R v Bateson

Solicitors: Commonwealth Director of public Prosecutions Addisons (Offender) File Number(s): 2010/121999

Judgment Introduction 1Jeffrey Bateson (the offender) pleaded guilty to an indictment which alleged that: Between about 11 May 2008 and about 16 May 2008 at Sydney in the State of New South Wales, while he possessed information that was not generally available and which, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products, namely shares in Wind Hydrogen Limited, and he knew, or ought reasonably to have known, that the information was not generally available and that if it were generally available a reasonable person would expect it to have a material effect on the price or value of those securities, [he] did acquire 550,000 shares in Wind Hydrogen Limited in his capacity as a beneficiary of the Carmarthen Superannuation Fund. 2Five separate instances of the offender having possessed inside information were particularised. Reference will be made to those aspects of the case in due course. The offence to which the offender pleaded guilty is commonly referred to as "insider trading". 3The offender originally pleaded guilty in the Local Court and adhered to that plea when he appeared in this Court. At the relevant time the maximum penalty for the offence was imprisonment for 5 years and/or a fine of $220,000. [The maximum penalty has now been increased, with effect from 13 December 2010, to imprisonment for 10 years and/or a fine of $495,000 (or three times the value of the benefits obtained from the offence)]. Facts relating to the offence 4An Agreed Statement of Facts was admitted into evidence. It is a very comprehensive document and, but for some minor modifications, is set out below: A. Background . On 10 March 2005, Wind Hydrogen Australia Limited was incorporated as an unlisted public company. On 29 March 2005, the company changed its name to Wind Hydrogen Limited (WHL). On 24 June 2008 it changed its name to WHL Energy Limited. The offender was a non-Executive Director of WHL from 13 June 2006 until his resignation on 1 July 2008, apart from a period of two months from July to September 2007. On 6 September 2007, WHL's shares were listed on the Australian Stock Exchange (now the Australian Securities Exchange, or ASX). Wind Hydrogen Limited was allocated the ASX code "WHN" and its shares thereafter traded on the ASX. At all relevant times WHL was an alternative energy company, focussed on developing and commercialising energy assets including wind energy and clean fossil fuels. Until the end of April 2008, WHL's investments were exclusively in wind power projects, including the construction and operation of wind farms. These projects traditionally have long lead times from the decision to construct a wind farm to the time that the farm begins to produce power which might be sold in order to generate a return to shareholders. Accordingly, these projects can only promise a long term return on investment. In early May 2008 a new investment into shale gas projects in the United States was proposed for WHL by its Chief Executive Officer. The new investment offered the prospect of short to medium term returns on the investment. As at May 2008: (a) Lawrence Podrasky ("Podrasky") was the Executive Chairman and Chief Executive Officer, (b) Warwick Pearce ("Pearce") was Company Secretary and Commercial Manager, and (c) The offender, John Peter Bartter ("Bartter") and Declan Pritchard ("Pritchard") were non-executive directors of WHL. (d) Erene Keriakos was WHL's Administrative Officer. B. Share trading account At all relevant times, the offender and his wife, Geraldine Clisby, were the trustees and equal beneficiaries of the Carmarthen Superannuation Fund (CSF). CSF had a share trading account with Dixon Advisory and Super Service Pty Ltd ("Dixon Advisory"). Craig Cameron was the "Client Advisor" for the account. Cameron took all instructions in relation to the account from the offender. Dixon Advisory in turn used an ASX participant, ABN Amro Morgans (ABN Amro), as the broker to purchase or sell shares on its behalf. In their capacity as trustees of CSF, the offender and Ms Clisby held accounts with Macquarie Investment Management Limited (Macquarie) to pay for shares and as a repository for those shares. These accounts were, respectively, a cash management account and a " wrap account ". The Macquarie cash management account was used to fund the purchase of shares by CSF. The legal title in CSF's shares in the Macquarie wrap account was in the name of Bond Street Custodians Limited, a nominee of Macquarie. Bond Street Custodians Limited appeared as the acquirer and holder of CSF's shares. The association between CSF and the offender (and Ms Clisby) was known to WHL and that information was also publicly available. See, for example: + The prospectus of 8 June 2007 which refers to the offender as being a beneficiary of the Jeffery Bateson and Geraldine Clisby Carmathen Superannuation Fund which holds 1 million shares in the company; + Notes to the consolidated financial statements for the year ending 30 June 2007 at p 44; + An ASX announcement on 6 September 2007 of the top 20 shareholders; and + The WHL issue sponsored holding statement as at 23 August 2007 being the initial allotment of a million shares. C. Buy order for 750,000 WHL shares placed on 11 March 2008 In January and March 2008, public announcements were made by WHL regarding a key appointment of a managing director of its UK business (21.1.08), an external investment of US$300,000 to buy 22% of the shares in a company which intended to develop energy assets in Latin America (25.1.08), and the signing of a memorandum of understanding for a joint venture to develop its wind power assets in the UK (7.3.08). After the last of those public announcements, the offender emailed Cameron on 11 March 2008 requesting the purchase of 750,000 WHL shares for his superannuation fund. This was an open and standing order, which Cameron put into effect the following day. This was achieved through numerous contract notes covering trades on 11 separate days, for a total of 700,000 shares, in the period between 12 March and 9 April. By the time the last of these trades had settled, on 14 April, the balance of funds in CSF's fund account was nil. On 2 May on Cameron's instructions, the offender's 11 March open buy order for CSF was cancelled because there were insufficient funds to complete the balance of the order, being 50,000 shares. D. The Morgan County Deal and communications with the Board In early 2008, Podrasky became aware of an opportunity to invest in a proposed joint venture between a US oil and gas company known as Derby Resources LLC (" Derby ") and Rolland Energy Incorporated (" Rolland "). Rolland was incorporated in Quebec, Canada, and its shares were listed on the Toronto Stock Exchange (TSX). Podrasky told Pearce on or about 2 May 2008 that he intended to propose to the Board of WHL that the company invest in a project to exploit reserves of shale gas in Eastern Kentucky. He gave Pearce a Microsoft Excel Spreadsheet of financial information relevant to the project, and said that he had received the information from a Canadian company, Rolland, one of the companies involved in the project. He asked Pearce to review the financial information and reformat it for presentation to the WHL directors at the board meeting scheduled for 6 May. Podrasky then put forward a proposal for WHL to become involved in the project. Podrasky and Pearce sent emails and attachments about the project to board members, including the offender. From 4 May onwards, the offender was party to communications concerning the shale gas project in Kentucky. The other parties were Derby and Rolland . The project was variously referred to as the " Morgan Gas Project Investment Opportunity ", " the Morgan County Gas Project ", the " Morgan County Deal " and the " Kentucky Shale Gas Joint Venture ". At 5:05 pm on 4 May , Podrasky sent an email to the offender and other members of the board on the subject of " Morgan Gas Project Investment Opportunity ". This email and its attachments constitute the first item of inside information possessed by the offender. Attached to Podrasky's email were various documents, including: