The Federal Court found that Hochtief Aktiengesellschaft (Hochtief AG) engaged in insider trading in contravention of the Corporations Act 2001 on 29 January 2014. It has ordered the company Hochtief to pay a financial penalty of AU$400,000 (拢237,000), as well as ASIC's legal costs.
In reaching its decision, the Federal Court found that:
- on 14 January 2014, at a meeting of the Audit Committee of Leighton Holdings Limited (ASX code: LEI) (now called CIMIC Group Limited and ASX code: CIM), Hochtief AG, through its chief financial officer, came into possession of information in relation to LEI鈥檚 expected financial result for the year 31 December 2013, which information it ought reasonably to have known was inside information;
- on 27 January 2014, whilst in possession of the inside information, Hochtief AG extended the completion date for the acquisition of Leighton Holdings聽 shares by its subsidiary Hochtief Australia Holdings Limited from 31 January 2014 to 14 February 2014;
- on 29 January 2014, whilst in possession of the inside information, Hochtief AG issued a Variation of Instruction to various directors and officers of Hochtief Australia, thereby procuring Hochtief Australia to acquire shares in Leighton Holdings聽 as a result; and
- Hochtief AG procured Hochtief Australia to acquire 200,000 Leighton Holdings shares for $3,244,156.97 (including fees).
ASIC started its proceedings against Hochtief AG on 2 February 2016. Hochtief AG admitted the alleged contravention in a statement of agreed facts. On 18 April 2016, the Court found, as contended for by Hochtief AG, that Hochtief AG procured Hochtief Australia to acquire Leighton Holdings shares on one trading day being 3 February 2014.
In handing down his judgment, Justice Michael Wigney said:
鈥淭he public is entitled to expect that a corporation of the size and status of Hochtief AG would have had adequate compliance systems and training to ensure that contraventions of the insider trading prohibition do not occur鈥he penalty should be sufficiently large to send a strong message to large multinational companies, like Hochtief, that have operations in Australia, that they should ensure that they have established suitable and effective compliance systems, and conducted appropriate training, concerning Australia's insider trading prohibition. In that sense, at least, general deterrence is an important consideration.鈥�
Wigney added: 鈥淲hile the contravention did involve carelessness and inadvertence, rather than actual knowledge and deliberateness, the careless was such as to amount to a serious failure to exercise appropriate care and diligence in the circumstances. It also involved a serious failure on the part of Hochtief AG to put in place appropriate systems and procedures relating to insider trading. It resulted in significant trading in a major Australian public company which, because it involved insider trading, had the capacity to significantly undermine the integrity and efficiency of the relevant securities markets. It was by no means a victimless crime: the victim was the market.鈥�
Hochtief observed that the court聽 had regard to the fact that the company had provided a "high level of cooperation" to ASIC since August 2014, had demonstrated genuine contrition and remorse, and had taken remedial steps that "reflected a genuine attempt to decrease the risk of any further contraventions". The company voluntarily made a donation in the sum of AU$206,800 to the Australian Shareholders' Association and the indigenous charity, the First Nations Foundation. The size of the donation reflects the notional financial gain made by HOCHTIEF through the procurement of shares in Leighton Holdings on a single day of trading, 3 February 2014.
ASIC has also:
- issued to Hochtief AG, in accordance with terms of settlement, an order to recover ASIC's investigation expenses of AU$50,000 under s91 of the ASIC Act 2001; and
- accepted an Enforceable Undertaking (EU) from Hochtief AG in relation to the trading in Leighton Holdings (now CIM) shares procured by the contravention.
ASIC Commissioner Cathie Armour said: 鈥淚t is crucial to the efficiency and integrity of the financial markets that everyone has access to the same information. In particular, companies must understand the added risk of engaging in insider trading when their officers hold multiple directorships, particularly officers of majority shareholders.鈥�
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