The Insider Trading Offence
85 It was submitted by the Crown that, subject only to the fact that Mr Hannes was ultimately thwarted from obtaining the proceeds of the sale of the options, it would be difficult to conceive of a more objectively serious offence of insider trading than that committed by Mr Hannes. In support of this submission the Crown referred to a number of facts. Substantially the same facts had also been relied on in the proceedings on sentence before Judge Backhouse and are listed at pages 28-30 of her Honour's Remarks on Sentence.
86 In the list I am about to give I have abbreviated, re-arranged and elaborated on these facts to some extent and I have omitted alleged facts on which I consider the Crown is not entitled to rely. Subject to these qualifications, the facts which were relied on by the Crown and which I accept were:-
87 (a) Mr Hannes was an experienced share trader, with particular expertise in take-overs.
88 (b) He held a senior position in the Corporate Advisory Division of the merchant bank which was advising the target company T.N.T. with respect to the proposed take-over.
89 (c) The information which Mr Hannes acquired and used was highly confidential information, which had been entrusted by T.N.T. to its financial adviser Macquarie Corporate Finance and, although Mr Hannes was not one of the persons in the Corporate Advisory Division directly entrusted with the information, the use of the information by Mr Hannes was a serious breach of trust.
90 (d) The kind of conduct in which Mr Hannes engaged undermines the efficacy and integrity of the market in public securities. The Crown referred to what the present Chief Judge at Common Law said in R v Pantano (1990) 49 A Crim R 328 at 330:-
"Those involved in serious white collar crime must expect condign sentences. The commercial world expects executives and employees in positions of trust,… to conform to exacting standards of honesty. It is impossible to be unmindful of the difficulty in detecting sophisticated crimes of the kind here involved or of the possibility for substantial loss by the public… the element of general deterrence is an important element of sentencing for such offences".
91 (e) Mr Hannes' motive was profit for himself. He endeavoured to maximise his profit by acquiring options and not shares in T.N.T., by instructing Mr Staehli not to sell immediately after the announcement of the take-over offer by K.P.N. in case some other party made a higher offer and by instructing Mr Staehli to sell the options from 4 November 1996 onwards in such a way as to maximise the profit.
92 (f) An elaborate scheme was planned by Mr Hannes and carried out by him over a period of time. The scheme involved the creation by Mr Hannes of a fictitious person Mark Booth so as to distance himself from the commission of the offence and conceal that he was the offender.
93 (g) The implementing of the plan involved a series of dishonest acts, including the making of many knowingly false representations, both orally and in writing.
94 (h) Mr Hannes was fully conscious of the wrongfulness of his conduct, both as being in breach of the law and as being in breach of the rules of the Macquarie Bank regarding investing in securities by employees or officers of the Bank.
95 (i) After the acquisition of the options Mr Hannes engaged in further knowingly false and deceptive conduct, for example in writing or speaking on the telephone to Mr Staehli and when being interviewed by the Australian Federal Police and the Australian Securities Commission, and he endeavoured to destroy potentially incriminating evidence by ripping pages out of notebooks on which he had made notes planning the criminal venture and by deleting files from his computer.
96 Counsel for Mr Hannes submitted that the objective seriousness of the insider trading offence was mitigated by a number of factors, including that Mr Hannes had not ultimately gained any benefit and no one had ultimately suffered any loss, this was a case of a single transaction rather than a number of transactions, Mr Hannes had not disclosed the confidential information to anyone else, he had not been the person who had been directly entrusted with the information and this was not a case where the person responsible for keeping the share market informed withholds information so as to benefit from the information.
97 It was also submitted by counsel for Mr Hannes that some of the facts relied on by the Crown as showing the objective seriousness of the offence of insider trading committed by Mr Hannes will usually be present in offences of insider trading, for example that the information is highly confidential, that the offender's conduct has a tendency to undermine the integrity of the securities market, that the offender's motive is profit for himself and that the offender is conscious that he is acting wrongly.
