ASIC’s comments on corporate culture

Greg Medcraft, ASIC chair, spoke at the Australian Regulatory Summit in Sydney on the topic, Tone from the top: Influencing conduct and culture“Today I’d like to talk about why culture matters, and what is the role of the board, senior executives, and staff of an organisation in respect of culture.”

ASIC v Curtis Concludes: Jail Sentence For Conspiracy To Insider Trade

This case involved white-collar charges only, but raises some interesting points, including Justice MacCallum’s musing about peering through the corporate veil.

“Former banker, 30-year-old Oliver Curtis was today sentenced to two years imprisonment after being found guilty by a Supreme Court jury earlier this month of conspiring to commit insider trading with his former best friend, John Hartman.”  No word in ASIC’s press release about any POC litigation to confiscate Curtis’ $1.4M profit.

In addition to the sentencing judgment, there are two published rulings, dealing with Curtis’ various applications.

In his application for directed acquittal, Curtis made many interesting arguments.  Highlights include:

  • An argument (I’m oversimplifying) there cannot be any offence of conspiracy to commit insider trading (this description is not technically correct, but will suffice here) because at the time the conspiracy is entered, the participants cannot know that the future information they hope to receive will have the quality of “inside” information: an argument that  McCallum J said “ultimately failed to grapple with what it is that is criminalised by the offence of conspiracy” (at [23]).
  • This argument is not fully sketched in the ruling (see [33] – [34]).  Some objection was made – it doesn’t appear to be a no case submission, though it has that flavour – to the form of the charge, because Curtis did not acquire the financial products, Encounter Investments Pty Ltd did – and the charge described a conspiracy between the two individuals only, Curtis and Hartman.  But, as McCallum J noted, that charge was that Curtis had “entered an unlawful agreement” to acquire or dispose of the financial products – and whether he in fact did so was not determinative.  Interestingly, she also said,

It is accordingly not necessary to consider the more difficult question whether the offence of insider procuring contrary to s 1043A(1)(d) could be established by proof that the insider procured a person to acquire or dispose of the relevant financial products through the agency of a corporate entity (there is a respectable argument that one could peer through the corporate veil in that circumstance, but that is an argument for another day). (At [34], my emphasis.)

  • A clutch of arguments (all rejected) were directed at alleged deficiencies in the elements of the offence, as formulated by Her Honour.  There’s no denying that the elements of the offence are conceptually difficult.  Reading through them, set out at [17], one has a lot of sympathy for the jury.   I expect that some of these arguments will be revived in a conviction appeal, and would not be surprised if there is some ground raised in relation to the wording of the jury directions: this would necessarily have been a very complicated charge to deliver, and all it takes is a stray word here or there for a vigilant party to make an application to appeal.   It’s this very issue that has led to significant efforts in my home state of Victoria over the last four years, to simplify jury directions and relieve some of the heavy burden that has built up for judges in the criminal jurisdiction in Victoria and NSW. (I understand, from conversations with criminal practitioners in other jurisdictions, that judges elsewhere have an easier time with directions.)
  • Another argument put by Curtis was that the Crown ought to have led expert evidence as to the meaning of ‘material’, and its failure to do so meant a jury would be unable to properly understand the term and a directed acquittal was therefore required.  This was dismissed by Her Honour, who noted the question about materiality was “quintessentially within the jury’s ken” [56], but another point could be made: words with legal meaning are not explained to juries by expert witnesses.  They are explained to juries by judges in the course of jury directions.

Curtis’ earlier application, for a ruling that certain evidence could not be used for the purposes of coincidence reasoning, was partially successful, and the ruling is worth a read.  In part it’s interesting because defence counsel could have requested the presiding judge to warn the jury not to reason in the prohibited way, but in fact asked the judge not to give any such direction, for fear the direction would be self-defeating.  The ruling had the effect of limiting the comments that the Crown could make in closing.

As for the sentence, the IPA thinks white-collar criminals do not belong in jail:

“Oliver Curtis broke the law and should be punished. White-collar offenders like Curtis should have to pay large fines, make restitution, and forfeit their right to work in positions of trust. Justice, however, does not require that we jail non-violent, low risk offenders. We ought to think again.”

