R v Stephenson [2010] NSWSC 779 (16 July 2010)

Last Updated: 19 July 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
R v Stephenson [2010] NSWSC 779


JURISDICTION:


FILE NUMBER(S):
2009/220193

HEARING DATE(S):
26 May 2010

JUDGMENT DATE:
16 July 2010

PARTIES:
The Crown
Noel James Stephenson (Offender)

JUDGMENT OF:
Fullerton J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
P McDonald (Crown)
D Fagan SC (Offender)

SOLICITORS:
Commonwealth Director of Public Prosecutions (Crown)
Holman Webb (Offender)


CATCHWORDS:
CRIMINAL LAW
sentence
insider trading
guilty plea
whether offender knew that by trading with insider information he was committing a criminal offence
prior good character
delay

LEGISLATION CITED:
Corporations Act 2001 (Cth)
Crimes Act 1914 (Cth)
Criminal Procedure Act 1986

CATEGORY:
Sentence

CASES CITED:
Fing v R (NSWCCA, 4 October 1994, unreported)
R v Hall (No 2) [2005] NSWSC 890
R v McKay [2007] NSWSC 275; 61 ACSR 470
R v Rivkin [2003] NSWSC 447; 198 ALR 400
Shillabeer v Stra [2007] SASC 274
Thompson v Houlton [2000] NSWCCA 309; 49 NSWLR 383

TEXTS CITED:


DECISION:
1. Noel James Stephenson you are convicted of the breach of s 1043A of the Corporations Act to which you have pleaded guilty.
2. I release you without passing sentence, on your own recognisance and without security, on the following conditions:
(i) that you will be of good behaviour for a period of 12 months to date from 16 July 2010; and
(ii) that you will pay a pecuniary penalty in the amount of $20,000 on or before 31 July 2010.



JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

CRIMINAL LIST

FULLERTON J

16 JULY 2010

2009/220193 R v NOEL JAMES STEPHENSON

REMARKS ON SENTENCE

1 HER HONOUR: On 17 November 2009 Noel James Stephenson pleaded guilty in the Local Court to one count of insider trading contrary to s 1043A of the Corporations Act 2001 (Cth) (“the Act”).

2 Thereafter the Commonwealth Director of Public Prosecutions made application under s 128 of the Criminal Procedure Act 1986 to have the matter removed to this Court for sentence.

3 On 26 May 2010 Mr Stephenson was re-arraigned for the purposes of sentence.

4 The charge to which he pleaded guilty is set out in full as follows:

On 26 April 2005 at Sydney in the state of New South Wales Noel James Stephenson disposed of relevant Division 3 financial products, being 4,514 shares in Sam’s Seafood Holdings Limited (Sam’s) (“the financial products”), whilst in possession of information concerning Sam’s that was not generally available, being information which a reasonable person would expect to have a material effect on the price or value of the financial products if it were generally available and being information which he knew, or ought reasonably to have known:

(i) was not generally available, and

(ii) if it were generally available, might have a material effect on the price or value of the financial products.

Particulars of Inside Information

Sam’s and companies within its group had obtained loans from Co-operative central Raiffeisenboer-Boerenleen Bank (Rabobank). Rabobank was considering demanding the repayment of loans made to Sam’s and the companies within its group.

5 By virtue of s 1311 and Schedule 3 of the Act this offence carries a penalty of imprisonment for 5 years, or a fine of $220,000, or both. Since the offence is a Commonwealth offence the sentence to be imposed is to be determined in accordance with Part 1B of the Crimes Act 1914 (Cth).

6 On sentence the Crown tendered an agreed statement of facts, transcripts of telephone conversations between Mr Stephenson and his broker on 26 and 27 April 2005, and a pre-sentence report. Mr Stephenson tendered a letter he wrote on 27 April 2005, offering to reverse the trade the subject of the charge, the transcript of an additional telephone conversation between him and his broker at 8.56am on 26 April 2005, a number of character references, and newspaper articles concerning the financial affairs of Sam’s Seafood, all of which I received into evidence without objection. Mr Stephenson also gave evidence.

7 In his evidence Mr Stephenson openly acknowledged that he came into possession of price sensitive information, which he knew was likely to have a material effect on the price or value of the shares in Sam’s Seafood. He also acknowledged that he acted on that information by instructing his broker to sell out his shareholding in the stock with the intention of avoiding what he knew, or reasonably believed, would result in a devaluing of the share portfolio he was managing for NJAY Investments Pty Ltd once the information become public. The sole factual issue in contention for the purposes of sentence was whether, in disposing of the 4,514 shares the subject of the charge, Mr Stephenson was aware of the fact that by trading with the inside information he was exposing himself to criminal charge and criminal sanction. He gave evidence that although he traded in the shares to obtain a commercial advantage over other sellers who he expected would be likely to move to divest themselves of the shares once the market was aware of the company’s financial situation, and that he knew that trading in inside information was proscribed by the Australian Securities Exchange as the market regulator, he was not aware that it was a criminal offence for him to act as he did and, further, that were he to have known that was the case he would not have traded in the shares at all until the information was made public. He gave the same account to the Probation and Parole officer in February 2010. He confirmed in his evidence that he told the officer the truth.

