Perhaps good deeds not only go unpunished but actually reap rewards now and then: the Australian Shareholders’ Association has had the two-fold victory of ensuring a company is punished for dodgy behaviour and scoring a bit of cash from the regulator at the same time.
ASIC issued this press release at 6pm last night outlining an unprecedented penalties arrangement for German construction giant Hochtief (controlled by Spanish giant ACS) after it admitted to insider trading on a $55 million buying program of shares in the old Leighton Holdings (now CIMIC) back in 2013-14.
I lodged the original complaint about Hochtief on behalf of the Australian Shareholders’ Association and am absolutely stoked that this has led to a conviction in the Federal Court yesterday, plus the payment of $103,400 to the ASA. This is to be invested into company monitoring and education to improve the knowledge and capability of retail investors, as The Australian’s Margin Call column noted this morning.
“This case highlights the need for vigilance,” ASA chair Diana D’Ambra said today in a media statement. “We are proud of our role in monitoring corporate governance on behalf of our membership and the investing community. It is very satisfying to receive such recognition.”
Measured in today’s dollars, ASA received a bigger contribution from the GIO class action settlement in 2003, but this is the first time a regulatory penalty has effectively been directed to the ASA. It just goes to show that assertive shareholder advocacy does pay.
The key facts of the matter, including the important role played by the AFR and The Australian, were outlined in this Crikey story back in February this year. This earlier ASIC press release also has links to the key documents and timeline, including this fascinating agreed statement of facts.
It has taken a further 10 months for the judge’s decision to convict Hochtief and fine it $400,000. It has also agreed to this enforceable undertaking with ASIC.
Now is clearly not the time to be criticising ASIC, but its performance was the subject of a Senate committee hearing in Melbourne on Tuesday, as was noted in The Age.
One of the key debating points was whether ASIC does too many civil deals with the corporate community, rather than striving to put more people in jail. That’s certainly a criticism ASA made in its written and oral submissions to the inquiry.
Despite an Institute of Public Affairs submission opposing jail sentences for white-collar crooks, everyone from the Federal Police to ASIC, the Australian Competition and Consumer Commission and the Commonwealth Director of Public Prosecutions gave evidence on Tuesday that jail time was a significant and important deterrent for premeditated white-collar criminality.
ASIC has jailed about 410 people since it was established in 1991, but in recent times its annual incarceration rate has been falling short of its long-term average of 16 per year.
The peak period happened in the decade between 1995 and 2004, when ASIC’s jail rate topped 20 in seven of those 10 years, as follows:
- 1995: 23
- 1996: 16
- 1997: 22
- 1998: 22
- 1999: 21
- 2000: 31
- 2001: 18
- 2002: 22
- 2003: 15
- 2004: 28
Alas, there has been a major drop-off in the past six years:
- 2011-12: 10
- 2012-13: 8
- 2013-14: 8
- 2014-15: 3
- 2015-16: 13
- 2016-17: 7 so far
One of the ASIC witnesses told senators on Tuesday that there was an argument for tougher penalties in the case of corporate insider trading.
Insider trading has actually been one of ASIC’s best areas for scalps in recent years, but the penalties for individual perpetrators remain perplexingly low.
In the case of Hochtief, no individual has suffered financially, and there is no sign that any executives or directors have been sacked or demoted.
They’ve settled for a $400,000 fine paid by shareholders.
With shares in CIMIC group closing at $31.17 yesterday, Hochtief’s purchase in late 2013 and early 2014 of 3.42 million shares at an average price of $16.15 has proved to be highly profitable.
Indeed, the $55.23 million investment is now worth $106.6 million.
Put in that context, a $400,000 fine is a small cost of doing business. Let’s hope directors, executives and corporates right across the market have at least taken note and learnt the lesson through Hochtief’s embarrassment.
It’s a pretty simple proposition for insiders to digest: don’t buy or sell shares in the weeks leading up to a six-monthly earnings release.
* Stephen Mayne is an ASA director and lodged the original complaint about Hochtief’s share purchases on February 5, 2014.
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