find the latest legal job
Corporate Counsel and Company Secretary
Category: Generalists - In House | Location: Newcastle, Maitland & Hunter NSW
· Highly-respected, innovative and entrepreneurial Not-for-Profit · Competency based Board
View details
Chief Counsel and Company Secretary
Category: Generalists - In House | Location: Newcastle, Maitland & Hunter NSW
· Dynamic, high growth organisation · ASX listed market leader
View details
In-house Projects Lawyer | Renewables / Solar | 2-5 Years PQE
Category: Generalists - In House | Location: All Australia
· Help design the future · NASDAQ Listed
View details
Insurance Lawyer (3-5 PAE)
Category: Insurance and Superannuation Law | Location: Brisbane CBD & Inner Suburbs Brisbane QLD
· Dynamic organisation ·
View details
Legal Counsel
Category: Corporate and Commercial Law | Location: North Sydney NSW 2060
· 18 month fixed term contract · 3-5 years PQE with TMT exposure
View details
Landmark ruling in adult-shop case

Landmark ruling in adult-shop case

Two businessmen who invested in an online adult shop face criminal re-trial over alleged insider trading after the High Court ruled that false information is still information.

Two businessmen who invested in an online adult shop face criminal re-trial over alleged insider trading after the High Court ruled that false information is still information.

In 2002, John Kizon and Nigel Mansfield bought shares in AdultShop.com, a new company being launched in Perth at the time, after they allegedly received market-sensitive information from its managing director Malcolm Day.

The information turned out to be false, but the DPP still brought a case against the businessmen for insider trading.

“It’s a difficult area of law to prove and the timing here’s really important,” explained Professor Michael Adams (pictured), dean of law at the University of Western Sydney.

The transaction occurred on 4 January 2002; on 11 March 2002 the law changed to mean insider trading is charged as a civil penalty, rather than a criminal action.

Kizon and Mansfield argued that "a lie cannot constitute information" when it comes to insider trading under the Corporations Act.

The original trial judge acquitted both men, but the DPP appealed that decision and, this month, the case ended up before the High Court. On 14 November, five High Court judges unanimously found that inside information provided to investors did not need to be factual to prevent the share market from operating freely or fairly.

The High Court detailed the ordinary meaning of the word “information”, citing various examples where judges had held that information can be true or untrue.

Adams said it was a sensible decision.

“As a matter of principle, you cannot argue that false information is in fact no information,” he said.

The High Court has ordered that the men be tried again in the District Court of WA for insider trading.

It will be treated as a criminal case because the facts arose before the Financial Services Act reformed this area of the Corporations Act, said Adams.

“The whole process of a judge, a jury and the burden of proof [has] changed, but it still has to be under the old law,” he said, adding that this could be a significant verdict, given there have only been around 15 insider trading cases taken in Australia and most have been uncontested.

A necessary evil?

Adams argues that insider trading is “such a normal part of business that it’s virtually impossible to stop”.

His 1999 paper with finance professor Mark Freeman, entitled The Necessary Evil, claimed that five per cent of all trades on the stock exchange are tainted with insider trading and that, therefore, it shouldn’t be a criminal offence.

“It should be a civil penalty and if a director gets caught insider trading then they should be punished through the normal directors’ duties,” said Adams.

Insider trading is almost always about good news being delayed or somebody trading before that good news is announced. It can also apply to bad news: if somebody sells shares at a higher price before the bad news comes out.

Market manipulation, or communicating false information about share price, undermines the whole credibility of the stock market and everybody loses because the share price is not a reflection of its reality, said Adams.

“The question you have to ask yourself in this case is ‘why did the managing director give this information?’ One of the reasons logically is it was to what’s called ‘pump the share price’,” he said.

Mansfield and Kizon bought and sold shares in Adultshop.com after Day allegedly told the pair that the Packers could be buying 4.9 per cent of the company and that the company’s profits were expected to jump from $3 million to $11 million, and its turnover from $50 million to more than $100 million.

Like this story? Read more:

QLS condemns actions of disgraced lawyer as ‘stain on the profession’

NSW proposes big justice reforms to target risk of reoffending

The legal budget breakdown 2017

Landmark ruling in adult-shop case
lawyersweekly logo
Promoted content
Recommended by Spike Native Network
more from lawyers weekly
LCA president Fiona McLeod SC
Aug 17 2017
Where social fault lines meet the justice gap in Aus
After just returning from a tour of the Northern Territory, LCA president Fiona McLeod SC speaks wit...
Marriage equality flag
Aug 17 2017
ALHR backs High Court challenge to marriage equality postal vote
Australian Lawyers for Human Rights (ALHR) has voiced its support for a constitutional challenge to ...
Give advice
Aug 17 2017
A-G issues advice on judiciary’s public presence
Commonwealth Attorney-General George Brandis QC has offered his advice on the public presence of jud...
APPOINTMENTS
Allens managing partner Richard Spurio, image courtesy Allens' website
Jun 21 2017
Promo season at Allens
A group of lawyers at Allens have received promotions across its PNG and Australian offices. ...
May 11 2017
Partner exits for in-house role
A Victorian lawyer has left the partnership of a national firm to start a new gig with state governm...
Esteban Gomez
May 11 2017
National firm recruits ‘major asset’
A national law firm has announced it has appointed a new corporate partner who brings over 15 years'...
opinion
Nicole Rich
May 16 2017
Access to justice for young transgender Australians
Reform is looming for the process that young transgender Australians and their families must current...
Geoff Roberson
May 11 2017
The lighter side of the law: when law and comedy collide
On the face of it, there doesn’t seem to be much that is amusing about the law, writes Geoff Rober...
Help
May 10 2017
Advocate’s immunity – without fear or without favour but not both
On 29 March 2017, the High Court handed down its decision in David Kendirjian v Eugene Lepore & ...