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Rumourtrage closes, another door opens

2 March 2010

ASIC has closed its rumourtrage investigation, Project Mint, and has moved onto the implementation its new financial market supervision powers.

Under Project Mint, ASIC investigated rumours associated with significant share price movements, leading to the banning and prosecution of several stockbrokers for market misconduct offences. An AFR article significantly downplayed the successes of this project. For example, within the first three months of the project 4 stockbrokers were banned for spreading false rumours and over 70 investigations leading to enforcement actions. ASIC also released a consultation paper on the responsible handling of rumours in September 2009 which will become regulation shortly.

Pushing false rumours designed to harm a company, such as by forcing a share price down, is illegal. If a person spreads a false rumour without properly investigating its truth, the person risks breaching section 1041E of the Corporations Act. The maximum penalty is 5 years imprisonment and/or a fine of $220,000. This section sits alongside prohibitions on market manipulation and engaging in dishonest conduct which also carry similar penalties.

The new supervision regime will see ASIC with increased powers to make and enforce market integrity rules, and impose fines of up to $1 million. ASIC will take over the supervision of brokers and financial markets from the ASX from 1 July 2010.

It will also be easier for ASIC to obtain direct evidence of market manipulation and insider trading through telephone records. These offences will be made serious under the Telecommunications (Interception and Access) Act 1979, and will allow investigation by ASIC. ASIC will no longer be required to issue a notice to produce before a search warrant is executed, removing opportunity for evidence to be destroyed.