Supreme Court New South Wales Medium Neutral Citation: R v Joffe; R v Stromer [2015] NSWSC 741 Hearing dates: 25, 26, 28 May 2015 Decision date: 12 June 2015 Before: R A Hulme J Decision: Joffe: Count 1: sentenced to imprisonment for 1 year 3 months dating from 12 June 2015. Count 2 (and taking into account the offence on the s 16BA Form): sentenced to imprisonment for 1 year 9 months dating from 12 December 2015. Order the offender's release forthwith on recognizance upon giving security without surety in the sum of $1000 upon the condition that he be of good behaviour for a period of 2 years 3 months from 12 June 2015. Stromer: Count 3: sentenced to imprisonment for 1 year 3 months dating from 12 June 2015. Count 4: sentenced to imprisonment for 1 year 6 months dating from 12 December 2015. Order the offender's release forthwith on recognizance upon giving security without surety in the sum of $1000 upon the condition that he be of good behaviour for a period of 2 years from 12 June 2015. Catchwords: CRIMINAL LAW – sentence - insider trading offences – co-offenders – guilty pleas – offences assessed below the midrange of seriousness and just within midrange of seriousness – whether full time custody appropriate - where offenders have strong subjective cases – relevance of delay in investigation and prosecution of offences – impact of mental health issues on moral culpability – sentences partially accumulated – suspended sentences imposed Legislation Cited: Corporations Act 2001 (Cth) Div 3 Pt 7.10, ss 1043A(1)(c) 1043A(1)(d), 1311(1) Crimes Act 1914 (Cth) ss 17A, 16A(1) Proceeds of Crime Act 2002 (Cth) s 320(a) Cases Cited: Director of Public Prosecutions (Cth) v De La Rosa [2010] NSWCCA 194; 79 NSWLR 1 DSJ v R; NS v R [2012] NSWCCA 9 DSJ v R; NS v R [2014] NSWCCA 77 Hartman v DPP [2011] NSWCCA 261; 87 ACSR 52 Hili v The Queen; Jones v The Queen [2010] HCA 45; 242 CLR 520 Joffe v R; Stromer v R [2012] NSWCCA 277 Joffe v The Queen; Stromer v The Queen [2013] HCATrans 109 Khoo v R [2013] NSWCCA 323 R v Doff [2005] NSWCCA 119; 54 ACSR 200 R v Hill; R v Kamay [2015] VSC 86 R v McKay [2007] NSWSC 275; 61 ACSR 470 R v Rivkin [2003] NSWSC 447; 198 ALR 400 Category: Sentence Parties: Regina Daniel Shayne Joffe Nathan Stromer Representation: Counsel: Mr S Rushton SC with Mr R Ranken (Crown) Mr T Game SC with Ms G Bashir SC (Joffe) Mr H Dhanji SC with Mr S Buchen (Stromer) Solicitors: Commonwealth Director of Public Prosecutions Uther Webster & Evans (Joffe) Johnson Winter & Slattery (Stromer) File Number(s): 2010/34654; 2010/40493 Judgment 1. Daniel Shayne Joffe has pleaded guilty to two counts of procuring Nathan Stromer to acquire relevant securities whilst in possession of inside information, contrary to ss 1043A(1)(d) and 1311(1) of the Corporations Act 2001 (Cth). 2. Nathan Stromer has pleaded guilty to two counts of acquiring the relevant securities whilst in possession of inside information, contrary to s 1043A(1)(c) and 1311(1) of the Corporations Act. 3. At the time of the offending the offences carried a maximum penalty of imprisonment for five years and/or a fine of $220,000. (The maximum penalty was increased to 10 years with effect from 13 December 2010.) 4. The offender Joffe also admits his guilt in respect of a further offence against s 1043(1)(d) of procuring the acquisition by Stromer of relevant securities. His guilt in respect of that offence is to be taken into account in relation to the second of the offences to which he has pleaded guilty. 5. The first offence for each offender involved Joffe procuring Stromer in August 2006 to acquire 29,580 shares in Auckland International Airport Limited whilst in possession of inside information. 6. The second offence for each offender concerns the procurement by Joffe of Stromer in November 2006 to acquire 962,000 Contracts for Difference ("CFDs") in Alinta Infrastructure Holdings whilst in possession of inside information. 7. The offence that the offender Joffe asks to be taken into account concerns his procurement of Stromer in September 2006 to acquire 135,000 CFDs in AWB Limited whilst in possession of inside information. Facts 1. A very lengthy and detailed "Joint Statement of Agreed Facts on Sentence" was tendered from which I derive the following. 2. At the time of the offences, Joffe and Stromer were close friends who had known each other for at least ten years. 3. Joffe was employed at Moody's Investor Service Pty Ltd ("Moody's") as an associate analyst. All analysts and associate analysts were required to read and understand Moody's trading policy. These included a "Prohibition Against Trading While Aware of Material Non Public Information", a "Corporation Securities Trading Policy" and a "Code of Business Conduct". There is no dispute that Joffe was aware at the time of his offending that what he was doing was contrary to the expectations of his employer and contrary to law. 4. Stromer was employed in his father's business which was involved with property development and aged care. Investing and trading in securities was an interest he shared with his father. More will be said later about his relationship with his father. Auckland International Airport 1. In March 2006, Babcock and Brown received a proposal from Deutsche Bank to consider a proposal for a possible takeover of Auckland International Airport ("Auckland Airport"). The proposal was given a codename (Project Nimbus) to ensure its confidentiality. 2. Babcock and Brown approached Moody's about the possibility of engaging Moody's to perform a rating assessment service in relation to the airport. A senior analyst from Moody's, as well as Joffe who was an associate analyst, attended a meeting on 3 July 2006 with representatives of Babcock and Brown and Deutsche Bank. They were provided with a discussion paper headed "Project Nimbus" and given some details of the proposed transaction to make a bid for an airport. The actual airport concerned was not identified. 3. There was a further meeting on 1 August 2006 attended by the same personnel during which the identity of the airport was disclosed. This information was material and was not generally available within the meaning of Div 3 of Pt 7.10 of the Corporations Act. 4. The representative of Babcock and Brown indicated that there were a number of factors to overcome before the engagement of Moody's was formalised. Specifically, two local councils owned 21 per cent of Auckland Airport and Babcock and Brown required a recommendation from the airport's board (i.e. that there be a "friendly takeover"). 5. The statement of facts includes that, "the [Auckland Airport] information was not specific in terms of timing, takeover structure or bid price. However, a person who commonly acquired Div 3 financial products would be influenced by the … information to acquire [Auckland Airport] securities between 1 and 8 August 2006". 6. At some time in the week following this meeting Joffe communicated the Auckland Airport information to Stromer, thereby procuring Stromer to acquire shares contrary to s 1043A(1)(d) of the Corporations Act. On 8 August, Stromer bought 29,580 shares at $1.6972 through his broker whilst in possession of the information, contrary to s 1043A(1)(c) of the Corporations Act. 7. On 12 September 2006, Joffe received an email from a fellow Moody's employee advising, "All is not going to plan for B&B. They are still 'in negotiations' with Auckland Airport management and are not sure what the outcome will be". Immediately thereafter, there were a number of communications passing between Joffe and Stromer and, a couple of minutes after the last of these, Stromer placed an order with his broker to sell all of his Auckland Airport shares. 