment market. His Honour went on to express agreement with a submission of the Crown that “one of the significant vices of tipping offences is that the tipper loses control of the inside information and creates a risk that it will be further disseminated to other persons” and that therefore tipping can be potentially more damaging to the securities market than an insider who conducts illicit trades himself.

172               There was no error in such an Honour’s approach.

173               Ground (v)

His Honour failed to have regard to the principles of parity.

174               The foundation for this ground lies in the sentence imposed on Mr Tan for the offence of insider trading whilst in possession of the information the subject of count 3 against the Applicant. The sentence imposed on Mr Tan was one of 200 hours community service and a fine of $40,000. Mr Tan was also ordered to pay a pecuniary penalty of $39,820 (his profit). It was Marien DCJ who imposed this sentence and indeed his Honour referred to it in the course of his remarks.

175               Although the Applicant passed on and Mr Tan received and used the same information, the charges against them were different and they were not co-offenders. The matter is thus not one of parity but proportionality. Nevertheless I accept that the sentence on Mr Tan is relevant.

176               However there is a significant difference between the circumstances of the 2 offenders. Mr Tan was not guilty of the breach of trust or requirement for confidentiality that the Applicant was. Mr Tan, whilst his own trading may have had some, probably immeasurable, impact of the market, did not create the risk to the market that the Applicant’s conduct was calculated to create.

177               Thirdly, because it is their conduct that creates the unfairness and other problems of insider trading, I would regard the need for general deterrence of persons situated as the Applicant was as greater than in the case of persons such as Mr Tan.

178               Fourthly, because the Applicant was being sentenced for 4 offences, it would not have been appropriate to impose on him the same type of sentence as that imposed on Mr Tan. Indeed his Honour referred to this fact as one that led to the need for a full time custodial sentence.

179               This ground also fails.

180               Ground (vi)

His Honour erred by failing to have regard to the fact that the offender tipped persons who were: –

(a) not of a familial identity,

(b) in financial need.

181               His Honour’s remarks relevant to this ground included the following:-

In my view, the fact that the offender acted with a motive or hope for financial gain by others, in this case his close friends and not himself, does not reduce the criminality of his conduct. The offence of communicating inside information is not primarily directed towards the making of unfair profits through insider trading but at maintaining public trust in a fair transparent investment market: See R v Fysh (No 4)[2012] NSWSC 1587 per McCallum J at [47].

182               And later:-

The fact that the offences were not motivated by personal greed on the part of the offender cannot in my view lead to any significant mitigation of penalty.

The Crown submits and I accept that the offender was motivated by a desire that his friends Tan and Luong would financially benefit from his breach of trust and breach of his confidentially agreement with his employer.

Accordingly, the fact that the offender nor his family derived any financial gain from these offences does not in my view reduce his criminal culpability. (sic)

183               The only evidence that either of Messrs Tan and Luong were in financial need was in fact a statement in a Pre-Sentence Report that:-

Mr Khoo presented as remorseful and regretful of his actions and decisions noting he was well aware it was wrong at the time however wanted to help two friends out who he believed were experiencing some financial hardship at the time.

184               Given the passages from the Remarks on sentence that I have quoted, it simply cannot be said that his Honour failed in the respects that are the subject of this ground. His Honour did have regard to the Applicant’s apparent motivation and lack of family benefit.

185               However on the assumption that the complaint is really that his Honour did not regard the matters relied on as mitigating factors, I am still of the view that this ground fails. I can accept that, as was said in R v Glynatsis [2013] NSWCCA 131 at [48] that “The distinction between an offence committed for motives of personal greed and committed for the benefit of some other person is real. This is not to say that such a circumstance is exculpatory, rather it can indicate a less serious level of criminality as it did in this case.” However, that is not to say that the commission of offences for the benefit of others is a mitigatory factor. The statement is equally consitent with greed as a motivating factor being aggravating.

186               Primarily the Applicant’s criminality is to be judged by comparing what he did against the statutory proscription. I see no error in his Honour’s approach.

187               Ground (vii)

Given his Honour imposed a sentence of full time imprisonment and Mr Khoo had cooperated with ASIC and the Crown a discount ought to have been allowed for the more difficult custodial environment.

