What to expect from an ASIC investigation

How well you respond to an ASIC investigation comes down to how well you prepared for an insider trading breach. That’s a job for the Company Secretary.

April 6, 2022

One experience most Company Secretaries would rather avoid is an ASIC investigation. Knowing what to expect if you get a notification from ASIC can help you react quickly to mitigate the damage. Understanding why ASIC would open an investigation in the first place can help you avoid the situation altogether. Read on for expert insight on what happens when ASIC suspects you of insider trading. 

An ASX trading halt can be an early warning sign 

Amanda Mark, co-founder and managing director of Mintegrity, is exceptionally qualified to give advice about ASIC investigations. She spent nearly five years at ASIC as a Senior Manager in the team responsible for, among other things, the surveillance of market operation and trading activity and market participant conduct. 

“Depending on the severity of the issue, there’s usually some type of, “Please explain,” notice,” Amanda says. 

“It’s actually a formal notice, not just a call. It’s usually more serious than a phone call.

“The worst case would be the ASX throws you into a trading halt, pending an investigation. That’s pretty serious.”

According to Amanda, ASX will throw you into a trading halt when they begin to see information circulating in the market, accompanied by changes in the price of your company shares. Unfortunately, it’s not an unusual occurrence. 

“It’s normally a price movement in the absence of an announcement from the company,” Amanda says about what triggers a trading halt. 

“The ASX will send the Company Secretary a price query and ask if there is anything you should be announcing? 

“Quite quickly they can come to a decision on whether to put the stock into a trading halt.”

Unusual trading movements attract attention from ASIC

The initial phase of a price query tends to be related to continuous disclosure requirements. Company Secretaries don’t necessarily monitor their own share price, but both the ASX and ASIC do. The Company Secretary is contacted and is expected to respond quickly to the request for more information. A trading halt from ASX gives you time to determine:

  • What’s caused a substantial material movement in your share price?
  • How you’re going to communicate to the market about the information or event that’s triggered the concern.

Any kind of information can cause fluctuations in your share price including downgrades, mergers, acquisition or even a substantial contract with a new customer. 

What triggers an ASIC investigation?

You may have done everything right, but if ASIC noticed unusual trading activity prior to an announcement you made, it may trigger a formal investigation. It doesn’t matter if the news is negative or positive about your company. It’s not a good situation because it’s usually a sign of insider trading, unintentional information leaks or tipping from inside your company.

ASIC’s compulsory information gathering powers

All of ASIC’s powers can be used to conduct a formal investigation into suspected breaches. ASIC can send a notice that requires a mandatory response from the Company Secretary, the corporate entity, or an individual, depending on the breach. 

Formal ASIC interviews

You may also receive a formal notice from ASIC for a section 19 interview. This is another mandatory requirement you must comply with as part of an ASIC investigation.   

AFP search warrants

In a worst-case scenario, the Australian Federal Police (AFP) issue a search warrant for your property. You won’t know that until there’s a knock on your door. This could be at your office or at home, depending on whether the target of the ASIC investigation is you as an individual or the corporation. 

“It could end up in formal charges for insider trading or market manipulation,” Amanda says. 

“Because the Board and Directors are often in a position where they have price-sensitive information, they can be investigated for insider trading and market information.”

Criminal charges for insider trading can be laid even if no shares were traded because of the information. 

Learn more: 3 Director Share Trades Gone Wrong case study

Responding to an ASIC investigation

Having a structured and rigorous framework around the handling of securities information –and who has access to it – is beneficial in an early-stage ASIC investigation. It’s crucial from a corporate perspective to show the Company Secretary and Board of Directors have taken reasonable steps to put appropriate arrangements in place to handle that type of risk. 

“Company secretaries can’t prevent insider trading from happening, but they can mitigate the risk,” Amanda says. 

“If you are part of an ASIC investigation, you can show that you’ve got all the policies and procedures in place.

“You’ve been diligent about training your staff and you’re looking at those risks and managing them appropriately. 

“You can’t stop a rogue individual, but you can create an environment that makes it harder to do the wrong thing.”

Dig deeper: Find out how to educate your employees about insider trading

How to get started mitigating your insider trading risk

Visit the Drawbridge website to view a demo and find an easy way to eliminate corporate governance risks by digitising your company’s securities trading policy.