8. After payment of commission and GST, Stromer made a pre-tax profit of $359.09 on the sale of the shares. This consisted of a gross trading gain of $1,193.99, less commission of $834.90. He had invested a total amount of $50,202.31. 9. It is agreed between the parties that at all relevant times, Joffe knew, and Stromer knew, or ought reasonably to have known, that the Auckland Airport information was "inside information", that is it was not generally available and, if it were generally available, a reasonable person would expect it to have a material effect on the price or value of financial products relating to that entity. Australian Wheat Board Limited 1. Joffe asks that his guilt in respect of an offence concerning Australian Wheat Board Limited ("the Wheat Board") be taken into account. This company managed and marketed wheat and other grain exports from Australia and provided a range of services to the farming community. Moody's rated the debt of AWB Harvest Finance, which was a subsidiary of the Wheat Board. In 2006, Joffe and David Howell were the Moody's associate analyst and analyst respectively for AWB Harvest Finance. 2. On Thursday 14 September 2006, Joffe received an email from David Howell attaching a "pre-meeting" pack of information relating to the Wheat Board in preparation for a meeting with representatives of the Wheat Board on Wednesday 20 September 2006. The information within the pre-meeting pack was sourced from material in the public domain. 3. On Friday 15 September 2006 and over the following weekend, Joffe and Stromer communicated by phone and text message on nine occasions. 4. At about 3.00pm on Monday 18 September 2006, Joffe attended a Wheat Board pre-meeting with Moody's officers in preparation for the proposed meeting with the Wheat Board representatives on the Wednesday. Prior to the pre-meeting he viewed a Sydney Morning Herald article on the internet relating to the Wheat Board and viewed its share price on the CommSec website. He did so again after the meeting. 5. The meeting of Joffe and other Moody's representatives with personnel from the Wheat Board took place during the afternoon of Wednesday 20 September 2006. The Moody's representatives were informed that the Wheat Board was considering announcing to the Australian Securities Exchange ("ASX") that it would indemnify AWB (International) Limited for its legal costs arising from the Cole Inquiry and any potential tax that might be assessed against the Wheat Board in connection with transportation fees paid for wheat sold to Iraq. Such tax was estimated, on a worst-case scenario, to be approximately $259 million as at 30 September 2006. The Moody's representatives were also told that below average rainfall was affecting domestic wheat production and, that if the drought continued, there may be further downgrades to the wheat production forecast. (This was the "the Wheat Board information".) 6. The Wheat Board's most recent market guidance and wheat crop forecast for domestic wheat production for the 2006/2007 crop (18-20 million tonnes) was no longer correct and the ABARE (Australian Bureau of Agricultural and Resource Economics) forecast production of 16.4 million tonnes was more accurate. This information was already known to the market. 7. The Wheat Board indicated to Moody's that it was of the belief that the probability of AWB International Limited incurring the tax liabilities referred to above was remote but that it was thought prudent to put the indemnity in place to reassure the wheat growers of their position. 8. Joffe and Stromer were in telephone contact on a number of occasions later that night as well as on multiple occasions in the ensuing days and Joffe continued accessing internet sites relating to the Wheat Board. 9. On the morning of Friday 22 September, Joffe sent an email to an officer of the Wheat Board requesting a draft copy of its proposed announcement regarding the indemnity. His contact with Stromer by telephone call and text messaging continued until the morning of Tuesday 27 September. 10. On Monday 25 September, Stromer established a trading account with CMC Markets. On Tuesday 26 September his account was credited with payments from his bank account totalling $26,000. At around 10.45am on Wednesday 27 September, Stromer sold short 135,000 Wheat Board CFDs through his CMC account. 11. The agreed facts include that it was between about 2.30pm on 20 September and 10.45am on 27 September that Joffe communicated the Wheat Board information to Stromer, thereby procuring Stromer to acquire financial products contrary to s 1043A(1)(d) of the Corporations Act. 12. On Thursday 28 September, the Wheat Board made an announcement to the ASX announcing a reduction in the wheat production forecast for 2006/07 from 18-20 million tonnes to 12-15m tonnes. It also announced that the Wheat Board would indemnify AWB International for legal costs arising from the Cole Inquiry and any costs of contesting any ATO assessment of any outstanding tax in connection with inland transportation fees for wheat sold to Iraq. The Wheat Board's share price closed on 28 September at $3.35 and opened the following morning at $3.32, closing that afternoon at $3.27. 13. Communications between Stromer and Joffe continued by phone and text message throughout 27, 28 and 29 September. 14. In two transactions on Friday 29 September, Stromer disposed of all of his Wheat Board CFDs. He made a pre-tax profit of $1,278.79. This consisted of a trading gain of $2,120 less commission and other fees of $841.21. Stromer had invested a total of $22,950 in the Wheat Board CFDs. He had been required by CMC to provide a margin equal to five per cent of the total exposure of the holding at any point in time. Accordingly, save for the highly unlikely event of an overnight rise in the Wheat Board share price greater than five per cent, Stromer's likely maximum exposure was $22,950. 15. The parties agree that at all relevant times Joffe knew that the Wheat Board information was "inside information". Alinta Infrastructure Holdings 1. As at November 2006 Alinta Limited ("Alinta") was the owner and manager of energy and infrastructure assets including gas, pipes and energy transmission lines. It also owned power generation assets. It had divested assets into Alinta Infrastructure Holdings ("Alinta Infrastructure") but decided as part of a broader corporate strategy to consolidate all of its assets and acquire Alinta Infrastructure. The proposal to make the acquisition was given a code name (Project Wren/Little Duck) so as to preserve confidentiality in communication with the parties involved. 2. On the afternoon of Friday 10 November 2006 the designated associate within Moody's for Alinta (Adrian Atkins) received a telephone call from a person at Alinta advising of a proposal to announce a takeover bid for the partly paid issued securities of Alinta Infrastructure that it did not already own on 15 November 2006. (This was the "Alinta Infrastructure information".) Joffe was not directly involved but became aware of the proposed takeover from discussions with Mr Atkins. A matter of minutes later, Joffe conducted a search on the CommSec website in relation to Alinta Infrastructure. While doing so, or immediately afterwards, he was in touch with Stromer. 