Donald and Australian Securities and Investments Commission [2000] AATA 21 (21 January 2000)

Last Updated: 25 January 2000

DECISION AND REASONS FOR DECISION [2000] AATA 21

ADMINISTRATIVE APPEALS TRIBUNAL)

Nº V99/859

GENERAL ADMINISTRATIVE DIVISION)

ANDREW DONALD

Applicant

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

DECISION

Tribunal: Deputy President G.L. McDonald

Date: 21 January 2000

Place: Melbourne

Decision: The decision under review is varied in that the banning order against the applicant under the provisions of s.830(1)(b) of the Corporations Law is set at two years, dating from 20 July 1999.

(sgd) G.L. McDonald

Deputy President

CORPORATIONS LAW -- Securities -- market manipulation -- purchase of shares on stock exchange -- false or misleading appearance with respect to the price of any securities -- whether a banning order should be made -- duration of banning order

Corporations Law ss.829, 830(1), 998(1)

Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd (1998) 28 ACSR 58

North v Mara Developments Limited (1981) 148 CLR 42

REASONS FOR DECISION

21 January 2000 Deputy President G.L. McDonald

1. The applicant is applying for the review of a decision dated 20 July 1999, and issued pursuant to powers granted in s.829 of the Corporations Law, which banned him from acting as a representative of a securities dealer or an investment advisor for a period of four years.

2. At the hearing Mr M. Dowling, qc, with Mr P. Murley, of counsel, represented the applicant and Mr D. Jordan, of counsel, represented the respondent. The Tribunal had before it the documents filed for the purposes of s.37 of the Administrative Appeals Tribunal Act 1975 (the "T" documents), as well as a large number of character references filed on behalf of the applicant, and admitted by consent, and a witness statement from Mr P. Masi. Additionally, the Tribunal had a copy of an Enforceable Undertaking dated 9 July 1999, given to the Australian Securities and Investment Commission ("ASIC") by Mr M. Casey, a fellow employee of the applicant, (exh A1) and copies of Australian Stock Exchange ("ASX") transactions (exhs R1, R2). The Tribunal heard oral evidence from the applicant and Mr Masi. The respondent called no oral evidence.

3. The basis for the issue of the banning order by the delegate of ASIC were findings that the applicant, who was, at all relevant times, an authorised representative of a securities dealer:

* had contravened sub-section 998(1) of the Corporations Law,

* had not performed efficiently, honestly and fairly the duties of a representative of a dealer pursuant to subparagraph 829(f)(i) of the Corporations Law, and

* will not perform efficiently, honestly and fairly the duties of a representative of a dealer pursuant to subparagraph 829(g)(i) of the Corporations Law.

The respondent relied on each of the above three grounds in the hearing before the Tribunal. On behalf of the applicant it was submitted that:

* in completing an order for Burswood Limited ("Burswood") shares the applicant was complying with the client's primary objective, namely, to achieve upward movement in the price of Burswood shares,

* there was no evidence that the applicant gave, or was intending to give, a false or misleading appearance as to the price of those shares,

* there was no evidence that any person was misled as to the price of the shares, that the applicant believed that the client did, in fact, intend to have the value of the shares more closely reflected in the price and that this would be for the benefit of the client,

* there was no evidence which could lead to a conclusion that the applicant would not perform efficiently, honestly and fairly the duties of a representative of a securities dealer.

4. The relevant provisions of the Corporations Law are as follows:

829 Subject to section 837, the Commission may make a banning order against a natural person (other than a licensee) if:

. . .

(d) he or she contravenes a securities law;

(e) . . .

(f) the Commission has reason to believe that he or she has not performed efficiently, honestly and fairly the duties of:

(i) a representative of a dealer; or

(ii) a representative of an investment adviser; or

(g) the Commission has reason to believe that he or she will not perform efficiently, honestly and fairly the duties of:

(i) a representative of a dealer; or

(ii) a representative of an investment adviser.

The provisions of s.829 are to be read disjunctively thus if the Tribunal finds the applicant has breached either of the three provisions in issue that may result in a banning order issuing.

830 (1) Where this Division empowers the Commission to make a banning order against a person, the Commission may, by written order, prohibit the person:

(a) in any case - permanently; or

(b) except where the Commission is empowered by virtue of paragraph 828 (c) or 829 (e) to make the order - for a specified period;

from doing an act as:

(c) a representative of a dealer;

(d) a representative of an investment adviser; or

(e) a representative of a dealer or of an investment adviser;

whichever the order specifies.

. . .

998 (1) A person shall not create, or do anything that is intended or likely to create, a false or misleading appearance of active trading in any securities on a stock market or a false or misleading appearance with respect to the market for, or the price of, any securities.

