HIGH-PROFILE business identity Steve Vizard’s recent admission to ASIC that he misused his position on the Telstra board to buy and sell shares in three companies has once again thrown the issue of insider trading under the spotlight.Insider trading is the highest profile of all securities market crimes. Civil action can now also be the consequence of insider trading, as in the Vizard case.If your business is one where price-sensitive information is likely to come into the hands of your employees you should consider having a clear policy dealing with the issue. The law in this area is complex and governed by the insider trading provisions in the Corporations Act 2001 (Cth). The act aims to eliminate the wrongful use of information for personal gain to ensure that the securities market operates freely and fairly so that one party to a transaction is not disadvantaged by the fact that the other party has price-sensitive information not available to it. Insider trading, in effect, may rob shareholders, investors and other parties to a market transaction. Those with an actual or imputed knowledge about securities that is price sensitive and is not generally available to others must not deal in those securities, recommend or suggest to others that they do so or impart that information to others who you know are likely to use it. Specifically individuals are prohibited from procuring or inducing another person to buy or sell securities about which such information is known.‘Price-sensitive information’ is where a reasonable person would regard such information as likely to have a material effect on the price of the securities.An example might be that you hear information not available to others that a drug company has made a major breakthrough in research. Such a major breakthrough may result in an increase in the value of the company’s shares. Such information would fall within the definition provision of Section 1042D Corporations Act.Insider trading can result in severe criminal sanctions both to individuals and to companies. The sanctions imposed can, and do go as far as imprisonment. A person found guilty on a criminal prosecution faces a fine of up to $200,000 and/or a maximum of five years’ imprisonment, or in the case of a body corporate, a fine of up to $1 million. In addition, a conviction automatically disqualifies a person from managing a corporation for a period of five yea?s. This is only the minimum. ASIC may apply to the court for a longer period of disqualification.Civil penalties can now be imposed for insider trading. Civil action does not have the same stigma attached to criminal proceedings, but can be highly damaging nonetheless.An ‘insider’ is anyone who possesses information that is not generally available in relation to securities. It is not intended to mean only those working for the particular company. Often employees in one company may come across price-sensitive infor-mation about another business. A famous case illustrating the severe penalties likely to be imposed is the decision in R v Rivkin (2003) 198 AL? 400. On May 29 2003, Mr Rivkin was sentenced to nine months’ periodic detention and fined $30,000 after being convicted for insider trading. It was alleged that his insider trading in Qantas shares resulted in him making a profit of $2,664. In sentencing, Justice Whealey said “I regard the circumstances of this offence in some respects as tending towards the lower end of the range”. Against that remark the judge noted that Mr Rivkin’s actions were deliberate and that he had been warned not to make the trade.More recently, on June 25 2005, Richard Frawley was sentenced to 2.5 years’ jail on one charge of insider trading.He made a profit of $586,000 from trading in JNA shares.Justice Bell explained when sentencing that she took into account Mr Frawley’s plea of guilty and his co-operation in agreeing to re-pay the money. If your employees engage in insider trading it may affect the reputation of your business. To countervail that, it may assist the professionalism of your company’s image that its employees have been informed of the legal requirement not to engage in insider trading. Your policy should state that it is not intended to replace your employee’s responsibility to understand and to comply with the law. The policy should specifically outlaw insider trading and should detail possible con-sequences to your employees for any breach. It would not be unreasonable for such consequences to go as far as dismissal. • Patrick Mugliston is a barrister at Francis Burt Chambers.