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post Posted: Jun 28 2008, 10:36 AM
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In reply to: drrc on Wednesday 20/02/08 08:56am

Corporate crime goes from bad to worse: Andrew Main, Business editor | June 28, 2008

WELCOME to the next battleground in the corporate law debate: directors insider trading in their own companies.

Why? One, it's illegal; two, it's getting worse; and three, no one in living memory has ever been charged with it.

ASX Ltd's report yesterday identified 57 examples of trades made in 33 ASX-listed stocks in the first three months of this year that "may have contravened the trading policies of the companies involved".

That's a nice way of saying they may well have been insider trades, in which the director was in possession of information about the company's impending profit result, good or bad, that every normal investor was not party to. And it's getting worse.

This is the first time ASIC has done one of these surveys (of every single ASX-listed company -- more than 2200 of them) but it's not the first survey that's been done. Erik Mather of consultancy Regnan did a survey back in 1997 that identified 48 suspect trades over a full year.

His sample was smaller but you get the drift: 52 in a quarter is a lot worse than 48 in a year.

And no wonder. If no one we can identify has ever been charged with this particular breed of insider trading, it hasn't been on directors' radars and directors who are bothered about their colleagues' dodgy trading habits haven't found much of an audience.

This has to change. When he was chairman of the Australian Institute of Company Directors, Ralph Evans wrote a ringing editorial saying that nothing much would happen until someone went to jail over this.

And he's right. In decades gone by, it was considered witty and smart in some circles for a director to bail quietly out of a company with a dud result announcement imminent, or load up in the opposite circumstance. It was even suggested that insider trading was a victimless crime and that without a bit of insider trading the market would seize up.

Rubbish. It's theft, since for every winning insider trade there's usually a losing trade on the other side ... someone who sold too cheap or bought too high.

And insider trading is one of the worst ailments that any stock market can suffer from, in terms of attracting investor interest from outside. So don't let's whack ASX too much on this one: our market managers don't enjoy trotting out lists of sins that show our market to be well less than efficient.

Once again, it's been lobbed to ASIC, our corporate regulator. It's well known that ASIC doesn't like insider trading, even though every barrister knows how hard it is to prosecute. You have to prove no less than five elements, or eight as some pedants would have it, and make all of them stick to jury standard.

It isn't easy but the alternative -- a market where directors break the rules for their own benefit -- has got to stop and be shown to have been stopped.

"The optimist proclaims that we live in the best of all possible worlds. The pessimist fears this is true"

"What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom." Adam Smith
post Posted: Feb 20 2008, 08:56 AM
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post Posted: Sep 4 2007, 07:52 PM
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Chaining up the rogue traders

While market manipulation is not new, the internet makes it much easier.

September 4, 2007

An Australian company is leading the charge against manipulation of international stock markets, reports Patrick Gray.

WHEN 23-year-old day trader Mark Jakob "shorted" the wrong shares, he panicked. Drowning in a sea of red ink, his risky investment decision plunged him deep into debt. By the time the market closed on August 24, 2000, he owed $US97,000.

When shorting a stock, the investor profits if the price falls. If it climbs, they lose money - rapidly. In this case, the Emulex Corporation shares that Jakob had shorted were climbing, and he was running out of time.

Instead of cutting his losses, Jakob engineered a spectacularly successful meltdown in the company's share price. He crafted a false press release claiming Emulex was being investigated by US regulators and its chief executive was resigning. Jakob then manipulated the systems of his former employer, press release distributor Internet Wire, sending the false information to news organisations throughout the US. The bogus release was reported as fact and Emulex shares dived 62 per cent, wiping $2.4 billion off the company's valuation in 15 minutes, costing investors $110 million. By the time the market realised what had happened and Jakob was caught, he'd allegedly pocketed $241,000.

The fusion between the internet and real-time trading has produced some interesting side-effects. While market manipulation is not new, the internet makes it much easier.

Against this backdrop, Sydney-based stock market surveillance software maker Smarts Group has quietly gone on the warpath, growing faster in the past five years than ever before in its 14-year history.