8 Mr Fagan SC submitted that I would accept Mr Stephenson as a truthful witness whose evidence is supported by the fact that he openly told the broker that the reason he was selling out of the stock was because the “bank’s getting called in”. Mr Fagan also pointed to other aspects of his telephone conversations with the broker on the morning of the trade which reveal a lack of any sophisticated appreciation by Mr Stephenson of the distinction between his position in the market as a relatively modest trader on behalf of NJAY Pty Ltd, and institutional and other traders whose position in, or relationship to, the stock market are closely monitored and for whom he believed the prohibition on insider trading was targeted. In Mr Fagan’s submission, the fact that there are no other features of the offending that warrant it being regarded as a serious breach of the section, it is appropriate to view this case as exceptional which, coupled with Mr Stephenson's age, unblemished and established good character, and the extra curial punishment he has suffered from being charged, prosecuted and publically sentenced, operate to afford him the benefit of the operation of s 19B of the Crimes Act (Cth). Mr Fagan submitted that in the particular circumstances of this case, the availability of other criminal sanctions in the Crimes Act (Cth), in particular the availability of a significant monetary penalty, will operate as a sufficient signal to other traders in Mr Stephenson’s position that misuse of price sensitive information will not be tolerated.

9 The Crown submitted that s 19B is simply not available as a sentencing option for offending of this kind, despite the fact that there was a relatively moderate number of shares traded and that the loss that Mr Stephenson was motivated to avoid was also moderate when compared with other cases where insider trading has been prosecuted. The Crown submitted that even were I persuaded, on the probabilities, that Mr Stephenson did not know he was committing a criminal offence by trading with the inside information, not to proceed to conviction, and to impose a monetary penalty only, is an inadequate criminal sanction for a breach of s 1043A. The Crown emphasised that irrespective of the fact that Mr Stephenson did not solicit the information, he acted on the information promptly, and with determination and deliberation. According to the Crown, even an individual trader in Mr Stephenson’s position who trades with inside information, howsoever acquired, should be punished by an appropriate criminal sanction so as to deter other participants in the market from acting in the same or similar ways, and that an order under s 19B would fail to adequately meet that sentencing objective. The Crown submitted that recording a conviction and imposing a period of imprisonment are the only appropriate sentencing options in the circumstances. The Crown did accept, however, that it would be open to me to ameliorate the effect of a sentence of imprisonment, by ordering that the sentence be suspended in accordance with s 20(1)(b) of the Crimes Act (Cth), particularly having regard to Mr Stephenson’s subjective circumstances.

10 Although the Crown Prosecutor did not directly challenge Mr Stephenson’s evidence on the question of whether he acted in conscious disregard of the criminal law, or put to him that he had falsely accounted for his conduct to the Probation and Parole officer and in his evidence before me, she submitted that the finding urged upon me by Mr Fagan was not open, having regard to all the evidence and that I would be satisfied that he knew he was committing a criminal offence when he instructed the broker to sell the shares.

11 In assessing the objective criminality of this offending for sentencing purposes, and in determining whether I am persuaded that the offending is mitigated by Mr Stephenson’s claim that he was ignorant of the fact that he was committing a criminal offence, it is necessary for me to set out the facts in some detail. Some of the facts are extracted from the agreed facts, and some from materials tendered by Mr Stephenson without objection.

Mr Stephenson’s association with Sam's Seafood Holdings Limited

12 At the relevant time Sam's Seafood Holdings Limited (“Sam’s Seafood”) was a wholesale and retail distributor of fresh and frozen seafood. It had traded as a public company on the Australian Securities Exchange (ASX) since October 2001.

13 Mr Stephenson’s career, spanning 41 years, was generally in the wholesale food distribution industry. He was the managing director of a family based company involved in the seafood business until 1997, at which time the company was sold to a company known as Bidvest, a South African company listed on the Johannesburg Stock Exchange. This company had its origins in the food service industry but had expanded into shipping and banking. Following the sale of his family based company, Mr Stephenson retained the role of National Purchasing Manager for Bidvest until 2005, at which time he took on a part-time consultancy role for that company.

14 In 2001 Mr Stephenson commenced to trade on the ASX through Ray Ackerman, a broker with Andrew West & Co Limited (“West & Co”). At the time of the offence Mr Stephenson had control of a substantial share portfolio in a range of securities and was an active trader. He was in contact with Mr Ackerman at least twice a week.

15 Although Mr Stephenson had a number of active trading accounts with West & Co, at the time of the offence he traded primarily through NJAY Stephensons Investments Pty Limited (NJAY), the trustee of a self-managed superannuation fund he established in 2003 with his wife for the purpose of securing funds for their future retirement. Mr Stephenson was the sole person responsible for investing the funds held by NJAY.

16 At the time of its ASX listing, there were four directors of Sam’s Seafood being Grahame Denovan, its Chairman, Nicholas Noutsatos, its Chief Executive Officer, Ken Situ, its Chief Financial Officer and Christopher Henson, its General Manager. In November 2004 Mark Scherini was appointed as Chief Operating Officer.

17 Mr Stephenson was aware of Sam’s Seafood since its listing in 2001 and had a favourable view of the company’s trading reputation at that time. He met Mr Noutsatos in the late 1990s whilst on the executive committee at Bidvest, and had done business since the mid-1970s with Mr Denovan through his family business. Mr Stephenson and Mr Scherini had also known each other for 25 years having done business together from time to time over that period. They had also become personal friends.

18 In November 2004 Mr Stephenson learnt of Mr Scherini’s appointment as the Chief Operating Officer of Sam’s Seafood while travelling in South Australia with Mr Scherini and their respective wives. With the senior positions at Sam’s Seafood now occupied by Mr Denovan and Mr Scherini, Mr Stephenson’s view of the company’s future prospects were positive.

Mr Stephenson’s dealing in the shares in Sam's Seafood prior to 25 April 2005

19 Between February and March 2005 Mr Stephenson purchased shares in Sam's Seafood through Mr Ackerman on the following occasions:

1 February 2005 - 1,055 shares;

2 February 2005 - 56 shares;

3 February 2005 - 8,889 shares;

18 February 2005 - 10,000 shares;

18 February 2005 - 5,516 shares;

24 February 2005 - 1353 shares;

1 March 2005 - 13,131 shares;

19 April 2005 - 1,000 shares; and

22 April 2005 -11,900 shares.

20 Mr Stephenson gave evidence that he purchased 13,131 shares on 1 March 2005 below market price (namely at $1.30 per share) having made the assessment that an opportunity to buy in at a low price would likely prove to be profitable. He made this assessment despite some negative press reports and rumours he had heard in the industry about Sam’s Seafood’s financial problems and their ability to pay their creditors on time.

21 He also gave evidence that in the early months of 2005, in his capacity of National Purchasing Manager at Bidvest, he had a direct transaction with Mr Scherini where he had offered him some excess imported reef fish, ideal for retail trade, at a discounted price but which Mr Scherini had been unable to accept. This served to reaffirm Mr Stephenson’s assessment that Sam’s Seafood was experiencing cash flow problems.

22 He also decided at this time to maintain the outstanding buy orders he had placed with his broker at $1.24, and which ultimately resulted in concluded purchases up to and including Friday 22 April 2005. The trades on that day were the last purchase by Mr Stephenson prior to the insider trade on Tuesday 26 April 2005. He said that he made the decision to maintain, or hold, the buy orders on the basis of his industry based experience of companies often being able to trade through cash flow problems, which are sometimes not of their own making, and which do not fundamentally undermine the company’s capital or asset backed worth.

The relationship between Sam's Seafood and its lenders up to Friday 23 April 2005

23 On 23 March 2005, Co-operative Central Raiffeisenboer-Boerenleen Bank Australia Ltd (“Rabobank”), a food and agribusiness based merchant bank with whom Sam’s Seafood had been in a lending relationship since 2002, appointed John Greig, an investigative accountant with Deloittes, to review the company’s account, because of significant concerns over its ability to provide Rabobank with accurate information regarding the company’s capacity to repay its loans within a stipulated timeframe.

24 Between 29 March and 22 April 2005, Mr Greig reported to Belinda Harris, the state manager of business banking for Rabobank in Queensland, on a number of issues concerning the financial position of each entity in the Sam’s Seafood group. From March 2005 Ms Harris’ main point of contact with Sam’s Seafood was Mr Scherini.

25 During the afternoon of 22 April 2005, Ms Harris met with Mr Greig, and a senior manager from Deloitte's, to discuss the ongoing viability of the company. Having formed the opinion that it did not have sufficient cash flow to facilitate immediate debt reduction, and ongoing cash flow requirements, Ms Harris spoke with Rabobank’s head management and advised that in her view the company’s financial situation did not appear to be salvageable and that urgent action was required. After consultation with Rabobank’s solicitors, it was decided that Rabobank would advise Sam’s Seafood of its concerns, and its intention to take action to call in outstanding loans, unless it received prompt and convincing assurances as to the company’s solvency.

26 Unable to contact or meet with Sam’s Seafood’s CEO, Mr Noutsatos, at 5.05pm, Ms Harris telephoned Mr Situ (Sam’s Seafood’s CFO) and Mr Denovan (Sam’s Seafood’s Chairman) and separately advised them that the company would need to be able to demonstrate by 9.00am on Wednesday 27 April 2005, that it was able to continue to trade solvently, otherwise Rabobank would take action to call in its loans. At 5.25pm Ms Harris left Mr Noutsatos a telephone voice message advising him of Rabobank’s position.

27 At approximately 6.10pm, Ms Harris received a call from Mr Scherini, and she informed him that she had met with Deloitte’s that day but had gained no comfort from them. She also advised that unless the company was able to recapitalise, Rabobank had no choice but to issue letters of demand and call in its loans. She also advised that the company needed to quickly stem what she regarded as negative cash flow from the company’s cash reserves.

28 Mr Scherini responded by asserting that the company was, in his view, a viable trading entity and that he would sort the situation out over the weekend. He also advised that all communications from Rabobank should be directed to him since Mr Noutsatos was ill.