188               A discount for co-operation with the authorities is generally intended to reflect all of the consequences of that co-operation. There is a significant risk of double counting if the sentence is reduced on account of such co-operation and then some further amelioration of the sentence given on account of a more difficult custodial environment. There is nothing in his Honour’s remarks on sentence to indicate that in deciding upon the discount he allowed, he did not take into account the notorious more difficult custodial environment which the Applicant might well suffer.

189               This ground fails.

190               Ground (viii)

The sentences were manifestly excessive.

191               The principal submission under this ground was that a sentence of full time custody was inappropriate. In support reference was made to other cases where a non-custodial sentence had been imposed

192               Before turning to that submission it should be noted that the Applicant had no prior convictions of any significance and that his Honour accepted that the Applicant was genuinely remorseful and had excellent prospects of rehabilitation and that there had been delay in the final disposition of the matter, delay for which the Applicant was not responsible

193               Among the cases to which the Court’s attention was directed were R v Dalzell [2011] NSWSC 454; R v O’Brien [2011] NSWSC 1553; R v Glynatsis [2013] NSWCCA 131 and DPP v Lindskog[2013] VCC (unreported).

194               In R v Dalzell, the offender, without subterfuge, purchased some $40,000 worth of shares in a company about which he had acquired inside information whilst working for an organisation involved in a possible takeover of that company. At the time of offending the maximum period of imprisonment that could be imposed was 5 years. Hall J concluded that there had been no “gross abuse” of highly confidential information, that although the offender must have been aware that his actions were wrong, he was not mindful of the serious criminality of his act, and that the case was towards the lower end of the range of insider trading offences. His Honour sentenced the offender to 2 years imprisonment to be served by way of Intensive Corrections Order.

195               In R v O’Brien, the offender committed 4 offences by causing a superannuation fund of which he was a trustee to purchase shares in companies concerning which he had insider information. The relevant beneficiary of the transactions was the offender’s mother. The amount invested totalled some $174,700 and a profit of some $54,700 was derived. The offender was aware of the legal prohibitions against insider trading. He had no prior convictions and otherwise a strong subjective case. His offending had imposed significant financial pressure on his family

196               The offences were committed during the period 30 June 2010 and 11 January 2011. The maximum period of imprisonment to which the offender rendered himself liable was 10 years for the fourth offence but 5 years for each of the earlier offences. The parties and Hoeben J (as his Honour then was) approached the 4 offences as constituting a single episode of criminality. His Honour took the view that the objective seriousness of the offences was at the lower end of the range and imposed 4 sentences each of 2 years imprisonment to be served concurrently. His Honour said that he did not regard a custodial penalty as appropriate and directed that the sentences be served by Intensive Corrections Order.

197               In R v Glynatsis [2013] NSWCCA 131 the offender committed 9 offences by trading in shares and CFDs relating to companies in respect of which his employer held confidential information. Some of the trading was done in the offender’s own name and some, for their benefit, in the names of relatives. The trading occurred during the period 20 November 2009 and 23 November 2010. The offender was aware that his actions in accessing the information and then trading with it contravened his employer’s policies and were illegal. The trading realised a profit of some $23,800 for the offender and $26,300 for his relatives. Some $371,000 in all was invested.

198               At the time of sentence the offender was 29, had no prior criminal history and had a strong subjective case. Johnson J sentenced the offender to concurrent imprisonment for 1 year for each of the offences. The sentences on counts 1 to 5 were concurrent. Those on counts 6 to 9 were also concurrent but accumulated on the sentences for count 1 to 5. The sentences were directed to be served by way of Intensive Corrections Order.

199               On appeal, this Court held that Johnson J had not erred in concluding that the trading on behalf of the offender’s relatives in an attempt to restore his family’s fortunes was a factor operating in his favour. However the appeal was allowed, the Court holding that, given the nature and seriousness of the offender’s criminality, the ICO did not adequately meet the principle of general deterrence. The sentences imposed were of 15 months for counts 1 to 5 and 12 months for counts 6 to 9. The sentences for counts 1 to 5 wee directed to be served concurrently. The sentences on counts 6 to 9 were also made concurrent with each other but directed to commence 9 months after the sentences on counts 1 to 5. A direction was made that the offender was to be conditionally released after 12 months.

200               In DPP v Lindskog the offender was charged with 4 offences relating to the purchase of shares in a company in resect of which the offender held confidential information concerning possible takeovers of that company. The offences took place over the period 14 March to 3 June 2011. the total cost of the purchases was some $172,000 and resulted in a profit of some $25,600.

