Former banker, 26 year old Lukas Kamay and ex Australian Bureau of Statistics worker, 25 year old Christopher Hill have both been sentenced to significant gaol terms for their roles in what is one of the biggest insider trading cases in Australian history—worth over $7million in illegal foreign exchange trades.
Kamay was sentenced to seven years and three months with a non-parole period of four and a half years; Hill was sentenced to three years and three months with a non-parole period of two years.
The Australian Federal Police (AFP) and Australian Securities and Investment Commission (ASIC) launched a joint investigation on 21 February 2014—codenamed ‘Operation Leith’. The investigation culminated on 9 May 2014 with both men arrested. The Commonwealth Director of Public Prosecutions successfully prosecuted the matter working closely with AFP and ASIC investigators.
On 10 and 11 December 2014 Kamay and Hill pleaded guilty in relation to their offending before Justice Hollingsworth in the Supreme Court of Victoria at Melbourne.
Kamay pleaded guilty to a total of seven charges, while Hill pleaded guilty to a total of six charges.
Hill and Kamay knew each other since 2007, when they met at Monash University in Clayton, Victoria while both were undertaking studies for Bachelor of Commerce and Bachelor of Economics degrees. They both graduated with Bachelor degrees in Commerce and Economics in 2011.
An arrangement between the two men was set up during a meeting at a Fitzroy North pub in 2013.
Hill agreed to use his position at the ABS headquarters in Canberra, to send Kamay sensitive and unpublished ABS main economic indicators— labour force, retail trade, building approvals, and private expenditure data (the inside information), that was not generally available to the public which he obtained in his capacity as a Commonwealth public official.
This information was generally shared via their mobile phones. The provision of the main economic indicator information by Hill to Kamay followed a similar pattern in each case. Hill would access the data within the ABS, record the data in handwritten notes, and remove it from the ABS. Hill would then pass the key or main economic indicator information to Kamay by means of mobile telephone communications.
Kamay would use that information to conduct trades on the foreign exchange (FX) derivatives market using the information that was not generally available to the wider public, which would have a material effect on the price or value of the foreign exchange derivative contracts.
The pair knew that such information could both make large amounts of money.
Their plan was to make around $200,000 profit from market sensitive information but led to Kamay concealing millions more in accounts unknown to Hill.
Greed got the better of Kamay as he began making so much money he decided to set up three secret trading accounts unknown to Hill which he ended up making over $7million.
Fearing detection, Kamay attempted to conceal his offending by losing money on some occasions. He also successfully bid $2,375,000 at auction for the three-bedroom Albert Park loft designed by twins Alisa and Lysandra Fraser on the Channel nine hit TV series The Block, on April 8, 2014. This was later restrained under proceeds of crime legislation and subsequently forfeited.
Lukas Kamay was convicted and sentenced on 17 March 2015 in relation to:
- Four counts of insider trading contrary to section 1043A and 1311(1) of the Corporations Act 2001 (Cth). The maximum penalty for each offence is 10 years imprisonment.
- Two counts of dealing in identification information using a carriage service contrary to section 372.1A of the Criminal Code (Cth). The maximum penalty for each offence is 5 years imprisonment.
- One count of dealing in proceeds of crime $100,000AUD or more contrary to section 400.4(1) Criminal Code (Cth). The maximum penalty for the offence is 20 years imprisonment.
Christopher Hill was convicted and sentenced on 17 March 2015 in relation to:
- Four counts of abuse of public office contrary to section 142.2(1) Criminal Code (Cth). The maximum penalty for each offence is 5 years imprisonment.
- One count of dealing in identification information using a carriage service contrary to section 372.1A Criminal Code (Cth). The maximum penalty for each offence is 5 years imprisonment.
- One count of insider trading contrary to section 1043A and 1311(1) of the Corporations Act 2001 (Cth). The maximum penalty for each offence is 10 years imprisonment.
Kamay loses appeal
Kamay’s sentence of seven years and three months imprisonment was the largest sentence handed down in an insider trading prosecution in Australia.
Following his conviction Kamay appealed on several grounds including that his sentence was manifestly excessive. On 13 November 2015 the sentence appeal was dismissed by the Supreme Court of Victoria.
