ASIC launched its civil proceedings against Westpac on Wednesday, alleging traders at the big four bank had used insider knowledge in a $12 billion interest rate swap transaction.
If ASIC’s claim proceeds to trial and Westpac is ultimately found guilty, it will be a landmark case, University of Sydney Business School associate professor Juliette Overland has said.
There have only been two previous insider trading cases brought against corporations in Australia: an unsuccessful civil case against Citigroup in 2006, and a civil case against Hochtief in 2016 in which the construction giant admitted liability and received a comparatively small fine of $400,000.
As noted by Dr Overland, insider trading cases are rarely brought against corporations as a whole. Individuals are instead the more likely targets and the vast majority plead guilty once their trading is detected.
“Insider trading cases against companies are very rare because the laws which apply the prohibition on insider trading to companies are very convoluted and largely untested,” Dr Overland told InvestorDaily.
“Also, large companies are generally well resourced and likely to vigorously defend any proceedings which might be brought against them.”
It is unclear yet if Westpac will defend the allegations and how the case will progress. But if it does go to trial and the bank is ultimately found guilty, Dr Overland has predicted other financial institutions “will be studying those findings very carefully and may need to make significant changes to their own business practices”.
The alleged misconduct occurred in 2016, before penalties for civil cases of insider trading were significantly increased in 2019 – meaning Westpac may escape the worst possible fines. But, Dr Overland warned, there may be other significant consequences.
“The reputations of many of our banks and financial institutions suffered significantly when the public became aware of some of their conduct during the banking royal commission,” Dr Overland said.
“A finding that one of our major banks has engaged in insider trading could certainly damage their reputation, and could require a change to business practices to ensure similar breaches do not occur in the future.
“Importantly, if there is a finding that Westpac has engaged in insider trading after contested proceedings, it may assist in bringing clarity to insider trading laws as they apply to companies, in what would be a landmark case.”