98 It was also submitted by counsel for Mr Hannes that I should not accept some of the matters initially sought to be relied on by the Crown as showing the objective seriousness of the insider trading offence. It was submitted that, contrary to a submission made by the Crown, the sellers of the options would not necessarily have incurred heavy losses by reason of Mr Hannes' conduct if the court proceedings had not been brought, because the sellers might have sold the options in any event or, having sold the options to Mr Hannes, might have taken steps to hedge their potential exposure. It was also submitted that I could not be satisfied that at the time of his conversation with Mr Murdoch Mr Hannes had already formed an intent to commit the insider trading offence and had abused his position of authority in obtaining information from Mr Murdoch. I am prepared to accept these submissions by counsel for Mr Hannes. However, it was, at least, quite possible that the sellers of the options would have incurred heavy losses by reason of Mr Hannes' conduct.
99 It was also pointed out by counsel for Mr Hannes that the white collar crime involved in Pantano was a different kind of white collar crime. I accept that the white collar crime in Pantano was a different kind of white collar crime but the principles stated by the Chief Judge are equally applicable.
100 In relation to both the insider trading offence and the reporting offences counsel for Mr Hannes referred to the favourable subjective circumstances of Mr Hannes and to the severe punishment Mr Hannes has already suffered and will continue to suffer, quite apart from any sentences I impose, as a result of committing the offences.
101 Mr Hannes' favourable subjective circumstances include that he is a person of previous good character, who had an outstanding, unblemished career as a merchant banker. He had often previously been in possession of highly confidential information and there was no previous instance of his misusing confidential information.
102 As a result of being convicted of these offences Mr Hannes was dismissed by the Macquarie Bank. He has not obtained other employment and it will be impossible for him to find other employment as a merchant banker or a corporate adviser.
103 Mr Hannes has suffered heavy financial loss as a result of committing these offences. He has lost the income he otherwise would have earned as a merchant banker. By giving Ord Minnett and the trustee of the Ord Minnett Cash Management Trust the direction he did, he lost, not merely the profits from the sale of the options, but also the sum of about $90,000 of his own money which he had paid into the Ord Minnett Cash Management Trust account. He has forfeited an amount of almost $1m in benefits in a fund for executives of the Macquarie Bank. Since he was arrested on 17 January 1997 he has incurred more than $3m in legal costs in defending the charges or in appealing.
104 The offences were committed in September 1996, more than six years ago. During that period there have been two aborted trials in the District Court, the District Court trial presided over by Judge Backhouse, the appeal to the Court of Criminal Appeal, a long voir dire inquiry before me and a long trial in the Supreme Court presided over by me. During that period Mr Hannes has been subject to severe stress and his life has been in a state of suspense. During that period Mr Hannes has been subject to much media attention and he has suffered public disgrace and humiliation.
105 It was submitted by his counsel that I should find that Mr Hannes has good prospects of rehabilitation and that I should find that he had taken steps to ensure that the sellers of the options would not suffer loss. Throughout the years he has been on bail he has not committed any further offence.
106 It was submitted that, as stated by the Chief Justice in his judgment on the appeal to the Court of Criminal Appeal, the very fact of Mr Hannes' conviction is, in itself, a severe punishment for a person who was in the position of Mr Hannes.
107 The Crown accepted that Mr Hannes had the favourable subjective circumstances relied on by counsel for Mr Hannes. However, the Crown submitted that previous good character is not as significant in sentencing for an offence such as insider trading as it might be in sentencing for some other offences, because it is less likely that a person of bad character or having a previous criminal history will be in a position of trust or come into possession of confidential information and so have an opportunity of committing an offence of insider trading.
108 The Crown accepted that Mr Hannes had suffered the various items of extra-curial punishment referred to by counsel for Mr Hannes. The Crown pointed out that there was no evidence that the legal costs incurred by Mr Hannes had actually been paid or, if paid, had been paid by Mr Hannes.