"The number one reason (for our growth) is that we are now seen as a credible supplier for the big exchanges," says Thomas Jones, co-founder and chief executive. "We've now got 75 staff. Three years ago we had 25."

Smarts' market surveillance software - designed to detect insider trading and market manipulation - is now installed at 20 of the world's 200 main stock exchanges, including London, Switzerland, Singapore and Helsinki.

With the company's main competition coming from in-house systems developed by the exchanges, Mr Jones is optimistic about growth prospects. "We're not going to triple every couple of years, but we're going to keep growing," he says.

Detecting abnormal price or volume movements isn't simple - many exchanges find it challenging to build the technology that Smarts pioneered in the early '90s, he says.

Originally developed in 1993 at Sydney University by Mr Jones and company co-founder Tim Cooper, the system uses complicated statistical modelling to profile trading patterns for each listed entity.

Patterns for large companies such as BHP or Telstra are wildly different from those of smaller businesses, the chief executive says.

The Australian Stock Exchange, for example, uses the software to identify price movements that are out of line with recent trading patterns.

Modern trading volumes are massive; without market surveillance software to pick out crooked trades, the illegal behaviour is lost like the proverbial needle in the haystack.

Volumes started ramping up when the ASX introduced its Stock Exchange Automated Trading System, SEATS, in 1987 and closed trading floors. They are still climbing. During the past financial year the ASX average was 194,000 trades a day, up from 125,000 a day the year before. ASX general manager of participants David Lawrence says the alerts generated by such systems are crucial to controlling illegal behaviour. "(System) alerts might lead to further inquiries in a number of different ways," Mr Lawrence says. "It may lead to insider trading investigations, or market manipulation investigations."

Odd movements in shares can often be easily explained by the release of analysts' reports, negative press coverage or gloomy market announcements, but the system does catch real illegal activity.

"Generally around 75 per cent of alerts are explainable," Mr Lawrence says. "(However) last financial year we had 77 referrals to ASIC, 34 of those were suspected insider trading, 18 of them were continuous disclosure breaches, 11 were suspected market manipulation and 28 were 'other'."

Even large numbers of alerts can be innocent. The recent frenzied market activity triggered by the US sub-prime mortgage market collapse saw trading patterns vary enough from norms to generate 1500 alerts on the Australian Exchange on August 16.

August 16, however, was far from a normal day's trading, as Australian shares tumbled after fears of a global liquidity crisis. "Because there were 1500 on a day it doesn't follow that there are major issues in the market," Mr Lawrence cautions.

While most alerts turn out to be nothing, scams and criminal behaviour on markets are a sad reality. Share market manipulation seems to be in fashion in the US; the Securities and Exchange Commission in that country receives between 200 and 300 complaints about possible market manipulation each day.

And US markets have to contend with more than faked press releases and insider trading concerns. The land of the free is the world capital of pump-and-dump spam campaigns.

Criminals craft emails purportedly from well-positioned finance workers and send them to millions of inboxes globally. The message seems to arrive at the recipient's inbox by mistake, and purportedly contains insider information about a particular company.

Most internet users have learned to ignore such spam. But to the less savvy a wayward insider tip seems a good way to earn a fast buck. Of the millions of recipients of the message, a handful take the bait and start buying stock. The spammers dump their holdings and bolt with the profits.

Thankfully, the scams haven't made it to our shores. "Most of those scams apply to the US market," David Lawrence says.

Account hijacking in Australia is limited, he says. But in the US, accounts of online traders can be taken over by gangs of criminal hackers. Scammers use custom-designed computer viruses to suck trading account passwords off unsuspecting users' computers, then use the accounts to buy up stocks held by their group.

A stockmarket filing published by US-based online share trading company E*Trade in November, 2006, showed the company's online fraud-related losses increased 97 per cent to $US45.7 million ($A53.8 million) and 55 per cent to $US101.9 million for the three and nine months ended September 30, 2006, respectively, compared to 2005.

In Australia, Mr Lawrence says, it hasn't been a real problem. "We've been able to work with ASIC and other agencies to close it down quickly," he says. It's up to the surveillance team to monitor trading patterns and chatter on the internet to keep a lid on such scams.

Sometimes, also, brokers will place such orders and withdraw them at the last minute in an attempt to drive a share price up or down.

Smarts' Mr Jones says another Emulex-style scam was prevented in 2004. A stock listed in Norway, CanArgo, started climbing rapidly but the system caught the anomalous behaviour and the exchange halted trading. A sole investor had been posting fake press releases on the internet to boost the shares.


post Posted: Apr 14 2007, 01:44 AM
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Man for trial on insider trading counts

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Jesse Hogan
April 14, 2007

A MELBOURNE man accused of leaking embargoed company news to a share traders website will face trial for insider trading.

Peter Robert Woodland, of Frankston, was charged with 17 counts of insider trading last year by the Australian Securities and Investments Commission after a tip-off by the recently renamed Australian Securities Exchange.

Woodland is accused of illegally trading shares of a Western Australian mining company, Andean Resources, five times between November and December 2003, just before an announcement that the company had taken over a goldmine in Chile.

The other 12 counts relate to comments he allegedly posted on the HotCopper trading website about the company — at that stage called Kanowna Consolidated Gold Mines — which ASIC considered to be "communicating inside information to others at a time when it was not generally available to the public".

The ASX regularly monitors shares-focused internet discussion boards for potential breaches of securities laws, which require listed companies to ensure news that might influence its share price be available to all market watchers.

Woodland pleaded not guilty in the Melbourne Magistrates Court this week to all 17 charges and was bailed to face trial in the County Court on June 21.

Anyone found guilty of insider trading can be fined up to $220,000 and sentenced to up to five years' jail for every count.

HotCopper promotes itself as a forum for discussing listed Australian companies but warns participants of legal action if comments breach securities laws.


post Posted: Mar 2 2007, 07:24 AM
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Canberra tackles insider trading

* Joseph Kerr
* March 02, 2007

THE federal Government plans to overhaul the definition of information that investors can use before they attract the suspicion of insider trading, in a move to clear up widespread confusion.
With the share market booming amid a frenzy of multi-billion-dollar takeover bids, the federal Government is examining a series of proposals that simplify and widen the definition of inside information.

Big investors and regulators have been alarmed by the number of companies whose shares surge ahead of major announcements such as the private equity bids for Publishing and Broadcasting Ltd's media assets, and the takeover bid for Qantas by Airline Partners Australia.

The Australian Securities Exchange in January reported an increase in the number of referrals for insider trading, linking the rise to the number of takeovers by private equity groups.

Peter Morgan, the outspoken investment director of 452 Capital, said insider trading was definitely still an issue.

"Yes, particularly over the last six to 12 months, my suspicion is insider trading is alive and well," Mr Morgan said.

"Just to remove the excuse and ambiguity if its done properly is a step in the right direction."

It has taken nearly four years since its Corporations and Markets Advisory Committee made a string of recommendations to streamline and strengthen Australia's insider trading rules, for the Government to announce an examination of seven proposals for change, expected today.

The present rules stipulate "information made known in a manner that would be likely to be available to people who commonly invest", a definition CAMAC found in November 2003 meant there was a significant degree of doubt about what sort of information would cause a trader to fall foul of the insider trading rules.

"The published information test can create considerable uncertainty about when persons may lawfully trade," CAMAC found.

The definition is likely to be changed to one stipulating traders could only act on "information that would be generally available".

Ian Matheson, chief executive of the Australasian Investor Relations Association, said insider trading remained a problem, although not so much on the part of people directly involved in transactions.

"These days, people involved directly in transactions generally have a clear sense that they are in possession of material information that makes them insiders, that therefore must not be disclosed or traded upon."

But he said: "You don't have to be an insider to insider trade."