The communication of the inside information

29 At 6.21pm, ten minutes after speaking with Ms Harris, Mr Scherini sent a text message to Mr Stephenson’s mobile telephone. Mr Stephenson gave evidence that the message contained the single capitalised word “BANK”. He was asked in evidence about the impact this text message had on his decision to cancel all of his outstanding buy orders for Sam’s Seafood shares, and his instructions for the sale of the entire shareholding when the market opened the following Tuesday, after the Anzac Day long weekend. He said he understood the message to mean that Sam’s Seafood was under pressure from “the bank” to repay their loans or, as he put it, that the bank was “getting called in”.

30 He also said that when considered against the background of negative press concerning Sam’s Seafood’s financial problems, and what he had directly observed as Mr Scherini’s inability to accept the reef fish offer, together with Mr and Mrs Scherini cancelling plans to travel to Italy with him and his wife due to what were described as pressures at work, the single word text message was the “tipping point” in his assessment of the continued viability of the company, and was the decisive factor in his decision to sell all the stock and to cancel the existing buy orders.

31 The text message from Mr Scherini was followed by a call from Mr Stephenson’s mobile telephone to Mr Scherini’s mobile telephone at 6.57pm, and a further text message sent from Mr Scherini’s mobile telephone to Mr Stephenson’s mobile telephone at 7.03pm.

32 The fact that these calls were made, and text messages sent, were proved by the Crown, as was the fact that at 8.12pm on Monday 25 April Mr Stephenson sent a further text message to Mr Scherini. There was, however, no evidence elicited as to the content of these calls or messages in Mr Stephenson’s evidence or in cross-examination, save for the suggestion that they may have been referable to the cancelled trip to Italy. Neither was Mr Stephenson cross-examined to suggest that his account of the content of the first text message was untrue or inaccurate, or that he has withheld other information sourcing from Mr Scherini as the company’s financial predicament intensified over the long weekend.

33 That said, I regard it as highly unlikely that Mr Stephenson simply acted on his interpretation of the one word text message, and did not seek clarification or explanation from Mr Scherini before instructing his broker to “dump” all his shares down to $1.00 on the next trading day. I regard this as even more unlikely in light of the fact that he was still in the market acquiring shares in Sam's Seafood up until shortly after midday on Friday 22 April at $1.24 per share, within hours of receiving the text message from Mr Scherini in the early evening. However, in circumstances where Mr Stephenson was not examined further about this aspect of his evidence, and where the content of the other text messages was also left largely unaddressed, I am not able to conclude adversely to him that there were in fact further communications with Mr Scherini about the company’s precarious financial situation after the first text message, or that the first text message in fact contained further information about the price sensitive nature of that information. Suffice that I am satisfied that Mr Stephenson acted on the information that Mr Scherini was obviously leaking to him as a senior executive at the first available opportunity. In this regard I do not accept Mr Stephenson’s evidence that he might have misdialled his broker on Monday morning – the Anzac Day public holiday. Rather, I consider that such was his eagerness to secure a commercial advantage over other sellers of Sam's Seafood shares, that he simply overlooked the fact that Monday was a public holiday.

Mr Stephenson acts on the inside information

34 At 8.56am on Tuesday 26 April, prior to the market opening, Mr Stephenson called West & Co and asked to speak to Mr Ackerman. He was not available. He spoke instead to Mr West. He requested that all his existing bids for Sam’s Seafood shares be cancelled.

35 Mr Ackerman was informed of these instructions, and cancelled all the outstanding buy orders remaining from the open order placed on 1 March 2005. At approximately 8.59am he cancelled the then three current bids, being:

13,800 shares at $1.20;

14,700 shares at $1.21; and

200 shares at $1.24.

36 At 9.02am Mr Ackerman telephoned Mr Stephenson and the following conversation took place:

Stephenson: Hello Noel

Ackerman: Hi Noel it’s Ray Ackerman mate, how are you?

Stephenson: Not bad Ray

Ackerman: That’s good

Stephenson: What can I do to help you there mate?

Ackerman: Ah Sams – mate on my account 132788

Stephenson: Yup – I’ve cancelled the orders

Ackerman: Right

Stephenson: I want to dump everything I’ve got this morning at the best price you can get for it.

...

Stephenson: I got about 54,000 there I think

Ackerman: Oh, you just want to dump all the SSS (Sam’s Seafood Shares) you mean?

Stephenson: All the SSS

Ackerman: Yeah, your not – not your other stocks – just

Stephenson: No No

Ackerman: Just SSS. Well according to this you have 52,900

Stephenson: Yeah, that would be about right

Ackerman: Alright

Stephenson: The bank’s getting called in

Ackerman: Oh Okay

Stephenson: Mmm – and I’ve been watching this morning there was other buyers in there and they all disappeared and tendered to get about 4,000

Ackerman: So what limit do you want me to sell these shares down to then?

Stephenson: Anything to $1 mate

Ackerman: Mmmm

Stephenson: We’ll see what we go to from there...