109 The Crown submitted that Mr Hannes had not manifested any contrition. His action in directing Ord Minnett and the trustee of the Ord Minnett Cash Management Trust to pay the money in the Cash Management Trust account as the Australian Securities Commission should direct, did not spring from any contrition or any desire to ensure that no one suffered any loss but out of a realisation that it would be impossible, given the court proceedings and the court order, for him to collect the money and out of a hope that, if the sellers of the options did not suffer any loss, the investigation into the trading in the options might be discontinued.
110 The Crown submitted that I should not find that Mr Hannes, notwithstanding his previous good character, had good prospects of rehabilitation. It was submitted that there had been a high level of deceit in the commission of the offences and in Mr Hannes' subsequent attempts to frustrate the investigation into the offences. Mr Hannes had not made any admission of guilt.
111 Counsel for Mr Hannes submitted that I should infer from the part of the Chief Justice's judgment on the appeal to the Court of Criminal Appeal, in which the Chief Justice was considering whether, the appeal against conviction having succeeded, a new trial should be ordered, that the Chief Justice had formed the view that the sentences imposed by Judge Backhouse were not manifestly inadequate. The Crown appeal against sentence had been the subject of written submissions to the Court of Criminal Appeal and was fully argued at the hearing before the Court of Criminal Appeal. It was submitted that, if the Chief Justice had thought that the sentences imposed by Judge Backhouse were manifestly inadequate, he would have said so, as supplying an additional ground for rejecting a submission made on behalf of Mr Hannes that the short time remaining unserved of the pre-release period of the sentences imposed by Judge Backhouse was a reason for not ordering a new trial. Not only did the Chief Justice not make such a remark but the Chief Justice expressly said that "the likely additional penalty to be imposed on a further conviction would be short". In this respect the present case was quite different from that of Merritt, where the Court of Criminal Appeal in Merritt (No.1) had expressly said that the argument that the sentences imposed on Merritt after the first trial were unjustifiably lenient was a strong one.
112 Counsel for the Crown submitted that I should not infer from the Chief Justice's quite brief remarks in dealing with a different subject, that is whether a new trial should be ordered, that the Chief Justice had formed any concluded view about the adequacy of the sentences imposed by Judge Backhouse. I have decided that I can obtain some, but only limited, guidance from this part of the Chief Justice's judgment.
113 After considering the submissions made by the parties I have concluded that the offence of insider trading committed by Mr Hannes was, by virtue of facts relied on by the Crown, objectively very serious and would, objectively, have been within the worst class of cases of the offence, were it not that Mr Hannes did not gain any benefit from his trading in the options and no one suffered any loss. I do not consider that any of the other circumstances sought to be relied on by counsel for Mr Hannes as mitigating circumstances, taken singly or in combination, would have prevented the offence falling within the worst class of cases. As to the circumstance that Mr Hannes did not gain any benefit and no one suffered any loss, I accept the Crown's submission that this was not due to any contrition or any desire on Mr Hannes' part to ensure that no one suffered any loss, but to the swift action taken by the Australian Securities Commission and to a realisation by Mr Hannes that it would be impossible for him to collect the proceeds of the sale of the options and a hope on his part that, if the sellers of the options were paid the proceeds of sale, the investigation into the trading in the options might be discontinued.
114 The conclusion I have come to about the objective seriousness of the offence of insider trading committed by Mr Hannes seems to be the same as that reached by Judge Backhouse at p 36 of her Remarks on Sentence.
115 I accept that Mr Hannes has favourable subjective circumstances, including his previous good character, the absence of any previous criminal convictions, his outstanding career as a merchant banker and the absence of any previous instance of a misuse of confidential information. However, I also accept the Crown's submission that previous good character is not as significant as it is in the case of some other offences.
