Westpac has been fined a paltry $1.8 million for a trade that netted the bank over $20M in behaviour akin to insider trading. Federal Court Justice Michael Lee found their conduct “risible.” What’s the scam?
The scam was all in a day’s work back in September 2016 for the Westpac traders, who themselves netted $3.7M in bonuses.
On that day, the bank was preparing for the announcement of one of the largest privatisation deals in Australian history, the NSW Government sale of 50.4% of its electricity grid for $16B to a consortium of super funds. Integral to the deal was a $12B “interest rate swap” – basically a way for the financier Westpac to hedge (reduce) the risk of the transaction.
The problem was, those clever Westpac traders executed 867 trades before the deal was announced later in the day, netting the tidy profit to the detriment of the buyers. When ASIC took Westpac to the court in 2021, the bank accused Westpac and their merry band of brokers of insider trading, a crime punishable by massive fines for the company and up to ten years in jail for the individuals involved.
Three years later, ASIC has accrued $8M in lawyers fees, which Westpac was also ordered to pay. But by the time the lawyers on both sides had charged their way through the court proceedings, ASIC agreed to drop the criminal charges, and ASIC and Westpac settled for a fine for ‘unconscionable conduct’.
A fine that amounts to less than 10% of the profit made on those trades, or 0.025% of Westpac’s 7.195B last profit.
Had Westpac been found guilty of insider trading, the fines would have been the greater of $4.95M and three times the profit made, or $60M. Justice Lee was, however, limited by statutes in the size of the fine he could impose, and commented that:
It’s a risible amount compared to the nature of the conduct and the size of the organisation.
But fear not, Westpac has assured us all that they have “taken action to strengthen processes and policies in relation to pre-hedging activity,” and will appoint an “independent expert” to sort it all out. Lee has reserved his judgment on that score, suggesting that “I would like to be the person who’s selecting the individual with the benefit of the guidance of the parties.”