German construction group Hochtief AG has been fined A$400,000 ($299,00) for buying up shares in Australia’s Leighton Holdings – of which it was majority shareholder – while armed with useful secret information in 2014.
In its ruling last week Australia’s Federal Court called it a "serious failure" by top Hochtief executives to exercise appropriate care and diligence, and said it wanted to send a strong message to multinationals operating in the country.
To show contrition, as well as paying the penalty and legal fees, Hochtief will donate more than A$206,000 to groups promoting financial literacy among Australian shareholders and indigenous peoples.
It was by no means a victimless crime, the victim was the market– Judge Wigney J.
Hochtief bulk bought shares in Leighton Holdings (now Cimic Group) on 3 February 2014, when Hochtief’s own chief financial officer, Peter Sassenfeld, knew Leighton would soon be announcing good financial results for the previous year.
Sassenfeld himself was as a non-executive director of Leighton Holdings and a member of Leighton’s audit committee.
Armed with this information unavailable to the market, Hochtief bought more than A$3m worth of shares on 3 February, and, when Leighton announced on 20 February that its net profit in 2013 was up 30%, its share price spiked, netting Hochtief a notional windfall of $206,740.
Australia’s stock market regulator, ASIC, took Hochtief to court over the alleged breach of the country’s Corporations Act in February this year, and Hochtief admitted the wrongdoing right away.
But ASIC and Hochtief disagreed over the size of the penalty, with the regulator demanding the maximum of A$600,000 and Hochtief arguing for a more lenient A$100,000, the court’s judgement, delivered on 8 December, reveals.
In the end, the judge rejected Hochtief’s characterisation of its actions as "mere carelessness and inadvertence".
Instead it was, said Judge Wigney J., "a serious failure by Mr Sassenfeld to exercise appropriate care and diligence in the circumstances".
Judge Wigney further said: "It also involved a serious failure on the part of Hochtief AG to put in place appropriate systems and procedures relating to insider trading. It resulted in significant trading in a major Australian public company which, because it involved insider trading, had the capacity to significantly undermine the integrity and efficiency of the relevant securities markets."
"It was by no means a victimless crime," the judge concluded, "the victim was the market."
As well as paying the penalty, Hochtief AG will donate A$206,800 – the unrealised profit it made on the shares – to advance financial literacy in Australia.
The sum is split in two: A$103,400 will go to the Australian Shareholder Association for the advancement of shareholder education; and the same amount will go to the First Nations Foundation for its initiatives on adult financial literacy.
Image: In the lobby of the Australian Securities Exchange (ASX), the country’s stock market, in Sydney (Creative Commons)