Michael, Janda. 2013 “ASIC appeal sees insider trader jailed.” ABC News, June 7. http://www.abc.net.au/news/2013-06-07/asic-appeal-sees-insider-trader-jailed/4740510 Word count 1,282
1. Identify areas of law addressed in the chosen media report (above), and explain how they are relevant to the matters outlined in the media report.
This article repots on the appeal lodged by ASIC regarding initial two years non- custodial intensive correction order sentencing on Nicholas Glynatsis, a former tax consultant at PricewaterhouseCoopers (PwC) charged with insider trading offense. The convict, Nicholas was thereafter to serve his jail sentence with full- time custody.
Corporation Law
PwC is the world’s largest professional services firm and as a multi-national organization such as itself, the Corporations Act applies to which PwC must comply. All corporations trading in Australia must comply with all divisions specified in the Corporations Act which includes explicit and detailed Division of prohibitions of insider trading for the corporation and its employees.
Nicholas Glynatsis’s action of insider trades, the governance and supervision PwC carries out and remedy schemes constituted concerns with compliance with Corporations Act.
Criminal Law
In breaching of insider trading prohibitions, individuals may be charged with criminal offense and sentenced with jail terms as Nicholas Glynatsis in above case have been. Insider trading is considered a corporate crime for its intention, organizing effort, nature of fraud and severe consequences.
Contract Law
Given reasonable assumptions, there would have been many issues relating to contract law. For instance, Nicholas could have been working with PwC under contract and PwC may have drawn various contracts with its clients whose information Nicholas had disused. In either of above cases, PwC and its employee Nicholas Glynatsis would have been bound by the power of contracts signed with its clients to ensure the confidentiality and secrecy of all relevant financial and non- financial information unavailable to the public and prohibit abuse/ disuse of such information. If the contracts drawn had otherwise specified terms regarding the privacy and confidentiality of information concerned, PwC must comply accordingly.
Tort/Civil Law
The case did not specify, but during the insider trading actions Nicholas had conducted, if a third person had suffered from his failure to carry out his legal duties, then it would have been a breach of Tort Law and Nicholas may have been personally liable for the causing losses. Counterparties, whose financial products are traded or disused, are also entitled to civil remedies even they suffered no losses. 2. Demonstrate how the law functions in the following various ways, by reference to specific examples within the chosen media report and the areas of law you identified in Question 1.
* Allows people to organize and plan with reasonable certainty:
This function of law can be well demonstrated by examining the power of contract law.
Nicholas Glynatsis had illegally gained internal information and disused such information to earn a total profit of $ 50,000. The information Nicholas obtained were provided by the client companies or gathered by PwC for the purpose of providing services agreed in the contracts.
When two counterparties enter into a contract, not only the terms and conditions must be complied but information provided must be true and non- misleading. Nicholas could only have organized his relatively low risk investments beforehand and made a profit by relying on the power of contract law which demanded two parties to give true and precise information.
* Lays down rights, duties and powers of members of different classes and groups:
Contracts between PwC and its client companies provide good illustrations to this function.
PwC makes contracts with its clients in which corresponding rights, obligations and powers/ entitlements are clearly defined and agreed on. PwC would, generally, perform services to its contracted clients in exchange for monetary payments. In this circumstance, confidential information was also made available to PwC as one of PwC’s rights. PwC also bears obligations, such as providing quality service, protecting company privacy which in this case had failed, etc.
There are many more details and conditions that cannot be discussed thoroughly in this paper but any contracts legally formed will clearly specify rights, duties and powers of counterparties involved.
* Permits, encourages, forbids or discourages particular activities:
A good demonstration of this function comes from the breach of insider trading prohibitions, which had initially resulted Nicholas being in a two years non- custodial intensive correction order and after ASIC filed its appeal to New South Wales Court of Criminal Appeal it had become a full- custodial imprisonment. The Commonwealth Director of Public Prosecutions, Robert Bromwich SC stated that “The court has made it clear that the real bite of general deterrence occurs when an actual custodial sentence is imposed.”
As previously stated that insider trading is considered a corporate financial crime thus forbid, and under the Criminal Law Act such behaviors must, and will be severely punished in order to discourage such crime.
* Creates rights and duties that can be enforced:
The contact between PwC and its client makes a good demonstration for this function of law.
When Nicholas, an employee of PwC abused one of his company’s rights to obtain valuable information in the database that is unavailable to the public, he was not performing his legal duty to both his company and the victim company.
After ASIC detected his fraudulent action and took him to the court, Nicholas would have to face a series of charges for abusing his rights and breaking his duties. * Provides remedies when rights are interfered with or duties are not discharged:
There have been remedies regulations under Corporations Act in which counterparties were entitled to claim loss suffered. However, contemporarily this remedy only applies to a non- transacting, third party.
When insider trading prohibition is breached as in this case, under Corporations Act, the counterparties/ PwC’s client is no long entitled for claiming remedy, instead, Nicholas would have been fined up to $20,000 depending on his profit made and nature of his investments. Nicholas would also have faced a civil penalty about 3 times of the profit made.
All victims of his fraudulent behavior would have been able to claim an order for compensation to the court and should their orders be granted, they would be compensated with money deducted from Nicholas fine.
3. By referencing to the legal issues contained in the chosen media report, explain why it was important for the relevant party/ parties to know the law in the circumstances? How did, or could, the party/ parties have applied the law to their advantage?
By better understanding of the law in the circumstance, relevant parties could endeavor to reduce the risk of breaching the law and resulting serious penalties. Breaching of law can be resulted by intentionally planning as well as lacking of knowledge and the latter is completely avoidable. Unfortunately, no individual or company can escape penalties easily by their ignorance of law after a law is breached and the damage to a company’s reputation such as PwC and the cost spent on compensating and fixing it would be much higher and in many cases impossible.
Nicholas could have done insider trading without fully realizing what he would have to face, better knowledge of the law could have allowed him to realize his duties, obligations and severe consequences of his actions and he may have acted differently.
Victim companies also benefit from a better understanding of insider trading regulations as for they would have been able to claim remedy orders best suited their circumstance, maximizing the likelihood and amount of their compensation claims.
4. Briefly outline and explain the different sources of law in Australia. What sources of law was raised in the chosen media report?
In Australia, law can be classified as enacted and unenacted. Enacted law is also known as statue law which is made by politicians, parliament/ legislation. A statue law should have been created and passed through parliament and both state and federal have power to pass through laws within their jurisdictions.
On the other hand, unenacted laws are created by judges and courts from custom or precedents. They are not written, nor passed through parliament, usually based on “equity” and also known as common law. Early Australian laws were greatly influenced by British laws and many laws had been made from cases that Australian judges decided and reasoned in their court reports.
Both Criminal Law of Australia and Corporations Act that Insider trading is concerned with are enacted laws.
Contract law had been heavily based on British Company Law but with many recent statuary amendments and modifications.
Tort law in Australia is defined by both precedent of cases and minor legislation. Mostly, Tort law derived its legal grounds from Common Law and since it deals with civil wrong among citizens, it is defined with characteristic of being very adoptable to modern circumstances and judges need to be given the power to make decisions based on specific circumstance.