3. On the morning of 13 November 2006, Stromer telephoned CMC Markets and told a representative that he wanted to get money into his account. He spoke of the need to have the funds "cleared quite quickly". 4. Between about 3.30pm on 10 November and 11.45am on 13 November 2006, Joffe communicated the Alinta Infrastructure information to Stromer, thereby procuring Stromer to acquire financial products relating to that company, contrary to s 1043A(1)(d) of the Corporations Act. At about 11.45am on 13 November 2006, Stromer, whilst in possession of the Alinta Infrastructure information, commenced trading in Alinta Infrastructure CFDs with CMC Markets, acquiring 627,000 long CFDs that day contrary to s 1043A(1)(c) of the Corporations Act. At the time the price of the Alinta Infrastructure shares was $1.82. 5. Whilst Stromer was engaged in that activity, Joffe was accessing the CommSec website for Alinta Infrastructure on a large number of occasions and he was in contact with Stromer that afternoon by way of multiple calls and texts. 6. Also on the afternoon of 13 November 2006, Joffe withdrew $30,000 from his bank account by way of a bank cheque payable to Stromer and gave it to him that evening. The Crown contended that this represented Joffe's intention to contribute to and share in the profits from Stromer's acquisition of CFDs in Alinta Infrastructure. However, Joffe claimed during a later investigation by the Australian Securities and Investments Commission ("ASIC") that it was a loan that Stromer had sought because he had said that he was experiencing short-term financial difficulties. 7. The fact was, however, that Stromer had $141,000 in his bank account at the time and, the Crown contended, it was unlikely he would have deceived his friend Joffe. (Ultimately because of problems relating to the banking system, the $30,000 was not used by Stromer and was later returned to Joffe.) The timing of the provision of the $30,000 to Stromer was submitted by the Crown to be significant as well; it was the first business day after he had provided the inside information to Stromer and on the day that Stromer started acquiring CFDs in Alinta Infrastructure, with the deadline for the acquisitions being the expected takeover announcement in two days' time. 8. A further matter relied upon by the Crown was the accessing by Joffe of the CommSec website for Alinta Infrastructure. He did this within minutes of learning of the takeover bid on Friday 10 November 2006. He did so again on "a large number of occasions" on Monday 13 November, on the evening of which he provided Stromer with the $30,000 bank cheque. He did so again on eight occasions on the afternoon of Tuesday 14 November, the eve of the expected takeover bid announcement. The Crown submitted that this indicated an interest in the Alinta Infrastructure share price that was not evident previously in relation to the Auckland Airport matter and supported the contention that in respect of the Alinta Infrastructure matter he did so because he was intending to be financially interested. 9. Despite there being no direct evidence of it, I think that it is not a matter of mere speculation, as contended by senior counsel for Joffe, that the $30,000 was intended by Joffe to represent him taking a financial interest into the "investments" made by Stromer. I am satisfied of this to the criminal standard. 10. At around midday on 14 November 2006, Stromer acquired a further 245,000 long CFDs in Alinta Infrastructure. 11. Shortly afterwards, a representative of CMC Markets telephoned Stromer and expressed concern as to whether he was aware that he had built up a significant position in relation to Alinta Infrastructure. Stromer was informed that a second instalment on the underlying CFDs would become due on 13 December and that if he did not close his position by then he would be liable for that payment. Stromer indicated that he would definitely close out the position before that date. 12. Almost immediately after that conversation, Stromer spoke to another representative at CMC Markets and inquired about the price of long CFDs in Alinta Infrastructure, indicating that he wanted "as much as possible". He was told the price was $1.95. He acquired a further 90,000. He then spoke with yet another CMC Markets representative indicating that he wanted more. 13. Over the afternoon of 14 November and the following day, Joffe accessed the CommSec website for Alinta Infrastructure multiple times; accessed the ASX webpage relating to the latest ASX announcements; and was in contact with Stromer. 14. Alinta Infrastructure shares closed on 14 November 2006 at $1.97. 15. At 9.43am on 15 November 2006, Alinta made an announcement to the ASX: "Alinta announces cash offer for AIH". Joffe telephoned Stromer minutes later. Alinta International shares opened at $2.06 that day and closed at $2.07. 16. At 10.29am, a representative of Alinta emailed a copy of the ASX announcement to Moody's associate analyst, Adrian Atkins. Half an hour later, Stromer sent a text message to Joffe. Eight minutes later he (Stromer) commenced selling 615,000 Alinta Infrastructure CFDs in twenty trades. He then telephoned Joffe and shortly afterwards sold a further 347,000 CFDs in four trades, thereby closing out his position in Alinta Infrastructure. 17. Stromer realised a pre-tax profit of $182,770.32 from trading in Alinta Infrastructure CFDs. This consisted of a gross trading gain of $187,493 less commissions and financing fees of $4722.68. He had invested $94,757. CMC had required him to deposit a margin of 10 per cent of the total exposure of the holding at any point in time. The agreed facts include that save for the highly unlikely event of an overnight collapse in Alinta Infrastructure Holdings share price greater than 10 per cent, Stromer's likely maximum exposure was $179,457. 18. It is agreed between the parties that Joffe knew, and Stromer knew, or ought reasonably to have known, that the Alinta Infrastructure information was "inside information". 19. On 21 November 2006, a representative of CMC Markets informed Stromer that amounts relating to recent trading would have to be withheld pending an investigation. 20. ASIC commenced its investigation into Stromer's trading in Alinta Infrastructure on 8 December 2006 but did not communicate that fact to Joffe and Stromer at that time. On 19 December 2006, CMC advised Stromer that it was holding the funds in his CMC account (approximately $182,000) pending an investigation being conducted by the ASX. No proceeds from the Alinta Infrastructure transactions were ever paid by CMC to Stromer. 21. A prosecution was commenced with the service of Court Attendance Notices in January 2010. Later I will say something more about what has occurred since then. Personal circumstances – Nathan Stromer 1. The offender Stromer did not give evidence at the sentence hearing. Expert reports, testimonials and other documentary material were tendered on his behalf. 2. Stromer is 36 years old. He has experienced a difficult relationship with his parents, particularly his father who was described as volatile, a poor communicator and a bully. He was often critical and made the offender feel unworthy. Stromer told Dr Collins, psychologist, that he retreated into himself and felt timid and isolated. 