116 I accept that, as submitted by counsel for Mr Hannes, Mr Hannes has suffered severe extra-curial punishment, quite apart from any sentence imposed by me, some of which has been suffered since he was sentenced by Judge Backhouse and I should give some weight to this factor.
117 I accept that for a person who was in Mr Hannes' position the fact of conviction of these offences is part of the punishment.
118 I do not consider that Mr Hannes has shown any contrition and, for the reasons advanced by the Crown, I consider that I should not make a finding that Mr Hannes has good prospects of rehabilitation.
119 Having made findings about the degree of objective seriousness of the insider trading offence and the subjective circumstances of Mr Hannes and the punishment he has suffered and will continue to suffer, quite apart from any sentence imposed by me, I have first to determine whether the sentence imposed by Judge Backhouse for the insider trading offence was manifestly inadequate.
120 As I noted near the beginning of these remarks, under the Corporations Act the maximum penalty which can be imposed for an offence of insider trading is imprisonment for five years or a fine of $200,000, or both.
121 However, it is necessary in sentencing Mr Hannes to apply s 16G of the Commonwealth Crimes Act, which provides:-
"If a federal sentence is to be served in a prison of a State or Territory where State or Territory sentences are not subject to remission or reduction, the court imposing the sentence must take that fact into account in determining the length of the sentence and must adjust the sentence accordingly".
122 Because of s 16G of the Commonwealth Crimes Act and the absence of remissions on sentence in New South Wales, the maximum sentence of imprisonment which can be imposed in New South Wales for an offence of insider trading, if the adjustment downwards required by s 16G is made at the usual, if not inflexible, rate of one third, is imprisonment for three years four months.
123 The maximum sentence of imprisonment for an offence should be reserved for cases falling within the worst class of cases of the offence. It has been found both by Judge Backhouse and myself and would appear to me to have been conceded by the Crown both before Judge Backhouse and myself, that the present case does not fall within the worst class of cases, because Mr Hannes did not gain any benefit from his trading in the options and no one suffered any loss. Additionally, it was not disputed by the Crown, and I find, that some allowance should be made in favour of Mr Hannes for his subjective circumstances and the undoubtedly severe extra-curial punishment he has suffered as a result of committing the offences. I consider that the matters to which I have referred would have the consequence of reducing any sentence of imprisonment which could properly be imposed for the insider trading offence, after making the adjustment downwards required by s 16G, to a sentence of less than three years. In my opinion, the sentence of imprisonment for two years two months which was imposed by Judge Backhouse, particularly when combined with a fine of $100,000, cannot be regarded as manifestly inadequate so as to justify me in imposing a heavier sentence of imprisonment than Judge Backhouse did, on the grounds that the sentence of imprisonment imposed by her was manifestly inadequate.
124 I have held that it would be open to me to impose a heavier sentence for the insider trading offence than Judge Backhouse did, if I considered that there were significantly different facts before me than were before Judge Backhouse. It was submitted by the Crown that there were significantly different facts before me, in:-
125 1. Four deleted files from a floppy disk seized during the execution of the search warrant on 17 January 1997, which were retrieved by Mr Buttner, an information technology expert, and which became exhibits D71 to D74 at the trial before me. These files purport to be an agreement between Mr Hannes and Mark Booth and three communications from Mark Booth to Mr Hannes. In the light of the jury's verdicts all these documents must be regarded as fictions created by Mr Hannes.
126 2. The so called "pros and cons" document, which became exhibit 261 at the trial before me. This document refers to a separate person Mark Booth and must also, in the light of the jury's verdicts, be regarded as a fiction created by Mr Hannes.
127 I accept that evidence of the four files and evidence of the "pros and cons" document constitutes evidence of new facts which were not before Judge Backhouse. However, I do not consider that the new facts are significantly different from the facts which were before Judge Backhouse. There was much evidence before Judge Backhouse of false assertions by Mr Hannes that there was another person, quite separate from Mr Hannes, who was the person who had acquired the options. The files from the disk and the pros and cons document are simply further evidence of false representations by Mr Hannes that there was such a person.
