Towards Better Deterrence of Securities Fraud: Promoting Consistency in Sentencing Insider Traders

With relatively few successful prosecutions and convictions for insider trading in Australia, the effectiveness and appropriateness of insider trading laws continue to be questioned. Insider trading is widely recognised as a factor which reduces investor confidence and undermines the integrity of securities markets. Consistent sentences for convicted insider traders could assist in deterring other potential offenders, and help to protect against this type of securities fraud. However, there are demonstrable inconsistencies in the sentences imposed - sentences vary from small fines, to three years imprisonment, with many variations in between. Some convicted insider traders are sentenced to full-time imprisonment, whilst others receive periodic detention or suspended sentences. Little explanation is available for such variation and inconsistency. This paper reviews all sentences imposed on convicted insider traders in Australia, and considers the wide range of penalties imposed. The factors considered most relevant to sentencing convicted insider traders are identified and analysed. Action is recommended to ensure greater consistency of sentences in the future, and thus assist in providing a greater deterrent and protective effect against insider trading.