3. He was afforded a first class education at a private school and then went on to achieve law and commerce degrees at university. He worked for a major law firm and then as a management consultant before, somewhat ironically, commencing to work in his father's business in 2004. He remained there until he left and worked as an asset manager until September 2009. He has struggled to obtain employment since being charged. He has been engaged in selling wine from a call centre for the past few years. 4. Stromer has been in a relationship with Ms Ping Ma for the past seven years or so. She gave birth to their child in January of this year. He described her to Dr Collins as "prosocial" and a "positive support". She gave evidence (and provided a testimonial) which included some detail about various adverse ways in which the protracted proceedings and the uncertainty concerning the outcome had impinged on their lives. 5. Dr Collins' report sets out the history provided by Stromer which included that he experienced depression and anxiety since childhood. He sought psychiatric help in 2001 after entertaining suicidal thoughts. He received treatment then and since from Dr Vlado Gojak. His mood was said to have improved in recent years but he was stressed over the current matter and the likely outcome. He was preoccupied with thoughts about how his partner will cope if he is imprisoned and was concerned about bonding with his new child if he received a custodial sentence. Dr Collins also reported that Stromer was socially avoidant; largely as a result of the reputational damage the offending caused his family. 6. Dr Collins found that Stromer did not meet the criteria for any major mental illness. His depression had improved and was being well-managed with medication. There remained indicators of generalised anxiety. 7. In relation to his mental state at the time of the offending, Dr Collins reported that his "mood and coping were reduced at the time … and he was suffering from generalised anxiety and major depression". It was her view that "he would have been vulnerable and psychologically fragile at the time of the offences". 8. In her "formulation", Dr Collins said that Stromer would have met the criteria for major depression and generalised anxiety disorder at the time of the offences which would have impacted his criminal conduct. I note that she did not clearly explain how this was so. She said his mental health had improved over time but that his mental state will deteriorate, she thought, should a custodial sentence be imposed. (I interpolate that this might be expected in anyone in Stromer's position.) 9. Dr Collins said that if Stromer is incarcerated there should be monitoring of his mental state over the short to medium term and a suicide risk assessment performed immediately when he is received into custody. 10. Dr Collins did not consider Stromer to present a high risk of recidivism and suggested that any order that can incorporate a period of supervision will assist by observation of his mental health and general coping secondary to his sentencing. 11. A report by Dr Vlado Gojak confirmed that Stromer first saw him in December 2001 complaining of depression and anxiety. Such conditions have endured on a fluctuating basis since. Dr Gojak prescribed antidepressant medication which Stromer has maintained. There was an increase in the intensity of Stromer's anxiety symptoms in 2006 (the year of the offending) when he engaged in a series of family therapy sessions. Dr Gojak last saw Stromer in 2012 but added that he continued to be prescribed antidepressant medication by his general practitioner. 12. Stromer's mother gave evidence which, amongst other things, provided some further insight into the difficulties of the family dynamic. She said that the family therapy that was pursued in 2006 was unhelpful and probably put more stress on her son. 13. Aside from these mental conditions, Stromer also suffers from Grave's disease, an autoimmune disease affecting the thyroid gland and causing it to become overactive. It is exacerbated by stress. 14. Stromer was seen recently by Dr Stephen Allnutt. The history set out in his report is broadly consistent with that in Dr Collins' earlier report. Dr Allnutt considered that Stromer suffered from a recurrent depressive disorder and generalised anxiety disorder. He also manifested symptoms consistent with obsessive-compulsive personality disorder and possible obsessive-compulsive disorder, which are said to be different although with possibly overlapping conditions. 15. Dr Allnutt considered that "it would be reasonable to view [Stromer's] offending behaviour to have been motivated, at least partly, by an attempt to impress his father so as to gain his approval in an area of interest that he and his father shared. He would have been more prone to pursue this due to his underlying symptoms of depression and generalised anxiety disorder." 16. It was Dr Allnutt's opinion that Stromer was remorseful for his offending behaviour. He noted that he had sought to address his anxiety and depression in treatment with mental health professionals; had shown improvement in his mental state; and had a stable environment. He concluded that he would be at low risk of recidivism. 17. The authors of the testimonials spoke positively (as one might expect) about the offender's various positive character traits. They also confirmed aspects of the history he had provided to the authors of the expert reports. His mother's testimonial displays much candour about the problems within the family, particularly in her description of her husband's "highly aggressive manner" and "bullying" towards her son. It must have been a very difficult document for her to compose. Stromer's sister described their father as "overcritical, irrational, non-communicative, intolerant and emotionally abusive". She believed that the period in which her brother worked with him was "a type of breaking point". 18. The period of time that has now elapsed since Stromer became aware of the investigation by ASIC has taken a toll. Dr Allnutt reported: "Overall he said the extended process was devastating because it incurred more legal fees for him and his family, and he understood that as soon as he was charged his career was finished. The legal process that was ongoing continued to demand his time and made it difficult for him to commit to work, it made his social life difficult and overall made his future unpredictable and uncertain. … He had been with his partner since 2008 and the legal process was a shadow in terms of his mood and the ability for him and his partner to plan for their future. It affected his feelings about himself and his relationship, and created extra stress." 1. His partner's testimonial included that, "Much of our relationship has been dominated by anxieties concerning when and how this matter will be resolved, the pressure on Nathan's family, impact on his reputation, his health, and our future prospects". She perceived that there had been a negative effect on both his physical and mental health. Similar negative effects resulting from the long and drawn out process of the proceedings are described in the other testimonials. For example, Mr Robert Reiner, a friend since school, observed that Stromer "has been worn down by the … legal proceedings" and had endured "a lot of stress as his life was put under a microscope" during the protracted investigation. Mr George Papanikitas, a friend from university days, observed that Stromer had experienced a "very significant personal toll". Stromer had spoken to him: "about the severe stress that he and his family have experienced over the last 8 years – stemming from his feelings of shame and remorse, the crippling financial burden resulting from incurring very significant legal costs and the loss of his regular income, progressive withdrawal from his social circles, bleak career prospects and uncertainty around sentencing". Personal circumstances – Daniel Joffe 1. Joffe did not give evidence in the sentence proceedings but there were tendered in his case a variety of expert reports, testimonials and other documentary materials. 