Risk and Compliance Blog

Former Tesla Australia Director Pleads Guilty to Insider Trading

Written by Guest Author | Nov 23, 2022 11:05:00 PM

There has been much talk of corporate governance failures at Twitter recently, but did you know that Tesla Australia’s former Director is facing up to 30 years in prison?

Kurt Schlosser has plead guilty to two counts of insider trading. Here's what happened:

Schlosser Purchases Shares After Acquiring Inside Information

On 16 September 2020, Schlosser acquired 86,478 shares in the mining company “Piedmont Lithium Limited”. Lithium is a critical material in electric-car battery packs, and vital to the production of Tesla's electric vehicles. Schlosser purchased shares in the mining company after gaining inside information, through his role as country director of Tesla Australia, of an in-principle agreement that Tesla had reached with Piedmont for the supply of lithium.

After information about the agreement became public and Piedmont’s share price rose, Schlosser sold his Piedmont shares for a net profit of $28,883.53.

Schlosser also communicated the inside information about the Piedmont/Tesla Inc in-principle agreement to a friend on 16 September 2020, knowing that his friend would likely also acquire Piedmont shares.

Former Tesla Australia Boss Pleads Guilty to Insider Trading

On 15 November 2022, Schlosser pleaded guilty to one count of trading while in possession of inside information and one count of communicating inside information to an associate.

He has consequently been committed to the Sydney District Court to appear in December 2022 for a sentence date will be fixed.

There are a few points in this case of particular note, including:

  • Insider trading is one of the least prosecuted (and most difficult to detect) offences.

  • It’s also still financial crime, and Schlosser’s trading platform of choice will have been involved in this investigation.

  • It's unknown at this point whether the trading platform proactively detected this (as they are obliged to try to do under anti-money laundering laws) or whether they merely ‘reacted’ when law enforcement informed them.

  • Even with insider information, 'timing the market' is virtually impossible. Schlosser bought at 12c and sold at a price of 27.5c per share, netting around $29,000 in profit off what must have been about a $25k investment. The shares kept climbing, however, peaking at more than 60c per share in October - more than 5x the price at which Schlosser bought in.

  • A $29k profit and ‘helping a mate make some quick dirty cash’ does not seem like enough to risk serious prison time. This is all the more true for the country Director of a company like Tesla, for whom $29k is a relatively small (if not paltry) amount.

An Unbalanced Risk vs Rewards Ratio

It must be asked, what was with the risk vs reward calculation in this situation? Was he desperate or perhaps a little crazy to roll the dice against such high stakes? Perhaps neither.

Humans have a tendency to downplay risk and overestimate opportunity, so it's more than likely that Schlosser didn't weigh his actions against the risk very well. Rather than thinking, "I'm risking more than a year of potential incarceration for every $1,000 of pre-tax profit," he may have thought, "I have a low risk of getting caught and a huge potential to make fast profit."

Interestingly, Schlosser owns a New Zealand based company called SCHLOSSER INVESTMENTS NZ LIMITED (7980998). This is a 100% subsidiary of his Australian company, SCHLOSSER INVESTMENTS PTY LTD. He also owns SCHLOSSER INVESTMENTS PTY LTD and is its sole Director and shareholder. In a little over 2.5 years, he has changed the company particulars, including multiple address changes and a move across State borders from Victoria to NSW, no less than five times. Schlosser also updated its registered address a mere 4 days before making the offending trades.

Given the name of the entities ("investments"), the nature of his offences involving investments, and the timeliness of these updates, it would be hoped that Schlosser's activity across these two entities has been examined by his banking and financial institutions, ASIC, and the relevant law enforcement agencies to ensure the full extent of the offences are investigated and prosecuted.

The case that Schlosser brings to light, whatever his thought processes may have been, offers a valuable lesson for anti-financial crime professionals, compliance officers, and risk managers:

Highly paid or prestigiously placed executives and directors don't always consider situations rationally and may imperil themselves (and their organisations) by acting illegally for relatively small gains.

 

This article was written by guest author Luke Raven - Fraud, AML & Financial Crime Compliance expert.

Connect with Luke on LinkedIn.

 

 

 

The MyComplianceOffice (MCO) RegTech Solution

MCO provides compliance management software that enables companies around the world to reduce their risk of misconduct and uphold regulatory obligations.

It’s essential for organisations to ensure material non-public information (MNPI) remains in compliance with securities laws and regulations, and we've seen increasing interest from Australian firms with regard to our Personal Trading and Control Room functionality.

MCO automates and standardises insider trading list management. Our solution identifies people who present potential conflicts due to the nature of their roles. Those with temporary NMPI visibility due to specific deals, corporate events, or publication of financial statements and profit warnings are also included. Compliance professionals can build and manage insider lists quickly and efficiently with our Insider & MNPI Management module.

With further automation of compliance and risk management processes, Australian financial firms and other organisations using MCO are spending less time and resources driving compliant workplaces - and more time growing the business with ethics, integrity, and complete confidence in their regulatory compliance.

Request your no-obligation demonstration of MCO or gain instant access to your detailed brochure to learn more.