If we’re going to talk about the appropriate means of denouncing, punishing and deterring “non-violent, low risk offenders”, then let’s not frame the debate in terms of “white-collar”/ not-white-collar offending.  Because then we’re not really talking about “non-violent, low risk” offenders, we’re talking about “non-violent, low risk” offenders in business shirts… we’re talking about the detestable use of the privilege of wealth and education as a marker for differential treatment in criminal courts.

Corporate Sentence Manifestly Excessive

Wildan Properties Pty Ltd successfully appealed its $120,000 criminal fine for permitting the use of its building without a permit. The sentence was reduced to $90,000 after Pritchard J of the SCWA found that the Magistrates’ Court sentence was manifestly excessive.

OHS Charges Continue To Confound

WorkCover Queensland has finally been successful in arguing that its charges against Simon Transport Pty Ltd were valid.  These charges, filed in 2012, were dismissed by the Magistrate at first instance as wanting jurisdiction due to vagueness and “failure to expose the legal ingredients” of the alleged offence.  The District Court dismissed WorkCover’s appeal, saying the charges failed to identify how the offence was committed.

I must say, reading the case, it came as quite a surprise to read the charges filed: they are among the longest and most detailed charges I’ve seen, even by OHS standards.  They were easily more particularised than the charges in Vibro-Pile, for example.

WorkCover appealed to the Queensland Supreme Court, which demonstrates unusual tenacity for a state-based regulator, but given the stakes, I suppose they had little choice.  The three-justice bench unanimously upheld the appeal, remanding the matter to the Magistrates’ Court for prosecution.

Allegedly Unconscionable Insurance Behaviour; Allegedly Misleading eCigarette Health Claims.

The ACCC has commenced civil litigation against Medibank Private Limited (Medibank) alleging it failed “to notify Medibank members and members of its subsidiary brand, ahm, regarding its decision to limit benefits paid to members for in-hospital pathology and radiology services. The ACCC alleges that Medibank did not provide members with any advance notice of the change despite previously representing that it would do so. Medibank also adopted a strategy of keeping communications about this change contained and reactive. The ACCC alleges that Medibank’s conduct was misleading and, in all the circumstances, unconscionable.”

As for the eCigarette litigation the ACCC commenced in the Federal Court, “The ACCC alleges that the two companies, Social-Lites Pty Ltd (Social-Lites) and Elusion New Zealand Limited (Elusion), breached the Australian Consumer Law (ACL) by making representations on their websites from at least August 2015 that the e-cigarette products being sold did not contain carcinogens or toxic chemicals, and did not contain any of the chemicals found in conventional cigarettes.  The ACCC alleges, based on independent testing it commissioned, that the e-cigarette products sold by Social-Lites and Elusion did in fact contain carcinogens and toxic chemicals found in conventional cigarettes, including formaldehyde, acetaldehyde and acrolein.”

The Brood Continues

Victorian chicken farmers have been granted authorisation for a further 10 years from the ACCC to collectively bargain:

“Collective bargaining for these farmers will likely reduce costs for them and the processors they supply, and also provide them an opportunity to have greater input into their contracts,” ACCC Commissioner Mick Keogh said. “These efficiencies can ultimately benefit consumers as well through cheaper prices.”

Conviction For Pollution of Kings Stockyard Creek

A rather dull matter, but that makes it a good case study for thinking about sentencing principles.  The EPA successfully prosecuted Borg Panels Pty Ltd for careless pollution of a creek: sentencing principles are discussed from paragraph 15.  As with virtually all such matters, the court does not ask how much money the offender was likely to have saved by its lackadaisical approach to development of standard operating procedures and staff training, nor does it ask how easy the offence-type is for the regulator to detect and prosecute, two factors that are surely essential for any realistic assessment of what is required for deterrence in a commercial setting.

United Kingdom

Now You Can Anonymously Report To Food Crime Confidential

It’s such a serious topic, and yet, it’s hard to keep a straight face.  The Food Standards Agency has established Food Crime Confidential, a “reporting facility where anyone with suspicions about food crime can report them safely and in confidence, over the phone or through email. The facility is particularly targeted at those working in or around the UK food industry.”  No whistleblower rewards, like the US, but anonymity is assured.

Passing Out From Animal Fumes Shouldn’t Be Part Of Your Day In The Office

“Prosecuting, the Health and Safety Executive (HSE) told Stafford Crown Court that, on 23 April 2014, an employee of John Pointon and Sons Limited accessed a compartment within an animal waste trailer to free animal waste and was overcome by the gases.

