When ASIC speaks, or doesn't

John M Green suggests our corporate cop’s public face needs some work.

A year ago, this column gave our corporate cops a bravo for their insider trading successes. Applause is still warranted, but it is less hearty after the David Jones imbroglio and the Dr Stuart Fysh case.
Turning first to department store chain David Jones. Directors who buy their company’s shares often get kudos for supporting the company and aligning their interests with shareholders, yet the two DJs directors who did that in late October — and their chairman who pre-approved the purchases — got catcalls and very loud, angry ones at that. So loud that all three chose to resign.

Initially, the controversy was that they had bought their shares only three days before DJs released its quarterly sales figures, with a seven per cent jump in its share price. A few weeks later, the DJs’ chairman “unreservedly” apologised for the episode at the company’s November annual general meeting, but that did little to appease market disquiet.

Two months later, media speculation prompted DJs to reveal that, also back in late October, rival chain Myer had lobbed a confidential merger proposal through the chairman’s door. The market discovered that the two directors had apparently bought those shares one day after the Myer merger proposal, as well as three days before the sales figures.

This revelation set the market alight. The Australian Securities and Investments Commission (ASIC) did little to hose it down when it stepped forward on YouTube to announce it had investigated the purchases, but was taking no enforcement action. ASIC gave no reasons and after commenting how hard insider trading cases were, said its decision was “not an exoneration or a tick of approval”. What was the market supposed to think that meant?

Later, when pressed on the propriety — as opposed to the legality — of the share purchases, ASIC said it was for the Australian Institute of Company Directors to determine best practice. This column does not speak for Company Directors but, really? Is ASIC serious that it has no role in helping to steer the market to good practices?

One of ASIC’s key roles is to help maintain confidence in market integrity, yet it seems, so far, to have left both the market and the director community to speculate on what the important lessons for boards might be from this unusual episode. Without all the relevant facts, this column will shy away from adding to the speculation. We could suppose all we like, but at the time of writing, the only people who actually know the relevant ins and outs are ASIC and DJs’ board.

Criticising ASIC’s opacity on DJs may be unfair, since the regulator may have entirely valid reasons for it, like due process, natural justice, confidentiality or even a fair dispute as to key facts. If ASIC feels it cannot talk, with this having become so notoriously public, it could possibly reconsider its messaging to the market. Perhaps by the time you read this, ASIC may have done so, or explained more to the Senate Committee reviewing its performance.

Next to Dr Stuart Fysh’s case. Type “Fysh” into the search engine on ASIC’s website and you’ll get 24 hits. Scroll down those headlines and you will learn that due to ASIC, Fysh is a convicted and jailed insider trader, whose $640,000 in ill-gotten gains were frozen.

Except he is not and they are not. Not since July last year when three of NSW’s most respected judges, including the Chief Justice, took less than five minutes to grant Fysh’s appeal and acquit him. By then, the 56-year-old father and former senior executive of a major international energy group had been in jail for seven and a half months.

To be fair to ASIC, it is hardly surprising it went after Fysh, based on the facts outlined in its releases. A senior executive buying shares in a target he knows his employer is considering making a strategic investment in is hardly proper conduct. But he has got to actually know, and ASIC lost the appeal because the prosecution failed to prove that Fysh — who was not on the company’s deal team — actually did know enough.

When ASIC was “winning” against Fysh, it was quick on the draw, pumping out release after release after release: Fysh being charged, his assets being frozen, him being convicted and jailed.

But after Fysh’s “win” against ASIC, the regulator has been silent, indecently silent.

ASIC’s sole response to the appeal decision was to bury an “editors’ note” at the foot of one of those many releases. Yes, it mentions Fysh’s appeal was successful, his conviction quashed and his acquittal. But ASIC issued no release and thus there is no headline to pop up on the website to tell you. Just multiple headlines shouting how Fysh is a criminal, even after an appeal court decided he is not.

If ASIC wishes to continue trumpeting its successes, does not fairness and due process demand that it give equal prominence to its failures, especially when they so gravely affect an individual’s liberty and livelihood?

In Fysh’s submission to the Senate Committee reviewing ASIC, he says: “ASIC’s failure to acknowledge the substance of the [appeal court’s] findings suggests ASIC does not own ‘innocent until proven guilty’ as a core value and is indifferent to its impact on those it pursues.” It is uncomfortably hard to disagree with him.

Twitter @john_m_green