By Clancy Yeates
DIRECTORS convicted of insider trading will face up to 10 years behind bars and companies breaking market rules could be stripped of 10 per cent of their yearly turnover, under a proposed crackdown on corporate crime.
The changes, released yesterday by the Federal Government, also give the corporate watchdog powers to tap phones when it suspects insider trading - a notoriously difficult offence to prosecute.
The tougher penalties and extra investigative clout apply to other serious market offences, including market manipulation, rigging and making false or misleading statements.
The maximum sentence for insider trading is now five years' prison or a fine of $220,000 for a person or $1 million for a company.
If the changes are adopted, the penalty for individuals will be whatever is higher: $500,000 or three times the profit or loss avoided because of the offence. Company penalties would rise to 10 per cent of yearly turnover, or $5 million, or triple the profits or avoided losses.
The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, said under these changes Australia would equal the US in having the toughest penalties for insider trading.
The move comes after a string of high-profile defeats for the agency responsible: the Australian Securities and Investments Commission.
ASIC last month lost a case against Fortescue chief Andrew Forrest for misleading conduct. Last year it also lost cases against One.Tel directors Jodee Rich and Mark Silbermann and AWB's former managing director, Andrew Lindberg.
Mr Bowen defended the regulator's track record, saying ASIC had ''one hand tied behind its back'' when investigating the market offences the Government is now targeting.
''I know and expect that ASIC will be learning the lessons from those defeats,'' Mr Bowen said in Sydney.
''Just because ASIC loses a court case, it doesn't mean you don't listen to them when they say we are effectively being stymied in our prosecution of other matters.''
Insider trading has such low conviction rates because perpetrators go to great lengths to cover their tracks.
The Australian Stock Exchange, responsible for watching the market for suspicious changes, referred 31 potential insider trading breaches to the watchdog last financial year. But ASIC had just one conviction for the offence and laid two charges in the same time, according to its annual report.
Mr Bowen said the Government had noted the number of referrals, alongside the movement in share prices that often precedes market-sensitive news.
''There is a noticeable trend, often, of an increase in a firm's share price before market-sensitive announcements are made. That also indicates to me cause for concern,'' he said.
Current legislation does not consider insider trading a ''serious offence'' for which phone tapping can be used, but any tapping of phone calls by ASIC would require approval from a judge.
In the US, phone taps have been crucial for authorities pursuing corporate crime. Recordings have given the Securities and Exchange Commission evidence for its investigation of Raj Rajaratnam, the founder of highly successful hedge fund Galleon Group. He stands accused of making $US20 million from insiders' tip-offs.