Subsequently, two further employees entered the waste compartment and were also overcome by the gases.

The court heard that this preventable incident could have resulted in fatalities and that the company had been prosecuted twice before for two fatal incidents which involved confined space entry within a processing plant.”

United States

When You Dial 911 and Wall Street Answers

Do for-profit companies have a role to play in the provision of essential services?  Many of these services in the US are saturated with private equity.  And people are dying.

From The New York Times: “TransCare’s unraveling, told through internal documents and interviews with former employees, provides a case study in private equity’s ambulance experiment. The company’s implosion followed the bankruptcies of two other ambulance companies owned by private equity, Rural/Metro and First Med… It wasn’t supposed to be this way.”

Coincidentally, this fortnight the DOJ “filed suit against Arrow-Med Ambulance, Inc. (“Arrow-Med”) … alleging that the company submitted numerous fraudulent claims seeking payment for unnecessary non-emergency ambulance transports… In addition, the complaint describes how the [directors] converted hundreds of thousands of dollars from Arrow-Med’s bank accounts to their own use. …The complaint alleges the defendants caused damages to Medicare and Medicaid in excess of a million dollars.”

Trader Joe’s Potent Greenhouse Emissions Result in Civil Penalty

“The national grocery store chain Trader Joe’s Company has agreed to reduce emissions of potent greenhouse gases from refrigeration equipment at 453 of its stores under a proposed settlement with the U.S. Department of Justice and the Environmental Protection Agency (EPA) to resolve alleged violations of the Clean Air Act.  Under the settlement, Trader Joe’s will spend an estimated $2 million over the next three years to reduce coolant leaks from refrigerators and other equipment and improve company-wide compliance.  The company will also pay a $500,000 civil penalty.”

Corrupt Ultrasound Transactions In Russia

“A subsidiary of Massachusetts technology company Analogic Corporation entered into a non-prosecution agreement and agreed to pay a $3.4 million penalty today to resolve the government’s investigation into improper payments made in Russia and elsewhere in violation of the Foreign Corrupt Practices Act (FCPA)…

According to admissions made in the resolution documents, BK Medical ApS, a manufacturer of ultrasound equipment headquartered in Denmark, engaged in a scheme with its distributor in Russia to make improper payments to third parties using fictitious invoices, falsely book those third-party payments and cause Analogic to falsify its books and records.  BK Medical admitted that, as part of the scheme, after the terms of a sale had been agreed upon, the distributor requested that BK Medical issue invoices that falsely inflated the sales price on the equipment.  The distributor then overpaid BK Medical the inflated amount and BK Medical transferred the excess funds to third parties as directed by the distributor, the company admitted.  BK Medical had no legitimate business relationship with those third parties and had not conducted due diligence on them, it admitted.  According to admissions in the resolution documents, at least some of these payments ultimately went to doctors employed by Russian state-owned entities. ”

EPA Grows Some New Teeth

Remember the DuPont C8 scandal?  It highlighted some of the problems the US Toxic Substances Control Act; and some of those have now been resolved with recent amendments.  As the EPA tells the story:

“Forty years after TSCA was enacted, there are still tens of thousands of chemicals on the market that have never been evaluated for safety, because TSCA didn’t require it. And the original law set analytical requirements that were nearly impossible to meet, leaving EPA’s hands tied – even when the science demanded action on certain chemicals.

The dangers of inaction were never more stark than in the case of asbestos, a chemical known to cause cancer through decades of research.

During the first Bush Administration, EPA tried to ban asbestos under TSCA, but the rule was overturned in court. In the law’s 40-year history, only a handful of the tens of thousands of chemicals on the market when the law passed have ever been reviewed for health impacts, and only 5 have ever been banned.

Because EPA was not empowered to act on dangerous chemicals, American families were left vulnerable to serious health impacts. At the same time, some states tried to fill the gap to protect their citizens’ health—but state-by-state rules are no substitute for a strong national program that protects all Americans. Chemical manufacturers, consumer retailers, and others in industry agreed: reform was sorely needed.

As with any major policy reform, this one includes compromises. But the new bipartisan bill is a win for the American people—because it’s a victory for EPA’s mission to protect public health and the environment.”