(emphasis added)

37 Following this conversation Mr Ackerman wrote a sell order for the entire 52,900 shares held by NJAY Pty Ltd, on Mr Stephenson’s instructions that all shares were be sold to a minimum price of $1.

38 Mr Ackerman did not place all the shares on the market at once as he did not wish to intimidate the market by a sale of this magnitude. Instead, he divided the share holding into smaller parcels. At 10.08am Mr Ackerman sold 4,514 of the shares at $1.19 in three parcels (500, 514 and 3500 shares - the trade the subject of the charge) leaving a residual offer of 3,386 at $1.19. There were no bids in the market at that time.

39 Mr Ackerman became concerned about Mr Stephenson’s remark that “the bank had been called in” and moved the 4,514 shares sold at 10.08am into West & Co’s suspense account. Mr Ackerman then discussed the matter with his supervisor Mr West.

40 At 10.14am Mr Ackerman telephoned Mr Stephenson and expressed concern about completing the sell order, given that from what Mr Stephenson had said he (Mr Stephenson) may have been in possession of inside information. The following conversation took place:

Ackerman: ...it occurred to me because of what you’d said to me over the phone, in some respects I could be in breach of insider trading rules and regulations because I am privy to perhaps knowledge that is not common knowledge out in the market place and I have to be exceedingly careful because of my licence. So I’ll be honest I am loathe to probably be pro active in showing this vigorously selling this stock down for fear that the exchange could really take an exceedingly dim view ...

Stephenson: That's only my opinion, isn't it?

Ackerman: Well, it is and I mean admittedly um I mean you might only be hearsay on your behalf but I am just letting you know that I have to be exceedingly careful...

Stephenson: Yeah

Ackerman: ... and I have to cover my backside at all times on these issues...

Stephenson: Mmm

Ackerman: ... because it is a very very contentious area, believe me.

Stephenson: Mmm.

(emphasis added)

41 Mr Ackerman then advised Mr Stephenson that he had sold 4,514 shares at $1.19, but that there were now 3,000 shares being offered ahead of Mr Stephenson at the lower price of $1.18. Mr Stephenson responded by suggesting that Mr Ackerman offer his remaining shares at a range from $1.17 to $1.10 to “spread them”. Mr Ackerman continued:

Ackerman: ...I’ll be honest Noel I am totally compromising myself here, I don’t really want to have anything to do with this order because I could end up in serious trouble...

Stephenson: What about one of your other dealers?

Ackerman: Well, it would be the same scenario....

Stephenson: They don’t know the information.

Ackerman: Well, they are privy... it’s like an outcry here but at the same time I am privy to it and I the become a contributing factor to being privy to knowledge that you’re saying is certainly ... look you may not be privy to the actuality of it and it might be just hear-say but unfortunately because of what you said I am totally compromised now, I really am and um I’m in serious trouble here of perhaps being ... Haven’t even sold the stock at $1.19 for you. I ... could be in serious trouble that’s if the exchange decided to investigate it so um I’ll be honest, I think it’s in my vested interests and uh probably the firms that you might have to ring another broker and give another broker to do the order mate but I really can’t, I can’t do it, I’m terribly sorry...

Stephenson: Can I ring you back in about an hour?

Ackerman: Sure you can, okay mate bye bye

(emphasis added)

42 The Crown submitted that this conversation undermines Mr Stephenson’s claim to have had no inkling that what he was doing was contrary to the law, since his broker was stating categorically that he regarded himself as exposed to “serious trouble” given the inside information that Mr Stephenson had imparted to him. The fact that in the face of that expressed concern Mr Stephenson asked that another dealer conclude the balance of the trades, by the pretence that another dealer would not be compromised because Mr Stephenson would not be so foolish as to let the information slip a second time was, the Crown submitted, evidence of the fact that he was prepared to act covertly to conclude the trade. In the same vein, it must be said that Mr Stephenson did appear to deflect Mr Ackerman’s concern in the initial part of the conversation by suggesting that the reference to the banks being called in was simply his opinion when, in truth, as he now concedes, it was information leaked to him by a senior executive of the company.

43 While it is doubtless true that Mr Stephenson was keen to sell out his shareholding before the market was aware of the fact that was experiencing a financial crisis and, for that reason, keen to ensure that Mr Ackerman’s concerns at how the regulator might view his position as a licensed trader did not block or frustrate his objective, it does not necessarily follow that he was inviting Mr Ackerman to conceal his (Mr Stephenson’s) criminality, as distinct from inviting Mr Ackerman to turn a blind eye to the fact that he was knowingly trading with the advantage of inside information. I am satisfied that he was at least motivated to that extent. I am, however, persuaded that the probabilities favour a finding that he did not knowingly breach the criminal law. I am satisfied of that fact not only by reason of his open disclosure to the broker that he was motivated to sell because “the banks were moving in”, which tells against his knowing commission of a criminal offence, but also by his evidence before me which I accept as truthful.

