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Since 1993 the Australian Securities and Investments Commission (ASIC) has had at its disposal overlapping criminal sanctions and civil penalties for the enforcement of the directors' duty provisions. This article examines ASIC's enforcement of alleged contraventions of the directors' duty provisions between 2001 and 2006. The examination reveals that criminal sanctions are utilised by ASIC in situations where the Commonwealth Director of Public Prosecutions believes there is sufficient evidence to sustain a criminal prosecution. The civil penalty regime is utilised by ASIC in situations where a criminal prosecution could not be sustained or is not available. Despite the perceived inadequacies of the criminal regime, the perceived advantages of the civil penalty regime and the predictions of some commentators, the provision of overlapping criminal sanctions and civil penalty provisions has not resulted in a reduction of criminal prosecutions in favour of civil penalty applications. This research has produced the following publication:
The literature on regulation theory asserts that regulators are best able to encourage compliance when they are armed with a wide range of sanctions. The enactment and use of sanctions by regulators should deter future contraventions of the law and lead to greater compliance. The Corporations Act 2001 (Cth) requires disclosing entities to disclose price sensitive information to the market continuously. The continuous disclosure provisions are enforced by criminal, civil penalty and administrative penalty regimes. These regimes were introduced in 1994, 2002 and 2004 respectively. The first enforcement activity by the regulator did not occur until 2003. There has been increased enforcement activity between 2005 and 2007. This research seeks to determine whether or not there is a correspondence between the introduction of the criminal, civil penalty and/or administrative penalty regimes and an increase in the level of compliance by disclosing entities with their obligation to disclose price sensitive information continuously. In addition, the research tests for a correspondence between enforcement activity undertaken by ASIC and an increase in the level of compliance by disclosing entities with their obligation to disclose price sensitive information continuously.
In theory it is possible to map the civil penalty provisions contained in Corporations Act 2001 (Cth) Part 9.4B on to an enforcement pyramid in a manner envisaged by responsive regulation. However, the data examined in this article reveals that there is a gap between theory and practice. If the regime were being utilised in a manner envisaged by responsive regulation, the Australian Securities and Investments Commission (‘ASIC’) would consider whether or not a civil penalty application was an adequate regulatory response prior to considering a criminal prosecution in the majority of cases. More civil penalty proceedings than criminal prosecutions would be issued in relation to the same types of contraventions. Neither of these is occurring. The examination of ASIC’s use of the civil penalty regime reveals that its decision-making process is different from that suggested by responsive regulation. This research has produced the following publication:
The application of class action procedural machinery to investor claims has caused a minor revolution for shareholder litigation in Australia. This has been added to by the decisions of the High Court in Sons of Gwalia Ltd v Margaretic to recognise defrauded or misled shareholders as creditors in a winding up and the decision in Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd to tolerate litigation funding. Depending upon one’s perspective, this has greatly increased corporations and officers’ risk of facing large professionally organised claims from disgruntled investors and/or greatly increased the prospects of affordable redress for defrauded or misled investors through the courts. In either case, one of the battles yet to be fully to be played out in the area is the question of burden of proof in relation to causation of loss. The matter is significant as it goes partly to the viability of such mass claims. In the absence of a theory that explains how loss can occur though the effect of misleading conduct and non-disclosure on the market price, plaintiffs may be left with the logistical nightmare of adducing reliance evidence from thousands of investors. Such a problem for plaintiffs would ultimately also become a problem for court administration and would see increased costs for defendants too. While it is possible that the problem will be resolved through application of existing principles by the courts, there is also the possibility of legislative intervention as recently canvassed by the Companies and Markets Advisory Committee (‘CAMAC’).
This research has produced the following publication:
Despite the introduction of the option of civil penalty proceedings and a number of successful civil and criminal prosecutions by ASIC in recent years, insider trading continues to pose challenges for law enforcement. Proof of communication of material price sensitive information from tipper to trader remains elusive in many cases due to the absence of witnesses prepared to attest to such communications. This article looks at possible reforms that might be considered to encourage such witnesses to come forward and otherwise obtain evidence of such communications. These include consideration of rewards and bounties as well as the availability of leniency and immunity to witnesses or accomplices in both civil and criminal matters. In considering this the article also looks at the issue of relative culpability between tippers and tippees which involves consideration of the rationale for prohibition of insider trading. The implications of the abandonment of the fiduciary rationale for prohibition become particularly relevant to the relative culpability of tippers and tippees. The article also considers the question of telephone taps, the role of ASX and the encouragement of private civil proceedings on the basis that they may produce evidence that the regulator can also use. This research has produced the following publication.