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In December 2009, John Gay, former Chairman of Gunns Ltd, now in liquidation, sold some 3.4 million Gunns shares at an average price of around $0.90. The “inside information” Mr Gay held at the time of sale was the October 2009 Management Report for Gunns, which indicated that the company was not trading profitably, as compared to budget or the prior corresponding period. No information had been released by the company to the market regarding the downturn in its trading results and, in February 2010, when the company released its report for the first half of the 2010 financial year, its shares suffered a dramatic decline in value.
Mr Gay was subsequently prosecuted by ASIC in the Supreme Court of Tasmania and ultimately pleaded guilty on the morning that his trial was scheduled to begin.
In sentencing, it was noted by Justice David Porter that the case involved “unusual circumstances". These circumstances included that Mr Gay had embarked upon a course of action to sell the shares in question well before he was in receipt of the inside information; and that his principal motivation to sell the shares was not the receipt of the inside information, but rather an attempt to get his financial affairs in order after being diagnosed with prostate cancer in 2008.
Despite the above factors, it should be noted that Mr Gay had sold a significant number of shares, was in possession of what was categorised as “high quality information” and was at the time the Chairman of a large ASX-listed corporation.
Mr Gay was convicted, fined $50,000 and was also disqualified from being involved in the management of a company for a period of 5 years.
Reaction to the gravity of the sentence has been mixed. The Australian Shareholders Association stated it was disappointed with the sentence and called it “insufficient”. It suggested that some form of custodial sentence, and a much larger fine, should have been imposed in the circumstances.