German construction company Hochtief, the controlling shareholder in engineering contractor CIMIC Group, has been fined $400,000 after being found to have engaged in insider trading.
The Federal Court handed down the fine following a civil case brought by the Australian Securities and Investments Commission against Hochtief. Hochtief has also been ordered to pay ASIC's costs.
Hochtief has also entered into an enforceable undertaking with ASIC that will see it make voluntary contributions of $103,400 each to the Australian Shareholders Association, the representative body for retail shareholders, and First Nations Foundation for its adult financial literacy program.
The court found Hochtief had purchased shares in CIMIC, which was then known as Leighton Holdings, ahead of the completion of its $1.15 billion hostile takeover of Leighton while it was in receipt of inside information.
Hochtief admitted earlier this year it had issued instructions to buy 200,000 Leighton's shares on January 29, 2014 for a total consideration of $3,244,156.97 using insider information.
The court found Hochtief, through its chief financial officer, had become aware of Leighton's expected financial result for the year ending December 31 that it ought to have reasonably known was insider information.
It was also found that Hochtief had used the information to extend the completion date for the acquisition of Leighton so that it could purchase the shares.
Justice Michael Wigney said the public was entitled to expect that a corporation of the size and status of Hochtief would have systems in place to ensure insider trading did not occur.
"While the contravention did involve carelessness and inadvertence, rather than actual knowledge and deliberateness, the careless was such as to amount to a serious failure to exercise appropriate care and diligence in the circumstances," Justice Wigney said.
"It resulted in significant trading in a major Australian public company which, because it involved insider trading, had the capacity to significantly undermine the integrity and efficiency of the relevant securities markets," Justice Wigney said.
"It was by no means a victimless crime: the victim was the market," Justice Wigney added.
The ASA raised concerns about Hochtief's trading in Leighton in February ahead of the release of the 2013 results given that it had several board seats at Leighton, a period known as 'blackout' period that restricts company directors in trading ahead of a results announcement.
Hochtief held a 55 per cent stake in Leighton, which changed its name in March 2015, for several years until it starts buying shares in the Australian contractor in 2013. As of this week it holds over 70 per cent of CIMIC's shares.
The name-change coincided with allegations of corruption within the contracting group.