201               The offender had a strong subjective case and his Honour seems to have accepted that the offending occurred in the context of the offender having been unable to find a remunerative job, having growing financial pressures, having been in fear of being unable to support his family and, while knowing he was close to the line, convinced himself that he was still operating within the law. The sentence imposed on the first count was a pecuniary penalty of $15,000. The sentences imposed on the other counts were each of 6 months imprisonment accumulated so as to total an effective 12 months. However there was also a direction that the offender was to be forthwith released on a recognisance release order to be of good behaviour for 18 months.

202               It is apparent that the sentence imposed on the Applicant was more severe than in the cases just mentioned. However, as has been said on many occasions, sentencing is a discretionary exercise and while a judge should have regard to earlier sentences as a guide – Hili v The Queen[2010] HCA 45 at [54] – such earlier decisions are not a straightjacket into which a new sentence must fit. Judges may legitimately differ as to, inter alia, the objective seriousness of an offence, the degree of importance that should be given to general deterrence and as to the nature of the sentence appropriate to meet that importance.

203               In this case Marien DCJ referred expressly in a little detail to R v Glynatsis [2013] NSWCCA 131 and R v O’Brien [2011] NSWSC 1553, differing as he was entitled to do, with the conclusion of Hoeben J as to the objective serious of the offending in that case.

204               As counsel for the Applicant urged in support of ground 1, there was unchallenged evidence in the case that:-

…insider trading offences are generally very difficult to detect, investigate and prove beyond reasonable doubt.

205               Similar statements are to be found in Hartman v R [2011] NSWCCA 261 at [96] and R v Rivkin[2003] NSWSC 447 at [44].

206               Given the importance to the securities market generally of its integrity and the importance to those involved in significant transactions in that market of being able to keep confidential information concerning imminent or potential transactions, the difficulty to which reference was made means that general deterrence must be given substantial weight.

207               And the need for such deterrence argues for full time custody – see R v Taylor [2000] NSWCCA 442; R v Hinton [2002] NSWCCA 405; (2002) 134 A Crim R 286. True it is that in those cases the contrast was between full time custody and a suspended sentence but they make the point that a strong need for general deterrence argues for full time custody. While undoubtedly many sentences of other than full time custody involve more than the proverbial slap on the wrist, such sentences all have within them an element of leniency and are calculated to not have the same deterrent effect as does full time custody.

208               While in this case there were undoubtedly factors arguing for leniency, it must also be remembered that the Applicant’s conduct in each offence amounted to deliberate criminality in full knowledge of that fact and that such conduct was repeated. In my view Marien DCJ was well entitled to impose a sentence of full time custody.

209               The question then arises as to the length of the sentences, individually and overall. It was pointed out that the sentences of 9 months on counts 1 and 2 if after a discount of the order of 40% indicates a starting point of 15 months and the sentences of 1 year and 8 months after a discount of the order of 30% indicates a starting point of the order of 2 years and 5 months. It was submitted that these periods were unduly high when compared with the maximum sentences of 5 years and 10 years respectively.

210               The matter is complicated because of the concurrency of the sentences imposed by his Honour. I accept that a similar approach has been taken in the earlier cases to which I have referred but certainly in this case I find his Honour’s approach impossible to reconcile with the decision of the High Court in Pearce v R [1998] HCA 57; (1998) 194 CLR 610. Even if there was some commonality in motive the criminality in each of the Applicant’s offences was distinct from the criminality in the others.

211               Considered in isolation I think that the sentence imposed for the Applicant’s first offence was high, indeed manifestly excessive for a first offender. However, were I disposed to interfere with it, I would then partially accumulate on it what I think is appropriate for the Applicant’s second offence. The result would not be less than the 9 months term that Marien DCJ imposed for these offences. I would take a similar approach to the sentences on counts 3 and 4 although the principle of totality would operate to limit the total sentence. However, again, the effective sentence would not be less than the 23 months with an effective 14 months non-parole period that Marien DCJ imposed.

212               Neither party sought that the Court adopt the approach referred to in the immediately preceding paragraph and the issue not having been raised for the Court’s determination I am content to ignore it.

213               In the result, because I think that the length of the ultimate sentence imposed by Marien DCJ was within the legitimate exercise of his sentencing discretion I propose that leave to appeal be granted but that the appeal be dismissed.

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