2. Joffe is aged 38 and lives alone but in the same apartment complex as his parents. He was born in South Africa and came to Australia at the age of 9 after the family had lived for about two years in London. 3. Joffe attained Bachelor of Economics, Bachelor of Laws, and Master of Commerce degrees from the University of New South Wales. He worked as an intern at the Australian Law Reform Commission, as a Research Associate/Financial Analyst for BRW magazine and as a Senior Business Analyst for KordaMentha Corporate Advisory prior to joining Moody's in late 2005. 4. A useful summary of his life in general may be drawn from the report of Dr Bruce Westmore, psychiatrist: "He describes having had, in the past and currently, a close supportive relationship with his family … and he was also particularly close to his paternal grandfather. The family moved to the United Kingdom when Mr Joffe was aged 7 and he said, around that time he believes he started to develop various psychological problems … He had trouble making friends and he was teased because of his accent and he had a stutter. He felt his parents' relationship was in jeopardy and he did not feel able or comfortable discussing his own personal problems with them because of that. While in the United Kingdom he felt alone and isolated and he started to develop certain ideas in relation to his body image and he said he felt 'ugly', but he could not understand those emotions at the time or why nobody wanted to be his friend. He started bringing his prepared lunch home from school and he lost his appetite. A few years later, the family moved to Sydney and his mother's mood improved and his parents' relationship also improved. While he did not feel that the move to Australia was as traumatic as the move to the United Kingdom, he again felt it was 'really challenging'. Isolation and loneliness continued to affect him, although he was able to make some friends and he said of those friendships that he 'cherished them greatly'. He did well at school and he was a hard worker and no behavioural problems of an antisocial or disciplinary type were identified. He then attended university, where he met the co-accused and a girl who was to become his girlfriend. He describes her as being a somewhat gregarious and outgoing woman and she had many friends and she became 'my lifeline into the world'. He appears to have become quite dependent upon her but, several years into their relationship, she gained the opportunity to work overseas. She took that offer up and he said, around mid-2006 he became aware that she had 'found someone else … it was a terrible blow, I didn't see it coming, I was terribly reliant on her …'. Following the breakdown of his relationship with his girlfriend, Kara, he became increasingly close to the co-accused in this matter, a man he considered to be his friend and a neighbour. The co-accused appears to have taken over many of the social roles and probably the psychological support type roles that Kara had previously had in his life. It is likely, in my view, that he formed the same dependent type relationship with the co-accused as he had had previously with Kara. The co-accused had disclosed that he was himself having difficulties in his relationship with his own father and Mr Joffe himself discussed and disclosed to the co-accused his own emotional 'hurt and pain' following his breakup with Kara." 1. Dr Westmore made the diagnoses of Anorexia Nervosa and Depressive Disorder. He made provisional diagnoses of various forms of the latter. Notwithstanding the seriousness of the offences, he did not detect any antisocial personality characteristics. He did, however, find a causal link between Joffe's mental condition and his offending: "I do believe his quite unique and complex psychopathology did however play an immediate and direct role in the offending behaviour, certainly in his motivation for committing the acts that he did, doing so in the hope that he would assist his friend." 1. Professor Kerryn Phelps AM has a medical practice at Double Bay where Joffe had been a patient since 2002. She knew him and his family personally and professionally. She attested to his good character. She also said that she was aware that at the time of the offences he was "deeply depressed, withdrawn and socially isolated" and that "the emotional distress exacerbated a long-standing relapsing eating disorder resulting in weight loss and distorted body image". 2. Professor Phelps described the effect upon Joffe of the protracted ASIC investigation in terms of it placing "an inordinate amount of stress on both Daniel and his family". He consulted her during this period with a range of symptoms including hypertension, insomnia, night terrors, palpitations, shortness of breath, increased severity of migraines, chronic diarrhoea and abdominal pains. She said that after he was charged in January 2010 he became reclusive; he "did not socialise or leave his unit except to go to the synagogue on Friday evenings or to volunteer for OzHarvest on Tuesday evenings where he assists in feeding the homeless". She also noted that he had not been able to secure employment and had relied upon his family for financial support which had exacerbated his feelings of guilt, shame, embarrassment and low self-worth. She added, "This long and protracted ordeal has had a profound effect on Daniel's wellbeing and on the wellbeing of his parents". 3. Mr Chris Thornton, clinical psychologist, first saw Joffe in relation to his eating disorder in September 2014. The history he obtained included that Joffe had "experienced a period of relative wellness from 2000 to 2006 whilst in a relationship with a long term girlfriend, Kara". His weight increased during this period to about 72 kg (he is said to be 174cm tall). But after the relationship ended in 2006 he became depressed and "slipped into a more serious phase of restricting his eating". His weight decreased to around 68kg in 3 months. It further decreased from 62 kg in February 2007 to around 60kg in May 2007, up until that time his lowest adult weight. His parents intervened by more closely monitoring his food intake and his weight rose to 65 kg. 4. Mr Thornton said that after Joffe was charged he became obsessed around organising his defence. He experienced significant symptoms of depression and felt compelled to control his weight and eating. To counteract the effects of his parents' monitoring his eating he increased the intensity of his exercise to control his weight which fluctuated between 60 and 65 kg. When he saw Mr Thornton last year his weight was 66.5 kg. He continued to see him at regular intervals and Mr Thornton observed that, after an initial small increase in Joffe's weight, by March this year it had dropped to 62 kg. Mr Thornton was sufficiently concerned at the deterioration in his mental health, particularly his anorexia nervosa condition, that he had suggested to Joffe's general practitioner and psychiatrist that consideration should be given to hospitalisation in a specialised eating disorders inpatient unit to arrest the decline. Mr Thornton also expressed serious concern for Joffe's well-being if he were to be incarcerated, fearing that his eating disorder is likely to worsen significantly. 