44 That said, I do not regard that factor alone as mitigating to any significant degree the objective seriousness of his conduct in other respects, in particular, that he was motivated to profit at the expense of other sellers in the market by selling his shares before the share price dropped dramatically, and where he knew his access to inside information placed him ahead of the market. In addition, it cannot be said that he was an inexperienced participant in share trading. While it is true that in relative terms the monetary worth of the shares was modest, that does not render the offence trivial. The prohibition against insider trading must be taken to have equal application to all participants in the share market even if, as the authorities make clear, the harshest sentences are imposed where the gain is significant and where the offender has utilised information in such a way as to demonstrate a significant departure from proper professional or commercial standards, inherent in the position the trader occupies (as to which see R v Rivkin [2003] NSWSC 447; 198 ALR 400 at [49]; R v Hall (No 2) [2005] NSWSC 890 at [88]-[92], [124]; and R v McKay [2007] NSWSC 275; 61 ACSR 470 at [56]). Mr Stephenson’s position as an individual trader does not equate with the offenders in these cases. In addition, while I have some doubts as to whether Mr Stephenson has given a full account of his conversations with Mr Scherini, I accept that he did not seek out the information but rather, that it was given to him as a friend, albeit in clear breach of Mr Scherini’s fiduciary obligations to the company and its lenders.

45 Following the conversation at 10.14am, Mr Ackerman amended the residual offer for 3,386 Sam’s Seafood shares down from $1.19 to $1.17.

46 At 11.04am Mr Stephenson telephoned Mr Ackerman and asked:

Stephenson: Where do we go from here Ray? ... anything happen with the stocks?

Ackerman: No, nothing’s happened ...

Stephenson: Is there anybody wanting to buy?

Ackerman: Not of any stature and I’ll be honest, I really don’t want to handle the order because as I say I do feel totally compromised.

Stephenson: What about tomorrow Ray? Is there ...

Ackerman: Well obviously if nothing transpires tomorrow I’m happy to proceed um I’ll be honest with you because you having said something to me I have rung the Exchange and they have been making queries (of the company) but they can’t get any response themselves so I mean they’ve basically said to me well you know you can proceed with your order in due course if nothing occurs so...

Stephenson: Mmm

Ackerman: ... I suspect that if Sam’s Seafood come back and say well, you know, everything’s A Okay we are free to proceed with the order.

Stephenson: Okay

Ackerman: I’m sorry mate but I really wish sometimes ...

Stephenson: Okay, look I, I ...

Ackerman: ... clients say things they shouldn’t say sometimes ...

Stephenson: Yes

Ackerman: ... and it’s almost like you bite your tongue when you say something ...

Stephenson: Well – We wasn’t aware.

Ackerman: ... I know, but in future – to give me an ... (inaudible) bloody order without any privy to what’s the motivation ...

Stephenson: Okay

...

Stephenson: I accept your comments Ray.

47 At 11.07am Mr Ackerman spoke to the ASX and advised them of his conversation with Mr Stephenson at 11.04am.

48 At 11.11am Mr Ackerman cancelled Mr Stephenson’s remaining offer for 3,386 Sam’s Seafood shares at $1.17.

49 At 12.19pm the ASX placed Sam’s Seafood shares in a trading halt, in anticipation of an announcement by the company. The trading halt was to remain in place until the commencement of trade on 28 April 2005, or after the announcement was released to the market.

50 At some stage on 26 April 2005, Mr Denovan, Mr Noutsatos and Mr Scherini and another director of Sam’s Seafood, Mr Matthews, met with Ms Harris, and another Rabobank officer, to address questions they had about the proposal the company was required to put to Rabobank the following day.

51 At 9.00am on 27 April 2005 Mr Ackerman telephoned Mr Stephenson and suggested that he cancel the sale of 4,514 shares, at 10.08am the previous day, by signing a letter to that effect. He advised that the letter could then be used if Sam's Seafood announced to the market that it was in financial difficulties. Mr Stephenson agreed. That letter was tendered on sentence. Later in the same conversation Mr Stephenson continued:

Stephenson: Well, I am probably looking for some guidance Ray. I think on a day to day basis everybody who buys and sells shares does so on some information.

Ackerman: Well we do

Stephenson: But not everybody does it on information that’s generally available to 100% of the community.

...

Stephenson: ... my concern was that I am going overseas on Friday. I am going to be away for I don't know, 3, 4, 5 weeks ... I'm going to Italy on business and um I had heard that the one of the acquisitions which was announced was stalling and the intimate, not the intimate but the reason behind it tended to be that the support wasn’t being given by the financial...

Ackerman: Financial – the financial dollars have got to be forthcoming from the bank

Stephenson: Yeah, that the due diligence was slowing and the whole thing, the takeover mightn’t happen and I just thought it was better to bail out then.

52 I am satisfied by this call, in the context of the calls that preceded it, and the calls that follow, that Mr Stephenson knew, at the very latest after he had spoken with Mr Ackerman at 11.04am on 25 April 2005, that he was potentially exposed to a charge of insider trading by disposing of the 4,514 shares with the knowledge that had been leaked to him by Mr Scherini. I am also satisfied that in this conversation he was simply attempting to proffer another innocent explanation for the sale when, in truth, it had nothing to do with his trip to Italy or any stalled company acquisition. I am also satisfied that he simply hoped that by offering to reverse the trades at the broker’s suggestion the following day, and deciding not to attempt to sell any further shares thereafter, he may avoid prosecution. This does not aggravate his criminality but it does not operate to mitigate it either.