"To the extent that insider trading still occurs it's less to do with loose lips within companies, I think it's loose lips often by third parties who may leak that information to other parties who may in turn trade on that information."

"The issue is that it's the directors and officers of a listed entity that are bound by the continuous disclosure listing rules. Third parties, for example advisers, are not necessarily caught by those continuous disclosure obligations and therefore they may become aware or hear rumours about transactions or other corporate information that may or may not be correct," Mr Matheson said. The Treasurer's Parliamentary Secretary, Chris Pearce, will today announce a public review of seven proposals from CAMAC in relation to insider trading rules.

Insider trading rules are designed to make sure all players in the market are operating on a level playing field, and forbid people from trading in stocks when they hold information that is not generally and publicly available.

Mr Pearce will set up a public inquiry process to further examine seven of the proposals, including the call for a new definition.


post Posted: Dec 23 2006, 08:22 AM
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Insider trading up with market

* Glenda Korporaal
* December 23, 2006

A DOZEN new cases of suspected insider trading involving listed public companies have been referred to Australia's corporate watchdog for possible criminal charges.
They are among 32 serious company breaches referred by the Australian stock exchange to the Australian Securities and Investments Commission for investigation in the first five months of the financial year.

The other cases involve alleged breaches of the continuous disclosure requirements for companies listed on the ASX, and market manipulation.

The latest cases, which come at a time of a booming sharemarket and a string of major private equity deals, follow the referral of almost 70 cases of insider trading by the Australian Securities Exchange to ASIC over the previous three years.

The ASX's head of supervision, Eric Mayne, in an interview with The Weekend Australian, said the higher level of referrals by the ASX to ASIC over recent months was a reflection of the booming share market and the big deals carried out.

"There is more activity in the market and therefore there are potentially more reasons to have a look at something that might potentially result in a referral," he said.

The ASX established a special insider trading unit in April.

Mr Mayne warned that ASX routinely examined the reasons behind any spikes in share prices, including those that led up to the recent private equity deals. He said the process also took into account any trades by advisers involved in the deals.

"You can assume that in a private equity transaction, once it is announced our surveillance area will go back and have a look at the trading in that company and have a look at the individuals who were trading."

Mr Mayne said the ASX was reviewing the implications of the private equity boom for the Australian share market.

He said this included whether it should be requiring more information be disclosed when private equity groups made a bid for listed companies.

It would also include whether there was a need for more scrutiny of potential insider trading cases involving these deals.

"You have this tension with private equity," he said.

"You have the private equity participants who want to keep everything confidential and you've got the listed company that has got continuous disclosure obligations."

ASIC this week stepped up its case against global financial giant Citigroup over alleged trades ahead of Toll Holdings' bid for Chris Corrigan's Patricks last year.

It is now alleging five conflicts of interest breaches against Citigroup for share buying at the same time as it was advising Toll on its proposed bid for Patricks.

Mr Mayne said the ASX did not disclose the nature of any insider cases it referred to ASIC, but said ASX made referrals when it believed there could be prima facie case. However, it was up to ASIC to decide whether to pursue the matter.

Mr Mayne said the ASX was also taking a closer look at the big increase in the number of small to medium companies listing on the exchange in the resources sector.



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post Posted: Dec 12 2006, 07:47 AM
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Investors need a watchdog with bite to cage insider traders as a deterrent
Stuart Wilson
December 12, 2006
ONCE it was crying poor, but now the Australian Securities and Investments Commission has $30million to spend on a system to detect potential insider trading.

The scant detail of this proposal suggests that it wants to duplicate what the Australian Securities Exchange already has, and the purpose of this new system is to monitor a market that it already thinks is well-supervised by the ASX.

The ASX has a substantial vested interest in operating a fair market - if investors believe that there is rampant insider trading going on, they will desert the equity market, and that's bad for the ASX's business.

On the other hand, the most common argument against the ASX being the market operator and supervisor, all while itself being a listed company, is that it has a conflict of interest. What happens if the ASX breaks its own rules or if one of its own is suspected of insider trading?