5. The events which have given rise to the instant proceedings occurred on 29 May 1998. At that time the applicant held a proper authority as a representative of ABN-AMRO Equities Australia Limited ("ABN-AMRO"). Mr J. Thomson, a dealer with National Australia Asset Management ("NAAM"), contacted the applicant to place an order for the purchase of up to 500,000 shares in Burswood, a publicly listed company on the ASX. NAAM manage superannuation moneys on behalf of retail and wholesale clients, as well as equity funds and other forms of trust investments. Mr Thomson receives his instructions for the purchase and sale of equities from NAAM analyst fund managers. It is his function to ensure the instructions he receives are executed. It was for this reason that on Friday, 29 May 1998, at 3:24 p.m., Mr Thomson contacted the applicant by telephone to place the order to purchase the shares in Burswood. That conversation was recorded and subsequently transcribed (T57). In an opening comment Mr Thomson is reported as saying to the applicant that:

It's that time of the month to get stitched up in Burswood again.

From the applicant's evidence in chief, the Tribunal takes that comment to be a reference to an in-house understanding that NAAM had, over the months preceding 29 May 1998, paid a premium in order to maintain the balance of Burswood shares it had determined was appropriate for its portfolio, and that Mr Thomson did not personally believe that the shares were worth buying (see also cross-examination at trans, 25.10.99, p.15). Otherwise, in the taped telephone conversation Mr Thomson places an order to buy up to "half" (being a reference to 500,000 shares). While the applicant indicated the prices at which Burswood shares had been trading, he received no instruction from Mr Thomson as to any upper limit to be paid. It is accepted by the applicant (trans, 25.10.99, p.7), and the Tribunal accepts, that the purchase was to be made at market price. The Tribunal is satisfied that market price was at or around 88¢ or 89¢.

6. It was the applicant's function upon the order being placed with him in Melbourne to pass it to the ABN-AMRO operator in Sydney so that the purchase order could be implemented through the Stock Exchange Automatic Trading System ("SEATS"). A transcript of a telephone conversation, occurring at 3:33 p.m., on the same day between the applicant and the operator (Mr Casey) is contained at T58. In it the applicant is recorded as saying ". . . it's the end of the month and I want to give these Burswood's a bit of a nudge upwards, all right . . .". While indicating up to half a million shares could be purchased, the applicant says later in the conversation, ". . . we don't have to buy half a million buy 200[000] if we don't need to . . .". In the same conversation Mr Casey confirmed his understanding with the applicant as follows:

We just want to try and close them up at a high a price as possible but on the lowest amount possible.

The applicant agreed this to be the approach taken and repeated up to half a million shares could be purchased if needs be. Mr Casey then said that he would conduct the purchase in the "five past match out", to which the applicant agreed.

7. In a later telephone conversation between the applicant and Mr Thomson, occurring at 3:35 p.m. ("the second telephone conversation" (T59)), the applicant informed Mr Thomson that the purchase was to be carried out in the match out period, before continuing:

. . . my instructions have been to try and buy as little as you can at the best possible price.

Mr Thomson expressly rejected that approach saying, "no I am happy to buy them [Burswood] . . ." (T59, pp.15-16).

8. Despite the second telephone conversation occurring at 3:35 p.m. and despite the applicant being aware that Mr Casey would not attempt to make the purchase until the "five past match out" period, i.e. not before 4:00 p.m., the applicant did not contact Mr Casey to correct the strategy earlier determined between the applicant and Mr Casey that Mr Casey was to purchase the lowest number of shares in Burswood at the highest price. In his oral evidence to the Tribunal the applicant had no explanation for his failure to correct what he otherwise agreed was a misleading instruction given to Mr Casey. The applicant agreed in evidence that Mr Thomson's instructions had been poorly executed and that the carrying out of the arrangement led to a temporary aberration in the market (trans, 25.10.99, p.30).

9. NAAM withdrew the balance of the order for the purchase in Burswood shares on the following Monday (being the next Australian ASX trading day) and placed it with another broker. The ASX queried the transaction with Dr Hains, the compliance director with ABN-AMRO (T24, p.7). According to Dr Hains's evidence given to the ASIC investigation, ABN-AMRO regarded the applicant's action as being an "unethical way of trading" (T24, p.18). The applicant suffered demotion and a salary cut. Action was taken by ASIC against Mr Casey resulting in him entering into an Enforceable Undertaking, involving him, inter alia, refraining from acting as a representative of a dealer or investment advisor for a period of two months, and satisfactorily completing a securities industry law and ethics course (exh A1). None of the actions described in this paragraph have played any part in the Tribunal's decision with respect to the determination of whether or not a breach of the Corporations Law has occurred which could result in the issuance of a banning order in relation to the applicant. A decision in relation to whether or not a banning order should or should not be made is to be determined by reference solely to whether or not the Tribunal is satisfied, without the applicant bearing any onus of proof, that a breach of the Corporations Law has occurred as the result of any actions of the applicant.

