False trading and market rigging—creating a false or misleading appearance of active trading etc.

Offence title:

False trading and market rigging—creating a false or misleading appearance of active trading etc.

Act:

1041B Corporations Act

Offence:

(1)   A person must not do, or omit to do, an act in this jurisdiction or elsewhere, if that act or omission is likely to have the effect of creating or causing the creation of, a false and misleading appearance:

(a)   Of active trading or financial products in a financial market in this jurisdiction; or

(b)   with respect to the market for, or the price for trading in, financial products on a financial market operated in this jurisdiction.

Note: Failure to comply with this subsection is an offence: s. 1311(1).

Note: Failure to comply with this subsection is a contravention: s.1317E and 1317S.

(1A) For the purposes ss. (1) and proof under the Criminal Code:

(a)   Intention is the fault element when considering the doing or omitting to do an act; and

(b)   Recklessness is the fault element consisting of having, or likely to have, to effect of causing, or causing the creation of, a false or misleading appearance.

(2)   A person is taken to have created a false or misleading appearance if active trading in a financial product in a financial market, if the person:

(a)   Either directly or indirectly, enters, or carries out, any transaction of acquisition or disposal of any of those financial products that does not involve any change of beneficial ownership of the products; or

(b)   makes an offer (the regulated offer) to acquire or to dispose of any of those financial products in the following circumstances:

                                           i.         acquire or dispose at a specified price; and

                                         ii.         the person has or proposes to make, or knows an associate has or will make:

A.     if the regulated offer is an offer to acquire—an offer to dispose of; or

B.     if the regulated offer is an offer to dispose of— an offer to acquire;

the same number, or substantially the same number, of those financial products at a price that is substantially the same as the price referred to in subparagraph (i).

(3)   For (2)(a) an acquisition or disposal need not result in a change to beneficial ownership if:

(a)   The person who had the initial interest before acquisition or disposal; or

(b)   An associate of that person;

Has an interest in the financial product after acquisition or disposal.

(4)   Reference to acquisition or disposal in (2)(a) includes:

(a)   a reference to the making of an offer to acquire or dispose of financial products; and

(b)   a reference to the making of an invitation, however expressed, that expressly or impliedly invites a person to offer to acquire or dispose of financial products.

Penalty:

(1)   15 years imprisonment

Summary/Indictable/mixed:

Indictable

Jurisdiction:

District or Supreme Court

How committed:

The Board of a company that is failing resolve to trade in their shares to promote interest. They buy and sell shares in transactions through trust companies that they continue to hold beneficial interests in. The volume of trading is significant enough to create a false view of the business and generate higher share values.

Important note:

Note: The circumstances in which a person creates a false or misleading appearance of active trading in particular financial products on a financial market are not limited to the circumstances set out in ss. (2).

Defence: For defences to a prosecution based on this section, see Division 4 - Defences, relief and limits on liability: s.1044A General defence or relief for publishers and 1044B Limit on liability for misleading or deceptive conduct.