128 It was submitted by the Crown that Judge Backhouse, in sentencing Mr Hannes, had made a specific error in applying s 16G of the Commonwealth Crimes Act and that the making of this error entitled me to impose whatever sentence I considered appropriate, even if it was heavier than the sentence imposed by Judge Backhouse.
129 In her Remarks on Sentence Judge Backhouse said at p 45:-
"…the starting point before taking into account the adjustment, which must be made by reason of the fact you will serve your sentence in a prison in New South Wales, where there is no provision for remissions or reduction, is a period of four years. I adjust that for the absence of remissions in New South Wales, and for all of the matters I have indicated I will take into account, and I impose a term of imprisonment of two years and two months in respect of the offence of insider trading".
130 The Crown submitted that Judge Backhouse gave no explanation of how she had arrived at a period of four years as being a starting point; that her Honour should have applied the s 16G adjustment to a period of five years, because the maximum sentence of imprisonment for an offence of insider trading is five years; and that, even if the s 16G adjustment was applied, at the usual rate of one third, to a period of four years, the result would be two years eight months, and not two years two months.
131 This part of her Honour's Remarks on Sentence is not entirely clear. However, it seems to me probable that her Honour took a period of four years, and not a period of five years, as being a starting point, because she had found that the offence committed by Mr Hannes was saved from being an example of the worst class of cases by the fact that Mr Hannes had not obtained any benefit from his trading. At the beginning of her Remarks on Sentence her Honour had correctly stated the maximum penalty of imprisonment for an offence of insider trading as being five years and I do not consider that I should find that her Honour was under any misapprehension regarding the maximum period of imprisonment for the offence.
132 I further consider that it is quite clear from her Honour's Remarks on Sentence that she reduced the period of four years to two years two months, not just by applying s 16G of the Commonwealth Crimes Act, but also by taking into account the matters she had earlier in her remarks said she would take into account in favour of Mr Hannes, including his previous good character and the severe extra-curial punishment he had suffered, including delay, anxiety and stress, public disgrace and humiliation, loss of standing, position and livelihood, his life being in a state of suspense and the forfeiture of his interest in the fund for executives of the Macquarie Bank.
133 I do not consider that her Honour made the errors suggested by counsel for the Crown.
134 Having decided that the sentence imposed by Judge Backhouse was not manifestly inadequate, that there are no significantly different facts before me, that Judge Backhouse did not make the specific errors alleged, and that the maximum sentence of imprisonment which could properly be imposed for the insider trading offence, after making the adjustment downwards required by s 16G, would be less than three years, I conclude that I should not impose a heavier sentence for the insider trading offence than Judge Backhouse did.
135 It was submitted, correctly, by counsel for Mr Hannes that, while in accordance with the cases to which I have referred earlier in these remarks, a sentencing judge should not ordinarily impose a heavier sentence on a re-sentencing after a successful appeal and a further conviction than was imposed by the first sentencing judge, there is no such restriction on the imposing of a lighter sentence than was imposed by the first sentencing judge.
136 It was submitted by counsel for Mr Hannes that the sentence imposed by Judge Backhouse for the insider trading offence, so far from being lenient, was severe. Even if the sentence imposed by Judge Backhouse was a proper sentence at the time at which her Honour imposed it, events which had happened subsequently would entitle Mr Hannes to a lighter sentence. Since Judge Backhouse sentenced Mr Hannes a further period of three years has elapsed, in which Mr Hannes has suffered further anxiety and stress and further suspension of his life, has been subjected to further legal proceedings and has incurred further legal expenses of nearly $2m.
137 It was submitted in written submissions on behalf of Mr Hannes that Mr Hannes had been prepared to consent to steps which would have shortened the proceedings before me but which the Crown was not prepared to consent to. However, at the hearing of the proceedings on sentence it was agreed by the parties that I should not seek to attribute any fault to either party for the length of the proceedings before me.
