David Johnston (WA, Liberal Party, Shadow Minister for Defence) Share this | Link to this | Hansard source

I want to talk today about the Australian Securities and Investments Commission. ASIC is a problem as an agency. Its administration and management have been of very serious concern to many in this parliament and particularly in this Senate chamber for some time now.

The minister is clearly not up to the managerial or public policy challenges which the maladministration of this agency presents. There is very little distinction to be drawn between his capacity and that of the wider mayhem and incompetence of his ministerial colleagues. I wanted to take these matters up at Senate estimates but the queue to question the ASIC officials was so extensive and the government's desire and intent to shut down estimates so obvious that I could not get a chance to ask my questions. So here I am today.

I want to draw the Senate's attention to a recent prosecution of a number of defendants for a breach of the insider trading laws of the Corporations Act, specifically section 1043, for which the penalty for a breach is 10 years' imprisonment.

Before I deal with the specific facts I draw the chamber's attention to, firstly, the 'model litigant' rules which set out that the Commonwealth must be a model litigant. It requires that the government, as a party to litigation, acts with complete propriety, fairly and in accordance with the highest professional standards. This applies to courts and tribunals. The expectation that the Commonwealth and its agencies will act as a model litigant has long been recognised by the courts. The rules set out what some of those criteria and principles need to be: making an early assessment of the Commonwealth agency's prospects of success; not taking advantage of a claimant who lacks resources; and apologising when the agency is aware that it has acted wrongfully or improperly.

I also draw attention to the prosecution policy of the Commonwealth, which in paragraph 2.5(a) sets out that a prosecution should not proceed if there is no reasonable prospect of a conviction being secured. In other words, there must be sufficient evidence before the prosecution should proceed. Secondly, in paragraph 2.8, consideration must be given to whether in the light of the provable fact and the whole of the surrounding circumstances, the public interest requires the prosecution be pursued. There we have it: sufficient interest and public interest tests for a prosecution by this Commonwealth. I will come back to the public interest test in a moment.

The facts in this particular case are that four defendants were charged with a number of offences. There were three Western Australians and one Victorian. The Victorian was charged with five offences; one Western Australian was charged with 20 offences, another with 13 offences and the last one with four offences. As I have said, these offences carry a 10-year imprisonment penalty. The case was based upon the fact that the defendants had heard a rumour of a takeover of a specific corporation. One of the defendants was a resident of Victoria and Victoria has a preliminary hearing structure in its law, such that the evidence required to prove this case is put to a test before a magistrate—in this instance, magistrate WJG O'Day.

I will set out what his ruling was. He said, in dismissing the case, that he was satisfied 'on the material that is before this court that a properly instructed jury could not convict the accused, Mr McKenzie'—who was one of the four defendants. He ruled that the case was a circumstantial one and on the material presented before him, both by way of oral evidence, witness statements and exhibits, there was insufficient evidence to support a conviction for the offences for which Mr McKenzie was charged. Mr McKenzie was therefore discharged in relation to the five charges he faced.

The magistrate found that it was a circumstantial case; the alleged inside information could not be traced to the source either within the relevant company or an organisation advising that company; the company had adopted a confidential regime to keep details of any proposed takeover secret; there was no evidence that the particular defendant was in any way associated with the company that was the target of the rumour; there was the evidence of financial analysts—three of whom said there was clearly identified information in the public domain that identified the company as a potential takeover target and the reports were available in the industry and available to all publicly. Given that the financial analysts reached their conclusions from publicly available information, the Crown was not capable of excluding the reasonable possibility that the information in the defendant's possession was the result of his deductions, conclusions or inferences made or drawn from publicly available information.

What we have is a magistrate exploring the full extent of the ASIC prosecution and saying 'the evidence is insufficient'. You would think that ASIC would have appealed that finding. They did not. Notwithstanding, the prosecution had the right to go to an indictment with the Victorian defendant. You would think that they would do that; they did not. So they did not appeal and they did not take the matter any further. However, with respect to the Western Australians, on precisely the same facts that this magistrate threw out, they proceeded to conduct a three-week Supreme Court trial. It was a three-week Supreme Court trial on precisely the same facts that the magistrate in Victoria threw out because of a lack of sufficient evidence.

