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A Melbourne man who used insider knowledge to score a $65,000 windfall from Wesfarmers’ (ASX: WES) $776 million takeover of Kidman Resources in 2019 has received a suspended sentence of 18 months.
He has also been ordered by the County Court of Victoria to forfeit all the profits from the insider trading activity following an investigation pursued by the Australian Securities and Investments Commission.
Duncan Stewart, of Armadale, was the brother-in-law of Kidman’s then CEO, Martin Donohue, when he learned of the planned takeover. Stewart’s wife, Dominique, was also an operations manager of the mining company at the time.
After initially pleading not guilty to four insider trading charges in June last year, Stewart changed his plea on 22 August this year to guilty on one charge of insider trading and the matter was adjourned for sentencing this week.
The court ordered that Stewart be immediately released upon entering a recognisance in the amount of $10,000 to be of good behaviour for a period of two years.
This was conditional on Stewart paying a penalty of $64,975.48 – the total amount he made on the 2019 trade after buying $130,635.87 worth of Kidman shares prior to the takeover announcement.
Stewart pleaded guilty to purchasing the Kidman shares on 3 and 10 April 2019 while in possession of inside information about Wesfarmers’ proposed bid for Kidman, before the information was made public.
Stewart sold the shares after the takeover was announced on 2 May 2019.
ASIC says that Stewart also admitted to being privy to a second, confidential Kidman takeover bid from Chilean mining company Sociedad Química y Minera de Chile in March 2019. That takeover did not proceed.
While he encouraged a family member to buy Kidman shares when in possession of this deal information, Stewart was not sentenced for this offence, but ASIC says it was taken into account by the court in passing sentence.
“Insider trading is a serious corporate crime,” says ASIC deputy chair Sarah Court.
“A sentence of imprisonment is the most severe penalty a court can order and, in this case, is coupled with a financial penalty, automatic directorship disqualification for five years, and the general consequences of having a criminal record.
“When someone exploits inside informational to gain a financial advantage, the rest of the market unfairly miss out on gaining a profit or avoiding a loss. This crime affects all Australians’ investments in the share market and in their super funds.”
In handing down the sentence, Judge Manova said that insider trading “shatters” public confidence and undermines the integrity of Australia’s financial markets.
Manova noted that had Stewart not pleaded guilty, she would have imposed a sentence of two years and three months, with release after having served two months imprisonment, and to be of good behaviour for three years.
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