If information is wrong, can it really be information?
The High Court ruled Wednesday that it can. Information doesn’t need to be correct in order to be inside information, and anyone who trades on the basis of it can be guilty of insider trading even if they’ve beeen fed lies.
Perth business identity John Kizon and his financial adviser Nigel Mansfield were fed whoppers. Pornography king Malcolm Day is alleged to have told Mansfield that his publicly listed company AdultShop.com was preparing to report a profit of $11 million for the 2002 finanical year, up from $3 million the year before. Turnover was said to have more than doubled. He is alleged to have told Kizon that “Packer” (described in to the court as a well-known businessman) had bought 4.9 per cent of AdultShop.
Neither of these things were true. The profit hadn’t climbed and “Packer” hadn’t bought 4.9 per cent of AdultShop. (Although interests associated with the Packer family had briefly at an earlier time owned 1.5 per cent.)
Kizon and Mansfield bought into AdultShop and were charged with insider trading by the Australian Crime Commission which tendered secretly recorded telephone calls in evidence to the West Australian district court.
In defence Kizon and Mansfield said they had been duped. They couldn’t have conspired to commit insider trading because the information they had been fed was untrue, and therefore wasn’t “information”.
The trial judge agreed finding that in order to be be “information” something had to be “a factual reality”. The prosecution appealed and won, leading Kizon and Mansfield to petition the High Court.
All five judges found against Kizon and Mansfield, finding for the broadest possible of the definitions of “information” in the Oxford English and Macquarie dictionaries....
Macquarie defines information as "knowledge communicated or received concerning some fact or circumstance”.
Justice John Heydon found that if Kizon and Mansfield were correct it make sense to use the phrases “correct information” and “false information”. But he said the phrases were often used in litigation. An example was the claim: “You gave me some information during the negotiations; I acted on that information, but it was false information”. He said the claim had meaning because we do not always expect “information” to be true.
As a practical matter working out whether inside tips were true would place a heavy burden on the prosecution. It would involve “an assessment of criminal guilt in hindsight” leaving accused persons “unsure whether or not at the time they traded in securities their conduct was or was not lawful”.
Kizon and Mansfield will face a retrial.
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