5. Dr Geoffrey Buckett, a consultant psychiatrist and specialist in the treatment of eating disorders, saw Joffe regularly since September 2014. His diagnoses were consistent with those made by Dr Westmore. He also expressed concern about the "severe consequences" of incarceration: "It is possible that the outcome would be life threatening". 6. Dr Westmore was similarly concerned: "Clearly incarceration will be extremely difficult for this man because of his multiplicity of psychological and psychiatric problems, but also because of the absence of antisocial characteristics, he will be a prisoner at risk." 1. In oral evidence he said that incarceration will make Joffe's depression worse and likely aggravate his anorexic illness. And this would be exacerbated if he was placed on protection, which he considered quite likely. 2. In a further report (26.4.15), Dr Westmore pointed out that: "Anorexia nervosa in males is rare but, when it does occur, it is recognised by psychiatrists as being a severe and serious condition with generally a poor prognosis." 1. The Crown tendered a body of email correspondence obviously derived from Moody's. These were served the day before the sentence hearing was due to begin on 27 April 2015 and necessitated an adjournment. Generally, the emails were intended to show that in 2006, following the break-up of Joffe's relationship with his girlfriend, Kara, he showed an interest in food and sport and was in an intimate relationship with a female co-worker. Clearly the Crown was challenging the assertions that in 2006 Joffe was depressed and had an eating disorder. If anything, this challenge had the reverse effect. In the end, the Crown conceded that Joffe "probably did" have an eating disorder at the time of the offending. The only issue concerned what impact it had. 2. Dr Westmore reviewed the body of emails and obtained further history from Joffe. He concluded that the emails did not detract from the diagnosis of anorexia nervosa. He also questioned whether there was any expert opinion to the contrary (which there is not). 3. Dr Westmore was required to appear for cross-examination. In his evidence in chief he explained the seriousness of anorexia nervosa in males. He said: "It is a rare condition in males. It is recognised as a far more serious condition in males, with a poorer prognosis, associated with greater chronicity, greater morbidity and greater mortality and greater dysfunction generally. In males the illness will often come on later in life rather than [in] adolescence and it adopts a chronic course." 1. Dr Westmore was asked about Joffe's current appearance compared to when he first saw him last December. He said "he looks cachectic to me today", which he explained meant he was "very thin, emaciated, with a pallor about him … which is not healthy". This accords with my own observation. 2. On the question of delay in ultimately being sentenced, Dr Westmore wrote in his recent report: "The delays in sentencing are clearly impacting on Mr Joffe's mental health, his need to see medical experts and no doubt have protracted conversations with his legal advisors are all contributing to his distress, as is the uncertainty of the outcome of the court case. Not knowing the outcome is often more difficult, painful and psychologically distressing than having to deal with an outcome, even though it might be negative or unfavourable. He is clearly underweight, he remains depressed and he must be considered to be an at risk patient. There is significant morbidity and mortality associated with both Anorexia Nervosa and depressive illnesses. He remains under psychiatric care and it is vital that this continue. Admission to an eating disorder unit should also be considered at some stage." 1. Mr Thornton also reviewed the emails and reported that he had no reason to change his opinion. He took the opportunity to report: "Anorexia Nervosa has the highest mortality rate of any psychiatric condition, and has a higher rate of death by suicide than in patients suffering from depression. There is clear evidence that eating disorders are highly inheritable conditions. [I interpolate that Joffe's mother suffered from the condition.] In no way should the severity of this condition be minimised. They are not a disorder of choice. … I am concerned that the late presentation of these emails from the DPP has necessitated a delay in Mr Joffe's hearing. In the weeks between our sessions on 26/3/15 and 4/5/15, Mr Joffe's weight has decreased to 58.8 kilograms. This is a loss of 3.2 kilograms in three weeks. The Clinical Practice Guidelines for the treatment of anorexia nervosa indicate that a persistent weight loss of a kilogram a week is an indication of the need to hospitalise a patient for medical stability. In the week since the delay to date Mr Joffe has decreased his caloric intake by around 50% and has markedly increased his exercise. I am concerned that the delay necessitated by the presentation of these emails has acted to increase the severity of Mr Joffe's eating disorder and has increased the possibility of significant medical complications arising from his disorder. I would be alarmed if there were any further unnecessary delays to bring this matter to a conclusion. My original conclusion that incarceration of Mr Joffe would place his health at great risk by preventing specialist treatment of this serious and complex mental disorder remains." 1. It may be noted that within that extract from Mr Thornton's last report there is reference to Joffe's weight being 58.8 kg as at 4 May 2015. Tendered on the last day of the sentence hearing on 28 May was a letter from Professor Phelps advising that she had weighed him on 27 May. His weight had further decreased to 57.1 kg. In another letter she indicated that in a recent discussion with Dr Buckett the question of hospitalisation was given even more earnest consideration. 2. A large number of testimonials and the evidence given by Joffe's mother provide support for the history of his eating disorder being longstanding. There is reference to the anxiety and stress that he has endured during the period of the investigation and prosecution. They also speak of his many positive personal attributes, describe his offending behaviour as being out of character, and describe the level of his feelings of guilt, shame and remorse. There are expressions of gratitude for Joffe's "generous spirit and significant contribution" since 2007 to the work of OzHarvest in gathering and delivering food to the disadvantaged. He has also provided support to the Chai Foundation charity. A rabbi confirmed Joffe's regular attendance at the synagogue and wrote of his continued efforts at atonement "in a dignified and sincere manner in accordance with the Jewish custom". Seriousness of the offences 1. Speaking generally, insider trading is not a "victimless" crime; it is a serious criminal offence. It has the capacity to undermine to a significant extent the integrity and efficacy of markets as well as confidence in the commercial world generally. Persons who receive price sensitive information in relation to securities are expected to conform to exacting standards of honesty. Insider trading has been described as a form of cheating; a form of fraud. (These propositions are derived from cases such as R v Rivkin [2003] NSWSC 447; 198 ALR 400 at [44]; R v McKay [2007] NSWSC 275; 61 ACSR 470 at [60]; R v Doff [2005] NSWCCA 119; 54 ACSR 200 at [56]; Hartman v DPP [2011] NSWCCA 261; 87 ACSR 52 at [94] and R v Hill; R v Kamay [2015] VSC 86 at [46].) 