10. In her unchallenged statement (T27, p.1103) Ms K.L. Neuss, the national manager of Equities Market Operations of the ASX, sets out the operating phases for the ASX. In paragraph 10(c) she states that 10:00 a.m. to 4:00 p.m. is normal trading during which stock purchase and sale orders will be matched in order to determine a price. Any unmatched quantity of any order will be either placed in priority by price and time in the SEATS order book or is to be cancelled. An order not having priority is placed in the order book in price, then time priority. After the close of normal trading, the ASX conducts a single price auction. A closing auction has a five-minute pre-open period during which orders may be entered, amended or cancelled. Paragraphs 18 to 23 (inclusive) (T27, pp.1108-1111) set out a working example of how trading occurs in this period. The system gives priority to dealings between the highest priced buy order and lowest priced sell order as determined at the time immediately before the auction commences. Orders are completed until the buy price for a stock matches the sell price. At that point, since the buy and sell prices no longer overlap, no further trading can occur.

11. According to an unchallenged statement prepared by Michaela Muir (T27, p.1074), who is the investigations analyst for the Surveillance Division of the ASX, a bid for 500,000 shares in Burswood was placed by ABN-AMRO (as an undisclosed bid) at 95¢ at 4 minutes 46 seconds past 4 p.m. ("4:04:46") on 29 May 1998 (T26, p.1083, para 15). At 4:15:01 p.m. 183,913 shares in Burswood had been purchased at 95¢ in 15 transactions (T26, para 16, p.1084). The last trade before the above undisclosed bid was placed was at 89¢ and the market was 89¢ (bid) and 88¢ (ask) (T26, para 27, p.1098). There was no evidence to suggest any bids at a figure approximately 95¢.

12. For the purposes of fulfilling the order placed by Mr Thomson, the applicant's instructions were to buy up to 500,000 shares at market price. The applicant told the Tribunal that he thought at the time that the price of the Burswood shares was low (trans, 25.10.99, p.3). He concluded that Mr Thomson wanted the shares bought at a "fairer value" than that which was reflected in the trading price. The Tribunal is satisfied that by "fairer" the applicant clearly meant "higher" as reflected in his instruction to Mr Casey to give them a "nudge upwards" (T58, p.1514). The conclusion reached by the applicant was not, however, in accordance with any instruction given by Mr Thomson and curiously it was not a matter that the applicant sought to clarify with Mr Thomson during the second telephone conversation. There was an opportunity to do so in circumstances after Mr Thomson had expressly rejected the approach suggested by the applicant to purchase as little quantity as possible at the highest possible price. The Tribunal is satisfied that the applicant persisted in implementing the strategy for the purchase of Burswood shares at a price higher than those shares could have been obtained on the open market and that that strategy was contrary to the express instructions given by Mr Thomson.

13. The securities market operates on a price arrived at by the forces of genuine supply and demand. Those forces should operate free from any form of artificial or managed manipulation. In North v Mara Developments Limited (1981) 148 CLR 42 Mason J (with whom Stephen, Aickin, Murphy and Wilson JJ agreed) expressed it as follows:

It seems to me that the object of the section is to protect the market for securities as against activities which will result in artificial or managed manipulation. The section seeks to ensure that the market reflects the forces of genuine supply and demand. By "genuine supply and demand" I exclude buyers and sellers whose transactions are undertaken for the sole or primary purpose of setting or maintaining the market price. It is in the interests of the community that the market for securities should be real and genuine, free from manipulation. The section is a legislative measure designed to ensure such a market and it should be interpreted accordingly. (p.59)

and continued:

When purchases have been made of shares in a company at or about a particular level for the purpose of setting and maintaining a market price for those shares, there is a breach of the statutory prohibition. At the very least purchases have then been made which are calculated to create "a false or misleading appearance with respect to the market for, or the price of" the shares. In reality the purchases are calculated to create a false market or false price. The false or misleading appearance is that the market, in the absence of any disclosure that a market support operation is on foot, appears to be real or genuine, there being no overt sign of market support or manipulation. (p.59)

The above approach was followed in the New South Wales Court of Appeal in Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd (1998) 28 ACSR 58 at 62-63 per Gleeson CJ.