53 Later that day, the credit committee of Rabobank was informed of Sam’s Seafood’s financial position. Thereafter Ms Harris sent an email to Mr Scherini, and the directors of Sam’s Seafood, outlining the bank’s dissatisfaction with the inadequacies of Sam’s Seafood’s proposed financial recovery strategy and requesting a more detailed strategy as to the steps Sam’s Seafood intended to take to ensure that it was in a position to continue to trade solvently by midday the following day.

54 At 9.21am on 28 April 2005, Sam's Seafood forwarded a letter to the “Company Announcements Office” at the ASX announcing to the market that they were undertaking a business review. They also announced an amended trading forecast, discussions for a Chinese joint venture and the retirement of Mr Denovan as CEO. Following this announcement, the trading halt in Sam’s Seafood shares was lifted by the ASX.

55 At 9.35am Mr Ackerman telephoned Mr Stephenson and advised him that Sam’s Seafood had made an announcement in which "... there doesn't seem to be anything of a sinister nature intimated within the results ..." but rather related to a business review forecast. Mr Ackerman suggested that Mr Stephenson read the announcement and call him back if he wished to proceed with his sale order.

56 Subsequently that day, on Mr Stephenson’s instruction, Mr Ackerman proceeded with the sale of the 4,514 shares that had been held in the West & Co suspense account since 26 April 2005. Mr Stephenson received consideration (after brokerage had been deducted) in the amount of $5,316.66.

57 After consultation with Sam’s Seafood’s solicitors, Rabobank served Sam’s Seafood Properties Limited with notices of demand requesting payment of $1,207,259.32 by 3 May 2005 and Sam’s Seafood Hamilton Limited requesting payment of $12,085,120.67 and USD $272,152.15, also by 3 May 2005.

58 On 3 May 2005, Sam's Seafood was placed in a pre-open trading halt pending the release of an announcement. As at 3 May 2005 the total indebtedness of the Sam’s Seafood Group to Rabobank was approximately $12 million.

59 On 4 May 2005, Sam's Seafood requested a suspension of share trading. The ASX market release stated that at the request of the Company and following the appointment of Deloitte Touch Tohmatsu, as receiver and manager of the operating subsidiaries of the Company, Sam’s Seafood securities would be suspended from quotation immediately.

60 On 4 May 2005, Deloitte’s was appointed as Receiver and Manager to the Sam’s Seafood Group. On 20 May 2005 Andrew Fielding and Julie Williams of PPB (Queensland) were appointed Administrators.

Section 16A(2) of the Crimes Act (Cth)

61 Section 16A(2) obliges me to consider a number of matters relevant to the imposition of sentence in this case. As I have already noted Mr Stephenson has no criminal antecedents. He is currently 63 years of age and was aged 57 at the time of the offending. For sentencing purposes, I accept the offending constituted by his deliberate use of price sensitive information was out of character. While prior good character is not regarded as a mitigating feature of significant weight in sentencing for white collar crime, by reason of the fact that many, if not all, offenders in this category have no criminal record when they present for sentence, and are often only in a position to commit the offence because they are of good character, Mr Fagan submitted that rationale does not apply in this case. He submitted that because the information that was misused by Mr Stephenson came to him through his friendship with Mr Scherini, and not through any business or market connection, and that his trade in that information was as an ordinary citizen, albeit as an authorised officer of NJAY Pty Ltd, that he is entitled to the credit of 60 years of unblemished character and for that to weigh in his favour on sentence. I am satisfied that in the circumstances of this case that Mr Stephenson’s good character should be afforded weight, in addition to it being a factor to be considered in determining whether an order under s 19B is appropriate in this case.

62 Although the guideline judgment in Thompson v Houlton [2000] NSWCCA 309; 49 NSWLR 383 does not apply to a Commonwealth offence, the Court’s analysis of the mitigating effect of an early plea of guilty is relevant when determining the weight to be given to the plea of guilty in this case. I am satisfied that the plea of guilty was timely, being entered within a week of the issue of the Court Attendance Notice in September 2009. That fact alone demonstrates Mr Stephenson’s willingness to facilitate the course of justice and is further evidence of his contrition, which I accept as genuine. I propose to allow the fully weighted discount customarily allowed for an early plea when considering the sentence to be imposed in this case.