2. There are a number of matters to be considered in assessing the seriousness of the offences committed by Messrs Joffe and Stromer. One aspect is the quality or "grade" of the inside information. In assessing this it is appropriate to keep in mind that the essential aspect of "inside information" is that if it was generally available, it might have a material effect on the price or value of the financial product in question. 3. A high degree of materiality would generally lead to a finding of greater objective seriousness; a low degree of materiality might, but not necessarily, lead to a finding of low objective seriousness; and knowledge by the offender of the degree of materiality would bear upon moral culpability. 4. Much was made in submissions of what information was generally available in the marketplace. However, there is no evidence as to what the offenders' knowledge of this was. In other words, there is no claim by either of them that they considered the materiality of the information to be low because of what was already publicly available. They cannot lay claim to a finding of lower moral culpability on this account. (I note what Joffe is said to have claimed to Dr Westmore (report of 9.12.14 at p. 2.9) but do not accept it, given that it conflicts with the agreed facts.) 5. I accept the submissions that were made about the quality of the information in the Auckland Airport matter being less than that in the case of Alinta Infrastructure. The latter concerned a takeover that was actually proposed, albeit there was no indication of price, whereas the former involved one that was being considered as a possibility. A takeover in the latter might not have come as surprise to the market; it was the timing that was the important aspect of the information. In relation to the Wheat Board offence that Joffe asks to be taken into account, the information concerned some announcements that were to be made which, having regard to what was already in the public domain, was of relatively low quality. 6. Both the amount invested and the profits derived are relevant matters to consider. In round figures, in the Auckland Airport matter, Stromer invested $50,000 and achieved a net profit of about $350. In the Wheat Board matter, he invested $23,000 and achieved a net profit of around $1,300. In the Alinta Infrastructure matter, he invested $95,000, with a likely maximum exposure of $180,000. He derived a net gain $182,000. Of course, Stromer is not to be sentenced in respect of the Wheat Board matter. 7. In the case of CFDs, the actual investment required is a small proportion of the underlying security and greater potential profits and losses from price movements in that security may result. Accordingly, the Crown submitted that both the amount deposited in the margin account and the total potential exposure are relevant to an assessment of criminality. In the case of Alinta Infrastructure, Stromer invested $94,757 and was required to deposit a margin requirement equal to 10 per cent of the total exposure. According to the agreed facts, his likely maximum exposure was $179,457. 8. Although Joffe did not make any investment himself and did not stand to make any profit, I have earlier mentioned my acceptance of the Crown's contention that he intended to contribute $30,000 to the amount invested by Stromer in the Alinta Infrastructure matter. 9. In Joffe's case, it was accepted that he had actual knowledge that the information was not generally available and that if it were, a reasonable person would expect it to have a material effect on the price or value of the financial products in question. Further, if common sense and moral values did not tell him, he was well aware that communicating inside information was wrong by the fact that he had been required to read and understand Moody's trading policies and code of business conduct. 10. A matter particularly important in the assessment of the gravity of Joffe's offences is the breach of trust aspect. Further, the fact that he disclosed the information to only one person, who was a friend, does not assist him. As was observed by Bellew J in Khoo v R [2013] NSWCCA 323 at [16], once he had divulged the information he had no control over what happened to it or how it was used. 11. For Stromer, it was contended that he did not actually know, but simply that he "ought reasonably have known" that Joffe was providing to him "inside information". The Crown contended to the contrary, but it is a matter that requires proof to the criminal standard of beyond reasonable doubt. 12. The bases for Stromer's submissions were that he was not a "true insider"; the psychological evidence suggested that he was not in a position to evaluate the information in a clear frame of mind; his conduct, at least in relation to Alinta Infrastructure where there was no attempt to deflect attention, was more consistent with a lack of actual knowledge; and there was other information in the market place, the existence of which made it less likely that he appreciated the information was "inside" information. The problem with the latter submission is that there is no evidence of his awareness of what was, or was not, in the market place. 13. The Crown countered by submitting that the fact Stromer was not a true insider was not a basis for inferring a lack of actual knowledge. He was an intelligent man with university degrees in law and commerce, the latter majoring in banking and finance. He had worked for about two years in a major corporate law firm. The information came from his close friend who worked in Moody's core business of providing advice as to the likely credit rating outcome of its clients' proposed corporate activities. It was common sense that any information Joffe received in that role must have been received on a confidential basis; and Stromer must have realised that when the information was conveyed to him. But, as was pointed out in the submissions of Mr Dhanji SC, realising that information was "confidential" is one thing; knowing that it is "inside information" is not necessarily the same. 14. In relation to Auckland Airport, it was an agreed fact that the information conveyed by Joffe to Stromer was that Babcock and Brown was considering making a takeover bid. The nature of the information is such that make it unlikely that Stromer would not have realised that this was "inside information". 15. In relation to Alinta Infrastructure, strong indications that Stromer was aware that he was in possession of "inside information" were that it concerned an actual rather than possible takeover; his haste in acquiring as much of the financial product as he could; and the fact that he was prepared to risk exposure to a potential loss of about $179,457. 16. I am not prepared to accept that it is a reasonable possibility that Stromer's psychological condition rendered him incapable of evaluating information in a clear frame of mind, or of making reasoned judgments. Having regard to all of the circumstances, I am satisfied that he had actual knowledge in respect of both offences that what he had was "inside information" and not merely confidential information that he ought reasonably have known was of that character. 