Insider trading is a serious form of misconduct and can result in defendants receiving lengthy prison sentences and significant monetary sanctions. Our working paper, ‘Sanctions Imposed for Insider Trading in Australia, Canada (Ontario), Hong Kong, Singapore, New Zealand, the United Kingdom and the United States: an Empirical Study’, provides a detailed analysis of the insider trading enforcement landscape across a range of common law jurisdictions over the seven year period from January 1, 2009 to December 31, 2015. In particular, our study examines custodial sentences, banning orders and pecuniary sanctions imposed for insider trading. The study is based on a dataset of a significant size, scope and comprehensiveness, encompassing nearly 700 individuals and companies, as well as approximately 1400 sanctions imposed for the contravention of insider trading provisions in the seven jurisdictions. Our findings provide important insights into the sanctions most commonly applied by securities regulators and the courts to enforce insider trading laws. One finding is that even in jurisdictions with similar insider trading laws, such as Australia and Singapore, very different sanctions are used to enforce these laws. By providing empirical evidence of the actual sanctions imposed for insider trading across a wide range of jurisdictions, our study aims to provide a more accurate picture of the enforcement landscape for insider trading.
Here are our key findings on the different enforcement approaches for insider trading.
The US, which had the highest number of defendants, also had the widest range of sanctions imposed for insider trading.
What characterizes most insider trading cases in the US is the high proportion of pecuniary sanctions. In the US, some form of corrective/restorative pecuniary sanction (such as forfeiture, disgorgement or restitution) was imposed on nearly 87 percent of defendants, which was higher than in each of the other jurisdictions. Punitive pecuniary sanctions were imposed on around 70 percent of defendants. In most cases the sanctions were determined with reference to the size of the profit. For example, the civil penalty was equal to the size of the profit for at least 150 defendants, all of whom settled with the Securities and Exchange Commission (SEC).
Another area where the US appears to be unique is the number and complexity of insider trading proceedings. A number of defendants faced both criminal actions brought by the Department of Justice and civil actions brought by the SEC in relation to the same conduct, and in some cases administrative follow-on proceedings were also brought (for example, to impose a ban).
During the study period, the overall number of custodial sentences imposed on defendants in the US was the highest (85), followed by the UK (27) and Australia (19). The duration of custodial sentences for defendants ranged between 21 days and 17 years.
The highest total amount in pecuniary sanctions by a considerable margin was also imposed in the US. Pecuniary sanctions imposed on defendants ranged between $500 and $1.8 billion. Most of the defendants in civil matters settled with the SEC, while the vast majority of criminal convictions obtained by the SEC during the period resulted from guilty pleas.
During the study period, the proportion of insider trading defendants receiving sanctions in the criminal courts was substantially higher in Australia than in the other jurisdictions. All but three sanctions were imposed by the criminal courts, while in the other jurisdictions (excepting the UK), criminal prosecution was undertaken in a minority of cases.
A typical defendant in Australia received a custodial sentence and paid a small pecuniary sanction. Nearly two thirds of defendants received custodial sentences, which were more common than punitive pecuniary sanctions. In the other jurisdictions custodial sentences were never the most commonly imposed sanction. However, a high proportion of the custodial sentences imposed in Australia were fully suspended.
Based on cases where the size of illegal profits is available, the size of the average punitive pecuniary sanction was equal to the profit. However, most defendants did not receive a punitive pecuniary sanction at all. The low level of pecuniary sanctions may reflect a perception by the courts that the main sanction is the custodial sentence and that criminal fines play a supplementary role. The low level of bans may reflect the fact that defendants in Australia would be subject to automatic disqualification from managing corporations as a result of their insider trading conviction.
In Singapore, custodial sentences and bans were both imposed infrequently. The proportion of defendants that received banning orders was lower in Singapore than in the other jurisdictions (except Australia, which had the same proportion of banning orders as Singapore). The low frequency of bans may be because in Singapore an insider trading conviction or a civil penalty also results in automatic management disqualification. Pecuniary sanctions were imposed on all defendants, and these sanctions were significantly higher than the illegal profits.
In Hong Kong, the proportion of defendants receiving a ban was 55 percent, which was higher than the proportion of defendants receiving a custodial sentence (45 percent). The duration of custodial sentences imposed in Hong Kong was the shortest of all the jurisdictions. Similarly to Australia, the size of pecuniary sanctions also tended to be low both in absolute terms and as a proportion of profits. A typical defendant in Hong Kong received a ban or a short custodial sentence, and a small fine.
In the UK, a typical defendant received a shorter custodial sentence than in Australia, but the size of pecuniary sanctions was substantially higher, so a typical defendant received a custodial sentence and paid a significant pecuniary sanction. However, there also appears to have been an increase in the proportion of insider trading matters that are prosecuted criminally since 2009. Bans were imposed on only 15 percent of defendants, but they were all of indefinite duration.
Ontario was characterized by high (and frequent) pecuniary sanctions and bans, but there was just one custodial sentence imposed for insider trading during the study period, so a typical defendant received a ban and a pecuniary sanction. The proportion of defendants that received banning orders was highest in Ontario, where all but one defendant received a ban.
There were no sanctions imposed in New Zealand for insider trading during the study period.
A summary of the sanctions imposed in each of the jurisdictions is provided in the following table.
Breakdown of sanctions imposed for insider trading across jurisdictions
|Jurisdiction||Most common sanction||Second most common sanction||Third most common sanction||Least common sanction|
|Australia||Custodial (63.3%)||Punitive pecuniary (46.7%)||Corrective or restorative pecuniary (36.7%)||Ban (10.0%)|
|Hong Kong||Punitive pecuniary (60.0%)||Ban (55.0%)||Custodial (45.0%)||Corrective or restorative pecuniary (15.0%)|
|Ontario||Ban (95.8%)||Punitive pecuniary (87.5%)||Corrective or restorative pecuniary (66.7%)||Custodial (4.2%)|
|Singapore||Punitive pecuniary (100%)||Ban (10.0%)||Custodial (5.0%); Corrective or restorative pecuniary (5.0%)||N/A|
|United Kingdom||Corrective or restorative pecuniary (66.0%)||Custodial (50.9%)||Punitive pecuniary (45.3%)||Bans (15.1%)|
|United States||Corrective or restorative pecuniary (86.7%)||Punitive pecuniary (70.5%)||Bans (20.2%)||Custodial (15.9%)|
|Average (simple)||Punitive pecuniary (68.3%)||Corrective or restorative pecuniary (46.0%)||Bans (34.4%)||Custodial (30.7%)|
This post comes to us from Lev Bromberg, George Gilligan and Ian Ramsay. Bromberg is a Research Fellow, Gilligan is a Senior Research Fellow and Ramsay is the Harold Ford Professor of Commercial Law and Director of the Centre for Corporate Law and Securities Regulation, Melbourne Law School, the University of Melbourne. The post is based on their recent paper, “Sanctions Imposed for Insider Trading in Australia, Canada (Ontario), Hong Kong, Singapore, New Zealand, the United Kingdom and the United States: an Empirical Study,” which is available here.