63 As will be obvious from the chronology of events, the plea of guilty was entered a staggering four and a half years after the commission of the offence, three years and eight months after ASIC focused its investigation on Mr Stephenson’s share trading activities, and two and a half years after he was invited to participate in a recorded interview with investigators, which he declined on legal advice. While it is accepted that some delays occasioned by the investigation of white collar crime generally are to be expected, the extent of the delay in this case is not, in my view, satisfactorily explained. It was not submitted that there was any particular complexity in the investigation into Mr Stephenson’s trade in Sam’s Seafood shares, or that there were any particular difficulties encountered in investigating that conduct. That is gainsaid by the fact that Mr Ackerman informed the ASX on the morning of the trades that one of his clients was motivated to sell shares in the company by reason of apparently private information concerning the company’s relationship with its banks. The delay in prosecuting Mr Stephenson has exposed him to considerable stress and anxiety associated with the uncertainty of knowing whether criminal charges would be laid and, if he were prosecuted, whether the statutory disqualification from holding the office of a director of a corporation and/or managing a corporation as provided for in s 206B of the Corporations Act (Cth), would result. The Crown appropriately conceded that the delay in this case entitles Mr Stephenson to an additional degree of leniency.

64 In addition, in the event that Mr Stephenson is not afforded the benefit of an order under s 19B and a conviction is recorded, attracting the automatic disqualification under the Corporations Act (Cth) to which I have just referred, the authorities recognise this as an additional penalty, and a further matter to be taken into account on sentence.

Should an order be made under s 19B of the Crimes Act (Cth)?

65 Section 19B(1)(b) provides that where the court is satisfied that the charge is proved but is of the opinion having regard to:

(i) the character, antecedents, age, health or mental condition of the person;

(ii) the extent (if any) to which the offence is of a trivial nature; or

(iii) the extent (if any) to which the offence was committed under extenuating circumstances,

that it is inexpedient to inflict any punishment at all, or to inflict any punishment other than a nominal punishment, the court may either dismiss the charge or discharge the offender without proceeding to conviction on the person’s undertaking they will be of good behaviour for a period not exceeding three years; that reparation or restitution in respect of the offence will be paid on or before a date specified in the order (or otherwise by instalments), or that the person will comply with other conditions the Court considers appropriate.

66 Mr Fagan submitted that an order discharging Mr Stephenson without proceeding to conviction is an available sentencing option in this case principally, but not exclusively, because the offence was committed in extenuating circumstances. Those circumstances were said to be comprehended by the fact that the price sensitive information came to Mr Stephenson without solicitation, as a result of a friendship he had with a company executive, and not in the course of commerce or trade or otherwise as a result of his profession or calling. In addition, so it was submitted, Mr Stephenson lacked knowledge of the precise ambit of the governing law such that he was not aware that by trading with that information he was committing a criminal offence. These matters, in combination with his age, character and antecedents, were said to justify an order being made under the section. Mr Fagan did not submit that the offence could properly be regarded as trivial but pointed out that this did not disentitle Mr Stephenson from being discharged under the section because s 19B(1)(b)(ii) and (iii) were disjunctive (cf Shillabeer v Stra [2007] SASC 274 per Debelle J at [12]). He also conceded that it was not appropriate to utilise the section as a means of circumventing the operation and effect of s 206 of the Corporations Act (Cth), an approach which the Court of Criminal Appeal in Fing v R (4 October 1994, unreported) regarded as both improper and undesirable. In that case the Court also observed that having regard to s 556A of the Crimes Act (NSW), since repealed, finding a charge proved but not proceeding to conviction, would not usually be made where the sentencing court considers a monetary fine is an appropriate penalty, otherwise than where the fine to be imposed is nominal.

67 Despite my being satisfied that Mr Stephenson was probably unaware of the criminal consequences of dealing with inside information, for the reasons outlined above I am not persuaded that the offending is mitigated to any significant degree by that fact alone, although I accept it is an offence towards the bottom of the range of offences of its kind when his lack of knowledge is taken into consideration, coupled with the relatively modest sum involved. However, I am not satisfied that the offence was committed in extenuating circumstances by reason of the fact that he was unaware it was a criminal offence or because the information was passed to him by a friend. I am left in no doubt that he acted on the information conscious of it being price sensitive and that his motivations, whilst at a commercial level understandable, undermine the ultimate objective to which the section is directed, namely to maintain the integrity of the market. Were I not to proceed to conviction in this case the principle of general deterrence would be undermined.

68 That said, after taking into account the various matters under s 16A to which I have referred, and after taking into account the powerful subjective case mounted by Mr Stephenson, together with the relatively modest amount of money involved, I am satisfied that an adequate sanction for sentencing purposes in this case can be imposed under s 20(1)(a) of the Crimes Act (Cth) by the imposition of a significant monetary penalty. In fixing the penalty, I take into account that the funds generated from the trade have since been released from the broker’s suspense account, and that while Mr Stephenson remains willing to make reparation to sellers who were financially disadvantaged by his conduct, it would be difficult, if not impossible, to craft a reparation order under s 20(1)(a) to give effect to his intention, given that over five years have passed since committing the offence and when many, if not most sellers, are likely to be difficult to identify or locate.

Orders

69 Accordingly, the orders I make are as follows:

1. Noel James Stephenson you are convicted of the breach of s 1043A of the Corporations Act to which you have pleaded guilty.

2. I release you without passing sentence, on your own recognisance and without security, on the following conditions:

(i) that you will be of good behaviour for a period of 12 months to

date from today, 16 July 2010; and

(ii) that you will pay a pecuniary penalty in the amount of $20,000 on or before 31 July 2010.

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LAST UPDATED:
19 July 2010