17. The circumstances in which offences of this nature can be committed vary widely and there are a number of matters to be considered in an assessment of their objective seriousness. A factor that might be significant in one case in this assessment might not be so significant in another. In the end, having considered the types of matters I have just been alluding to, I consider that the Auckland Airport offences are less serious than the Alinta Infrastructure offences. They are not offences that are anywhere near the upper range of seriousness for these types of matters; the Auckland Airport offences are below the midrange of seriousness and the Alinta Infrastructure offences are just within that range. Joffe's offences are more serious than Stromer's because of the breach of trust factor. Some specific findings 1. There are a number of mitigating factors to be taken into account and most of them are common to each offender. 2. Aside from their offending behaviour, they are persons of good character (which is not uncommon in a matter such as this). Notwithstanding that they did not give evidence, there is an overwhelming body of evidence that supports the proposition that they are genuinely remorseful. There is no realistic prospect of their re-offending (which the Crown conceded) and so personal deterrence is unnecessary to factor into the assessment of sentence. 3. The pleas of guilty are a reflection, in part, of their willingness to facilitate the course of justice. They were entered after protracted challenges to aspects of the prosecution case. The history of the proceedings is so complex and lengthy that it would be impractical, and in any event unproductive, to set out the detail. The flavour of the history may be derived by reference to the following: DSJ v R; NS v R [2012] NSWCCA 9; Joffe v R; Stromer v R [2012] NSWCCA 277; Joffe v The Queen; Stromer v The Queen [2013] HCATrans 109; DSJ v R; NS v R [2014] NSWCCA 77. A significant point to note is that the offenders were originally charged with 10 offences but the prosecution ultimately accepted pleas of guilty to merely 2 of them with Joffe asking that a third offence be taken into account. 4. The delay in the investigation (3 years) and in the proceedings themselves (5½ years) is a significant feature to be taken into account. I acknowledge the submission by senior counsel for the Crown that delay, in and of itself, is not a mitigating feature. And the Crown conceded that "there has been demonstrated rehabilitation" during the period of the delay. In this case, responsibility for the delay is not exclusive to one party but it would be a fruitless exercise to trawl through the history in order to assess blame. The fact is that the delay has involved a form of punishment in itself in the adverse psychological impacts that it has had upon each of the offenders. 5. Joffe has not been employed for quite some years. Stromer had only managed to find work in recent years as a call centre salesperson. They are unlikely to find employment in the commercial or legal world for the foreseeable future. 6. Another mitigating feature to be taken into account in Stromer's case is that he co-operated in the making of a pecuniary penalty order under the Proceeds of Crime Act 2002 (Cth) in the sum of $222,349.87: see s 320(a) of that Act. 7. I am not prepared to accept that Stromer's mental condition was at the time of offending or now is of sufficient severity that it should be taken into account in the various ways that are usefully summarised in the judgment of McClellan CJ at CL in Director of Public Prosecutions (Cth) v De La Rosa [2010] NSWCCA 194; 79 NSWLR 1 at [177]. It remains, however, a significant feature of his overall subjective case and has additional relevance in the assessment of the degree of mitigation to be afforded on account of the inordinate delay in the investigation and prosecution. 8. I am prepared to accept that Joffe's mental condition is relevant. To some extent it was causally linked to his offending which reduces his moral culpability and the need for denunciation of his conduct. I also accept the powerful evidence that his condition of anorexia nervosa would render any custodial sentence more onerous. His mental condition is also relevant in assessing the weight to be given to delay as a mitigating feature. Other matters relevant to the assessment of sentence 1. It is common ground that no sentence other than one of imprisonment is appropriate in the case of each offender. The seriousness of the offences justifies that position which I accept: s 17A Crimes Act 1914 (Cth). 2. Each offender is to be sentenced for two distinct offences, albeit of a similar nature but separated in time by some months. It is necessary that their sentences be partially accumulated to appropriately reflect the totality of criminality. The Alinta Infrastructure offence is more serious than the Auckland Airport offence and the individual sentences will reflect that. 3. In terms of parity, I have determined that the sentences to be imposed upon each offender should be similar. There are some factors which render Joffe's offences more serious (for example, his breach of trust) but his moral culpability is reduced and he has a more significant subjective case. His overall sentence will be longer than Stromer's because of the additional offence to be taken into account. 4. The maximum penalty of imprisonment for 5 years and/or a fine of $220,000 is a benchmark I have borne in mind. Similarly, I have had regard to the statutory requirement in s 16A(1) of the Crimes Act to impose a sentence that is of a severity appropriate in all of the circumstances. I have also borne in mind the importance of general deterrence given the difficulty of detecting crimes of this nature, but its significance is tempered in this case to a minor extent in Stromer's case and a little more so in Joffe's case on account of their mental health issues. 5. The ultimate submission for the Crown was that nothing less than a full-time custodial sentence was called for. Senior counsel for each of the offenders submitted that imprisonment was appropriate but that it should either be suspended or served by way of an intensive correction order. 6. I was provided by the Crown and counsel for Joffe with quite informative schedules of other cases of insider trading. I do not intend to describe in detail any particular case but simply confirm that after arriving at a provisional view as to the appropriate sentence the schedules were then reviewed as a yardstick: see Hili v The Queen; Jones v The Queen [2010] HCA 45; 242 CLR 520 at [54]. They confirmed the correctness of my provisional view. Sentence 1. Joffe: Convicted. Count 1: sentenced to imprisonment for 1 year 3 months dating from 12 June 2015. Count 2 (and taking into account the offence on the s 16BA Form): sentenced to imprisonment for 1 year 9 months dating from 12 December 2015. Order the offender's release forthwith on recognizance upon giving security without surety in the sum of $1000 upon the condition that he be of good behaviour for a period of 2 years 3 months from 12 June 2015. 1. Stromer: Convicted. Count 3: sentenced to imprisonment for 1 year 3 months dating from 12 June 2015. Count 4: sentenced to imprisonment for 1 year 6 months dating from 12 December 2015. Order the offender's release forthwith on recognizance upon giving security without surety in the sum of $1000 upon the condition that he be of good behaviour for a period of 2 years from 12 June 2015. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 June 2015