Kamay appealed on a number of grounds including that the sentencing judge placed too much emphasis on the question of profit in sentencing. The Court found that this could not be sustained. In cases where, due to the value of the inside information, gains are nearly certain-‘profit will ordinarily be an important if not a prime indicium of the objective seriousness of the offence.’
The court observed the following points in its judgement:
- Previous authority in insider trading matters recognised that profit could ‘become an important factor if for a comparatively small investment, a very large profit were made.’ The sentencing judge made clear in her reasons that, in addition to profit, the nature and value of the inside information, which allowed a large profit to be made with a small outlay, were also important determinants.
- The high quality of the inside information was demonstrated in the high profits made by Kamay in very short timeframes. The pattern of offending showed that the precision and confidence of his trading with the inside information grew over time.
- The number and period of trades were not in this case prime objective indicia of gravity. In cases where, due to the value of the information, gains are nearly certain ‘profit will ordinarily be an important if not a prime indicium of the objective seriousness of the offence.’
- The absence of any proved distortion of the market or identified victims did not significantly reduce the seriousness of the offending.
- The applicant’s relative youth and character were not of great weight as these are not unusual features in matters of this type.
- The sentence was stern but the applicant’s offending was bereft of redeeming features. The information was of high quality and effect. The size of the gains as compared to the investment was exceptional. Third parties sustained losses and the reputation of the ABS was harmed. The sentences were within the exercise of discretion.
- An argument as to parity of sentence between Kamay and his co-offender Hill could not be sustained. The distinct part played by each in the relevant course of offending justified the disparity in sentences. There were differing maximum penalties applicable to and levels of culpability between the applicant and his co-offender.
- It was not an error to order that part of the sentence imposed on Kamay for dealing in the proceeds of his crimes be cumulated rather than served concurrently with the insider trading sentences. This was so even though there was no attempt at concealment of the proceeds. Such concealment is not an element of the offence of dealing in the proceeds of crime. Kamay’s use of the funds to purchase a property was the very type of conduct the offence was intended to capture. The purchase was an attempt to give the proceeds a cloak of respectability. Some cumulation of the sentence for that offending was necessary.
The failure of Kamay’s appeal confirms that offences that underline the integrity of the market are serious and warrant substantial gaol sentences.
The ABS and Main Economic Indicators
The ABS is Australia’s national statistical agency. It provides key statistics on a wide range of economic, social, and environmental issues covering Government, business, and the community.
As part of its role, the ABS releases market sensitive statistics about a range of indicators of the Australian economy. These are referred to as Key or Main Economic Indicators (MEIs) and are released by the ABS on a monthly or quarterly basis to inform Government, business, and the community about the state of the Australian economy and labour market.
As MEIs provide indicators of the performance of the Australian economy, they can impact the value of the Australian Dollar (AUD) in relation to other currencies.
Margin FX Derivatives provided by Pepperstone and Axicorp
A Margin FX Derivative contract is an over-the-counter financial product. Its value is derived from the value of an underlying currency exchange rate. A ‘derivative’ is defined in s761D of the Corporations Act 2001. A derivative is a Division 3 financial product under s1042A of the Corporations Act 2001.
Margin FX Contracts are financial products involving an agreement between the issuer of the product and the client. Margin FX contracts are not traded on a market or through a central exchange.
Each contract bought or sold is equivalent to 100,000 units in target currency value. Margin FX Contracts allow the trader to speculate on future price movements in an underlying currency pair (for example the Australian Dollar versus United States Dollar (AUD/USD)) without acquiring the underlying currency.
Margin FX Contract providers such as Pepperstone and AxiCorp offer traders specified leverage, depending on the trader’s risk profile, to enter into Margin FX Contracts. This means that to enter into one contract at AU$100,000, the trader is not required to pay the full AU$100,000. For example, a trader with leverage of 200:1 would need to deposit AU$500 with the broker to secure one contract for AU$100,000 or AU$50,000 for 1,000 contracts worth AU$10,000,000.
To submit an order to open a Margin FX Contract position for a nominated value, a trader is required to have sufficient funds in their trading account to cover the required margin.
To profit from an anticipated increase in the value of the AUD against the USD, a trader would acquire a Margin FX Contract by entering an order for a nominated volume and price to ‘buy’ AUD. To profit from an anticipated decrease of the value of the AUD against the USD, a trader would acquire a Margin FX Contract by entering an order for a nominated volume and price to ‘sell’ AUD.