During the time of the alleged insider trading, there were 2,500 trades in this company. Having been told of this insufficiency, they persisted with a most expensive exercise in prosecuting—or should I say, persecuting—three defendants in Western Australia. The jury trial concerned two of the three Western Australians. The third was a 75-year-old retired stockbroker in very bad health. It comes as no surprise that the jury did not convict either of the two who went all the way through the three-week Supreme Court trial. Indeed, on all of the charges, save for two in each, the jury returned verdicts of not guilty. The prosecution subsequently decided to discontinue further prosecution of those two charges. They flew a QC to Perth from the eastern states. On one occasion they flew a QC to Perth for a five-minute directions hearing. Nice work if you can get it!

Having been told the evidence was insufficient by a judicial officer in Victoria, the three-week trial went on with all its glory, everybody singing and dancing. What on earth was the cost of that? The 75-year-old former stockbroker in bad health did a plea bargain with them. He had been charged with four counts but pleaded guilty to one count and negotiated with the Crown. Judge Corboy set out the nature of the agreement in his sentencing remarks. The Crown agreed that a fine was appropriate, despite having maintained that imprisonment was suitable for the other two defendants, as this 75-year-old defendant did not actually know that the information giving rise to the offence was not in the public domain. So it is almost an absolute offence. Judge Corboy found that the offence was actually a negligent breach of the section. He said, 'I consider that your offending is the least serious category of insider trading cases.' So we have had a three-week all-singing, all-dancing trial on what has been adjudicated pretty accurately by Judge Corboy as one of the least serious categories of insider trading cases.

The public interest test that a prosecution should be pursued with talks about the seriousness, or conversely the relative triviality, of the alleged offence. These facts clearly fit that mould. It goes on to talk about the antecedents of the offender's background. None of these defendants had any previous convictions. So it goes on. Clause 2.10 of the prosecutions principles regarding how the Commonwealth should proceed with a prosecution sets out so many matters that cause concern as to why this matter went on. Indeed, it is a very sorry saga of a vindictive waste of Commonwealth money. They also took the security dealers licence from one of the three Western Australians. They took that licence before they conducted the trial. So they deprived him of a livelihood. He had not even been tried, had not been found guilty of any offence—and to this day has not been found guilty of any offence—and they have taken his licence from him. You would think they would return it. No. They are happy for him to be left high and dry.

Who is running this kangaroo court? Who is spending this Commonwealth money with no good reason? Who is doing all of this? I have here some information regarding exactly what was going on with this. The first thing I found out is that the person who is running ASIC is a man called Greg Medcraft. In researching who this person is and wondering whether he had any legal qualifications, I found that he was running the New York division of the French bank Societe Generale. Surprise, surprise, I found that this bank is being accused by the US government of breaking some corporate laws and engaging in some misconduct.

How on earth would a person such as this be put in charge of ASIC, I ask myself. The answer is that the Prime Minister granted an exemption from her government's policy promising an open, merit based senior public sector appointments test to allow the former banking executive to head the corporate regulator without advertising the role. There is a queue a mile long of senators and members of this parliament with complaints against this agency. This is because the Prime Minister decided to give the job to a mate without going through the open, merit based public sector appointment process. Treasurer Wayne Swan has refused to answer questions on the process. It is a $700,000-a-year job that was not advertised and was given to a mate. The Prime Minister has confirmed that she approved an exemption from the open and merit based appointment policy. Mr Medcraft confirmed to a Senate committee in May that he had been appointed as chairman without the job being advertised.

In February 2008, John Faulkner released a policy to strengthen transparency and merit-based selection when appointing senior public servants. Under the policy, 135 public sector positions and 65 agency heads were to be advertised, based on merit, oversighted by the relevant departmental secretary and the Public Service Commissioner. The commissioner, Mr Stephen Sedgwick, has said that he was not involved in Mr Medcraft's selection. That is where the problem lies. This man has had a relationship with this particular bank which the US housing agency alleges was negligent, did shoddy due diligence and seriously misled American loan providers Fannie Mae and Freddie Mac. What on earth is going on here? The corporate regulator is run by someone who has a cloud over him. Surprise, surprise, they were given an exemption, and this is an appointment under the carpet by the Prime Minister.

This kangaroo court that is ASIC needs to front a parliamentary inquiry. These matters need to be put on the table. We need to get to the bottom of what on earth is going on when a case is struck out in Victoria for no proper evidence and ASIC then spend three weeks in the Supreme Court in Western Australia with precisely the same facts. This is a kangaroo court of the worst possible type. These are vindictive public officers who have been put in place surreptitiously and who have a big black cloud over them, over their integrity and their capacity. Yet they are in charge as corporate regulators. This is a disgrace, and I want to see this parliament and this chamber conduct a detailed inquiry, because I am not the only one who stands up here and complains about this agency. There is a queue a mile long. Something has got to be done about it.