138 Counsel for Mr Hannes submitted that I should impose a lighter sentence for the insider trading offence, by imposing a lesser term of imprisonment and by not imposing any fine.
139 In support of the submission that I should not impose any fine, it was submitted that under s 16C of the Commonwealth Crimes Act I have to take into account Mr Hannes' financial circumstances, that Mr Hannes has continued to be unable to earn income, that his personal income tax returns which he produced at the hearing of the proceedings on sentence disclosed only modest income, that he had incurred very heavy legal costs, that at times during the trial he had been unable to afford full representation by two counsel and a solicitor, that his lack of means would limit the legal representation he could afford on any appeal, that Judge Backhouse's attention had not been drawn to the loss by Mr Hannes of the $90,000 of his own money paid into the Cash Management Trust account and that the loss of his benefits in the fund for executives of the Macquarie Bank, which Judge Backhouse had taken into account as a possible outcome for him, was now a definite or at least highly probable outcome. It was submitted that a common reason for imposing a fine is to strip an offender of the proceeds of his offence. Such a reason was inapplicable here.
140 The Crown submitted that I should not impose any lighter sentence for the insider trading offence than had been imposed by Judge Backhouse. Indeed, the Crown's submission, as I have already noted, was that I should impose a heavier sentence.
141 As regards the imposition of a fine, the Crown accepted that I had to take into account Mr Hannes' financial circumstances. However, the Crown submitted, it is the responsibility of an offender to give and produce evidence of his financial circumstances. Mr Hannes did not give evidence in the proceedings on sentence and there was no evidence to support some of the submissions made by counsel for Mr Hannes. Although Mr Hannes produced copies of his personal income tax returns, he did not produce copies of the income tax returns of his private company Taxola Pty Limited, although he had been specifically requested to do so by the Crown. Evidence was given in the trial that Mr Hannes had in the past conducted share trading through Taxola Pty Limited.
142 It was submitted by the Crown that the fact that legal representatives had appeared for Mr Hannes on a voir dire inquiry that lasted for approximately two months and at a trial that lasted approximately four months suggested the existence of resources out of which a fine could be paid.
143 I accept that I am at liberty to impose a lighter sentence for the insider trading offence than Judge Backhouse did. However, even allowing for further facts which have occurred since Judge Backhouse sentenced Mr Hannes, I do not consider that I should impose a lighter sentence than her Honour did. I regard the offence of insider trading committed by Mr Hannes as objectively very serious and, even after other matters are taken into account, as requiring a sentence as severe as the sentence imposed by Judge Backhouse. In reaching this conclusion I have taken into account inter alia the provisions of s 16A and s 17A of the Commonwealth Crimes Act. I do not regard the sentencing decisions made some years ago on markedly different facts by a New South Wales District Court judge and a Victorian County Court judge as affording any real assistance in the sentencing of Mr Hannes.
144 I consider that I should impose the same fine of $100,000 as Judge Backhouse did. In reaching this conclusion I have taken into account the submissions made by the parties which I have summarised.
145 The imposition by Judge Backhouse of a fine of $100,000 played a part in my concluding that the total sentence imposed by her Honour for the insider trading offence was not manifestly inadequate. The imposition of a fine can properly serve the purpose of supplementing a sentence of imprisonment, so that the total sentence is an appropriate one.
146 I take into account Mr Hannes' financial circumstances, including the loss of his position with Macquarie Bank and the heavy expenses and losses he has incurred. However, as submitted by the Crown, I note that he himself did not give evidence in the proceedings on sentence, that he has been legally represented in court proceedings lasting approximately six months, that there is no evidence that the legal costs which he has incurred have been paid or, if paid, have been paid by him and that, notwithstanding a specific request made by the Crown, he has not produced the income tax returns of a company through which he conducted share trading in the past. There is no evidence to support a number of the submissions made by his counsel.