Duncan Stewart, the son of Chris Stewart - the former Bank of Melbourne chairman and respected figure in the Australian banking industry, faces multiple charges by the Australian Securities & Investments Commission (ASIC) over alleged insider trading in Kidman Resources shares.
ASIC alleges that Stewart, who had close links to former Kidman Resources CEO Martin Donohue, was provided with privileged knowledge of the Wesfarmers AUD $776 million plan to acquire the company in 2019.
Wesfarmers (ASX: WES) is a publicly-listed Australian company with diverse operations spanning retail (including some of Australia’s most recognisable brands such as Bunnings, Kmart, Officeworks, and Priceline), pharmaceuticals, chemicals, industrial, and more recently, its Kidman lithium mining project.
Stewart is said to have been involved in insider trading on two occasions in April 2019 when he purchased shares in lithium company Kidman Resources while possessing material non-public information (MNPI). ASIC also alleges Stewart “procured another person to commit insider trading on two occasions in March and April 2019” through his encouragement of that person to buy Kidman shares “while in possession of confidential information about the Wesfarmers proposal and a second, earlier takeover offer that had been considered by the company”.
The regulator says that Kidman Resources’ share price jumped from $1.29 to $1.84 when Wesfarmers announced the takeover to the market on May 02 2019, and that the resulting profit realised by Stewart was $68,114.
Upon completion of the acquisition in September 2019, Wesfarmers provided Kidman Resources shareholders with a cash payment of $1.90 per share.
The Commonwealth Director of Public Prosecutions is pursuing the matter following a referral from ASIC, with the case listed for mention at the Melbourne Magistrates Court on December 04 2023.
This case highlights the seriousness of insider trading actions, often made for relatively small gains when weighed against the possible outcomes for the individuals involved. Australia and many other nations around the globe are increasing their focus (and penalties) on insider trading cases to protect the integrity of markets.
At the time of the alleged offence in Stewart’s case, each breach of s1043A of the Corporations Act carries a maximum penalty of either 10 or 15 years imprisonment due to Australia’s increase in penalties for insider trading between the dates in question.
Why Misuse of MNPI Is a Significant Issue
MNPI used to create unfair gains (or avoid losses) may include mergers and acquisitions, sales of substantial assets, executive and board member changes, earnings releases that are inconsistent with market expectations, and stock buyback schemes.
Cases of insider trading have often been seen where a person privy to MNPI within their organisation has either made a trade or passed information to a friend or a relative to make a trade, which financially benefits these parties. Conversely, using MNPI to avoid financial losses is also considered insider trading.
Particularly for public companies, knowing who has access to non-public information, why, and at what times is critical to minimising the risk of MNPI misuse.
How Publicly Listed Companies Are Actively Reducing Their Risk of Insider Trading
Here are some of the common actions that publicly-listed and financial services firms in Australia and around the globe are taking to reduce their risk of insider trading.
Corporate Compliance Policies that Include a Trading Policy
Every listed entity should have a securities trading policy in place to regulate trading by KMP, directors, and executives. However, consider extending your policy to employees, family members, and entities closely connected to KMP with access to inside information.
Insider List Tracking and Ongoing Maintenance
An “insider list” is your record of individuals with access to MNPI. This list can include directors, KMPs, employees, connected persons, and external parties with inside information about your firm, such as contractors, advisors, accountants, and those involved in business transactions where sensitive information may have been disclosed.
Your records should maintain accurate information about these people’s contact details, why they are on the insider list, and dated additions and changes to the list. It is also crucial to record when people are removed from the list to understand when they stopped being in possession of MNPI.
By keeping accurate records of who is in possession of MNPI, at what times, and for what reasons, you can help protect your firm’s confidential information and quickly respond to requests for information from regulatory bodies during market surveillance activities.
MCO’s KYE compliance suite enables firms to quickly manage insider trading lists and capture MNPI information. The award-winning RegTech solution streamlines the receipt of MNPI and associates who and when access to the insider information has been gained or relinquished. Additionally, electronic tracking and maintenance of MNPI allows firms to rapidly produce the required reporting when examined by regulatory bodies. Read more about MCO’s MNPI and Insider List Management capabilities.
Personal Trade Activity Monitoring
Irregularities in the trading patterns of employees can sometimes be an early indicator of insider trading activity. Such trades may be incongruent with established trading patterns due to MNPI being acted upon. While this does not confirm that insider trading is happening, it may suggest further investigation is needed.
Regulatory Technology (RegTech) solutions, such as MCO’s Personal Trade Manager (PTM), can be implemented to automate the monitoring, detection, and automatic alerts of suspicious trade activity. The PTM module helps compliance teams efficiently review employee trading activity against restricted lists and insider trading rules, simplify employee trade pre-clearance processes, and produce complete pre-clearance and insider list updates audit histories.
A Technology-Led Approach to Reducing Insider Trading Risk
Simply having the systems in place to monitor trading activity and potential conflicts of interest is no longer enough to satisfy regulatory bodies. Organisations must demonstrate that they are actively taking steps to minimise risk and protect against insider trading.
The right technology should play a vital role in helping your organisation to actively reduce your risk of insider trading and unethical behaviours of employees, key management personnel (KMP), and third parties.
Review your technology and ensure it will:
- Be capable of proactively flagging suspicious activity.
- Enable your compliance team to quickly analyse and confirm or disprove assumptions of wrongdoing.
- Make it easy for compliance teams to monitor and manage MNPI and insider lists.
- Enable employees to easily declare any conflicts of interest, and provide attestations.
- Rapidly produce detailed reporting required by regulators upon examination.
The MyComplianceOffice (MCO) integrated compliance management suite enables firms to identify conflicts of interest more efficiently across their organisation. MCO provides a consolidated platform for compliance teams to manage areas of potential conflict, including:
- Personal account dealing
- Trade surveillance
- Insider & MNPI management
- Close personal relationships
- Ecommunications surveillance
- Attestations, registrations and licences
- Outside business activities
- Gifts, entertainment, and hospitality
For more information about how MCO’s innovative compliance management platform can help your firm effectively manage conflicts of interest, schedule your no-obligation meeting with MCO APAC Executive Tanooja Rai, or request your demo now.
Also, access your in-depth eBook - The Ultimate Guide to Conflicts of Interest.