14. In the view of the Tribunal the applicant's actions were likely to have created a false or misleading appearance with respect to the price of Burswood shares in that at 95¢ per share the price of the shares is set at a "false price" as that term was described by Mason J in North's case. Accordingly, the Tribunal is satisfied that a breach of s.998(1) of the Corporations Law has occurred. For such a finding, it is not necessary that the Tribunal need be satisfied that anyone was, in fact, misled as a result of the applicant's actions. It is sufficient that there be a misleading "appearance" and that is so in the instant case.

15. Given the finding of the Tribunal that there has been a breach of s.998(1) of the Corporations Law, it is not necessary for the Tribunal to consider whether or not there have been breaches of s.829(f) and/or s.829(g)(i). As the result of the breach of s.998(1), the provisions of s.829(d) arise for consideration. The question is whether a banning order should be made and, if so, for what period.

16. The applicant commenced working in the securities industries with the then broking house BZW Australia Limited ("BZW Australia"). BZW Australia was taken over by ABN-AMRO who continued to employ the applicant. His former supervisor at BZW Australia, Mr I. Chambers (exh A14), and his current supervisors at ABN-AMRO (Mr M. Christian (exh A2) and Mr Masi (exh A12), both refer of the applicant's ability and integrity within the industry. Clients, including Mr M. Himpoo (exh A3), Mr C. Hickman (exh A5), Mr D. Gibson (exh A6), Mr H. Graves (exh A4) (who has also been an associate and a direct competitor of the applicant), Mr R. Pegum (exh A7), Mr B. Winton (exh A8), Mr J. Bjarnason (exh A9), Mr R. Fish (the senior portfolio manager for NAAM) (exh A10) and Mr C. Hall (exh A11), also express confidence in the applicant's dedication and integrity. Many of the referees also speak highly of the applicant's personal qualities. It is fair for the Tribunal to assume that most, if not all, of the referees were aware the applicant was, at least, facing disciplinary proceedings at the time the references were prepared. The Tribunal is satisfied that the referees present a uniformly high opinion as to the applicant's integrity and ability in the industry over a number of years.

17. A summary of banning orders against various individuals dating from 1995 was provided to the Tribunal. Without a detailed knowledge of the actions of each of the individuals which have led to the banning orders the summary is not of itself of great assistance to the Tribunal in the determination of this matter. It is, however, clear to the Tribunal that both the employer and ASX took a serious view of the applicant's actions. Additionally, while not relevant to the determination of whether or not the applicant has breached a provision of the Corporations Law, the acceptance by Mr Casey of an Enforceable Undertaking arising from his role in the above-described events is of significance.

18. It is submitted on behalf of the applicant that, if a ban were to be imposed, it would be tantamount to punishing him for a single lapse and that this is not in accordance with the purpose of the issuance of banning orders, namely the protection of the public. The respondent led some evidence to suggest that there had been an earlier similar occurrence with the purchase of shares in Burswood in which the applicant was involved. The Tribunal has not found it necessary to determine this issue.

19. The public need to be assured that those dealing in securities are not likely to manipulate the price of securities in the market in the sense discussed by Mason J in North's case. A distinction can be drawn between various types of conduct. Some conduct will be regarded more seriously than other conduct. A serious breach will take with it a correspondingly greater need for the public to be protected. Embarking on a course of conduct, contrary to a client's instructions, which results in the manipulation of the market which has or is likely to create a false or misleading appearance with respect to the price of securities is, in the Tribunal's view, serious conduct. In this case the seriousness is compounded in circumstances where the applicant should have corrected the strategy that he and Mr Casey determined after the applicant had, again, spoken to Mr Thomson and before Mr Casey commenced implementing the earlier agreed strategy. In those circumstances the public interest is appropriately protected by the imposition of a banning order. However, bearing in mind the sanctions imposed on the applicant by the employer, which have ultimately led to him losing his job, his age, his previous good record and the high regard which he is held by his colleagues, the Tribunal believes that that protection can be satisfied by the imposition of a banning order of two rather than four years.

20. Accordingly, the decision under review is varied in that the banning order against the applicant under the provisions of s.830(1)(b) of the Corporations Law is set at two years dating from 20 July 1999.

I certify that the twenty [20] preceding paragraphs are a true copy of the reasons for the decision herein of

Deputy President G.L. McDonald

(sgd) Judith Birch

Associate

Dates of Hearing: 26-27.10.99

Date of Decision: 21.01.2000

Counsel for the Applicant: Mr M. Dowling, qc, with Mr P. Murley

Solicitor for the Applicant: Raelene A. Murley

Solicitor for the Respondent: Mr D. Jordan, Australian Securities and Investments Commission, Legal Division