ASIC scores “easy wins” with insider trader prosecutions but directors’ duties prove tougher

The corporate regulator’s half-yearly supervision report card has revealed a crackdown on insider trading and other market manipulation which it has been unable to extend to its enforcement of directors’ duties.

The Australian Securities and Investment Commission’s report published this week found there had been a “significant jump” in the number of insider trading cases needing investigation in the six months to June. However, Rebecca Maslen-Stannage, a partner at legal firm Freehills, says these prosecutions are an “easy win” in comparison to prosecuting directors’ duties cases.

ASIC deputy chairman Belinda Gibson indicated ASIC is keen to extend the aggressive tactics deployed against insider trading and market manipulation to other areas of corporate law.

Gibson told Fairfax that ASIC was able to act more quickly since taking full control of market supervision from the Australian Stock Exchange two years ago, but said success had been harder to come by in areas such as enforcing directors’ duties.

She said ASIC aimed to use some of the lessons learnt in prosecuting insider trading in other enforcement areas.

”I think it’s going to be most helpful where you are looking at a prosecution and jail… If it’s a civil proposition…other than straight-out fraud, the concern of the end outcome is not as high and people are prepared to take you on through the system,” Gibson told Fairfax.

An ASIC spokesperson told SmartCompany that ASIC had changed its enforcement strategy for investigating insider trading.

“Now, where we see suspicious trading, we will often work up a preliminary case and simply ask that person why they traded,” the spokesperson said.

“Sometimes the person will immediately agree they have broken the law. Sometimes there is a very good explanation, and we will drop our inquiries.”

The Securities and Exchange Commission in the US employs a similar strategy.

“Our focus, and our innovative approach to investigations, has led to our gathering better evidence more quickly,” the ASIC spokesperson said.

“We are building better cases and when people are presented with a clear case they will often decide to plead guilty to avail themselves of the leniency the courts will afford for co-operation.”

However, Maslen-Stannage told SmartCompany that ASIC’s insider trading crackdown would be difficult to replicate in the enforcement of directors’ duties, as insider trading is a criminal matter whereas directors’ duties falls within the remit of civil law.

“There is no doubt ASIC is very focused on directors’ duties and when you think of some of the litigation they have brought, including Fortescue, Centro and James Hardie, ASIC has put significant effort into enforcement around directors’ duties,” Maslen-Stannage says.

“ASIC is expressing the pragmatic reality that you can’t expect in civil prosecutions the same easy wins as in criminal.

“In terms of monitoring market activity, ASIC can get good evidence on criminal matters but in directors’ duties it is much more nuanced decision-making and not as black and white as market contraventions.”

Maslen-Stannage says that, unsurprisingly, people are likely to challenge ASIC’s enforcement attempts in relation to directors’ duties, as some of the cases brought by ASIC have surprised the market with the regulator’s strict approach.

“ASIC is really explaining why it can’t achieve the same results, it would not be realistic for it to have the same easy wins in the directors’ duties area as in something like the market supervision area,” she says.


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