The ASX has done what it can to ease concern about its conflicts. The supervisory side of the business does not report to the chief executive of the ASX. It is as if there are now two separate entities, and while that satisfies most, there are some who still feel the link is too close for comfort.

Investors do not generally care who performs the role of supervisor, so long as the job is done thoroughly and the results are visible. The people at the ASX seem to be very active in identifying and referring suspicious trades to ASIC, and have elaborate systems to support them. Even the ASIC report card gives the ASX good marks. If cases were made as to who would do it best, the ASX would get the nod.

There are all sorts of suspicious events that trigger warning bells when it comes to insider trading monitoring. Large price increases just before a major company announcement can suggest that the privileged few are acting on inside information. Likewise, company founders who sell out prior to a collapse will raise suspicions that they knew about the company's imminent demise.

Of course some of the time these situations are mere coincidence, or they might be a reaction to media or chat room speculation. The ASX is starting to weed out those types of situations prior to referring them on to ASIC.

But there are murmurs that far too many anomalous situations referred to ASIC simply go nowhere. The general public does not receive meaningful statistics about the number of referrals the ASX gives the regulator, how many are being followed up and how many have reached a dead end. It is suspected that a lack of manpower, rather than little hi-tech gadgetry, is the main cause of lack of action by the regulator.

There are only very few cases that make it to court. As insider trading is difficult to prove, there are too few criminal convictions to deter those considering the risks. If a new system were developed that better joined the dots between the transaction, who performed the trade, what information they had when they entered the transaction and, finally, why they traded, this could dramatically lift the number of white collar incarcerations. Only then will the deterrent start to bite.

ASIC itself faces all sorts of challenges in dealing with increased regulation, particularly in the financial planning area, as well as an expansion of its powers where it may now fine companies for disclosure breeches. In addition, there is an ever-increasing volume of written and telephone-based complaints flooding into the ASIC bunker.

Until the $30 million budget for a new insider trading detection system was mentioned, ASIC was regularly crying poor and often lamented that it did not have the resources to follow up many complaints. Surely, with the systems the ASX already has, that money could be put to better use.

Stuart Wilson is chief executive of the Australian Shareholders Association


post Posted: Nov 23 2006, 05:02 PM
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In reply to: nizar on Saturday 11/11/06 09:49pm

Absolutely Nizar. I use to consolidate commercial sites for bulk retail users like supermarkets.

It was always a nightmare trying to keep what we were doing secret. There was always a raft of consultants from valuers, surveyors, demographic analysts, traffic engineers, architects etc and you could guarantee someone(s) would have a loose tongue and break confidentiality agreements.

Because of what we were doing we would have a good handle on the oppositions similar plans and as a spoiler we would buy strategic properties in the middle of a block the competitor was after. We obviously did this for competitive reasons but there were times when we sold out for values 2-3 multiples of current market values.

If you can get a strategic site within a large area a commercial operator is after theres a good chance you will get 50%+ above market value. Generally you can't be too exploitive as all projects have a point where land/building costs destroy the project economics. In which case the developer walks away leaving you holding the property...which may or may not be a bad thing depending how you've structured your deal.

post Posted: Nov 23 2006, 04:45 PM
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In reply to: nizar on Saturday 11/11/06 07:49pm

Hi nizar,

I'm not sure where in oz you live, but in melbourne a large impact on the growth of certain areas is the 'melbourne planning scheme'. Freely available on the web, yet a vastly under-utilized resource. It's worth having a look at if you're interested in melbourne real estate, I've found it a great help in evaluating potential real estate investments. I'm not sure but perhaps other cities Australia-wide have some sort of planned growth scheme??

post Posted: Nov 11 2006, 10:34 PM
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In reply to: nizar on Saturday 11/11/06 05:49pm

Hi Nizar. Yes, it happens all the time in Real Estate, but the rules are different there. With real estate, it's first in, best dressed. The only exception is with licenced brokers/agents. They are held to a higher standard, but they still do it as well.


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